Q. I want to run a sweepstakes, why are there so many restrictions?
A. Sweepstakes and contests offer companies a relatively inexpensive, but effective, way to market their products and services. However, state laws have been passed to, among other things, prevent companies from operating an illegal lottery (entry into a random drawing for consideration) and to prevent false advertising. As such, each state has statutes addressing sweepstakes/contests and advertising requirements.
Q. What is the difference between a sweepstakes and a contest?
A. A sweepstakes, like a lottery, is a random drawing. The key difference, however, in operating a sweepstakes (and avoiding the operation of an illegal lottery) is consideration. To properly run a sweepstakes, a company must eliminate consideration from any entry requirement. As such, a company must provide a free form of entry – at least as an alternative. A contest is essentially a skill-based game or competition. The ability to win a contest is not by random drawing, like in a sweepstakes, but is rather based on skill-based judging criteria set forth in advance.
Q. Do I have to include all the fine print?
A. An essential part of operating any sweepstakes or contest is to have a proper set of official rules. These rules are designed to address the many state by state regulations of sweepstakes and contests (and advertising issues). They also clearly set forth key information – such as, among other things, the fact that no purchase is necessary to enter or win, the method of entry (and collection of personal information), the eligibility requirements, the period of time that the promotion is offered, the manner in which winners are selected, and information about prizes and their value. Of course, the official rules also address some of the key legal issues – like obtaining rights to use the winner’s name once they win, limitations of liability, and dispute resolution. Certain states have registration and bonding requirements so it is also important to address whether residents of those states should be eligible (and if so, whether the company is complying with those requirements). Also, if a promotion is intended to be international, countries regulate sweepstakes and contests differently, which will of course affect what is stated in the official rules.
Greg Akselrud is a founder and partner of the Firm. He chair’s the Firm’s Internet, New Media and Entertainment practice group. Greg advises a wide range of public and private clients across a number of industries, including companies in the entertainment, Internet, technology, and apparel industries. Greg’s practice involves providing advice in connection with general corporate matters (including company formation, stock incentive plans, executive employment agreements, and various commercial and business contracts), venture capital and angel financings, mergers and acquisitions (including public reverse mergers), private equity and debt securities offerings, public offerings, federal and state securities law reporting requirements, intellectual property strategic counseling, Internet and e-commerce matters, and entertainment, content and digital media transactional matters.
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