Virtually all state laws define illegal gambling as having three basic elements – prize, chance and consideration. All three of these elements must be present for a promotion to be considered gambling. The job of sweepstakes creators is to eliminate one or more of these elements from every sweepstakes they prepare.
It’s usually difficult to eliminate the prize from a sweepstakes because the prize provides the incentive for entering and the reward for winning. It’s the carrot on the stick. However, certain sweepstakes involve a less tangible reward, such as “bragging rights” or being named “winner for the week.” These types of prizes have little or no monetary value, and likely wouldn’t be considered significant enough to constitute a “prize” under state gambling laws.
Eliminating the element of chance from a sweepstakes is also difficult unless the sweepstakes can be transformed into a contest, where the winners are not selected by chance but instead chosen based on some measurable criteria. Another way to eliminate chance would be to ensure that everyone receives a prize. Those types of promotions are structured as giveaways rather than sweepstakes and do not violate state gambling laws.
The most common way to avoid having a sweepstakes be considered illegal gambling is to eliminate the consideration from the promotion. Virtually all states define “consideration” to include payment of money or something valuable to enter the sweepstakes or a requirement that a purchase must be made in order to enter the sweepstakes. However, in some states, even having to visit a store or take any action that a customer would not otherwise have to do can constitute consideration. However, it is generally accepted that requiring a customer to mail in his or her contact information is not consideration and a sweepstakes with that option will not be considered gambling. This explains why most sweepstakes provide a free method of entry, usually by sending a 3x5 card with the customer’s name and address or by calling an 800 number.
This post was written by retired Thompson Coburn partner Dale Joerling. If you have any questions about the topics discussed in this post, please contact Thompson Coburn partner Hap Burke.