Top 5 Tips to Keep Raffles and Contests Legal
Having a raffle or contest sounds like a great way to get some publicity for your business or nonprofit with minimal effort. But is it legal? It's true that social media tools make it easier than ever to publicize a contest and get lots of people to spread the word about your company or charity. But there are right and wrong ways to go about it. Choosing the wrong way could lead to legal liability depending on your state laws. And, since a contest or giveaway is such a great way to boost visibility that you shouldn't let these concerns stop you. Instead, just find a way to work within the law. Here are our top tips on how to do just that.
Pick a Category
Prize-giving activities for businesses in the U.S. generally fall into one of two categories: sweepstakes and contests. A sweepstakes is won by luck; everyone has an equal chance to be the winner simply by entering because it is a game of chance. You will need to have an alternative method of entry (“AMOE”) available so that people have more than one way to enter but are still treated the same.
A contest requires some skill, like solving a puzzle. Generally a sweepstakes will open you to less liability, but if you choose a contest, make sure it's clear what you need to do to win so there is no confusion. You don’t want to end up in trouble with the Federal Trade Commission (FTC) or others who investigate illegal sweepstakes and promotions.
No Purchase Necessary
Most state gambling laws define a lottery as a game with a prize where the winner is chosen by a random drawing and you have to pay an entry fee to play. Lotteries are very tightly regulated and unless you're working with a lawyer, you don't want to attempt one. Stay out of it by allowing people to enter without purchase. It's also good to avoid contests that require Facebook "likes" to enter as that could be seen as a "cost" and become an illegal lottery. Just ask people to leave their name and maybe a comment on your blog or Facebook page.
Avoid Certain Prizes
Some things are more tightly regulated than others and prizes that include tobacco, firearms, alcohol, or items valued at over $600 will get more scrutiny. If the value of the prize is $600 or more there will be IRS tax implications and your participants need to know that in the official rules for your event.
Set the Rules
A major area of liability comes from entrants who challenge the contest if they don't win. Make sure the official rules are clear on eligibility, how a winner is chosen and the details of the contest. Then post it somewhere people can find it or even put it on the entry form or raffle ticket where the participants put their contact information.
Notify Winners by Email or in Person, Not Social Media
Facebook and Twitter are a good way to promote a contest or sweepstakes that you're running, but many social media companies want to avoid liability too. Even if it's not expressly banned by the terms of service, it's best to keep social media out of it when contacting winners.
If you decide to run a raffle or sweepstakes for your business or fundraising for a charity make sure you know the legal requirements in your state before you start.
Related Resources
- 4 Steps to Planning a Charity Raffle (FindLaw's Free Enterprise)
- '$10 if You Guess Who Will Be Fired Next' (FindLaw's Free Enterprise)