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Legal 101: The Basic Rules of Doing Online Promotions Right

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Social media promotions can help brands achieve several marketing objectives, such as growing brand awareness, generating consumer engagement and building brand loyalty – yet, the laws governing these online promotions are complex. Understanding the basic rules of the game is important to ensure marketers meet their objectives while limiting legal risk.

Types of online promotions

Generally, there are three types of online promotions: sweepstakes, contests and lotteries. These terms are often used interchangeably, but they have very different meanings and each carries specific legal considerations. Knowing the definitions of these terms is imperative for ensuring your online promotions are legal.

  • Sweepstakes are prize giveaways in which the winning entrants are selected based on chance. Example: A random giveaway that may range from an all-expense paid vacation to an exotic location, to “free” downloads.
  • Contests are promotions in which prizes are given based on merit or skill. These efforts are usually judged based on objective criteria by judges who are qualified to evaluate entrants’ submissions. In short, there is no element of chance. Example: A promotion that awards social media users for the “best” tweet or “most-shared” video submission.
  • Lotteries are random drawings for prizes where entrants have to pay to play. As such, unlike sweepstakes, lotteries involve prizes, chance AND some sort of “consideration” (more on that below). Example: A promotion that requires purchasing a brand’s product as the only means to register/enter for a chance to win at a random drawing.

Notably, lotteries are heavily regulated, and unless specifically authorized by governmental agencies, lotteries are illegal.

Best practices for avoiding the illegal lottery trap

Lotteries involve prize, chance, and “consideration” as the only way to enter the lottery. This is where it gets a little tricky. What is consideration? The definition of consideration varies from state to state.  In some places, it means actual payment of money. Elsewhere, the definition may include anything of value given in exchange for the opportunity to participate, including: completing a lengthy questionnaire about a brand’s product which assumedly requires purchase of that product, publishing a status update, or other activities that require an entrant’s substantial investment of time and/or effort.

Asking people to interact via social in order to enter an online promotion is commonplace and often a useful way for brands to build their communities and drive engagement; however, these activities, which require the entrant’s investment of time and/or effort, cannot be the ONLY “way in” to the promotion. There must be a free alternate way to enter the promotion such as an online entry form or entry via email. (Note: SMS and text messages are construed as “consideration” in many jurisdictions, as they require carrier charges.)

Here are some practical tips to help navigate online social media sweepstakes and contests:

  • To help structure online promotional campaigns, know the basic differences between sweepstakes, contests and illegal lotteries.
  •  All sweepstakes and contests must include official rules which state the sponsor’s name/address, method of entry, start and end dates, eligibility requirements and limitations, manner of winner selection and notification, geographic area, and prizing information, among other things.  Sweepstakes and contests must also follow specific laws of all 50 states (Note: Drafting these official rules requires legal expertise).
  • A promotion based on chance winning (for example, a sweepstakes) may turn into an illegal lottery if there is “consideration” involved – either in the form of monetary payment or activities that require someone’s substantial time and/or effort. While you may require someone to post on Facebook or “check-in” on Foursquare before entering a promotion, these acts alone can be construed as pay-to-play – therefore, they cannot be the only way someone can enter or register for a promotion. Make sure promotions such as sweepstakes are truly “free” to enter.
  • Keep in mind that social media sites (Facebook, Twitter, Google+, Instagram and the like) have platform-specific guidelines on sweepstakes and contests. In addition to general laws on online promotions, compliance with these site-specific rules is also a must.

The laws concerning online promotions are evolving at a rapid pace. With the increasing use of social media promotional campaigns by brands and marketers alike, careful and thorough planning, structuring, and oversight are key to ensuring these promotions are legally compliant.

*The information provided in this article is for informational purposes only and should not be construed as legal advice on any matter.

Cover photo via csattorneys.com