Running a contest or sweepstakes is an effective way to drive your business goals. Digital promotions are a strong strategy for engaging with your audience. They help drive actions, grow your brand, and accelerate your marketing.

However, there are a lot of legal considerations to be made with running a contest or sweepstakes. In many countries, contests, sweepstakes or giveaways, lotteries, and raffle promotions that include a prize create a confusing landscape for marketers. 

Without the right legal administration, your promotion could mistakenly violate the law or be considered an illegal lottery.

What are No Purchase Necessary Laws?

No Purchase Necessary Laws prevent companies from requiring purchases or other forms of consideration to enter a promotion. When developing your contest or sweepstakes campaign, it’s important to make sure you are not violating these laws, as this could lead to legal implications.

What is a Lottery?

A lottery is a promotion that requires entrants to make a purchase or requires a significant amount of consideration to win a prize. This includes paying for additional or improved chances at winning.

In the United States, lotteries are run by state or federal government and operated as a means to boost revenue. Per this, lotteries are illegal outside of government operation. 

To maintain a promotion that does not constitute an illegal lottery, we’ll walk through these three key points that identify a lottery:

  1. The promotion gives entrants a chance at winning money or a prize with value.
  2. Winners are selected by chance, at random.
  3. Participants must make a purchase or provide consideration.

What is Consideration?

Consideration is the most important word within these criteria. Consideration can be any monetary provision or non-monetary action.

Monetary – Financial contributions such as purchasing a product, buying a ticket, or paying for general entry into the promotion. 

Non-Monetary – Requirements for an entry that require a significant amount of time. For example, this can include asking entrants to visit specific locations, generate content, or take a survey. 

To avoid violations of No Purchase Necessary Laws and ensure a legal complaint promotion, your promotion must not violate all the defining factors of a lottery. By walking through the types of promotion campaigns you can run, we can outline different ways to avoid hosting an illegal lottery.

Running a Giveaway / Sweepstakes

Sweepstakes (also commonly referred to as “Giveaways”) are one type of promotion that can keep your business in compliance of No Purchase Necessary laws. Sweepstakes promotions consist of three key features:

  1. The promotion gives entrants a chance at winning money or a prize with value.
  2. Winners are selected by chance, at random.
  3. Anyone can enter without making a purchase or providing consideration. 

As you may have noticed, these types of promotions are very similar to lotteries. With the exception of the third requirement (entry without purchase or consideration).

Running a Contest

Contest promotions typically require a skill or criteria to be fulfilled by entrants. For a promotion to be deemed a contest, entries must pertain to skills and winners chosen on merit. There’s a difference between Sweepstakes and Contests – Unlike sweepstakes, contests winners are NOT chosen randomly. 

Typically, contests are judged by either the host, community voting, or selected by a third party (such as a contest administration company or prize fulfillment service). Contests by nature remove the random drawing of winners, which is one of the three key traits of a lottery. By doing this, contests do not conflict with No Purchase Necessary laws.

We’ve got some examples of contests within our case studies, including an LG and Netflix sponsored “B&Binge” contest. Other examples of contests include:

  • Photo Contests
  • Video Contests
  • Texted-based Contests, such as tweeting the best joke

Contest campaigns are excellent for generating user-generated content for your brand, expanding your reach to new audiences, and curating content for future marketing efforts.

Alternate Means of Entry (AMOE) 

As noted earlier, one of the defining characteristics of a sweepstakes is that anyone is free to enter, separating it from being considered an illegal lottery. 

But what if you want your audience to take special actions, like use special codes included with products, or validate their receipts for entry? How can you encourage users to support your goals, without violating No Purchase Necessary laws? 

By including an Alternative Means of Entry (Often referred to as an Alternate Method of Entry or Free Means of Entry) to your Official Rules. By doing this, you can encourage users to enter your sweepstakes through purchases, or other activities that would be classified as consideration such as in-store visits. 

With a defined AMOE, purchases are not required and entrants can still enter for free through means such as physical mail and email.

No Purchase Necessary Laws in the United States

In the United States, you cannot ask for a purchase or actions that would be constituted as consideration to enter a contest or giveaway if winners are randomly chosen. However, skill-based contests that include winners selected on merit or criteria are free to ask for purchases or other forms of consideration. 

There are state-by-state exceptions to this rule, however. Colorado, Maryland, Nebraska, North Dakota, and Vermont have prohibited purchases for entry. This includes contests as well. Be sure to understand state laws prior to launching your campaign.

Who Regulates Promotions in the US?

Federal Trade Commission LogoThe Federal Trade Commission

Commonly referred to as the FTC, the Federal Trade Commission is a government body that serves and protects American consumers. They conduct investigations on consumer complaints, including those involving illegal lotteries. 

For any sweepstakes or contests scams, fraud, and lottery-like activity investigated and uncovered by the FTC, perpetrators can be prosecuted, charged, and penalized by local and federal governments.

Federal Communications Commission LogoThe Federal Communications Commission

The Federal Communications Commission (FCC) regulates the media in the United States. In relevance to promotions, they have the authority to cease any advertising that promotes illegal lotteries or scams. In addition, they will take action against deceptive marketing (such as misleading prizes). 

The FCC operates much like the FTC, following consumer complaints and stepping in with an investigation and taking legal action against any foul-play.

State Laws

Promotions can be governed different depending on the state they are operating in. We recommend consulting a legal administrator for sweepstakes and contests to ensure compliance in the states, regions, or countries you wish to execute your promotion in.

Conclusion 

Digital promotions are excellent for supporting many different business goals. Before introducing one into your marketing, it’s important to understand topics such as sweepstakes laws, promotion laws, and other legal barriers that could land your business in hot water.

No Purchase Necessary Laws are intended to protect consumers, however, Alternate Means of Entry (or AMOE) clauses can help keep your promotion compliant while strengthening your goals. There’s a very thin line separating sweepstakes and contests from becoming illegal lotteries. Consulting a legal administration partner is the best course of action to ensure your promotion does not violate any federal or state laws. 

At Realtime Media, we facilitate all aspects of running contests and sweepstakes from initial development to prize fulfillment services. Our expert legal team can draft official rules for your promotion and is bundled with our all-in-one PromoPick solution. PromoPick is trusted by some of America’s largest brands looking for a fast and cost-effective way to launch a contest or sweepstakes.