Online Sweepstakes

Sweepstakes have arrived on the Internet. In 1998, there were at least 500 online sweepstakes and it's growing rapidly. It can be an effective way to bring traffic to your company's website, but beware of the legal pitfalls. It's a treacherous area.

If you're a web surfer who enjoys sweepstakes, you can benefit from the many websites that cater to this industry by providing lists of websites with sweepstakes. There are even websites where you enter multiple sweepstakes from one place. Now, you don't even have to lick stamps. Prizes can range from movies and CDs to cars and trips worth thousands of dollars.

If you're interested in playing, you might check out www.webstakes.com and www.delivere.com. These two sites can keep you quite busy entering sweepstakes.

Marketing and Advertising

If you're considering a sweepstakes for your company, it can make sense as a way to collect the Holy Grail of marketing--personal information. With a sweepstakes as the incentive, people will often voluntarily give you information that might be otherwise difficult to collect.

A sweepstakes is also an excellent way to drive traffic to your site. If you do it right, you may find that you're getting thousands of more visitors to your website.

That's all the good news. The bad news is that there are a myriad of federal, state and foreign laws that you'll have to consider. What you don't want to be is an illegal lottery.

Lotteries

The big issue in this area is what's the difference between an illegal lottery and a legal sweepstakes. The simple version of the answer is that an illegal lottery has three components. They are a prize, chance and consideration. If you have all three, you have an illegal lottery. If you have one or two of these elements, but not all three, you have a sweepstakes. I'll explain.

The first element of a lottery is a "prize." The winner must get something. You'll always have this element because no prize equals no fun, which equals no interest.

The second element is "chance." You can avoid this element by having a game of skill rather than luck. An example might be an essay contest with definable criteria for a winning entry (that's a snore).

The final element, and the one you will manipulate to insure that you're a legal sweepstakes and not an illegal lottery, is consideration. Basically, you avoid having consideration by making entry into your sweepstakes free.

Most sweepstakes simply state that "No purchase is necessary." With that simple statement and by insuring that there is always a free alternative method of entry into the sweepstakes, you can avoid being an illegal lottery.

Remember that to be an illegal lottery, you must have all three elements present-prize, chance and consideration. If you have only "prize," and "chance," but no consideration, you have a sweepstakes.

It sounds easy, but it's not. In fact, it's unnecessarily complex.

Consideration can be anything of value. It's not only dollars that count, but consideration can also include many things like the expenditure of substantial efforts to participate. For example, in some states, the requirement that a customer visit a store or test drive a car to participate in a sweepstakes will constitute consideration, rendering the sweepstakes an illegal lottery. The answer will vary among states.

It's bad enough trying to deal with the law with a traditional offline sweepstakes. As is so often the case with the Internet law side of things, the law of online sweepstakes is still developing. That shouldn't be a surprise considering how new sweepstakes are to the Net.

For example, if you require participants to remain online and thereby incur the resulting access costs, is that consideration and does that make your "sweepstakes" an illegal lottery. The answer is that it may.

Another open question is how far can you go in requiring participants to navigate through extensive websites before they can enter a sweepstakes. Remember that consideration can be anything of value and "time" is valuable too. If you make them do too much, you may cross the line into being an illegal lottery.

You have similar considerations when asking for detailed personal information. Some is okay, but somewhere in there is a murky line that varies between states.

Alternative Method of Entry

Having an "alternative method of entry" is in some ways the best way around many consideration issues. It's not foolproof, but the idea is that you provide a completely free way into your sweepstakes and it's okay if the way you prefer they enter requires consideration. So, if they have to navigate a complex website and provide lots of personal information to enter, that's okay if they can also enter by calling a toll-free number or sending in a postcard.

Foreign Laws

American laws regarding sweepstakes are complex by themselves. If you add foreign laws to the mix, it only gets worse. Even Canadian laws significantly differ from their American counterparts.

The easiest way around this problem is to limit participation to those in the United States. You might want to have a conspicuous statement like "Open to U.S. Residents Only" on your website.

Before You Get Started

If a sweepstakes is a route you've chosen to promote your business or website, you should plan your promotion by considering your goals, who you're targeting and structure your sweepstakes accordingly.

You shouldn't cut corners here. It may be tempting to not put too much effort into legal compliance because there are so many Internet sweepstakes and so few are policed. While it's true that enforcement to date has been relatively lax, if you're the chosen one, you may find yourself subject to stiff fines and maybe even criminal prosecution.

Whatever you do, don't just copy and paste somebody else's rules and use them as yours. (We all know that nothing like that ever goes on over the Internet.) Not only will you have infringed their copyright in their rules (yes, the rules are copyrighted!), but you have no way of knowing if their rules comply with the law.

You should prominently display a pro-consumer privacy policy to help ensure a good response to your sweepstakes. You're up against a general feeling that many have that there's no privacy in the online world. If you want to persuade people to give you that private information that you seek, you're going to have to give them reasonable assurances that you're not going to be selling it to others.

The Rules

Your "official rules" are your contract with the consumer. At a minimum, your rules should be conspicuous and have provisions that deal with the items I'll discuss below. Still, I want to caution you that this isn't intended to be a comprehensive list and also that the requirements vary between states.

You should state your eligibility requirements. A basic requirement is that the person be 18 years of age or older. You might restrict entries to residents of certain states.

Your rules should be specific about the beginning and ending date.

You should include an alternative means of entry like an 800 number.
You should explicitly state that "No purchase is necessary." You might also consider, "No online entry nor online subscription is necessary."
Be clear about the odds of winning.
You should describe the prizes with reasonable detail including the value of the prizes.
Describe how and when you will notify the winners.
In your own self-interest, you should include a limitation and release from liability. You should deal with things like entries that aren't received due to technical or other glitches.
Oh yes, let's not forget "Void where prohibited by law."
Finally, tell participants where they can get the list of winners.

Sweepstakes have a proven track record for businesses that use this type of promotion. The Internet is a natural for sweepstakes. If you think that a sweepstakes can help you promote your e-commerce business online, go for it, but make sure that you comply with the many laws regulating this area.