Online Contests, Sweepstakes and Lotteries ... Do You Know The Difference?

When it comes to jump-starting your social media engagement, online promotions fit the bill perfectly. But did you know that there are actually three distinct types of online promotions, all of which carry their own legal requirements, and one of which is illegal in many states? The types of online promotions, which are often erroneously referred to interchangeably, are:  “Contests,” “Sweepstakes,”  and “Lotteries.” Here is a quick rundown of the differences in these popular online promotions:

Online Contests

Online contests always involve prizes being awarded based on an entrant's merit or skill. That is, chance is not an element in a contest, but rather the entries are reviewed and evaluated by at least one judge who is qualified to do the evaluation, and the process must be objective and follow predetermined, stated criteria.

Contests are subject to each individual state's laws, and if the contest is national, there are specific disclosures that must be included in the rules. In addition, there are some states that prohibit contests from having purchase requirements regardless of whether the  winner selection is based on skill.

Sweepstakes

Unlike a contest, an online sweepstakes involves awarding a prize based on chance. Skill or merit is not involved, and there is no cost to enter. That is, whether or not an entrant has made a purchase is irrelevant to the process and does not afford the entrant any greater chance of being selected winner. In addition, the rules of the sweepstakes must be very clearly stated, and these rules may not be changed during the course of the sweepstakes.

Sweepstakes laws also vary by state, some of which require that the sponsoring company register with the appropriate state authorities if the sweepstakes prize value exceeds certain limits. (For example, the limit in Florida is $5,000.) In addition, some states require that a bond in an amount equal to the sweepstakes prize(s) also be submitted with the registration.

Lotteries

Lotteries involve awarding a prize randomly—i.e., based on chance—along with requiring “consideration,” which is the exchange of something of value in order for the opportunity to enter and win. Oftentimes,  “consideration” may be money. That is, entrants pay in order to play. However, each state defines what it considers to be “consideration,” and in some states, a requirement which involves taking the entrant's (valuable) time can be considered “consideration.” This is especially important to understand, as lotteries are extremely highly regulated with regard to state-sponsored lotteries and are, outside of state-sponsored lotteries, illegal.

Before announcing any online promotions, be sure to thoroughly review the laws of your state for these, and double-check what you are requiring of entrants in your promotion.