In most states, lotteries are illegal, unless run by the state itself. Yet organizations frequently raise money or boost attendance by using raffles, sweepstakes, or other such contests. Here's how they can do that.
States generally prohibit games or contests that contain three elements: consideration, chance, and a prize. To be illegal, the game or contest must contain all three elements. Eliminate any one, and the activity usually is acceptable. That's really all there is to it. The key is to conduct a raffle or sweepstakes that doesn't meet the definition of an illegal lottery.
Have you ever wondered why so may contests include the statement “no purchase necessary?” By eliminating the purchase requirement to participate, the contest organizer is eliminating the element of consideration. If there is no consideration, the game or contest is not illegal.
Similarly, we frequently see contests with rules stating that one doesn't have to be present to win. If being “present” required the payment of admission, it likely would be deemed to be “consideration.” By eliminating the attendance requirement, there is no consideration.
Following the same line of thought, organizers often eliminate the “chance” element. That is why many contests are selected on the basis of the “best” entry (which requires skill) instead of chance (which is based simply on the luck of the draw).
Of course, organizers also could eliminate the prize, but that removes the incentive to participate and defeats the purpose of conducting a raffle or sweepstakes in the first place.
There are almost always exceptions to every law, and that holds true here.
Some states (and even local jurisdictions, such as counties or cities) have special statutes that let certain not-for-profit organizations — typically those devoted solely to charitable or educational purposes — conduct lotteries. Those special rules for not-for-profits generally have registration, licensing, reporting, and other requirements, all of which can be quite complex. And it is never an acceptable excuse to conduct a lottery or other potentially illegal contest just because the money is going for a good cause. Good intentions in the area of games and contests will not go unpunished.
Whenever an organization is contemplating conducting a raffle or sweepstakes, it is a good idea to check the state law where the “game” will be held, and probably to consult with legal counsel as well.
It also is important to establish — and publish in advance — detailed and clearly understandable rules for the event. For example, the rules should describe who is eligible and not eligible to participate (based on age; geography; attendance/participation status; member, customer, employee status, and so forth). The rules should also state the number of entries that can be submitted, to whom entries should be sent, a strict deadline for the submission of entries, how the “winners” will be selected, and, usually, the odds of winning.
Raffle and sweepstakes organizers should carefully determine the purpose for the event and then establish rules that help assure that the purpose is achieved.
And, of course, raffles and sweepstakes must be legitimate. If there is any fraud, misrepresentation, or “rigging” of the result, organizers will find themselves in violation of both state law and of rules established by the Federal Trade Commission.
If all the rules are followed, raffles and sweepstakes can be used to raise funds and/or encourage attendance, without having to take an unnecessary chance.
Jed R. Mandel is a partner in the Chicago-based law firm of Neal, Gerber & Eisenberg, where he heads the trade and professional association practice.