How to Keep Your Contest From Becoming a Trial
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This document provides guidance on how to properly structure contests and giveaways to avoid legal issues. It explains that contests require an element of skill while giveaways are random drawings that must allow entry without purchase. Several examples are given to illustrate the difference and potential penalties for illegal lotteries are highlighted, including a $152,000 fine for CVS and a $2.8 million fine. Key steps for running legal contests are outlined such as limiting eligibility, explaining rules clearly, choosing qualified judges, and planning for tie-breakers. It emphasizes working with a lawyer to ensure all regulations are followed.
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How to Keep Your Contest From Becoming a Trial
- 1. How to Keep Your Contest From Becoming a Trial
- 2. Hello! My name is Kerry O’Shea Gorgone Lawyer, Podcaster, Speaker, Writer You can find me at: @KerryGorgone www.KerryGorgone.com mprofs.com/podcasts
- 4. THE GIVEAWAY CVS: “Stop Smoking and YOU WIN!”
- 5. $152,000 Fine CVS paid FTC
- 6. 1. THE PROBLEM Marketers who run contests and giveaways illegally could get sued
- 7. “But everybody else is doing it!” (Too bad.)
- 9. The potential risk is huge. Cover your butt!
- 10. $2,800,000 Fine World Triathlon Corp. paid U.S. Government
- 11. Know the difference Between contests and giveaways
- 12. Contest winners are chosen based on skill (not by chance) CHANCE
- 13. In a giveaway or sweepstakes Winners are selected at random
- 14. Lotteries are pay to play People pay* for a chance to winPeople pay* for a chance to win *But “pay” doesn’t have to mean money
- 15. Giveaways must be “no purchase necessary” Or else they’re (illegal) lotteries! *But “pay” doesn’t have to mean money
- 16. “Pay to Play” doesn’t just mean money “Pay” means giving something of value (like your time, data, or even a “Like”) *But “pay” doesn’t have to mean money
- 17. Now you try… Giveaway or illegal lottery? Winner gets a free signed copy of the book. All you need to do is answer this simple question: What was the name of Akhenaten’s wife? Post answer in the comments section of this post in Facebook or via Twitter! A winner will be picked at random by adding all correct entries into a hat.”
- 18. Now you try… Giveaway or illegal lottery?
- 19. Now you try… Giveaway or illegal lottery?
- 20. Now you try… Giveaway or illegal lottery? Discount coupons, purchased from a vending machine for $1. Purchasers get a chance to win cash prizes
- 21. Okay, one more… Giveaway or illegal lottery? Win 8 months of free Rackspace hosting, for up to $1000/month. Just sign up hosting account with Rackspace, and you’re eligible to win!
- 22. Run contests Instead of giveaways
- 23. Seen one contest, you’ve seen ‘em all Work with a lawyer to set up a template
- 24. How to run a contest Instead of giveaways
- 25. Limit eligibility Clearly explain who can enter.
- 26. Explain the rules How will winners be chosen?
- 27. Choose judges who are qualified
- 28. Plan a tie-breaker (And don’t use a random drawing!)
- 29. Check the law where you are if you plan to charge a fee
- 30. And don’t change the rules! Run the contest as promised
- 31. File your paperwork With the IRS and your state
- 32. Use the right language "Void where prohibited.”
- 33. Ask for help Lawyers are your friends
- 34. ““Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” ~ Abraham Lincoln
- 35. Shhh… Presentation Handout Download key takeaways: ▷http://www.kerrygorgone.com/yall-connect-downloads
- 36. Thanks! Any questions? You can find me at: @KerryGorgone kerry@kerrygorgone.com
Editor's Notes
- Good afternoon! I hope you enjoyed the morning sessions.
- For those of you who didn’t meet me this morning, my name is Kerry O’Shea Gorgone. I’m an attorney, and I blog about law for marketers at KerryGorgone.com. I also develop marketing training programs for MarketingProfs and host their weekly Marketing Smarts podcast.
- One quick thing before we start: I’ve uploaded a handout for this presentation with all the key points, so don’t worry about taking notes or missing anything! Those of you who weren’t able to attend my session on live streaming with Meerkat and Periscope, you’ll also find the handout for that presentation there, so you’re all caught up! Now, on to our topic: contests and giveaways.
- CVS ran a giveaway offering customers a chance to win a $1,000 CVS/pharmacy Gift Card EVERY WEEK during NASCAR racing season. Consumers who went to a CVS store and bought Nicorette, NicoDerm or Commit—using their CVS loyalty card—were automatically entered into the giveaway. During each race from February to June, 24 customers won either a _$1000 CVS/pharmacy Gift Card!_each week OR _$1000 CVS/pharmacy Gift Card!_ when Jeff Gordon won! They said the giveaway was “No purchase necessary.” Entrants made a $1.00 donation also to the Jeff Gordon Foundation. How is that a problem? That sounds great, right?
- Wrong! Their giveaway violated the law, and the FTC fined them $152,000! The problem was that CVS did not make entry forms available at all its stores for customers who didn’t purchase these products, and CVS weren’t trained to direct people to the no-purchase method of entry using the CVS website.
- Violating state and federal laws relating to contests and giveaways can result in lawsuits and fines. Lawsuits are expensive, and fines or sanctions from government agencies are bad for business.
- The fact that others are doing it wrong won't save you. When you think about it, the “everybody else is doing it” defense is a bad idea. You’re just pointing out that the FTC isn’t doing its job! Bad idea.
- “But everyone else was speeding” doesn’t work on the officer who pulls you over! It won’t work on the Federal Trade Commission, either.
- World Triathlon Corp. of Tampa let triathletes pay $50 each for a chance to compete in the Ironman World Championship in Hawaii, the most prestigious triathlon in the world. This was an illegal lottery, according to the U.S. Attorney's Office, because they charged athletes for a chance to win.
- So the company paid the U.S. government the $2.8 million in fees it had made from the past three Ironmans. That kind of money would be a lot of bathing caps!
- You might be thinking “forget this mess, I just won’t do giveaways or contests anymore. But don’t give up! There is one easy way to lower your risk: know the difference between contests and giveaways!
- In a contest, judges select winners based on an established set of criteria. The most creative photo. The funnies comment. The cutest home video.
- Games of chance: no element of skill. Tools like Rafflecopter or Random.org can randomly select a winner for you, you could draw names from a hat, you get it.
- The ONLY legal lotteries are state run.
- Giveaways must be "no purchase necessary," or they're lotteries!
- But purchase doesn’t have to mean money. It’s anything beyond giving basic contact information. This means that requiring people to fill out a survey, leave a blog comment, Like your Facebook page or visit a brick and mortar location could count as “pay to play,” which turns your giveaway into an illegal lottery! Now, let’s see if you can tell the difference between giveaways and lotteries.
- OOH. And I really wanted a copy of that book. Picking a winner at random out of a hat is a problem.
- Oh dear. There’s a typo in their instructions. But let’s leave that out of this! They don’t actually SAY how the winner will be chosen, do they? But the fact that they call this a sweepstakes indicates they’re choosing a winner at random. AND since they’re asking you to do something in exchange for a chance to win—above and beyond just providing your contact info—it could be a lottery.
- No purchase, but you need to be a registered user of the site. What do you say? Considering a Florida court once held that an online giveaway was an illegal lottery because it required entrants to have Internet access. Not purchase Internet to be eligible for the giveaway, mind you, but just to HAVE Internet access so they could get online to enter! Since that’s how Florida thinks, I’d say this is an illegal lottery, but it’s hard to be sure.
- FACE Trading Actions Maryland and Michigan state courts have ruled that discount coupons, which could be purchased from a vending machine for $1 and then offered purchasers a chance to win cash prizes, constituted illegal gambling under their respective state statutes. The court in Michigan found that a "no purchase necessary" method of entry did not render the transactions free of consideration, and the promotion of the coupons through games of chances was not "occasional promotional activity" permitted under the statute.
- They don’t offer a No Purchase Necessary option to enter the giveaway. This is strictly pay to play, which makes it illegal! If a purchase, payment or any kind of effort is required to enter, there MUST be at least one free way to enter.
- You could try to remember all that. Or you could make it simple: run contests instead of giveaways. Contests generally pose fewer risks, because you avoid illegal lotteries.
- With some simple structures in place based on the law in your area, you can run contests over and over using a template. Work with a local attorney to create contest rules that satisfy the law where you are, and use those rules for every new promotion you run.
- At this point, you’re probably inclined to run contests rather than giveaways or sweepstakes. But how do you do that legally? Here are some tips.
- The official rules and any ads you run for the contest must fully disclose who’s eligible to enter: specify age, residency and location restrictions. For instance you might want to specify that your contest is for U.S. residents only, or if you’re sending the winner a new refrigerator, maybe you want to stick to the continental U.S., so you don’t have to ship to Hawaii!
- Explain the the objective judging criteria that will be used to pick the winner.
- Choose judges who are qualified and have the expertise to judge the entries using the criteria you’ve chosen, and have them fill out score cards for each entry
- Explain in the official rules how you will break a tie, if the judges can’t decide between two finalists. DON’T break a tie by using a random drawing or you’ll turn your contest into a giveaway, which could cross the line into an illegal lottery.
- In some cases, you might require people to pay to enter a skill contest, but some states still prohibit this, and many others have specific disclosure and registration requirements. Be sure to check with an attorney!
- Malibu Caribbean Rum ran a user-generated advertising contest, soliciting videos about Malibu Banana Rum and offering a prize of $25,000. Official rules stated that the winner would be selected June 30, 2007, but the winner was actually announced earlier, leading some contestants to claim that the game was rigged. The manufacturer of Malibu Rum denied any wrongdoing.
- IRS 1099 if prize valued at $600 or more. Register your contest if required in your state (like in NY and FL), and post bond.
- With contests and giveaways, you can cover your bases by stating that your promotion is “void where prohibited.” That way, if your contest or giveaway would be illegal in a particular state, it just won’t have any effect there.
- I know that lawyers charge money for their time, and a lot of people are hesitant to spend money on legal fees when their budget is tight as it is! But every dollar spent on legal advice could save you thousands down the road!
- So spend some time with a lawyer planning your contest. Time spent planning is never wasted!
- And be sure to download the presentation handout for this session, if you haven’t already. All the main points I made today are there!
- Thanks again for having me! And remember: don’t “giveaway” your hard earned revenue by running an illegal promotion!