Oral argument was presented this week in the Supreme Court of Georgia in one of several cases raising the question of whether charging a premium for sweepstakes entry via cell phone renders the competition an illegal lottery, even if there is a free method of entry.
Brief of Appellees
Brief of Appellants
Plaintiff’s supplemental brief
The case involved NBC’s “Lucky Case Game,” held in conjunction with its popular Deal or No Deal game show. During the show, an announcer invited viewers to participate in the Lucky Case Game via cell phone text message or online, selecting one of six “Lucky Cases.” Those participants who guessed the correct case received a chance to be entered into a random drawing, where the winner received between $10,000 and $100,0000. While online entry was free, cell phone users were charged a premium of $.99 in addition to standard messaging fees. Plaintiffs argued that the game was an illegal lottery, because it included the elements of chance, a prize and consideration (the $.99 fee); defendants countered that the free method of entry vitiated the consideration element, much in the same way that providing a way to obtain a free game piece vitiates the consideration element when game pieces are included in products, and, moreover, that the plaintiffs did not present a cognizable claim under Georgia law. On a motion to dismiss, the United States District Court for the District of Georgia certified to the Georgia Supreme Court the question of whether plaintiffs were entitled to recover their losses from the promoter under Georgia law.
This same issue is still pending before a California court which recently denied defendants’ motion to dismiss. The stakes remain high for game promoters, who have reportedly made tens of million dollars on these games.
These recent decisions are in line with long-established case law. Historically, courts and administrators have looked to whether any payment associated with a sweepstakes entry relates to the purchase of a genuine product or service or, in the alternative, is nothing more than an entry fee in disguise. Thus, where an ersatz slot machine provided telephone cards with a face value equal to the purchase cost, but also provided a chance to win additional money, and where it was clear that most people using the machine were not using the telephone cards, the court found that the machine was illegal. Similarly, where people could purchase an “information card” with an image and information about an animal, along with a rub-off style “pull tab card,” the state attorney general found that the “information card” – which had never been sold apart from the pull tab card – was a mere sham, and that the game was illegal even though there was a free method of entry. As the Attorney General of Texas stated in 1997, “[I]n order to avoid characterization as a lottery, a promotional scheme must also involve the legitimate sale of a product. If a product of little or no commercial value is being sold in conjunction with a sweepstakes ticket, the consideration may be deemed to have been paid for the privilege of entering the sweepstakes.”
We’ll continue following these and other sweepstakes and contest cases on this blog.
Wonderful article! Have you looked at this issue in the UK as well? I thenk there have been some shows over there that got in major trouble over this same issue about a year ago.
This was very informative!!
What is the case name for the California court which recently denied defendants’ motion to dismiss? I have won my case in California dealing with phonecards promoted by sweepstakes. Which court found that telephone cards were illegal when promoted by sweepstakes? Please use cites in your articles.
Tom –
Thanks for your comments.
Even slight differences in the way that sweepstakes and contests are set up and administered can mean the difference between a legal and successful program on the one hand, and one that runs afoul of state laws regarding lotteries or the use of illegal gaming machines on the other. That is why it is always important that each sweepstakes and contest be reviewed by experienced counsel.
You mention the sale of telephone cards with attached sweepstakes entries, which has been one of the most hotly litigated areas in sweepstakes law over the past several years. Based on particular promotion details, often including the use of vending machines that resemble slot machines, the provision of telephone cards that were unusable or rarely used, and/or phone cards that were deemed to be merely ancillary to the sale of the chance, several courts and Attorneys General have opined that particular promotions were illegal lotteries, or that particular vending machines were illegal gaming instruments. See generally, e.g., Sun Light Prepaid Phone Card Co. v. State, 360 S.C. 49, 600 S.E.2d 61 (S.C. 2004), cert. denied sub nom Phonecards R Us, Inc. v. South Carolina, 543 U.S. 1120, 125 S.Ct. 1069, 160 L.Ed.2d 1068, (2005); Jester v. State, 64 S.W.3d 553 (Tex. App. 2001); Midwestern Enterprises, Inc. v. Stenehjem, 2001 N.D. 67, 625 N.W.2d 234 (N.D. 2001); Pre-Paid Solutions, Inc. v. City of Little Rock, 343 Ark. 317, 34 S.W.3d 360 (Ark. 2001); People Ex. Rel. Lockyer v. Pacific Gaming Technologies, 82 Cal.App.4th 699, 98 Cal. Rptr.2d 400 (Cal. App. 2 Dist. 2000); Opinion of the Office of the Attorney General of the State of Alaska re Promoting the Sale of Pre-Paid Phone Cards through a Cash Prize Sweepstakes Without a Gaming Permit, A.G. File No. 663-00-0212 (October 17, 2000); Florida Advisory Opinion AGO 98-07 (February 5, 1998). At the same time, other courts, considering other promotions connected with telephone cards, have found that the telephone card is a genuine product, and that the associated sweepstakes is a valid promotional tool designed to increase the sale of the product. See, e.g., American Treasures, Inc. v. State, 173 N.C.App.170, 617 S.E.2d 346 (N.C.App., 2005). Indeed, in 2004, the Superior Court of the State of California found that the promotion that you conducted in conjunction with the sale of telephone vending cards was wholly legitimate. Again, this underscores the importance of considering the specific facts of each proposed sweepstakes or contest.
Here at the Online Publishing Law blog, we’ll continue to keep a close eye on developments in sweepstakes and contest law, including the Georgia case that we’ve discussed and the related California cases (Bentley v. NBC Universal, Inc., 2:07-CV-03647, C.D.Ca.; Herbert v. Endemol USA, Inc., 2:07-CV-03537; Couch v. Telescope, Inc., 2:07-CV-3916; and Cunningham v. Endemol USA, Inc., 2:07-CV-3643).