Running a legal contest or contest in the world of esports and online gaming | Stinson LLP

With the explosion of online sweepstakes in recent years, many marketing companies are promoting sweepstakes and online contests as an attractive way to gain users and customers. Many companies will adopt the rules of an ongoing promotion without regard to potential liability and regulatory risk. Even with 50 states and the federal government enforcing sweepstakes law violations, not to mention consumer disputes, the sheer volume of sweepstakes and contests promoted online means there are many no -compliance that goes under the radar. Taking the position that if Company X, Y, or Z is promoting a particular way, it must be okay, is a recipe for potential regulatory fines, negative publicity, and even costly class action lawsuits.

Lotteries are regulated by state illegal lotteries laws, which generally provide for criminal and civil penalties. Because these laws are participant-driven, any U.S. sweepstakes conducted online must comply with the illegal lottery laws of all 50 states, unless participants from particular states are excluded. The general rule is that an illegal lottery consists of three elements: (1) a prize, (2) a chance and (3) a consideration. Because there is always a prize, to make a sweepstakes legal the sponsor must remove either the element of luck or consideration.

Chance is removed by making the promotion a true contest of skill. In the world of esports, this often takes the form of an esports tournament where prizes are awarded to the winner. However, federal laws such as the Illegal Gambling Business Under the Organized Crime Control Act, the Unlawful Sports Gambling Act, and the Unlawful Internet Gambling Enforcement Act of 2006 make it an offense to bet or bet on the outcome of a contest. While an esports contest entry fee is generally permitted, allowing wagers or wagers is not. Another risk to consider is the fact that esports competitions are relatively new compared to traditional gambling. States have always maintained that traditional casino games, such as poker and blackjack, are illegal gambling. Even though these games involve skill, they also involve an element of chance. It is possible that a regulator will find that esports competitions also involve an element of chance based on elements of the game that the player cannot control. Promoters of esports competitions need to keep abreast of new developments in this area. Also keep in mind that a random tie-breaking mechanism introduces an element of luck into a contest of skill, making it an illegal lottery.

The consideration is removed by including an alternative method of entry (AMOE). This often takes the form of a postal entry, usually on a 3×5 map. This type of AMOE has been used for years. Members of GEN X will remember the character of Lazlo Hollyfeld, played by Jon Gries from the Napoleon Dynamite 80s movie fame true genius. Lazlo lives in the closet of the title character, played by Val Kilmer, and spends the entire movie filling out contest entries. In 2022, many people don’t typically have or use stamps, let alone 3×5 plugs, so the likelihood of a Lazlo Hollyfeld participating in your promotion is quite low, especially if the number of Entries are limited. However, there is a risk that, even though this method has been used for years, a regulator may at some point find it unreasonable given the decline in the use of postal mail. Again, this is an area promoters need to monitor.

Regardless of the type of promotion or AMOE, promoters must also avoid false advertising, misrepresentation, and claims of deceptive marketing practices. Coinbase recently learned this lesson the hard way with its $1.2 Dogecoin Global Contest. In Suski vs. Marden-Kane, Inc.., a class action lawsuit was filed against Coinbase by individuals who opted in to the Dogecoin contest in June 2021. Coinbase included the proven alternative entry method by allowing individuals to enter the contest without exchanging Dogecoins by submitting a 3×5 slip. However, Coinbase buried the alternative method of entry in the official rules and used a number of marketing elements that led individuals to believe that exchanging Dogecoins was the only way to enter. The court in Suski found that Coinbase was not promoting an illegal lottery because it offered an alternative method of entry. However, the court denied Coinbase’s motion to dismiss the claims of false advertising and misrepresentation. The court found that even though the alternative method of entry was disclosed in the official rules, the plaintiffs’ claim indicated that the contest publicity materials were likely to mislead a reasonable consumer into believing that they were required to make Dogecoin transactions in order to participate in the sweepstakes.

Contest laws and deceptive marketing practices laws require the sponsor of a promotion to disclose material terms and conditions. In general, the following information should be included in 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 gain” is also helpful.
  • Eligibility Requirements – any age, geographic or other restrictions on entrants.
  • Entry Instructions – specific instructions on how to enter, including alternative method of entry.
  • Odds of winning – usually expressed as X winners divided by the total number of entrants; however, some laws such as the Deceptive Mail Prevention and Enforcement Act governing lotteries conducted through the mail require an estimate of odds.
  • Important Dates and Deadlines – the start and end date of the entry period and the date the winner will be selected.
  • Selection details – if you are using a third-party provider to conduct the draw, the sponsor must state this,
  • Prize Details – a description of the prize and its retail value.

In specific situations, state laws may have additional requirements regarding the conduct of sweepstakes. For example, most states require that records be kept and a list of winners be made available. Some states, such as Florida and New York, require the sponsor to publish a list of winners, post a deposit for the prize, or register the promotion with the state. In addition, Promoters should prepare a short, abbreviated list of rules for use in advertising copy that includes basic contest materials and clearly states that no purchase is necessary and that an AMOE exists. Promoters must also abide by the “equal footing” rule, which means that participants using AMOE must have the same chance of winning as those who pay an entry fee or buy a product. In the Suski In this case, participants had to open a free account to receive their prize, although the court did not rule on this issue. To be on the safe side, promoters must limit all actions required by AMOE participants to receive the prize. States also have restrictions on the use of certain phrases such as “You are a winner” or “Enter to win”. Marketing materials must clearly state that contest entrants have only one chance to win.

If running a contest via social media, Sponsor will need to comply with the rules of the particular platform(s) they choose to use. If an entrant is invited to post a specific post on a social media site to participate in a promotion, a sponsor may be required by Federal Trade Commission approval guidelines to disclose to the entrant that the post is related to a promotion. . In the terms and conditions of the competition, a sponsor must hold the social media platform harmless and state that the platform does not sponsor, endorse or affiliate with the promotion. Specific platforms have rules about allowed input methods, such as commenting on a post or following a certain account.

Additionally, charities often hold sports-related raffles in the form of a charity raffle. While state laws generally prohibit raffles that involve consideration, many states have created exceptions for charity raffles and often include additional requirements. Some states require the organization sponsoring the raffle to obtain a 501(c) exemption from the Internal Revenue Service, and several states require the nonprofit organization to be registered or licensed under state law. Normally, all proceeds from the raffle should be donated to the charity’s purpose. In some cases, there is a limit on the gross raffle proceeds allowed or the retail value of the prizes offered. Some states require members of the nonprofit organization to conduct the raffle and third-party vendors may not administer the raffle.

While there are many potential pitfalls in running a sweepstakes or raffle, these types of promotions will continue to be a valuable marketing avenue for businesses, including those in esports and gaming. in line. Businesses should have their policies and marketing materials reviewed by an experienced attorney to keep abreast of new developments in this ever-changing field.

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