Sweepstakes for Charity: Try Your Luck at Avoiding Regulators:

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Sometimes doing good isn’t easy. Say you’re a company that wants to run a sweepstakes by asking entrants for donations to charity. Sounds simple. Everyone will think you’re an A-1, socially conscious brand that isn’t even looking to make a profit. Everyone that is, except possibly state regulators.

Let’s say you're savvy enough to know that you can’t require a donation to receive an entry. No Purchase Necessary also means No Donation Necessary. But how do you provide equal dignity to the non-donating entrants when the donating entrants are receiving more entries for higher donations? Having online “free” entries along with the option to pay/donate to enter may not entice donations. Mail-in “free” entries may be sufficiently more cumbersome to encourage online donations, but one entry per outer envelope may not cut it. Needless to say, time spent thinking through the proper method of allotting rough justice is critical. (Hint: Perhaps you can have pre-set donations online (such as $25, $50, $75, $100) and give mail-in entrants 25 entries per outer envelope, while limiting total entries to 100.)

Now that you got that straightened out, did you stop to consider that you may be soliciting donations on behalf of the charity? So? So, soliciting donations for compensation (or even “other consideration”) could turn you into the highly-regulated “professional fundraiser.” Normally, you don’t want to be a “professional fundraiser” unless that is your business. Professional fundraisers have to register and bond in about 40 states and are subject to reporting, recordkeeping and disclosure requirements. And charities typically must identify all professional fundraisers they use on their state filings.

But how can you be a professional fundraiser when you’re not trying to make any money from your altruism? What if you only want to keep a portion of the donations to pay for your expenses? Getting any compensation for your solicitation efforts will likely make you a “professional fundraiser.” And don’t even think of funding the prize/prize money with donations. You now may be running an illegal raffle, since typically only charities can hold raffles.

But all is not lost. If you are solely putting up your own money to run the sweepstakes and not taking any cut of the donations, you are in a much better position. But maybe not completely out of the woods because some “professional fundraiser” statutes include not only receiving compensation ($$$) for your efforts but also the nebulous “other consideration.” Would the goodwill you engender from the public (and the charity) count as “other consideration”? It shouldn’t, but frankly, there’s not much guidance here and only the Shadow knows.

Running a sweepstakes with donations is a great idea, but, as promised, it may not be as easy as it sounds.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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