Sweepstakes, Contests, and Giveaways: How Business Lawyers Can Avoid Traps, Pitfalls, and Giving Bad Advice

5 Min Read By: Alexander Denton

One of the most important parts of a business lawyer’s job is developing a firm understanding of his or her clients’ work. Knowing where a client is situated within its industry, how it arrived there, and where it aspires to be in the future is critical to a business lawyer’s ability to guide the client through a difficult situation or assist it in taking steps toward accomplishing its goals. We need a working familiarity with our clients’ regular operations, procedures, policies, and practices in order to counsel them in the matter at hand and to be prepared to represent them in the matter that’s lurking around the corner.

But what happens when a client wants to try something different? Not a change in direction or identity, but a new way to promote a service or engage with potential customers. A giveaway to generate buzz about a new product? A raffle to raise funds for a nonprofit client? If Oprah and HGTV can promote sweepstakes for their viewers, why can’t your client? What exactly is a sweepstakes, again?

Even amidst the sports wagering craze that has followed the Supreme Court’s 2018 decision in Murphy v. NCAA, most people—attorney and layperson alike—have a pretty good sense that gambling generally is illegal or, at least, very highly regulated. But a raffle or a product giveaway seems safe and easy, right?

Of course, there’s no brighter line or bigger obstacle in this area than those that describe the concept of gambling. Because most gambling regulation occurs at the state level, legal definitions of and exceptions to gambling prohibitions can vary across jurisdictions. Usefully, however, these definitions commonly tend to reduce to three elements: (1) consideration to play (2) a game of chance for (3) an opportunity to win a prize of monetary value. A proposed activity usually qualifies as gambling (and, absent a specific exemption, usually therefore is illegal) if it satisfies all three of those elements. On the other hand, omission of even one of these elements can mean the activity in question is not gambling, and the activity therefore may be lawful. Thus, a raffle with free entries may be a fun and legally compliant way for a lucky raffle-entrant to receive a bicycle (even if it isn’t the most direct way for the raffle’s sponsor to make money).

Bypassing the pay-to-play aspect (element 1) of an activity is not always as easy as it might appear. Is it sufficient if participants may but aren’t required to pay, or must the organizer prohibit all participants from paying? The distinction can make a material difference. More broadly, consideration in this context is not confined to money and could appear in the form of a requirement that people engage with or subscribe to a company’s social media feed.

Whether the activity in question is one for which the outcome depends on skill or chance (element 2) or a particular blend of both can present an especially fact-dependent analysis in which different states take different approaches. Some jurisdictions may affirmatively define certain popular activities as being games of skill or chance for legal purposes. Keep in mind that although some committed or successful participants might contend that outcomes are due to the player’s great adeptness for an activity, those mere contentions are unlikely to provide a useful counterpoint to a legislative or regulatory determination to the contrary.

Sweepstakes are contests of chance in which participants may enter to win a prize but need not pay to enter nor, usually, may increase their odds of winning by paying to enter. They merit their own discussion because they tend to be the specific subject of regulation or prohibition in many jurisdictions. This regulation has served to popularize phrases such as “no purchase necessary” to enter (a reference to “alternative method of entry”), “self-addressed stamped envelope,” and “universal product code.” In some areas, the familiar sweepstakes operated by Publishers Clearinghouse, McDonald’s, and Pepsi have given way to sweepstakes cafes, parlors, or game rooms, which exist in gray areas of uncertain legal propriety. While the operators of these conventional and modern sweepstakes are in the business of sweepstakes, rather than companies looking to use a sweepstakes to promote an otherwise independent consumer product, examination of their conduct is useful for understanding how states regulate sweepstakes. The regulations often include requirements that can feel onerous to an entity contemplating a sweepstakes as an ancillary promotional activity rather than its primary business. For example, state regulations may include obligations to publish detailed rules, provide notices, register with the government, and provide bonds for prizes above certain values.

Fantasy sports, which operators and proponents alike have long argued is a contest of skill such that consideration and prizes are allowable, also merit discussion. Several states have passed legislation expressly authorizing fantasy sports, including daily fantasy sports (“DFS”), while others have found it to be a prohibited form of gambling. Some of those legislative edicts, in turn, have been subjected to judicial scrutiny under applicable state constitutional tenets. Increasingly, though, battles over the legality of DFS are giving way to new policy initiatives involving the authorization of traditional in-person and mobile sports wagering.

When researching an applicable jurisdiction’s law addressing these types of activities, remember that different states take different structural approaches to legislating and regulating in this area. In some states, a gaming commission or board may be the applicable governing body, while in others it may be a lottery agency, department of revenue, or even the department of agriculture. Still others may take a stripped-down or decentralized approach, leaving the matter to the state’s penal code and enforcement by a patchwork of statewide, county, or local law-enforcement officials.

Sweepstakes, contests, and giveaways can be exciting and effective ways for clients to promote their businesses. While business lawyers need not be specialists to be able to spot major legal issues in this area, consultation with someone familiar with the applicable jurisdiction’s regulatory particularities is recommended.

By: Alexander Denton


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