When conducting a prize promotion, it is important to keep in mind that virtually every state of the United States prohibits “lotteries” (other than those run by the state, of course) – that is, games in which prizes are awarded and which involve elements of both chance and consideration. In order to avoid the prohibition against lotteries, at least one of these elements must be eliminated.

A. Contest

A contest is a prize promotion in which the winner is selected solely based upon skill, not chance. Essay competitions, photo competitions, and beauty competitions are all examples of contests.

• Contest entries must be judged based on objective criteria that are made known to all entrants by being set forth clearly in the Rules. For example, it is not sufficient to state that the “best essay” wins; you must explain what constitutes the best essay, and how much each element will be weighted.
• Mixed games of skill and chance may be considered games of chance rather than skill.
• Even in competitions clearly based on skill (such as essay contests), ties cannot be broken by random drawing.

If a game is a contest, then you may charge some form of consideration for participation.

B. Sweepstakes

A sweepstakes is any game in which an element of chance is involved.

• Games of chance are not limited to random drawings. Some states have even found that certain card games, and other games in which there are elements of both skill and chance, are games of chance.
• Even if the element of chance is introduced only at the end – e.g., to break a tie between two people who have obtained equal scores on an exam – then the game may be considered a sweepstakes.

No consideration can be charged for entry into a sweepstakes.

• Consideration is not limited to payment of a fee. It may include providing personal information, spending more than a minimal amount of time on a website, referring friends, or even being at a specific location at a specific time.
• Remember that issues relating to the existence of consideration for entry can often be solved by providing a free method of entry. For example, if game pieces are available inside a product, there must be a way for people to obtain game pieces without purchasing the product. The method must be both free and readily available. In recent years, stores have been fined because their clerks were unable to direct consumers to free methods of entry.

Where the aggregate value of all prizes is $5,000 or more, sweepstakes must be registered and bonded in New York (30 days prior to game going “live”) and Florida (7 days prior to game going “live”)

C. Rules (Sweepstakes and Contests)

Good rules provide substantial protection to contest/sweepstakes sponsors by eliminating ambiguities.

Rules cannot be changed once posted. Accordingly, sponsors must know exactly what they want to do in advance, and must comply with the Rules even if conditions change, or fewer people than anticipated participate in the competition.

Rules must clearly explain all elements of the competition, including but not limited to:

• How to enter
• How the winner will be selected
• Complete description of prizes, including how many prizes will be awarded and their value
• Odds of winning
• No purchase required (in case of a sweepstakes)
• Start and end dates
• Limit in number of entries
• Other prize restrictions
• Finality of judging

Remember, Rules are not “one size fits all.” Rules should be tailored to each competition.

D. Affidavit of Eligibility

Unless the prize is de minimis (e.g., a tee shirt), each winner should sign an affidavit of eligibility; the requirement should be included in the Rules.

E. Advertising of Sweepstakes and Contests

You cannot lead people to believe that your site and/or competition are associated with the prize without the manufacturer’s permission.

Online advertising should link to Rules. Several states, including New York and Florida, have laws relating to the content of print, radio and television advertising of contests and sweepstakes. There are also special rules relating to sweepstakes and contests that are open to minors, and those that are sponsored by certain types of companies, including liquor companies.

Advertising should always be in accordance with the Rules.

F. Special Issues

Sweepstakes and contests are considered advertising. Therefore, you must have right to use names, photos, likenesses, trademarks, etc. in an advertising context.

In “beauty contest” competitions or in any other competition in which a person’s photograph is used, you must obtain the right to post the photograph and personal information from both the model and the photographer.