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INSIGHT: Did You Offer a Sweepstakes Prize? Time to Review the Official Rules

April 21, 2020, 8:01 AM

Did you launch a sweepstakes or contest prior to the coronavirus pandemic that promises an opportunity to win a trip, prize, or tickets to a concert or sporting event that is now canceled or otherwise may be difficult to attend because of travel restrictions or other social distancing concerns?

The Covid-19 pandemic is having a significant impact on the administration and fulfillment of contests and sweepstakes prizing as sponsors may find it challenging to provide winners with an advertised prize. If you are in the midst of prize fulfillment for a promotion, and you are not sure what to do, this may be a perfect time to take a closer look at any applicable provisions in your promotion’s official rules.

All promotions, including contests, sweepstakes, instant win games, should have a set of long-form official rules that govern the administration of the promotion. These official rules serve as the contract between the sponsor of the promotion and the entrant. Ideally, each entrant who enters the promotion is asked to accept the official rules (through an enforceable electronic agreement) and therefore agree to be bound by them.

The official rules typically define who can enter, when and how they can enter, how a winner will be determined, how they will be notified, what prizes are being offered, and if there are any restrictions associated with the prizes offered.

Beyond those parrticipation requirements and prize claim instructions, the official rules should also include legal disclaimers and disclosures mandated by law that will help protect the sponsor in the event of force majeure.

Don’t Change the Rules After Launch

It’s advisable that sponsors of promotions not make changes to their official rules after a promotion has launched. There are a variety of reasons why, including that it:

  1. may be a violation of applicable law to change the official rules, especially if you have already registered and bonded your promotion in the states of New York or Florida;
  2. may compromise the integrity of the promotion;
  3. may create negative publicity;
  4. may change the odds of winning for a sweepstakes or it may create an unfair advantage or disadvantage to current entrants who entered your contest prior to the change; and
  5. may increase the potential for a dispute to be brought against the sponsor.

Although making changes to official rules once a promotion has started is discouraged, sometimes a change is inevitable, especially in these uncertain times of Covid-19.

For example, if the prize you originally advertised were tickets to a now-canceled event, the official rules may already contain language that allows the sponsor to substitute the prize with another prize of equal or greater value. The language usually states that in the event of unavailability of any prize (or portion thereof), the sponsor reserves the right to substitute the prize with another prize of equal or greater value.

This language will provide a sponsor with the flexibility to award another substitute prize such as cash or tickets to an event or a trip after the pandemic is over. Even if this language is not expressly included in the official rules, certainly it would be reasonable in times of a pandemic to amend the official rules to substitute an unavailable prize with a prize of equal or greater value, especially if the substitute is seen as better from the entrant’s perspective (e.g., consumers will never turn down cash!).

Additionally, in these uncertain times, we understand that regulators are taking a unique approach to registration and bonding for sweepstakes. Sweepstakes that award total prizes greater than $5,000 are required to be registered and bonded in New York and Florida. We understand that Florida, in the short term, has agreed to waive penalties for revisions to official rules due to Covid-19. Further, Florida has indicated that it is now acceptable for sponsors to substitute a trip or sports related prize for another prize due to Covid-19.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Jesse Brody is a partner in the Advertising, Marketing and Media practice at Manatt, Phelps & Phillips LLP where he focuses on ensuring legal compliance for companies in the entertainment, technology, advertising, financial services and consumer products industries.

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