Are You Feeling Lucky? What Businesses Need To Know About Running A Promotion

Standard Disclaimer: Vidar provides posts in this blog as general information. This is not meant to be specific advice and your business should always talk directly with a lawyer about your individual business needs.

Running a promotion, such as a contest or a sweepstakes, can be a great way to generate interest for your business. Even better, most promotions don’t require an expensive giveaway in order to be successful. Both new businesses, as well as established companies, can reap big rewards from promotions or giveaways. Promotions can be run on a social media platform such as Instagram or Facebook, through your company’s website, or as part of a live event. Promotions are flexible, fun for your customers, and a great marketing tool for your business. However, there are rules, from multiple sources, that apply when businesses run a promotion, and you need to make sure yours follows those rules.

Avoid An Illegal Lottery

The first thing you need to do is make sure your promotion will not be considered an illegal lottery. Why? Because lotteries are heavily regulated and are usually only run by the states. Essentially, you are not allowed to run a lottery. So, how do you know if your promotion is a lottery? There are three main features of a lottery:

1. The prize is something valuable;
2. The person entering has to give something of value (usually money) in order to enter; and
3. The prizes are awarded at random.

If you only have two of the three, you probably avoid being considered a lottery. For example, if you have a valuable prize and the person has to pay an entry fee, but the prize is awarded based on merit, then this is considered a contest as opposed to a lottery. An example of a contest might be a 5K run where participants pay a fee to enter and a monetary prize is given to the winner.

Similarly, if you award a valuable prize and you award it at random, but a person doesn’t have to give anything of value in order to enter, then this is considered a sweepstakes and will probably avoid the illegal lottery definition. An example of a sweepstakes might be something where a person sends in an entry form for a chance to win a trip.

It is important to be careful with a sweepstakes because you cannot require the entrants to provide anything of value in order to enter. Most people think they are fine as long as they don’t require anyone to pay money, however, in some cases, things other than money can be considered valuable. When evaluating whether the sweepstakes require something valuable, a majority of courts have considered the burden to the person entering the contest, but a minority of courts looked at it from the perspective of the business running the contest. You need to take this into consideration when setting up your sweepstakes.

Understand What Rules Apply

Making sure you avoid creating an illegal lottery is only the first step. There are a number of other laws and rules that may apply to your contest or sweepstakes. In the United States, each state has slightly different rules for contests and sweepstakes. Some states have more aggressive restrictions than others. For example, Florida requires a company to post a bond if the total prize for your sweepstakes is $5,000 or more. Of course, you can avoid this bond requirement by either making sure the prize pool is less than $5,000 or excluding Florida residents from your promotion.

Beyond individual state rules, if you are trying to reach an international audience, you need to consider international laws. Just like variations from state to state, some countries are also more restrictive than others.

Finally, you need to make sure you are following the rules of the forum in which you run your promotion. For example, Instagram has its own rules for companies that want to run a promotion.

So, with all these different laws, rules, and potential pitfalls, is it even worth it for your company to run a giveaway? Yes. You just need to make sure you work with someone who understands the laws and you need to set up an appropriate set of rules for your promotion.

Draft Written Rules For Your Promotion

If you are going to sponsor a contest or sweepstakes, you need to have written rules. There are lots of variations and specific things you might include, but at minimum, you should include the following:

• Make sure your rules track with appropriate state rules. Whatever state you will be running your promotion in, make sure you understand the rules. If you are running in more than one state, make sure you are following the most restrictive state rules. If you don’t think you can follow a particular state rule, you should make an express exclusion of people in that state.
• Disclose the sponsor. This one is pretty simple. If your company is running the promotion, make sure your company’s name is listed in the rules as the sponsor.
• Include eligibility requirements. It may be appropriate to limit the promotion to people over a certain age or people living in a certain area. Make this clear in your rules.
• Make the entry period clear. You probably don’t want your promotion to go on indefinitely. Place strict cut offs for entries.
• Tell people how to enter. Make this very clear. It is also a good idea to include the language “no purchase necessary” and provide a free alternative method of entry (this helps make sure your sweepstakes is not considered a lottery, even if you are asking people to provide some limited information to otherwise enter).
• Tell people how the winner will be selected. This should be clear and include any alternatives that might be necessary based upon your particular contest.
• Disclose the exact prizes. You should tell people exactly what, and how much is being given away.
• Let your fans/customers know if and/or how you will use their information. Many times, during the course of a promotion, your company will have an opportunity to collect certain information from people who enter. It is critical for you to decide if you will collect information and what information you will collect. It is also critical that you disclose the scope of your information collection to the people who enter the promotion. Full and accurate disclosure can save you from a lawsuit down the road.

Obviously, there are other things that can be added to this list, and each promotion will have unique requirements. However, hopefully this will give you an idea of some things to think about as you begin to plan your next company promotion. And of course, you should consult with your business attorney before launching any promotion.