When done correctly, sweepstakes and prize contests can be an effective tool for building brand awareness and gaining customers. However, businesses that fail to abide by applicable statutes and regulations when using these promotional devices can suffer disastrous consequences, including civil enforcement actions, government inquiries, or even criminal penalties.
For instance, earlier this month, the Federal Trade Commission (FTC) announced it had sent more than $532,000 in restitution payments to victims of a vacation prize scheme. The scheme, conducted primarily by VGC Corp. of America between 2008 and 2011, involved a promotion offering expensive vacation packages to callers who correctly answered a simple trivia question. All callers (regardless of whether they answered correctly) were told they had won the vacation package but had to pay an “administrative fee” before they could collect. Callers were later informed of several limitations and restrictions to the offer, but only after they had already paid between $200 and $400 in fees.
This case serves as a reminder of the need for businesses that implement these kinds of marketing tactics to have at least a basic understanding of the statutory and regulatory framework. A number of federal laws require that certain disclosures be “clear and conspicuous” in contest promotions, including but not limited to all rules and conditions of the promotion and the odds of winning any given prize.
Additional regulations may apply depending on the particular type of contest or giveaway at issue. Promotions in which prizes are awarded to members of the public on the basis of skill or knowledge (“skill contests”), or where the gift or prize is available to all recipients who respond according to the companies’ instructions (“premium offers”), can typically require payment in order to participate. However, promotions that award prizes to consumers by pure chance (“sweepstakes”) cannot require payment of any kind, as whenever a sweepstakes-style contest requires a payment, it risks crossing the line into an illegal lottery.
Any businesses considering implementing these kinds of promotional devices should take the time to understand these distinctions and abide by all disclosure requirements. If the past is any indication, the FTC and other federal agencies will continue their strict enforcement of these rules.