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Can a grab bag be a sweepstakes?

February 4, 2014

When I hear the words “grab bag,” I think about stores that used to stock plain wrapped packages labeled as either for “boys” or “girls." For a dollar, you could choose one of these packages without knowing what it contained. While the value of the items inside the bags were all approximately the same, the appeal of the grab bag was the hope that your selected package contained some extra special toy – something you’d really like to have. Like a sweepstakes, it was this sense of risk and anticipation that made grab bags so popular.

“Grab bags” have been defined in the Merriam-Webster Dictionary as a bag that holds many small gifts and that you reach into in order to pull one out without knowing what it is. But more recently, grab bags have taken on a new definition under some state laws: illegal gambling.

The grab bags that I remember as a child and which I still see occasionally in stores likely do not violate any state illegal gambling statues, primarily because the items in those grab bags all had approximately the same value. For that reason, there is only a very small risk of violating state gambling laws. All the prizes have about the same value and therefore there is no chance of winning a prize that was worth more than what you paid to select it from the bag. Although there is a prize and consideration, without the element of chance, the criteria required for finding illegal gambling is not present.

Nevertheless, there are situations in which a grab bag program could violate a state’s gambling statute. One scenario that might raise concerns would be if the prizes had significantly different values. The element of chance may then be present— along with prize and consideration.

For example, if a bakery decides to put a diamond ring in one of 500 identical cakes made for a promotion, that promotion could be viewed in many states as a grab bag that is illegal gambling. To avoid a finding of illegal gambling, the bakery would have to allow the public to have a chance to win the ring without buying a cake – by an alternate means of entry (AMOE). This is usually accomplished by creating code cards or scratch-off type cards, distributing them with the product (instead of the ring), and also making the cards available to persons who do not wish to buy a cake by giving them the option to request a card by mail.

Similarly, grab bags are sometimes used to sell trading cards by randomly placing more valuable cards in packs of cards containing more routine or less valuable selections. This practice could potentially raise issues of illegal gambling that may be more difficult to overcome through the use of mail-in entries or other alternative methods of entry.

This may be particularly true in California which has enacted a state law that prevents such grab bag sales. The law addresses a scheme to distribute sports trading cards by chance in which the purchasers pay for the cards with the understanding that they have a chance to win a prize listed by the seller as being contained in one or more (but not all) of the grab bags offered for sale. Under the California statute (California Penal Code Section 319.3), this scheme is an illegal lottery.

If you plan to use a grab bag type method for selling your products, you should contact a lawyer who is familiar with sweepstakes and grab bags before it is implemented.

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.