Online Promotions Can Run Afoul of the Law

Press Release

01/30/2017

LAS VEGAS – “Almost every company offers sweepstakes and contests, what’s the concern?” It’s a common refrain when a business considers starting an online promotion.

The concern is that online promotions can run afoul of gaming laws without proper planning, says Karl Rutledge, an attorney specializing in sweepstakes, contests, eSports, and Internet gaming at Lewis Roca Rothgerber Christie LLP in Las Vegas.

While popular and efficient, online marketing also brings with it numerous opportunities to potentially violate the laws governing gambling prohibitions, necessary official rules provisions, state registration/bonding requirements and FCC/FTC guidelines.

According to Rutledge, most states typically define gambling as any activity in which the following elements are present: awarding of a prize, determined on the basis of chance, and “consideration” is required to be provided.

If any one of these elements is removed, the activity is generally lawful, he explains.

A promotion requiring a purchase or payment to participate presents a clear example of consideration, says Rutledge. A less clear situation exists where participants are required to expend some degree of effort that ultimately benefits the promoter, such as completing a questionnaire.

Removing consideration creates an activity known as a sweepstakes. Offering an alternative method of entering the promotion (AMOE) for free can remove the element of consideration and avoid the general prohibition against lotteries, he continues.

“This is generally effective in terms of legally eliminating the consideration element although most entries into the promotion will be through the purchase of the promoted product/service.”

A key to utilizing an AMOE is that the company must disclose existence of the non-purchase method of entry in a clear and conspicuous manner. Often the words “no purchase necessary” are displayed prominently on all sweepstakes materials. Non-paying participants must have equal dignity with paying participants. In other words, non-paying participants must have an equal opportunity to enter, to win and to win the same prizes.

“Separate prize pools may invalidate the AMOE, because the non-paying participants do not have the opportunity to win the same prize. Any material disparity (actual or perceived) can invalidate this model,” according to Rutledge.

Marketers wishing to use the Internet as a method to promote a product or service should recognize they are entering an intricate and specialized industry with complex legal boundaries in which to operate. Legal counsel can play a pivotal role in the design, review and, ultimately, dissemination of any online sweepstakes presence.

###