Tragic (Legal) Mistake 7: Social Media Promotion Risks
Will Your Social Media Promotion Land You in Hot Water with the FTC, the U.S. Department of Justice, and State Attorney General?
And All You Wanted To Do Was Have A Simple Giveaway Contest on Facebook…
By Chip Cooper, Esq.
You wanted to have a giveaway contest on Facebook, and you get hit with penalties by the Federal Trade Commission, U.S. Department of Justice and/or a state attorney general. You didn’t even know that a social media promotion could run afoul of the law. What could you have done?
You should have learned the laws you need to abide to stay out of trouble in the first place.
What Social Media Promotions Do for Your Business
Social media promotions take many forms: giveaways, sweepstakes and contests. Social media promotions are used by businesses big and small. They achieve a number of objectives for a surprisingly low cost.
What can social media promotions do for you when done right?
- Your social influence grows because other people talk about your site and learn about it through freebie and giveaway sites. In short, your influence grows because everyone likes free.
- Your organic search rankings grow. This is because people share social media promotion links on Facebook with their friends, talk about it on blogs and link it on freebie sites.
- Give it and they will come. Social media promotions increase traffic to the website for the duration of the promotion.
- Brand awareness grows. People who’ve never heard of you before will hear about the contest and learn about you.
- Qualified prospects will be attracted to your site, once they learn about it. Only serious businesses hold promotions, while fly by night operations can throw up a web page or create a landing page.
- Conversions will increase. Amid the discussion of the promotion will be more chatter about the brand, and those who were thinking about your business will be more likely to finally sign up.
Now we know that social media promotions are excellent marketing tools. What’s the problem? The problem is that social media giveaways have been abused in the past by unscrupulous marketers, leading to government oversight today.
It used to be common for someone to have to buy the product or service to enter the giveaway. One of the common problems was that the person who bought the item to enter the giveaway only received a piece of junk. This is what led to the regulation of giveaways.
Is Giving Something Away Really Regulated?
In short, yes. Giveaways fall under a number of regulations, whether you are sponsoring the giveaway or hosting it. Even a simple giveaway on Facebook is subject to a number of state and federal laws.
All giveaways or promotions fall into three different categories:
- A sweepstakes is when a prize or prizes is given away by sheer chance. The selection of the winner is random.
- Contests have winners selected by skill or merit. They may be selected by qualified judges or company management. Selection is made based on objective criteria that were outlined in the contest information.
- Lotteries are random drawings for prizes. The difference between sweepstakes and lotteries is that you must pay to play the lottery. Lotteries have a prize selected by chance, though there may be consideration as well.Lotteries are the hardest to hold, because they are regulated by many states since they are considered gambling. The legal costs of holding a lottery put it out of the reach of most small businesses. The legal liability prevents many other businesses from holding one, and that’s aside from the states where only the state can hold a lottery.
How Do You Avoid Lottery Regulation?
The primary concern you need to have when setting up a social media promotion is avoiding the classification of a lottery. Your event should either be a contest or a sweepstakes. To avoid this classification, you must fail to meet at least one of the criteria of a lottery: chance, prize and consideration.
The giveaway requires a prize of some sort or it won’t garner publicity. Therefore, your promotion can’t avoid lottery regulation by skipping out on the prize. If you could somehow give contestants something without value, then you might avoid the lottery designation. However, it is hard to offer someone something like company swag or a free tour if they show up and generate a lot of interest.
You could avoid classification as a lottery if you eliminate the element of chance. For example, a contest won’t get classified as a lottery. Or you could select the winners based on voting. If the winners are determined by a vote of visitors to the website, you aren’t a lottery.
The simplest way to avoid the lottery regulation is to stick to the sweepstakes. Give away something for free, with the expectation that the giveaway generate enough publicity and sales to offset its cost.
The challenge then becomes holding a sweepstakes without being classified as a lottery. For example, the promotion is considered a lottery if someone had to give something of value to enter it. Many sweepstakes specifically put on their homepage that purchase is not necessary to enter the contest to avoid being classified as a lottery. Requiring someone to like your Facebook page or Tweet your link could turn the sweepstakes into a lottery because the social promotion is something of value. Stating that someone must post a comment, share your URL on Google+, refer a friend or fill out a survey could certainly be considered giving something of value. After all, we pay social media promoters and survey takers to do these things.
How then do you avoid being classified as a lottery when you are holding a sweepstakes?
The easiest solution is giving someone a totally free way to enter the sweepstakes, such as letting them enter the sweepstakes whether or not they like your Facebook page.
A second option is letting them enter the contest via an online entry form or mail-in form. This reduces the social media presence of the contest, but it avoids falling afoul of the law. This is why many websites will post in small print on the bottom of the page how someone can enter the contest by sending a letter with their name and contact information to the company holding the contest.
If you use an alternate form of entry, be careful to give those who enter the contest this way equal prominence and chances of winning.
All fifty states require sweepstakes have laws regarding official rules for sweepstakes. You must be careful with the official rules.
- You are not allowed to change the rules once the sweepstakes have started.
- Official rules must be posted on your website and be known to anyone who enters the contest.
- You must issue prizes in accordance with your sweepstakes rules.
- The alternative form of entry must have an equal chance of winning as someone who Tweeted your URL or filled out a landing page.
- Your “no purchase necessary” information on the webpage must be conspicuous and clear.
- You must state that the sweepstakes is void where prohibited, even if it may not be prohibited anywhere.
- The contest must have beginning and ending dates. Those dates must be clear to those entering the contest.
- You must describe the eligibility requirements such as the geographical area to which the sweepstakes is limited, age restrictions and any other requirements.
- All prizes must be described. What are the prizes? How many are being given away? How much is each prize worth? What are the odds of winning each prize?
- State how prizes will be awarded and when.
- Describe how winners will be notified.
- You must state on the website or entry form where and when a list of winners can be obtained. Whether a curious entrant or a state clerk wants the list of winners, you must actually have that list of winners and be able to provide it when asked.
- Contact information for the sponsor of the contest is mandatory. This includes the name and contact information like the address and phone number of the sponsor, not just an email address that can be turned off.
How Does the FTC Get Involved in Sweepstakes?
The Federal Trade Commission and state attorney generals can get involved when the official rules are made public. Their primary concern is that the official rules are presented fairly, all mandatory information is present, fine print doesn’t cause the sweepstakes to violate the law or have a back door entry.
How can you pass muster with the FTC?
- Include an abbreviated version (or the full rules) next to the entry form. Then the FTC knows that everyone signing up had access to the rules.
- Place a click through mechanism that requires someone to bypass a page with the official rules to sign up or require them to check in a box that says they have read the official rules. If the entrant then states they didn’t read the rules, the sponsor or host has their check in the box that indicates that they did read it. This is legal cover for the sweepstakes.
Don’t Leave Your Contest to Chance
A contest can be classified as a lottery if there is an element of chance. You must remove the element of chance to avoid being classified as a lottery. However, contests are regulated just like sweepstakes.
Several states do not allow purchase requirements even for contests. As of this writing, Colorado, Maryland, North Dakota, Nebraska and Vermont don’t allow you to require purchase of a product to enter a contest. This is where the “void where prohibited” comes in. If the contest requires purchase, you might avoid a call by the Maryland attorney general by saying the contest is void in those states. However, you should have the contest reviewed by an attorney to avoid problems.
Official rules for contests must include:
- The cost to enter any and all levels of the contest, if there is a cost
- How to participate in the contest, including all levels of the contest
- A description and the identity of the judges
- The criteria for judging and the weight of each criteria
- The method of judging
- Descriptions of the prizes, the number of prizes and their approximate value
- How and when prizes are awarded and how winners will be notified
- The geographic area of the contest
- When the contest begins and ends
- How to obtain a list of the winners and when it will be available
- Complete name and contact information for the contest’s sponsor
How do you avoid being classified as an illegal lottery?
- Winners are only chosen by the skill criteria. Stick to the judgment criteria when making the decision, and don’t let judges randomly pick their favorite.
- If there is a tie for a winner, either use an additional contest to break the tie or give the prizes equally. No drawing names of the best four competitors from a hat to break a tie.
Social media sponsorship is an excellent way to promote your business. However, to avoid serious legal risks, you must take care so that your social media promotion is not classified as an illegal lottery. You cannot avoid all problems by holding sweepstakes and contests, which are restricted or prohibited in some states. And if in doubt, contact an attorney.
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Disclaimer: This article is provided for informational purposes only. It’s not legal advice, and no attorney-client relationship is created. Neither the author nor FTC Guardian, Inc. is endorsed by the Federal Trade Commission.