Have you ever thought about the fact that Willy Wonka’s “Golden Ticket” prize promotion was more likely to land him with a heavy fine (or, possibly, in jail) than it was to land Charlie in the Chocolate Factory? As detailed in this story from imore.com, Steve Jobs learned about the legal barriers to just such a scheme in time to avoid the cost of engaging in it to promote sale of the iMac with his own Wonkatistic fantasy tour of Apple for the millionth iMac purchaser.
Bottom line: Use prize promotions at your own risk. It’s a gamble.
See, in America, EVERYTHING (just about) is regulated, including seemingly innocuous activities like raffles and prize promotions. So, before starting such a promotion, it may be wise to determine which laws apply to you, then review the relevant laws and consider whether your proposal is likely to cost you more in legal fees to defend you in court than it gains you in sales. Better yet, contact an experienced attorney familiar with B2C law who can help you determine which laws to apply to your facts and provide you with actual legal advice (unlike this post, which is purely for informational purposes – see disclaimer below).
There are many laws that may apply to your proposal, depending upon where and how you intend to conduct the prize promotion, including federal mail laws and various state laws.
Mail Crimes – Not Just for Ponzi Schemes
Under a federal law borne out of early-20th-Century-America’s anti-gambling sentiment, it’s a CRIME to transport or carry in interstate commerce or use the U.S. Mail to send materials that concern any lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance. Here, lottery means any scheme or promotion which, on paying some consideration, offers a prize dependent in whole or in part on chance (including schemes that are lawful under any state’s law).
Sidebar: Consideration is a legal term that refers to something of value being promised or given in exchange for something else. In contracts, both parties must give some consideration – often, that means one party is giving or promising to give money and the other is giving something else up, such as time in an employment contract, goods in a sales agreement, or the use of money in a loan agreement.
The “paying a consideration” element of the federal law is one reason you see “no purchase necessary to win” as a disclaimer on games of chance (state laws are another reason – see below). But, this is just a starting point and I’m NOT saying that the “no purchase necessary” disclaimer is sufficient to make a prize promotion legal – there are other types of “consideration” that could implicate the law and, as with most things in law, the answer to whether you can do it legally will depend upon all of the facts and circumstances, which differ on a case-by-case basis.
There are also state laws to consider . . . .
State Laws Governing Prize Promotions
Most states have laws regulating gambling and games of chance; many have laws specifically governing commercial prize promotions. Because reviewing 50 states’ laws is beyond the scope of this post, I’ll take just one state – Wisconsin – as an example. Why Wisconsin? Because it’s where I live, it’s where a lot of my clients do business, and, as we say at my alma mater, when you say Wis-con-sin, you’ve said it all.
Unless you are a fellow Wisconsinite, the laws in your state very likely differ, but this discussion may help you identify the types of laws to look for.
Wisconsin has laws regulating everything from guessing contests to selling with pretense of prize, referral fees, and prize promotions – most of which fall under consumer protection and fair trade practices regulations; the gambling prohibition falls under Wisconsin’s criminal code. While I could go into tribal compacts, casinos, and state lotteries here, my purposes is not to exhaust the subject of gaming and lotteries or even to talk about whether such laws are a good thing, but to provide food for thought to small business owners who may be considering certain types of promotions for their businesses. What you do with this thought food is up to you; your situation-specific facts will affect the ultimate analysis. I’m just bringing it to the table.
In-Pack Prize Promotions: No Purchase Necessary
If Willy Wonka had allowed people an opportunity to receive Golden Tickets without purchasing a Wonka Bar, his scheme may have been okay (at least in Wisconsin). Wisconsin law [sec. 100.16] prohibits selling with a pretense of a potential prize (which would make the Golden Ticket scheme illegal), but it contains exceptions for in-pack prize promotions where no purchase is necessary to get a chance to win (as long as several other conditions set forth in the statute are also met).
Raffles – For Non-Profits Only
In this suitably tongue-in-cheek treatment of a proposed change to Wisconsin law to carve certain rubber duck races out of the general prohibition on gaming (under an elaborate regulatory scheme and subject to a licensing requirement), the bloggers at Lowering the Bar provide a 30,000 foot view of Wisconsin law governing gaming and raffles. A closer view at Wisconsin’s “Bingo and Raffle Control” statute shows that, as a general matter, non-profits are the only entities permitted to conduct raffles in Wisconsin – and then only with a license and subject to many qualifications. “Raffle” is definedas “a game of chance in which tickets or calendars are sold and a drawing for prizes is held.”
If you wish to promote your business with some type of prize, be sure that promotion complies with applicable state and federal laws because being brought up on charges of illegal gaming is likely not the type of exposure you wanted for your business.
Covering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.