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.
- I won’t even mention that at first glance the email implied that everyone could get eight (8) months free…
78 comments ↓
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) ?
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.
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
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?
@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
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
Thanks Mike. Found this as we were considering offering promotions like this. Thanks for explaining it simply.
@Micah: Glad it helped! Hope you are doing well.
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.
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.
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)
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
Thank you so much for posting this. I was wondering about the laws in Florida. I guess only state governments can run lotteries :)
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?
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?
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.
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:
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.
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.
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.
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
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 [email protected]
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
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….
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
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?
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
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?
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?
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.
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.
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?
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.
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
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.
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
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. :)
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
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 …
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.)
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.
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:
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.
@Chris - Cool. Thanks for the follow up.
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?
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?
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?
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/
@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.
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.
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?
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.
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.
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?
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?
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.
@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.
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?
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
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.
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
@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.
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
@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.
Hi @Josh,
Cool. Thanks for the update.
-Mike
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
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
In your unprofessional opinion as not a lawyer, could I offer a free entry through mail and charge $1 for shipping?
Thanks Mike.
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
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.
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?
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
Thanks Mike. I tend to overexplain. LOL. Thanks for the discussion.
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.
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.
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/
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.
Well that escalated quickly =)
Thanks for your posts and taking time thru these 6.5 years to keep responding to people.
@Marc - Yes, it did escalate. I guess I was having a bad day. :(
Anyway, thanks for taking the time to post your appreciation.
[…] 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 […]
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?
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.
Leave a Comment