Sweepstakes or Contest Legality: How to Avoid Entrant Confusion

A sweepstakes or contest may suffer from legal risk because of lack of attention to the consumer experience. Marketers should focus not only on their campaign goals but also on mitigating entrant confusion.

Prize promotions are valuable tools to build brand awareness, drive traffic to a website, or build  email lists. To avoid legal problems, sponsors should also take steps to ensure that entrants understand the official rules and all entry requirements. This blog outlines some areas for discussion between marketers and legal counsel in planning a sweepstakes or contest.

Q. What part of the sweepstakes or contest official rules is most important for entrants to understand?

A. Of course, the full set of rules is important as the contract with entrants. It is equally true, however, that entrants will focus their attention on certain aspects of the rules.Entrants must understand the eligibility requirements, methods of entry, deadlines for entry, restrictions on entry, and obligations for responding to sponsor inquiries, and sponsor’s data privacy policies. Marketers should focus on careful drafting of both official rules and any short form rules. All versions of the rules should have user-friendly language and be consistent.While the official rules are the main contract with the consumer, if the short form rules contain inconsistent statements, that can introduce ambiguity and diminish protection for the brand.

Q. What kind of sweepstakes entry requirements can create legal problems for a brand?

A. For a sweepstakes to be legal in all 50 states, it cannot require the entrant to issue consideration, namely spending money or engaging in substantial effort. Regarding money, entry mechanisms that require a stamp on a mail-in envelope or Internet access for web access are unlikely to create legal problems.

On the other hand, as of the date of this writing, we do not have case law or an Attorney General opinion that approves the data charges that could be associated with text entry. Similarly, requiring entrants to download a paid app is likely to be problematic. An alternate method of entry is always recommended when monetary consideration is present. In addition, the official rules should remind the entrant that data and message rates may apply. As to substantial effort, liking a post on social media is unlikely to be seen as consideration. On the other hand, completing a lengthy survey or a scavenger hunt may be risky.

Q. What kind of skill contest entry requirements can create legal problems for a brand?

A. For a skill contest, most states permit a sponsor to charge entrants to enter a skill contest. (Whether it is a good idea from a practical perspective is another issue.) Nonetheless, a handful of states do prohibit any monetary consideration for entering a skill contest.

Entry requirements that mandate ownership of user generated content can also create intellectual property legal issues. A brand should think through such a requirement with legal counsel. In addition, it is crucial that the official rules address these issues.

Q. What entrant data should the sweepstakes or contest entry form contain?

A. Another issue for sweepstakes and contests around entry is the data on the entry form. Brands are not exempt from data privacy laws when running these prize promotions. The marketer should work with legal counsel to determine how the sweepstakes or contest intersects with the brand’s privacy policies and data protection practices. The official rules should refer to and not contradict those policies. In addition, marketers also should consider what entrant data they really require versus would be nice to have.

Q. Is there anything special about entering a sweepstakes or contest through social media?

A. The major platforms all have rules about running prize promotions. Sweepstakes and contests often require an entrant to repost or tag a friend or use a hashtag. The platforms have rules about avoiding “spammy” behavior.

In addition, brands should be aware that those entrants are functioning as influencers with these actions. Brands are ultimately responsible the content of these posts and should require all entrants to use appropriate hashtags that publicize the connection to the brand. The FTC has detailed requirements for influencers. The agency has opined that referring a friend or reposting for additional sweepstakes entries requires disclosures with the entries.

There are no shortcuts  due to space constraints. Brand marketers should work with legal counsel to create compliant hashtags and to ensure that requirements are clear to entrants.

Q. What should a marketer do if an entrant inadvertently misses a sweepstakes or contest entry requirement?

A. If an entrant does not comply with the official rules, the sponsor can lawfully void the entry and disqualify the entrant. Sponsors should disqualify an entry that does not meet all material requirements to ensure fairness to all the other entrants.

Q. Some entrants have tactics for increasing their odds of winning. How would a sweepstakes or contest sponsor discourage those tactics?

A. The official rules should have strong prohibitions on “gaming” the entry mechanisms for one entrant’s advantage. That language should be broad to protect the integrity of the sweepstakes. In addition, the rules should allude to the broader negative legal ramifications for the entrant who uses these tactics. Sponsors also need strong fraud detection technology to identify entrants who tamper with the entry method or submit fraudulent entries.

Q. Should a marketer use background checks on potential sweepstakes or contest winners?

A. Sponsors want to be sure that a winner will not bring bad publicity to their brand. The official rules should include a background check provision that gives sponsors the legal option to investigate potential winners. When conducting the background check, the sponsor should look not only for prior criminal activity, but also for undesirable political affiliations or other activities that might reflect poorly on the brand. Assuming the official rules have been drafted properly, the sponsor would have the discretion to disqualify a potential winner, sometimes before even notifying the person that he or she may have won.

Q. Who pays taxes on sweepstakes or contest prizes?

A. Tax obligations are typically the winner’s responsibility. For prizes that meet the legal threshold in the USA, the sponsor must issue the entrant a 1099 tax form. It is the winner’s responsibility to file and pay taxes. Again, the official rules should make this clear to potential entrants.

Q. What about disputes with sweepstakes or contest entrants?

A. A well-crafted dispute resolution clause in the official rules is essential to avoid confusion. The sponsor will want to discuss with legal counsel how to avoid class action lawsuits, whether to use arbitration, and what carve-outs might be necessary from any arbitration requirement. In addition, the sponsor should understand that if it chooses a dispute resolution provider such as the American Arbitration Association, special rules may apply to any potential arbitration. The dispute resolution clause is often ignored and inserted at the last minute. Such neglect is likely to increase legal risk and cost to the brand in the event of a dispute.

Conclusion

This blog touches on some of the areas that cause the most confusion for entrants and legal risk for marketers. For more information on running a lawful sweepstakes or contest that meets your marketing goals, contact Kyle-Beth Hilfer.