You Could Win! Marketing Your Promotions.

The Basics: A General Summary of Contests and Sweepstakes

What is the difference between a sweepstakes and contest? It boils down to the inclusion of one element – the element of chance. In a sweepstakes there is merely a chance, or a random possibility, that a person may win the prize. In a contest, however, the winner is selected based on a particular skill or accomplishment.

• A sweepstakes, or game of chance, is a promotion involving the selection of a winner during a random selection from all entries. Thus, a sweepstakes has the element of “chance” because the entrant has no control over whether he wins. The most common type of sweepstakes consists of random drawings, which may be completed by individuals or technology.
• A contest, or game of skill, is a promotion involving the selection of a winner based on skill-based criteria, and these skill-based criteria must be explained to entrants in advance. The sponsor of a contest must use these skill-based criteria to judge all contest entries and determine the winner(s) based on those entrants scoring the highest.

Some Other Models ...

Nowadays companies are getting creative and thinking outside the box when launching promotions. Some have developed loyalty programs that award customers who keep coming back. A good example of a loyalty program is a frequent-flyer program or a sandwich card that gives you a free meal after you purchase 10 sandwiches. These programs reward consumers who keep returning and typically have terms or rules that set out the guidelines for the consumers’ receipt of the advertised gift(s).

Creative marketers have also begun to reward clients and employees through incentive programs. An incentive program rewards participants for performing certain activities, or achieving certain goals. For example, a sponsor might offer a program whereby each employee who sells a certain amount of a product will receive a gift, or an incentive. Just as with loyalty programs, these incentives must be clearly explained to consumers through extensive terms, which are considered the contract with the consumer.

What About Poker?

Poker is a game that is not easily definable as falling squarely within the definition of a sweepstakes or contest. This is largely due to the fact that the courts and regulators in some states have come to different conclusions on whether poker constitutes a game of chance or a game of skill. For example, a Pennsylvania state court held in January 2009 that poker was a game where skill predominates over chance, while an Ohio statute classifies poker as a game of chance. This distinction matters when considering entry fees for otherwise “free to play” poker tournaments.

It Gets Complicated …

Lottery Laws

Promotions are regulated by a patchwork of federal and state laws. These laws are fairly consistent in defining an illegal lottery as a promotion that contains all three of the following elements: (1) prize, (2) chance and (3) consideration. Thus, in order to have a legal promotion, you must eliminate at least one of the three elements as well as conform to all applicable state lottery, gaming and advertising laws.

What is Consideration?

Of the three elements, “consideration” causes the most confusion. Generally, consideration is present when an entrant is required to make a purchase or pay money. For example, requiring all entrants to purchase a particular product or attend a conference in Nevada in order to enter a promotion would likely constitute consideration. Similarly, consideration has been deemed to exist when a sponsor requires entrants to attend a sales pitch at a retail location in order to enter the promotion.

The latter example is one of nonmonetary consideration. Essentially, this type of consideration arises when a sponsor requires time and effort from entrants, even if this time and effort is “free.” Not all states prohibit nonmonetary consideration. In fact, each state has its own lottery laws regulating contests and sweepstakes, and each state attorney general's office interprets those laws. Some states may find consideration only when the entrant has expended considerable effort, such as completing a 25-page survey, while other states might find consideration when the actions of the entrant provide a benefit to the promotion's sponsor.

Consideration may also be found when the winner is required to affirmatively act, such as making a purchase or traveling to a particular location, in order to claim the prize. For example, if the winner of a promotion won a $20 discount off the purchase of an item that cost $100, this would be problematic because the winner would have to spend $80 to claim the prize. When a promotion calls for such an act, regulators in some states have deemed it “postconsideration” and have found that such consideration makes the sweepstakes illegal under lottery laws.

Thus, whether a sweepstakes involves “consideration” will vary according to specific facts of your promotion and state law. To safeguard your sweepstakes and to avoid liability, it is advisable to have an attorney experienced in this area of the law review the specific facts of your promotion.

Free Method of Entry

To avoid any issue of a promotion being deemed illegal due to the presence of consideration, promoters should ensure that all entrants are given a free method of entry. Regulators in many states have interpreted the word “free” to mean that the participant does not have to expend money or a significant amount of effort or time to enter.

To ensure there is a free method of entry while still accomplishing the goal of the promotion, promoters may offer an alternative method of entry. This alternative method of entry must afford “equal dignity” with the pay method of entry. In other words, entrants who enter for free must have the same opportunity to win as the entrants who pay to enter. This means that entrants entering for free must also be permitted to receive the same number of entries as those entrants who pay to enter. In addition, a sponsor cannot make it unreasonably difficult to enter for free, either by requiring an extensive amount of effort to obtain a free entry, or by failing to disclose to consumers the presence of a free method of entry.

Finally, some states require the free method of entry be in the same format or method that is used for the pay method of entry. For example, if a person can enter by purchasing an item at a checkout of a pharmacy, then it may not be sufficient (depending on the state) to have the only alternative “free” method of entry to be via the Internet. Some state regulators have found that the free method of entry would also have to be available at the checkout or at possibly by mail.

Mobile Madness: Entering via Text Messages

One of the more recent marketing tactics has been to incorporate an entry method via text message into the sweepstakes model. A question arises as to whether requiring persons to send a text, which could cost less than a postage stamp in many instances, constitutes “consideration.” This question has not yet been evaluated by the courts, but by applying the standard theory of consideration to the concept, some have argued that requiring entrants to have a mobile phone and send a text message constitutes consideration. Thus, to be safe, it is always best to include an alternative free method of entry. Click here to read an article discussing the recent cases involving text message promotions.