SWEEPSTAKES AND CONTESTS

Brian S. McCormac

BrownWinick 666 Grand Avenue, Suite 2000

Des Moines, IA 50309-2510 Telephone: 515-242-2431 Facsimile: 515-323-8531

E-mail: mccormac@brownwinick.com

Overview •  Types of Promotions

– Lotteries – Sweepstakes – Skill Contests

•  Lotteries are illegal unless run by the government or with government permission

•  Challenge is to structure your promotion as a sweepstakes or skill contest.

Elements of a Lottery

•  Prize •  Chance •  Consideration

What is a Prize?

•  Anything of value offered as an inducement to enter – Cash – Merchandise – Coupons – Discounts

What is Chance?

•  Any part of the winner selection process beyond the judgment or control of the participant.

•  Examples: – Random drawing –  Instant win code – Scratch card

What is consideration? •  Always includes payment of money to enter

–  Entry fee –  Purchase requirement

•  May include “substantial effort” if required to enter –  Traveling to a location/store visits –  Lengthy survey –  Waiver of legal rights (NJ AG: do-not-call waiver) –  Attending a sales presentation (often separately

regulated)

Structuring a Legal Promotion

•  Must remove one lottery element – Remove consideration, you have a

sweepstakes – Remove chance, you have a skill contest – Remove prize, you have no participation

Sweepstakes

•  Key features – Prize awarded by random selection – No consideration required to enter

Sweepstakes

•  How do you remove consideration? – Offer a free alternate method of entry (AMOE)

•  Mail/postcard •  Online entry

– Must disclose AMOE in all advertising

Alternate Method of Entry

Alternate Method of Entry

•  Must treat free and paid entries with “equal dignity” and “equal prominence” – Equal Dignity: treat all entries the same

•  Avoid: – Different deadline dates – Different prize pools (Publishers Clearinghouse) – Different entry limits

– Equal Prominence: display AMOE in same manner as purchase entry

•  No Purchase Necessary language usually covers this issue

Special Consideration Issues

•  Post consideration – Claiming prize requires payment or

expenditure of substantial effort •  Requiring car winner to fly to pick up prize •  Often arises with travel prizes where some

element of trip not included •  Carefully describe travel prizes in rules (e.g., “ground transportation excluded”)

Special Consideration Issues

•  Preexisting Consideration – Customer only sweepstakes

•  Entry limited to existing customers who have already paid consideration to sponsor

•  Generally acceptable, but must limit frequency •  Make no pre-purchase representations that a

sweeps will be offered

Special Consideration Issues •  Text messaging

–  Deal or No Deal cases •  Equal Dignity issue

–  Internet AMOE much more cumbersome than texting –  1-800 number would have been better because of similarity to

text entry

•  $ .99 text message premium held not to be an unlawful entry fee by Georgia Supreme Court

•  Best to avoid text messaging as AMOE because of facial consideration requirement and risk of differing state laws

Special Consideration Issues

•  Internet access •  1-900 numbers •  Refer-a-friend •  “Like” on Facebook

Special Consideration Issues •  Consent to receive marketing emails •  Open question •  NY AG has opined that requiring persons

to accept a telemarketing call constitutes consideration

•  Requiring consent to receive marketing emails could be deemed consideration – Avoid by using an opt-in so entry doesn’t

require consent

Special Consideration Issues

Skill Contests •  Removes the element of chance •  Winners selected in accordance with

objective criteria – There can be no element of randomness in

winner selection process •  Consideration usually exists

– Substantial effort to enter – Cost of materials – Entry fee generally permitted

Skill Contest

•  Examples – Skintimate

•  Good example

– Macaroni Grill •  Bad example

Skill Contests

•  Skintimate Contest rules set forth: – Entries judged by panel – Criteria: Use of brand assets (25%), Quality of

Execution (25%), Originality (25%), Creativity (25%)

–  In the event of a tie, tied entrant with highest score in Creativity will be the winner

Skill Contests

•  Macaroni Grill “Create Your Own Pasta” recipe contest. –  Contest had two rounds

•  First round was a random drawing to narrow field to 500 entrants

•  In second round, panel of judges read the 500 recipes and judged them on: taste/flavor (50%), innovative ingredients (40%), creativity of name (10%)

•  Tiebreaker: random drawing

•  Problematic because of use of random selection

Official Rules •  All sweeps and contests should have official rules •  Must Contain the following:

–  “NO PURCHASE NECESSARY” –  Void where prohibited –  Eligibility/residency requirements –  Start and end dates –  Entry instructions –  Description of selection process –  Odds of winning –  Description of prizes and ARV –  Sponsor name and address –  How to obtain winners list

Official Rules

•  Should contain other CYA clauses – Morals – Not responsible for late, illegible entries – Limitation of liability – Sponsor’s decisions final – Force majeure

Promotions Gone Wrong •  Kraft “Ready to Roll” Sweepstakes •  Kraft inserted game pieces with cheese slices •  Grand prize was car; odds 1:15,000,000 •  Undetected printing error resulted in virtually

every game piece being a winner •  Attempts to cancel brought class action litigation

and regulatory scrutiny •  Kraft settled for $10 million •  Moral: include a “Kraft clause” in rules to protect

against such errors

Promotions Gone Wrong •  McDonalds Monopoly Fraud •  Security chief of contractor administering

promotion stole winning game pieces and claimed over $13 million in prizes

•  No McDonald’s employees involved •  McDonald’s voluntarily gave away $10 million in

store visit promotion to restore customer goodwill

•  Moral: include a “McDonald’s clause” to protect against illegal or fraudulent acts

Promotions Gone Wrong •  Radio station “Hold your Wee for a Wii” •  Contestants drank as much water as they could

without urinating—entrant who drank the most would win

•  Entrant died from water intoxication •  Contestant’s family filed wrongful death lawsuit •  Jury awarded contestant’s family nearly $17

million in damages •  Criminal charges explored but not brought

Questions ?

Brian S. McCormac BrownWinick

666 Grand Avenue, Suite 2000 Des Moines, IA 50309-2510 Telephone: 515-242-2431 Facsimile: 515-323-8531

E-mail: mccormac@brownwinick.com Website: www.brownwinick.com

Website: www.brownwinick.com

Toll Free Phone Number: 1-888-282-3515

OFFICE LOCATIONS:

666 Grand Avenue, Suite 2000 Des Moines, Iowa 50309-2510

Telephone: (515) 242-2400 Facsimile: (515) 283-0231

616 Franklin Place Pella, Iowa 50219

Telephone: (641) 628-4513 Facsimile: (641) 628-8494

DISCLAIMER: No oral or written statement made by BrownWinick attorneys should be interpreted by the recipient as suggesting a need to obtain legal counsel from BrownWinick or any other firm, nor as suggesting a need to take legal action. Do not attempt to solve individual problems upon the basis of general information provided by any BrownWinick attorney, as slight changes in fact situations may cause a material change in legal result.