Contests and sweepstakes: avoid problems by knowing the rules.

• Position: MARKETING NEWS

WHEN PROMOTING A CONTEST involving some type of drawing or prize giveaway, marketers sometimes overlook relevant regulations pertaining to lotteries.

"Without realizing it, you may be running a contest that is not considered legal under federal and state law," says Cindy Gonya, an account executive at Pannos Winzeler Marketing, Bedford, N.H. As part of her work, Gonya has frequently researched federal and state regulations for bank clients who were planning contests or drawings.

In general, lotteries other than those run by government are illegal, says Gonya. But what constitutes a lottery? The answer is sometimes a surprise to bank clients.

Lotteries have basically three components: chance, prize and consideration. Sweepstakes or contests (typically random drawings) have two of the three components of a lottery: a game of chance and a prize. Analyzing the third component of a lottery--consideration--is where legal interpretation can get tricky.

So what is "consideration"? The term in this sense generally means a "requirement." The requirement could be asking the entrant to either part with or have something of value to participate. In many states, "consideration" can be interpreted as "any benefit to the promoter." Says Gonya: "Since this interpretation is so broad, it is a good idea to look at how you plan to structure your contest and ask some real questions before you set rules."

A true legal sweepstakes should not:

* Require major effort to participate.

* Be overly burdensome to the consumer.

* Require a purchase, membership or major action (such as filling out a LONG survey to be entered).

The sweepstakes also needs to provide "equal dignity" which means the contest should have no discrimination in the treatment of entrants. If a bank wants to have a contest and only enter account holders, this would be a consideration that...