Everyone loves winning, but the legal requirements for holding online contests are complex, and costly mistakes can turn your profitable promotion into a loss.
Cole Haan received a stern warning from the Federal Trade Commission (FTC) after its recent social media contest. To enter, the company asked people to create a Pinterest board called “Wandering Sole,” then pin 5 photos using the hashtag #wanderingsoles.
They did not ask people to explain that their posts were created for a chance to win a $1,000 shopping spree. Consequently, the hundreds of Pinterest posts hashtagged #wanderingsoles were undisclosed endorsements, according to the FTC.
The agency did not fine Cole Haan, as it had not expressly stated its views on this subject before. The next time a company is careless with its contest, however, I imagine the FTC will crack down.
The following information is based on US laws and regulations, however anyone would be wise to freshen up on their country’s own legislation on this matter, as well as understanding rules and regulations set out by social networks, which are outlined briefly below.
First, understand that the terms “contest” and “sweepstakes” are not interchangeable. Each means something slightly different, legally speaking.
- Contest: Winner chosen based on merit (e.g. funniest video submitted)
- Sweepstakes: Often called a “giveaway.” Winner selected at random
- Lottery: Pay to play. (If you charge a fee for people to participate in your promotion, you’ve crossed into lottery territory.)
Lotteries Are Bad Luck for Marketers
You must avoid lotteries, which are heavily regulated and illegal unless run by an authorized agency or authorized by the state. Regulations vary from state to state. The important thing to know is that you absolutely cannot charge people anything in exchange for a chance to win.
A promotion may be considered an illegal lottery if people must give anything of value in exchange to enter. In some states, this includes something as simple as filling out a simple product survey, so don’t even do that.
To avoid turning your promotion into a lottery, keep it strictly “no purchase necessary.” You cannot require that entrants do anything except provide anything beyond basic information required to contact the winner.
Also be sure that the rules for your sweepstakes/giveaway are clearly posted before you start collecting entries, and don’t change them once they’re set. The rules for eligibility, how winners will be selected, the chances of winning, and other important information must be disclosed up front.
And state what the winner will receive, clearly and accurately. Attempts at humor through ambiguity—such as promising to give away “100 Grand” knowing that entrants will assume you’re talking about money when you really plan to give away a candy bar—will only result in complaints (possibly even a lawsuit), and bad publicity.
Use Good Judgment When Running Contests
Contests, by comparison, involve selecting a winner based on merit. These should also be “no purchase necessary.” In the alternative, you can exclude entries from people who reside in states where a purchase requirement is illegal.
From the outset, you must clearly state who is eligible to participate, how people can enter the contest, how you’ll select the winners, etc.
When to Avoid Using Promotions and When to Use “Void Where Prohibited”
Whatever type of promotion you run, state in the rules that it’s “void where prohibited” so that your promotion complies with any state regulations that ban your type of contest or sweepstakes.
In the United States, there are additional restrictions on running promotions involving insurance, tobacco, gasoline, dairy, alcohol, insurance, and financial services. These industries are heavily regulated, and the rules about promotions are so complex that the cost of compliance nearly always outweighs any potential upside for marketers.
Obtain Releases in Advance
To get the maximum return on your marketing investment for contests and giveaways, remember to get permission from entrants up front so you can use their image and likeness should they win. Once the winner’s chosen, it’s too late to add additional requirements (like publicity rights), and you don’t want to miss out on the opportunity for additional publicity and brand exposure.
Online contests virtually all involve social media, but each social network has its own requirements for promotions. I’ve drawn out some of the important or unusual rules, but you should review the full terms for any site you plan to use:
Include a rule stating that anyone found to use multiple accounts to enter will be ineligible, and also discourage repeat posts by stating that multiple entries in a single day will not be considered.
Note that Facebook recently dropped the requirement that promotions only be administered through apps. This makes running contests and sweepstakes on Facebook much easier: you can use your Timeline to run a contest or sweepstakes, provided it’s otherwise legal and complies with Facebook’s terms in other respects.
“Don’t make people pin (or repin) your contest rules.”
“Don’t run a sweepstakes where each Pin, board, like or follow represents an entry.”
“Don’t require a minimum number of pins. One is plenty.”
UPDATE (5/30/15): Google+ now allows contests and promotions, subject to certain requirements.
“YouTube video contests are prohibited on Google+. This includes contests that involve posting videos on YouTube and contests that involve posting YouTube videos on Google+.”
“Do not run Promotions that offer potential rewards in exchange for +1ing content, following a user, adding a user to one’s circles, +mentioning a user (other than the contest creator or sponsor or an affiliate of the contest creator or sponsor), having other users enter the promotion, or voting in polls.”
“Also, don’t run Promotions that encourage users to post unoriginal or repetitive content.”
And before we wrap up, let me say that many, many people are getting this wrong. Many (even most) of the “giveaways” you see at present are technically illegal lotteries.
But just because “everyone is doing it” doesn’t make it right. (Remember your parents telling you that in high school?)
Everyone loves a contest and the chance to win, but if the appropriate rules and legislation are not adhered to by your company, everyone will lose.
An earlier version of this post ran on the iStrategy website in May 2013.