What is the difference between a contest and a sweepstakes?
A contest is a game of skill where people enter by submitting a photo, video, essay, movie, recipe, etc. Every submitted entry will be judged and scored according to published criteria and the person with the highest score becomes the winner. A sweepstakes is a game of chance whereby the winner is selected via a random drawing from among all eligible entries.
What is registration and bonding?
If a state requires registration, that means paperwork with the state must be filed and a fee must be paid to the state. If a state requires bonding, that means a percentage of the total approximate retail value of all prizes must be paid to the states as a good faith measure the sponsor will award all advertised prizes. If a sponsor fails to award the prizes, the applicable states will use the bond money to begin legal proceedings and/or award prizes. For example, Florida and New York require registration and bonding if the total value of all prizes being given away is over $5,000 and Rhode Island requires registration if the total value of all prizes is over $500 and the sponsor is a retailer.
What is consideration?
Consideration can be time, money, or effort someone must exert to enter a sweepstakes. If the components of a sweepstakes include a prize, the element of chance, and consideration, then the sweepstakes will be deemed an ILLEGAL LOTTERY and could be subject to legal penalties and fines.
Is ESG a law firm?
No, ESG is not a law firm and does not issue legal advice. What ESG does is provide recommendations based on 20+ years of experience and our expert understanding of the practical application of state and federal promotion guidelines and industry best practices. ESG’s outside counsel is available if a client requires a legal letter of opinion and/or if ESG feels the promotion structure requires formal legal review.
FREQUENTLY ASKED QUESTIONS
Why do I need an alternate method of entry?
If consideration is determined to be a part of the promotion structure, ESG will work with you to create an alternate method of entry (AMOE) which is also called a free method of entry. Ensuring everyone has the same chance of winning is a key component to keeping a sweepstakes legal.
Why is an opt-in important?
When people enter a sweepstakes, the contact information they provide is only allowed to be used to notify them in connection with the sweepstakes (i.e. are they a winner?). However, if a sponsor wants to be able to remarket to entrants, then the entrant(s) must opt-in to receive such messages. This gives a sponsor explicit, rather than implied, permission to reach back out to entrants and abide by FTC best practices.
Why is "no purchase necessary" important?
The reason a sweepstakes must be entered without a purchase is to avoid running an illegal lottery. Only some state governments and select non-profit organizations are permitted to run a legal "lottery" promotion whereby an individual’s chance of winning can be increased via the repeated purchase of additional entries (i.e. raffle tickets).
Can minors enter a promotion?
Yes, however if a promotion is open to minors under the age of thirteen, verifiable parental consent must be obtained before the minor can enter. Essentially this means a parent must provide permission for their child to participate and this can be done in a couple of different ways. The reason verifiable parental consent is required is to abide by the Federal Trade Commission’s Child Online Privacy Protection Act (COPPA), which if violated can result in hefty fines. Promotions that are open to minors over the age of thirteen are also subject to special considerations.
Do I need rules if the prize is low in value and the entry process is simple?
If there is a prize and a random drawing, then rules are needed regardless of the value of the prize or simplicity of entering. Rules are a way for a sponsor to be completely transparent about the promotion and set up expectations for the entrants (i.e. entry limits, notification process, prize, prize value, publicity rights, etc.). Rules also serve to protect the sponsor from potential liability in case a consumer wants to take issue with a promotion (i.e. there is language about entrants releasing all rights to claim any action against the sponsor in the rules).
What is post consideration?
Post Consideration can be present when a person has to exert time, money, or effort to receive the prize. For example, a 20% off coupon would be defined as “Post Consideration” as would a travel prize that did not include airfare. A promotion with a prize that contains an element of post consideration could be subject to legal penalties and fines.
Can I extend a sweepstakes if it's doing well?
No, a promotion cannot be extended if it is doing well or for any other reason. Extending a promotion would affect the odds of winning and can have ramifications from the states if the promotion was registered/bonded. However, a promotion can be repeated.