No Purchase Required; It’s the Law!

Law Breaking Contest run by Rackspace

I normally write about programming and Internet technologies, so this post about marketing and the law is a bit out of left field. But since I’ve had to consider the issue many times while running my prior company, and many of my readers are small business entrepreneurs, I thought this topic might be helpful. If this post can keep just one entrepreneur out of hot water, I’ll be happy I wrote it. (and if it helps you, let me know!)

Yesterday I got an email about a contest that Rackspace is offering: Win 8 months free Rackspace hosting, for up to $1000/month. Pretty good deal huh? All you have to do is sign up hosting account at Rackspace, and you might be the winner![1]

Bzzzt, wrong answer! Unfortunately Rackspace’s marketing department must not have realized they were violating a Federal Trade Commission law relating to games of chance; contest rules must include No Purchase Necessary otherwise the contest becomes a lottery and thus illegal! According to Polaris Marketing Research’s article entitled Keeping Sweepstakes Legal:

Sweepstakes are generally permitted in most states as long as participants are not required to pay for the chance to win.

Let’s take a look at an excerpt of their contest rules (85Kb PDF) (emphasis mine):

 

One winner will be drawn at random… The prize is a waiver of a customer’s monthly recurring fee specified on the Service Order Form up to $1,000 per month for eight months. The odds of winning the prize depend on the total number of qualified entries received.

To qualify for entry in the drawing all of the following requirements must be met: (1) the entrant must be a new customer… (2) the Service Order form must be for a term of at least 12 months, (3) the setup fee must have been paid by the entrant…

Limitations…apply as follows: (1) up to $1,000USD…on the winning customer’s Service Order Form will be waived each month… (2) the winning customer shall pay the amount of the monthly recurring fee in excess of US$1000 per month…

 

More to the point, from LawPublish.com’s Contests and Sweepstakes section of their Advertising FAQ for Small Business states:

Sweepstakes-type promotions that require a purchase by participants are illegal in the United States.

Just how serious is this? Someone in CVS Pharmacy’s marketing department was asleep at the switch evidently and New York’s crusading attorney general Eliot Spitzer managed to tag CVS for a $152,000 settlement on a sweepstakes violation. Excerped from the press release:

CVS … offered customers a chance to win a $1,000 … Gift Card … Consumers who … purchased Nicorette, NicoDerm or Commit, … were … entered in the sweepstakes. However, CVS did not make entry forms available … for consumers who did not purchase … and did not inform shoppers how to enter … without a purchase. "State law requires that consumers, regardless of whether they make a purchase, should have equal access and opportunity to enter and win sweepstake offers," Spitzer said.

The blog Resonable Basis offers an analysis of the CVS sweepstakes violation (emphasis mine):

…having an alternative or cost-free entry method is one factor that distinguishes a sweepstakes from a lottery. A lottery typically has three elements: (1) a prize, (2) chance, and (3) consideration (some cost) to enter. If operated by a private entity, a lottery is generally illegal. … Those that want to use a promotion must structure it as a sweepstakes and not a lottery. … Thus, a company that wants to use a sweepstakes to generate interest and sales must make sure that one of the three elements of a lottery — a prize, chance, and consideration — is absent. Those companies that want to offer a prize, which most do, cannot require consideration to enter and must give consumers an alternative — cost free — method of entry.

What’s even more painful was that CVS had gotten caught in the past! From the same press release:

The settlement with CVS follows a prior settlement in June 2004 in which CVS agreed to resolve similar allegations related to its "Trip of a Lifetime" sweepstakes with the grand prize trip to Oahu, Hawaii.

And if all this semi-legal mumbo jumbo get’s you down, the FTC has a consumer protection article entitled Prize Offers: You Don’t Have to Pay to Play! that puts it in simple terms most of use humans can understand. And the relevant point here is:

Legitimate sweepstakes don’t require you to pay or buy something to enter or improve your chances of winning … If you have to pay to receive your "prize," it’s not a prize at all.

So you can bet that Rackspace doesn’t use the Lustigman Law firm as their counsel, the authors of Experience and Peace of Mind (in) Promotion / Sweepstakes Marketing. Or if by some strange chance they do, Rackspace’s marketing department certainly didn’t run this contest by them!

Bringing this topic to a close, you might wonder why this law exists? After all, I’m sure many a legitimate market department has conceived a contest to spur sales. But even if it is done with the best of intentions, if it is a game of chance and you have to pay to play it becomes gambling, and that’s just not something most governments want to allow for many great reasons. And those that do won’t allow gambling without significant regulation and, of course, taxes!

On the other hand, if it were allowed, I can just see the spam now:

Pay only $100 for your subscription to any of the following magazines, and you’ll be entered to Win ONE BILLION DOLLARS!

Your chance to win is 1 out of 1 trillion.

 

After posting this, my next step will be to contact Rackspace’s CEO and let him know he needs to quickly send out a correction. Wanna bet someone’s head is going to roll in the Rackspace marketing department?

AND FINALLY, don’t let this be you.

  1. I won’t even mention that at first glance the email implied that everyone could get eight (8) months free…

 

121 comments ↓

#1 Nahum Hendershot on 02.07.09 at 3:15pm

If sweepstakes and lotteries are based on ‘chance’ to win a prize. What is it called when a person wins the pay to play prize by PURE SKILL (not by chance, not by betting or wagering) ?

#2 steve on 01.18.10 at 5:22pm

I would like to know that too. You may find your self paying to enter a chess competition and could be awarded a trip or cash for winning.

#3 MikeSchinkel on 01.18.10 at 5:37pm

Typically games of skill are classified differently than games of chance. A chess competition is a game of skill.

I couldn’t find any good references but here is one okay reference: http://www.phoneplusmag.com/articles/361feat4.html

#4 pj on 02.09.10 at 5:50am

what about raffles where you buy a ticket to win something. those are everywhere. how do they get away with it because ive never seen a way to enter to win a car, motorcycle, etc without buying and paying for the ticket.

regarding games of chance or raffles does being a “for profit” or “non profit” have any differences?

#5 MikeSchinkel on 02.09.10 at 11:36am

@pj great question. Not being a lawyer I don’t know the answer. I knew about the other because I ran a business that needed to know about legality of promotions. I’ve never been involved with raffles so don’t know but I think it’s okay if a non-profit and if state/local law allows. Here are some links:

http://www.raffle-tickets.us/raffle-info-by-state
http://ceventura.ucdavis.edu/4-H_Program/Questions_-_Answers_on_Raffles-_Drawings-_and_Doorprizes.htm
http://www.out-law.com/default.aspx?page=9216

#6 Jen on 02.12.10 at 4:48pm

pj, if a non-profit in Florida is having a drawing for a car or motorcycle, they can suggest a minimum donation but all advertising and entry blanks need to state that no purchase or contribution is necessary:

http://www.leg.state.fl.us/statutes/index.cfm?mode=View%20Statutes&SubMenu=1&App_mode=Display_Statute&Search_String=drawings+by+chance&URL=CH0849/Sec0935.HTM

#7 Micah on 04.09.10 at 3:21pm

Thanks Mike. Found this as we were considering offering promotions like this. Thanks for explaining it simply.

#8 MikeSchinkel on 04.10.10 at 5:40pm

@Micah: Glad it helped! Hope you are doing well.

#9 JohnDoe on 05.30.10 at 6:07pm

Ok well, I am interested in starting a little money making website for myself. I was thinking of using CPAlead.com and their merchandise for my profit. If you dont know what CPAlead.com is, it provides a widget which blocks you from seeing the site every 24 hours, which simply to gain access to the website, you must complete some type of survey. There are 5 different survey options to choose from, AT LEAST one is always free, but it actually requires you to fill out the survey. So i want to come up with a clever name for a website, put this on it ( i gain $1 every time someone completes it ), and provide weekly/monthly/daily raffles ( depends on ammount of traffic) with prizes (size depending on ammount of traffic ), would this be in violation of the law, they don’t have to purchase, just have to do somthing.

#10 MikeSchinkel on 05.31.10 at 12:00pm

Hi @JohnDoe (was this you? :-),

No violation, you are not asking anyone to pay to win something.

As an aside I absolutely despise sites that use CPAlead.com. They start talking at me with the audio on a volume as high as they can make it. They are disgusting! There are much better ways to make money on the web than CPAlead, IMO. Here’s a site where I make >$600/month in advertising direct from the vendors. Create an informational site that provides people with information about a set of products and/or services and directly to the vendors for advertising. Everyone benefits with such an informational site (assuming you provide real informational value) whereas with a CPAlead.com site you are just adding cancer to the web.

#11 FallenAnjel on 09.23.10 at 5:16pm

Hope you’ll see this and answer!
What about photo contests ?? I attend a Renaissance Faire every year and I like to enter the photo contest with all the pics I take. In the rules it states, “No Purchase Necessary” However, the ONLY way (that I know of, and I’ve been there 6 out of 8 years now), to get pictures of the Faire IS TO BUY A TICKET TO GET INTO THE FAIR. Does this make it illegal ? Can I just go there and tell the ticket takers that I’m only taking photos for the Photo Contest?” Because then I wouldn’t have to buy a ticket ! I know there are people there w/ $10,000 cameras that take pics, but they’re prob. the promotions team or something. What constitutes a visit ? It’s hilarious I just realized this NOW after 8 years of going to the Ren Faire ! ;0)

#12 MikeSchinkel on 09.23.10 at 5:31pm

Hi @FallenAnjel,

Thanks for the comment. That’s a gray area and since IANAL I’m not sure.

If you can only win by being in attendance but you have to pay to be in attendance, well, hmm. The real question to ponder is “Can it be considered gambling?” and I don’t know the nuances because I know many conferences where they have giveaways and you must be present to win.

HOWEVER, since it is a photo contest it is a GAME OF SKILL and thus probably does not trigger this legal concern. In most states it is perfectly legal to have to pay to win at games of skill, but GAMES OF CHANGES where you have to pay are Lotteries thus gambling and hence the problem.

See:

http://contests.about.com/od/sweepstakes101/p/whatarecontests.htm
http://www.legalmatch.com/law-library/article/games-of-chance-vs-games-of-skill.html
http://www.squidoo.com/contest-rules

-Mike

#13 One Avon Diva on 05.08.11 at 8:54pm

Thank you so much for posting this. I was wondering about the laws in Florida. I guess only state governments can run lotteries :)

#14 Jenn on 05.16.11 at 10:27am

Not sure if anyone still checks this old post, but does anyone know if international companies need to conform to this federal law if they allow US residents to enter their sweepstakes?

#15 MikeSchinkel on 05.16.11 at 11:49am

Hi @Jenn, Thanks for the comment. As for international companies that need to conform if US residents are allowed to enter, I would *guess* that only those who have a physical presence in the US would be required to do so much like how taxation works across state lines here in the US. But I am not a lawyer so I can’t really say, and my guess is that most other country’s would have similar laws anyway?

#16 Trevor on 06.08.11 at 11:52am

Hey Mike, I wanted to start a contest in my stores to create a little buzz in the area. An initial idea is to have customers create figures out of foil, cardboard, and other restaurant supplies that come with the meal (ie. soda cup, forks, ect). We’d like to have the contest start locally and then pan out regionally. We will have judges (most likely store GM’s and managers for lower level entries) and a guideline for how the art will be judged. However, is it illegal to require the purchase of an entree at our stores to be admitted into the contest since creating art is a skill? Thanks.

#17 MikeSchinkel on 06.08.11 at 1:52pm

Hi @Trevor,

Thanks for the question.

Prefixing with “I am not a lawyer” I think you can easily do what you want in a few ways:

  1. Give the public the option to acquire a “Figures Kit” that includes cups and forks, tinfoil, etc. You could make them fill out a long form to get a “kit” for free, asking them lots of information about themselves and their dining habits (which you can use for marketing analysis), or require the form be fully filled to get a kit. You could also require them to fill out the form on the web and you could mail them a kit.

    This free kit would have the effect of making the contest legal because people would have an option to enter for free yet almost nobody will go to the effort unless your contest gives huge prizes. It’s also not getting around the spirit of the law; the law is trying to keep companies from preying on people who have an addiction to gambling and your contest sounds like a creative way to market to people who are going to pay to eat anyway and not one that is trying to prey on gamblers.

  2. Allow them to use restaurant supplies from any restaurant, or even from home. A few people will do this but most won’t go to the trouble. This means you’ll be able to run your contest and not worry about the contest requirements.

  3. Rename it a “Competition” or a “Challenge” or something else that implies “Game of Skill” vs. “Game of Chance.” Your idea really is about skills and not about chance and its completely legal to ask people to pay for games of skill; any professional sport that offers prize money but that charges an entry fee is an example.

  4. Or do all of the above, just to be sure.

And be sure to market it using the phrase “No Purchased Required” with a footnote that describes how they can enter for free. Plus you might want to run my advice by a local lawyer just to be sure.

Finally, your contest sounds fun! I’d love to hear back from you with a link showing your promotion of the contest and also showing the winners. I assume you have a website for this or if not you’ll at least have a Facebook page?

Good luck!

-Mike

#18 Brian Koplick on 06.15.11 at 8:09am

Hi im starting up a social network and im wanting some information on all of this stuff its so confusing im looking at holding daily prize draws which members can enter byy paying 50 sent an entry tho i need software to do it on my network if anyone would know a place and allso the law on doing this …? if anyone has any information on this and might be able to point me in the right direction please drop me a line riventiger@hotmail.com

#19 MikeSchinkel on 06.15.11 at 5:24pm

Hi @Brian,

Thanks for the question. Unfortunately what you are trying to do is exactly what these laws were meant to eliminate. Your idea is basically a lottery, and that’s legally a no-no.

Sorry to be the bearer of bad news…
-Mike

#20 Brian koplick on 06.15.11 at 5:31pm

thanks for that mike is there any way around that ? i do know on some places for instance like facebook or some other places they have games where they have free to join games tho the trick is if they want to boost them selves through the game they can buy coins where they can upgrade them selves and so forth and the winner of the game would win the prize is that a way around it or would that be running a fine line of the law….

#21 MikeSchinkel on 06.15.11 at 5:34pm

Hi Brian,

It’s okay to charge for “games of skill”. It’s not okay to charge for “games of chance.”

Hope that helps.

-Mike

#22 Tommy on 07.08.11 at 8:35pm

Today, I tried entering an online contest where if I made a correct guess of a celebrity to appear at a convention, I would receive special perks. However, I was rejected from entering, being told I had to buy a $75 membership. Is this legal or not?

#23 MikeSchinkel on 07.09.11 at 3:31pm

Hi Tommy:

It sounds very suspect, but I’d have to see the contest to see if they are skirting the rules. Also, if they are outside of a jurisdiction that has these laws, they would still be illegal but if they law has no jurisdiction it may be moot. Of course, I am not a lawyer so this is just my impression.

Hope this helps.

-Mike

#24 Andy Crawford on 07.19.11 at 10:53am

Mike, my company publishes magazines, and we have a photo contest that is designed to bolster our subscription sales. We do this by stating that you must be a magazine subscriber to be eligible, but we also include a disclaimer that a purchase isn’t necessary and outlining how entries can be submitted without being a subscriber.

Currently, we plan to ask if our site users are subscribers, and those who answer “No” will be directed to the subscription page before continuing on to the contest entry form.

Are we good?

#25 Chad Garrett on 08.26.11 at 12:42pm

Here’s a question to add to the discussion - with all those companies that ask you to “like” them on Facebook and share or retweet a message in order to be considered, is that even legal?

You have to perform a task that could easily be considered a marketing job (low-wage, but it provides a direct benefit to the company in question). Wouldn’t this quid pro quo trading marketing services for an entry count as a “purchase” in the eyes of the law?

#26 MikeSchinkel on 08.27.11 at 6:28pm

Hi @Andy: Thanks for the comment and sorry for the late reply. I think you are good because your photo contest is a game of skill, not of chance. But remember, IANAL so best to ask your legal counsel if you want to be 100% sure.

#27 MikeSchinkel on 08.27.11 at 6:31pm

Hi @Chad: Thanks for the comment. Remembering that IANAL, I’m pretty sure that all the “like” requests are 100% legal. The “no purchase required” laws were passed because without them companies could legally run gambling events. But there is no such prohibition for requiring people to give you there time. Requiring time and effort vs. requiring a purchase is I think much better in the eyes of the law, and in my eyes too. FWIW.

#28 Crystal on 09.06.11 at 12:59pm

Hello Mike,

Thank you so much for helping everyone with this tricky subject. I have a question for you if I may. I run a small accessories business. I would like to offer a photo contest of my customers wearing my accessories. I would like to post these photos on facebook and have people vote for them. The customer with the most votes will win a grand prize (being a game of skill, yes?) and I will have a seperate drawing for all of those who participated in the voting for a chance to win a smaller prize (being a game of chance) and therefore requires no purchase to enter. I am I going about this the right way? Or am I still not using the game of chance and game of skills properly?

#29 Crystal on 09.06.11 at 1:02pm

Sorry, I realize that was unclear. There will be a contest (the photo contest) on which the customers must be wearing my product, and must get the most votes to win. There will also be a seperate sweepstakes, where the voters go into a seperate drawing with one person winning the smaller prize.

#30 MikeSchinkel on 09.06.11 at 1:03pm

Hi @Crystal:

Thanks for the comment. With the caveat again that I am not a lawyer I think your contest approach is spot-on, i.e. skills and chance.

Good luck!

-Mike

#31 Bruce on 09.07.11 at 9:37pm

Hi Mike. Many contests state you can write in and request your free game piece or entry or (….) as no purchase required, but can it be viewed that mailing a request or entry requires a spenditure (stamp and envelope) and thereby makes it not cost-free …. would it thereby be illegal? I can see an addicted gambler spending alot of money in stamps and envelopes trying to get a win. Or is it acceptable because there is no transfer of funds to the entity running the contest? It would be a cost to the entrant but not income to the contest. Does it come down to the point of not so much keeping it a “cost-free” issue but a “profit-free” issue (which may be why it’s ok for the non-profits to run these?)?? Thoughts? I know YANAL but thought I’d throw this out there for more deep thought and brain-fuel.

#32 MikeSchinkel on 09.07.11 at 10:19pm

Hi @Bruce:

Thanks for the comment.

My guess is that the mailing issue is okay because the expenditure does not transfer money to the contest holder.So I think “profit-free” describes the intent of the law better than “cost-free.” But again, I am not a lawyer so can’t say for sure.

Ya know, with so many people asking questions on this post me-thinks I should find an appropriate lawyer to many comment…

-Mike

#33 Bruce on 09.09.11 at 1:02pm

Hi Mike. Of course it’s always good to remember several points: the lawmakers MAKE the laws, but it’s judges who INTERPRET the laws (and thereby support our reference to the INTENT of the laws). There are the lawyers who ARGUE the laws - and win and lose cases, so still comes back to the judges’ interpretation and decision. It would be interesting to examine examples of previously established court decisions in gray-area cases (not that we’d have time and ambition to research for them). So, with a big sigh and wrinkled brow, we throw our shoulders into a shrug having to be satisfied at least with an understanding of the general requirement and intent. If we don’t try to bypass the beaten path, we won’t find ourselves in dangerous woods. :)

#34 MikeSchinkel on 09.09.11 at 1:50pm

Hi @Bruce:

All those reasons, and more, are why IANAL. :)

As for court decisions at least you can look at the Elliot Spitzer/CVS case (although something tells me the brass at CVS shared a private chuckle when the name “Ashley Dupré” dominated the news cycle back in 2008… ;-)

-Mike

#35 Peter on 10.07.11 at 3:32pm

In order to accept taking your bet on which head is going to roll in the rackspace marketing department, I only ask if I must buy something to enter.

#36 Manolis on 10.17.11 at 11:24pm

Hi Mike! I would like to create a scratch card game for my pizzeria (not requiring any skill) where the player could win free food, discounts or a grand prize. We would distribute these cards for FREE to current customers as well as mail them to all of the residents in our delivery area as a promotional tool. Would that be considered a lottery? Also would the prizes have to be no purchase necessary prizes or could we also have “free _x_ with the purchase of __x__” prizes?

Would we have to provide those scratch cards to the public if someone came in asking to take part in this game?

#37 Eric Mann on 11.08.11 at 11:05am

Actually, the way they have it phrased they might be totally safe. The prize isn’t 8 months of free hosting, it’s a waiver of fees for 8 months. If you’re not a customer to begin with, that prize would have 0 value for you.

The only way they’re running a risk is with their requirement that you be a new customer. By making existing customers ineligible, they are flirting with some serious legal issues …

#38 MikeSchinkel on 11.08.11 at 3:15pm

Hey @EricMann - Thanks for the comment.

Prefaced with IANAL, it really doesn’t matter what they win (free hosting vs. waiver of fees) it is still a contest and a purchase is required to have a chance to win. The legal test is if it is a game of change were the winner gets some prize, no matter what the prize is.

FWIW, they changed it but I never updated my blog post (I should have, my bad.)

#39 blue on 11.11.11 at 2:22am

I know you already answered Chad’s question about having to “like” a business on Facebook to enter a contest, but what about people who don’t belong to Facebook? Why should we be required to join and give private information to an external, totally unrelated company in order to enter a sweepstakes or prize giveaway—or even get a coupon? I found your article because i was looking for hope that there might be legal recourse to stop companies from trying to force everyone to use Facebook (and to a lesser extent, Twitter). There are even websites that only allow commenting if you use a Facebook login! I refuse to be strongarmed into it, but I see that my family may lose out in some cases. I just don’t see how it’s fair to say everyone must join Facebook to participate. I have written many emails to companies regarding specific instances where they require customers to join Facebook to participate in something, but I never get any response. Will there ever be consideration for people like me who refuse to give our personal information to Facebook?

#40 Brian on 11.21.11 at 2:03pm

Hey Mike - While I know you are not a lawyer (yet you have obviously done a fair bit of research), do you think the following would be legal:

Instead of the Rackspace poster indicating that a new customer could win 8 months free (which is illegal), had it said, “As a thank to our customers for 8 great years, on December XX, we are going randomly select one of our existing customers and give them their next 8 months of hosting for free.” Technically this would still be a chance event, however, the target audience would have changed; that is, since existing customers are now the target audience and they do not need to do anything additional (i.e. they are not being enticed into making an additional purchase for this chance), might it be reasonably argued that it is not a lottery/gambling but a thank you?

This would be like a store who surprises (i.e. no previous announcements) their 1 millionth customer with some sort of prize. In such a case, a purchase was obviously necessary for the chance to win the prize, however, since it was a surprise and there was no enticement to make a purchase for such a chance, would this be considered a lottery/gambling? Granted, this one millionth customer example differs in that there was not previous announcement of the prize prior to the event actually occurring.

Even as a write this, I doubt that a court would be fooled by such language (because despite the fact it may be aimed at existing customers, new customers may join by December XX for the chance to win 8 months - in which case they are making a purchase for the chance to win a prize which, as you have discussed, is illegal). However, I would enjoy hearing your non-legal opinion on this.

Thanks

#41 Luke on 11.30.11 at 6:12pm

Mike,

Great article, thanks for the article.

With the “no purchase necessary” is there any limit to the number of free entries you are required to give away. I am thinking about McDonalds Monopoly, where I could just keep buying big macs all day and keep playing. Does that obligate them to give an unlimited number of entries away?

Also, do you find that companies make it more difficult to enter a contest by requiring people to send a letter, when they could just have them send an email ?

#42 Chris on 04.13.12 at 6:08pm

I realize how old this article is, but I came across it after getting an email from footagefirm.com offering prizes randomly to customers who purchased a special package. There is no other link in the email or on the site offering alternative entry methods so I googled the particular law, bringing me here.

For giggles, I ran a whois on footagefirm… they’re owned by Rackspace.

#43 MikeSchinkel on 04.14.12 at 1:09am

Hi @Chris,

VERY interesting. Big thanks for the comment. I would love to see the email you got; forward to mike < .at.> newclarity.net please?

BTW, I double checked your results and I’m pretty sure that FootageFirm is not owned by Rackspace, only that they have their website located there. The tell? They have their domain name registered through GoDaddy; RackSpace certainly wouldn’t do that for domains they own.

Also, are you familiar with RevoStock? Full disclosure, they are a client of my company NewClarity; we built this from them:

#44 Chris on 04.16.12 at 9:29pm

Hey Mike,

Actually, I no longer have the message, reporting it as spam shortly after I got it. That said, the website, up until sometime this weekend, was the deal I previously mentioned and nothing else. Before I spammed the message out, I replied to it mentioning that the contest may have violated FTC regulations by not offering the alternate method.

It might not have anything to do with the switch on the site, but it was pretty well timed.

#45 MikeSchinkel on 04.16.12 at 9:54pm

@Chris - Cool. Thanks for the follow up.

#46 Madawg on 04.17.12 at 11:50am

Greetings Mike;

How does the “Like us on Facebook” to enter a contest NOT violate the law?

I as a consumer, I want to enter these contests for iPads, video games, etc. . . but the ONLY way to enter is that I must “Like” the company on their Facebook site.

I for one do not participate in Faceplanting, Twatting or MeSpacing as I feel that they are all violations of privacy issues, and I also for one, have a life that does not revolve around a computer.
In addition, these social networking sites ARE creating REVENUE for their companies through the support of advertising dollars generated to attract MY attention.

Why is this not illegal? and / or require the old school enrollment process?

#47 MikeSchinkel on 04.17.12 at 5:23pm

Hi @Madawg,

Thanks for the comment. First, IANAL so take the following explanation with that understanding:

The reason requiring a purchase is illegal is it would otherwise allows companies to effectively sanction gambling; i.e. “Buy a McDonalds Hamburger for a chance to win $10,000,000!” Clearly that’s little different from selling lottery tickets and it would drive people to buy Big Macs in hopes of winning. That’s not good for society, so they disallow it legally.

OTOH, clicking a “Like” does not require the person entering the contest to part with legal tender and thus does not have the same negative affects on society. Yes, people for whom privacy is paramount consider this requirement offensive, and as someone who is not a fan of Facebook I can empathize. But it’s not illegal because it’s not the same thing.

In a prior era companies might have promoted contests that required contestants to provide their address and phone number and I would assume that people who find the “Like” requirement offensive would also find a address and phone requirement offensive. But it wasn’t any more illegal to require address and phone than it is to require a “Like.”

Maybe if enough people object to requiring “Likes” for contest entrants then a law could be passed to make it illegal. But I highly doubt that will happen, at least not in the USA. Maybe in South Korea?

Hope this helps.

-Mike

P.S. Clearly you are hoping to gain a value from entering, and likewise the contest promoter is hoping to gain collectively from your interest. If having to “Like” is too offensive, maybe you could decide simply not to enter?

#48 Charlie on 05.16.12 at 10:20am

Thinking of going into a small local clothing business with a friend and he has this promotional idea that his customers all pay for a particular product and then if enough customers pay for the same product, they play a game where they have to answer a certain number of questions correctly (base on skills). The one who answers the questions the fastest wins a nice prize. Sounds simple but I’d like to would this be considered gaming? games of chance? what would be the legal hurdle of any?

#49 R. on 06.11.12 at 1:58am

I’m a big fan of the Colbert Report, so I’m not trying to get Stephen in trouble, but…
there’s a Super Pac Treasure Hunt contest where people must by a $99 super pac kit and follow the clues to find the final clue and win. First, the super pac kits sold out really fast–I know that’s not illegal–but more to the point, there was no advertised way to obtain a kit with clues without purchase (or enter in any other manner without purchase that I could find on the site). Since it’s a treasure hunt, does that make it a “game of skill” and therefore exempt from the “no purchase necessary” requirement? Or should others legally have the opportunity to participate even if they didn’t buy a kit?

http://colbertsuperpac.com/

#50 MikeSchinkel on 06.12.12 at 10:38pm

@Charlie - Thanks for the question. Hmm. That’s a grey area to me. It might be okay, but it feels a little shady. Remember though, IANAL so best to ask your own legal counsel to be sure.

#51 MikeSchinkel on 06.12.12 at 10:40pm

Hi @R. - VERY interesting. I too like Colbert, but I don’t know if that would qualify as “game of skill” from this perspective or not. Maybe you can ask a lawyer.

You know, I really need to find a lawyer that would like to answer questions here. Hmmm.

#52 holanscar on 07.04.12 at 8:42pm

Can I limit the number of times a person can enter to one without a purchase, but the give an additional entry form to people who make a purchase of a certain amount or who make a food donation for our local food pantry?

#53 MikeSchinkel on 07.04.12 at 10:21pm

Hi @holanscar: Thanks for the question. Not sure about that one but probably not because its a lot like gambling. Best to ask a lawyer.

#54 Angel on 08.17.12 at 10:55am

Thanks for the article. The company I work for was advertising a contest (skill) and this ultimately led me to the right answer on the FTC website. It’s surprisingly easy to understand for a government site: http://www.ftc.gov/bcp/edu/pubs/consumer/telemarketing/tel17.shtm
“Skill Contests
There’s one notable exception: skill contests. These are puzzles, games or other contests in which prizes are awarded based on skill, knowledge or talent - not on chance. Contestants might be required to write a jingle, solve a puzzle or answer questions correctly to win.”
Unlike sweepstakes, skill contests may legally require contestants to buy something or make a payment or donation to enter.

#55 kayzee on 10.12.12 at 3:22pm

In today’s mail I received a notice with my bank statement that they are having a promotion wherein you must have their Bank’s Visa card and make a minimum $15 purchase in order to get an entry into their contest. There is no alternate means of entry and I believe, after reading posts above, this is illegal. To whom do I report this?

#56 MikeSchinkel on 10.12.12 at 3:58pm

Hi @kayzee - IANAL so I could be completely wrong, but they might get away with it because you can only make one entry, right? The problem with purchases required is that some people would buy many in hopes of increasing their odds; you can’t do that here, right?

In this case you are also not buying from them, you are buying from anyone and it’s not unreasonable to think you are going to use one of your credit cards to pay for something in the +$15 range anyway, so even if it does tangle with the law, I doubt you’ll find anyone to prosecute them, especially considering how powerful the bank lobbies are these days.

As for who to report it to? Not sure? FTC? The state’s attorney general?
Maybe a lawyer seeing this would answer?

#57 kayzee on 10.14.12 at 2:57pm

You can enter this “contest” as many times as you want as long as you can afford to keep putting $15 or more on this bank’s credit card. They do benefit when you use their credit card and only their credit card gives you an entry into this contest. This looks like a lottery to me, based on the postings above.

#58 MikeSchinkel on 10.14.12 at 3:19pm

@kayzee Ah, if they allow you to do this repeatedly then I do think it might violate the law.

As an aside, I didn’t say that they bank doesn’t benefit only that you would not be buying directly from them. They’ll make a percentage of between 15 cents and 60 cents on a $15 purchase. But the point was you would not be constrained who you Could buy from except that it must be with a merchant that accepts their card and that’s typically not a limitation if you are going to buy something. But again, if you can “enter” multiple times, that’s probably going too far.

As for who to report to, I really don’t know. I’m just someone who wrote a blog about something I noticed based on my prior business experience and it has obviously interested a lot of people but this is otherwise not my area of expertise.

If you do figure out how to report this maybe comment again so that others in the future who read this and have the same question can benefit from your efforts? Good luck getting it reported.

#59 Carly Garcia on 11.07.12 at 11:55am

What if the competition we plan to run has a winner chosen not by chance, but most creative entry for a marketing idea? Our company is in it’s infancy and the challenge is meant to promote sales (since you have to be a past customer to submit an entry) and benefit us as well through the ideas we receive. If the winner is not chosen by chance as outlined above, does the rule of no purchase needed still apply?

#60 MikeSchinkel on 11.07.12 at 1:26pm

Hi @Carly Garcia,

Thanks for the comment. You are asking about what’s called “Games of Skill” vs. “Games of Chance” and yes contests for games of skill are perfectly legal (although IANAL so can’t give legal advice. :)

Search for the word “skill” in the comments on this page and you’ll see we’ve discussed the topic quite a bit. Hopefully the comments will give you enough understanding of the distinction.

Hope this helps.

-Mike

#61 EKreuz on 11.10.12 at 5:00am

Hey mike, seeing as how you are still answering questions on the topic of “games of skill” vs “games of chance”. I would like to ask your take on the following scenario. I create a website in which you can play a bingo-like game and win cash prizes. In order for it not to be a lottery game, i would sell a product from my website and the purchasers of that product will receive “free” entries to my “bingo”-type game. People could also print out a long questionaire and snail mail it to me for a free entry, as per “no purchase necessary”. Again, what would be your take on this? Would most of my bases be covered for this not to be considered a lottery? Thanks in advance for your feedback, Enrique Kreuz.

#62 MikeSchinkel on 11.10.12 at 1:07pm

Hi @EKreuz,

Thanks for the comment. Your scenario is nuanced enough that I wouldn’t want to guess at how a lawyer or a court would view it. I will say though that your scenario seems like it would be attempting to find a loophole in the law, to circumvent that which the law was intended to guard against. Said another way it seems that even if your scenario would not violate the letter of the law it would almost certainly violate the spirit of the law. But that is just my opinion so who knows?

Hope that helps.

-Mike

#63 Josh on 12.17.12 at 12:08pm

@MikeSchinkel has been amazing at putting together this information and responding to posts/questions. I’ve noticed that MANY of the questions posed here can be answered in the first section of this document, published by the Los Angeles County Bar Association:
http://www.lacba.org/Files/LAL/Vol30No5/2395.pdf

The most valuable information I found is summarized below (in case the document ever goes offline):

If a contest offers a prize, is a game of chance, AND requires consideration, it is an illegal lottery. Get rid of any one of those three elements, and it is a sweepstakes.

A prize is ANYTHING of value awarded to a winner. This is virtually impossible to eliminate, since anything the sponsor gives away will likely have some value, otherwise people wouldn’t be signing up to win it.

Consideration is anything of value that the entrant provides to the sponsor, whether it be money, referrals, or anything that requires significant time or effort from the participant that the benefits the sponsor. This can easily be eliminated by offering an alternate method of entry (AMOE). The AMOE must have equal chances of winning, equal deadlines, and equal prizes. The AMOE must not rise to the level of consideration. The AMOE must be clearly and conspicuously disclosed in all advertising materials for the contest. The AMOE must not be disadvantageous or burdensome when compared to the standard method of entry. Requiring internet access to enter is not generally judged to be consideration.

Chance is the opposite of skill. If prizes are awarded based on something with objective criteria that can be judged, and the judges are qualified to evaluate the entries, it is a game of skill. Otherwise, it is a game of chance.

#64 MikeSchinkel on 12.17.12 at 4:38pm

Hi @Josh,

Wow, thanks for the great comment. Just curious, are you a lawyer and/or how are you so knowledgable on the subject?

-Mike

#65 Josh on 12.17.12 at 4:49pm

@MikeSchinkel I just summarized what I read in a document put together by the LA County Bar Association. So the information originates from actual lawyers (presumably - at the very least, members of the California Bar), but I am not a lawyer. I was looking for information to provide to a local small business that emailed me with an illegal looking promotion, and I ran across both your site, and that other document.

#66 MikeSchinkel on 12.17.12 at 5:00pm

Hi @Josh,

Cool. Thanks for the update.

-Mike

#67 Dustin on 03.14.13 at 7:43pm

I am selling a product. packaged postcards. within these packs of postcards, includes 1 card, redeemable for a free custom guitar. I am not selling entries into a raffle, sweepstakes, or other thing. I’m selling postcards. What are your thoughts

#68 MikeSchinkel on 03.14.13 at 9:48pm

Hi @Dustin,

Although IANAL I think that you’d need to include some other way that people can get an entry card for free if they want to. I don’t think that other way has to be convenient, like maybe you could allow them to write you via postal mail to get a free card but I can’t be sure that would be okay because, again, IANAL. Contact an actual lawyer if you want to make sure.

Hope this helps.

-Mike

#69 Dustin on 03.14.13 at 9:58pm

In your unprofessional opinion as not a lawyer, could I offer a free entry through mail and charge $1 for shipping?

Thanks Mike.

#70 MikeSchinkel on 03.14.13 at 10:10pm

Hi @Dustin,

Again, as not a lawyer, I can’t say but I think a test to apply is “Is what I’m doing an attempt to get around the spirit of the law where people pay for a ‘lottery’ ticket or not?”

To me what you propose seems to fail that test because you are asking them to send you money. If instead you asked them to send you stamps which you’d use to mail the card to them then it might be okay, but again (drum roll please :) IANAL.

Hope this helps,

-Mike

#71 Dustin on 03.14.13 at 10:22pm

Yes, I understand that, but the original spirit is to be giving. A cool reward and limited edition art, and in the spirit of baseball card packing style. Each pack of the pre-posted pack amount includes a signed piece of art, hand numbered, and one just happens to include a postcard that says ’send this in for a free guitar’.

The spirit and goal is to provide a cool reward, even at a low cost, to drive sales quickly, to award the guitar in a reasonable time, not having 150 packs left when it is won, because in the spirit of the contest, all packs are packed before any are sold, and i don’t know where the card or pack is amongst them.

So, the spirit originally intended is to merge cool rewards, limited edition art, and sports card packing distribution.

I could easily provide a postcard sent in a SASE sent to me, but to be fair to the contestants sent in, i’d have to open a pack and distribute those cards out, which isn’t in this spirit.

Again, i understand you are not a lawyer, and i’m not looking for legal advice, just a nice discussion on the subject. :) And I appreciate the quick replies.

I have included my website, which has the product I am talking about.

Thanks! Dustin.

#72 Dustin on 03.14.13 at 10:29pm

on another thought and possible avenue, is it sketchy, if I sold them to a charity i’m on the board of, for fundraising purposes?

#73 MikeSchinkel on 03.14.13 at 10:31pm

Hi @Dustin,

You don’t have to convince me. I’m no authority on the subject, I’m just a guy who happened to know a little about the subject, wrote about it, and now lots of people want to ask my advice about it. I do my best to help but it’s not my expertise and it’s not even remotely associated with how I make my income.

If you are confident what you are doing is within the spirit of the law then go for it. On the other hand if you’d prefer to manage your risk in case your interpretation is wrong, talk to an actual lawyer to make sure.

Hope this helps.

-Mike

#74 Dustin on 03.14.13 at 10:56pm

Thanks Mike. I tend to overexplain. LOL. Thanks for the discussion.

#75 Hugo on 03.18.13 at 12:47pm

What an interesting article AND comments! It strikes me that this post is over 6 years old and the last comment was just days ago. Secondly, I skimmed all of the comments and responses but may have missed it; but nobody seems to be the slightest big indignant at the law itself and the lawyers that come up with this garbage. Or the government that upholds this insanity. We just came off one of two weeks a year where the govt tells us what time it is. Maybe I still haven’t adjusted and am grumpy. But this is something I always wondered about. Now I know. And it still doesn’t make any sense to me. Somebody said it here: so the govt is the only one that can have a lottery. You can read all of the very creative ideas that people have here to promote their business, market their ideas, and bring a little extra value to their customers. But no you can’t. We all need to start having a lot more admiration for the creative minds like you see on this thread and less for lawyers and this modern administrative state. I’m going to bed and will not participate in Daylight Saving Time ever again.

#76 MikeSchinkel on 03.18.13 at 6:18pm

Hi @Hugo,

Thanks for the comment.

Yours is an interesting take. I will say that in this particular case I do think the law against private lotteries is a good law because lotteries don’t actually add value for anyone other than the company selling the tickets and probably for the few winners. On the other hand lotteries take advantage of so many people’s desire to “get rich quick” rather than working for it and they create very little value for the economy (other than funding education like here in Georgia which I must admit is a good thing.)

But if everyone were able to hold a lottery we’d have so many scammers taking advantage of people that I believe it would have a major negative effect on our society.

BTW, I’m a serial entrepreneur that ran into this this law for marketing campaigns we wanted to run but since I’ve really the reason for the law I’ve supported it.

#77 Kathy Gilroy on 03.25.13 at 1:46pm

Mike, please stop giving legal advice, especially since some of it is wrong. BTW, IANAL. I simply have an interest in this subject matter.

The best reference I have found in this area is Prof. I. Nelson Rose’s book Gambling and the Law. Re your answer to Bruce, in the book, Prof. Rose says, “There is nothing in the common law definition of gambling that requires that the promoter take the consideration, only that the bettor put up something of value.” Costs of stamps, phone calls, and texts have been allowed in AMOE’s (alternate methods of entry). But, enforcement varies from state to state. The state of Michigan brought suit against Sears for requiring a visit to the premises in order to enter a chance promotion.

Every state has raffle (a form of lottery) laws, usually requiring a license. Licenses are usually restricted to non-profit organizations, maybe political organizations.

Kaysee should report the bank to the OCC (http://www.occ.gov/). Actually, I have found that just threatening to report a bank to the OCC is enough to stop illegal activity. A gambling promotion by, or in, a bank violates federal law Title XII and could result in serious trouble. http://www.americanbanker.com/magazine/117_6/-314022-1.html

Any individual who violates gambling laws is risking a felony, fine, and jail time. Even lawyers sometimes give incorrect advice on gambling. And, YANAL. The lawyer should be experienced in promotion law. So, your best answer to all of these questions is the final line in this editorial: “Show it to a lawyer.” http://www.dmnews.com/editorial-no-purchase-necessary/article/78211/

#78 MikeSchinkel on 03.25.13 at 5:18pm

Hi @Kathy,

Thanks for taking the time to comment. It’s nice to have someone else comment who apparently has some knowledge of this issue.

However, I’m a bit taken aback by your tone. I am not giving legal advice as you assert, I’m giving layman’s risk-management advice regarding a matter of law from the perspective of someone who has paid lawyers in the past to discuss this issue with me. The fact that YANAL either makes your comment a bit hypocritical, especially when I wrote “But again, I am not a lawyer so can’t say for sure” in my reply to Bruce.

Ironically a friend of mine who *IS* a lawyer called me today to ask for some advice on my actual expertise (about WordPress) and I told him about this post, my replies to comments and then your comment and he scoffed about your comment and said “It’s a free country, we have free speech and you can write whatever you want!”

In (practically?) all my comment replies on this post I have made it clear that IANAL and thus anyone who would take legal advice from me as the final word on a legal matter (or from you, for that matter) is a fool. What I have done is make people who’ve read this post and any of my comments aware that there is a potential concern they need to worry about and thus should contact their lawyers if they find themselves are in any grey area.

Further, I am just a guy who wrote a post about a topic that I knew a little bit about that UNFORTUNATELY someone who gets a lot of traffic and lots of comments for his post where this post does not relate to any ongoing interest I have (and note I have no ads on this site – I decided Google AdWords were cheesy – so I get NO benefit from traffic or comments.) Every time I get a comment on this post I think to myself “Ugh, now I have to waste another 10-30 minutes answering” which is exactly how I felt and worse when I got your comment.

Why don’t I (1) take the post down, (2) turn off comments, or (3) just not answer? Because (1) I have an compulsive need to maintain history so can’t bring myself to delete the post and besides I think the post actually helps people. (2) Because I haven’t taken the time to figure out how to disable comments on just this post; I’d probably have to write code for it and I have too many other things I need to write code for. (3) I think it’s rude not to answer comments, I guess my parents just raised me to have consideration for others.

So why is a not-a-lawyer so interested in this topic? You did not give me your URL so I can’t learn more about you and LinkedIn has 23 of you so you are effectively anonymous and thus without any viable credentials.

I’m curious though; why is it that you feel you can give legal advice when YANAL yet feel it is appropriate for you to admonish me for writing what you think is legal advice? According to the fact YANAL you are no more qualified than me? And yes, some lawyers give bad advice; they are humans and humans are fallible. But so am I and so are you.

I have an idea; given that I’d rather not spend my time answered questions on this topic anymore which you want to admonish me for doing, and you seem to be the self-appointed expert why don’t I just forward you all the comment notifications and then you can come back here and provide them an answer that is “better” than the ones I might provide?

I’m COMPLETELY SERIOUS; since you don’t like my answers if you’ll promise to answer all the future questions asked on this post I’ll stop answering.

#79 Marc on 04.25.13 at 12:59am

Well that escalated quickly =)

Thanks for your posts and taking time thru these 6.5 years to keep responding to people.

#80 mikeschinkel on 04.25.13 at 2:42pm

@Marc - Yes, it did escalate. I guess I was having a bad day. :(

Anyway, thanks for taking the time to post your appreciation.

#81 GoPro Hero 3 Black Edition Giveaway at EdgeAutosport.com - Mazdaspeed Forums on 05.07.13 at 4:20pm

[…] AND SKILL CONTESTS – THE BASICS http://adage.com/article/guest-colum…-legal/149206/ http://mikeschinkel.com/blog/nopurch…ireditsthelaw/ I’d hate to see you guys at Edge get into trouble over […]

#82 Chris Cox on 05.09.13 at 9:43am

Hawaiian Air has a contest, but they run it thru Facebook. Facebook requires
You to join in order to enter the contest. Is join to play the same as
Pay to play?

#83 mikeschinkel on 05.09.13 at 2:33pm

Hi @Chris,

Thanks for the question. I don’t think it’s the same as pay to play given they company isn’t getting directly paid for a joining of Facebook and it doesn’t cost someone a fee to join Facebook. But some lawyer might make an argument that it is the same and then take it to court; until then we won’t know for sure because US law is based on precedence. FWIW, and again IANAL.

#84 Derrick on 06.08.13 at 11:48pm

Hey Mike,

We, a small for-profit company, started a raffle, and THEN a friend mentioned there might be some legal issues with it. So I’m trying to find a good-natured work-around. The goal is simply to raise funds and offer a chance at winning a legitimate photoshoot and website. So the cost for a ticket is $1 and they are placed in a bowl and the winning ticket wins. So my question is this:

1) Can we first, change the name from raffle, to “sweepstakes,” and then still charge $1 for entry, but also state on the website, No Purchase Necessary, and offer the ability to Mail-In a form for free, giving them equal opportunity to win as well. Would the contest, now become legal?

OR

2) Change the name to “Contest” and add some level of skill, where the person with “Most Creative Photo Idea” for their shoot, would win. Still charging the $1.

We’re a small business with a good heart, and had no idea there were laws regarding a raffle contest. Now we know. Thanks for your help!

#85 Derrick on 06.08.13 at 11:59pm

I also just saw your convo with kathy a few posts up from here…and you responded Exquisitely Well! Mike…Thank You! I appreciate your humility & knowledge, no matter how imperfect or whatever anyone may feel. You provide a glimpse of understanding on a subject that can make or destroy someone’s business. I implore you to focus on the NUMEROUS comments from people you have Helped, versus the ONE from someone…who…well…you said it best in your reply. Thanks Again Mike! I encourage you to keep helping people!

#86 mikeschinkel on 06.09.13 at 12:04am

Hi @Derrick,

Thanks for your comment. Remember, IANAL but…

1.) I don’t think you need to rename it although you can, but if you offer a mail-in form for an entry I’m pretty sure that’s all you need to do.

2.) That should work. But it could also limit entries so you may want to do #1. If you do a contest, might want to charge more per entry.

Yes, it’s not obvious to someone who doesn’t know, like I once didn’t know, but once you learn why the law exists it usually makes sense.

Hope this helps, and good luck!

-Mike

#87 mikeschinkel on 06.09.13 at 12:19am

@Derrick

Looks like your second comment crossed my first reply to you. Thanks so much for the kind words. It’s hard to know if I came across reasonable or like a jerk, so glad to hear you thought I was for the former. Again, hope my advice helps.

-Mike

#88 Derrick on 06.09.13 at 12:25am

Thanks so much Mike! And you have No idea how I appreciate your timely response as the Contest launched today and I was informed today. I’ll seek legal advice, but you gave me hope and a direction! Thanks Again!

#89 mikeschinkel on 06.09.13 at 12:40am

@Derrick - Glad I could help.

Good luck, and if you remember come back and let us know how it went after you finish the contest.

-Mike

#90 Valley Bob on 06.11.13 at 1:26pm

Great thread and thanks for keeping it going all this time.

I’m curious about “win your purchase” promotions, where a retailer says “one of our customers will win their purchase free”. If you Google “Win Your Purchase” you’ll see hundreds of these.

They seem illegal - purchase is required, drawing is random. Maybe because the $$ provided is actually for the product it’s not considered consideration for the contest? Also I don’t see any of them offering a way to win without purchasing a product.

Would appreciate any knowledge you can share. Thanks!

#91 mikeschinkel on 06.11.13 at 3:48pm

Hi @Bob,

Thanks for the kind comments.

You bring up a really interesting question, one I had not explicitly considered before.

So I did Google “Win Your Purchase” and the first page gave me results that confirm you comments. Looking at them I visited four (4) that had an alternate method for entry and two (2) that did not. The four that do are:

  1. usemyke.com - “Rules, 1. (Contained within): Participation by mail: NO PURCHASE NECESSARY.”
  2. ncix.com - “Beginning of fine print: No purchase necessary…”
  3. personaledge.com - “3.3. No purchase necessary…”
  4. bainultra.com - “Participation (Contained within): To participate without purchase…”

These two make no mention of “No Purchase Required” and are probably (unknowingly) violating the law:

  1. kingdomtruck.ca
  2. bikeforce.com.au

The thing is regarding these laws, violating them doesn’t always mean you’ll get caught by law enforcement and/or prosecuted. There has to be law enforcement paying attention and prosecutors who care about this issue, which typically means they pursue things seen as problems by the government, i.e. theft, murder, corruption, etc., things that the public cares about and/or things that can advance their career.

In the “violation” cases above if nobody ever contacts the government to complain about those two sweepstakes, and if it’s only one person does the contacting I doubt law enforcement or prosecutors would care enough to even contact them. Especially if it’s a small company; their reach is limited, few citizens would care and many might see it as government overreach and they couldn’t afford to pay a big fine either.

On the other hand if a company as large as Coke were to run a “Win your Purchase” promotion and didn’t offer a no purchase required way to win, I can guarantee you that a lot of people would complain and law enforcement and prosecutors would see it as high profile and pursue it vigorously (unless the economic development portion of the government overrode their zeal.)

Interestingly they almost all appear to be from Canada, and one from Australia; I wonder if this is culture specific to Commonwealth realm nations? :)

I don’t think I’ve yet said explicitly is that I’m pretty sure of the general laws on this topic related to the USA but have no idea of the law in other countries such as Canada and Australia although for first world countries I assume the laws are similar.

Anyway, hope this helps.

-Mike

#92 Valley Bob on 06.25.13 at 7:51pm

Thanks for replying, very helpful.

I’m not sure I get the “no purchase necessary” language in those - if it’s “win your purchase”, and you don’t make a purchase, do you win - nothing?

Also the usemyke.com terms, for example, cite a requirement to “answer a skill testing question” which seems like a weak attempt to make it a skill contest. And *then* they tack on NO PURCHASE NECESSARY.

So in that case at least is seems like they did their homework (read this post maybe ;) and covered themselves.

#93 Cara on 07.24.13 at 5:57pm

Very interesting page thank you, I was wondering if there was a way to ask people to put their names down to be picked to be a buyer of a item without breaking the law ? I sell hand made items and have many people wanting my work, I wanted to be able to find a way to pick a name at random who will be the buyer of that certain item. I don’t charge people to put their name down but I will be charging the winner for the item. Is this against the law and if so how could I do it without breaking any laws ? Doing it first come first served wasn’t working

#94 mikeschinkel on 07.25.13 at 11:44am

Hi @Cara,

Thanks for your comment and especially for providing a scenario that is unlike any others discussed here; how refreshing!

And let me congratulate you for being in a position where your demand is greater than your supply; kudos! Many people would love to be in the position. :)

To answer your question let me start by saying (again) that I am not a layer so can’t speak to your needs, and not living in the UK I have even less knowledge of your laws but that said I would be very surprised if you would have any issue at all with what you proposed unless you have some very peculiar local ordinances.

I can’t see anything wrong with your idea and it almost certainly does not violate the spirit of the laws that we have been discussing here. You are not creating an “ad-hoc lottery”; basically you are simply offering a method to choose how to allocate to your prospective buyers the opportunity to purchase an item which has a limited supply.

Another method for doing what you are asking is to offer an auction with a minimum bid; that might be the better way to go assuming you are interested in maximizing your revenue. But since an auction is almost certainly legal so should be your idea to randomly select the buyer. And sure, you can capture their name, no problem with that; company’s do it all the time on the web.

Hope this helps.

#95 Cara on 07.25.13 at 3:16pm

Thank you so much, I feel very blessed my art work is so popular. I do auctions but they end at such high prices it stops most from being able to own my work so I list set priced and cheaper ones but doing first come first served upset a lot of people due to the same people always getting there first, raffle style way of picking a buyer is very popular with my customers but I have been told Facebook states I now have to use a third party app so I wanted to make sure I’m not breaking the law. This page is a god send, thank you… Please keep it going.

#96 mikeschinkel on 07.25.13 at 3:18pm

Hi @Cara,

Again, I can’t be *certain* what you are doing is legal but I’m pretty sure it is. You might want to ask a local lawyer for an opinion, just to be sure. Not sure what’s up with Facebook but it’s probably a business decision by them.

Also, why don’t you leave a link to your website or Facebook page so we can see your work?

-Mike

#97 Robert Desbiens on 08.04.13 at 1:35pm

Motivate the masses. Says I won a prize and bought nothing. Bring home the parade.

#98 JC Marcase on 09.07.13 at 11:30pm

Do you think it’s still a lottery individuals can wager a specific amount between $20 and $100USD and the system allows them to select whatever they want for a redemption? In this system every single person WILL win a prize that they themselves will select. So the concept is kind of a blind purchase in that they will be purchasing a product but they don’t know what the product is until the server presents them with the items we have available. Do you think a no purchase necessary component is required in order to be within compliance? Thanks!

#99 mikeschinkel on 09.07.13 at 11:36pm

Hi @JC Marcase,

Thanks for the comment and that’s an interesting spin I’ve not heard of before.

My gut tells me it would probably require a way to play w/p pay because it’s based on chance and not skill, and for it to be viable for the provider of the offer it would need to payout less total than they take in (not that I’m sure that the latter would matter but it does seem to me like that would contribute to being seen as gambling.)

Consider a slot machine that always paid at least a nickel for every quarter that was entered. It seems to me that’s effectively what you are proposing and I can’t see such a slot machine as being viewed any other way besides gambling.

OTOH, and I’ve said many times above, IANAL so best to get legal advice if you really want to pursue this. Hope this helps.

-Mike

#100 JC Marcase on 09.07.13 at 11:47pm

Great insight Mike…consideration is ruining a great plan of mine.

#101 mikeschinkel on 10.23.13 at 10:00am

Hi Luke from Nov 30 2011 (sorry for the late reply):

Great question, and I don’t know if there is a limit, but it would seem that not having a limit would open a company up for question on the issue. And yes, they probably do want to make it harder to get a “free” entry; if you were trying to use a contest to sell something, wouldn’t you? (ignoring that doing so is probably following the letter of the law and not the intent.)

-Mike

#102 JJ on 10.28.13 at 5:05pm

What about a company that forces you to buy a yearly “membership” in order to buy their product?

My insurance company is owned by an association that makes all customers purchase a membership in order to be insured. The whole thing pisses me off. This sounds like extortion to me. Isn’t this against the constitution?

JJ

#103 mikeschinkel on 10.28.13 at 8:24pm

Hi @JJ,

Thanks for the comment.

Well, I don’t think requiring all customers to purchase a membership has the same issues related to sweepstakes; AFAIK (and yet again, IANAL) there are perfectly within their legal right to require that of you.

That said, maybe it’s time you shop for another insurance company?

-Mike

#104 Rachel on 11.09.13 at 2:16am

Mike, As many have said, it’s amazing and shows true commitment to the many years and much advice you have given here.

Knowing you are not an attorney and that I would best get advice from one, I pose following:

What is your layman’s opinion on having a prize giveaway (and would it be referred to as a sweeps?) where they have a no purchase option (simple site registration) as well as further options based on tasks they can carry out as a paid member of the site. The payment for membership is for the administration of the main functions of the site and, if members decide to do any of those functions, they can earn more entries (unlimited if they’re really busy). NONE of the functions involve games of chance or skill and they don’t have to get more giveaway entries, if they choose not to.

Is that clear enough to you?
*A “No purchase” entry option is available just for registering and no payment necessary.
*Becoming a member, the fee is to cover the regular use of the site and the functions of that site
*Additional entries can be earned as a by-product of utilizing the functions of the site, but it’s up to members if they want to redeem for more entries

Thanks for reading and replying. It is appreciated.

#105 mikeschinkel on 11.09.13 at 8:02pm

Hi @Rachel - Thanks for the comment.

Hmm. Yours is a really interesting hybrid. My IANAL response would be to look closely at how your winners are selected. You didn’t say but since you mentioned their activity wouldn’t require skill I assume you’d select winners by chance? If so then I think it would still be considered a sweepstakes. If not, maybe not.

Honestly, this one sounds like you should talk to a lawyer as it’s beyond my layman’s ability to guess.

Good luck with it and if you do ask a lawyer it would be great if you could give us an update. Thanks in advance.

-Mike

#106 Rachel on 11.10.13 at 10:44am

Since writing the other night and researching the subject further, including other venues we had plan to utilize, we decided to go in a different direction and your response seems to indicate that was a smart choice.

Thank you!

#107 mikeschinkel on 11.10.13 at 12:06pm

@Rachel,

Glad I could help, even if it was only slightly.

Good luck with your endeavor.

-Mike

#108 Buzz on 01.18.14 at 8:49pm

This law is pure idiocy. If I want to sell product and randomly give away a percentage of my revenue as cash prizes to purchasers in order to drive sales AND reward those who help me generate those sales, what business is it of the government to prevent that? Where is the FREEDOM? Who loses? Certainly, all the potential prize winners lose because now they have no chance to win anything. I lose because I have less of an ability to drive sales, promote my business, and create buzz and word of mouth. The manufacturers of what I would sell lose. The more I bang my head against laws of this idiotic country the more I dislike it. America is not the land of the free. It’s the land of the taxed and controlled.

#109 mikeschinkel on 01.18.14 at 8:57pm

Hi @Buzz,

While I appreciate the comment, let’s keep this focused on the topic and not devolve into a rant about everything we hate about the current government, or worse a contentious debate! Truth-be-told I could rant about the the NSA, Edward Snowden and Bradley Manning for hours but then that’s not the point of this blog post. :)

-Mike

#110 mikeschinkel on 02.15.14 at 5:49pm

Hi @Manolis,

I’m so sorry for the very late reply, I just discovered your comment in spam

I would like to create a scratch card game for my pizzeria (not requiring any skill) where the player could win free food, discounts or a grand prize. We would distribute these cards for FREE to current customers as well as mail them to all of the residents in our delivery area as a promotional tool. Would that be considered a lottery?

Although IANAL I’m pretty sure that as long as you allow someone to request a scratch card for free assuming they offer you a postage paid envelop then I think you are pretty much okay. And the reality is that (almost) nobody will every take you up on it but it gets around the law when your intent is reasonable marketing as in your case vs. trying to scam people.

Also would the prizes have to be no purchase necessary prizes or could we also have “free x with the purchase of __x__” prizes?

Although IANAL but I think this is absolutely okay because those are more promotions and/or for customer appreciation than a lottery. I think the problem is when your giveaway gives away things for free, or offers something of huge value for a trival cost.

Would we have to provide those scratch cards to the public if someone came in asking to take part in this game?

Ask your lawyer but I’m pretty sure you can ask them for a stamped envelope for each card. That said, if you don’t promote the fact that customers can get one by asking then chances are nobody will know to ask. And if a few did, you still got them as customers so where’s the real loss?

Finally, if a lot of people did it then terminate the offer and do something different; be sure to print on the cards that you can terminate at any time so that you won’t be put in a bad position if someone on social media told everyone in town that they could ask for the card (OTOH, if you got lots of new customers, would that be so bad?)

Good luck.

#111 mikeschinkel on 02.16.14 at 2:53pm

Hi @blue,

Sorry for the very late reply. I just found your comment in the spam folder.

I know you already answered Chad’s question about having to “like” a business on Facebook to enter a contest, but what about people who don’t belong to Facebook? Why should we be required to join and give private information to an external, totally unrelated company in order to enter a sweepstakes or prize giveaway—or even get a coupon?

IANAL so I’m not sure of the law, but I wouldn’t see a Facebook promotion as “requiring” you to join Facebook. Of course if you want to particate you have to but there’s no law I’m aware that says any and all prize giveaways need to be made available to any and all people. For example, prizes are given away to attendee of events that require the winners to be present to win and there’s not lottery concern here if you don’t have to pay to enter.

I found your article because i was looking for hope that there might be legal recourse to stop companies from trying to force everyone to use Facebook (and to a lesser extent, Twitter). There are even websites that only allow commenting if you use a Facebook login! I refuse to be strongarmed into it, but I see that my family may lose out in some cases.

Similarly having to be on Facebook to win is just like having to be in attendance at an event to win. There’s no law that I’m aware of that gives someone the right to win something whenever a company sponsors a contest.

I just don’t see how it’s fair to say everyone must join Facebook to participate.

It all depends on what “fair” means. And although it may not be fair I can’t believe it would be illegal, and frankly I would oppose efforts to make it illegal because making it illegal could have many unintended consequences of making other desirable things illegal.

I have written many emails to companies regarding specific instances where they require customers to join Facebook to participate in something, but I never get any response. Will there ever be consideration for people like me who refuse to give our personal information to Facebook?

Sorry to say, but the world is changing and just because we don’t like it doesn’t mean it is or even should be illegal. In my case, if I believe strongly in something they I choose to forgo the benefits of participating. Maybe you should too?

#112 mikeschinkel on 02.16.14 at 3:04pm

Hi @Brian (comment #40),

Thanks for commenting. Sorry for the late reply, just found your comment in spam.

Instead of the Rackspace poster indicating that a new customer could win 8 months free (which is illegal), had it said, “As a thank to our customers for 8 great years, on December XX, we are going randomly select one of our existing customers and give them their next 8 months of hosting for free.” Technically this would still be a chance event, however, the target audience would have changed; that is, since existing customers are now the target audience and they do not need to do anything additional (i.e. they are not being enticed into making an additional purchase for this chance), might it be reasonably argued that it is not a lottery/gambling but a thank you?

My non-lawyer thoughts are that the cut-off date for “customers as of” would have to be the day before they announced the giveaway otherwise is becomes a back-door incentive to buy and that’s what lottery laws are trying to avoid.

It’s also a tiny bit of grey area in that it could be an incentive for customers not to leave, but I doubt that would be enough to trigger legal oversight.

This would be like a store who surprises (i.e. no previous announcements) their 1 millionth customer with some sort of prize. In such a case, a purchase was obviously necessary for the chance to win the prize, however, since it was a surprise and there was no enticement to make a purchase for such a chance, would this be considered a lottery/gambling? Granted, this one millionth customer example differs in that there was not previous announcement of the prize prior to the event actually occurring.

In this case I think there is no problem at all. As I interpret it the problem occurs when the prize becomes an inducement to spend money; if it’s unexpected then I don’t think it would be a concern.

Now taken to the limit, let’s assume that Walmart started doing similar non-promoted daily giveaways in every store. People would become accustomed to it and would potentially be incented to buy things in hopes to be win that day’s giveaway. I could easily see that they could be prosecuted for that because, as I would argue, the prize is no longer “novel” and thus it becomes a strongly implied lottery. Just my thinking, anyway.

Even as a write this, I doubt that a court would be fooled by such language (because despite the fact it may be aimed at existing customers, new customers may join by December XX for the chance to win 8 months - in which case they are making a purchase for the chance to win a prize which, as you have discussed, is illegal). However, I would enjoy hearing your non-legal opinion on this.

Well, since I write answers as I read per paragraph of comments, I’ve already written your same conclusion above. :)

Thanks again for the comment.

#113 Mike on 03.28.14 at 5:54pm

A post from 2006 and still giving.. awesome!

#114 mikeschinkel on 03.28.14 at 6:21pm

Thanks @Mike!

#115 Jack on 04.04.14 at 5:22pm

Very interesting stuff. So, I read for awhile, until my eyes started to get tired, including the http://www.lacba.org/Files/LAL/Vol30No5/2395.pdf article,but it didn’t quite answer my question: What if I find a contest where one has buy a subscription, answer a question correctly and THEN the remaining participants are chosen at random? Does the question eliminate the chance criteria? Or does the randomness eliminate the skill of answering the question?

#116 mikeschinkel on 04.05.14 at 3:56pm

Hi @Jack,

Thanks for the comment.

As with all my answers to questions on this post I have to start with IANAL but my gut tells me that the purchase at the beginning and the random selection at the end will negate the skill required to answer the gating question although I can’t be sure without the specifics.

The rule of thumb I would use is to consider the spirit of the law; if purchasing increases chances of winning than it’s more like gambling and is not likely to be legal. If purchasing is an entry fee to participate in a true competition requiring skill to win, then it’s more like a contest and more likely to be legal.

So anything that tries to find a loophole in the law still violates the spirit and as such is more likely to be found to be illegal if challenged in court. But again, that’s just my non-lawyer opinion.

-Mike

#117 Dorothy Uhlman on 05.25.14 at 8:33am

thanks for the opportunity!
!

#118 Conte$ts on 08.09.14 at 8:53am

I’ve noticed an increase in even major companies skirting or outright violating the law. When you call them out by asking, no DEMANDING they give you an alternate entry method they are like Deer in Headlights.
During the Real Estate (Agent/Bank Created Bubble) Run Up there was a contest I saw that was only for people who had purchased a home through the sponsor…and the contest company was in New York! NO Alternate entry!!!
Now I see a major corp with heavy ties to D.C. with a contest where you have to PHOTOGRAPH (not render in cyberspace) your kitchen design with their Appliances!!! No Purchase Necessary? Are they LENDING entrants their products to be photographed?

#119 mikeschinkel on 08.09.14 at 8:55am

Conte$t - thanks for the comments. If you see those I’d suggest you contact the attorney general in the appropriate jurisdiction. Or at least link to them here!

#120 Brandon on 09.14.14 at 6:19pm

Great post, I’ve learned a lot from it, but have a question for you. I’m a for profit business in California.

Want to have a monthly give away of an item. Entry would be free by mailing me name, address and phone number. Drawing would be random at the end of the month. Would I also be able to charge $1 for additional entries and or count a comment and like on facebook as an entry?

#121 mikeschinkel on 09.14.14 at 8:45pm

Hi @Brandon,

Thanks for the question. That all sounds good except maybe the $1 for additional entries; you really should ask legal counsel about that because I’m just not sure.

OTOH, given it might trigger the gambler urge, it’s probably not something that would be legal. The Likes on Facebook are almost definitely legal, though since it doesn’t cost them anything and you can’t spend them, directly at least.

-Mike

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