We have previously stated that the appeal of promotional contests and sweepstakes is as old as it is obvious: consumers are attracted, and motivated, by the allure of winning money and other prizes. However, companies large and small have fallen victim to the legal and regulatory pitfalls that plague this space. Most recently, a large East Coast supermarket chain, The Great Atlantic & Pacific Tea Co., d/b/a A&P (“A&P”), which also owns Superfresh, Waldbaum’s, Pathmark and The Food Emporium, has come under fire by New York Attorney General Eric Schneiderman for violating the State’s sweepstakes law.
The Key Question in the Legal Analysis of Sweepstakes
The baseline question one should ask when assessing a sweepstakes contest is whether it is a game of skill or a game of chance. Games of skill are typically easier to operate because they entail fewer legal obstacles. However, most states adhere to a strict interpretation of what is considered a game of skill and will view even slight elements of chance as sufficient to designate the applicable contest as a game of chance. Even where a contest is deemed a game of skill, certain anti-gambling laws may still apply, depending on the structure of the prizes awarded and the level and degree of participation of the entity that is running the game.
Games of chance, on the other hand, are considered illegal lotteries in every state, unless one of the following three elements that comprise a lottery is removed: (1) a prize awarded to the winner; (2) chance as a factor in determining the winner; and (3) consideration that is required for entry in the game. Because removal of the prize feature undermines the appeal to consumers of a given game and the element of chance is hard to eliminate entirely, consideration is the element that is most frequently removed.
A&P’s Sweepstakes Missteps
Unfortunately for A&P, not only must consideration be removed, it must be done in a way that is clear to consumers. A&P’s sweepstakes, entitled A&P Frozen Food Month 2013 Sweepstakes, advertised that consumers who purchased more than $50 in frozen-food products were automatically entered into the sweepstakes for a chance to win $350 in gift cards. Despite the fact that consumers could enter the sweepstakes via mail without making a purchase and A&P included such language in the fine print of its sweepstakes rules, the Attorney General found that because the language could only be located in fine print online and was not posted in stores, A&P had violated the State’s sweepstakes law.
In response to the regulatory action brought against it by Attorney General Schneideman, A&P has agreed to pay $102,000 in fines and to hire a sweepstakes compliance officer. It should be noted that this is not the first time that A&P has been investigated by the Attorney General for sweepstakes violations; it was cited in both 2004 and 2005 for running similarly deceptive sweepstakes.
How to Remove the Element of Consideration from Sweepstakes
As evidenced by the A&P case, companies can avoid regulatory action and/or consumer class action litigation by clearly and conspicuously eliminating the consideration requirement from their sweepstakes. Consideration can be eliminated by offering a free, alternative means of entry that does not require a purchase or other time-consuming or costly action. The removal of consideration is the reason for the ubiquitous “No purchase necessary” language that is frequently affixed to the marketing material and included in the rules that are applicable to most sweepstakes promotions. However, in order to successfully eliminate consideration from the equation, the free, alternative entries must be afforded the same opportunity to win as entries from consumers who made purchases or otherwise paid to enter the applicable contest and must be easily accessible to consumers.
While the regulations applicable to the marketing and operation of promotional contests are complex and nuanced, with the proper planning and knowledgeable legal guidance, these games can be valuable marketing tools. If you are interested in learning more about this topic or are contemplating engaging in a promotional sweepstakes, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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