There may be a few issues with this business-model which need to be explored.

The Sweepstakes Business Model

In general, most states’ gambling and lottery laws do not expressly prohibit running a sweepstakes so long as (i) a person receives something of equal value for her purchase and (ii) an alternate free method of entry (AMOE) is provided. However, sometimes a state’s statutes, caselaw or attorney general opinions may add that the sponsor must be in the business of selling the merchandise offered and that the sweepstakes is being offered to promote this legitimate business.

For example, Georgia law exempts from the definition of a “lottery” sweepstakes that are “conducted as advertising and promotional undertakings in good faith solely for the purpose of advertising the goods, wares, and merchandise of such business.” Likewise, Michigan exempts from the definition of a “lottery” any “promotional activity that is clearly occasional and ancillary to the primary business of that person … that is calculated to promote a business enterprise or the sale of its products or services.” And a number of state courts have held that a sponsor can’t just sell an (essentially) worthless product, such as long-distance telephone or Internet-use cards, where it’s just a “pretextual sweepstakes.”

The “warning” from this guidance is:

• A purchasing entrant must receive full value in merchandise for her payment.
• A sponsor should have a legitimate business outside of selling things for sweepstakes.
• A sponsor should such use the sweepstakes to promote its products.
• A sponsor should not run serial sweepstakes.

AMOE

We all know that an AMOE must provide “equal dignity” to the non-paying entrant, meaning that the non-paying entrant has the same opportunity and chance of winning as a paying entrant.

It is common to use the tried and true mail-in AMOE to encourage entrants to make a purchase, so here a some suggestions to help ensure a mail-in is getting “equal dignity’:

• Give a mail-in entrant the same number of entries as a typical purchaser. For example, if most products on the website are $50 and the sponsor is giving 1 entry per $1 spent on the website, give at least 50 entries for each mail-in.
• If a sponsor is offering “bonus” or multiplied entries in certain time periods during the sweepstakes, give mail-ins the same escalated number of entries during these periods.
• If the sponsor wants to have “daily” drawings, the sponsor will have to wait until AMOEs post-marked on that same date are received.
• Keep the total number of mail-ins within reason. This may be accomplished by limiting the total number of entries that can be made either by purchase or by AMOE. But how many mail-ins is too many is like trying to figure out how many holes it takes to fill the Albert Hall. The “right” number may depend on the duration of the sweepstakes and whether at some point the effort and cost of multiple mail-ins would be deemed a form of illegal “consideration.” It may be worth noting that an IRS memo previously held that a transaction did not involve consideration where an entrant submitted approximately 15 to 20 mail-in entries to a sweepstakes. But at some point, 53ȼ a pop begins to add up.

Maybe someday – perhaps in the near future since anyone who watches a sporting event on television is encouraged to place legitimate bets on not only the game but on how many minutes Matt Rempe can stay on the ice before being sent to the penalty box and because (IMHO) states are frankly disingenuous when saying they want to protect consumers from illegal lotteries while at the same time making billions of dollars promoting their own “dollar and dream” multi-million lottery jackpots – tackling these pernickety issues will not be necessary. But for today, you gotta be careful out there.