The Federal Trade Commission’s recent $9.5 million judgment against sweepstakes operator Crystal Ewing is a stark reminder that prize promotions remain fertile ground for regulatory scrutiny both on the state and federal level. Marketers have grown ever more reliant on sweepstakes, contests, and giveaways since Ewing first came to the FTC’s attention nearly a decade ago—thanks in large part to our obsession with mobile devices and social media, and the opportunities they present for instant engagement with masses of digitally-savvy consumers. Despite the technological advances, however, the basic legal principles governing prize promotions have withstood the test of time. Below are six tips to keep in mind when offering online sweepstakes and contests:
First, make sure you know the differences between a lottery (which is illegal) and other forms of prize promotions. An illegal lottery has three elements: (1) a prize; (2) consideration to enter (e.g., entry fee); and (3) an outcome determined by chance. Sweepstakes and contests, by contrast, have only two of these three elements. A sweepstakes promotion has a prize and an outcome determined by chance, but no consideration, and a contest has a prize and consideration to enter, but an outcome determined by skill.
Second, understand that the concept of consideration can be broad, and many of the unique entry methods afforded by social media fall close to, if not on, the broad and fuzzy dividing line separating “consideration” from “no consideration.” Purchasing an app as a means to enter a promotion would pretty clearly constitute consideration, just as having a potential entrant answer one or two survey questions would likely not constitute consideration. But what about requiring an entrant to “check in” at a store location on Foursquare, or attend a sponsored event and post a picture with a branded hashtag on Instagram? Those are much closer calls because the promoter arguably receives some commercial benefit. When in doubt, remember that each state has its own system for regulating prize promotions, and it is therefore wise to err on the side of assuming that some regulator out there will find the consideration element present.
Third, when you think your entry method may be found to constitute consideration, be sure to include an alternative method of entry that allows a consumer to enter the sweepstakes promotion in some manner that does not involve consideration. For example, give consumers an option to send an email for a chance to win. Although there are many ways to offer alternative methods of entry, be careful to avoid methods that are more difficult, time-consuming, or burdensome than the principal method. Also, make sure not to bury the alternative method of entry in fine print. As with advertising disclosures, the general rule is that alternative methods of entry should be stated clearly and conspicuously.
Fourth, keep in mind that many regulators take a strict view of what constitutes the “skill” element necessary for a contest. For example, correctly predicting the score of a basketball game or the number of on-stage selfies taken at the Oscars is likely to be chalked up to chance, not skill. In addition, a contest should include clear criteria for judging entries, should disclose those criteria to contestants, and should apply the standards objectively. Promotions that require contestants to submit user-generated content and award a winner based on the votes generated through social media are at risk of being classified as popularity contests rather than contests of skill.
Fifth, do not underestimate the importance of the official rules. The official rules are to prize promotions what prospectuses are to securities offerings: a detailed disclosure document on which consumers are expected to rely. The official rules should contain all of the essential information that a reasonable consumer would want to know about the promotion, including among other things: (1) who is sponsoring it; (2) when, how, and how often can a consumer enter the promotion; (3) whether any exclusions or limitations apply; (4) any alternative means of entry; (5) a description of the prize, including any costs to the consumer in receiving the prize; (6) when and how the prize will be announced; and (7) a means for obtaining a list of prize winners. Although the rules may have the feel of a legal formality, they are extremely important and are tied inextricably to the particular contours of the promotion, including the type of promotion, where and by whom the promotion is being offered, and the type of prize to be awarded. Do not copy and paste official rules from another promotion.
Finally, remember that the tips above are just that – general guidelines based on the basic principles of promotions law. Because prize promotions have a history of abuse, including the recent case of Crystal Ewing, there is no shortage of regulators keeping an eye on them—the FTC, Federal Communications Commission, US Postal Service, and states attorneys’ to name a few. While the principles above are universal, they are by no means exhaustive given the number of regulatory schemes at issue. If you have questions concerning a particular prize promotion, contact an attorney.