Raffles, Contests & Sweepstakes

Raffles, contests, sweepstakes, and lotteries are ways someone can win a prize of some kind. They are often used as promotion and marketing tools. Done correctly, they can be an effective marketing strategy.

Unfortunately, they have been heavily abused by spammers and bad actors, so now there are state AND federal laws & regulations that cover contests and sweepstakes.

Know before you go

Before you set up a raffle or contest as a marketing strategy, read the following! Make sure you get a sense of what you can and cannot do, and when you’ll need to check for and follow specific requirement for your state. Consult with your attorney and/or accountant involved if necessary.

The parts

There are three component parts in any type of contest, lottery, raffle, or sweepstakes:

What a particular type of game is, and what laws and regulations apply, depends on which of the three parts are involved.

Lottery

Prize ✔      Chance ✔     Consideration ✔

A lottery has a something to win (prize), a random selection of winners (chance) and you must pay to participate (consideration). When all three of the parts are present, then it is a lottery.

All private lotteries are illegal in the US and in all fifty states. Only state-run lotteries are allowed.

Raffle

Prize ✔     Chance ✔     Consideration ✔

Raffles are almost identical to lotteries (with a prize, chance, and consideration) except they are normally on a much smaller scale. Nearly every state has specific laws and regulations covering raffles and they are typically only allowed for registered non-profit organizations.

If you aren’t a non-profit organization, check the laws in your state before running a raffle. A sweepstakes may be a better alternative.

Contest

Prize ✔     Chance x    Consideration ✔

A contest has something to win (a prize), but it does not have chance, because the winner is determined on some skill-based criteria. Since there’s no chance, consideration (payment to participate) is generally allowed as an option—but not in all states.

Common marketing-type contests include a photo or essay contest, or a contest regarding user-generated content (such as tweets, posts, reviews, videos, etc.).

A contest that is decided by user-generated content (where the public “votes” to determine the winner) has additional legal ramifications. If you intend to run this type of contest, you should check with a qualified attorney in your state.

Sweepstakes

Prize ✔     Chance ✔     Consideration x

A sweepstakes has prizes and is a game of chance, because the prizes are awarded randomly. Because it already involves a prize and chance, it cannot also require payment or other consideration in order to participate (otherwise it would qualify as a lottery).

You’ll often see sweepstakes that have an entry based on purchase, but if you read the fine print there is a way to enter the contest without purchase (“no purchase necessary”). How to enter without purchase must be clearly disclosed.

Information Disclosure

In all cases, the rules of the raffle, contest, or sweepstakes are required and must be clearly and conspicuously disclosed. Generally you should provide:

ENTRY

• Who is eligible to win.
• How to enter.
• Maximum number of entries per person.
• Restrictions on entry (automated entries, for example).
• Start date and deadline for entry.

WINNERS & PRIZES

• How and when the winner(s) are selected.
• For a contest, include the judging criteria and who will select the winner(s).
• The number of winners there will be.
• Odds of winning.
• Anything required of the winners, such as an affidavit of eligibility, tax forms, permission to use picture and name of the winner, publicity rights, license to use the winning submission (for a contest).
• A clear description of the prize (s). For example if the prize is $500 in merchandise, clearly state what merchandise, how it is selected, if anything is excluded, etc.
• Detail how and when the prize will be delivered.

OTHER

• Name and address of sponsor/game operator.
• Void where prohibited (check with an attorney in your state to see what’s needed here).
• How and where to get a list of winners.
• How unclaimed prizes will be handled. (Not awarded? Second chance drawing?)
• Disclaimer/limitation on sponsor’s liability for lost or late entries.

Children

Any contests or sweepstakes that are directed to children must also protect their privacy rights. This is a big deal and there is both federal and state law covering what information you can collect about children and what you can do with it.

Do your research carefully before setting up a contest, sweepstakes, or raffle specifically for children.

Social Media

Where a contest or sweepstakes is promoted on a social media outlet, it must also meet the requirements of the platform (Facebook, Twitter, YouTube, Pinterest, Instagram, etc.). Contest or sweepstakes promotions are generally covered in the terms and conditions of the platform.

Endorsements and Influencers

The FTC requires an endorser (“influencer”) to disclose if they have received material consideration of some kind for talking about a product on social media. If you offer contest or sweepstakes entries in exchange for a post or tweet, include in the rules that the endorser must appropriately disclose that they received an entry because they made the post or tweet.

State Requirements

As mentioned at the beginning, ost states have laws covering contests and games. The laws and regulations vary from state to state and may require registration and/or a bond, posting contest rules, and/or disclosing the list of winners upon request.

Taxes

If a winner receives over $600 in cash or in goods or services, you have to issue a 1099-MISC to the person by January 31 of the following year. That means you have to get W-9 form completed by the winner. Making the payment or delivery of the prize contingent upon your receipt of the W-9 form ensures you will have the information needed to comply with the IRS regulations.