Can a prize promotion be run where there is an element of chance in the selection of the winner?
Prize draws are generally allowed, but you cannot require consideration as a condition for entering or awarding a prize in a chance competition. Most states prohibit illegal lotteries, which is a defined as a scheme that involves a prize, chance, and consideration. Consideration usually takes two forms: monetary consideration which involves a product purchase or payment, and non-monetary consideration in which the entrant expends substantial time or effort which benefits the sponsor or provides some other thing of value to the sponsor.
A legal sweepstakes avoid being an illegal lottery by removing the element of consideration. One way to eliminate consideration is offer a free, alternative method of entry (AMOE). The AMOE must be truly free and have equal dignity (eg the same number of entries or chances to win) as a purchase method of entry. The AMOE must be clearly and conspicuously disclosed in the advertising of the sweepstakes.
A skill contest avoids being a lottery by removing the element of chance from the competition. The key here is making sure the winner of the contest is determined by skill and not chance.
The DMA requires that sweepstakes mailings include statements that disclose, among other things, that a purchase is not necessary to enter and will not improve the chances of winning, a name and address where the sponsor can be contacted, the terms and conditions, the entry procedure, the estimated odds of winning each prize, the quantity and estimated retail value of every prize, and a statement of the payment schedules of any prize. 39 U.S.C. § 3001(k)(3)(A).
Arizona – Permits 'amusement gambling', which it defines as being determined by skill rather than chance. A.R.S. §§ 13-3301(1), 13-3302, 13-3311.
California – Prohibits prize draws where the participants must pay something of value as a term of entry. Cal. Bus. & Prof. Code § 17539.3; People v. Cardas, 137 Cal. App. Supp. 788 (1933).
Florida – Prohibits requiring an entry fee, payment, or proof of purchase as a condition to entering a game promotion. Fl. Stat. §849.094(2)(e).
Illinois – Defines 'prize' to include prizes from games of chance. Sponsors must not charge a fee for entry or require purchase. 815 ILCS 525/10, 20.
Georgia – Prohibits promotions that require person to pay money, including payments for service fees, mailing fees, or handling fees. Ga. Code Ann. § 10-1-393(b)(16)(C).
Kansas – Prohibits lotteries for consideration, but mere registration without the purchase of goods or services does not constitute consideration. Promotions therefore cannot require the purchase of goods or services or attendance at places or events which require the payment of an admission fee. Kan. Stat. § 21-6403.
New Mexico – Prohibits any promotions for consideration unless certain disclosures are made in each and every representation made in connection with the promotion. N.M. Code R. § 126.96.36.199.
New York – Requires posting of minimum number and value of prizes and the rules of the promotion in every retail establishment offering participation. N.Y. Gen Laws § 369-3(2).
Texas – Prohibits allowing individuals to choose a prize unless that choice appeared on the entry form and is in no way connected to an order form or other purchasing mechanism. Tex. Bus. & Com. Code § 622.103.