In today’s digital marketing landscape, brands frequently leverage promotions like sweepstakes and contests to engage consumers, build brand loyalty, and expand their audiences. While both are popular strategies, the legal frameworks governing contests and sweepstakes are distinct and often misunderstood. For marketers and businesses, a clear understanding of the legal distinctions between these two types of promotions is critical—not only for effective campaign planning but also for maintaining compliance with regulatory requirements. Most importantly, sweepstakes and contests can be deployed legally so long as you follow a few key rules – and avoid creating an illegal lottery.
Sweepstakes: Purely Chance-Based Drawings
Sweepstakes are luck-based promotions where winners are selected at random from eligible entries. These are the classic “Enter for chance to win!” campaigns. Most importantly, because sweepstakes are purely chance based, they cannot require a purchase or entry fee, as doing so would classify them as an illegal lottery. To qualify as a legal sweepstakes, the promotion must comply with three key elements: prize, chance, and consideration.
A legally compliant sweepstakes must have all the following elements:
- Chance-Based with Random Selection: All entries have equal odds of winning, with no skill required. Winners are chosen through random drawing, ensuring fairness.
- Easy Entry: Entry involves simple actions, like making a purchase, filling out a form, or following a brand on social media.
- Alternative Method of Entry: You can allow people to enter through purchases or by taking some small action like following a brand’s social media account. However, you must also allow for an “alternative method of entry” that does not require any purchase or other action. This is typically done by allowing for mail-in entries or other simple methods of entry.
- “No Purchase Necessary”: The inclusion of a “No purchase necessary” disclaimer, often prominently displayed, ensures that entrants know they have a free entry option, thereby maintaining compliance with anti-lottery laws.
- Readily Available Rules and Clear Disclosures: Sweepstakes must include readily available rules that include clear disclosures on eligibility, timing, entry instructions, prize description, and odds of winning. These rules should often include several additional terms such as the company’s right to cancel or modify the rules, description and value of the prizes, the right to substitute prizes, limitation of liability, and other typical contract terms such as venue and choice of law provisions.
- State Compliance. In addition, certain states have specific laws regarding sweepstakes including Florida and New York, which each require a bond to be filed with the state if the prize total is over a certain amount.
Contests: Skill-Based Competitions
Contests are promotional events where participants showcase their skill, creativity, or knowledge to compete for prizes. Here’s what defines a contest:
- Skill or Talent Requirement: Participants submit creative content or perform tasks, such as essays, artwork, or videos.
- Judging Criteria: Winners are chosen based on predetermined judging standards, often involving panels or public voting.
- Clearly Written Rules: Rules must be provided that explain the entire contest and judgment process.
- Regulations: Because contests are skill-based, they may legally charge entry fees in many regions, as long as the outcome depends solely on merit and not chance. However, regulations vary significantly by jurisdiction, with some areas permitting fees only if they cover legitimate administrative costs. To avoid being classified as gambling or a lottery, contests must adhere to transparency standards and clearly outline judging criteria and fee disclosures.
Conclusion
Understanding and navigating the distinct legal frameworks governing contests and sweepstakes is crucial for businesses aiming to engage consumers without risking regulatory pitfalls. Contests, which allow for skill-based entry fees, and sweepstakes, which must remain entirely chance-based and free to enter, each come with specific legal requirements and potential liabilities.
Our team provides expert guidance to help businesses develop promotional strategies that align with these regulations, draft comprehensive and protective rules, and ensure all necessary disclosures and terms are clearly outlined.
For additional information regarding the content of this article or for assistance with complying with contest and sweepstakes regulations, please contact Scott G. Brown (SGB@kjk.com; 614.427.5752) or Jace D. Libman-Phelps (JDLkjk.com; 216.736.7269), or one of KJK’s Business attorneys.