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Social Media Promotion Law: Contests and Sweepstakes

The laws governing the sponsorship and hosting of social media promotions are widely overlooked or misunderstood. This chapter provides a brief overview of the laws you need to know to avoid placing your business at legal risk. It also identifies the steps you can take to minimize legal exposure while reaping the benefits of social media promotions.
This chapter is from the book

Social media promotions, including contests, sweepstakes, raffles, drawings, giveaways, and freebies, are an effective means to achieve the most highly sought-after social media business and marketing objectives, including:

  • Growing your company’s social influence and reach (for instance, increasing the number of friends, fans, followers, subscribers, group members, and the like within branded social properties)
  • Growing brand awareness, demand, and loyalty
  • Fostering brand engagement
  • Submission of user-generated content (UGC) and the placement of valuable backlinks (for example, getting users to discuss your products and services, post their comments, reviews, endorsements, and so on)
  • Promoting and evangelizing the value of your products and services on your behalf (that is, capitalizing on word-of-mouth buzz and referrals from friends)
  • Increasing web traffic
  • Improving your site’s findability and search rank (through search engine optimization [SEO] practices)
  • Increasing sales

In short, social media promotions provide companies with an opportunity to forge real-world connections and lasting impressions with their audiences by way of immersive branded experiences and thereby (it is hoped) sell more products.

Unfortunately, the laws governing the sponsorship and hosting of social media promotions are widely overlooked or misunderstood. This chapter provides a brief overview of the laws you need to know to avoid placing your business at legal risk. The advice here applies regardless of whether you’re an independent blogger, a sole proprietor, small to mid-sized business, or a large multinational conglomerate. This chapter also identifies the steps you can take to minimize legal exposure while reaping the benefits of social media promotions.

Online Promotions

Generally speaking, there are three types of online promotions:

  • Sweepstakes—Sweepstakes are prize giveaways where the winners are chosen predominately by chance. A sweepstakes prize can include anything from a free downloadable music video to an all-expense-paid trip to Paris.
  • Contests—Contests are promotions in which prizes are awarded primarily on the basis of skill or merit (for example, the best poem or the winner of a trivia game). Entrants in a contest must be evaluated under objective, predetermined criteria by one or more judges who are qualified to apply such criteria.
  • Lotteries—Lotteries are random drawings for prizes wherein participants have to pay to play. A lottery has three elements: prize, chance, and consideration (as defined here). Unlike sweepstakes and contests, lotteries are highly regulated and (with the exception of state-run lotteries and authorized raffles) illegal. Further, each state has its own definition regarding what constitutes consideration. Usually, it is money, but it generally also includes anything of value given in exchange for the opportunity to enter and win, including the entrant’s expenditure of considerable time or effort.

Sweepstakes Laws

All sweepstakes must have official rules, which cannot change during the lifetime of the sweepstakes. To comply with all 50 states’ statutes (and corresponding case law), the official rules should typically include the following information:

  • Clear and conspicuous statements that “no purchase is necessary” and “a purchase will not improve one’s chances of winning”
  • The method of entry, including a consideration-free method of entry that has an equal chance with the purchase method of entry (so that all entrants have an equal chance of winning the same prizes)
  • Start and end dates of the sweepstakes (stated in terms of dates and precise times in a specific time zone for online promotions)
  • Eligibility requirements (age, residency, and such)
  • Any limits on eligibility
  • Sponsor’s complete name and address
  • Description and approximate retail value of each prize, and the odds of winning each prize
  • Manner of selection of winners and how/when winners will be notified
  • Where and when a list of winners can be obtained
  • “Void where prohibited” statement

Whenever consideration is involved in a sweepstakes, a free alternate means of entry (AMOE)—for example, an online entry form, entry by mail, or entry by email—must be offered to maintain the legality of the promotion. This requirement, which would appear simple enough to satisfy in theory, has proven quite tricky in practice, as the concept of “consideration” is deliberately amorphous and subject to different interpretations from state to state.

To complicate matters further, some states require the free AMOE be in the same form that is used for the pay method of entry. In 2004, for example, the New York Attorney General challenged the retail-drug store chain CVS for offering an in-store sweepstakes—a “Trip of a Lifetime” sweepstakes with the grand prize trip to Oahu, Hawaii—in which customers using a store loyalty card were automatically entered into the sweepstakes, while non-purchasers were required to enter online. Because not everyone has access to the Internet, the NY AG reasoned, an off-line (that is, in-store) AMOE needed to be offered as well, regardless of whether the consumer has made a purchase.2

To preserve the legality of sweepstakes, AMOEs need to be carefully structured to ensure that they are known and made available, with equal prominence, to the same potential population as the paid entries.

Contest Laws

Like sweepstakes, contests are also subject to specific state laws. Generally speaking, for a national contest, the official rules must contain at least the following disclosures (which, absent extreme circumstances or circumstances identified in the rules, cannot be changed during the course of the contest):

  • The name and business address of the sponsor of the contest
  • The number of rounds or levels of the contest, the cost (if any) to enter each level, and the maximum cost (if any) to enter all rounds
  • Whether subsequent rounds will be more difficult to solve, and how to participate
  • The identity or description of the judges and the method used in judging (for example, what objective criteria is being used to judge the entrants and what weight is being assigned to each criteria)
  • How and when winners will be determined
  • The number of prizes, an accurate description of each prize, and the approximate retail value of each prize
  • The geographic area of the contest
  • The start and end dates for entry (stated in terms of dates and precise times in a specific time zone for online promotions)
  • Where and when a list of winners can be obtained

Lottery Laws

When a promotion combines the elements of prize, chance and consideration, it’s a lottery—and it’s illegal! By eliminating any one of these elements, companies may avoid the illegal lottery designation. In the case of sweepstakes, the element of consideration is generally omitted; in the case of contests, it is the element of chance that is removed—or at least, significantly reduced—to make the promotion legal. Promotions would have little appeal if the prize were removed, so this element usually is left intact.

So what is consideration? In the context of sweepstakes, contests, and lotteries, consideration is generally defined as anything of value given in exchange for the opportunity to participate in the promotion. Consideration generally takes one of two forms: monetary, in which the consumer must pay the sponsor to play (purchasing a product or the payment of an entry fee, for example), or non-monetary, in which the consumer must expend substantial time or effort (completing a lengthy questionnaire or making multiple trips to a store location, for example) to participate.

The majority of states have adopted the monetary approach, providing (by statute or judicial opinion) that non-monetary consideration is not deemed to be consideration for purposes of lottery laws. Further, virtually every U.S. state will authorize a promotion to include a “pay-to-play” component, provided a free AMOE is also made available by the sponsor.

As noted, eliminating the element of chance from a promotion removes it from the ambit of lottery prohibitions. However, depending upon the degree of chance present, a promotion intended to be game of skill (contest) could be unwittingly transformed into a game of chance (lottery).

The determination of whether a contest constitutes a lottery can oftentimes be rather tricky, as there are several factors that must be considered and states generally employ different tests, namely:

  • Dominant Factor Test—Under this test, followed by a majority of U.S. states,3 a promotion is deemed a game of chance (lottery) when chance “dominates” the distribution of prizes, even though the distribution may be affected to some degree by the exercise of skill or judgment. In other words, in these states, a promotion is legal if it is based on at least 50% skill, and illegal if based on more than 50% chance.
  • Material Element Test—Under this test, followed by a minority of states,4 a contest will be considered a game of chance (lottery) if the element of chance is present to a “material” degree.
  • Any Chance Test—Under this test, a contest will be categorized as a game of chance (lottery) if there is any degree of chance involved, however small. As virtually every game has some element of chance, most skill games will be categorized as illegal lotteries in those states that apply the Any Chance Test.
  • Pure Chance Test—Under this test, which is rarely followed, a promotion must be entirely based on chance to be an illegal lottery. The exercise of any skill by a participant in the selection or award of the prize removes the promotion from the definition of a lottery.

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