Compliance work can be fun. Like when it involves a sweepstakes or contest (never a lottery, which would be illegal for a technology company to offer.)
Let’s first get a grip on definitions we need to understand and then get into regulations and guidelines to be aware of.
Types of Games
Sweepstakes: A sweepstakes is when there is a prize, chance, and no consideration. You should never require that a participant make a purchase to participate as part of a sweepstakes (sometimes not even purchase of a stamp apparently, read on for more about consideration) unless you offer them a free AMOE (alternate method of entry.) For example, you could allow entry if the participant makes a purchase OR fills out a form.
Lottery: A lottery is when there is a prize, chance, and consideration. Lotteries are illegal except when they are conducted by certain states or charitable organizations. This isn’t you. No lottery for you.
Contest: A contest is when there is a prize, either skill or ability required to win, and consideration is optional.
Other definitions
What is consideration? It depends on the state you’re offering the game in, but broadly speaking it is anything that requires a participant to either pay or put forth significant effort just to participate. Filling out an entry form is generally not considered consideration and in all states but Vermont requiring the participant to pay for return postage isn’t consideration either. As a rule of thumb, try not to require much effort from participants to participate or $.
What is chance? The threshold varies by state. In some states chance is present when chance is a predominant factor in the outcome. In other states chance is present when chance is one element in the outcome. If you are a conservative person assume any level of chance is sufficient.
What is a prize? Anything of value offered as an inducement to enter. It doesn’t have to be a tangible product, it could also be a discount or cash.
What is skill or ability? This is very flexible, it could be sword fighting, essay writing, video creation, or coding. Guessing the number of marbles in a jar is more chance, not a skill though. Even if you are eerily good at it.
Never combine all three of the below in the U.S.!!
Because it will cause a fiery explosion. Not really, but it will result in something illegal and an illegal thing is worse than a fiery explosion.
Chance, Prize, and Consideration. That will result in a lottery. You can eliminate either chance or consideration to make it legal. Technically you could eliminate the prize. But that would be crazy.
That would be like being stranded on a deserted island and told you can eat only one of these as you live out your life stranded on the island.
This bowl full of Halloween goodness.
Or this parsnip.
And you choose the parsnip. That’s what happens you decide to do a game of chance and also ask for a purchase as a condition of entering ok? You’re choosing the parsnip.
Now for the regulations.
Many of these regulations have overlapping rules, so while this may look like a long list the requirements of what you must do to comply are very similar.
Deceptive Mail Prevention Enforcement Act. This only applies if you send contest or sweepstakes information through USPS. The section heading is linked to the text of the act itself, this is a very short summary of the act. Basically, on the mailing you must: display the rules and order form, state no purchase necessary to enter (AMOE), state a purchase doesn’t increase odds of winning, your name (as the sponsor) and address, odds of winning or statement they can’t be calculated, retail value and nature of prize. For skills related contests additional requirements apply. You must do the following: provide number of rounds, cost to enter, if difficulty increases with each round, % of people who may correctly solve the skills contest, identify of judges/method of judging, date the winner will be determined. In both instances you must provide an address and telephone number for the person to opt out of future mailings and on any facsimile checks state they are non-negotiable and have no cash value.
Unlawful Internet Gambling and Funding Prohibition Act. This only applies to bets or wagers, if participants are staking something of value on a game of skill or chance. I have yet to encounter a technology company that has ever done this so I’ll just leave the link there for you.
COPPA (Children’s Online Privacy Act). This applies to participants under the age of 13. If you have knowledge the website you’re offering the contest or sweepstakes on is collecting information from children under thirteen or if your target participant is under 13 you must comply with COPPA. The biggest rules involve getting parental consent before accepting information from the child and requirements pertaining to protecting the child’s information.
CAN-SPAM. This is a topic to do a deep dive on another day, but if you send emails or have emails sent on your behalf about your contest or sweepstakes you must comply. You can’t send deceptive material. For example, no stating “Free vacation to Greece!” without explaining you will cover airfare but the participant must pay for their hotel. Also remember to give them the ability to opt out, screen against opt out lists, state how you are going to use their information and follow your rules on that, and be clear about who is sending the promotional email.
Section 5(a) of the FTC (II A in this link). This a basic but sweeping consumer protection statute that says there must be no unfair or deceptive practices in running the contest or sweepstakes.
Telemarketing rule from the FTC (skip to the “Written Permission to Call” section for information on how this rule may have become applicable to sweepstakes/contests). Telemarketing involves more than one interstate telephone call to induce the purchase of good or services. If you tie in a call to induce a purchase as part of a contest or sweepstakes (remember AMOE!) you must follow certain rules. Screen against the do not call registry, tell them the odds of winning and if the odds can’t be calculated disclose that, and disclose any terms/conditions that might affect the person’s decision to participate.
FCC (keyword search for “contest” to quickly find some applicable sections). The FCC covers sweepstakes and contests promoted on radio or TV. Ever wonder why in certain commercials the announcer goes into a MicroMachine man voice (Remember the MicroMachine guy?) towards the end and rattles off terms and conditions? It is because you are required to read ALL material terms and conditions on air. No deception and no misleading statements during the promotion.
Be aware of the regulations of the states your participants are located in.
Some states require that before offering a contest or sweepstakes a registration and bond to be paid for prizes over a certain value. For example Rhode Island requires prizes valued at $500.00 or above have a bond and be registered with the state prior to offering the contest or sweepstakes. I have not yet encountered a state with a lower value requirement than Rhode Island.
Other states restrict the prizes you can offer. For example, some states do not allow you to offer livestock or alcohol as prizes. No offering up Bessie the cow or a bottle of Jim Beam.
Speaking of Terms and Conditions
Be clear. As clear as legalese can be.
Give odds of winning, if odds can’t be calculated say it.
Provide AMOE or state no purchase necessary.
List any terms that would make the participant think twice about participating in your game.
Require that the participant accept the rules before entering (acceptance can be as simple as filling out a form with their name or writing their name on a sign-up sheet on which the rules are located or which are posted nearby, click accepting, or signing).
You can’t reserve the right to change the terms after you launch the promotion.
Give the retail value of the prize.
Provide the start and end date of your contest or sweepstakes.
Provide information on who the sponsor is (name and address).
Provide the states/countries where the participant must be located in order to be eligible to participate.
Provide the number of prizes available.
How the winner will be notified and where the list of winners will be made available.
Provide the minimum age the participant must be to participate (for purposes of COPPA compliance or if you’re offering an adult themed prize).
If you are asking participants to create something to enter be sure you have a representation/warranty from them that they have the right to enter it, that it doesn’t infringe on anyone’s intellectual property, and that you are granted a royalty free, perpetual, irrevocable license to use it as you see fit.
Social Media
Let’s move on to marketing and promoting your contest or sweepstakes on social media.
Facebook requires that in your terms and conditions you must include a release of liability of Facebook and acknowledge they don’t sponsor, endorse, or administer it.
You must administer the contest or sweepstakes within an App. You can use “likes” as a way to vote but you can’t require that people share something on their personal timeline or a friend’s timeline as a way to participate or gain additional entries. Just because you see people other do it doesn’t make it right :).
A link to the rules for running a sweepstakes or contest on Facebook can be found here.
Google+
Is anyone even on Google + anymore? If you are then you should know the rules here are more restrictive than other social media platforms. But there isn’t an audience anyway. Just move to Facebook or Twitter.
You may not run the sweepstakes or contest on Google+. You can link to a separate URL where the sweepstakes or contest is offered though. But no using Google+ features to run/administer it. For example, you may not use +1’s as a way to vote or participate.
Google + rules for contests and sweepstakes appear here .
You must discourage creation of multiple accounts and discourage posting the same or almost the same tweet repeatedly. No posting the same or similar message to multiple accounts while logged into a third party app as the tweets may be filtered out of searches. Twitter may remove/suspend accounts for this. Provide a link to the contest rules and use your character limit to make it clear no purchase necessary and stating when the contest or sweepstakes ends.
Twitter rules for contests and sweepstakes appear here.