CASRO

Some of our members offer incentives to respondents for participation in the survey process. CASRO Legal Counsel, Duane L. Berlin, in conjunction with the CASRO Board of Directors has set forth rules governing the use of sweepstakes and lotteries in surveys.

This information is provided as a membership service to all CASRO members. If you have any questions, please consult your own legal counsel or contact us.

Contests and sweepstakes in the United States are regulated at the federal level by the Federal Trade Commission, which has jurisdiction over both advertising and unfair trade practices. In addition, almost every state government has a legislative monopoly over the conduct of "lotteries," or the sale of chances to win prizes. The unauthorized conduct of a lottery by any entity other than the state government or its promoter is generally illegal (with some exceptions for charitable organizations, such as schools, churches and the like).

In contrast to a lottery, a "sweepstakes" is a contest in which the participants are not required to pay anything for the chance to win. Sweepstakes are generally permitted in most states, provided that a number of rules are followed. In particular, there can be no requirement, direct or indirect, that participants pay any consideration for the chance to win. Thus, contests that condition the chance to win on subscribing for a service, purchasing a product or, in some states, visiting a physical store, are impermissible. For example, in the case of a survey research company running a sweepstakes in order to attract respondents, it could be argued that requiring participation in the survey provides the company with an indirect economic benefit. For this reason, the practice known as providing an "alternative free means of entry" has become standard in the conduct of contests and sweepstakes. That is, the rules of every contest should state that "no purchase is required", and should permit persons to enter simply by submitting a postcard to a designated address. The odds of winning should be the same, whether the participant registered over the Internet or by sending in the card.

Similarly, it is unclear whether an online sweepstakes, with entries limited to website visitors, are permissible since the requirement that entrants must visit the website in order to enter may be sufficient "consideration" to convert a lawful sweepstakes into an unlawful lottery. Better safe than sorry, promoters of such sweepstakes should allow postcard submissions or other alternative free means of entry.

The rules of sweepstakes must contain other provisions, including statements about the contests promoters, the value of prizes and the odds of winning. In addition, depending on the value of the prizes, some states require the registration of the contest rules with a state office, where they will be made publicly available, and/or the posting of a bond in the amount of the prize value.

"Skill-based" contests differ from sweepstakes in that they require the participants to demonstrate some skill in order to be eligible to win. The selection of winners is based on a judgment of skill, rather than chance. Skill-based activities can include writing essays or book reviews, drawing illustrations and taking photographs. However, some courts have held that contests requiring only minimal skill or "skill" that amounts to no more than guessing a random number, such as estimating the number of jellybeans in a jar, will be treated as games of chance. Skill-based contests are permitted in most states.

Internet contest promoters must also be wary of foreign laws governing contests and sweepstakes, as consumers in virtually every country in the world may have access to their website. In many countries, the conduct of sweepstakes is prohibited or involves complex registration and approval requirements. To avoid the consequences of violating these laws, contest promoters should ensure that participation is restricted to residents of the Unites States and other countries in which local laws have been reviewed (both in the contest rules and by address filtering, if possible).

As a general rule, a sweepstakes becomes an illegal "lottery" if the following three elements are present: (1) prize, (2) consideration and (3) chance.

Prize is always present in a sweepstakes.
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).
Chance means that the winner(s) are selected at random (e.g., a random drawing, a pre-selected number, a rub-off card randomly distributed, etc.).

In a sweepstakes, the element of consideration must be eliminated because the winner is selected by chance (a random drawing). The entrant is not required to pay or do anything substantial to enter.

All sweepstakes should be accompanied by "official contest rules" which are clear and unambiguous. When you are drafting the rules for the sweepstakes be sure to include every detail about the sweepstakes. When you write the official rules you are basically creating a contract with the consumer. You do not want to misrepresent what you are actually doing so you have to make sure that your rules are very clearly stated and that you avoid as much consumer confusion as possible.

Items you should always cover in the official sweepstakes rules:

No purchase necessary
The dates when the sweepstakes begins and ends.
Eligibility and Disqualification. Describe who is not eligible to participate. Be very specific about who is eligible to enter the sweepstakes. Is the sweepstakes limited to U.S residents only; are there certain states that it is not available? Are employees (and their families) and affiliates disqualified? Is there a minimum age requirement to enter?
Frequency of entry. Describe how often a person can enter the sweepstakes. Is the sweepstakes limited to one entry per person (per day) or email address?
Discuss the consequences of tampering. If people try to automate their entries and fill in thousands of entries they will be disqualified.
Spell out the fact that you are not responsible for issues that are out of your control. If your server or ISP goes down you are not responsible for these things.
Indicate where the entry form can be found.
Alternate means of entry. Identify the specific rules and instructions on how to enter the sweepstakes for alternative mail-in (proxy) entries.
Disclose the odds of winning. Include a statement that the odds depend on the odds of the number of entries received if it's a random draw.
Describe the prizes and their retail value. Avoid trademark infringements but describe what the prize is, the value and if there is an available cash substitute.
Provide information on when and how prizes will be awarded.
Describe what happens when a prize is not claimed.
Winner(s) name will be announced (e.g., on website.)
Notification of winners. Indicate how winners will be notified and if the winner will be required to sign an affidavit of eligibility and a liability/publicity release which releases sponsors from liability in connection with the winner's use of any prize and permits the sponsors to use the winner's name to promote the contest where permitted by law.
Describe if the value of prizes will be taxable as income.
All prizes will be awarded.
Transferring of prizes. Substitution or cash equivalent of prizes.
List all sponsors that are involved in the promotion.
Provide information on how to obtain a list of winners (mail-in address)
Deadline date for all received entries.

If you change the rules halfway through the promotion, then you are basically breaking the contract with the consumer. Special care should be taken that advertising of the promotion is consistent with the rules.

As discussed, this is an evolving body of law, encompassing statutory and case law from all 50 states, the federal government and many foreign governments. Accordingly, it is not possible to construct a set of rules and practices that we can guarantee will comply with every applicable law. Anyone running sweepstakes, especially online, should have their counsel carefully monitor state and federal legislation and court decisions in this area.