Five Ways to Ensure Your Business Contest is Legal
Challenge your marketing department’s sweepstakes ideas to be above board in Rhode IslandBy Benjy Schirm, J.D. | Last updated on January 11, 2023
Use these links to jump to different sections:
- 1. No Lotteries
- 2. Free Entry
- 3. Release the Rules
- 4. Fulfil the Promises
- 5. Exclude Certain Geographic Areas
1. No LotteriesA contest that requires a payment to enter and has a prize that is chosen at random is legally considered a lottery. The government of each state or an entity of those governments are the only organizations that are legally authorized to run lotteries. The way to avoid being served with a letter from the attorney general is to not do one of these three things. For example, don’t have entrants pay or give anything to enter the contest or don’t make the winner determined by pulling names out of a fish bowl.
2. Free EntryYou may enter people into a contest for purchasing something from your small business, or by becoming a member of your organization, as long as there is a way to enter the contest without payment. This is the “no purchase necessary” language that you normally see in contests. Be certain that free entries are processed in the same way that paid entries are treated. There should be a clearly defined reasonable manner for free entries to be submitted and enough time for the entries to be received. For example, if one must mail in a postcard, be sure to wait three or more days after the end date for the mail service to return any entries.
3. Release the RulesThe topics to consider in creating the rules may include: eligibility, how ties are broken, how winners are selected, who owns any content produced, any media or likeness releases necessary, dates of the contest, odds of the contest, the possibility of substitutions of prizes for money, descriptions of the prizes, prize fulfillment, privacy policies, sponsor identities, what happens if the winner dies before claiming the prize, and restrictions on geographic areas. Looking to other posted contest rules may fill in any gaps that you don’t currently have. These rules should be posted prominently and be easily accessed by contestants.
4. Fulfil the PromisesThis doesn’t only include actually finding the winners—although, if the entry form is not substantial enough, this may prove challenging. If any prize is worth over $600, winners should be sent a 1099 as this is a taxable incident. Also, businesses are required to keep records of all contests for two years that include: identities of everyone involved in running the contest, who the winner was and how they were selected, rules, tax documents, and any other contest specifics.
5. Exclude Certain Geographic AreasVarious states have thresholds for how much prize money and/or value is allowed to be conveyed in a contest. Rhode Island, for instance, has a limit of $500. If you have entries from states that are not excluded in your rules and your prizes exceed the state thresholds, you could have another tough letter from the attorney general. These are just a few of the considerations that every business should look into if they are going to promote any sort of contest. There are some companies that can help to set up and execute a sweepstakes, but they are not necessarily considering your liability. Be sure to seek legal advice from an experienced and reputable attorney to ensure your bases are covered and your business grows the way it’s supposed to. For more information on this area of law, see our overview of business and corporate law.
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