Do you understand how the law could impact your activities?
Keep reading to learn more…
One of the best ways to grow your business is to give stuff away.
Whether your business is a small enterprise, a website or blog, or a large multinational company, hosting giveaways is sure to increase traffic, awareness and potential new readers or customers.
Sponsoring or hosting a giveaway comes with rules and regulations that many don’t know or understand.
Really, what could be so hard about telling people you’ll give away something if they sign up for your newsletter or leave a comment or like your page or follow you on social media?
Remember the days when you had to buy things to enter a giveaway—and the stuff never arrived, or if it did, it wasn’t worth a fraction of what you paid?
Research shows that more than half of all adults in the U.S. enter at least one sweepstakes every year. That’s a lot of things being given away! Used correctly, giveaways can increase quality of interaction and greatly increase your readership.
What are the three types of giveaways or promotions?
There are three types of promotions used to give things away: sweepstakes, contests and lotteries.
While they often go by many different names (giveaway, raffle, drawing), legally all promotions fit into one of these three categories.
- Sweepstakes are prize giveaways where the winners are chosen by the luck of the draw. Prizes can be almost anything you can think of, from handmade cards to an all-expense–paid trip.
- Contests choose a winner based on some merit. The winner is chosen based on some criteria such as best photo, most votes on a video, best recipe, etc.
- A lottery is a prize drawing where people must pay money to buy a chance to win. Lotteries are highly regulated and should not be run without consulting legal counsel.
Most promotions we encounter in the U.S. are sweepstakes. Periodically, we’ll find a lottery. Usually lotteries are limited to the states because they are heavily regulated and monitored and the costs associated with running a lottery are often prohibitive for most small- and medium-sized businesses.
In Canada and many European countries, however, most giveaways and promotions would be labeled as contests under U.S. law because they require a skills competition (usually a math question) to be valid. Does that always happen? No, but the laws require it.
How do I know which type of giveaway I’m doing?
There are three things the law looks at to determine if your promotion may be an illegal lottery.
Prize—who wants to enter a giveaway without a prize?
Chance—pure luck! You could get around this by having some skill or voting requirement but that is often difficult to manage or greatly limits the number of people who will enter. If you want to run a contest, you must omit this aspect.
Consideration—something of value given by entrants to the giveaway sponsor. Often it’s money, but it doesn’t have to be. Depending on what you require entrants to do, you could be pushing the envelope on this element. Each state may have its own particular definition, making it very difficult to manage.
When it comes to the online space, there are few things more valuable than followers/likers/friends (or whatever they’re called at the moment).
As such, requiring someone to “like” you or “follow” you could be construed as consideration. Even more important, asking an entrant to go to a third-party site, navigate to find a product or service and then report back to your site is even more likely to be deemed consideration, and thus places your giveaway into the classification of illegal lottery. Time is exceedingly valuable!
In the above giveaway, the blogger is all about “me, me, me” and there’s no way to enter without giving something of value to the blogger. While this may not get the attention of authorities, clearly there is no “free” way to enter.