Are You Running a Competition? Or a Lottery? It Makes a Difference

You may know, inherently, that running a lottery carries with it many legal regulations that must be followed. It is gambling, and while more and more, various forms of gambling are becoming more and more accepted and legal, it still remains illegal for a business to simply hold a lottery.

Many people use the word “sweepstakes,” or “competition,” to try to get around gambling laws—they will say, “we’re not holding a lottery, it’s just a competition,” or “it’s not a lottery, because there’s some skill involved.”

So where is the line between a legal competition, and an actual, generally illegal, lottery?

The Nature of a Competition

You cannot just call something a contest, which is generally legal, and make it a contest. A contest involves some degree of evaluated competition.

So, for example, submitting a ticket in a bowl and having numbers randomly drawn out to declare winners, is not a valid competition.

However, a contest to, for example, name a new product, or to design a logo, or solve a logic problem, with the winner getting some prize, is a valid competition. There is some measure of evaluation, whether that be subjective (like evaluating art or music) or objective, and the selection of the winner is not done randomly.

Contests, to be legal, and to not be considered a lottery, must be entered for free, or at least, any charge must go to expenses in running the competition itself—in other words, the winner cannot collect the fees everybody paid to enter.

Entry Fees and Lotteries

When people are forced to pay an “entry fee,” or even forced to buy something or pay something to enter, the competition could then be considered a lottery, especially if winners are chosen at random. To avoid running afoul of lottery laws (which could have criminal law implications if those laws are violated), many companies have options where people can join the lottery for free—not ideal, since the point is to make money, but it does avoid lottery law implications.

Setting Down the Rules

The legal implications of lotteries and competitions isn’t just in keeping it legal, from a criminal law standpoint. Many people overlook the fact that the terms and conditions of the competition or lottery form a valid and binding contract between you, contestants, and any winners.

The rules should state how winners will be chosen, when they will be chosen, and conditions for winning and accepting the prizes. To avoid legal issues, you may want to exclude insiders from winning—family members or employees of your company.

If you are running a contest to benefit your company—for example, contestants are designing a logo or a phrase or a song that your business would use—you want to make sure that your terms and conditions state that you are the owner of the intellectual property that may be submitted.

Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 for help with your company’s competition, sweepstakes or lottery.

Sources:

learn.rafflecopter.com/why-run-a-giveaway/difference_between_contest_sweepstakes_lottery.html

crustlab.com/blog/sweepstakes-vs-contest-vs-lottery/#:~:text=It%20is%20considered%20a%20pure,randomly%20selected%20based%20on%20chance.