Giveaways, contests and other promotions: It’s not always easy to give away prizes

This article, written by attorney Paul Durham, was originally published by and can be found here.

Businesses have used giveaways and contests to promote their products for as long as any of us can remember. Where an old-fashioned candy store may have once invited customers to guess the number of jelly beans in a jar to win free chocolates, manufacturers now offer lavish prizes to those who post and tag their products across social media platforms. The internet has provided marketers with a seemingly limitless sandbox to build brand exposure, but a tapestry of federal, state and international laws come into play when any promotion is made available online.

Here are just a few general issues to consider when setting up and administering online contests or giveaways (which are still often referred to in statutes by the old-fashioned term “sweepstakes”).

Although sweepstakes and contests of skill can usually be structured in a legal manner, federal and states laws clearly prohibit private parties from running lotteries. Generally speaking, a lottery is defined as a promotion that (1) involves awarding a prize, (2) by chance, to (3) a person who has provided consideration to enter the promotion. Because a promotion almost always involves a prize, a promoter must eliminate either chance or consideration in order for the promotion to be legal.

A sweepstakes is a promotion in which a prize is awarded on the basis of chance, such as via a random drawing of entries.  This means that the element of consideration cannot be present.  Exactly what constitutes consideration varies by state, but generally takes on one of two forms: (1) a requirement that consumers make a payment or purchase to enter; or (2) an entry procedure that requires the expenditure of considerable time or effort.

A contest, on the other hand, is a promotion in which a prize is awarded on the basis of skill rather than chance. In this case the element of consideration can typically be present. Skill-based activities might writing essays, taking photographs or making videos.  In order for a promotion to be a legal contest, it is critical that a contest sponsor develops clear judging criteria and communicates these criteria to all contestants before the contest begins.

Regardless of whether a promotion is a sweepstakes or a contest, well drafted rules are critical.  The rules will be interpreted as a contract between the sponsor and the participants, and should be vetted like any other legal agreement. In that regard, consider the following:

  • The rules should be clearly posted and easily accessible.
  • Consider making non-U.S. residents and residents of certain states ineligible. Consumers in virtually every country may have access to your web site or social media postings.  In many countries, the conduct of sweepstakes is prohibited or involves complex registration and approval requirements. Domestically, if your promotion meets certain criteria, you may be required to register and post a bond in certain states. Many promoters will prefer to avoid these complexities entirely by limiting participation.
  • Although most states have the same basic rules for contests, the inclusion of a “void where prohibited” clause provides the sponsor additional protection against running an illegal promotion.
  • Identify the prizes before the promotion commences.
  • A link to your data privacy policy should be included.

Finally, remember that most modern social media promotions are multichannel. In addition to complying with state and federal law, online promotions must comply with the rules of the various platforms utilized by the sponsor. Further, if rules of entry require a like, positive post or other review of a product, then Federal Trade Commission endorsement disclosure requirements may come into play. Everybody loves a freebie, but take the time to be sure your giveaway doesn’t cost you in the end.