In running a Contest, the basic starting premise is to avoid running an illegal gambling operation. Most states have laws defining gambling as a promotion in which all three of the following elements are present:
- Prize: Any item of tangible value, no matter how small, which is granted to the designated winner(s) of a promotion;
- Chance: Any random or chance element (rather than skill) that determines in whole or in part how the winner will be selected; and
- Consideration: Something of value given by an entrant to participate in the promotion that directly benefits the promotion sponsor. Consideration can be monetary (i.e., a purchase, payment, or entry fees) or non-monetary (i.e., an expenditure of substantial time and/or effort).
Thus, to avoid gambling, one of these elements must be removed before a promotion can lawfully proceed. Since a prize is generally awarded in most promotions, either the element of chance or Consideration must be eliminated.
Distinction Between Contests and Sweepstakes
1. Sweepstakes
A Sweepstakes is a game of chance, which means that the winner is selected on the basis of chance. A random drawing to select the winner(s) or an instant win game are classic examples of a sweepstakes. Consequently, for a sweepstakes to be conducted legally, the element of “consideration” must be eliminated to avoid being considered illegal “gambling.” For “consideration” to be effectively eliminated, there can be no requirement for either a Purchase or payment to enter the sweepstakes, which has resulted in the classic “NO PURCHASE NECESSARY” language that is found in the official rules and advertising collateral for a sweepstakes. If there is a purchase or payment required for entry, then there must also be a free alternative method of entry (AMOE) – e.g., entry via a 3” x 5” card by mail, the Internet, or a toll-free call. The AMOE must be clearly and conspicuously disclosed and must be of “equal dignity” with the payment or purchase method of entry, meaning that the sponsor cannot discriminate against those who enter for free in favor of those who enter by purchase or payment. The AMOE must be universally available and provide those entrants with the same odds of winning, the same number of chances per entry, and parallel deadline dates as those who enter by purchase or payment. For example, if a mail-in option is provided as the AMOE to a purchase entry, the postmark deadline must coincide with the purchase deadline (it is advisable to allow a minimum of five additional days for receipt of mail entries).
It is a little trickier when a sweepstakes involves non-monetary consideration, as the degree of time and/or effort has not been defined and must be analyzed on a case-by-case basis. The greater the degree of effort, the greater the risk that such effort may be deemed consideration. For example, requiring a store visit is generally not deemed to constitute non-monetary consideration, while completing a survey may or may not be deemed non-monetary consideration, depending upon the types and level of information sought by the survey, as well as the amount of time and effort required to complete the survey.
2. Contests of Skill
If a promotion winner is selected on the basis of Skill rather than chance, the promotion is a “contest,” as opposed to a “sweepstakes.” Providing that the skill is Bona Fide, under federal and state lottery laws, consideration can generally be required in a bona fide skill contest because the gambling element of chance has been removed. Whether or not the required skill is “bona fide” must be determined on a case-by-case basis and is a fact specific analysis. To determine if skill is bona fide, there should be no element of chance or, at minimum, chance should not play a dominant role in determining the outcome. For example, essay, cooking, photo, and video contests would qualify as bona fide skills. In contrast, guessing the number of beans in a jar is not a bona fide skill. The judging criteria that will determine the contest winner must be clearly defined and disclosed to participants. To maintain the integrity of the skill contest and to avoid introducing a chance element, ties should likewise be broken on the basis of skill.
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