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Hey there, I’m Danielle. Welcome to Episode 51 of Simplifying Legal for Small Business Owners. Today, I’m talking about how to legally host a giveaway.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and doesn’t create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
Giveaways are fairly common in the world of online business. They were a regular occurrence in the blogging world for a long time, but I think that has waned a bit from the heyday a few years ago. But, even though they aren’t quite as ubiquitous, they are still out there, although I feel like I see more on Instagram now lately.
Outside of the blogging world, I think businesses also use giveaways as a marketing tool. And these types of giveaways are often hosted on social media too.
In this episode, I’m going to talk about what exactly a giveaway is. Because, even though that’s the term I hear most commonly, that’s not what we call it on the legal side. Then, we’ll talk about what you need to have in place to protect your business if you are hosting a giveaway, along with some other special considerations, like how to handle certain social media platforms.
What is a Giveaway?
First, let’s talk about what it means to run a giveaway for your business. Since “giveaway” isn’t a legal term, you have to determine what exactly you mean by the term. This means you need to figure out if you are running a sweepstakes, contest, or lottery. Here’s what those terms mean.
- In a Sweepstakes, a winner is selected randomly from a pool of entries. No purchase is necessary for a chance to win. For example, you ask the entrant to leave a comment for a chance to win.
- In a Contest, a winner is selected based on whether their entry is the best in a pool based on the set criteria. Example: You determine who created the best entry for a photo contest and that person wins a prize based on their submission.
- In a Lottery, prizes are awarded to a pool of entrants who paid a fee to enter. These are typically heavily regulated and not territory that you even want to consider. There are sometimes exceptions for things like non-profits, but if you are looking at anything that is similar to a lottery, please contact your lawyer. To avoid being considered a lottery, you need to ensure that people aren’t paying for a chance to win.
I think that most companies intend to structure their giveaways as sweepstakes, but there are certainly times when skill is involved and it’s then a contest. In the legal world, we often refer to contests and sweepstakes as promotions. So I’ll refer to giveaways and promotions, along with contests and sweepstakes in this episode.
Federal and State Laws Regarding Contests and Sweepstakes
Now that I’ve defined those terms, let’s look at the different laws that may apply. This can be a complicated area, so I am going to do my best to keep this simple.
There isn’t just one federal law regarding contests and sweepstakes in the United States. So you need to be aware of some important rules on both the state and federal levels that can impact promotions. If you’re looking to do an international giveaway, make sure you check the laws for the countries where the promotion would be. Because there are so many potential laws that could come into play, I’m not looking at the international aspect in this episode.
Disclosure of Promotions
While there isn’t a specific federal law governing all aspects of promotions, you do need to be aware of FTC rules. I’ve talked a lot about the FTC in recent episodes, but as a quick refresher, the Federal Trade Commission protects consumers from unfair or deceptive practices in advertising.
If your business asks people to take certain actions, such as posting about a product in exchange for an entry, it’s a material connection and disclosure would be required. This is similar to the content I discussed in Episode 44 and Episode 45 if you’d like more background.
Whenever there is a material connection, there needs to be clear and conspicuous disclosure that the person posting is receiving an entry in exchange for the post. Typically, this is done with a hashtag that says #contest or #sweepstakes. Then, it’s up to the company to ensure that the entries that don’t have the appropriate disclosure are not qualified to win. This is something that should appear in your official rules, which I’ll be discussing shortly.
Contests and Sweepstakes State Laws
Many states have similar laws regarding sweepstakes and contests. Generally, to be compliant with state laws, you need to ensure that people aren’t required to make a purchase or payment in a promotion where the winners are selected by chance. Because that would be the definition of a lottery.
If you include a method of entry that involves making a purchase, you may also need to ensure that there is also a free method available. If you do this, make sure that you’re prominently disclosing that there’s a free option and the entries aren’t just purchase-based. Also, you can’t more heavily weigh an entry that came from someone who made a purchase.
There are a couple of states that do have some additional requirements. In Florida and New York, if there’s a pool of prizes valued at more than $5,000, you need to register and post a bond. In Rhode Island, promotions offered by retail establishments that have a prize pool of more than $500 must register with the Secretary of State, but there isn’t a bond required.
Other Sweepstakes Laws
Other laws may also be applicable, depending upon your industry or the audience. For example, be cautious of any contest marketing to children under the age of 13. There may also be laws related to the marketing of promotions for alcohol, or other things that are more highly regulated.
If you are asking entrants to create content as part of their entry, like a video or photo, there may also be laws that apply, like those related to intellectual property and communications decency.
As always, if you aren’t sure how you may be impacted by sweepstakes laws, please talk to an attorney before launching the promotion.
Official Rules of Promotions
Although the laws differ, most states require that a business disclose the material terms of the promotion. If you are a business that would be using direct mail for a promotion, there may also be additional state laws that would apply. I typically refer to these disclosures as the official rules and regulations that govern the particular promotion.
Having official rules in place also protects you from liability, eliminates questions from entrants, and sets expectations.
Generally, your official rules will disclose:
- Who is eligible to participate;
- How to participate or what they need to do to enter;
- How the winners will be selected; and
- The description of the prizes available.
Additionally, remember that the rules are the official contract between your business and the entrants, so it should also have content that protects your business. Now let’s take a look at the different things to include in your official rules.
There are some differences in the rules for contests and sweepstakes, so let’s look at those. For sweepstakes rules, you want to include:
- Who can enter: Who is eligible to submit entries? Are there any age or geographic restrictions? Is there anyone else who isn’t eligible to enter, like employees?
- When can they enter: Get specific about the timing for submission of entries. Give dates, times, and time zones. Also, disclose when winners will be selected. For example, you may say, entries may be submitted until December 31, 2022, at 11:59 pm Pacific Standard Time.
- How to enter: Include clear instructions for how to enter. Remember, if you have a method of entry that requires purchase, you also need to have a free option to qualify as a sweepstakes. If a certain hashtag is required to qualify as a valid entry, you can include it. And remember the FTC’s disclosure rules so you should ask them to use #contest or #sweepstakes too.
- What can they win: Give a detailed description of the prizes, which should include an approximate retail value of the prize.
- What are the odds of winning: State the odds of winning. In an instant win promotion, this will be a fixed number, like 1:200 will win. If it is a random drawing, you can state that the chances of winning will depend on the number of entries received.
If you’re running a contest, your official rules should have everything I just described for a sweepstakes, and a couple of additional items:
- First, it should also include Entry instructions: what do they need to do to enter the contest. Since it’s skill-based, this will usually be a different process than doing something random like a sweepstakes. Get specific about formats and how to submit the entries. For example, if you are doing videos, how long can the video be?
- Judging criteria: how will the entries be judged? This should be clear and objective. You may also want to include tie-breaker criteria.
Protecting Your Business in the Official Rules
As I mentioned, the official rules are also your contract with the entrants, so you should include some provisions that will serve to protect your business.
Right to Cancel or Modify
You can reserve the right to cancel, suspend, or modify a promotion.
Right to Substitute Prizes
You can reserve the right to substitute a prize with another prize of equal or greater value if the advertised prize isn’t available.
If you’re running a contest, you’ll likely need to look at intellectual property in two ways.
First, if you’re accepting entries, you need to be clear regarding the rules about using someone else’s intellectual property. For example, if you’re doing videos, make sure that they aren’t using content that they don’t have copyright rights to.
Next, if you want some sort of rights to the entries, then your official rules should specify what happens to the entries. Do you have a right to use the content in some way? Do the entrants transfer ownership to you? Be specific.
In some contests, you may want to be able to promote the winner. For example, if the grand prize winner gets to go to a particular event and you want to post images from the event, you can include a likeness release giving you permission to do so.
Depending on the value of your prize, you may want to state that certain tax documents may be required to claim the prize and that they are going to be responsible for payment of all taxes. You may want to talk to your accountant if you want more information on issuing 1099s for prize recipients.
Release of Claims
A release is generally a statement that the entrant agrees to hold you harmless from any claims associated with the promotion.
Limitations of Liability
A limitation of liability is often the all-caps legalese-filled section that states that your business can’t be held liable for certain things, like errors, technical problems, or other things that keep the promotion from running as planned.
State which law will govern your rules.
This is typically required if you print game pieces for a promotion and it states what you will do if there is a printing error. For example, if you had a bunch of the ultimate grand prize game pieces printed in error, when there should have only been one, you could state that only one winner would be drawn at random from those with the game piece. In this case, you can also ensure that you’ve protected yourself in the description of the prize by stating that only a certain number will be awarded.
Before I wrap up, I want to cover handling different platform requirements if you want to host giveaways on their social media channels. When you’re using a third-party platform, you need to verify their rules for running contests or sweepstakes.
Many platforms have rules for running promotions. I’m going to link to some of the most common ones in the show notes. I’m going to walk through the Instagram rules as an example; however, since both Facebook and Instagram are owned by Meta, the Facebook rules are also similar.
If you use the Instagram platform to administer a giveaway, assuming it is a sweepstakes for this example, you agree:
- That you are responsible for the lawful operation of the promotion, which includes:
- The official rules;
- Offer terms and eligibility requirements, like age and residency restrictions; and,
- Compliance with all applicable rules and regulations governing the promotion and all prizes offered.
- You agree that you won’t inaccurately tag content or encourage users to inaccurately tag content.
- You must include:
- A complete release of Instagram by each participant or entrant and
- An acknowledgment that the promotion isn’t sponsored, endorsed, administered by, or associated with Instagram.
They also state that they will not offer assistance or advice regarding the administration of the promotion and state that by doing so, it’s at your own risk.
So, if you want to run an Instagram giveaway, you need to make sure that you have all of the compliance pieces that I mentioned before when it comes to the official rules and regulations.
Then, you will typically need a statement that says something like this: this promotion is not associated with, sponsored, endorsed, or administered by Instagram. By entering, you agree to release Instagram from any responsibility related to the promotion.
Then, you would conduct business as usual.
This wraps up my tips on how to legally host a giveaway. Now let’s talk about today’s action steps.
- If you’re planning an upcoming giveaway, determine how it would be classified. Make sure it’s compliant as a sweepstakes or contest. If you aren’t sure, this is, of course, when I recommend reaching out to your lawyer.
- Next, make sure you have official rules that cover everything you need for your promotion. And, if you are hosting it on a platform, make sure you review the platform’s rules and make any appropriate disclosures.
- Last, this can be a complicated area of law. If you have questions about running promotions like contests or sweepstakes, please contact your lawyer. If you don’t have a lawyer and you’d like to see if we’re a good fit to work together, I’ve helped many businesses with establishing compliant sweepstakes and contest rules. You can learn more about my firm at LissLegal.com.
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