4 min read
Running a digital promotion is key to getting your customers involved with your brand and loyalty program while also giving them the chance to earn...
Marketing promotions such as sweepstakes, contests, and instant-win games can be powerful tools for attracting new leads, boosting sales and engagement, and much more – if executed correctly. However these promotions also require careful navigation of legal intricacies to ensure adherence and mitigate risk.
Mishandling these promotions or accidentally infringing upon established laws can lead to severe legal repercussions for your business. As regulations evolve and new digital formats emerge, it’s more important than ever for marketers to stay on top of the legal guidelines for digital promotions to avoid any missteps.
This blog delves into the key legal aspects of popular promotions like sweepstakes and contests, shedding light on important terms and variations in regulations at both federal and state levels to help marketers safeguard their brand's reputation and their future promotional campaigns.
Generally, the Federal Trade Commission (FTC) is the primary federal agency responsible for regulating sales promotions and advertising under the Federal Trade Commission Act, 15 U.S.C. § 41. This means they're basically in charge of investigating suspected violations and bringing lawsuits against companies for illegal activity. However the The US Postal Service (USPS) and the Federal Communications Commission (FCC) also have authority for certain laws regarding promotions.
In addition, most states have similar laws that closely resemble the FTC Act, and gambling, lottery, and promotion laws which govern the conduct of contests and sweepstakes.
The best place to start building your promotional law knowledge base foundation is with the basics, and your first step is knowing what separates promotions like sweepstakes, contests, etc. from lotteries. This is important because as of right now lotteries are illegal for anyone to run unless you are the state or federal government.
A “lottery” contains three essential elements: Chance + Consideration + Prize
Chance - Chance is also sometimes called ‘random chance’, meaning that winners are selected completely at random. Every entrant has the same chance of being a winner as other entrants, and there’s no special features or advantages that makes them more likely to be a winner over others.
Consideration - Consideration is defined as anything that requires a participant to expend either A) a monetary amount or B) significant amount of effort or skill, in order to enter/participate in the promotion. Here are some examples for both situations:
A) Purchase required for entry
B) Entry method requires a great amount of time/effort
**NOTE - there are situations where having a purchase method of entry as one of your possible entry methods is okay. We’ll discuss these promotions more in depth below
Prize - the simplest to understand of the three elements, the prize is the reward offered for participating in the promotion. Prizes can be any number or format such as physical or digital items, gift cards, cash prizes, event tickets, vacation or travel, brand merchandise or products, etc.
These three elements together - Chance + Consideration + Prize - are what make a lottery. A digital promotion like a sweepstakes or contest requires removing one of the three elements and being left with the other two.
For example, a Sweepstakes would be just Chance + Prize…no Consideration since the winner is randomly drawn.
A Photo Contest on the other hand would be Consideration + Prize…no Chance, since the winner is being judged & selected, not randomly drawn. (We’ll discuss the differences between promotion types more in detail next.)
The important thing to remember is that your promotion should never have all 3 elements of Chance, Consideration, and Prize because then it's considered a lottery. You cannot decide to run a sweepstakes with a purchase requirement and then select the winner because they bought a specific item or because they’re a fan of a specific national sports team.
Along with knowing the three elements above, you should also know how the different promotion types are classified or defined. Most of the time people might use the terms “sweepstakes”, “contest” or even “lottery” interchangeably or as umbrella terms when talking about digital promotions. In reality each of these and other promotion types can differ both in format and execution, and thus can have different legal guidelines. Here are some key facts and definitions of most commonly executed promotions to help highlight their differences:
A sweepstakes is a game of chance in which prizes are offered to participants in a random drawing. There is no skill involved and the odds of winning depend on the total number of entries received. While there can be more than one type of entry method in a sweepstakes, each entry is weighed the same. So if an entrant completed an online entry form, submitted a proof of purchase, and created a social post, they would have 3 entries - but no one entry would make them more likely to win than the other.
A contest is a promotion in which winners are determined on the basis of skill by a panel of judges and based on specific criteria as set forth in the Official Rules. To truly be a contest, task must actually require some amount of skill to complete (i.e. can’t be guessing the number of jellybeans in a jar).
Instant wins are usually grouped under the same classification with collect & wins, scratch-offs, etc. and are very similar to sweepstakes (Chance +Prize) but with one key difference - while typical sweepstakes have an unlimited number of potential entries, games typically have a set number of prizes or game pieces distributed. This essentially means the odds of winning can be determined based on the number of pieces or prizes available and the number of people playing.
True giveaways are not sweepstakes or even instant wins, as there isn’t any element of chance involved. Typically giveaways follow a format such as "the first 500 people to register get a prize” and so on. Because there is consideration, but no chance, giveaways are not considered sweepstakes.
So now you know about the three elements of Chance, Consideration, and Prize, and you also understand how these elements work together within the main types of digital promotions - which is important to avoid accidentally turning your sweepstakes or contest into a lottery.
But what if you do want to run a sweepstakes with a purchase requirement to enter? Earlier we mentioned that it was possible to include a Consideration element like a purchase requirement in your Chance + Prize promotions as long as it followed certain legal guidelines.
This is where the Alternate Method of Entry (AMOE) comes into play.
Remember, to not conflict with state or federal lottery laws, the element of monetary ‘Consideration’ is typically removed as a condition of entry in a sweepstakes promotion by allowing users to enter to win without making a purchase.
Generally speaking, this means there must be no cost to a participant to enter your sweepstakes. This is why you usually see the rule NO PURCHASE NECESSARY in a promotion's Official Rules, Terms and Conditions, or marketing materials.
That being said, you can still make a purchase requirement one of your entry methods for your promotion, as long as you also offer what’s called an Alternate Method of Entry or AMOE - a free, no-cost way for participants to enter.
So if you want your sweepstakes promotion to accept proof-of-purchase entries (like submitting a unique code on product packaging), then you must also offer an AMOE.
It's important to note that the AMOE must be clearly disclosed to all viewers alongside the other entry methods, including marketing materials and T&C’s.
A few more things to keep in mind about AMOEs:
If you intend to run a national promotion across the United States and your promotion meets certain criteria or thresholds, you will need to do something called Registering & Bonding your promotion with the certain state authorities: specifically New York, Florida, and in some cases Rhode Island and Arizona.
Registering & Bonding is how you basically tell the states the details of your promotion (entry methods, timelines, prizes, number of winners, etc.) so they can ensure it’s legally compliant with their laws, before the promotion goes live.
New York and Florida state law require any company that is offering a game of chance with a prize pool in excess of $5,000 USD to register and bond the promotion with the appropriate state regulatory authority.
Rhode Island requires any sweepstakes offered at a retail location with a prize pool valued at over $500 to be registered. Arizona requires that any contests that involve the purchase of a product for entry must be registered with the state’s Attorney General.
The laws are intended to protect consumers in those states from marketers who may offer prizes as an enticement to consumers, but default in their obligation to award such prizes to rightful winners.
Florida: Filings must occur at least 7 days prior to promotion start date
New York: Filings must occur at least 30 days prior to the promotion start date
As a part of registering & bonding a promotion, these states also require brands to submit what’s called a winner’s list after the promotion ends. A winner’s list is basically what it sounds like: a complete list of the winners that you drew and confirmed after your promotion ended.
The deadline to submit the winner's list to the above states is 30 days after the promotion ends. However it’s good to note that you can request extensions if it looks like it will take longer than 30 days after your end date to confirm all the winners
Registering and bonding is an important and vital step in launching your promotion. Working alongside a promotional partner and administrator who is experienced and knowledgeable of the different legal requirements for administering promotions can ensure the process goes smoothly and with zero hitches, so you can be free to focus on other aspects of your promotion.
There's no doubt that marketing promotions like sweepstakes, contests, and instant-win games can be incredibly effective in achieving business goals. From lead generation to boosting sales and engagement, these promotions are versatile tools that offer a multitude of benefits for businesses of all sizes.
However, with great power comes great responsibility – and running responsible and ethical digital promotions involves adhering to a complex set of legal guidelines and regulations. Failure to do so can result in severe consequences such as lawsuits, hefty fines, or even reputational damage. Staying on top of the ever-evolving legal landscape is essential, and with more businesses than ever utilizing these tactics to reach their target audience online, it's crucial to ensure that your promotions are legally compliant.
But don't worry – there are plenty of resources available to help you navigate this complex terrain. Partnering with the right experienced promotional experts who have over 20 years of global experience in building and executing sweepstakes, contests, and more will ensure your next promotional campaigns are legally compliant and wildly successful. Reach out to use today to get started!
3 min read
Digital promotions such as sweepstakes, instant wins, contests, and more have become a crucial marketing tool for businesses of all sizes. Thanks to...