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Consider this: How do states define 'Consideration'?

January 12, 2012

Sweepstakes law stretches further than you’d ever imagine. It even affects Simon Cowell, the prickly English media mogul behind hit television shows like “America’s Got Talent.”

How did Simon stumble upon the pitfalls of sweepstakes law? It all has to do with the concept of “consideration.”

A past Sweepstakes Law Blog post described the criteria states use for determining if a sweepstakes constitutes an illegal form of gambling. Here’s a reminder: Three elements must be present — chance, prize, and consideration — for a sweepstakes to be illegal. In most instances, sweepstakes sponsors can avoid concerns about illegal gambling by eliminating consideration. 

But it’s not always easy to determine what may or may not be considered consideration. 

Some states define consideration as “money or other benefit conferred by the player for the opportunity to gamble.” Obviously, requiring a person to pay money or make a purchase to participate in a sweepstakes constitutes consideration. However, many states have adopted much broader definitions, and some states view virtually any expenditure of a participant’s time and effort as consideration. 

For example, Florida regulators stated that consideration “need not involve money or anything of monetary value.” Rather it “may consist of a benefit to the promisor, or a detriment to the promisor,” or if the promisee “does anything which he is not bound to do, or refrains from doing anything which he has the right to do.” 

Iowa defines consideration as “a substantial expenditure of effort.”  While the Iowa Legislature exempted certain acts of participation — including completing a registration form, obtaining a blank entry form or participating in a product demonstration — many common entry activities and requirements must be analyzed on a case by case basis to determine whether they require “substantial effort,” as defined by the Iowa statute.

Is getting online 'consideration'?

Another consideration quandary pops up when deciding whether  it constitutes consideration to require a person to go on to the Internet to enter a sweepstakes.  Many argue the Internet is so ubiquitous and accessible that requiring someone to enter online can't be considered consideration.  Others argue equally forcibly that only about 70 percent of Americans have Internet access at home, so not everybody can enter an online sweepstakes or play a game free of charge. They also argue that while most U.S. residents are familiar with use of the Internet, some  still may not be comfortable registering for a sweepstakes online. 

Those opposing viewpoints cropped up in a 2011 lawsuit filed against “America’s Got Talent” by television viewers who entered a show promotion. The viewers alleged that charging a 99-cent premium for votes cast by text message constituted consideration by the sponsor of the television program. The suit also alleged that the purported “alternate means of entry” via the Internet is not available to all persons who wish to enter the sweepstakes and therefore not all persons may play the game for free. This case in U.S. District Court for Central California, settled before it went to trial.  However, the complaint argues that allowing entry only by Internet makes the promotion illegal gambling.

Are Vermonters always exempt?

There are also more misconceptions about state requirements when it comes to other issues of consideration. For example, there is a longstanding belief that sponsors can’t  require Vermont participants to provide postage when requesting copies of sweepstakes rules and winners lists. For example, last month the Sprint Center arena in Kansas City launched a contest where fans could enter to win tickets to upcoming live concerts and events, including shows for Brad Paisley, George Strait and Sesame Street Live. The contest’s official rules dictated that Vermont and Washington residents can omit postage when requesting contest rules or a winners list.

But this requirement is not correct. According to a letter Thompson Coburn received from the Vermont Attorney General’s Office, sweepstakes sponsors need not allow Vermont participants to omit postage on requests for official rules, so long as sweepstakes participation does not require such a request.

The determination of what constitutes consideration is further complicated by the fact that each of the 50 states have their own definition of consideration.  And those definitions are subject to change at any time as a result of amendments to state statutes or regulations, new case law, or changes in the enforcement priorities of the state’s attorney general.

For all of these reasons, it is crucial to pay close attention to consideration requirements and ensure that the sweepstakes truly has a free alternate method of entry.

Dale Joerling is the chair of Thompson Coburn’s Advertising, Marketing and Promotion Law group. He is editorial director of the Sweepstakes Law Blog. You can reach Dale at (314) 552-6058 or djoerling@thompsoncoburn.com.