By Stephen J. Cosentino, CIPP, and Abigail E. Flores
With the increasing popularity of online sweepstakes, many marketing companies promote sweepstakes and online contests as an attractive way to gain customers. Sports-related organizations and teams increasingly use these promotions, attracting people to the game within the game. Sweepstakes are not without risk, however. Even with fifty states and the Federal government enforcing sweepstakes law violations, not to mention consumer litigation, the sheer volume of sweepstakes and contests being promoted online means a lot of non-compliance under the radar. Many companies will adopt rules from a current promotion without considering the potential liability and regulatory risks. Taking the position that X company is running a particular promotion, so it must be ok, is a recipe for potential regulatory fines, negative publicity, and even costly class action litigation claims.
Sweepstakes are regulated by state illegal lottery laws that typically have criminal and civil penalties. Any U.S. sweepstakes conducted online must comply with all fifty state illegal lottery laws unless participants from particular states are excluded. An illegal lottery generally consists of three elements: (1) prize, (2) chance, and (3) consideration. Because there is always a prize, the sponsor must remove either the element of chance or consideration to make a promotion legal.
E-Sports and traditional sports competitions can be structured as true skill contests. These competitions do not involve an element of chance unless they include aspects of the game that the player does not control, such as a random tie-breaker mechanism. Chance is removed by making the promotion a true skill contest. Consideration is removed by including an alternative method of entry (AMOE). This often takes the form of a mail-in entry, typically on a 3X5 card, which has been used for years. In 2022, many people don’t have stamps, let alone 3X5 index cards, so your promotion’s possibility of AMOE abuse is relatively slim. However, there is a risk that a regulator could find this method unreasonable, given the declining use of snail mail.
Despite the type of promotion or the AMOE, promoters also need to avoid false advertising, misrepresentations, and deceptive trade practice claims. In Inc., Coinbase recently learned this lesson the hard way with its global $1.2 Dogecoin sweepstakes after participants filed a class-action lawsuit. Coinbase buried the AMOE in the official rules and used several marketing pieces that led individuals to believe that trading Dogecoins was the only way to enter. The court denied Coinbase’s motion to dismiss claims for false advertising or misrepresentations and found the plaintiffs stated a claim that the sweepstakes advertising materials were likely to deceive a reasonable consumer.
In general, sweepstakes laws and deceptive trade practice laws require the following information to be included in the terms and conditions:
- A statement that No Purchase is Necessary and that a purchase will not increase your chances of winning. The phrase “Many will enter, few will win” is also helpful.
- Eligibility requirements – any age, geographic or other restrictions.
- Entry Instructions – specific instructions on how to enter, including AMOE.
- Odds of winning – typically expressed as X winners divided by the total entrants; however, some statutes require an estimate of the odds.
- Important dates and deadlines – the start and end date for entry and the date the winner will be selected.
- Selection details – must indicate if using a third-party vendor to conduct the random drawing.
- Details of the prize – a description of the prize and the retail value.
In some situations, state law may have further requirements. For example, most states require that records be kept and that a winners list be made available. Florida and New York require that the sponsor post bond for the prize and register the promotion with the state. Also, promoters should prepare short, abbreviated rules to use in advertising copy that include the basic material elements of the sweepstakes and clearly state that no purchase is necessary and that there is an AMOE. Promoters must also comply with the “equal footing” rule, meaning that participants using the AMOE must have the same chance to win as those who pay an entry fee or purchase a product. To be safe, promotors should limit any actions required by AMOE entrants to receive the prize. States also have restrictions on using specific phrases, such as “You Are a Winner” or “Enter to Win.”
If conducting a Sweepstakes through social media, the sponsor will need to comply with the rules of the particular platform it chooses to use, and the endorsement guidelines from the FTC may require a participant to disclose that the post is related to a promotion. In the terms and conditions of the sweepstakes, a sponsor should release the social media platform from liability and state that the platform is not sponsoring, endorsing, or affiliated with the promotion. Specific platforms have rules on which entry methods are permitted, such as commenting on a post or following a particular account.
While there are many potential pitfalls in conducting sweepstakes, these promotions will continue to be a valuable marketing avenue for companies, including those in e-sports and online gaming. Companies should have their rules and marketing materials reviewed by experienced counsel and keep current with new developments in this ever-evolving field.
Stephen J. Cosentino, CIPP is a partner in the firm’s Kansas City office. He may be reached at steve.cosentino@stinson.com.
Abigail E. Flores is an associate in the firm’s St. Louis office. She may be reached at abigail.flores@stinson.com.
