If you are setting up a giveaway as a promotion, the business needs to make sure they do not run into any lottery and gambling laws. Generally, general and state gambling and lottery laws prohibit businesses from running lotteries.
Lottery Basics
Lotteries have three elements:
- Consideration: The requirement that a person pays money or make a purchase in exchange to participate.
- Chance: Winning depending on factors outside of the person’s control for example, a random drawing.
- Prize: Anything of value
All elements must be present to be considered a lottery. Each states have their own laws to interpret these elements.
The Giveaway
To avoid a lottery, one of these three elements must be removed. In terms of giveaways, the elements of chance and a prize are generally present. Thus, the element of consideration should be removed.
For example: A business hosts a giveaway. The contestants must apply to win a free product (the “Prize”). The winner will be chosen at random (the “Chance”).
In this example, the prize is a free product. The chance is the winner being chosen out of random, most likely through a drawing. Depending on the form of entry, a state may consider the application process a form of “consideration.”
The Element Of Consideration
Consideration is the requirement of a person paying money or making a purchase in exchange to participate in the giveaway. Some giveaways do not require any purchases so the element of consideration is not present.
In some giveaways, the business may want to require the participants to either pay for a ticket to participate or purchase a produce for a chance to win. In order to remove the element of consideration in these cases, a business can provide a free alternate method of entry.
A free alternate method of entry can include:
- Entry by mail
- Entry by online form
- Entry by email
This free alternate method of entry must provide the participant enter the same number of times as all participants. In addition, the business should also provide enough time for all free alternate methods of entry to be received before the selection of a winner (mail may take time to arrive). The business should also provide a sufficient disclosure of the free alternate method of entry.
Giveaway Disclosures
Giveaways should have a set of terms and conditions that include all required disclosures. Read more by clicking here.