Sweepstakes: some may say they are the Swiss Army knife of promotional strategies. They can create brand awareness, drive sales, and build customer loyalty. In general terms, a sweepstake is a chance promotion where a winner is randomly selected from all eligible entries. The defining characteristics of a sweepstake are that anyone can enter as long as the requirements for entry have been met, and that all participants have an equal chance of winning the prize. After that, it is sheer luck.
You have probably heard of popular sweepstakes such as the McDonald’s Monopoly or Publishers Clearing House promotion sweepstakes with prizes ranging from a free meal to $7,000 a week for life. These sweepstakes generate brand awareness and sales as more and more consumers participate and share with friends. Since launching the McDonald’s Monopoly sweepstake in 1987, the corporation has seen its revenue skyrocket during the months of the sweepstakes as customers purchase more products to collect game pieces.
Today, there are numerous types of sweepstakes, both physical and digital. Examples include instant win sweepstakes, collect and win sweepstakes, and refer-a-friend sweepstakes to name a few. While you may have some awareness about sweepstakes’ generalities, did you know that legally compliant sweepstake offerings require even at their most basic published rules of eligibility addressing several key disclosure points and a public announcement at the conclusion of the sweepstake stating that the it has come to an end?
That’s right – sweepstakes are the most highly regulated type of promotional offering and the most difficult for companies to navigate. But why is this? Savvy marketers of days past created the concept of sweepstakes as a form of lottery, where an individual would be entered to win a prize for products purchased from the company hosting the sweepstakes. Tying the odds of winning to a purchase meant sweepstakes promotions were rife with scammers and functioning in much the same way as an illegal lottery. In response, the FCC and the FTC enacted anti-lottery laws, which strictly require the defining characteristics of a sweepstakes to be “No purchase necessary to enter or win” and “A purchase will not increase your odds of winning.”
In today’s continuation of Octans Legal’s quarterly SMB Toolkit Topic, we will explore what differentiates a sweepstakes from other forms of promotions and how to walk the balance between a sweepstakes and an illegal lottery. This is a topic on which we frequently are asked consult with our clients who love using sweepstakes campaigns to increase brand awareness and sales by incentivizing purchases while staying on the right side of regulatory compliance.
READ ON . . . Sweepstakes v. Illegal Lottery – No purchase necessary
Lotteries are considered illegal forms of gambling and their hosting by non-state actors has been classified as a felony in many jurisdictions. Companies wishing to take advantage of sweepstakes promotional offers must, thus, pay careful attention when crafting the promotion to ensure it does not cross the line into becoming an illegal lottery.
But what is a lottery? Promotions are illegal lotteries when (1) there is consideration (typically the making of a purchase or a payment); (2) chance; and (3) a prize. Sweepstakes remove the first element of a lottery – consideration. This leaves sweepstakes possessing only two of the three key elements: chance and a prize. Later in this series we will be discussing promotional champaign types that mix the other elements – for example, a contest can mix consideration and a prize but remove the element of chance in favor of skill to avoid being classed as an illegal lottery.
PARTICIPATION IN A SWEEPSTAKES MUST NOT INVOLVE CONSIDERATION. Consideration is a legal concept that can be thought of as the giving of value for the receiving of value. For example, by paying a store to purchase a sweater and by receiving the paid-for sweater, the customer and shop have exchanged consideration. Payment for a good can be consideration at its most basic. However, in the age of the Internet, “consideration” has become murkier and more difficult for companies to navigate without legal council.
Today, marketing campaigns are more likely to have a goal of increased mailing list subscribers, increased brand awareness, and long-term conversions than moving out old stock. The current MVC (most valuable currency) is not payment for a good, but, rather, the trade of data. Asking an entrant to provide excessive data points, complete a lengthy survey, or sit through a sales call all may be forms of consideration and push a sweepstakes into the realm of an illegal lottery in some jurisdictions.
Marketing teams reading this may be thinking at this point – if we cannot get data or sell a product, why even host a sweepstakes? The way around this is to ensure that the sweepstakes is FREE TO ENTER and that even providing data, completing a survey, or otherwise providing non-traditional forms of consideration DO NOT INCREASE THE ODDS OF WINNING. In practice, we counsel our clients to look for alternative methods of entry – Go ahead and provide the survey as the main method of entry, but craft an alternative entry method as well. Traditionally, this was a postcard mailed to the sweepstake’s host, but companies are invited to get creative. So long as all entrants (no matter the entry method) are given the same odds of winning, companies are able to both receive valuable data and non-traditional consideration while erring on the right side of the law.
Sweepstakes can be a terrific tool for marketers looking to increase brand recognition and grow their lead lists so long as a careful sweepstake’s plan is put into place. Later in this series, we will be exploring the finer legal details of hosting a sweepstakes, such as bond posting requirements, special rules for certain jurisdictions, disclosure and winners’ lists requirements, and much more.
Want to know more? For more information integrating promotions and giveaways into your business and marketing plans, we suggest you download our free E-Book “How to Hold Legally Compliant Contests & Giveaways” or check out our Contests & Giveaways Legal Document Bundle.
Up Next: A dive into what distinguishes a “giveaway” from sweepstakes, contest, and other promotion types under the law.
Quarterly SMB Topic: Promotions & Giveaways
Table of Contents
- Boosting Your Business: An Introduction to Promotional Strategies
- Enter for Your Chance to Win…: What is a Sweepstake?
- ‘You Get a Car!’: What is a Giveaway?
- Promotional Contests: What are They and How Can I Host One?
- Reaching Your Target Audience
- Contest and Sweepstake Laws
- How to: Hold a Sweepstake
- How to: Hold a giveaway
- Social Media and Promotions
- Games for Contests, Giveaways, and Sweepstakes
- Hosting Promotions: Legal Don’ts
Free E-Book: How to Hold Legally Compliant Contests & Giveaways
Contests and Giveaways are one of the easiest ways to increase company visibility and generate leads. Running a legally compliant promotion is not as easy, however, as creating a campaign on social media and is, in fact, highly regulated and easy to get “wrong.” That’s why we wrote this ebook and why we’re providing it to you free of charge!
Here are a just a few of the useful things you can expect from this free ebook:
- Legal differences between a sweepstake, giveaway, and contest
- The law of “no purchase necessary”
- Bond and registration requirements
- Official terms and conditions considerations
- Using social media for promotion
As a bonus we have included a detailed survey of legal requirements by jurisdiction / state!