16 July 2019
If your promotions fall under the sweepstakes category, you will need to draft a specialized Terms and Conditions agreement. Here is how to know whether your promotion is a sweepstakes and whether it is subject to FTC scrutiny.
Running sweepstakes creates an exciting promotion effort but you need to proceed with caution when doing this in the U.S.
Companies frequently face trouble with the Federal Trade Commission (FTC) when they are not upfront or they make large unattainable promises.
Sweepstakes are a promotion effort where a winner (or winners) receives a prize. Participants enter the contest by performing a small task such as sharing social media posts or filling out forms on websites. Before the Internet, these efforts occurred through paper forms and through the mail.
While sweepstakes are legal, lotteries by private entities are not. In the U.S., lotteries must be regulated and managed by state lottery commissions.
The FTC worked with the Federal Communications Commission (FCC) to regulate sweepstakes and lotteries and the way companies communicate about sweepstakes.
According to these rules, a lottery has three elements:
The payment element is the main factor that turns a fun contest into a lottery - making the marketing effort illegal.
Sweepstakes take a different approach by not requiring a payment or purchase to enter.
It's easy to find examples because these efforts are common.
In the U.S., Publishers Clearing House is a long time favorite having started off with entries through the mail and now promotes its contest online.
The information it collects from people who enter the contest is used to help other companies advertise but their sweepstakes does not require any payments from customers. Consumers enter the contest by clicking this advertisement on the Publisher's Clearing House website:
Many companies take advantage of social media and the participation it inspires.
They require customers or potential customers to like their pages or retweet items in order to enter these contests. In these examples of their promotions, there's no requirement to purchase but only to participate through social media or visit a website and provide personal information.
This is from their Twitter feed, which gives a link to an entry form on their website:
A Facebook post from Corsair only requires liking the post and their page:
The purpose with the Corsair examples of these sweepstakes is engagement and adding more followers.
However, the FTC remains concerned about consumers being mislead. In a series of regulations and rulings, it offered recommendations when conducting sweepstakes.
The lack of payment is an obvious element that separates sweepstakes from a lottery or worse, a fake prize scheme. Unfortunately, fraudulent marketing efforts still arise.
In September 2016, the FTC uncovered a prize scheme that mailed false notifications to consumers and informed them that they won $1 million or more. To collect the prize, they needed to pay a $25 "processing fee" which was mailed to a post office box in the Netherlands.
Once the consumer fell for this scheme, their personal information was shared with similar entities who would continue pursuing people for money and information. The FTC voted to approve this complaint so consumers could pursue damages.
While the mailings included boilerplate language that the prize was not actually won, it was considered ambiguous and misleading.
The FTC made its decision based on the lack of notification to consumers but also the requirement of payment.
Generally, if you plan on running sweepstakes as a promotion effort, do not require a payment.
Like any mass-distributed information, social media advertising can also be misleading.
While the FTC does not have any specific requirements on how to spread the word about your sweepstakes on social media, there are recommendations regarding social media.
First, make it obvious that it is an advertisement. Learn how to disclose this.
If your Twitter, Instagram or Facebook starts with "Ad" or "#Ad", that is likely adequate. There are other labels that work including "#contest" or "#sweepstakes".
This offers the transparency the FTC likes to see for transparent communication.
Second, be careful of how you allow consumers to promote your sweepstakes.
If there's any compensation or additional sweepstakes entries that result from sharing, liking or getting other people to sign up, that needs to be in your announcement.
Using the "#sweepstakes" seems to meet this requirement too, however, the FTC made it clear that just using the shortened "#sweeps" is not sufficient.
Keep in mind that these are advertising guidelines, not requirements.
Looking at the Corsair examples above, there is clear language that there is a sweepstake but no "#contest" type of hashtag.
Other entities also prefer to use language rather than a hashtag to make the contest format clear. This one is an example of a retweet from Ragu as a means of entering a contest:
Do not assume that "contest-like" language is enough when you are promoting sweepstakes. Use a hashtag or in the least, the words "sweepstakes" or "contest."
Whether you are running one sweepstake or do a series of them like Corsair, you need a separate Terms and Conditions agreement.
The content of this legal agreement is different enough from your general Terms and Conditions that attempting to integrate the agreements together would create a vague legal mess.
It would be awkward at best and a landmine of liability at the worst.
Fortunately, the Terms and Conditions for sweepstakes are relatively simple documents. You are supposed to make contest rules clear and that is why they are often short, easy-to-read, and written in plain language.
These elements assure the legality of your contest and offer clarity. When you draft your sweepstakes Terms and Conditions, it must contain at least these clauses.
The rules of sweepstakes must make this statement clearly.
Most Terms and Conditions agreements for sweepstakes place this at the top and often in all-capital letters.
There's a good reason why companies make that choice: any inference of a payment or purchase requirement to enter the contest can lead to problems with the FTC.
Corsair maintains this approach and uses the same sweepstakes terms for all its contests. It starts with this statement in bold capital letters:
Some companies may include more coverage in this statement if there is a risk that even an expense can be construed as a purchase.
Since users could receive text messages regarding the contest and Priceline promotions, Priceline added the possibility of extra expenses in its agreement while indicating that this would not increase chances of winning:
While you definitely want to address the "No purchase" requirement, also include any elements that could suggest that participants can increase their chances of winning by spending money.
That would include expenses like text messaging fees and anything else that might lead to purchasing products not associated with the sweepstakes.
Making the entry procedures clear to participants is also important. Usually they can be pretty broad, such as with Amazon and its general approach to its multiple promotions:
The Priceline entry rules are more detailed. This is likely due to the fact that entering that contest involved filling out an online form. In order to make this even clearer, it describes that process in its sweepstakes Terms and Conditions:
Corsair tends to explain entry processes in each individual promotion. That is likely why it describes how not to enter a contest rather than how to get involved:
Many companies want to limit sweepstakes participation.
This reduces liability issues and also helps companies avoid the complexities that may be involved offering prizes in some jurisdictions.
Amazon also limits contest participation by age and geographic area. It makes this clear in one short paragraph:
Priceline limits on age and whether the entry is complete. It places other limits on entry too in this section of its sweepstakes T&C:
If you have limits regarding geography, age or how to enter, place these together on your sweepstakes Terms and Conditions.
Deadlines should also be clear. It is common for smaller sweepstakes to be ongoing, but for larger prizes, there's often a set time when the promotion ends.
Priceline offered a range of dates when it ran its Summer Road Trip promotion in 2014:
Amazon refers back to the specific promotion, which makes it clear all deadlines are presented in its social media announcements:
The approach you take depends on how you plan to run the sweepstakes.
It's likely you already explain how winners are notified in your sweepstakes. Much like the sweepstakes period, this will depend on how you run contests.
Specific limited sweepstakes with one prize are handled differently than continuing efforts.
Priceline, with its prize of one car, is very specific with winner notification:
Amazon refers back to its promotion but promises notification within five days of the conclusion of the contest:
Corsair takes the same approach as Amazon but also indicates that a failure to claim the prize results in an alternate winner being chosen:
Large prizes are referred to frequently throughout the sweepstakes Terms and Conditions.
Taking a look at the document for the Priceline promotion proves this as the MINI Cooper is mentioned in every other paragraph or so.
Amazon is once again the generalist in making a reference to the promotion in order to see prize details:
You will want to mention the prize in some way, whether that is to make frequent and specific references to it or just referring to the promotion.
In addition to naming the prize, also consider a statement that prizes are not transferable and no substitutions are permitted unless the sponsor considers it appropriate.
This is the Corsair no-substitution language:
The sponsor identification paragraph includes the name and address of the sponsor. You can see this with the Corsair agreement:
Sponsor identification is another move towards transparency.
Since many promotion schemes involve dense entities that are not always forthcoming with their location, you can display your legitimacy by providing your company name and address along with any corporate registration information.
Stating the odds of winning is also an advantage in transparency.
As the FTC actions show, making promises that cannot be kept will not work in your favor. Never tell a consumer that they won something when in reality, they did not, and do not state the odds of winning as higher than they are in reality.
In the bold print by Priceline, it explains that the odds of winning depend on the number of entries. This is an honest statement that does not make bold promises.
It's clear from anyone entering this contest that there is no guarantee of winning this car:
This is the most common way of presenting odds.
Older promotions gave numbers, like one in 100,000 chance of winning, but this does not seem as acceptable anymore. You are likely in a safe zone legally if you simply state "Odds of winning a prize dependent on the number of entries received."
If you are choosing winners randomly from Facebook likes or Twitter retweets, make that clear.
Also be clear if, like Priceline, you are holding a drawing in a controlled location:
Along with the process, also include any requirements for accepting the prize. For example, winners may have to execute an affidavit of eligibility or a publicity release, if that is permitted in their jurisdiction.
Make the winners list available. Include a website link or email address where users can request that list.
When you are giving away a large prize, it is likely taxable as income. Priceline mentions this in its prize description:
While Corsair rarely gives away items that fall into the taxable range, it still includes this language in its sweepstakes Terms and Conditions. This is a good precaution because a consumer may win multiple prizes and fall into taxable income status:
The essence of your sweepstakes Terms and Conditions is communication.
Make it a separate document from your general Terms and Conditions agreement and keep it simple. You will likely offer more details for larger prizes and one-time sweepstakes promotions, but your goal needs to be a straightforward presentation of the rules and guidelines every time.
This article is not a substitute for professional legal advice. This article does not create an attorney-client relationship, nor is it a solicitation to offer legal advice.