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Online Sweepstakes as a Marketing Tool — Too Great a Risk?
by Denise M. Bowman
Although the term “sweepstakes”
may bring to mind visions of
oversized checks and life-changing
sums of money, more often than not,
sweepstakes involve much smaller
prizes, such as a free lunch or a one
month free membership to a gym or
karate studio offered as part of an
overall marketing plan to promote a
business, brand, product or service.
For example, a restaurant seeking
to attract a larger lunch crowd, and
business professionals in particular,
may advertise a weekly drawing of
business cards for a free lunch.
Similarly, a karate studio may offer a
month of free tuition for the student
whose name is randomly drawn from
a box of referrals.
Because most businesses, especially
those who deal directly with the
public, have and are actively using
their respective websites, it is
important to consider the legal
implications that online advertisement
of such sweepstakes may have on these
businesses. For example, does
requiring a participant to obtain
Internet access and apply for the
sweepstakes online violate the golden
“no purchase necessary” rule?
The vast majority of states have
enacted statutes regulating sweepstakes
and related areas of the law, including
gambling and illegal lotteries. Each
of these statutes is slightly different;
however, each one expressly requires
that a participant not be required to
provide the sweepstakes promoter
any “consideration” to enter the
sweepstakes. It is this “no purchase
necessary” requirement that distinguishes
a legal sweepstakes from an
illegal lottery.
But what exactly constitutes
consideration? It is well established
that payment of any sum to the
sweepstakes promoter, other than
nominal postage, is consideration.
However, beyond the prohibited
payment of money, the concept of
consideration is less clear. For
example, some states have held that
requiring a participant to visit the
store or place of business to enter
the sweepstakes does not constitute
consideration. Other states, however,
have taken the contrary position that
any conduct required of the participant
that provides a benefit to the sweepstakes
promoter is consideration and
renders that sweepstakes unlawful
gambling.
When requiring a participant to
obtain Internet access to enter the
sweepstakes, the law is even less clear,
even among administrations within the
same state. For example, several years
ago the Florida Department of State
deemed Internet access to constitute
consideration. As a result, promoters
of sweepstakes that triggered the
Florida statute began offering a free
method of entry as an alternative to
the online option. In recent years,
however, Florida has changed its
position.
In addition to the “consideration”
issue, which becomes more complicated
with online sweepstakes, those
businesses which choose to use the
Internet to advertise their sweepstakes
must be careful not to otherwise run
afoul of the many state statutes that
may be triggered by their particular
prize promotion. Businesses that
utilize the sweepstakes or prize
promotion as a marketing tool and
advertise locally through a newspaper
or in their own places of business
may have some level of comfort that
potential participants will be limited
to residents of the state in which the
business is located and/or perhaps a
neighboring state, and, accordingly,
only the statutes of those particular
states may be triggered.
However, once a business chooses
to utilize the Internet to advertise the
sweepstakes and solicit online entries,
that business may trigger the laws of
several states and even international law
if it does not expressly exclude residents
outside of its particular home state
from participating. Because of the
significant time and expense associated
with assuring compliance with other
nations’ laws, most often it is preferable
to limit entries to only residents of the
United States. Additionally, because
several state statutes are particularly
problematic and in some instances
require the promoter to register with
the State, post a bond and/or pay filing
fees, it also is worthwhile in many cases
to limit participants to only residents
of the state in which the business is
located and possibly another state if
its border is located nearby.
Sweepstakes have been, and remain,
an important marketing tool for many
types of businesses, especially those
which are community - based.
Accordingly, it is important that
businesses take appropriate measures
to maximize the positive effect of the
sweepstakes as a marketing device while
minimizing the potential for running
afoul of applicable state and federal
statutes and related case law regulating
this and related areas of the law. To
accomplish this goal, such business
owners should consult legal counsel to
do the following:
1. Identify which statutes, if any,
are triggered by the particular
sweepstakes involved and the
requirements;
2. Determine whether advertising
the sweepstakes on the Internet
broadens the scope of potentially
triggered statutes; and
3. Provide an interpretation of all
potentially triggered statutes to
permit the business to determine
whether it is worthwhile to
advertise on the Internet and
accept applications online and/or
specifically exclude residents of
certain states from participating in
the sweepstakes.
The gaming attorneys of Hill
Wallack LLP are well versed in
sweepstakes matters and stand ready
to assist you before you launch your
next promotion.
Denise M. Bowmanis an associate
of the Business & Commercial Law
Practice Group of Hill Wallack LLP
in the Newtown, Pennsylvania Office.
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