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Is your online sweepstakes or contest legal?

You have read that user generated content contests, Facebook sweepstakes and other interactive promotions can really drive traffic to your site.  While easy to do and effective, have you thought about the legal side of it?

A longer article from Michigan lawyer Gabriel Karp can be found here on the ins and outs.  For the purpose of this post, you need to focus on one main question: 

IS MY SWEEPSTAKES A LOTTERY?

I know you are thinking of course it is not a lottery.  After all, you are not giving away millions, just a chance for a free hamburger.  You still need to take a closer look. 

A lottery consist of three basic elements:

1.  You are offering a prize which can be anything of value.

2.  The game is based solely on chance with winners chosen at random.

3.  To participate, the consumer has to provide some consideration.

If you have all three of those, then you have a lottery. 

If the winner is based on the best submitted video or post, then it is not a game of chance.  You just need to make sure you actually judge the submissions.  That is what the law usually calls a contest and would cover UGC the same way it might cover the longest field goal.

If no one has to provide any consideration to participate and you simply chose at random winner of out of all the submissions, then you have what the law usually calls a sweepstakes.  

The third element is what may trip you up.  Consideration is the legal term for something of value that is exchanged between two parties to an agreement.  Most of the time, consideration is money.  That is easy and that is the Megamillions-Powerball-I’ll never-win-but-if-I-do-I-promise-to-be-good-lottery.  The consumer pays $1 (consideration) to be chosen at random (chance) for a big pot of money (prize).   Lotteries are generally illegal.

Non-monetary consideration

Consideration can be things other than money as long as it provides value to the other person.  An argument could be made that providing private sensitive personal information in exchange for a free hamburger could be considered “consideration.”  It is unlikely simpling “liking” a company’s Facebook page would be, but we don’t always have clear guidance on the issue. 

According to Gabriel Karp’s article from 2010, “approximately 33 states have statutes or caselaw stating nonmonetary consideration is not deemed consideration for purposes of lottery laws.” 

The safest thing you can do to avoid any issues (in addition to hiring counsel to review your program) is to allow consumers to do an alternative method of entry.  Perhaps, I don’t want to “like” your page or give you my email address, phone number, physical address and give you access to my contacts list on my iPhone.  You should allow the consumers who want to enter the sweepstakes to send in the postcard with the information you need to notify them so you can always say people could have entered without providing anything of value to you. 

Why all the fine print?

To make matters worse, each state usually has different laws that apply.  Here are the Texas statutes on contests and sweepstakes.  Not only that, if you are running promotions on Facebook, Twitter or Google+, they have their own rules. 

Now you know why there is all the fine print or fast talking at the end of the promotion.  You can blame the lawyers.  We’re used to it.