Federal Sweepstakes and Contest Laws
In the United States, promotions are controlled by the Federal Trade Commission, the Federal Communications Commission, the United States Postal Service, and the United States Department of Justice. These organizations regulate the nation-wide rules relating to sweepstakes and contests, like:
Winners are required to pay taxes on any prizes won; a prize over $600 is considered miscellaneous income to the government
Sponsors must issue a 1099 form to winners’ of prizes valued over $600
Guns offered as prizes must be transferred to a Federally Licensed Firearm Dealer who will go through the process of registering the gun to the new owner
Official rules must clearly identify the value of the prize as the ARV or Approximate Retail Value based on the fair market value at that time
Registration and bonding will be determined by the prize value and is handled on a per-state basis.
Additionally, the United States has strict laws barring private lotteries, so in order to be legal, sweepstakes and contents need to differentiate themselves from lotteries. A lottery is defined by law as a promotion that has all three of the following elements:
The promotion is offering prizes that have value
The winners of the promotion are chosen at random
There is an element of consideration
In order to NOT be classified as an illegal lottery, at least one of these elements needs to be missing. Because prizes and luck are central to sweepstakes, the element of consideration is usually eliminated.
47 U.S. Code § 509 - Prohibited practices in contests of knowledge, skill, or chance
To supply to any contestant in a purportedly bona fide contest of intellectual knowledge or intellectual skill any special and secret assistance whereby the outcome of such contest will be in whole or in part prearranged or predetermined.
By means of persuasion, bribery, intimidation, or otherwise, to induce or cause any contestant in a purportedly bona fide contest of intellectual knowledge or intellectual skill to refrain in any manner from using or displaying his knowledge or skill in such contest, whereby the outcome thereof will be in whole or in part prearranged or predetermined.
To engage in any artifice or scheme for the purpose of prearranging or predetermining in whole or in part the outcome of a purportedly bona fide contest of intellectual knowledge, intellectual skill, or chance.
To produce or participate in the production for broadcasting of, to broadcast or participate in the broadcasting of, to offer to a licensee for broadcasting, or to sponsor, any radio program, knowing or having reasonable ground for believing that, in connection with a purportedly bona fide contest of intellectual knowledge, intellectual skill, or chance constituting any part of such program, any person has done or is going to do any act or thing referred to in paragraph (1), (2), or (3) of this subsection.
To conspire with any other person or persons to do any act or thing prohibited by paragraph (1), (2), (3), or (4) of this subsection, if one or more of such persons do any act to effect the object of such conspiracy.
(b)“Contest” and “the listening or viewing public” definedFor the purposes of this section—(1)
The term “contest” means any contest broadcast by a radio station in connection with which any money or any other thing of value is offered as a prize or prizes to be paid or presented by the program sponsor or by any other person or persons, as announced in the course of the broadcast.
Whoever violates subsection (a) shall be fined not more than $10,000 or imprisoned not more than one year, or both.
Overview Federal law governing the use of sweepstakes became effective in 2000. The federal law requires certain disclosures for mailed sweepstakes and prohibits certain practices. It also includes rules for skill contests. Several states also have laws affecting sweepstakes and contests, some more restrictive than the federal law. In addition, given the global nature of the Internet, publishers involved with online sweepstakes should also be aware that laws in foreign nations may apply. Federal Law The federal law is the Deceptive Mail Prevention and Enforcement Act (DMPE), 1 known commonly as the federal “Sweepstakes Law.” The law applies only to material sent through the mail, and gives the U.S. Postal Service authority over and imposes affirmative disclosure and name removal requirements on sweepstakes and skill contest mailings. The Act also contains requirements for mailings containing facsimile checks, and mailings made to look like government documents. When the Law Applies to Magazine Content When Congress passed the DMPE, it included a significant exemption for magazine content, including advertising. The provisions of the law do not apply to sweepstakes and contests appearing in magazines if: 1. they are not directed at a named individual; or 2. they do not include the opportunity to make a payment or order a product or service. General Provisions As noted above, DMPE covers only sweepstakes promotions sent through the mail. It does not supersede state laws on sweepstakes. Thus, sweepstakes sponsors should review state requirements as well. Mailings that merely provide promotional information about a sweepstakes do not trigger application of the law—the sweepstakes promotion must include an opportunity to enter for the law to apply. All sweepstakes disclosures mandated by the law must be made in a “clear and conspicuous” manner that is “readily noticeable, readable, and understandable” to recipients. 1 39 U.S.C. §§ 3001-3017. Required Disclosures Any solicitation to enter a sweepstakes or contest must contain the following information: 1. the official rules; 2. all terms and conditions for participating in the sweepstakes or contest; 3. the entry process; 4. the name of the sponsor or mailer of the sweepstakes; 5. the contact information for the sponsor or mailer of the sweepstakes The official rules must include: 1. the estimated numerical odds of winning; 2. the number of prizes to be awarded; 3. the estimated retail value of the prizes to be awarded; 4. the nature of the prizes to be awarded; and 5. the schedule of payments if the prize is paid over time. Sweepstakes solicitation mailings must include statements that no purchase is necessary to win and statements that purchasing the sponsors’ products will not increase one’s chances of winning. These statements must meet the following requirements: 1. they must be more conspicuous than the other required disclosures; and 2. they must appear in the following three places in a mailing: a. in the solicitation letter; b. in the order or entry form; and c. in the official rules Required Disclosures for Skill Contests Skill contests are defined by the Federal Trade Commission (FTC) as, “Puzzles, games or other contests in which prizes are awarded based on skill, knowledge or talent – not on chance.” 2 In these skill contests, sponsors must disclose: 1. the estimated number or percentage of participants who will win the skill contest; 2. the approximate number or percentage of participants who have won the sponsor’s past three skill contests; 3. the judging methods; 4. the identity or a description of the qualifications of the judges; 5. the date on which winners will be selected; 6. the date or process by which prizes will be awarded; 7. the number of rounds of competition; 2 Federal Trade Commission, You Don’t Have to Pay to Play!, FTC FACTS FOR CONSUMERS, July 2000, at 2. 8. whether subsequent rounds of competition will be more difficult than early rounds; and 9. the maximum cost to enter the entire competition. Prohibited Practices 1. Mailings must not indicate that those who do not purchase sponsors’ products or services will not receive future sweepstakes mailings; 2. Mailings must not indicate that an individual is a winner unless that person has actually won; 3. Mailings cannot require that sweepstakes entries be accompanied by orders or payments for previously ordered products or services; 4. Mailings cannot contain inconsistencies within the official rules or disclosures. Facsimile Checks Facsimile checks must contain a disclosure on the face of the document indicating that the check is non-negotiable and that it has no cash value. Opt-Out Requirement Mailings for sweepstakes and contests must display clearly and conspicuously a toll-free telephone number or address by which recipients can contact the sponsor to be removed from any future mailings. Upon receipt of a removal request, the sponsor must remove the requester’s name and address from mailing lists within 60 days. Penalties for Non-Compliance The Postal Service can assess penalties for violations of up to $1 million. The fines are $25,000 for mailings of less than 50,000 pieces, $50,000 for mailings of between 50,000 to 100,000 pieces, and an additional $5,000 for each 10,000 pieces above 100,000 up to a maximum fine of $1 million. For violations of the opt-out provisions, recipients may sue for injunctive relief and damages up to $500 per violation, which can be trebled for willful violations. In addition, mailers who mail solicitations “recklessly” to those requesting removal can face statutory penalties to the federal government of $10,000 per mailing, and penalties of up to $2 million for selling the names and addresses of individuals requesting removal from mailing lists.
Follow Federal & State Legal Requirements and Regulations. Please always consult with a real legal advisor and/or licensed attorney. This is simply a guideline to get you started in the right direction.