With the prevalence of social media growing every day, many companies are taking advantage and offering sweepstakes or giveaways through social media sites as promotional tools. However, what many business owners don’t realize is that there are laws and rules that must be followed when conducting these promotions, whether through social media or otherwise.
Before using a sweepstakes or giveaway as a means of promoting your business, you need to be familiar with both: (1) the laws in the state(s) in which the promotion is taking place; and (2) the policy and/or terms of service of the social media site you intend to use, if any. This article will address point 1 only. A Part II of this Article will address the second point.
For a contest directed at people nationally, a business must be sure that the promotion complies with laws in all states. Careful consideration should be taken for national promotions, as certain states may have more stringent requirements (for example, certain states require registration for prizes of $5,000). You must exclude states which your promotions don’t comply or otherwise risk legal trouble in those states.
Here in Illinois, there are a number of laws you much take into consideration before running your promotion. While this article does not address each law, two of the primary laws to take into consideration are listed below.
As a preliminary matter, you must make sure that you are not running an illegal lottery prohibited by the Illinois Criminal Code. A “lottery” consists of 3 elements: (1) a prize, (2) a chance to win the prize, and (3) the payment of consideration for that chance, such as payment of an entry fee or purchasing a product. While often used interchangeably, there are precise differences between a “contest” and “sweepstakes”. A “contest” chooses a winner based on an objective or stated criteria, thus eliminating number 2 (the element of chance). A “sweepstakes” has winners chosen randomly but does not require an entry fee or purchase, thus eliminating number 3 (the element of consideration). So as a result, a business can charge a fee for entry in a “contest” without violating the Illinois Criminal Code but cannot charge for entry into a “sweepstakes”.
You must also take into account the Illinois Prizes and Gifts Act (the “Act”), which has broad application and applies to any written promotional offer that is: (1) made to a person in Illinois; (2) used to induce/invite a person to come to Illinois to claim a prize or conduct business in Illinois; or (3) used to induce/invite a person to contact an agent in Illinois. Failure to abide by the law can result in your liability to each affected person of the greater of $500 or twice the amount of pecuniary loss.
The Act forbids requiring payment as a condition of winning, and further prohibits a business from representing that an person has won or unconditionally will win a prize unless that person is: (1) actually given the prize; (2) notified within 15 days of winning the prize; and (3) the representation is not false, deceptive or misleading.
Further, a written promotional offer must contain nine particular disclosures, written in a clear and conspicuous manner. These are: (1) the true name and business address of the sponsor; (2) the retail value of each prize; (3) a disclosure that no purchase is necessary to enter; (4) a disclosure that purchase will not improve a person’s chances at winning; (5) a statement of the odds of winning; (6) any requirement, and the amount, of shipping or other charges that a person must pay; (7) s description of restrictions on receipt of a prize, if any; (8) a description of eligibility limitations; and (9) additions required statements if a sponsor represents that a person is a “finalist,” in “first place” or makes other similar statements.
If you indicate to a person that they have won a prize, the Act requires that, not later than 30 days after the representation, you provide that person with either: (1) the prize; (2) a voucher or other document giving the person the prize; or (3) the retail value of the prize, as stated in the written prize notice, in the form of cash, money order or certified check.
Please see Part II for a discussion regarding promotions on social media. Be aware this is a brief discussion of just a few laws and provisions that may govern promotions, and prior to running a promotion, you should be sure that the concept complies with all governing rules. If you have questions about promotions run by your business or compliance with other laws governing your company, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce Family Law, and Collaborative Divorce & Mediation.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.
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