You’ve all seen the standard verbiage, “Enter for a chance to win. No purchase necessary. Void where prohibited”. But did you know that in order for a sweepstakes, contest or other game of chance to be legal, it has to comply with 50 separate sets of lottery and gaming laws?  Since states regulate lotteries and other games of chance, companies looking to attract business by running a game of chance have to do their homework.

A “lottery” consists of three elements – Prize, Chance and Consideration.  When all three elements are in one promotion ie: an entrant has to purchase a product or pay to enter (Consideration), a prize is being offered (Prize) and the winner is chosen randomly (Chance),  you’re conducting an illegal lottery.

It’s important to understand the definitions of these three elements in the context of sweepstakes.  A Prize is anything of value awarded to a winner (or winners). The value can be minimal, however prizes such as mentions or “bragging rights” are usually not viewed as actual prizes.   Chance refers to the fact that the winner is chosen randomly and by chance. Winners can be chosen by a random drawing, randomly pre-selected numbers or other random method.  And finally, there’s Consideration which literally means payment or money.  In the context of a sweepstakes, Consideration also means that an entrant must expend substantial time or effort to benefit the sweepstakes sponsor in order to enter the sweepstakes.

For a sweepstakes to be legal it has to eliminate one of the three elements to avoid being classified as an illegal lottery.  Sweepstakes normally eliminate the element of Consideration – in other words, while there may be a purchase or a payment entry method there is also an Alternative Means of Entry (“AMOE”) that enables entrants to participate in the sweepstakes for free, hence the phrase “No purchase necessary.” For example, in the old days (meaning pre-internet), you could mail in a self-addressed envelope to a sweepstakes sponsor and receive a free entry form, game piece or other form of entry into the sweepstakes.  Today, it is generally accepted that an online entry method counts as an AMOE.

As is the case these days, once we think we have the rules, something changes – usually technology. It’s no different for sweepstakes regulation. As new technology develops, the idea of Consideration changes. For example, if you can only enter a sweepstakes via text message, the law is unclear as to whether standard text message charges constitute Consideration.  Activities such as surveys, lengthy questionnaires, attendance at specific events or locations – may not actually cost money but may still constitute Consideration.

Before you run any kind of sweepstakes or other game of chance, make sure to do a detailed analysis of your entry methods to ensure compliance with applicable state and federal regulations.