Is Your Contest or Sweepstakes Legal? Important things to consider.
Contests and sweepstakes are popular and effective ways for brands to engage with consumers. However, doing so presents numerous regulatory, intellectual property, privacy and other potential liability issues.
In today’s competitive marketplace, brands are seeking innovative and edgy promotions that often include submission of user-generated content, tweets, Facebook applications, blogging, viral marketing and other social networking elements. However, advertising, digital and promotional agencies who are tasked with developing and executing these edgy promotions are often unaware of the complex legal overlay of the digital world and the potential significant financial repercussions for their company’s failure to comply.
“Sweepstakes” or “Skill Contest ” What’s the difference?
Sweepstakes is an American term for a contest where prizes are awarded in a random draw. Skill contests are competitions. The winners are chosen exclusively on the basis of their skill and creativity within the designated activity such as story writing, photography, recipe creation, drawing etc. In a skill contest using a range of skills, it may be appropriate by separating the entries into different age categories.
Skill Testing Question
It must be noted that if there is a mix of chance and skill to determine the winner(s), you may be running an illegal lottery. In Canada, all contests must have an element of skill. This requirement is inherently met by skill contests. However, in Canada a contest in which winners are selected by a random draw, the selected entrant(s) must correctly answer a mathematical skill testing question with two to three digit numbers made up of a four-part equation that includes the four elements of mathematics (x, A mathematical skill testing question is not a requirement for a Contest or Sweepstakes open to residents of the United States.
The following legal documentation should be in place prior to launch of a promotion:
Official Rules: Each promotion must include a set of official rules that identify the material terms and conditions that govern the promotion, and various laws provide that they meet certain requirements.
Advertisements: Each promotion is advertised in some manner (print, Internet, radio, television, etc.). All ad copy and other creative elements (e.g., web pages, registration/entry forms, banner ads, direct mail pieces and game cards) must include certain abbreviated rules disclosures. These vary from state to state. The exact language and size of the abbreviated rules must be specifically tailored for the nature of the advertisement and the medium.
Winner Releases: Contest winners (and their travelling companions of trip winner) should be required to sign a standard declaration release confirming that they have read and comply with the contest rules, they agree to the use of their name, photograph and comments in any contest-related publicity and release the sponsors and prize suppliers from any liability associated with the contest or their prize. This document should be signed before the prize is awarded but such releases are not required for any prize under $50.00
A quick rules primer.
At minimum, all rules must contain the following:
- How to enter and any limitations on the type or number of entries.
- How to enter limitations for regions or states excluded from participating
- How to enter without purchase
- Any regional allocation of prizes
- The number, description and approximate retail value of all prizes
- Odds of winning
- A statement that in order to winner a mathematical skill-testing question must be correctly answered in order to be declared a winner
- Contest start date
- Contest close date
- Draw date including location and time
- People under the age of majority may participate in a contest and become eligible to win prizes, however, they cannot sign a legally binding contract. Therefore, whenever a prize is won by a minor, or a minor is the travelling companion of a winner the applicable liability/publicity release should be signed by a parent or legal guardian.
Specifics for Skill Contests
For skill contests, make sure of the following:
- Skill Must Determine the Winner: Make sure that actual “bona fide skill” determines the winner rather than chance (otherwise the promotion may be a sweepstakes)
- Judging Criteria: Disclose the objective judging criteria that will be used to determine the winner(s) and the weight that will be given to each in the official rules. If no percentages are given, make sure each is weighted equally.
- Judges: The judges must be qualified and have the expertise to judge the entries using the stated criteria.
- Determining Winners: The judges should fill out score cards when judging.
- Breaking a Tie: Plan for how you will break a tie among entrants. The tie-breaking mechanism will need to be disclosed in the official rules. Make sure that the tie is not broken by a random drawing or other chance mechanism or you will turn a contest into a sweepstakes.
Specifics for Contest open to residents of the United States
Open in Rhode Island: If the total approximate retail value of all prizes awarded is over $500 and the sweepstakes
Open in Rhode Island: If the total approximate retail value of all prizes awarded is over $500 and the sweepstakes is offered through a retail establishment (online or otherwise) and open to residents of Rhode Island, the sweepstakes will need to be registered in Rhode Island or residents of Rhode Island disqualified.Open in New York or Florida: If the total approximate retail value of all prizes is over $5,000 and open to residents of either Florida or New York, the sweepstakes will need to be registered and bonded in New York and Florida or residents of those states disqualified. Also, plan your budget accordingly—registration and bonding in New York and Florida carry additional costs, which are mostly dependent on the total value of all prizes in the sweepstakes at issue.
Open in New York or Florida: If the total approximate retail value of all prizes is over $5,000 and open to residents of either Florida or New York, the sweepstakes will need to be registered and bonded in New York and Florida or residents of those states disqualified. Also, plan your budget accordingly—registration and bonding in New York and Florida carry additional costs, which are mostly dependent on the total value of all prizes in the sweepstakes at issue.
Special Issues Where Additional Legal Compliance Steps Are Needed
The following issues raise special legal concerns and additional compliance steps must be taken to ensure the promotion is conducted legally:
Direct Mail Promotions: Where advertising for the promotion or entry materials are sent by regular postal mail.
Special Entry Requirements: Where a survey, questionnaire or repeat visits to a website or location are required to enter the promotion.
User-Generated Content Promotions: Where participants are invited to create and submit videos songs, or other works, and the sponsor or another entity associated with the promotion will use entries in any way other than besides to determine the winner.
Promotions Soliciting Posts to a Third Party Website: Where participants are asked to post content on a third party’s website (e.g., Facebook, Twitter, YouTube, etc.).
Public Voting: Where the general public is involved in any way by ranking, voting, or is otherwise involved in determining the winner.
Mobile Promotions: Where any part of the promotion occurs via text message.
Children/Minors: Where the promotion is aimed at young audiences or where those under the age of majority in their state of residence can participate in any way.
Send-to-a-Friend: Where consumers can or are encouraged in any manner to forward promotion materials to others.
Charitable Aspects: Where any charity is involved, if the promotion solicits a purchase or other consideration and the prize or any part of the prize can be or is donated or used for a charitable purpose.
Promotions in Specific Industries: Where the promotion concerns highly regulated industries, such as dairy, alcohol, tobacco, gas, financial or insurance industries.
We have been working with Agencies, Television Networks, Promotions Agencies and Digital Agencies for over twenty-five years and we provide the in-depth counsel to help bring your next promotion to life and make sure it is compliant with all of the applicable laws. Before you plan your next promotion, call us for a free consultation.
