Sweepstakes, giveaways, and contests, oh my! For business owners and consumers, a giveaway always sounds like a great idea. Who doesn't love free stuff? But if you're running a giveaway contest in California, you need to know where the legal lines are. While a giveaway, sweepstakes, or contest may be perfectly legal, a lottery is not.
What is a Lottery?
Lotteries are illegal in most states unless run by the individual state governments. So, if you want to run a giveaway or contest, you need to ensure that it doesn't fall into the “illegal lottery” category. A lottery generally has three elements:
- Distribution of a prize, or something of value to the winner;
- Determined by chance, such as a random drawing;
- To a person who pays consideration.
So, if you pay for a ticket or entry or you have to purchase something else to enter, your “contest” will be an illegal lottery. There are some exceptions under California law, like state-run lotteries and raffles that benefit charitable organizations or nonprofits.
What is a Contest?
The vocabulary surrounding giveaways, contests, sweepstakes, and lotteries can be confusing. But the language you use can be crucial to keeping your giveaway legal. Some important terms to remember:
- Sweepstakes: A sweepstake is a luck-based promotion with winners chosen at random.
- Contest: A contest is a skill-based promotion with winners chosen on merit.
To keep a giveaway contest legal, you need to eliminate one of the elements of a lottery. If you want to have a giveaway with the winners chosen randomly, your giveaway will probably be a sweepstake. You cannot, however, charge people for tickets or require that they buy something to enter. That's why you often see the language “no purchase necessary” on sweepstakes and contest materials.
There are many legal requirements for contests and sweepstakes in California. See Cal. Bus. & Prof. Code § 17539.1 (2015). Your official rules should include:
- The name of the promotion;
- The legal name of the organization;
- Key contact person's information;
- The start, end, and promotional period;
- Eligibility requirements;
- How to enter and entry limitations;
- How to enter without purchasing;
- Description of the prize, number, and value;
- Odds of winning each prize or an estimate;
- How and when winners will be selected and notified;
To keep your contest or sweepstakes giveaway legal, you should avoid misrepresenting any of the above. You must also preserve all of the giveaway promotional materials, entry materials, and prize-winner information for at least four years.
To ensure that your giveaway is legal and that all of your entry and promotional materials comply with California law, it's a good idea to consult an experienced attorney.