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wpe7.gif (1221 bytes)       LEGAL CHECK FOR SWEEPSTAKES AND PROMOTIONS

wpe7.gif (1221 bytes)      HOW TO REDUCE THE COST OF A SWEEPSTAKES PROMOTION

wpe7.gif (1221 bytes)       THE DECEPTIVE MAIL PREVENTION & ENFORCEMENT ACT

wpe3.gif (1221 bytes)       MARKETERS SHOULD NOTE NEW SWEEPSTAKES STANDARDS ARE ESTABLISHED

wpe7.gif (1221 bytes)      ONLINE SWEEPSTAKES FREQUENTLY ASKED QUESTIONS

wpe7.gif (1221 bytes)      UTILIZING ONLINE SWEEPSTAKES

SENATE APPROVES SWEEPSTAKES LEGISLATION

WHAT YOU SHOULD KNOW ABOUT SWEEPSTAKES

CHECKLIST FOR PREPARING RULES FOR SWEEPSTAKES

 SWEEPSTAKES AND CONTESTS

  A SWEEPSTAKES PROMOTION TAKES CAREFUL PLANNING

  WHEN IS A SWEEPSTAKES THE RIGHT PROMOTIONAL TOOL?

MARKETING RELATED ARTICLES

COUPON RELATED ARTICLES

REBATE & PREMIUM FULFILLMENT ARTICLES

FREQUENT SHOPPER & RETAILER ARTICLES

wpe7.gif (1221 bytes)       LEGAL CHECK FOR SWEEPSTAKES AND PROMOTIONS

Promotions are an effective way for marketers to increase consumer awareness and increase sales of your brand's products. No promotion can be successful if it results in legal consequences. The following guidelines will assist you in developing your promotion.

  1. Draft a Set of Rules
  2. Official rules have long been upheld as an enforceable contract between the sponsor and entrants, helping to stave off potential legal problems.

  3. Stick to the Rules
  4. Once you've drafted a set of rules, stick to them. Changing rules in a material way while the promotion is running can lead to significant issues with regulators and consumers.

  5. Avoid Unintended Sweepstakes
  6. Promotions like "First to Respond" or "Fast 50" are considered sweepstakes, generally requiring a comprehensive set of rules, specific disclosures and registration in certain states. If you want to avoid a sweepstakes and the issues involved with it, create a premium program, and ensure that you have a sufficient quantity of items on hand to meet anticipated demand.

  7. Skill Contests Must Be Based on Skill
  8. If you're running a skill contest, different rules apply. It is critical that the type of skill is known to participants, that they have the opportunity to exercise their skill and that the determination of the winner be based predominantly on skill. Promotions that involve choosing a winner based on the sponsor's discretion or solely through audience voting are not skill based.

  9. Remove Consideration
  10. An illegal lottery consists of all three elements of prize, chance and consideration. For a chance-based promotion to be legal, therefore, consideration must be eliminated. This can be as simple as implementing a no-cost alternate method of entry with equal dignity to the purchase method.

  11. Wireless Promotions Have Special Issues
  12. There will always be some cost to a consumer for engaging in a text message promotion. Whether the relatively nominal cost of sending and receiving regular text messages, or the larger costs associated with premium text messaging, any promotion involving the use of a wireless device as the primary entry mechanism must have an alternative method of entry to avoid violating the lottery laws.

  13. Beware of Consumer-Created Content
  14. Consumer-created content has two main issues. First, you may not be able to control what consumers do with or say about your products. Implement a screening process before posting content. Second, you have no control over the integrity of submissions, and you have no idea whether or not the content is original to the consumer. Content taken from third parties could lead to unavoidable copyright infringement lawsuits.

  15. Train your Employees
  16. No promotion is safe from regulatory scrutiny if employees are not familiar with how to implement it. Train your store managers and employees how to post rules, make rules available for those who ask and permit entry without a purchase.

  17. Deal with Potential Winners Appropriately
  18. Picking the winner and awarding the prize should be the easy part, but this is where most promotions go wrong. Ensure you have appropriate mechanisms in place to confirm that winner's notices only go to the winners. Don't tell someone that they have won until after you are sure that they meet the eligibility requirements and have complied with the rules.

  19. Avoid Negative Publicity

While the publicity usually comes after a winner is chosen, avoiding it can be taken care of in the planning stages. Recent negative publicity has involved unintended consequences such as an inability to pay sales tax on the prize, or announcing a winner before eligibility requirements are confirmed.

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wpe7.gif (1221 bytes)    HOW TO REDUCE THE COST OF A SWEEPSTAKES PROMOTION

  The following are some ways to reduce the total costs of a sweepstakes promotion:

bulletOffer a cash alternative to your Grand Prize at a lesser value.  For example, if the Grand Prize is a $40,000 Mercedes, you can offer a $30,000 cash alternative.
bulletInstead of offering merchandise as prizes, consider using Amex Gift Cheques, gift certificates, phone cards, gas cards, etc.  These prizes have real value and are easy and inexpensive to mail (USPO v. UPS).  They will reduce handling fees and you will not have to consider breakage in transit. US Savings bonds are also a good alternative and cost approximately 50% of the face value.
bulletIf you run a number of sweepstake promotions in Florida, check out the “waiver of surety” option, which can be used if you have had a five-year history with no incidents in Florida.  Over the course of several sweepstakes programs, this can add up to a significant dollar savings.
bullet

Consider “Voiding” sweepstakes in difficult states or provinces such as Florida, New York, Rhode Island and Quebec. Florida, New York and Rhode Island require filing fees, a surety bond, agency fees and indemnity agreement (required by bonding company).  Florida is also known for their fines. In Quebec, you have to consider fees, bonds, translations and additional printing costs to print everything in two languages. 

bullet

Consider partnering and sharing the cost of a sweepstakes promotion and prize liability with a compatible brand or buy into a “Share-A-Sweeps” promotional (shelf) program.  Negotiate on advertising exposure/trade out with a manufacturer or travel destination venue.

bullet

If game cards are involved, find a printer that can do in-line variable imaging.  This will lower your post-printing and seeding costs.

bullet

Find prize suppliers whose prices include warehousing and delivery (Drop-shipping).

bullet

Where possible, use Internet vs. 800 numbers for entry and data collection.

bullet

Contingency insurance can save money on games of skill such as a $100,000 for a half-court shot at a basketball game.

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wpe7.gif (1221 bytes)    THE DECEPTIVE MAIL PREVENTION & ENFORCEMENT ACT
By Linda A. Goldstein, Esq. Hall Dickler Kent Friedman & Wood, LLP

1. What Does the Act Do?

The Act imposes various requirements on sweepstakes mailings, skill contests mailings, mailings containing facsimile checks and mailings made to look like government documents. The Act also requires mailers of sweepstakes and skill contests to establish a name removal notification system whereby individuals can request removal from mailing lists used for sweepstakes and contests. Finally, the Act establishes strong financial penalties for sending mailings that violate the Act and provides the Postal Service with additional authority to investigate and stop deceptive mailings.

2. Who Does the Act Cover?

The Act amends existing provisions of the Postal Bill. As such, the provisions of the Act are limited to solicitations sent through the mail. The Act does not apply to advertisements in other media, which do not involve use of the mails. Note, however, that to the extent that certain products are delivered to consumers through the mail, advertisements included within those mailings would be subject to the Ac t. There is, however, a broad exemption from the sweepstakes and skill contest provisions for advertisements appearing in newspapers, magazines and similar periodicals provided one of the following two conditions are met: (i) the advertisement is not directed to a specific named individual, or (ii) the advertisement does not offer the opportunity to order a product or service.

3. What are the New Requirements for Direct Mail Sweepstakes?

The new requirements for direct mail sweepstakes fall into three general categories:

bulletAffirmative disclosures
bulletProhibition on certain practices and representations
bulletEstablishment of name removal notification system

Affirmative Disclosures:

bulletThe affirmative disclosure requirements apply to any solicitation containing sweepstakes entry materials with the exception of advertisements in newspapers, magazines and similar periodicals which are exempt. Mailings that simply provide information about a sweepstakes or announce a future sweepstakes, but do not provide the opportunity to enter are not subject to these disclosure requirements.

The following are the affirmative disclosures required under the Act:

bulletA statement that no purchase is necessary. This statement must appear three times, in the solicitation, on the order or entry form and in the official rules. This statement must be disclosed "more conspicuously" than the other disclosures required under the Act.
bulletA statement that a purchase does not improve one's chances of winning. This statement must also appear three times; in the solicitation, on the order or entry form and in the official rules. This statement must be disclosed "more conspicuously" than the other disclosures required under the Act.
bulletA clear and conspicuous disclosure of the name of the sponsor or mailer and the principal place of business or address at which the sponsor or mailer may be contacted.
bulletA clear and conspicuous disclosure of the complete official rules and entry procedures. The official rules must contain disclosure of the following:
bulletThe estimated numerical odds of winning
bulletThe number, estimated retail value and nature of each prize
bulletIf the prize is to be paid out over time, the schedule of payments

Prohibited Practices

bulletThe Act prohibits the following acts or practices:
bulletAny representation that individuals who do not purchase will be disqualified from receiving future sweepstakes mailings-This is referred to in some settlement agreements as the Economic Necessity Message
bulletAny requirement that a person purchase a product or even pay for a product previously ordered as a condition of entering a sweepstakes.
bulletAny representation that contradicts or is inconsistent with any of the disclosures that are required under the Act.

Establishment of Name Removal Notification System

bulletThis provision applies to any mailer of a sweepstakes or contest irrespective of whether the mailing contains sweepstakes entry materials. It requires the mailer of sweepstakes or contest materials to establish a name removal request system. See Paragraph 5 below for complete details.

4. What are the New Requirements for Direct Mail Contests?

The new requirements for direct mail contests fall into two general categories-

bulletAffirmative Disclosures
bulletEstablishment of Name Removal Notification System

Affirmative Disclosures

bulletThe following are the affirmative disclosures required under the Act:
bulletA clear and conspicuous disclosure of the name of the sponsor or mailer and the principal place of business or an address at which the sponsor or mailer may be contacted
bulletThe complete rules of the contest, which must include:
bulletThe number of rounds or levels of the contest and the cost to enter each round
bulletThat subsequent rounds are more difficult, if that is the case
bulletThe maximum cost to enter all rounds or levels
bulletThe estimated number or percentage of entrants who may correctly solve the skill contest or the approximate number or percentage of a entrants correctly solving the past three skill contests conducted by the sponsor
bulletThe identity or description of the qualifications of the judge
bulletThe method used in judging
bulletThe date the winners will be determined
bulletThe quantity, estimated retail value and nature of each prize
bulletIf the prizes are to be paid over time, the schedule of payments

Note: These skill contest requirements are very similar to those in Oregon and California and are principally directed at multi-level contests. Unlike the California and Oregon statutes, however, these rules apply whether or not one must pay to enter the contest.

5. What are the Requirements of the Name Removal Notification System?

bulletThis section requires "promoters" of sweepstakes and contests to establish an easy to use notification system by which a person or someone legally authorized to act on their behalf, such as a legal guardian or a relative with power of attorney, can have their name and address removed from the promoter's sweepstakes or contest mailing lists. A promoter is defined as any person who originates the sweepstakes and/or contest and either mails or causes the sweepstakes or contest to be mailed. The intent is to impose this requirement on the person responsible for the origination of the mailing, e.g., the person on whose behalf the sweepstakes or contest is being conducted, as opposed to a middleman like a printer or the mail shop.
bulletThe Act requires promoters of skill contests or sweepstakes to include in each mailing a clear and conspicuous statement that includes a toll free telephone number or address to which the people can call or write to be removed from any list used by that promoter to mail sweepstakes or contests. The mail piece must also state that a person can use the system to prohibit the promoter from sending any further sweepstakes or contest mailings.
bulletPromoters must remove an individual's name and address from mailing lists used by the promoter to select recipients of skill contests and sweepstakes mailings within sixty calendar days after the removal request is received.
bulletAn individual can reverse the election not to receive sweepstakes or skill contest mailings from a promoter by advising the promoter in writing that they wish to receive such mailings again.
bulletThe Act prohibits any sale, rental or other commercial use of the lists containing the names of those who have requested to be removed from a promoter's mailing list.
bulletPromoters who recklessly mail an individual a sweepstakes or skill contest in violation of these provisions are subject to civil penalties of up to $10,000 per violation. In addition, any individual who receives a mailing in violation of this provision may bring a private action and recover the greater of actual damages or $500.
bulletThe Act provides that promoters will not be subject to civil liability if they exclude an individual from a mailing list as long as a removal request is received by the notification system and the promoter or the person maintaining the system has a good faith belief that the request is from the individual whose name is to be excluded or from another duly authorized person.

6. What are the New Prohibitions on Government Look-Alikes?

bulletCurrent law already prohibits the use of mailings which deceptively appear to be sent by, approved by, or endorsed by the federal government and require certain mandatory disclosures if various indicia suggesting governmental endorsement are used. The new law expands and broadens these provisions by expanding the category of indicia which would trigger the need to make the mandatory disclosures.
bulletThe Act applies to any mailing by a non governmental entity which requests a purchase or payment, a contribution or membership fee or which requests information, and which could be construed as implying a governmental connection, approval or endorsement through the use of any of the following:
bulleta seal
bulletinsignia
bulletreference to the Postmaster General
bulletcitation to a federal statute
bulletname of a federal agency, department, commission or program, trade or brand name
bulletany reference to the Postmaster General or citation to a federal statute that misrepresents either the identity of the mailer or the protection or status afforded to the mail
bulletAny mail which implies a governmental connection, approval or endorsement through the use of any of the indicia referenced above must either actually be approved or endorsed by the federal government or include the following disclaimers;
bulletThe following notice, clearly and conspicuously on the face of the solicitation: "THIS ORGANIZATION HAS NOT BEEN APPROVED OR ENDORSED BY THE FEDERAL GOVERNMENT AND THIS OFFER IS NOT BEING MADE BY AN AGENCY OF THE FEDERAL GOVERNMENT."
bulletThe following notice clearly and conspicuously on the outer envelope: "THIS IS NOT A GOVERNMENT DOCUMENT.

7. What are the Rules on the Use of Facsimile Checks?

The Act requires that any mailings which include a facsimile check must include a notice on the face of the check indicating that the check is not a negotiable instrument. This requirement is in addition to other notices required under other state laws.

8. What are the Penalties for Violating the New Law?

bulletMailings that violate the provisions of the Act are deemed to be non-mailable matter and may be subject to detention by the United States Postal Service. The United States Postal Service may apply for a nationwide temporary restraining order detaining delivery and receipt of the mail in any jurisdiction in which the mailer is located or into which the mail is being sent. Under existing law, the Postal Service had to apply to each district in which a defendant receives mail in order to obtain an injunction detaining the mail.
bulletIn addition to the stop order provisions, the Act imposes substantial civil penalties for violations. Previously, the Postal Service could only obtain civil penalties for violations of a stop order. Under the new law, the Postal Service may obtain civil penalties based on the mailing itself even before the issuance of a stop order. The penalty is calculated on a sliding scale as follows: $25,000 for each mailing of less than 50,000 pieces, $50,000 for each mailing of 50,000-100,000; and an additional $50,000 for each 10,000 pieces of mail not to exceed $1,000,000. The penalties for violating a stop order are also increased on a similar sliding scale based on the quantity of the mail up to a maximum of $2,000,000.
bulletViolations of the name removal notification system are subject to civil penalties of up to $10,000 per violation as well as a private action for actual damages or $500, whichever is greater.

9. When Does the Act Take Effect?

bulletExcept for the Name Removal Notification System, the Act takes effect 120 days after enactment, which is April 13, 2000. The Name Removal Notification System requirements take effect on December 12, 2000.

FREQUENTLY ASKED QUESTIONS:

  1. If the Sweepstakes or Contest Mailing Does not Contain Entry Materials, Does it Need to Comply with the Act?

    The disclosure requirements and the prohibited practices only apply to sweepstakes and contest mailings that also contain entry materials. However, all sweepstakes and contest mailings must contain the address or toll free number to which persons can write to be removed from the mailing list.
  2. If I Include a Sweepstakes Insert in a Cooperative Mailing, Must I Comply with the Provisions of the Act if the Sweepstakes is Not Personalized or Does Not Request a Purchase?

    The exemption for sweepstakes advertisements that are not personalized or do not request a purchase only applies to advertisements appearing in newspapers, magazines or similar periodicals. Therefore, sweepstakes inserts presented in co-op mailings would be subject to the provisions of the Act. Of course, if the insert does not provide an opportunity to enter the sweepstakes, then it would not be subject to the disclosure requirements.
  3. If I Have Multiple Entries or Game Pieces in a Mailing, Must the Disclosures that No Purchase is Necessary and that a Purchase Does Not Enhance an Entry's Chances of Winning Appear on Each Entry Form?

    The Act permits these disclosures to appear on the entry form or on the order form. If you have multiple game cards or entry pieces, but only a single order form, you can comply with the Act by simply placing the disclosures on the order form. If, however, you do not have an order form, or multiple entry forms also contain order forms, then these disclosures would have to be repeated on each of these forms.
  4. What is the Standard for "Clear and Conspicuous" Disclosure?

    The Act defines "clear and conspicuous" consistently with the Federal Trade Commission definition. Specifically, the Act defines "clear and conspicuous" as "presented in a manner that is readily noticeable, readable and understandable to the group to whom the applicable matter is disseminated."
  5. What Does "More Conspicuous" Mean? Does it Mean That it Has to be Larger or Bolder than the Other Disclosures?

    Not necessarily. In adopting the term "more conspicuous," the Congress certainly intended that the two disclosures subject to this standard be subject to a higher standard than the other disclosures. The Congress, however, very deliberately avoided imposing any specific type size or placement requirements. The report language accompanying the Act recognizes that "the more conspicuous" standard "may be accomplished in a variety of ways as befit the format and layout of different promotional mailings." The Report goes on to state, "In determining whether these two disclosures meet the "more conspicuously" standard, it is intended that consideration be given to the manner in which these disclosures are presented in relation to the other material appearing on the same page or document on which these disclosures appear. It is not the intent to require that these two disclosure necessarily appear in a larger typesize, bolder typeface or similarly more prominent graphic depiction than the other disclosures required, which may be appearing elsewhere in the solicitation materials. For example, these two disclosures appearing on the entry or order device may, by virtue of their very placement and location be deemed to be displayed more conspicuously than other disclosure appearing elsewhere in the solicitation. Note, however, that this is a key section of the law and advertisers are advised to consult with counsel on how to satisfy this requirement.
  6. If There are Not Three Separate Components to a Mailing, e.g., Solicitation, Rules and Entry Form, How Many Times and Where Must the No Purchase Necessary and Purchase Does Not Enhance Chances of Winning Disclaimers Appear?

    The Report language accompanying the bill suggests that if there are not three separate components, that disclosures can be made on the entry or order form and in the rules.
  7. Do I Still Need to Comply with State Laws

    The federal law does not preempt existing state laws. Therefore, promoters of skill contests and sweepstakes must still comply with the various state laws governing these types of programs.
  8. Who is Responsible for Establishing and Maintaining the Name Removal System?

    The law places responsibility for complying with the Name Removal Requests on the "promoter " of the sweepstakes. The promoter, in turn, is defined as any person who originates and mails or causes to be mailed the sweepstakes or contest. The intent of the bill is to place this requirement on the entity who is primarily responsible for the operation of the sweepstakes or contest. The report accompanying the bill states that: "the person who merely prints or mails material for a skill contest or sweepstakes is not covered by this section unless that printer or mailer also originates or materially assists with operating the sweepstakes or contest. Only the originator of the sweepstakes or contest that is the subject of the mailing must comply rather than a middleman who simply prints or sends the mailing."
  9. What Exactly Must a Promoter Do Within Sixty (60) Days With the Names of Those who Request to be Removed from the Mailing List?

    The sixty (60) days refers to the time period within which the promoter must remove the individual's name and address from mailing lists used for sweepstakes and skill contests. It is conceivable, therefore, that an individual will still receive a mailing after the sixty (60) day period has expired since the list used to select recipients of that mailing would have been released prior to the sixty (60) day period.
  10. What If I Inadvertently Mail to Someone who has Requested to Be Removed from the List?

    It is an affirmative defense to an action brought for violation of the Act that the promoter has established and implemented with due care reasonable practices and procedures to prevent mailings to people who have submitted a name removal request. Therefore, promoters of direct mail sweepstakes and contests would be well advised to establish guidelines and procedures for the establishment and maintenance of this system to protect them in the event of an inadvertent error.

Linda Goldstein is partner-in-charge of Hall Dickler's Advertising, Marketing and Media Department. She received her law degree from New York University Law School. Linda represents clients in every sector of the advertising and marketing industry in advertising, intellectual property, and Internet matters and is a nationally-recognized expert.

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wpe3.gif (1221 bytes)    MARKETERS SHOULD NOTE NEW SWEEPSTAKES STANDARDS ARE ESTABLISHED

New standards have emerged from the August settlement between 23 states and the District of Columbia (AG's) Attorneys General and Publishers Clearing House. And Time, Incorporated (48 state AG's and DC). The settlement includes a total of $26.1 million in restitution to consumers, and strict notification guidelines for future direct mail sweepstakes. Five points were agreed to in the settlement:

  1. Marketers must discontinue contact with heavy users who think purchases enhance their chance to win.
  2. Consumers must readily understand that no purchase is required to play.
  3. It must be just as easy to enter without purchase as it is with a purchase.
  4. Marketers should avoid "involvement devices" that appear to involve chance, but do not, such as game pieces. that earn a prize for matching symbols, when all game pieces have matching symbols.
  5. A sweepstakes can not be an "everybody wins" event.

I recommend that all marketers use this settlement as their guidelines.

Publishers Clearing House will pay $18 million in restitution (which will be given primarily to 15,000 consumers who spent more than $2,500 each trying to win. Both companies will establish a "Do Not Contact" database and stop soliciting high activity customers. Specifically, CPG agreed to:

  1. Send a "No Purchase Necessary" note to consumers spending $1,000 or more a year.
  2. Survey those spending over $2,500 or more to make sure they understand that they do not need to buy to enter the sweepstakes.
  3. Discontinue sweepstakes mailings to recipients who believe that their odds of winning are better by making purchases.
  4. Will not use a document designed to simulate a check unless the face of the document clearly states that "This is not a check".

Time, Incorporated agreed to establish a "Sweepstakes Do Not Promote List" for high activity customers and stop sending new solicitations to customers who either have a current subscription lasting more than five years or have spent more than $500 to previous promotions. In addition, they will no longer state that the letter was sent by special courier or a special class of mail if they did not. Both PCH and Time agreed to include in all mailings a sweepstakes fact sheet similar to FDA nutrition labels that include the odds of winning, deadlines, prize values and quantity of prizes offered. They will not call a consumer a winner unless he actually won and when stating that they could be a winner, will state in equal-sized type, the conditions necessary to win.

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wpe7.gif (1221 bytes)    ONLINE SWEEPSTAKES FREQUENTLY ASKED QUESTIONS

Here's a list of some of the most frequently asked questions regarding online sweepstakes promotions.

Question: Do I need to provide an alternate method of entry for an online sweepstakes?

Alternate methods of entry are used to avoid "consideration." It's illegal to require payment or other form of consideration, such as a purchase, to enter a sweepstakes. Some regulators, particularly the Florida Department of State, considered Internet access to be consideration. That prompted marketers to provide a mail-in or other free method of entry. Florida has recently changed its position, and the general consensus has been that an online-only sweepstakes with a free online method of entry (sponsored by someone other than an Internet service provider) does not require an alternate entry method. That may change as other regulators make their own determination.

Question: Why are many online sweeps limited to U.S. residents?

Online promotions naturally reach a worldwide audience, but it is easier and less costly to comply with U.S. laws than many other nations' laws. If you target an international audience, it may be worth the additional expense. Law firms with expertise on promotion laws generally have an international network of lawyers to help with compliance.

Question: Can we require an entrant to refer a friend in order to enter a sweeps?

Yes, but to avoid that requirement constituting consideration, provide another entry method (via the Internet or postal mail, for example) that permits as many entries as are allowed using the refer-a-friend method. To avoid violating friends' privacy rights, send only one e-mail message to referred friends, and comply with anti-spam laws by properly identifying the e-mail in the subject heading and allowing the recipient to opt out of future messages.

Question: What are some potential problems with an instant-win promotion?

Online instant-win promotions carry the same dangers as offline versions: More winning entries could be produced than anticipated and the sponsor could be liable for redeeming prizes that far exceed its allocated budget. The best way to limit liability is to state in the rules that, if more prize claims are received than specified in the official rules, the sponsor will conduct a random drawing from among all eligible claims. Similar language has largely insulated traditional instant-win promotions from huge liability.

Question: How can we protect our promotion from hackers and automated devices?

There's always a risk that someone will figure out how to enter multiple times or will disable the site so others can't enter. Limit entries to a finite number, such as one per day or one per e-mail address. State in the rules that you retain the right to disqualify entries from a user suspected of attempting to disrupt the sweepstakes, and that you may prosecute or seek other legal redress against anyone suspected of engaging in these acts.

Question: Can we award gift certificates as prizes?

Yes, but avoid consideration. Many online promotions award gift certificates redeemable at a designated online store. In order to avoid a finding that the gift certificate is "post-consideration" (that is, the winner has to pay something to actually use the prize), the gift certificate should be for a dollar amount large enough to purchase an item at that store. Some states also prohibit prizes of gift certificates with expiration dates.

Online promotions are under ever-increasing regulatory scrutiny new laws are continually added, and existing laws are subject to constant reinterpretation. Consult legal counsel as early as possible when constructing your online promotions to ensure that they are legally sound. It's better to spend time with your lawyer than to end up on a list of disasters in online sweepstakes promotions.

Note: This article is an overview of the issues related to online promotions and should not be considered legal advice.

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wpe7.gif (1221 bytes)    UTILIZING ONLINE SWEEPSTAKES

Online sweepstakes should be interactive and designed so consumers are made aware of the brand or product. Sweepstakes can also be used to build relationships via online promotions while they also:

bulletBuild a prospect database by gathering information from potential customers and create a platform for permission-based marketing.
bulletSweepstakes have large consumer appeal and promote brand awareness as consumers identify the company's products or services.
bulletEntry is easy and immediate and provides a chance to win attractive prizes, drive traffic, and build online relationships.

Research has shown that:

bullet49% of consumers log onto the Internet at least once per month to enter sweepstakes.
bullet24% of consumers made their first purchase online based on a sweepstakes.
bullet39% of consumers name sweepstakes as the key motivator for divulging personal information.
bullet93% of commerce sites ran a promotion in the past six months.
bullet76% of sites named sweepstakes as the preferred method of online promotion.

Source: Jupiter Communications 1999, NFO Interactive, 1999

You must, however, keep learning about what your consumers are interested in and strive to keep your company on their mind. Successful online promotions include both consumers and sales channels. Once you have the initial contact with the consumer, you should develop database marketing and long-term loyalty programs. You can build your database by simply adding a command code to the online entry for so that entry information is collected. All promotional information is then sent directly to the database server. The web-based promotions can assist you to effectively develop your targeted permission-based marketing efforts.

You can do this by:

bulletEmailing information that consumer has requested and uses permission-based email as a loyalty and continuity tool.
bulletEncourage people to sign up for your newsletter, discounts, etc.
bulletSend exclusive discount offers.
bulletProvide daily instant-win games, frequent purchase rebates or rewards, point systems or frequent flyer miles.

Instant win games are the fastest-growing segment of online promotions. They provide the instant gratification that consumers want on the Internet and there are several innovative possibilities with instant win games. When the program is completed (or at predetermined increments), you should have customized research reports along with a list of participating consumers. You may also want a market demographics analysis depending on the scope of your project and your individual needs.

Finally, online promotions mean real-time monitoring of those promotions and reporting of online entries that allow you to see the effects of the media that supported the promotion. You will be able to access the online entrant database and manage targeted, permission-based email campaigns with integrated marketing tools. The more that you think through what your reporting needs up front, the more likely you can program those needs into the online promotion. You will learn how to optimize your promotions by focusing on targeted prospects and acquiring customers that will lower your acquisition costs.

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    SENATE APPROVES SWEEPSTAKES LEGISLATION

Legislation was approved by the Senate requiring sweepstakes sponsors to clearly explain that no purchase is required to enter. Federal law already prohibits sweepstakes sponsors from charging entrants a fee or giving a winning edge to people who make a purchase. The bill also imposes million dollar fines on sweepstakes companies that violate the loaned gives the U.S. Postal Service new authority to stop the mailing quickly.

American Family Enterprises which runs a sweepstakes promoted by Ed McMahon and Dick Clark filed for bankruptcy protection to settle dozens of lawsuits alleging deceptive advertising over its sweepstakes. American Family also announced that it had reached an agreement approved by the U.S. District court of New Jersey. The settlement covers all outstanding litigation against the company. AFP admits no wrongdoing but agrees to establish a $33 million fund to pay customers who can certify that they believed purchasing magazine subscriptions was necessary to become eligible for AFP prizes. The company has also agreed to pay legal, administrative, and notice costs associated with the settlement.

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    WHAT YOU SHOULD KNOW ABOUT SWEEPSTAKES

Sweepstakes can provide the following benefits:

bulletBuilds Trade Support
bulletIncrease Awareness of Brand and Product
bulletIncreases Advertising Readership
bulletEncourages Retailer Displays of Promotional Materials
bulletDrives Traffic into Stores
bulletInvolves Consumers with Your Product
bulletMotivates Consumers to Act Now

You should give prizes of value; one grand prize and a number of lesser prizes to increase the chance of winning. We strongly recommend that your legal department review and approve all elements of your sweepstakes and allow sixty to ninety days lead-time to execute a sweepstakes in order to meet state registration deadlines.

The following checklist maybe used to assist you in planning your sweepstakes promotion, but you should always have a complete legal review performed.

Sweepstakes Planning

bulletDevelop a theme and prizes that are relevant to the sponsoring brand;
bulletIs registration necessary? (New York, Florida and Rhode Island)
bulletAre your prizes over $5,000 in Value? Do you need a surety bond?
bulletAffidavits, liability waivers and publicity considerations.
bulletFulfillment (Shipping of merchandise).

Official Rules &Entry Requirements

bulletNo Purchase Necessary
bulletOne Entry Per Person or One Entry Per Family/Household or Enter as Often as You Like
bulletWho May Enter
bulletOne Entry Per Envelope
bulletRandom Draw
bulletOfficial Entry Form
bulletAlternative Means of Entry
bulletEntry Form Combined with Refund Certificate, Cents-off Coupon, Premium Offer, etc.
bulletWinner Notified by Mail/Writing
bulletDate of Drawing
bulletDate Entries Must be Received
bulletInstant Win - Rub-off, Matching
bulletAlternative Means to Obtain a Game Piece
bulletWill Winning Game Piece be Sent by Registered Mail?
bulletDate Winning Claims Must Be Received

Geographical Considerations

bulletResidents of U.S./Legal Residents
bulletResidents of Continental U.S./Canada
bulletResidents of Specific State(s)

Affiliations

bulletAffiliation of Sponsor Prohibited - Employees, Retailers, Affiliates, Licenses, Advertising & Promotion Agencies, Family Members (specify), Wholesalers, Printers or Other Vendors

Age Requirements

bulletNo Restriction, Minimum Age, Under Age X, Prize Must Be Claimed by Parent or Guardian, Must be of Legal Age (21 for alcohol sponsored event)

Prizes to Be Issued

bulletAll Prizes Will Be Awarded
bulletOdds of Winning
bulletRetail Value of Each prize
bulletUnclaimed Prizes Will or Will Not Be Awarded
bulletDoes Artwork Accurately Depicts Prize Being Offered
bulletOne Winner Per Person, Family, Household
bulletIf It is a Trip Prize, then:
bulletNumber of Days/Nights, Hotel Accommodations
bulletWhen Trip Must be Taken, Back Out Dates, Class of Travel
bulletDoes Not Include Meal, Expenses
bulletLiability Waivers (all travelers), Entry/Exit Fees
bulletNever Use "All Expenses Paid" Trip or Vacation

PROVISIONS

bulletVoid Where Prohibited, Taxed or Restricted
bulletNot Responsible For Lost, Late, Misdirected, Incomplete or Illegible Entries or Mail
bulletIf Offered Via the Internet, Include Disclaimers
bulletVoid in State(s) of _________
bulletTaxes Are the Responsibility of the Winner
bulletOfficial winners List Available Upon Written Request if Received by ______
bulletAffidavit of Eligibility
bulletReturn Date
bulletPublicity Release
bulletYou Should Have a Program in Place to Detect Seeding Errors
bulletSweepstakes Administration Address
bulletDecision of Judges is Final

IN THE CASE OF CONTESTS (Note: This should not be confused with a sweepstakes)

bulletList Proof of Purchase Requirements
bulletCompetitive Skills & Judging Criteria (i.e. Photo, Cooking, Recipe, Knowledge, Writing, etc)
bulletEntries Must be Original
bulletEntries Become the Property of Sponsor
bulletHow will Ties be Decided or Handled

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  CHECKLIST FOR PREPARING RULES FOR SWEEPSTAKES

bullet"No Purchase Necessary" - Conspicuous declaration;
bulletFacsimile entry alternative;
bulletRandom drawing reference (if applicable);
bulletVoiding clause;
bulletDisclosure of odds of winning;
bulletPrize description; cash substitute option; retail values;
bulletNotification of winners by mail;
bulletMutilated or illegible entries disqualified; liability for irregular game piece limited to replacement of game;
bulletMass entries and reproductions disqualified;
bulletNo limit on mail entries, but only one per outer envelope;
bulletEligibility provision; sponsor-related parties; minor's;
bulletMinors; certain prizes delivered only to parent or guardian;
bulletAffidavit of eligibility and compliance with rules;
bulletAddress; for entries; for winner list requests (availability date);
bulletReservation of publicity rights; use of name and photograph;
bulletDeadline for receipt of entries; for postmark;
bulletTermination date of promotion;
bulletDisclaimer of liability. For taxes, licensing and other fees on prizes; For lost or stolen entries; For prize merchandise of independent supplier;
bulletDecision of judges is final.

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     SWEEPSTAKES AND CONTESTS

Sweepstakes and contests are two promotional tools that can increase brand awareness, however, there are many federal, state and local laws and regulations governing sweepstakes and contests. For some, it is difficult to understand the difference between the two. As a general rule, a sweepstakes or contest becomes a "lottery" and, thus, illegal under federal and state laws, if all of the following three elements are present:

bulletPrize - A prize is always present in such promotions.
bulletConsideration - Consideration generally means that the entrant has to make a purchase or payment (e.g., buy the product) or in some states do something substantial (e.g., go to the store to get or deposit the entry form).
bulletChance - A chance means that the winner is selected at random (e.g., a drawing, a pre-selected number, a rub-off card randomly distributed, etc.). The distinction between a sweepstakes and a contest is that in a sweepstakes the element of consideration must be eliminated because the winner is selected by chance; the entrant does not have to pay or do anything substantial to enter. In a contest, the element of chance is eliminated; the winner is selected on the basis of skill. In a contest, it is permissible to require a purchase in order to enter except in certain states. With respect to sweepstakes, the laws and interpretations among the different states as to what constitutes consideration are highly uncertain and frequently changed. With respect to contests, similar controversy exists as to what constitutes "skill." All sweepstakes and contests should be accompanied by official rules, which are clear and unambiguous. Disclosures required in advertising a sweepstakes or contest will vary depending on the nature of the promotion and the state in which it is running. Special care should be taken that advertising of the promotion is consistent with the rules. It should also be noted that the States of Florida and New York require that most sweepstakes be registered with the state and that a deposit be made or bond posted to cover the value of the prizes. Rhode Island requires registration of sweepstakes in which local retail stores are involved. Arizona requires registration of skill contests. 

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   A SWEEPSTAKES PROMOTION TAKES CAREFUL PLANNING

A Sweepstakes promotion is an effective promotion in increasing awareness of readership of your advertisement.  It will also enhance your products image, get support from the retailers with point-of-purchase displays and provides you with an opportunity to build a database of potential customers.   Sweepstakes can be very expensive, however, no other promotion vehicle offers more control of its costs.  They also have several legal restrictions and requirements that must be followed as they are legally controlled and regulated by Federal, State and local authorities.

Santella & Associates recommends that you carefully plan your sweepstakes promotion and we suggest the following guidelines:

1. Identify and define your objectives and marketing goals for your sweepstakes promotion;

2. Plan your sweepstakes promotion as part of your total marketing strategy not as a stand alone promotion.  Utilize in-store displays, TV, radio to support your promotion;

3. Determine the areas of responsibility, who to assign the responsibilities to and the schedule for completion;

4. Establish the budget for the sweepstakes promotion;

5. Determine where the sweepstakes will be held, the geographic area of participation, duration of the promotion, age requirements, entry requirements, prohibited affiliations and legal requirements;

6. Select a theme for your promotion (who is your target audience for the promotion based on your marketing objectives), the number of prizes or winners.  List prize descriptions and limitations. Develop your artwork depicting the prizes;

7. Your offer should be clearly defined and easy for the customer to understand.   Your company's name and the product should be prominently featured in the ad copy;

8. Determine the criteria and method for judging and evaluating results and determining the winner;

9. The sweepstakes form should be carefully proofread and approved by all assigned parties including marketing, brand management, finance, legal, etc.;

10. The legal department should review all areas of the sweepstakes promotion to ensure that it complies with all Federal, State and local laws.

Your ad copy should indicate the following:

A. The legibility requirements to enter the sweepstakes, prohibited affiliations, prize description and limitations;
B. How the winner will be chosen (judging);
C. The mailing address for submitting entries;
D. Where official entries can be obtained;
E. The deadline dates for receiving entries;
F. If there is a limit on the number of entries per person;
G. Identify the geographical areas for participation, age requirements, conditions of entry such as no purchase necessary;
H. Indicate the odds of winning or that the odds of winning are based on the number of entries received;
I. Indicate how the winner will be notified;
J. Whether the winner may elect cash or merchandise;
K. Disclaimer of Liability of Error;
L. Releases, if required.

You should also indicate that "reproduction of sweepstakes entries will not be accepted" and identify those states in which the "promotion is void."  Require signed affidavits from the winner, if applicable and identify where a list of winners will be available upon written request.   You may be required to file a Final Sweepstakes report in some states.

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  WHEN IS A SWEEPSTAKES THE RIGHT PROMOTIONAL TOOL?

This is the most important question to consider when your trying to achieve specific brand objectives or reaching performance levels.  If your objective is to build the image of your brand or increase brand awareness, good publicity and visibility for your product, a sweepstakes program can be the right promotional choice.  If your objective is to dramatically increase incremental sales, then a coupon or free sample may be your best choice.

After you decide that a sweepstakes promotion is the right promotional tool, you should develop a theme geared specifically toward your target audience and the message that you want to deliver.  A sweepstakes should be carefully planned, advertised and should include relevant prizes.  A sweepstakes should not be used as a stand alone promotion.  It should be complemented with advertising, point-of-sales materials, etc.  A coupon advertisement that includes a sweepstakes gets better readership and higher redemption's.  Studies have shown that coupons and rebates that include a sweepstakes can increase redemption by 25%.

Your sweepstakes form should be simple, clean, specific and easy to read in order to avoid misrepresentations and possible legal problems.  Be sure to comply with all state and federal statutes as some states require registrations, surety bonds, insurance, etc.  You should always avoid statements like "You are a winner".  Include a complete set of official rules on the sweepstakes entry form and P-O-P displays and include an alternate means of entering for entries without a product purchase.  Disclose all requirements for eligibility, deadline date and mailing address for the entries.  Indicate where the promotion is void (states) and the odds of winning.  You should also make the list of winners available upon request and award all prizes in a timely manner to avoid bad publicity.  It can be very useful to compile a database of entries for future use.

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Last modified: July 09, 2013