Question:
I plan on doing one of those giveaways I always see on social media. Anything I should know before I get started?
Answer:
We’ve probably all seen at least one product promotion on social media where a brand asks its followers to like their post and tag a friend for a chance to win a prize. And for good reason– these kinds of promotions can be a really fun and interactive way to get people interested in your brand. Maybe the sponsors ask potential participants to submit the catchiest name for their newest product, or maybe they just ask participants to follow them on Instagram.
One of the first things you should know is that these two types of promotions are legally distinct! Another thing to know about these types of promotions is that they are legally regulated. Let’s get into it!
The Basics: Skill/Chance, Consideration, and Prizes.
While most people use the words “contest” and “sweepstakes” interchangeably, they’re actually not the same thing—It all has to do with what a participant has to do to enter and win.
In any type of promotion, there may be a combination of the following elements: skill or chance (which really is about how a winner will be chosen), consideration, and a prize.
Skill is what it sounds like. If a participant is asked to do something that requires talent or effort, like coming up with that catchy product name, and their opportunity to win depends on that talent or effort being judged, then skill is present. Chance is similar to skill, in that it has to do with how the winner will be chosen, but unlike skill, there is no judging within the element of chance. Chance is the luck of the draw, like pulling a name out of a hat, and totally random.
Consideration is a little more abstract. The precise legal definition of consideration differs from jurisdiction to jurisdiction, but the essence of this element is that if you’re required to pay money or give something of value to enter the giveaway, there is consideration. “Anything of value” can even including contact information that you plan on using for marketing! Like we said, the precise legal definition might be different depending on where you’re located, but a good rule of thumb in determining whether or not there is consideration is to ask yourself if the participant has to expend time or effort that benefits the sponsor.
The prize is the most obvious element of any promotion. Your participants aren’t doing this for peanuts (unless peanuts are the literal prize). You’re giving them something of value that they really want!
We care about these elements because, under the law, you cannot have skill, consideration, and prize present in any promotion. If these elements are present, your promotion will be considered gambling, which (we’re sure you’ve heard) is illegal. So how do you avoid being thrown in the clink being fined over your social media promotion? By making sure you have the correct combination of elements present!
Elements of a Sweepstakes.
Sweepstakes, or “games of chance,” involve (you guessed it) the element of chance! Here, the winner is chosen at random and there cannot be consideration. You might have seen language like “no purchase necessary” the last time you participated in a sweepstakes, and that goes directly toward the element of consideration. So to recap, the elements present here are (1) chance, and (2) a prize. There cannot be skill or consideration. If you make sure to have the right elements, it’s all good here!
Elements of a Contest.
A contest, on the other hand, is a “game of skill,” where effort, skill, talent, or merit, is required to win the prize. Because the winner is judged based on a specific set of criteria, there can be no consideration here either. You can’t pay to win! This means the combination of elements here is similar to a sweepstakes, but instead of chance, skill is required– (1) skill, and (2) a prize. There cannot be chance or consideration. If you get the elements right on this one, you’re also in the clear!
Bonus– Lottery.
What happens when you have a combination of all three “forbidden” elements? You have an illegal lottery on your hands: Lotteries require (1) chance, (2) consideration, and (3) a prize. It can be helpful to imagine this as a literal lottery, where you buy a ticket (consideration), they pull numbers at random (chance), and you have a chance at winning the jackpot (prize).
Remember kids, when you gamble illegally, the house (meaning “the government”) always wins.
Wrapping It All Up….
Once you’ve figured out if you’re running a contest or a sweepstakes, make sure you speak to a lawyer about your obligations for running the promotion. You’ll need to create a set of formal official rules, a record keeping system, a free method of entry, and depending on where you’re soliciting entries from, you may need to register with a government entity. This will differ from promotion-to-promotion, so contact bertie@inbetterwetrust.com if you need our help. And have fun not gambling!