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’Tis the season to combine sweepstakes and charitable donations, but be aware of commercial co-venturer laws

November 13, 2012

As the holiday season approaches, many companies are interested in linking their promotions to charities that provide much-needed services or funding. A typical example of this occurred recently when a client decided to embellish the sweepstakes we created for them by offering to make a donation to a well-known charity for each eligible sweepstakes entry they received. The client also offered to make a donation for each product that it sold during the sweepstakes.

What this client — and many other companies — didn’t know was that by offering to make these donations, it could be considered a “commercial co-venturer” in certain states that regulate charitable contributions. In a number of those states, the statutes provide that if an organization whose regular business does not involve raising funds for charities conducts a “sale, performance or event” that will benefit a charity, it could be determined to be a commercial co-venturer.

Commercial co-ventures, or cause marketing, as it is sometimes called, generally involves an arrangement between a business and charitable organization to sell a product for the mutual benefit of both parties. The charity receives additional funds and the business gains increased sales, customer loyalty and good will.

Approximately half of all states maintain statutes that regulate cause marketing. Several states require commercial co-venturers to register or obtain a license to operate as a commercial co-venturer before beginning any solicitation for contributions. While each state has its own set of regulations, there are certain requirements that are contained in many state statutes. For example, commercial co-venturers must:

  1. Have a written contract with the charitable organization receiving the donation and file the agreement with the state;
  2. Disclose to consumers the following:
    a. The charity’s name and address
    b. The commercial co-venturer name and address
    c. How donations will be used for charity
    d. The tax exempt status of the donation
  3. Complete an accounting and/or closure statement documenting the amount of the contribution at the end of the promotion;
  4. Disclose the gross receipts and costs and expenditures deducted from the funds;
  5. Submit confirmation of the amounts received by the charities;
  6. Maintain the fund records for up to three years.

Despite the fact that commercial co-venturer laws have been in place for more than 15 years, many people are not aware of these requirements. However, as our client learned, these state laws can apply to sweepstakes and contests — and whether a statute applies to a particular situation is not always clear. For that reason, if a sweepstakes or contest involves a charitable contribution or a partnership between a business and a charity, it should be analyzed carefully to determine whether commercial co-venturer laws may apply.

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.