Sweepstakes and contests – failure to comply is not worth the gamble

Sweepstakes and contests are effective marketing tools that are used by businesses to promote new products, engage customers, and increase sales. Promotions of this nature have become increasingly popular due to the rise of social media. Sweepstakes and contests are often easier to implement, less expensive, and more effective at promoting a business’s products than methods used in a pre-social media age.

Businesses that choose to use either a sweepstakes or contest in a promotion must ensure they are compliant with all relevant laws and guidelines. There are three main areas of concern for business owners: illegal lotteries, official rules disclosures, and social media requirements.    

Lotteries are illegal unless run by the state, and businesses who promote illegal lotteries may be subject to civil and/or criminal penalties. A lottery has three elements: a prize is awarded, winners are determined on the basis of chance, and participants must submit consideration (something of value that must be given to participate), which can be monetary or non-monetary.

To avoid running an illegal lottery, it is important to run either a sweepstakes or a contest. A sweepstakes consists of a game of chance, where winners are selected by a random method, such as a random drawing. Sweepstakes require a method of entry free from consideration, such as mailing a 3x5 postcard to the business, or sending an e-mail. In contrast, a contest is a competition or game of skill that requires entrants put forth some level of skill or effort into their entry.

Consideration can be very tricky, as most states consider certain non-monetary requirements to be consideration. Low-risk entry requirements include short survey questions, application download when the application is free, or requiring a social post or comment on a free platform. Note that it is illegal in Ohio to require a single store visit for the purposes of entering a sweepstakes or contest.

All promotions must have official rules. These rules must be readily available to the public, included in any marketing in connection with your promotion, and clearly set forth the following disclosures: eligibility, prize details, method of entry, start and end date, odds of winning, any relevant deadline, the name of the sponsor, and details concerning the prizes, including the prize’s approximate retail value. Further, businesses should consider the following special topics in crafting their official rules: limitation of liability for user-generated content, publicity release/waiver, promotions targeting children, and a modification or termination clause.

It is vital that businesses comply with the terms and conditions of each social media platform before integrating its use in their promotion. Generally, platforms require the promotion to adhere to its own official rules, all applicable laws, the platform’s rules (such as its terms of service), and include a complete release of liability and acknowledgement that the promotion is not endorsed by the platform. However, all social media platforms have platform-specific requirements. For example, Instagram requires the business to avoid inaccurately tagging content, while Facebook does not allow businesses to require friend connections to administer, such as requiring an entrant share a post on their timeline or tag a friend to enter.

Finally, if a business chooses to use influencers in the promotion of their sweepstakes or contest, they must ensure the influencer is adhering to the Federal Trade Commission’s influencer guidelines, as failure to do so may incur additional liability.

While sweepstakes and contests are not new, they are increasing in popularity due to social media. When implementing these tools in a promotion, businesses must ensure they are taking active steps to abide by all applicable laws and guidelines, including the rules and requirements set out on individual social media platforms. Failure to do so may cause significant penalties—and that is not something you want to leave to chance!

Headshot of Ross J Bextermueller

Ross J Bextermueller

Partner, Keating Muething & Klekamp PLL

513-562-1433

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Nicole E. Cloyd

Associate, Keating Muething & Klekamp PLL

513-579-6527

About the Goering Center for Family & Private Business

Established in 1989, the Goering Center serves more than 400 member companies, making it North America’s largest university-based educational non-profit center for family and private businesses. The Center’s mission is to nurture and educate family and private businesses to drive a vibrant economy. Affiliation with the Carl H. Lindner College of Business at the University of Cincinnati provides access to a vast resource of business programming and expertise. Goering Center members receive real-world insights that enlighten, strengthen and prolong family and private business success. For more information on the Center, participation and membership visit goering.uc.edu.