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Many companies wish to reward the support of their audience through contests, giving away prizes in exchange for entry. However, the law surrounding contests and sweepstakes is complex. Lack of understanding, though, could lead an unsuspecting company to open themselves up to liability from the government and contest participants.
The three types of games:
There are three main types of games, each of which have their own laws and consequences. These are lotteries, contests, and sweepstakes. Sometimes the names are used interchangeably, but the legal definitions are as follows:
Lotteries are games that include three things – 1) a prize, 2) an element of chance, and 3) some kind of consideration to participate. “Consideration” is a legal term that means that something of value was given to enter the lottery, usually money. Private lotteries are generally illegal, so the combination of the three elements is a recipe for disaster.
Contests are games in which the element of chance is removed. So, there is consideration to participate in order to win a prize, but the decision of who wins cannot be up to chance. Usually these are games of skill or games in which a judge decides who is the winner, such as a creative writing or art contest.
Sweepstakes are games in which the consideration requirement is removed. There is a prize that can be won by chance, but you will generally see a “no purchase necessary” disclaimer added on in order to make the game not an illegal lottery.
Other possible requirements:
These games are governed by both federal and state law. Each state has different nuances to their statutes, which is why you sometimes see prohibitions against entrants from certain states. For instance, in some states the prize must be “bonded,” giving a guarantee either through a third party or escrow that the prize will exist when there is a winner.
A game of skill, seen in a contest, will often be required to have clear criteria for judging. This is both required by law in many jurisdictions, and a good practice in order to avoid confusion on the part of the participants. Merely saying that the judges will pick “the best” of something is not enough – the criteria for winning must be objectively verifiable. Also, the judges themselves must be competent to judge.
Generally, it is best to get some competent legal advice before starting a contest or sweepstakes to ensure that your rules are clear, and you are complying with the law in any jurisdiction where the game is taking place. Your favorite game attorney may be able to help.