Is Your Promotion an Illegal Lottery?

When a promotion combines the elements of (1) a Prize, (2) Chance and (3) Consideration, it is a lottery under state and federal law. Any promotion which has all three elements – and is not licensed or regulated by the state – is likely an illegal lottery and may subject your organization to serious penalties.  Because this area is so regulated, at both the federal and state level, any marketing organization that wants to do a sweepstake or contest promotion should consult with legal counsel before launching those kinds of promotions.

Let’s look at those elements in greater detail:

(1) Prize is anything of value awarded to winners.

(2) Chance is the process of randomly selecting the winners.

(3) Consideration; can be of two types – Monetary and Non-Monetary. Monetary consideration is the purchase of a sponsor’s product or any other payment/entry fee required to enter.  Non-Monetary consideration is substantial time or effort required to enter which benefits the sponsor in some direct way. Ever wonder why every sweepstake always says “No Purchase Necessary”? It is because of the monetary consideration element.

In order to make your promotion legal, you must eliminate one of the three elements above. Since the prize can’t be eliminated as this is what attracts entrants to participate in the promotion, it is the other two elements which are in play.

What are commonly referred to as “Contests” are promotions where the element of chance has been eliminated by the selection of a winner based on skill. Essay and photo competitions are examples of contests of skill. Some creative effort is required to participate in a contest. Because the element of chance has been eliminated, a contest will likely not violate state lottery laws even if a fee to enter or other consideration is required.

What are commonly referred to as “Sweepstakes” are promotions where the element of consideration has been eliminated in some way. Determining whether consideration has been eliminated can be tricky as different states treat the question in different ways. Consideration may include a fee, a product purchase requirement, or the requirement that the entrant expends extensive time or effort to enter.

Consideration can legally flow to the promotion sponsor; it just can’t be mandatory. Virtually all U.S. jurisdictions will permit a sweepstakes promotion where participants pay to play, so long as the sponsor provides a second, free method of entry, usually called the alternate method of entry (“AMOE”) such as mailing in a free entry or submitting it online.

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  • About the Author

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    Joseph Robinette

    Joseph Robinette’s practice focuses on corporate transactions, commercial agreements, antitrust counseling, intellectual property (IP) law and licensing, and unfair competition law. Before joining Wood + Lamping, Joseph served for many years as General Counsel to the United States Playing Card Company, the manufacturer of the well-known Bicycle® brand. He was also a member of the team of attorneys who wrote the winning motion for summary judgment in the significant antitrust case, Medical Center at Elizabeth Place v. Premier Health Partners, case 3:12–cv.26, Southern District of Ohio (2014).

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