A current marketing trend is to use social media sweepstakes for promotional purposes, for example, “Like and share our Facebook or Instagram post for a chance to win a $100 gift card!” or “Take our five-minute survey for a chance to win a month’s free gas!” But with many advertising and promotional campaigns, the law may complicate matters. Sweepstakes and contests on social media raise several important legal issues that businesses must consider when launching a sweepstakes or contest, or businesses run the risk of violating lottery laws. state and other applicable laws relating to lottery and gaming operations.
Why talk about “lotteries” when marketing only wants to create a “sweepstakes” or a “contest”?
The answer is simple: if a sweepstakes or contest does not comply with applicable laws, the promotion risks being considered an illegal lottery and could expose the company to regulatory action, including civil exposure and criminal. States generally define lotteries as having three elements: 1) prize, 2) luck, and 3) consideration. In other words, an illegal lottery occurs when participants provide something of value (consideration) for a chance to win a prize.
If your sweepstakes or contest has all three of these elements, it is likely a lottery and may violate applicable lottery laws unless it falls under a recognized exception. This article provides more details on these three elements of an illegal lottery. A price, which is the main reason (along with consumer engagement) why companies run these promotions, is self-explanatory. Chance and consideration require further explanation.
The element of chance
When chance is involved in a promotion, it means that victory (or the selection of the winner) depends on chance (in some way), not necessarily on skill. For example, winning a sweepstakes depends on chance because the winners are drawn at random. On the other hand, a golf tournament mainly depends on skill because the golfer who has played with the most skill during the tournament wins. The line between a game of skill and a game of chance can become blurred in games such as poker, which have both a material luck component and a skill component.
States generally use one of three different tests to determine whether mixed games of skill and chance – for example, poker – are legally considered a game of chance or skill: 1) The predominant factor test ; 2) the test of the material element; and 3) the test of chance. The predominant factor test, which is most commonly used by states, analyzes whether the predominant factor in gambling is chance or skill. States using the predominant factor test for poker might argue that although the random cards players are dealt are random, skill predominates over that chance because knowing how to play cards, reading other players, and a strategically placed bet is a skill. . Thus, states using the predominant factor test may consider poker to be either a game of chance or a game of skill. Second, the material element test holds that if chance is a material element in a game, then the game is one of chance. States using the material element test would likely consider poker to be a game of chance because the element of chance of random cards is important to poker. Finally, the all chance test, which is the least common test used by states, holds that games with any element of chance are gambling. Therefore, a poker contest can be a game of skill under the predominant factor criteria and a game of chance under the material element and any luck criteria. This is important because chance is an element of an illegal lottery, which businesses must avoid.
The element of consideration
Consideration is a legal concept. In non-legal terms, consideration is either 1) doing something you are not legally required to do, or 2) promising not to do something you have the right to do. To explain consideration, let’s use a social media contest that requires participants to like and share a post to win a corporate gift card.
The problem with “consideration” in social media sweepstakes is whether requiring participants to “like”, “comment” or “share” a post reaches the level of “doing something that you are not legally required to do” – or “consideration”. On the one hand, someone without social media would have to create a social media account, like a post and share the post – doing something they’re not legally required to do (not to mention the effort required to create an account with the valuable personal identification information that the participant will have to provide). On the other hand, so many people these days have social media accounts that a regulator or court may find that liking and sharing a post doesn’t satisfy the “consideration” element. illegal lotteries laws, even if the users are technically doing something they are not doing. legally required to do. Again, the lines are blurred here. The conservative approach is to analyze consideration in contract law. If a contest requires entrants to like, comment on, or share a social media post, this is likely a consideration because the promotion requires entrants to perform an action or tasks that they are not legally required to do. TO DO. Luckily, there’s a simple workaround to minimize and, potentially, avoid consideration issues when hosting social media and other sweepstakes.
Best Practices to Avoid Illegal Lottery Issues When Running a Sweepstakes or Contest
Make your contest legal
As stated above, it is an easy mistake for a company to fail to identify that all three elements of an illegal lottery are present in a proposed contest. Again, from a conservative perspective, a typical social media sweepstakes has 1) a prize, 2) a chance, and 3) likely consideration because entrants generally need to do something – such as liking, commenting, and sharing a post – to participate. To make your sweepstakes legal, you must remove one of these items. Since price and luck usually cannot be removed, companies usually remove the element of consideration.
The workaround to remove consideration is to add an option in the terms and conditions to enter the contest via an “Alternative Method of Entry” (AMOE) or “Free Entry Form” that eliminates consideration. A joint AMOE allows entrants to mail the contest sponsor a 3 by 5 inch note card with entrants’ personal information, which the courts have previously held. is not consideration. Although this AMOE technically requires participants to do something that they are not legally required to do, courts generally consider this method to be too minimal to constitute consideration. In legal terms, it is a “token” effort that is not taken into account. Another potential AMOE could be to allow participants to submit their contact information online, without asking anything more. That said, it’s important for companies to note that AMOE participants should be treated with the same dignity as other participants – therefore, the odds of winning from AMOE participants should be the same as paid or consideration participants. Additionally, companies should avoid implementing similar procedures or requirements that restrict or deter AMOE entrants. Engaging in such activity not only presents illegal lottery issues, but also potential allegations that the company has engaged in unfair and deceptive business practices.
Yes, you heard right. You can ask participants to almost anything on social media (that wouldn’t otherwise violate the law) that could be considered as long as there is another input option method that “overrides” the consideration. As such, sweepstakes usually need AMOE to eliminate any consideration related to their proposed sweepstakes. These AMOEs are why companies routinely use “no purchase necessary to enter” language when promoting sweepstakes.
Make your contest legal
Unlike sweepstakes where the main problem is removing the quid pro quo, the main problem with contests is the element of luck (contests have a prize and the quid pro quo forces participants to enter the contest). Therefore, to make a contest legal, companies usually remove the “luck” element.
That said, companies need to determine where they will hold a contest, as states use three different tests to assess whether a game is a game of chance or a game of skill: 1) the predominant factor test; 2) the test of the material element; and 3) the test of chance. As such, it is extremely important to understand which test is used in the state where the contest will be held as the legality of the contest differs depending on the test.
Finally, regardless of how the contest unfolds, it is important to have concrete, clear and objective criteria according to which the winner of the contest will be selected. This criterion makes it possible to affirm that the contest is indeed a contest and not a draw because the winner is determined by objective criteria and not by chance. Otherwise, the contest may be considered a draw.
While sweepstakes and contests are commonplace on social media (and online) and provide great opportunities for businesses to engage with customers and consumers, these promotions present unique legal risk considerations. It is important that companies implement policies and procedures (as well as official rules) relating to these promotions. And, finally, while companies may have sufficient policies and procedures, it is always important for companies to consult with an attorney before conducting such promotions as there may be unique requirements imposed by state law. (and applicable federal law) – such as registration, bonding, required disclosures and notices and other reporting obligations – depending on the structure and price of the promotion.