Giveaways are an effective avenue for promoting a product or business—from the early days of mail-in contests to today’s online entries, sweepstakes have been a powerful marketing tool for decades. What started as small incentives such as free products or discounts has now evolved into sizable prizes like cars and vacations, and as giveaways have grown in popularity, so have the legal stakes associated with this promotional strategy.
When planning a giveaway, companies should exercise caution and thoughtfulness regarding what the giveaway will entail, how customers will be expected to participate, the value of the prize and where the giveaway will be applicable. If done carelessly, an innocent giveaway can subject a company to a wide range of civil and criminal liability, all in the name of a product or service promotion.
Contests, Sweepstakes and Official Rule Content*
First, a company should know whether it intends to run the giveaway as a sweepstake or a contest.[1] This distinction is important, as each requires its own considerations to avoid liability related to lotteries and gambling. Generally speaking, the difference between sweepstakes and contests are how the winner is selected. Sweepstakes involve prizes that are awarded based on chance, while contests award prizes based on skill.
While every state is different regarding the exact information that should be included in the official giveaway rules,[2] the consensus is that the official rules should include the following:
- a statement that no purchase is necessary and that a purchase will not enhance the chances of winning;
- information on how a party will enter the giveaway and how many entries will be permitted;
- a clear statement regarding the number of prizes available and the number of entries permitted;
- information regarding entry eligibility (i.e., age and states of residence);
- information regarding the verified retail value of the prize (i.e., if the prize is a grill, the rules should identify the verified valued of the same in dollars);
- a statement regarding the odds of winning the prize based on the number of estimated and completed entries received;
- information concerning the free method of entry if there is a method of entry which requires a purchase (i.e., alternative forms of entry that do not require the entrant to make a purchase or incur a cost for entry);
- information regarding the name of the giveaway sponsor, including the name and address; and
- information about where the official rules can be accessed.
Most importantly, free options must give entrants an equal opportunity to submit an entry and win. In some situations, even a call and/or text message requirement may act as an entry for purchase, as the cost to call and/or text may be viewed as a fee to enter.[3] To avoid potential liability, a company should disclose a free method that does not result in a standard-carrier fee.[4]
Age and Location Considerations for Giveaways
In addition to rules considerations, companies should consider the age and location of the potential entrants. Issues of enforceability arise with those below the age of majority; therefore, it is recommended that eligibility be limited to those that are 18 years or older.[5] Similarly, enforceability issues arise when considering the locations of the applicant where some states impose stricter requirements than others and require additional filings. For example, if the states of giveaway eligibility include Florida, New York and/or Rhode Island, a company should be aware of the bond filing, registration requirements, and prize level thresholds imposed by these states. Ultimately, while giveaways covering the 50 states are often drafted more generally, if a company plans to limit the number of states in which it will conduct the giveaways (2-5 states), it is important to consult a lawyer about the specific requirements of said states to ensure strict compliance.
Giveaways are an excellent vehicle to promote brand awareness and to engage with a company’s audience. If you have any questions or would like to review your giveaway rules to ensure compliance with state and federal laws, please contact your Varnum attorney.
*Please note, the information in this advisory should not be construed as an exhaustive list of everything that should be included in the official rules of a giveaway nor a list of all laws that should be reviewed and factors considered when drafting and promoting a giveaway.
[1] States use various terms for sweepstakes, giveaways, contests, raffles, and lotteries, but remain consistent when distinguishing games of skill from games of chance.
[2] See, e.g., MCL § 750.372a; N.Y. Gen. Bus. Law § 369-e (McKinney); Fla. Stat. Ann. § 849.094 (West); 11 R.I. Gen. Laws Ann. § 11-50-1 (West); 16 C.F.R. § 310.3(a)(1)(iv).
[3] See, e.g., 16 C.F.R. § 308.3.
[4] Id.
[5] See, e.g., ¶ 60,632 Digital Demographics Inc.—recommend-it Online Service., Advert. L. Guide P.