As part of marketing efforts, some businesses run contests where they give prizes to the winners. Most of these contests amount to sweepstakes, although there are different forms of contest marketing. All must avoid falling within the broad definition of gambling so as not to be illegal.
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A recent California federal court decision in favor of a company called Crow Vote highlights the considerations you should give when engaging in contest marketing. Crow Vote is a Scottsdale-based digital marketing and software solutions company focused on cause-based marketing. It ran an online competition called “Favorite Chef” where participants marketed themselves through social media to attract the most paid online votes and win the competition prize, consisting of cash and a double-page spread in Bon Appétit magazine. Participation as a contestant was free. The Favorite Chef competition resulted in a charitable donation from Crow Vote of over $1.4 million.
In early 2021, two former Favorite Chef competition participants filed a lawsuit alleging the Favorite Chef competition was illegal gambling. In general terms, “Gambling” is where the participant has to risk something of value (termed “consideration”) for a chance to win a prize. In ruling in favor of Crow Vote, the federal court concluded that the Favorite Chef competition did not constitute “illegal gambling” and that Crow Vote did not violate state or federal law.
With respect to most contest marketing, including the ubiquitous “sweepstakes”, operators remove the element of consideration by allowing free chances to win to avoid having the contest classified as gambling. The situation with Crow Vote is unique because it highlights an additional option. In the Crow Vote competition, the winner was determined by simply totaling the number of votes received. In other words, there was no chance event that decided the result, like a drawing or a ball drop. The fact that there was no element of chance is further support for the federal court’s conclusion.
Along with highlighting gambling issues, the Crow Vote decision demonstrates another critical issue. Namely, contest marketers must have written contest rules and terms and conditions. These contest standards should be clear, available, and participants should be required to acknowledge their understanding of them. Only by having these in place can contest operators avoid complaints of misrepresentation or fraud by unhappy participants.
Author: James Stipe is an AV rated AV® Preeminent 5.0 out of 5 peer review rated attorney in Martindale-Hubbell who joined Burch & Cracchiolo, P.A. in 1992. Jim practices in the areas of Commercial Litigation, Insurance Defense/Personal Injury Litigation and Indian Gaming Law.