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If your business is thinking about offering online sweepstakes for marketing and to drive business, you will need an experienced Sweepstakes Law Firm to help. Internet sweepstakes are fun and exciting, but because the “internet goes everywhere,” your business will have to comply with the federal laws and the laws in every State that govern online advertising and “give-away” promotions. Here is a non-exhaustive list of other legal concerns:
As just one example, the size of the award/prize being offered makes a difference in compliance. For example, the IRS will require a 1099 form to be filed if the prize is greater than $600 and federal law prohibits any prize greater than $1 million without preapproval from the relevant federal agency like the Federal Trade Commission.
All of the foregoing are legal concerns whether your business is considering a sweepstakes, a contest, or a raffle/lottery. But, importantly, these three are LEGALLY different and distinct with differing federal and State regulations. For example, raffles/lotteries are illegal in California unless run by a not-for-profit organization registered with the California Attorney General’s Office to conduct raffles, and only if at least 90% of the gross receipts from the raffle are used for charitable purposes. See here.
What is the difference? In simple terms, a sweepstakes is a marketing/promotion device with two elements: a prize and chance. Note that the “chance” element must be truly random. By contrast, a lottery or raffle has three elements: a prize, chance, and some value paid — like money — by the entrant. Again, the “chance” element must be truly random and the “value paid” can be many different things like a required purchase or completing a detailed and time-consuming entry form. In some States, “value paid” can exist where the lottery/raffle operator receives some substantial benefit/value from the use of the information provided by the entrant.
As can be seen, what your business may think is a “sweepstakes” may legally be a “lottery/raffle” which will implicate compliance with federal and State rules and regulations. Finally, a contest has three elements: a prize, a judge (or “win conditions”), and some sort of application of skill by the entrants. Sometimes, a contest requires some value paid. Again, contests have a different and distinct regulatory framework.
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For more information, call Revision Legal’s experienced internet attorneys today for assistance. You can contact us through the form on this page or call (855) 473-8474.
The legal classification of a promotional game determines what law applies and what compliance steps are required. A sweepstakes involves prize, chance, and no required consideration — winners are selected randomly and participation is free. A contest involves prize and skill — winners are selected based on merit or ability rather than chance. A lottery involves prize, chance, and required consideration — participants must pay or provide something of value to enter. Lotteries are illegal when operated by private parties in all 50 states; only state governments may operate lotteries.
The legal challenge arises because the line between a legal sweepstakes and an illegal lottery can blur. If your “free” sweepstakes requires participants to view a lengthy advertisement, fill out a detailed survey, or engage in time-consuming activity to enter, a regulator or court might find that the time and effort constitute “consideration,” converting the sweepstakes into an illegal lottery. The standard approach to avoiding this problem is the “Alternative Method of Entry” (AMOE) — ensuring that a truly free and equally accessible alternative entry path exists alongside any paid or commercially linked entry method.
Several federal agencies have jurisdiction over aspects of online sweepstakes and contest promotions. The Federal Trade Commission (FTC) enforces rules against deceptive advertising under 15 U.S.C. § 45. A sweepstakes promotion that misrepresents odds of winning, the retail value of prizes, or the geographic availability of the promotion violates the FTC Act. The FTC has brought enforcement actions against sweepstakes promoters for deceptive prize promotions, and penalties can be substantial.
The IRS imposes reporting requirements for sweepstakes and contest prizes. Under 26 U.S.C. § 6041, prizes worth $600 or more must be reported on a Form 1099-MISC. Prizes worth $5,000 or more are subject to federal income tax withholding of 25%, or 28% if the winner cannot provide a Social Security number. For large-prize promotions — particularly those with prizes exceeding $1 million — federal law requires posting a surety bond or obtaining preapproval demonstrating financial responsibility to ensure the prize will actually be awarded.
Because an internet sweepstakes is accessible nationwide, your promotion must comply with the laws of every state where participants can enter. Several states impose requirements beyond the federal baseline:
Failure to comply with state registration requirements does not necessarily void a sweepstakes, but it can expose the sponsor to regulatory enforcement actions, fines, and civil liability from participants who claim the promotion was deceptive.
Running a sweepstakes on social media platforms adds another compliance layer beyond government regulations. Each major platform has its own promotional guidelines that supersede government rules as a contractual matter between the platform and the sponsor.
Instagram’s guidelines prohibit promotions that require participants to tag themselves in content they do not appear in. Facebook requires that promotions be administered through Pages and prohibits using Facebook features — such as “share on your timeline to enter” or “tag your friends to enter” — as the entry mechanism. Twitter’s guidelines prohibit repetitive tweets and require a unique hashtag to track entries. Violations of platform promotional guidelines can result in removal of the promotion, suspension of the sponsor’s account, or permanent ban — consequences that can significantly damage a brand’s social media presence.
A legally compliant sweepstakes requires coordination across federal advertising law, IRS reporting requirements, state registration and bonding rules, and platform-specific guidelines. Revision Legal’s internet law attorneys provide comprehensive sweepstakes compliance services — from drafting Official Rules and eligibility restrictions to handling state registrations and advising on platform compliance. Call us at 231-714-0100 or visit our contact page before you launch your promotion. Getting the legal framework right at the outset costs far less than defending a regulatory action after the fact.
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