Key compliance considerations

1. Avoid creating an illegal lottery: In the US, every state has its own anti-gambling regulations and judicial cases defining what constitutes illegal gambling activities and lotteries. In general, however, businesses can steer clear of creating an illegal lottery by eliminating one of the following three elements from any promotional event: (1) requiring individuals to give up consideration to participate; (2) determining the winner based on chance; or (3) awarding the winner a valuable prize. An event without element number 1 is often referred to as a “giveaway” or “sweepstakes”, and companies that want to run sweepstakes in the US must ensure that individuals do not need to give up anything of value (e.g., money or a material time investment) to participate, or provide free alternative methods of entry. An event without element number 2 is often referred to as a “contest”, and different US states have different thresholds as to how much skill is necessary for the event to fall outside the scope of an illegal lottery.
2. Prepare rules governing the event: If you are running a sweepstakes, the rules must include certain prescribed disclosures, which may include a description of prizes, their approximate retail value, and the odds of winning. If you are running a contest, the rules should be clear, precise and address all foreseeable circumstances, such as tiebreakers.
3. Follow your own rules: Your event rules generally amount to a contract with participants. You should administer the rules as fairly and objectively as possible, and avoid changing the rules during the event or else be prepared to respond to complaints.
4. Comply with privacy laws: You can generally reduce the risk of non-compliance with US privacy laws by only collecting from participants the personal information that you need to administer the event, only using the personal information for this purpose, avoiding the collection of sensitive personal information, seeking separate consent to use participants’ personal information for any purposes not directly necessary to administering the event (such as marketing purposes), and providing participants with all required privacy notices. Some US states, such as Tennessee, prohibit event organizers from requiring winners to submit to indefinite publicity releases.
5. Comply with registration and bonding requirements where applicable: Some US states require registration and bonding of any chance-based promotion open to the public with a total prize pool value exceeding certain thresholds. For example, New York requires the organizer of a chance-based promotion in which the total prize pool value exceeds USD 5,000 to register the promotion with the Secretary of State and either establish a special trust account with a bank with a balance sufficient to pay or purchase the total value of prizes offered, or furnish a bond in favor of the people of the state of New York, with sufficient sureties, in an amount equal to the total value of all prizes offered.
6. Comply with youth protection laws: If your event is open to minors, or it seems foreseeable that minors will participate in the event, you should consider what steps you need to take to address youth protection laws. For example, minors in the US generally have the right to disaffirm contracts (i.e., render a contract void at the minor’s option). As a result, event organizers often either prohibit minors from participating or seek to enter into a legally binding contract with the minor’s parent for additional certainty. Depending on the rules of the event, organizers may also need to comply with the Children’s Online Privacy and Protection Act, child-specific privacy and safety laws, and restrictions on collecting personal information from or about children under general US state privacy laws.
7. Verify a winner’s eligibility: You may wish to consider taking steps to confirm that someone is eligible to win based on your rules before declaring them a winner. You may also wish to require a prize winner to sign an affidavit of eligibility as a condition of winning the prize. An affidavit of eligibility is a document whereby the signatory legally declares that they are eligible to win a prize based on your rules. Requiring winners to complete an affidavit before they may claim a prize helps to ensure that you are not giving the prize to someone whom the law or your rules would prohibit you from giving the prize to.
8. Comply with tax laws: Where the value of a prize is USD 600 or more, you may be required to issue a Form 1099 to the IRS and send a copy to the winner, and discharge state and federal withholding obligations.
9. Address social media and platform-specific rules: If you conduct your event on social media platforms, you may be contractually required to adhere to specific terms and conditions, including to state in your event rules that the promotion is not sponsored or endorsed by the platform.
10. Comply with winner disclosure requirements: Certain US states, such as Florida, mandate that companies conducting certain sweepstakes publish or make available a list of winners, especially when the prize value exceeds a specific threshold. Including clear instructions in the official rules on how participants can request this information is not only a legal requirement in these states but also promotes transparency and trust in the promotion.
11. Avoid false or misleading advertising: All marketing and advertising related to the promotion must be truthful and not misleading. The Federal Trade Commission (FTC) and US state attorneys general scrutinize promotions that make deceptive claims about, for example, the chances of winning or the nature of the prizes.
12. Open your event to other jurisdictions only when ready: Consider excluding users in any jurisdictions unless and until you have assessed those jurisdictions’ laws and taken steps to ensure that your event complies with such laws. Your event should also not be open to individuals who are subject to US sanctions or reside in US-sanctioned territories.