Contests & Sweepstakes 101: What’s in it for You and Your Business

Contest and Sweepstake promotions have grown in popularity over the past 10 years; However, many are being run with very little consideration to the legal requirements that come with severe penalties.

Contest/Sweepstake laws in the US and Canada, although similar in approach are different and need to be carefully considered when developing rules across countries, states and provinces. Too often I see contest/sweepstake promotions run where there is very little thought put into the “Why” a company wants to run the promotion. ICYMI I’ve already taken the time to provide you with some great reason. Here they are for later.

This is a tale of “Short Term Gain With Consequences for Long Term Pain”; You really want to make sure that you take your time on the front end while setting everything up and do your due diligence to make sure you don’t have to go back scrambling to fix your mistakes.

*IMPORTANT: Given the complex legislative framework, this article is not meant to offer legal advice. If you intend to run a promotion in Canada or the USA, it is important that you obtain legal advice on your promotion and the promotion rules.*

Contest, Sweepstakes and Lotteries – Explained!

Promotion:
a holistic term used to describe various types of marketing programs (i.e.: Contests; Sweepstakes; Premiums; Incentives; Rebates; Instant Win; Reward and Loyalty Programs);

Sweepstakes:
Game of chance, in which winners are selected by random draw;

Contest:
Skills competition in which individuals compete to win and are selected via online voting and/or a committee of judges using a set of criteria based on their performance;

Lottery:
Prize drawing whereby individuals must pay to play; defined by the inclusion of the following three elements: (i) a prize; (ii) random draw; and (iii) payment to participate was paid in the form of either money or other consideration (i.e.: answer a survey).

Something that’s worth noting, unless they’re Government sponsored, Lotteries are illegal in Canada and the USA. Furthermore, although Contests and Sweepstakes are quite different by definition, in Canada, they tend to use the term “contests” to refer to both types of promotions while Americans like to use the term “sweepstakes”.

Legal Considerations when writing Contest/ Sweepstakes Rules

Let’s explore some key regulatory requirements in helping you better understand the ground rules in developing Contests and Sweepstakes in Canada.

Federal Requirements

1. The Criminal Code: In order to avoid being categorized as a Lottery; one of three elements (as identified above) prize, chance or consideration has to be removed, which unless you no longer need a prize, really means there are only two choices available!
   Let’s look at each:
   • Skill: In order to remove the element of “Chance” we introduce the element of Skill, whereby winner selection is based on either:
     • Pure Skill: Entrants are required to submit a photo, essay, recipe, or other creative entry and winners are selected via means of judging or voting; or
     • Skill and Chance: A random draw that requires winners to correctly answer a skill testing question is the most commonly used form of Contest/Sweepstakes. Just be careful to ensure your skill testing question follows BETMA and is neither easy or too difficult or you could be opening a potential new problem;
   • No Purchase Necessary: In order to remove the element of “Consideration” (money, purchase or tasks), contests/sweepstakes must have a No Purchase component. As an example, if your promotion requires a purchase to enter, there should be a No Purchase mechanism that allows for equal opportunity to participate in the promotion without having to make the purchase (i.e.: Mail In Entry);
2. The Competitions Act: Most contests/sweepstakes I see go awry, fall short of the requirements outlined under the Competitions Act (Section 74.06), which requires fair and adequate disclosure of the:
   • Number and approximate value of “all” prizes included within the promotion;
   • Area(s) to which the Prize(s) relate(s) (i.e.: are there regional allocation of the prizes?);
   • Odds of winning; and
   • Timeline and process for awarding prizes
     • Distribution of the prizes cannot be unduly delayed; and
     • Participants must be selected, or prizes must be distributed on the basis of skill or on a random basis (although most of is already covered under the Criminal Code; it does purposely prohibit selecting friends or family members as winners).
   • Failure to comply with the provisions of the Competition Act (regarding promotional contests) can lead to severe fines: (i) up to $750,000 for individuals (and $1,000,000 for each subsequent court order); and (ii) $10,000,000 for corporations (and $15,000,000 for each subsequent court order). Writing Good Rules (both long and Short) that are clear and concise will not only making it easier for your intended audience to enter your promotion (remember – this is either a realized or potential customer that you are talking with); and equally important, meets both Federal and Provincial legislative requirements.
3. Canada Anti-Spam Legislation/Privacy Law: Or “CASL”, as it is often referred to today, requires express or implied consent to send “commercial electronic messages”; as well imposes specific requirements around: (i) disclosure; and (ii) opt-out (i.e., unsubscribe) requirements. Although relatively new in Canada, CASL comes with serious penalties: (i) up to $1 million for individuals; and (ii) $10 million for corporations;
4. Social Media Rules:  If that wasn’t enough, remember that social media platforms (Facebook; Instagram; Twitter; Pinterest; LinkedIn; etc.) each has its’ own set of rules that need to be integrated into your program rules.

Provincial Requirements

1. Quebec: Any contest that is to run within the Province of Quebec; whether executed from within Canada; USA; or Globally; with a prize value over $100 must follow the laws of Quebec, as outlined under the Régie des alcools, des courses et des jeux (hereinafter, the “Régie”), which includes the  requirement that promotions are (i) registered; (ii) a filing fee paid; and (iii) pending the overall value of the prizes to be awarded, a security agreement is furnished;
2. Contract Law:  Whether you are looking to embark on a Contest, Sweepstakes or an Incentive program; every promotion is a contract between you (the “Sponsor”) and your participants. Ensuring your Rules are written correctly will go along in mitigating serious problems later.
3. Consumer Protection Legislation: Protects against misleading advertising;

Summing It All Up

Running a successful promotion isn’t always straightforward and that’s why we’re here to help close the gap for you. Just remember, it’s all about, understanding your audience, taking the time to think things through, and thirdly, putting the care into ensuring each program builds on the confidence and trust of the intended audience. For everything else, let’s talk—we’d be happy to help!

Sources: Advertising and Marketing Law in Canada (Fourth Edition), Brenda Pritchard & Susan Vogt; published by LexisNexis
http://www.canadianadvertisinglaw.com/contests-casl/
https://www.cwilson.com/be-a-winner-complying-with-canadian-contest-laws/