How to Minimize the Legal risk of a Sweepstakes

How to Minimize the Legal risk of a Sweepstakes

By: STP : November 2015 : | Sales Promotions  | Sweepstakes & Contests  | Legal 

Whether you want to run a consumer sweepstakes, an Instagram photo contest or a mail-in rebate campaign, there are specific legal hurdles that all sales promotions must clear in order to stay out of trouble with FTC and state regulations. For example, failure to fulfill your mail-in rebate within the time period you specified could cost you $10,000 per incident per day. But that’s just the beginning. Take a look at this basic list of provisions that should be included within the rules for a simple consumer sweepstakes promotion.

Sweepstakes Rules Must Include:

Method of entry: You must clearly define the primary method of entry that participants need to follow in order to take part in the sweepstakes. Additionally, you may want to include an
alternate method of entry to make your sweepstakes more accessible to more people. Remember, the goal of any sweepstakes is to collect consumer data for re-marketing. The easier it is to enter, the more data you’ll collect.

Method of determining winners: The winner selection process of your sweepstakes is critical. Federal regulations state that winners must be chosen at random from a pool of all eligible sweepstakes entries. Make sure to state the random nature of your selection process within your official rules.

Sweepstakes eligibility: Any circumstances that may disqualify participants from entering and winning your sweepstakes should be detailed in the official rules. For example, many states have age restrictions that prohibit people under the age of 18 from participating. Or, you may want to exclude employees and their family members from entering.

Sweepstakes duration: Sounds like a no-brainer, but we see this mistake all the time. Setting a clear start and end date prevents consumers from submitting entries beyond the life of your sweepstakes.

Statement that no purchase is necessary: It’s against the law to require a purchase in order to enter your sweepstakes. Not only should you explicitly state this in your official
rules, you should also double check that your sweepstakes entry mechanism does not hinge on a purchase.

Entrant’s liability for taxes: The IRS treats sweepstakes prizes like income, and there is no minimum on the prize value that participants need to declare. So, if you’re giving away a $5,000 vacation, winners need to understand that they are liable for claiming this on their taxes. And, because the prize value is over $600, you also need to send your winners a 1099 tax form.

This is only the beginning.

If this sounds like a lot to consider, that’s because it is. Plus don’t forget that these rules may vary from state to state. That’s why you need an experienced partner who understands the legal implications of running a sweepstakes. Every sales promotion we run goes through a three-step process that helps minimize risk for our clients.

Step 1 – Drafting and adhering to Official Rules

Step 2 – Filing promotion registrations in states that require advanced notice

Step 3 – Awarding all prizes or rebates as advertised

Done right, sales promotions are fantastic marketing tools that can help you reach your goals. Just make sure you partner with a marketing agency that knows how to keep your
brand out of trouble.

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