Is Your Promotion Legal? Five Important Legal Considerations for Sweepstakes
In today’s digital-social world, brands are constantly searching for ways to engage and activate their audience. Passive content consumption isn’t enough. KPIs like lead generation, social conversation and even e-commerce sales conversion, drive brands to activate a “promotion.” But, that’s the biggest catch-all term there is, right? A promotion could be an offer, a contest, a sweepstakes, a mix of these, or none of these. Does it really matter? When it comes to legal, it really does.
There might be many layers to the campaign and different ways for consumers to engage along the digital journey, but if any portion of that journey involves randomly selecting a winner, it’s likely a sweepstakes. In this case, there are numerous regulatory, privacy and other potential liability issues that must be considered. The tD Counsel team helps the rest of the agency and our clients build out concepts and, in this case, structure sweepstakes that are in compliance with the applicable lottery laws and legal requirements.
When planning, it helps to know what to expect even before you get to the point of developing Official Rules. Here are the top five legal considerations to think about when creating a sweepstakes.
- No Purchase Necessary: First and foremost, no purchase can be required to enter or win a sweepstakes. If a purchase, payment or substantial time or effort is required to enter, you must offer at least one "free" way to enter. The free entry method should be clearly disclosed in all advertising.
- Official Rules: You must have official rules which serve as a legally binding contract between the consumer and the brand. Official rules outline the sweepstakes’ start and end dates, eligibility requirements, prizing details, taxes, winner selection dates and liability and publicity clauses.
- Advertising: Whether it be advertising on social, TV, radio, email, or direct mail, any time you mention a sweepstakes, “chance to win,” or a prize, you must use the proper legal disclosure. Those disclosures may range from full official rules to disclaimers depending on where the advertisement is placed.
- Bonding and Registration Requirements: If the total approximate retail value of all prizes is over $5,000 and open to residents of either Florida or New York, the sweepstakes will need to be registered and bonded in New York and Florida. In addition, if your sweepstakes is open to residents of Rhode Island, the total approximate retail value of all prizes awarded is over $500 and the sweepstakes is offered through a retail establishment (online or otherwise) the sweepstakes will need to be registered in Rhode Island.
- Taxes: It’s important to note that any consumer receiving a prize $600 and over must receive 1099 tax form. It is important to issue that tax form for the year the prize is awarded/used.
The world of marketing is changing faster than ever, and with it the laws and regulations that govern brand-consumer interactions. It’s important to work with a team early in the planning process, that can guide brands through the shifting, legal landscape of consumer engagement.