How to Run a Website Contest (without going to jail)

More than a year ago, I wrote an article for the RWR (That’s the Romance Writers Report–RWA’s formal magazine) about the legality of website contests. When I was blogging for the release of my last book, I noticed that some bloggers were attaching conditions to my giveaway of my book–conditions that they did not run past me, and that I did not agree to. Some of those conditions made the giveaway illegal. All of those conditions annoyed the heck out of me.

More recently, some discussion has cropped up about whether bloggers are running illegal website contests, and so I thought it would be timely to post my RWR article. It doesn’t address the complaints of rigged giveaways–honestly, I thought it went without saying that if you say you’re going to give a prize to one randomly drawn commenter, you have to freaking give the prize to a random commenter! But the article does talk about the contours of the law. A little.

Be advised that it’s an attempt to be light-hearted, that it was written for an audience of romance writers–and that it was more tailored to address specific circumstances than it was to provide a full and complete background of the law of contests.

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You’ve seen this situation a thousand times before.  Author Jane Promoter, eager to start some online buzz about her novel, announces an exciting contest on her website:  Buy her book, send her the receipt, and you’ll be entered into a drawing to win a box of chocolates.

Jane knows that the release of a book is a make-or-break event, and she’s determined to make it in the world of publishing.  A contest is a good idea . . . or it would be, except that by virtue of her little promotional contest, featuring a $20 box of chocolates, she’s now guilty of a misdemeanor offense in California, New Mexico, Rhode Island, and a multitude of other states, punishable by up to two years in prison.

Website contests are wonderful promotional tools. They have been used as wonderful promotional tools ever since the first Australopithecus advertised her skill in making flints by painting on cave walls.  But because contests are so effective at drawing people in, they have been regulated ever since the second Australopithecus came up with a scheme that conveniently required every entrant to give him the carcass of a woolly mammoth.

Since the time of the Australopithecines, there has been a bit of modernization on the contest front.  We have access to fire, paper, printing presses that utilize movable type, and the Internet.  Sadly, law enforcement officials have access to these same things, too, and they’re tasked with the difficult job of enforcing the law.

What this article covers

If you’ve ever read the fine print for contests run by major corporations, you’ll notice that the contest rules contain exceptions and clauses stating “void where prohibited” and “cannot be redeemed in Azerbaijan” and “no cash value.”  This is because a contest, even one that is situated in one state, must abide by the rules and regulations of every state, territory, or country in which participants are solicited.  The law of contests and raffles fills entire treatises.

Not only is the law on this subject voluminous, the law changes.  Legislatures rewrite portions, especially as it applies to the internet.  There is only way you can be 100% certain that your website contest is completely kosher, and it is to hire a good lawyer, who will survey the law in existence at the time of your contest, and who will examine the specific facts of your situation.

Needless to say, if all you want to do is give away copies of your book on the Internet, the prospect of hiring a lawyer to perform hours of legal research is probably outside your budget.

This article discusses the black areas and the gray areas in contests.  It tells you the one contest you (or your RWA chapter) should absolutely never run (hint: it’s a raffle), and the contest you should probably never have (hint: you require people to purchase your book).  It provides a few useful guidelines for your website contest.

What this article can’t do is provide you with absolute certainty that you are operating within the bounds of the law.  For that, you need a lawyer.

A note about jurisdiction

When discussing website contests, you might wonder, “Why do I care about the laws of all 50 states?”
The answer to that is called, in legal terminology, long-arm jurisdiction.  As a general rule, if you rob a bank in Montana, the state of Rhode Island cannot prosecute you for it.  That’s because Rhode Island only has the power to protect against activities that happen within its boundaries.  Legally, one would say that Rhode Island lacked jurisdiction.

You might imagine that in order for a state to have jurisdiction over a person, you would need to live in the state.  But suppose you live in Montana, and you hack into a bank in Rhode Island.  Even though you were situated in Montana, the act you took had an immediate, obvious, and foreseeable effect in Rhode Island, and Rhode Island can assuredly prosecute you.  It is not always easy to tell when your activities open you up to a state’s jurisdiction; the Supreme Court has stated that a state may have jurisdiction over you based on a test that balances “the quality and nature of the activity in relation to the fair and orderly administration of the laws.”  In other words, you can be prosecuted by a state so long as you have “minimum contacts” with that state.

How does this apply to website contests?  Many states have what are known as general long-arm statutes.  Long-arm statutes are exactly what they sound like: they are statutes that reach a long arm outside of the state, and provide that people who violate the laws of the state, and have the “minimum contacts” required by law, can be subjected to the laws of the state.

How does it matter? If you hold a contest in Montana, and you forward the announcement to a chapter in Alabama, you are effectively soliciting entries from Alabama.  Now, Alabama does not just prohibit gambling; it also prohibits promotion of gambling, which includes advertising and profiting from gambling.

Alabama not only has a general long-arm statute; its laws state: “It is no defense . . . that the lottery itself is drawn or conducted outside Alabama and is not in violation of the laws of the jurisdiction in which it is drawn or conducted.”  In other words, if you run a lottery, and you solicit entries from Alabama, you might be in violation of the laws of Alabama—and they reserve the right to come after you.

The precise boundaries of personal jurisdiction, in the days of the World Wide Web, are still up for debate.  The Supreme Court is still shaping the doctrines at issue here, and states (and other countries) themselves are experimenting with enforcement of laws that apply to entities outside their territory.
If you want to become a test case for the exciting litigation in this area, you should feel free to experiment.  If you do so, you might someday have the enthralling prospect of paying for an attorney to represent you in front of the Supreme Court.  Law students everywhere will curse your name as they struggle to understand the implications of the precedent you set.

If shelling out hundreds of thousands of dollars in attorneys’ fees doesn’t sound like fun, this article is for you.

The Black Area

While the law of contests varies substantially from state to state, there is one thing that even a cursory examination of the law reveals: Raffles and lotteries are highly regulated, and mostly banned.  You should probably not run one unless you have consulted a lawyer in depth, and my best guess is you should not run one at all.

Raffles or lotteries are games where someone sells tickets for money or something else of value, in exchange for a prize that is distributed by chance.  It does not matter if that chance is a random drawing or a game of Bingo or the culmination of a vingt-et-un tournament.  If you are collecting money and offering a prize that is distributed based on chance rather than skill, you are running a raffle or a lottery. These activities are regulated because they are a form of gambling: They entice people to give up money in exchange for a chance to win.

When raffles or lotteries are conducted online by RWA members, they are for a good cause.  The beneficiary of such a contest is an RWA chapter, or an author who has fallen on hard times due to unforeseen medical bills.  You might think it is okay to hold a raffle if it is for a good cause.
In a few states, you might be right.  In the rest of them?  Not so much.

Every state has specific rules about what counts as a “good cause.” In just about every state, the only private organizations that are allowed to apply are registered nonprofits.

An individual simply cannot raise money for a friend via a raffle.  That is illegal in just about every state, almost certainly including the one you live in.

Even if you are affiliated with a registered nonprofit (for instance, RWA chapters are nonprofit organizations), the requirements for running a raffle are usually quite stringent.  For instance, California states: “An eligible organization may not conduct a raffle authorized under this section, unless it registers annually with the department of Justice.”  Furthermore, California also states that “[i]n no event shall
funds raised by raffles conducted pursuant to this section be used to fund any beneficial, charitable, or other purpose outside of California.”  New Mexico requires raffle-holders to obtain a license from the state and to pay a tax on three percent of the proceeds. It will only license an organization “which has been in existence in New Mexico continuously for a period of three years immediately.”

These are the laws of just two states, and I think if you put them together, you’ll see why online lotteries are such a conundrum.  A lottery is only legal in California if the funds raised do not benefit a purpose “outside of California.”  New Mexico only license organizations which have existed in New Mexico continuously for three years.

As far as I can tell, the only way that an RWA chapter could meet both these requirements with an Internet lottery would be if the New Mexico chapter of RWA held a lottery to benefit California romance writers.  All you need to do is add in one more state and you’ll see that it is simply impossible to run a nationwide raffle that satisfies all state laws.

This means, if you are running a raffle over the Internet, and soliciting entries from chapters throughout the United States, your raffle is very likely illegal.

There may be ways to legally run an internet raffle.  But if your organization hasn’t talked to a lawyer who is familiar with the hazardous law of lotteries, it is almost a given that your raffle is illegal.  If you or your RWA chapter are raising thousands of dollars on a raffle conducted on the Internet, you need to stop reading this article and start talking to a lawyer.

The Gray Area

You’ve probably seen a thousand commercials for contests run by corporations, in which the announcer at the end states that “no purchase is necessary.”  Most states require that contests allow all members of the public to enter, even if they have not made a purchase.

If you hold a contest in which the method of entry is to provide a receipt for a book that the person has purchased, you have entered a gray area.

You can probably stay legal by providing an alternate form of entry—one that does not require a purchase—but if you do, you must make sure that you state the alternate form of entry clearly and plainly, so that anyone who learns of your contest can find out about it, and can enter as easily via the free method as they would be able to enter if making a purchase.

If people can e-mail you a receipt from Amazon to show they purchased your book, you must allow them to e-mail you a free ticket to enter.  You almost certainly cannot allow e-mailed entries of receipts, but require that free entries be sent via US Postal mail.

Contests that require receipts for entry (even if you have an alternate method for entering) are gray areas.  They are not safe.  If you have any doubt about a website contest that requires a receipt for entry—and if you are running such a contest, you should likely entertain such doubts—you should either consult a lawyer or change your contest.

Areas that are probably white

If you do not require people to give up money for a chance or to make a purchase, your website contest is… I hesitate to use the word “legal,” but it is probably not going to be subject to scrutiny.

Here’s the unfortunate truth: If you live in Rhode Island, and you are giving away a book from your backlist, your prize is worth perhaps $6.99 (unless you look at the used price on Amazon, in which case the value is more like $0.02).  Even if your contest violated New Jersey law, how likely is it that a prosecutor from New Jersey will care about your illegal contest?

For the same reason that prosecutors would (usually) not go after a group of friends betting on the outcome of a sports event, even if that conduct constituted illegal gambling, they are unlikely to pursue your website contest.  Let us face it—New Jersey has more hardened criminals to deal with than renegade authors who willfully give books away to fans on the Internet.

I care profoundly about legal ethics and the rule of law, and so even if your $6.99 giveaway will never be subject to state scrutiny, I must say that you should never, ever break the law, not even a little.  No, you may not even jay walk across the street to buy my book (but if by chance you do, please buy two).

Unfortunately, given the frequent changes in the law, the accessibility of website contests around the world, and my inability to speak languages other than English well enough to decode worldwide laws, I can’t tell you for sure how to create a website contest that abides by all laws.

But there are a few things that I found in common.  If you want to be really, really safe, here are a few things you can do to increase your sense of security:

1. Limit participation to US Residents.  The laws of other countries are too diverse and too different from the United States, and there is simply no way to make sure that you are interacting with jurisdictions that allow your contest.

Many contests run by corporations deal with this problem by use of the following fine print:  “Void where prohibited.”  It’s a good idea, and one you might consider adopting, but it also means that you need to know where your contest is prohibited, so that if a person from Thailand is drawn as the winner to your contest, you’ll need to find out if she’s allowed to enter.
2. Provide the odds of winning.  Many states require that you clearly state the odds of winning.  If you are awarding a prize to every 20th commenter on your blog, you would need to state: “The odds of winning are 5%.”  If you are giving away one copy of your book to a blog commenter, state “The odds of winning depend upon the number of participants.”
3. State what the prize is up front. Don’t say, “It’s a very good prize” or “it’s a surprise grab bag of really cool things.”  Do say, “The prize is a copy of Proof by Seduction, my latest release” or “You can win a $25 gift certificate to your choice of Borders or Barnes and Noble.”
4. Don’t make it onerous to enter. If you state that valid entries must send you the name of the French maid employed by the Duchess of Whatsit (material that only appears in chapter 21), you could fall in to the gray area above, because you might be (indirectly) requiring a purchase of your book.  True, a person might be able to find the answer by borrowing the book from the library.  But you’ve now made it much, much easier for someone who owns the book to answer the question than someone who doesn’t, and that could run afoul of state laws requiring that non-purchasers be able to enter the contest as easily as purchasers.  Do ask readers to find the answer to your question in an excerpt provided on your site.

None of these things can guarantee that your contest entry will be legal—only a lawyer can do that.  But if you follow these guidelines, and make a good-faith effort to adhere to the laws, chances are that you will be safe.