If sweepstakes law had Ten Commandments, the first would be “thou shall not require anyone to make a purchase in order to enter a sweepstakes.” Doing so could violate the gambling laws in virtually every state in the country.
But what if a retailer wants to be a Good Samaritan and reward its current customers with a sweepstakes that is open only to those persons who have already purchased its products? Would those prior purchases constitute “consideration”? A similar question arises when an exhibitor at a trade show decides to conduct a sweepstakes at a show, but wants to limit it only to attendees who paid a registration fee to attend the event.
Unfortunately, there is no fine print in the commandment that answers these questions. One line of thinking is that if the purchase was made without the person knowing a sweepstakes would be held, the purchase should not constitute consideration for entering the sweepstakes. Similarly, if a conference attendee pays a registration fee without knowing about a related sweepstakes, then their registration payment wouldn’t qualify as consideration.
But what if the sweepstakes is advertised prior to the event, or if attendees or retail customers know from experience that a sweepstakes will take place, and that they can enter only if they purchase the product or register for the event?
Additionally, does it matter if the sweepstakes sponsor doesn’t receive any of the registration fees, or if instead of purchasing a product, entrants must contribute to a charity? Is there any difference if the prize costs less than $5 or, on the other hand, if it is worth more than $5,000? These are just a few of the questions that crop up when considering a sweepstakes limited to customers only.
At least one court has held that sweepstakes with restricted eligibility requirements are legal, so long as the requirements are wholly unrelated to the payment of consideration. In other words, if the sweepstakes is limited to individuals who had responded to earlier mailings by purchasing products and the customers were not lead to believe that they must purchase products in order to enter the sweepstakes, there is no consideration. That court found that if the sweepstakes had only one eligibility requirement — that the entrant be a past customer — the customer-only sweepstakes did not hinge on the payment of consideration, and such a sweepstakes would not be illegal. But that is only one court in one state. This issue is still very unsettled.
Before you decide to limit your sweepstakes to customers only, it is imperative that you contact a lawyer who is experienced in sweepstakes law who can help you address these concerns.
Special thanks to my co-author Justin Mulligan for his assistance on this post.
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.