This Wisdom of the Crowd, compiled from responses posted on the New to In-house and Small Law Departments eGroups,* addresses issues of liability and various restrictions on running a contest or sweepstakes. The issues discussed include:
I. Elements of a Sweepstakes
II. Operating a Contest/Sweepstakes Open to the General Public
III. Operating a Contest/Sweepstakes Open Only to Business Partners
IV. Operating an Office Bracket Pool
*(Permission was received from the ACC members quoted below prior to publishing their eGroup comments in this Wisdom of the Crowd resource.)
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I. Elements of a Sweepstakes
Question:
What is a Sweepstakes?
Wisdom of the Crowd
Response #1:
Check your state laws as specifics can vary from state to state, but generally a sweepstakes is: (1) giving away a prize, (2) using a method with an element of chance, and (3) no purchase is necessary to enter. A raffle (or lottery if run by the government) is: (1) giving away a prize, (2) using a method with an element of chance, and (3) a purchase is necessary to enter. . . .
When designing a promotion, you can approach it one of two ways. Either provide an alternate means of entry (i.e., anyone can write in to be entered for a chance to win the prize) to eliminate the "purchase element" or provide the same gift to everyone so there is no element of chance involved.
Again, I caution you to check your state laws. Proceed carefully, and don't be afraid to call an outside expert if you are unsure. 1
II. Operating a Contest/Sweepstakes Open to the General Public
Question:
My company sponsors an NFL team, and in conjunction with this team, we will be giving away one of our products at the end of the season. The strategy is to push people who are interested in our product to our dealers where they would enter the contest. We would also allow people to enter the contest via our website, and actually at our booth at the team's home games. Any guidance and/or samples would be greatly appreciated.
Wisdom of the Crowd
Response #1:
It sounds like you are running a sweepstakes. A sweepstakes is very different from a contest. A sweepstakes is a random drawing of a winner. A contest involves some skill (think field goal kick for a prize). In both instances, you have to make sure that no consideration is paid to enter, which would make it a lottery.
Sweepstakes laws vary from state to state. California's Department of Consumer Affairs posted information on California's sweepstakes laws on their website.
Some states require bonds, reporting, or registration. Many have technical requirements as to what needs to be included in sweepstakes rules. Others have different requirements. The bottom line is that it can be a very tricky area of law.
If you are unsure about operating the sweepstakes, I strongly suggest that you contact a third party fulfillment company. Many of them have experience in administering both single state and multi–state sweepstakes. The cost is fairly inexpensive compared with the legal and PR costs of an AG or consumer affairs investigation. 2
Response #2:
If this is your first time organizing and executing a sweepstakes type promotion, I highly recommend that you employ a third party sweepstakes administrator to assist you with promotion. An administrator can have its experienced legal department review the rules that you draft and then also handle some of the key "independent" functions like drawing winning names, notification and verification of the same, etc. 3
III. Operating a Contest/Sweepstakes Open Only to Business Partners
Question:
We want to do a web-based contest where [the company's] outside [business] "partners" spin a wheel and get a prize. The criteria will vary, depending on our relationship with each particular business. Would something like this (business-business as opposed to consumers or the general public) fall under the same criteria as the other contest/sweepstakes/lottery rules?
Wisdom of the Crowd
Response #1:
What you described is still a sweepstakes under California Business & Professions Code sections 17539.5, 17539.15 and 17539.55. The fact that you are limiting the eligible participants makes no difference. You are still distributing something of value by lot or chance. I would be wary about offering "spins" (or entries) based on purchases or sales, as that may make your promotion a lottery in violation of California Penal Code Section 320.
I strongly suggest you get very familiar with the legal parameters for sweepstakes, contests and lotteries before proceeding. You may also want to consult outside counsel. 4
IV. Operating an Office Bracket Pool
Question:
Can anyone tell me whether there are any restrictions on holding a $20/person NCAA pool for about 20 salespeople across the country - using email as means of communication?
Wisdom of the Crowd
Response #1:
It is called gambling. My official position is: the company does not permit employees to gamble using company–issued equipment, on company time, on company property. Gambling is illegal in Illinois (except at casinos, horsetracks, OTB, certain charity events, bingo).
No matter how silly it may seem to suggest that [the activity, like an NCAA pool] be overlooked, you are putting your company and yourself at risk. 5
Question:
Must each participant pay something of value? What if we had a "contest" and the company funded the final pool?
Wisdom of the Crowd
Response #1:
The definition of "gambling" in most jurisdictions requires only prize, chance and consideration. So if you put a $5 bet on your Saturday morning golf game (clearly a game of skill) you are still gambling, and it is technically illegal in most places (although the risk of prosecution is obviously quite low). However, if you take away the element of consideration (i.e., make it a contest with no entry fee) it is no longer gambling. That is why ESPN can run an NCAA tournament contest with a $10,000 prize - no consideration.
The game of skill versus game of chance distinction arises out of cases determining whether a given game is a lottery and has no bearing on whether the activity is "gambling." The English rule is that you only have a lottery if the outcome is decided by pure chance (e.g., randomly pulling pingpong balls with numbers). But the substantial weight of American authority is that a game can qualify as a lottery if chance is the predominant factor in the outcome of the game. An example is blackjack. You can substantially improve your chances of winning by knowing the game, knowing when the odds say you should hit or stand, or counting cards. But because skill cannot determine whether the next card is a 3 or an 8, chance is still the predominant factor.
Finally, whether or not the house takes a cut (or rake) has no bearing on whether an activity is gambling or is illegal, although the existence of a rake certainly makes the game more likely to attract the attention of law enforcement. 6
1 David Cohen, General Counsel, Tampa Bay Buccaneers (New to In-house, Oct. 22, 2012).
2 David Cohen, General Counsel, Tampa Bay Buccaneers (New to In-house, Aug. 12, 2010).
3 Anonymous (New to In-house, May 2012).
4 David Cohen, General Counsel, Tampa Bay Buccaneers (Small Law Departments, Apr. 7, 2011).
5 Daniel Harper, Vice President, Corporate Counsel and Secretary, Oce North America, Inc. (Small Law Departments, Mar. 15, 2010).
6 Michael Vild, Senior Vice President & General Counsel, Delaware Park (Small Law Departments, Mar. 17, 2010).