keeping you and your family safe
Social media contests and sweepstakes are complicated legal matters that should not be entered into on a whim. In 2009 alone, the FTC received more than 40,000 complaints about them. Businesses violating the rules face lawsuits, fines, and bans from running future promotions. Businesses need to know the differences between contests that are won by skill, sweepstakes that are won by luck, and lotteries that require a paid entry. Only governments can run lotteries. To be legal, typically at least one of the three components of prize, chance, or consideration must be eliminated. If chance is removed, it is a contest. If consideration is removed, it is a sweepstakes.
Prize is anything of tangible value offered as an inducement to participate in a contest or sweepstakes. It can be cash, a prize, a trip, or an opportunity to obtain a loan on favorable terms.
Chance involves the absence of skill. As defined in United States v. Rich, ". . . the word has reference to the attempt to attain certain ends, not by skill or any known or fixed rules, but by the happening of a subsequent event, incapable of ascertainment or accomplishment by means of human foresight or ingenuity. . . . . . The most common illustration of . . . chance . . . is the drawing of a number from a container holding many numbers, by a blindfolded person." An alternative to chance is to select a winner based on skill. Rules must establish how the winner is selected and who the judges are. Do not allow the public to vote. This invites voting abuse. Third party impartial and professional judges are best.
Consideration is not necessarily the payment of money. Any cost to participate as well as any substantial effort more than registering and playing may qualify as consideration. Completing lengthy surveys, disclosing proprietary or confidential information beyond name and address, making multiple trips to a store, referring a friend to the sponsor, or generally devoting a substantial amount of time to participate in a sweepstakes are all sufficient consideration. Merely paying for the postage to send in a card in order to compete is not sufficient consideration. Whether a text message charge constitutes sufficient consideration to transform the contest into an illegal lottery is a question that has been litigated but has not produced a consensus among the courts. Requiring after-the-fact or "post consideration" that requires a participant who won a sweepstakes or contest to give consideration in order to claim a prize is illegal in some states.
The right to participate cannot be linked to purchasing merchandise. There must be a free alternative method of entry with the same chance of winning. The alternate method of entry must be clearly and conspicuously disclosed in advertising and promotional materials. Promoters must make sure that would-be participants understand the law. "No Purchase Necessary" and an explanation of the "Alternate Means of Entry" must be prominently disclosed.
The rules governing contests and promotions need to be carefully drafted in conformity with applicable federal and state law. It is important to remember that if you fail to follow the rules and you end up running an illegal lottery, you can get in big trouble. You must eliminate one of the three elements of prize, chance, or consideration. This is not always clear cut. There remains a great deal of disagreement over whether fantasy sports leagues are games of skill or chance.
For information on rules and regulations, see our social media sweepstakes and contest laws page.
All information on this website is for informational purposes only and is not legal advice. Ninomiya Law, PLLC and Kent Ninomiya only provide legal advice to clients when there is a valid engagement agreement signed by both attorney and clients. The principal office of Ninomiya Law, PLLC is located in Round Rock, Texas. Ninomiya Law, PLLC is responsible for the content of this website.