Can a prize promotion be run that is based on skill?
Federal law has specific regulations for skill competitions offered through the mail. State rules differ regarding how much chance is allowed in a skill contest, however, a majority of states apply the rule that it is not an illegal lottery so long as skill is the dominant factor in determining the winner. Ellison v. Lavin, 179 N.Y. 164 (1904); State v. Stroupe, 238 N.C. 34 (1953). Several states prohibit charging entry fees or requiring other consideration to enter or participate in skill contests.
Whether a contest is determined by skill or chance is a fact specific analysis. A skill contest generally is one where success depends principally on the superior knowledge, attention, experience, and skill of the player whereby the elements of chance in the game are overcome. Contests should be structured such that one with skills has an advantage over non-skilled players.
A skill contest is a puzzle, game, competition, or other contest in which a prize is awarded or offered, the outcome depends predominately on the skill of the contestant, and a purchase, payment, or donation is required to enter. The DMA requires that mailings for skills contests include a clear and conspicuous statement which discloses all terms and conditions and provides a name and address where the sponsor can be reached. Additionally, the mailings must disclose certain information such as the number of rounds or levels, the cost to enter each round, the maximum cost to enter all rounds, the estimated number of entrants who may win, the qualifications of the judges, the method used in judging, the date prizes will be awarded and the value and nature of each prize. 39 U.S.C. § 3001(k)(3)(B).
Arizona – Before engaging in an intellectual contest or event that requires the purchase of a product, a sponsor must pre-register with the Arizona Attorney General. Ariz. Rev. Stat. § 13-3311.
California - To qualify as a contest the game must require a combination of skill and chance, but skill does not need to dominate the game. Haskell v. Time, Inc., 857 F. Supp. 1392 (E.D. Cal. 1994). Operators of a skills contest must clearly and conspicuously disclose the rules, regulations, terms and conditions of the contest, the maximum number of games which may be necessary to complete the contest and determine winners, the maximum amount of money which a participant may be asked to pay, and the dates upon which the contest will terminate, and how ties will be decided. Cal. Bus. & Prof. Code § 17539.1.
Colorado – Prohibits requiring a person to pay the sponsor money or other consideration as a condition of allowing the person to receive, use, compete for, or obtain a prize or information about a prize. Colo. Rev. Stat. § 6-1-803.
Illinois – Certain games of skill are exempted from Illinois’s prohibition on gambling. The contest must be a 'bona fide contest for the determination of skill, speed, strength or endurance...' 720 ILCS 5/28-1(b).
Oregon – Requires that a skills competition have a combination of skill and chance, but skill does not need to dominate the game. Or. Rev. Stat. § 646.651.
Texas – Contests that involve an offer of a prize, award, or compensation to the actual contestants in a bona fide contest for the determination of skill, speed, or strength are exempted from Texas's prohibition of gambling. Tex. Penal Code. § 47.01.