At US Sweeps, we believe that running a sweepstakes can be an incredible way to boost awareness, leads, and sales for your business.
That said, if you fail to comply with sweepstakes laws and regulations, it can have disastrous consequences for your company. Not only can you potentially damage your business’ reputation and your relationship with your customers and collaborators, but you can find yourself facing a lawsuit that costs your company thousands, if not millions, of dollars.
We’re not just talking about big, obvious mistakes that result in big, obvious lawsuits. Small mistakes can cost your company a fortune. For example, an over-the-counter pharmaceutical company hosted a sweepstakes in which it implied (mind you, not explicitly stated) that consumers had to purchase their product in order to enter. Since purchase of a product is ‘consideration’, this would be considered an illegal lottery. However, the pharmaceutical company did specify that no purchase was required for entry, but not in a way that was immediately obvious to entrants. As a result, the pharmaceutical company ended up paying $52,000 in penalties and was forced to halt ads that implied that purchase was required for entry.
So, what are some of the primary risks of running a non-legally compliant sweepstakes?
- You face financial penalties. As we saw from the example above, even a minor infraction can cost your company a substantial amount of money. This example is just a small, not immediately evident mistake. Just consider how much a larger mistake can cost your company.
- You’ll be shut down on social media. Did you know that Facebook has been targeting and shutting down pages that host illegal sweepstakes? That’s right. If your sweepstakes is deemed illegal, your page and primary vector for advertising in the digital age could be permanently banned. Facebook (and other social media platforms) typically have very strict guidelines that you must follow in order to be allowed to host a sweepstakes on the platform. We recommend reading these guidelines thoroughly prior to hosting your giveaway.
- You poison your chances with potential leads. An overwhelming majority of customers research a product online before buying. That means that if you face a public lawsuit because of your illegal sweepstakes, you could potentially be turning away business. Just one negative article can cause your business to decline significantly. And, the more negative articles, the more potential for decline.
- You ruin your relationship with existing customers. These days, customer loyalty is everything. When you betray customer loyalty through running an illegal sweepstakes, you lose customers. It’s as simple as that. When you betray customers, they give you bad reviews. In a year like 2021, when digital shopping is at an all-time high, reviews are everything. Customers don’t often consider buying from a company that has a 1 or 2 star rating…so be sure to keep your customers happy and your ratings up.
- You hinder your relationships with co-collaborators. Not only will you ruin your reputation with your customers, but you also run the risk of hurting your relationships with business partners. For example, say you are giving away a prize that you’ve obtained from a third-party name brand outside of your company. Then, you make an illegal move in your sweepstakes. That third party’s name is now affiliated with an illegal sweepstakes. Even if you’ve absolved them of responsibility in the fine print, customers may still associate their name with the lawsuit. This potentially harms their reputation as well as yours. It doesn’t take a genius to see that this could potentially impact future collaborations if the word gets out.
- You will run your business into the ground. Whether you’re facing financial consequences, social media freeze-out, loss of customer loyalty, or a sullied reputation in the industry, the aftermath of an illegal sweepstakes can mean doomsday for your business. Consider that right now, when so many businesses are struggling financially, that any infraction is magnified.
How do you avoid running into legal issues with sweepstakes? Follow these steps:
- Make sure if you categorize a giveaway as a “sweepstakes” that it is, actually, a sweepstakes. This means that the winner is randomly selected, a prize must be distributed to the winner, and there must be an accessible and obvious way for an entrant to participate without giving anything of value in order to do so.
- Make sure you always offer a free Alternative Means of Entry (AMOE) if you offer an entry that requires consideration (i.e. requiring something of value from the customer). FYI, consideration can be monetary or non-monetary, which can include things like giving personal information or photos, reviewing a survey, or giving social media follows.
- Make sure not to give more weight to entries that require consideration than AMOE entries.
- Never explicitly state or imply purchase is required to enter.
- Always make official rules clear, detailed, accessible to all entrants, and fixed. Do not leave out anything in your rules, even if it seems obvious.
- Make sure your sweepstakes entrants are restricted to those who are legally able to claim that prize. (i.e. You cannot let 12 year old Sally win a trip to Las Vegas.)
- Speaking of kids, make sure you are following the Children’s Online Privacy Protection Act (COPPA), which prohibits you from collecting minor information without parental consent. Non-compliance to COPPA can result in fines up to $3 Million.
- If you plan on publicly sharing your winner’s private data or plan on using entrant data for future marketing, be sure to expressly state this to entrants.
- Ensure that you are complying with federal anti-spam laws, CAN-SPAM, if you are planning to use email marketing in your campaign. This becomes particularly important if you believe entrants might forward the email to their contacts or your emails actively encourage them to do so.
- Make sure you are adhering to individual state guidelines. See here and here.
- Some prizes are required to be registered and bonded. Check your state regulations to see if your prize needs to undergo this process.
- Make sure you are properly reporting to the IRS. If your prize is valued over $600, you must issue an IRS 1099-Misc to your winner.
- Consult with a professional sweepstakes company to ensure the legality of your sweepstakes and avoid any potential lawsuits.
Considering running a sweepstakes? Don’t want to make these mistakes? Right now, US Sweeps is offering a free 30 minute consultation for any business that is considering running a sweepstakes in 2021. Through this consultation, you’ll receive:
- A free consultation on your sweepstakes (or contest) idea
- Recommendations for how to best execute your idea
- Assistance in understanding legal compliance laws in your area
- A detailed run-down of our services and insight into which ones might be right for your business
- A timeline for your campaign
- A follow-up email including a sweepstakes plan and proposal that our company feels confident in delivering within the aforementioned timeline