What is one of the best ways to grow your business? Give stuff away! It doesn’t matter if you have a small enterprise or a multinational company, a giveaway will drive traffic to your website, build brand awareness, and increase the potential for new readers or customers.
More than half of all U.S. adults will enter at least one sweepstakes this year. What an amazing opportunity for your company!
All of this sounds exciting, right? But do you understand how the law could impact your activities? Both the federal and state governments have regulations you probably didn’t know about.
Types of Giveaways or Promotions
While they often go under various names, giveaways or promotions legally fall into one of three categories:
- Sweepstakes – The winners are chosen by luck of the draw. Prizes can be anything under the sun.
- Contests – The winner is chosen based on merit. The contest will have some sort of criteria – best photo, most votes, etc.
- Lottery – Entrants have to provide something (often money) in exchange for a chance to win.
Lotteries are highly regulated. With lots of rules and regulations surrounding these types of giveaways, you shouldn’t run one without consulting a lawyer or other professional.
When determining if a lottery is legal or illegal, authorities consider three things: prize, chance, and consideration. Consideration tends to be the sticking point with the law. Consideration related to the fact that something of value must be given by the entrants.
Most people think the word “value” only relates to money. However, this is not the case. Each state has different definitions of consideration. Some legal authorities will classify “liking” or “following” as consideration since there is no free way to enter. Therefore, you always need to have a “free” way to enter.
While few people actually take the time to read them, you must have official rules. Otherwise, you are setting yourself up for the potential of serious legal difficulties.
Your official rules will act as guidelines for what will transpire during the giveaway. These rules will help avoid problems if there is a challenge by an entrant who doesn’t win.
Make sure your official rules are easy to find and include the following:
- “No purchase necessary”
- The alternative method of free participation
- Geographic area of the sweepstakes and who is eligible to participate
- Opening date and scheduled termination date
- Complete name and address of the sponsor and promoter of the contest
- Number of prizes with an accurate description, retail value, and odds of winning
- Method for selecting winners
- Where and when a list of winners can be obtained
Other Things to Consider
Most giveaway prizes have minimal value – admission to a conference, a weekend hotel stay, an eBook. However, if you offer something more expensive, you’ll have additional technicalities to consider. If the value of your prize exceeds $600, you’ll need to issue a Form 1099 for tax purposes. Therefore, you’ll need to collect the social security number of entrants in addition to their name and address.
Who Regulates Giveaways?
The Federal Trade Commission has jurisdiction over monitoring sweepstakes promotion. However, the U.S. Department of Justice will have ultimate authority, even if FTC is not involved.
Most states have strict regulations regarding giveaways that involve alcohol, guns or tobacco. As such, some giveaway restrictions apply to entrants from certain states.
When everything is said and done, giveaways can be a valuable marketing tool. However, they also have the potential to be a legal nightmare. Before embarking on a promotion, ask for help. Seek out a lawyer or a third-party giveaway platform.
Guest author Douglas Green works for a Clearwater attorney. While they usually deal with divorce and probate law, the Smitherman law firm also helps clients with legal aspects of their business too.