Digital sweepstakes are becoming increasingly popular with marketers and agencies because of their ability to drive objectives such as social media engagement and first-party data acquisition. When deciding to run a promotion, it’s important to understand and comply with local, state, and federal laws. In the United States, these laws have state-by-state variations, but the general administration of sweepstakes share similarities.
When planning to run a sweepstakes, we at Realtime Media suggest gathering the proper legal administration team to ensure 100% compliance before your promotion goes live. That’s why we offer an expert, full-service team that will handle every step of this guidance.
Please note, this guide is not a substitute for legal advice, nor does this checklist determine if your sweepstakes is in compliance with all applicable local, state, and federal laws. We strongly suggest consulting with our legal services to draft and review your official rules and policies before launching a promotion.
What is Sweepstakes Law?
Sweepstakes are great marketing promotions that provide entrants into a game of chance. The winning entrant receives a prize that is typically predetermined by the sponsor. Sweepstakes are governed by different laws and regulations within the United States. Sweepstakes laws can have many different requirements that are impacted by both state and federal law.
Sweepstakes Legal Requirements
1. Official Rules
Official Rules layout the compliance of your entire promotion – this set of rules must align with local, state, and federal laws. While there are many templates available online to draft your own rules, we advise a proper legal consultation to ensure full compliance.
Many brands, marketers, and agencies make the mistake of selecting easy-to-use sweepstakes software to manage their promotions, often forgetting to include a proper set of rules. Be sure to avoid this, and consider a full-service option from a sweepstakes management company.
While the perceived external costs may differ, you can ensure your promotion is completely compliant and avoid even costlier legal ramifications. These efficiencies grow over the course of multiple promotions, as our processes at Realtime Media increase your team’s capacity to launch fully compliant promotions while we handle the tedious details.
2. Social Media Policies
Each social media platform has their own distinct rules, policies, and guidelines for promoting contests and sweepstakes (commonly promoted as ‘giveaways’). Always consult these terms before incentivizing any action within that social platform to advertise, promote, or share your campaign.
For example, Facebook has its own policies for sweepstakes or contests – As expected, they expect you to be responsible for lawful operation of the promotion (such as official rules, offer terms, and eligibility requirements such as age or residency) and more. They also require content such as a release of their platform and acknowledgement that they are not associated with Facebook. For the full details of their guidelines, please consult their policy page.
Be sure to view other social networking sites’ policies such as Instagram and Twitter. Social media is important for driving engagement for your sweepstakes further, so be sure to brush up on their policies or consult the proper legal team.
4. Sweepstakes registration and bonding, state-by-state
Registration and bonding has many state-by-state variance based on prize value. For example, Rhode Island requires a registration for sweepstakes that exceed a total prize value of $500(bonding is not required), and applies to retailers only.
Prizes that exceed $5,000 in value require registration and bonding in states such as New York or Florida. It’s common for brands to avoid certain states by excluding consumers in these areas from participating.
While this can be a tricky part of running a promotion, we have the legal administration available so that your sweepstakes can have national reach without cutting corners (or in this case, states).
5. Sweepstakes Eligibility Requirements
Official rules will always need to include an eligibility section that outlines who can participate and enter. In relation to state-by-state rules, you must clarify if residents in particular states are not eligible to enter. Age and residency requirements are typically the most common eligibility requirements to define who may or may not enter.
The details of this section are critical – Having the right set of parameters for eligibility can prevent damage to your brands reputation. In addition, understanding these regulations allow you to include or ward off consumers who may or may not meet your consumer profile (such as minors under 18).
6. No Purchase Necessary / Alternative Means of Entry
No Purchase Necessary is the first statement within official rules to protect the participants, by law in the United States. Asking participants to take actions that require time, money, or effort constitute as consideration, and doing so can often constitute a sweepstakes as an illegal lottery, putting the brand or sponsors at risk. Consideration can be tricky, as it’s best to consult the proper legal services to ensure compliance.
Because of this, sweepstakes can offer an Alternative Means of Entry (AMOE) to make it effortless for entrants to participate. Many of our clients at Realtime Media have taken advantages of our services and legal administration to develop their sweepstakes with an AMOE. The main benefit of an AMOE is that it benefits both the sponsors and the consumer while remaining compliant.
For example, perhaps a sweepstakes is asking users to post a photo on social media for instant entry – this takes effort, which violates the consideration criteria. However, an alternative means of entry in your official rules can provide an effortless way for one to participate, such as an online form or mail-in entry, without needing to post a photo.
In this example, many entrants will still support your original social media objectives by posting to enter – however you’ve outlined an alternative method for those who do not wish to post photos, keeping your sweepstakes compliant.
7. Promotion Details
Promotional Details encompass many standardized expectations of a promotion. For example, how many times a person may enter, or the start and end dates of the promotion. This piece should exist within your official rules, and many full-service platforms will help you notify entrants on how many chances they have remaining or earned.
8. Advertisements and Abbreviated Rules
Abbreviated Rules are essentially a short-sum of your Official Rules and Disclosures. They may vary by state and may need to be tailored based on each state’s laws regarding promotions. If you plan on advertising your sweepstakes or contest, you may need to tailor the content of each ad based on these regulations.
In addition, some states have disclosures about details such as the size of text in advertisements containing promotions, such as Colorado.
9. Affidavits and Releases
Winner Releases are usually required for high-value items such as cars, trips, and cash pools. The winner(s) of your promotion should be required to sign an affidavit of eligibility and often a liability or publicity release. These documents declare a winner as eligible to win and should be completed before they receive their prize.
Liability and publicity release allows brands or other parties the right to use, display, and/or publish winners information in any promotional material related to the sweepstakes. Liability statements release the brand or sponsor from any liability in regard to taxes, claims, demands, or losses related to the promotion.
Realtime Media offers full-service Legal and Prize Administration, including winner verification and fulfilment of prizes (including logistics and initial prize strategy). We recommended our legal services for professional expertise on Affidavits, Releases, and more.
10. 1099 Forms and More
The IRS requires the value of sweepstakes prizes to be included in a winner’s gross income. In addition, your official rules should always inform winners their liability for any and all taxes related to accepting the prize – including notification that they will receive a 1099 form in the amount of the prize. You will need their social security number, which is typically included in the affidavit they will sign if they decide to accept the prize.
Prize Fulfillment and Legal Administration are the most critical and time-consuming parts of running a sweepstakes. Realtime Media can handle full-service administration of both tasks, including sweepstakes management. We offer individual services, in addition to full-management from sweepstakes or contest development, to prize fulfillment, and legal administration.
As noted earlier, this guide should not be taken as a substitute for legal advice. Please consult our legal experts or your own promotions lawyer before deciding to develop or publish your promotion.