How do I run a LEGAL giveaway?

 

Sweepstakes. Giveaways. Contests. Promotional campaigns. Whatever you you want to call them, it ends up with you luring in some new users with the carrot of a  giant Target gift card. They can be a great tool to engage users, collect data, and attract new followers — but what is the low-down on doing them legally? What kind of language do I need to have in the post? On my site? What do I need to watch out for in launching my promotional campaign?

 

Like everything else in law — it depends. But your overarching goal should be truthful advertising. Certain state specific laws may apply — so please treat the information here as a general overview of promotions from a birdseye federal level. Generally, the type of promotional campaign determines your rights and responsibilities — so you first need to figure out which kind of hootenanny you are holding.

 

Sweepstakes

A sweepstakes is a giveaway event where everyone has the SAME chance to win, randomly, or by doing some “free” action to enter — by either liking, sharing, or commenting on the relevant social media post. Sorry to bring up probability and some high school math nightmares — but if your promotion somehow gives some entries more “power” than others — that’s illegal in almost every state. Sometimes you’ll see these described as “no purchase necessary.” CAUTION: If an entrant has to give up “something of value” or consideration to enter, even if its free, it could be classified as consideration if the task took enough time or effort. For example, some states have stated that having to provide contact information can be considered “consideration” — which can turn your sweepstakes into an accidental illegal lottery!

 

Contest

A contest is an official competition where entries are judged against each other and the winner is chosen based on their talent or skill, not randomly.  Sometimes you’ll see contests where users submit photos, videos, funny captions, etc. to be considered for a prize.

 

Lottery

A lottery is a game of chance where the participants have to give something of value, (like cold hard cash) for a chance at winning the prize. You’ve typically seen these in a state lottery where you buy a ticket and hope to win it big. As you would expect, lotteries have more regulations and private lotteries are illegal under state law. Federal law also prohibits U.S. citizens from participating in foreign lotteries — so don’t think you’re doing yourself any favors by trying to win the Moldovian powerball. Do NOT try to run a private lottery. States want those education dollars to themselves. Case closed. (Some states do allow certain types of nonprofits to conduct “raffles” that are effectively lotteries, so don’t lock up the church lady yet.)

 

Best Practices

The “Official Rules”  of your promotion should include:

• “Void where prohibited”

• “No Purchase Necessary”

• “Purchase does not enhance chance of winning”

• Give details about any non-money consideration

• The identity of the host or sponsor

• Entry procedures and beginning/ending dates, including the exact time and time zone

• Eligibility requirements (like entrants must be over age 18)

• An explanation of all methods of entry (IG, FB, Pinterest, email)

• A clear description of the prize(s); certain states have stricter regulations (see below)

• Date winner(s) will be chosen and notified

• Judging criteria should be clear. The host or sponsor should be able to show how the winner was determined based on objective criteria (quality of image, creativity, ability to crop out unsightly electronic cords, etc.)

• Method of selecting a winner (to CYA, you should use a third-party app or site to determine a winner by random, like random.org)

• Exclusion of any employees or relatives of employees (not as much of a legal issue, but it could fend off any illusion of unfairness) Anyone with a personal or business relationship with the host should be prohibited from participating.

• Publicity rights regarding use of the winner’s information (**You should obtain written consent from the entrant to ensure compliance with state laws)

• Publicity rights regarding use of entrant’s information

• Liability limitations

• Odds of winning

• Physical address, not a PO Box

• Maintain records about the contest for at least 2 years in the case of an audit or lawsuit

• Make sure the host/sponsor covers the cost of sales tax or shipping the prize to the winner. This is a bit of a gray area with a gift card — but why err on the cheap side and make your new “winner” customer mad by charging for shipping? (isn’t paying for shipping the worst already?) And as a bonus, you may help protect yourself from any consumer protection state laws that make a promotion a scam if you require entrants to pay to redeem their prize. (because that IS a scam)

• Make sure to have your ducks in a row BEFORE the promotion begins. Changing the terms of the promotion might be contrary to some state laws. And it looks shady as well.

• All of your entry methods should have the same value – e.g. (i.e., comment = 1 entry; Tweet = 1 entry; FaceBook like = 1 entry)

• Consider a free means of entry for those who have an private/protected account

 

Who will you permit to enter?

Canadians are right out. Sorry! But, Canada only permits contests. And only those about French-speaking moose playing hockey. (just kidding, I love Canada, they have pampelmousse flavor… which is just a thrill to say!). Actually, it is pretty complex to open up a promotion internationally because of laws governing trade with some countries (like those on the REAL naughty/embargo list). Plus, some countries restrict sweepstakes or have specific requirements on language translations of rules. This information just covers operating promotions under American law.

Be careful about any event that is open to minors, especially if it involves alcohol or travel prizes. Most promotions restrict entry to those 18 and over to avoid any issues, because minors cannot consent to a traditional contract and all of its terms. Some states may also have specific restrictions on promotions, so do some research on the state where you run your business. (check the list at the end of this article)

Where will you host it?

Keep in mind that you will need to comply with any additional guidelines depending on which platform you are running your promotion. If you are launching it on Facebook, you need to follow Facebook’s guidelines as well — that goes for Instagram, Twitter, Pinterest, etc. Be aware that third party applications typically aren’t responsible for making sure YOU comply with the relevant laws so their methods of setting up promotions or collecting data may or may be legal in your jurisdiction. With these events, it is YOUR monkeys and YOUR circus. 

How much is the prize?

Some states might restrict the value of your prize — or have more rules and regulations once the prize reaches a certain level. Generally, anything under $500 is going to be safe from these types of extra rules. Also make sure that you don’t infringe on a trademarked brand or logo without consent of the company (so, do not use an official logo or picture of the item with visible trademarks). If you are giving away an Apple iPod (because you know…its 2002), you can’t say Apple or iPod unless you have gotten the consent of Apple or they are a cosponsor(which should also be an written agreement). (see the Ruth’s chris Ann Arbor mess here as a cautionary tale for running a promotion without checking applicable laws) You can list a Target gift card as a prize item in the official rules — but be clear that Target is NOT a co-sponsor nor affiliated with the event in any way. If the prize is large enough to trigger tax consequences, more than $600, the sponsor is required to send a 1099 to the winner in January of the following year (so make sure you have some contact information to comply).

Group Giveaways

If you are partnering with multiple companies for a group giveaway, you’ll want to to be extra careful that you are complying with the rules of all the states that are connected (meaning every residence state of one of the companies). Again, because complex or multi-step entry processes could be construed as “consideration” or something of value (because it’s SUCH a pain for people to do) — you really want to make the entry process as simple as possible. Obviously, you are doing this promotion for some sort of business purpose, but a lawsuit over an illegal private lottery is likely not within your brand identity.  Make the rules clear and the entry process short and sweet. Unfortunately, some laws have not really caught up with recent developments in social media promotions and the older caselaw involving postal systems and other time-intensive entry methods could go against you.

 

Consider some of the issues here and if you have specific questions or concerns about your promotion — please consult an attorney in your jurisdiction in the relevant law. It may be tempting to say that “X company does it and they haven’t gotten into trouble, so it must be ok.” And you may be ok — that is the truth. But, when you are putting your reputation, your brand, your business assets on the line — I think it’s worth a little hassle to protect what you have worked so hard to build. Some third party services/platforms might be passing the liability to YOU in their terms of service and are only “facilitating” the promotion. It’s not their responsibility to comply with the law. It’s yours. There is a detailed comment thread here that might be useful if you have specific questions.

 

State Rules: (not an authoritative or updated list so please consult your own state codes for the most recent regulations, graciously compiled by Shortstack)

• Colorado

— Does not permit purchase requirements even if it’s a “contest” and the winners are selected based on skill.

• Florida

— A prize worth $5,000 or more must be bonded and registered 7 days before sweepstakes begins. Must be able to provide a list of winners to anyone who requests it.

• Maryland

— Prohibits purchase requirements even if the contest winners are selected based on skill.

• Nebraska

— Prohibits purchase requirements even if the contest winners are selected based on skill.

• New York

— Prize worth $5,000 or more must be bonded and registered 30 days before sweepstakes begins. Must be able to provide a list of winners to anyone who requests it.

• North Dakota

— Prohibits purchase requirements even if the contest winners are selected based on skill.

• Rhode Island

— Retail outlets offering a sweepstakes with prizes valuing more than $500 must register promotion with the state.

• Tennessee

— Prohibits sweepstakes agencies and sponsors from requiring sweepstakes prize winners to submit to “in perpetuity” publicity releases.

• Texas

— Special rules apply to sweepstakes with prizes more than $50,000 such as not automatically entering an individual in a sweepstakes because the individual has made a purchase

• Vermont

— May not require people who request a list of sweepstakes winners to pay for postage for the response.

— Prohibits purchase requirements even if the contest winners are selected based on skill.

• Virginia

— Cannot require a “player” to visit a location to enter due to this being a form of consideration that would convert an otherwise legal sweepstakes into a lottery.

• Washington

— Prohibits “unfair or deceptive acts or practices in the conduct of any trade or commerce.”

— Must provide disclaimers and material terms and conditions in sweepstakes offer.

 

**DISCLAIMER: While I’m a attorney — I’m not your attorney. The information given here is general in nature and does not create an attorney-client relationship. If you have specific questions —  please consult a lawyer. **

 

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*This blog post is not intended as legal advice. No attorney-client relationship. For informational purposes only.