To attract consumers in this increasingly competitive environment, NFT coin changers are turning to promotional NFT contests to both generate consumer excitement and increase company revenue. When coin changers decide to market their NFTs through sweepstakes, they must comply with relevant state and federal laws, rules and regulations. For example, while coin changers may allow entrants to enter contests by purchasing their NFTs, unless another free alternative means of entry (“AMOE”) is offered, such contests will violate applicable lottery laws. . Additionally, coin changers must properly disclose their NFT sweepstakes AMOE in the contest rules, disclaimer, and marketing materials.
A lottery is made up of 3 elements: prize, chance and consideration. Lotteries are only legal if run by government agencies. However, if the quid pro quo is removed, a lottery becomes a legal draw.
Consideration is defined as the exchange of something of value. In practice, consideration for a raffle can take the form of any transaction involving monetary payment or consideration. Courts have found that consideration was present when: (1) participants were required to watch multiple lengthy video advertisements; (2) entrants were required to link multiple promotion-related posts to their own social media; or (3) winners were required to submit payment in order to claim their prizes.
Contest sponsors may accept contest consideration, provided they offer a free AMOE.
NFT AMOE Competition
When an NFT contest advertises that consumers can participate by purchasing an NFT (or other consideration), an AMOE must be offered. Common AMOEs include entry by US Mail, email, or calling a toll-free number. Please note that entrants who use the free AMOE method must have the same opportunity, with equal odds, to win all NFT prizes presented.
In particular, AMOEs must be disclosed in a “clear and visible” manner. AMOE disclosures must be included in the contest rules, contest disclaimer, and all relevant marketing materials. This information must clearly state that no purchase is necessary to enter the contest and that a purchase will not increase the chances of winning. Operators who do not include proper NFT AMOE sweepstakes disclaimers and disclosures may find that their promotional contests are subject to litigation.
Suski vs. Coinbase Global Class action
For example, cryptocurrency merchants Dogecoin (collectively, “Merchants”) recently filed a class action lawsuit against Coinbase Global, Inc. (“Coinbase”) and Marden-Kane, Inc. (“MKI”) (collectively the “Defendants”). for allegedly participating in false, misleading and deceptive advertising. Coinbase, one of the largest online cryptocurrency exchanges, has engaged MKI to design, market, and run a $1.2 million “Dogecoin Sweepstakes” that kicked off on June 3, 2021.
In their complaint, the traders allege that they had to buy or sell $100 worth of Dogecoin to enter the contest. Although the defendants provided an AMOE, the merchants allege that the defendants specifically designed their email and website advertising to prevent users from easily finding the AMOE information. The traders alleged that the defendant’s marketing misled them, claiming that they would not have paid the consideration (Dogecoin exchange) if the AMOE option of the NFT contest had been properly disclosed.
This case highlights that to run a compliant lottery promotion, NFT editors must disclose the AMOE option in a prominent place in all lottery advertisements.
Get help with your NFT AMOE contest
If operators fail to take the necessary steps to ensure their NFT sweepstakes are compliant, they can face significant legal and regulatory repercussions. Given these risks, it is advisable to seek advice from lawyers experienced in both NFTs and contests before running any NFT-related promotions or sweepstakes.
The material contained herein is provided for informational purposes only and does not constitute legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique and you should not act or rely on the information contained herein without seeking the advice of an experienced attorney.
If you would like to learn more about this topic or if we can help you, please visit https://kleinmoynihan.com/ or call us at (212) 246-0900.