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• Governing law

  Overall Summary

  Prize promotions are governed under both Federal and State law. States have varying laws on prize promotions. Special rules also apply to sweepstakes promotions used in connection with sales of time shares and similar real estate offerings.

  Federal Law

  At the federal level, the US Department of Justice is primarily responsible for enforcing criminal violations such as illegal lotteries. The US Postal Service is responsible for enforcing regulations regarding sweepstakes sent through the mail. The Federal Trade Commission can bring actions for unfair and deceptive trade practices relating to sweepstakes and contests. The Federal Communications Commissions can bring actions relating to sweepstakes and contest offerings over broadcast, cable or satellite television, or radio.

  Racketeer Influenced and Corrupt Organizations Act ('RICO')
  
  Section 5(a) of the Federal Trade Commission Act
  
  Federal Deceptive Mail Prevention and Enforcement Act ('DMA')
  
  CAN-SPAM Act of 2003
  
  Telemarketing Sales Rule ('TSR')
  
  Telephone Consumer Protection Act ('TCPA')
  
  Children’s Online Privacy Protection Act ('COPPA')
  
  18 U.S.C. §§1301-1306 - Federal law prohibits lotteries and other forms of gambling
  
  47 C.F.R. § 73.1211 – Code of Federal Regulations prohibits television or radio stations from broadcasting advertisements or transmitting information on lotteries

  Selected States

  Arizona Stat. §§13-3301 to 13-3311

  California – California Business & Professions Code §§ 17539.1- 17539.35; California Penal Code § 330, et seq.

  Florida – Fla. Stat. § 849.094

  Illinois – 815 Ill. Comp. Stat. 525/1, et. seq.

  New York – N.Y. Gen. Bus. Law § 369-e

  Rhode Island – R.I. Gen. Laws 11-50-1, et seq. and 42-61.1 et seq.

  Texas – Texas Business and Commerce Code Chapters 621 and 622

  Industry Regulation

  The Children's Advertising Review Unit (CARU) of the Council of Better Business Bureaus was established by the National Advertising Review Council (NARC) to promote responsible children’s advertising. It has specific guidelines that govern sweepstake and contest promotions involving children.

  Last modified 29 Jan 2019

• Extra-territoriality

  Overall Summary

  Generally speaking, state regulators will enforce regulations if the sweepstakes or contest promotion allows residents of that state to enter the promotion, even if entry is done purely online and there is no in-state advertising or promotion. Federal regulators will enforce regulations against any sweepstakes or contest promotion that involves interstate commerce (across state lines).

  Last modified 29 Jan 2019

• Skills competitions

  Overall Summary

  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.

  Federal Law

  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).

  Selected States

  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.

  Last modified 29 Jan 2019

• Prize draws

  Overall Summary

  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.

  Federal Law

  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).

  Selected States

  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. § 12.2.2.10.

  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.

  Last modified 29 Jan 2019

• Selection of winners

  Overall Summary

  There is no specific statutory requirement for the selection of winners, but promoters must ensure promotions are conducted under proper supervision, make adequate resources available to administer them and allow enough time for each stage eg judging rounds. Some states do regulate the award of prizes.

  Selected States

  California – In California, an operator must award and distribute all prizes 'of the value and type represented'. Cal. Bus. & Prof. Code § 17539.1. Additionally, at the conclusion of a contest, its conductor must send, upon request by any contestant, the names of all winners, the prize won by each and, if applicable, the correct solution and the winning solution (if different). Cal. Bus. & Prof. Code § 17539.2.

  Florida – It is illegal to fail to award prizes offered. Fl. Stat. §849.094(2)(c).

  Illinois – Must award the prize within 30 days of announcing the winner. 815 ILCS 525/30.

  Nebraska – It is illegal to fail to award the prizes which are offered. N.R.S. § 9-701(3)(c).

  New York – Within 90 days of completion of promotion where the prizes offered exceed US$5,000, the operator must file with the Secretary of State the name and address of each winner of every prize valued more than US$25. N.Y. Gen. Laws § 369-e(5).

  Rhode Island – It is illegal to fail to award the prizes which are offered. R.I. Gen. Laws § 11-50-5.

  Last modified 29 Jan 2019

• Judges

  Overall Summary

  There are no statutory requirements. However, the key is making sure that bona fide skill determines the outcome and entrants are clearly notified of the standard of skill required (ie criteria by which the winner will be determined). Skill competitions where the selection of winning entries is open to subjective interpretation must be judged by a demonstrably independent judge or a panel with at least one independent member. Those judging must be competent.

  Last modified 29 Jan 2019

• Prizes

  Overall Summary

  The sweepstakes laws generally do not restrict the type or prizes awarded. However, there may be restrictions on the awards of certain kinds of prizes under industry-specific regulations, such as alcohol or prescription drugs.

  Selected States

  Arizona – Prizes cannot be offered that are a lure to separate participants from their money. A.R.S. § 13-3301.

  California – Alcoholic beverages or anything redeemable for alcoholic beverages cannot be awarded in a sweepstake. Cal. Bus. & Prof. Code § 25600.2.

  Last modified 29 Jan 2019

• Registration requirements and fees

  Overall Summary

  In general, a sponsor of a sweepstakes or competition where the prize has a value of US$600 or more must report the value of the prize to the Internal Revenue Service on a Form 1099 with the name and tax identification of the winner.

  Federal Law

  No specific rules other than general tax reporting rule stated above.

  Selected States

  A number of states require either sweepstakes or skill contests to be registered.

  Arizona – Requires any 'intellectual contest' that involves the purchase of a product to be registered with the Arizona Attorney General. A.R.S. § 13-3311.

  Florida – Requires the operator of a game promotion where the total announced value of the prizes exceeds US$5000 to register and post a bond with the Department of Agriculture and Consumer Services. Fl. Stat. § 849.094(3).

  New York – Requires the sweepstakes operator to register and provide a bond for any sweepstakes where the total value of prizes exceeds US$5000. N.Y. Gen. Bus. Law §369-e.

  Rhode Island – Requires a retail establishment that offers the opportunity to receive gifts, prizes, or gratuities, as determined by chance, in order to promote its retail business, where the total announced value of the prizes offered to the general public is in excess of five hundred dollars ($500) must register with the Rhode Island Secretary of State. R.I. Gen. Laws § 11-50-1.

  Last modified 29 Jan 2019

• Other local requirements

  Overall Summary

  Both state and federal law mandate certain disclosures that need to be made in connection with sweepstakes promotions and advertising. Generally speaking you must provide no purchase necessary disclosures, eligibility requirements, the method of entry, deadline dates (entry, prize claims etc.), the odds of winning, the prize description, and number of prizes and their value, and any special conditions. Social media sites such as Facebook and Instagram have certain additional disclosures that have to be made.

  Selected States – Disclosure Requirements

  California – Use of the word 'lucky' to describe an entry form or the use of simulated checks, currency, or items of value are prohibited unless they bear the words 'SPECIMEN-NON-NEGOTIABLE' clearly and conspicuously. Cal. Bus. & Prof. Code, § 17539.1(a)(11), (13).

  Illinois – Prize offer must include the following clear and conspicuous disclosures:

  • The true name or names of the sponsor and the address of the sponsor's actual principal place of business;
    
    
  • The retail value of each prize the person receiving the notice has been selected to receive or may be eligible to receive;
    
    
  • A disclosure that no purchase is necessary to enter such written promotional offer;
    
    
  • A disclosure that a purchase will not improve the person's chances of winning with an entry;
    
    
  • A statement of the person's odds of receiving each prize identified in the notice;
    
    
  • Any requirement that the person pay the actual shipping or handling fees or any other charges to obtain or use a prize, including the nature and amount of the charges;
    
    
  • If receipt of the prize is subject to a restriction, a description of the restriction;
    
    
  • Any limitations on eligibility; and
    
    
  • If a sponsor represents that the person is a 'finalist', has been 'specially selected', is in 'first place', or is otherwise among a limited group of persons with an enhanced likelihood of receiving a prize, the written prize notice must contain a statement of the maximum number of persons in the group or purported group with this enhanced likelihood of receiving a prize. 815 ILCS 525/25.

  New York – The sponsor shall cause to be posted in a conspicuous and prominent location in every retail establishment offering the opportunity to participate in such game or contest and published in all advertising copy used in connection therewith, a statement showing the minimum number and value of prizes available to be won over a stated period of time and stated geographic area, and the rules and regulations pertaining to such promotion or advertising scheme or plan. N.Y. Gen. Bus. Law §369-e.

  Texas – A person using a drawing must clearly and conspicuously disclose the following:

  • A statement of the odds of winning each prize offered, expressed as a ratio in Arabic numerals, except that if the odds of winning a prize cannot be determined because the total number of entries is not known, the offeror shall make a statement to the effect that the odds of winning depend on the total number of entries received;
    
    
  • The exact prizes to be awarded in the drawing;
    
    
  • The beginning and ending dates of the contest period;
    
    
  • The date the drawing will occur;
    
    
  • The location at which the drawing will occur; and
    
    
  • The retail value of a prize; and clearly and conspicuously in at least 10-point type that airfare, lodging, or both are not included in a prize that is a trip or recreational activity to the extent that either or both are not included.

  Applies only to sweepstakes where a prize is offered as an inducement to attend a sales presentation. Tex. Bus. & Com. Code § 621.106.

  Additional disclosures required for 'matched contests' and certain sweepstakes offered through the mail where the prize value is in excess of US$50,000. Tx. Bus. & Comm. Code §§ 621.102, 621.103, 621.104.

  Selected States – Recordkeeping Requirements

  A number of states require the promoter of the sweepstakes to keep certain records for a period of time.

  Florida – Operator must keep winning entries for 90 days after close or completion of game. Fl. Stat. § 849.094(5).

  Rhode Island – Operator must maintain records of winners for 6 months following completion of the promotion. R.I. Gen. Laws § 11-50-3.

  Texas – For certain contests other than a drawing, the offeror must maintain certain records relating to the contest for two years from the date the prize was awarded. Tex. Bus. & Com. Code § 621.202.

  Selected States – Winners List

  States that require registration will also usually require filing of winner's lists. Other states require winner’s lists to be made available on request.

  Arizona – Must file winner's list within 10 days for intellectual contests. A.R.S. § 13-3311(B).

  Florida – For registered sweepstakes, must file winner’s list for all prizes over US$25 in value within 60 days after final determination of winners. Fl. Stat. §849.094(5) The operator must provide a copy of the list of winners, without charge, upon request of any person. Id.

  New York – Must file winner's list for all prize over US$25 in value within 90 days after determination of winners for registered sweepstakes. The promoter must also provide a winner’s list to any person that requests it. N.Y. Gen. Laws § 396-e(5).

  Texas – At the end of the contest period, each person who conducts a contest shall provide the names of all major prize winners and the prizes won by each winner to any person who requests. Tex. Bus. & Com. Code § 621.204.

  Last modified 29 Jan 2019

• Timing

  Overall Summary

  Generally speaking you should allow enough time for the rules to be drafted and posted, data protection issues resolved, advertising reviewed and all entry mechanisms tested before launching the sweepstakes or competition. In addition, you need to allow additional time to meet any applicable registration requirements. Registration deadlines are provided below.

  Selected States

  Arizona – No specific time requirement except that they should be filed prior to the commencement of the promotion. A.R.S. § 13-3311.

  Florida – The sweepstakes registration form needs to be filed at least 7 days in advance of the commencement of the game promotion if the total announced value of all prizes is greater than US$5000. Fl. Stat. §849.094(4)(a).

  New York – The sweepstakes registration form and the official rules need to be filed at least 30 days before the sweepstakes commences if the total announced value of all prizes exceeds US$5000. N.Y. Gen. Laws § 396-e(1).

  Rhode Island – No specific time requirement except that they should be filed prior to the commencement of the promotion. R.I. Gen. Laws § 11-50-1.

  Last modified 29 Jan 2019

• Translations

  Overall Summary

  There are no translation requirements, although rules should generally be written in English.

  Last modified 29 Jan 2019

• Penalties for non-compliance

  Overall Summary

  Penalties vary by state and under Federal law. An improperly structured sweepstakes or skill competition arguably could constitute an illegal lottery or gambling, which are criminal offenses under state and Federal law. However, it is more common for regulators and consumers to seek civil remedies, such as injunctions, restitution, and civil penalties.

  Federal Law

  The FTC can bring enforcement actions for unfair and deceptive trade practices under Section 5 of the FTC Act. Remedies can include injunctions, civil penalties, and audits.

  Under the DMA, the US Postal Inspection Service can obtain temporary restraining orders and injunctions, as well as assess civil penalties up to US$2 million dollars.

  The FCC can assess fines starting at US$4,000 for each violation of its contest rules.

  Selected States

  Arizona – Violation would be considered gambling and likely a class 1 misdemeanor. R.S. §§ 13-3303, 13-3304.
  
  Arkansas – Consumers can file a lawsuit for violations of the prize promotion laws or consumer protection laws. AR Code § 4-102-103.

  California – Violations of Cal. Bus. & Prof. Code § 17539.1 constitute unfair business practices and are likely enforceable in a civil action under Cal. Bus. & Prof. Code § 17200. That law also provides for injunctions and civil penalties not to exceed US$2,500 per violation. The penalties for engaging in illegal gambling, such as the operation of an illegal lottery, are a fine between US$100 and US$1000 and imprisonment in county jail not exceeding 6 months, or both. Cal. Pen. Code § 330.

  Colorado – Can be up to US$10,000 per violation if the violation committed against an elderly person. Colorado Consumer Protection Act § 6-1-112(c).

  Florida – Any person, firm, corporation, association, agent, or employee who violates any provision of this section or any of the rules and regulations made pursuant to this section shall be liable for a civil penalty of not more than US$1,000 for each such violation, which shall accrue to the state and may be recovered in a civil action brought by the Department of Agriculture and Consumer Services or the Department of Legal Affairs. Fl. Stat. §849.094(9)(b).

  Georgia – Consumers can file a lawsuit for violations of the prize promotion laws or consumer protection laws. See e.g. O.C.G.A. §§ 10-1-390 et seq.

  Illinois – Violations are generally considered an unfair practice under the Consumer Fraud and Deceptive Business Practices Act, which may subject the promoter to penalties and injunctions. Consumer can also bring class actions for intentional violations of the law and recover the greater of US$500 or twice the amount of pecuniary loss. 815 ILCS 525/40.

  Massachusetts – An illegal lottery can result in fines of not more than US$2,000 or imprisonment up to 1 year. General Laws of Massachusetts 271, § 15.

  New York – Every person, firm or corporation who coerces a retail dealer to participate in any promotion or advertising scheme or plan of the type set forth in subdivision one of this section shall be guilty of a Class B Misdemeanor. N.Y. Gen. Laws § 396-e(7).

  Rhode Island – Violations can constitute a misdemeanor. R.I. Gen. Laws § 11-50-6.

  Texas – Violations of sweepstakes law can give rise to a civil penalty of not less than US$5,000 or more than US$50,000 for each violation found. Actions can only be brought by the state Attorney General. Violations of gift offer law is a Class B misdemeanor for first offense, a Class A misdemeanor for a second offense committed within 5 years of the first conviction and a third degree felony for a third offense committed within five years of the first two convictions. They are also subject to deceptive trade practice action. Tex. Bus. & Com. Code §§ 621.251, 621.252.

  Utah – The state Attorney General can seek a permanent restraining order or bring criminal charges for violations of the lottery laws. Utah Code Ann. § 13-28-8; Ga. Code Ann. §§ 16-12-21, 10-1-393(b)(16)(N).

  Last modified 29 Jan 2019

• Restrictiveness of regulations

  Overall Summary

  A prize promotion mechanic is highly likely to be prohibited if chance is the dominant factor and entrants are required to make a payment or purchase a product or a substantial expenditure of effort in order to enter. If there is no purchase or payment required to enter then, except for registrations requirements in a few states, it is likely the prize promotion can be offered as long as certain disclosures are made.

  Last modified 29 Jan 2019

• Regularity of sanctions

  Overall Summary

  Regulators have not frequently imposed serious sanctions for non-compliance except in cases of promotion schemes that were merely a form of disguised gambling or misleading (e.g. a failure to adequately disclose an AMOE). There have been class actions filed under state unfair trade practice cases from time to time in connection with promotions where some purchase or payment was required (e.g. text to enter games where there was a premium text charge imposed).

  Last modified 29 Jan 2019

• Key contacts
  

  Heather Dunn

  Partner DLA Piper LLP (US) [email protected] T +1 415 836 2557 View bio