Account Supervisor Cheryl Thornton contributed this post on consideration.
Consideration has many definitions, but when it’s included in a Game of Chance such as a Sweepstakes, the promotion could be violating federal, state and local laws and regulations governing Sweepstakes and Contests.
When a promotion combines the elements of (1) prize, (2) chance and (3) consideration, it is a Lottery. All lotteries, except those which are state operated are illegal under federal law and the laws of all fifty states.
(1) Prize is anything of value awarded to winners.
(2) Chance is the process of randomly selecting the winners.
(3) Consideration- of which there are two types of consideration consists of; Monetary and Non-Monetary. Monetary is the purchase of a Sponsor’s product or any other payment/entry fee required to enter. Non-monetary is substantial time or effort expended which benefits the Sponsor in some direct way.
In order to make your promotion legal, you must eliminate one of the elements in order to be compliant with federal and state laws. Since the prize can’t be eliminated as this is what attracts entrants to participate in the promotion, and games of chance are more popular than games of skill, the logical element to remove is consideration; whereby entry to all who are eligible is “free”.
Consideration can legally flow to the promotion sponsor; it just can’t be mandatory. Virtually all U.S. jurisdictions will permit a promotion where participants pay to play, as long as the sponsor provides a free alternative method of entry (AMOE). These alternative methods of entry can include; mailing, phone call to an 800 telephone number or e-mailing entrant’s information as outlined in the official rules. Disclosures of the AMOE must be “clear and conspicuous”, so that entrants are adequately informed of the existence of a non-purchase method of entry. It is also important to maintain that non-paying participants have equal opportunity to both enter and win the sweepstakes. The AMOE also must have “equal dignity” with the purchase method of entry.
Consideration that precedes the game is legal as long as the Sponsor limits sweepstakes participation to those who made a purchase or transaction prior to the start date of the promotion. Otherwise, the sponsor would be unlawfully inducing consumers to subscribe as a condition of participating in the game.
Requiring the winner of a sweepstakes to submit some type of payment in order to claim a prize can constitute after-the-fact or “post consideration” and violates the prize notification statutes of various states. These statutes make it illegal to condition the award of a prize to a winner on the payment of a fee, requirement to purchase, or submission to a sales presentation in order to claim the prize.
Just follow these simple tips when planning your sweepstakes and you should be on your way to a successful and legal promotion. With the constant changes to sweepstakes law, it is always best to check with legal counsel or an expert like Marden-Kane prior to running any game of chance.
Do you want to learn more? Then contact Marden-Kane. We are here to help you with your promotional needs.