Contests And Sweepstakes Law/Travel Law: Not Just Fun And Games

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Americans love to gamble, to beat the odds, and to win a prize of virtually any type. Something for free is almost always welcomed with few questions asked. We also love to travel and spend hours combing through travel articles, advertisements, and promotions to find that exotic vacation at a relatively favorable, if not necessarily affordable, price. Who among us will ignore, even when relegated to our junk email boxes, promotions offering the winner free Super Bowl tickets, extra frequent flyer miles, or trips to Tahiti?

Increasingly, marketers have attempted to cash in on the public’s affection for contests and sweepstakes to promote a variety of products and services by awarding clever and valuable prizes. In addition, the travel trade has not relented in the barrage of travel offers, incentives, package deals and vacation certificates. Often, sweepstakes and travel are intertwined and the sweepstakes prize is a trip to a sporting event such as the U.S. Open, the World Series, or the NCAA finals, or an exotic vacation at a castle or safari venue.

But a few words of advice are in order to the advertiser and seller: “Not so fast!” Before advertising and conducting a contest or sweepstakes, selling travel services, or offering a vacation certificate, knowledge of federal and state laws is required to ensure that the particular promotion is in compliance with all applicable laws. Failure to so comply may subject the sweepstakes sponsor and the seller of travel to fines, injunctions against operating in a particular state, or even criminal sanctions. Set forth below is a discussion of the general legal requirements for conducting a contest or sweepstakes and for selling travel-related services.

Contests and Sweepstakes

Although the terms are used interchangeably, a contest is, strictly speaking, a game of skill, such as an essay contest, a trivia game, a sales volume award, or an athletic competition, where the outcome is determined by some factor other than chance. In contrast, a sweepstakes typically involves a random drawing and the winner is selected by chance. Both contests and sweepstakes are subject to a myriad of federal laws and regulations, including postal service regulations, broadcast restrictions, trademark and copyright laws, and the Federal Deceptive Mail Prevention and Enforcement Act of 1999 concerning misleading and fraudulent sweepstakes and contest offerings. Further, the FTC’s authority to regulate unfair or deceptive trade practices extends to games of skill and chance. Finally, there are applicable laws from the 50 states, which vary considerably and can be quite onerous. Generally, however, there are four basic legal requirements for contests and sweepstakes:

1. The promotion must not be an unlawful lottery. A supposed contest is an unlawful lottery when all three of the following elements are present: (i) a prize is awarded to the winner(s), (ii) the selection of a winner(s) is random or by chance, and (iii) entrants must pay or provide consideration for entry. Almost all sweepstakes include the first two elements (prize and random drawing). The presence or absence of consideration paid by participants for entry typically determines the legality of the promotion. Certain states have determined that the requirement of any type of consideration by entrants that would be sufficient to support a contract renders the promotion unlawful. This is the minority view maintained by only a few states. The majority view is that the requirements for participation must represent true value or necessitate significant effort to constitute “consideration.” Games of skill avoid the second element (chance) and may require payment or other consideration without running afoul of state anti-lottery laws. Games that combine chance and skill (such as poker) exist in a regulatory gray area.

2. The overall promotion must be fair, non-biased and non-confusing. The sponsor must actually award the prize described, the winner cannot be preselected or chosen because of an affiliation with the sponsor, and all advertisements and representations must be accurate and not misleading in any way.

3. Certain disclosures must be made in the official rules, advertising, and promotions. While these disclosures vary by state, all material terms and conditions must typically be set forth in the “Official Sweepstakes Rules” which may be presented in print or online. The statement, “No Purchase Necessary,” should accompany each and every description of the promotion. The disclosures should also include the prize description, the approximate retail value of each prize, the number of prizes awarded, the odds of winning (typically stated as “the odds of winning depend upon the number of valid entries received”), the start and end dates for entry, what is required for entry, the method or means for entry, eligibility requirements for entry, dates for claiming and using the prize, how and when the winner will be selected and notified, where the drawing will be conducted, the identity of the sweepstakes sponsor, and all other restrictions, limitations, and requirements of the promotion.

Games of skill also require disclosure of the number of rounds involved, the criteria for winning, the qualifications of the judges, and the costs for entry into each round. Many games of skill provide that, in the event of a tie, the winner will be selected by drawing lots. Such a provision turns the promotion into a game of chance rather than skill and no consideration can then be required for entry.

When travel is awarded, the disclosures should specify whether airfare, meals, lodging, ground transportation, taxes, resort fees, etc. are included, and any excluded properties, availability restrictions, and/or black out dates. That said, the restrictions should not be so onerous as to make it overly burdensome for the winner to redeem the prize. Promoting “prizes” that would require significant expenditure by the putative winner (such as a free airline ticket conditioned upon booking a specified number of nights at a specific hotel) should be avoided if possible.

4. Before advertising and conducting contests and sweepstakes, the promotions and supporting materials must be registered under the laws of New York and Florida if the value of the prize exceeds $5,000, and in Rhode Island if the value exceeds $500. Registration of such a promotion requires payment of a fee and submission of the contest rules and advertising, and may necessitate posting a bond in the state.

Sellers Of Travel

With respect to the sale of travel services, virtually every state enforces general laws pertaining to unfair competition, false advertising, consumer protection, and fraud. In addition, certain states have enacted legislation specifically covering the sale of travel services. The general legal considerations include: truth in advertising, whether registration as a seller of travel (“SOT”) is required by the state, whether “vacation certificates,” entitling the holder to prepaid travel benefits, must be registered, mandatory disclosures, consumer refund and cancellation rights, and payment of state fees and taxes.

California, Florida, Iowa, Hawaii, Nevada, and Washington require SOT registration, which, depending upon the state, may entail payment of a fee at registration and upon renewal, posting a bond or other security, setting up a trust account, payment into a consumer protection fund and displaying the SOT registration number at the place of business and in advertisements.

California and Florida impose the extensive and onerous requirement that vacation certificates be recorded. Indeed, a profusion of paperwork must accompany the proposed certificate, including a verbatim script of each radio, television or similar advertisement, copies of all promotional materials, and original copies of testimonial letters from previous purchasers that are used in advertisements.

New York, Illinois, Massachusetts, Rhode Island and Virginia specifically regulate travel, but do not require SOT registration. Such regulations concern, among other things, consumer rights and mandatory disclosures.

Most of the state SOT statutes mandate disclosure in contracts of all monies paid, all monies due and owing, when and how remaining fees must be tendered, the particulars and conditions of travel, the identity of the SOT and all carriers and vendors, and cancellation and refund policies. Certain states require that very specific language be used to give notice of the consumers’ rights to refund and cancellation, and regulate the typeface, font size, or format to be used for such disclosures. Hawaii, for example, mandates eight-point sized Helvetica whereas Virginia’s laws call for 10 point bold type. Consumer cancellation rights vary from state to state, with some states requiring the allowance of three business days to cancel and others mandating 30 days. Requirements for providing refunds range from 10 to 45 days, and Illinois requires that refunds be made “promptly.”

There is also variation with regard to fees and taxes. All SOT and vacation certificate registrations come only with a fee to the state coffers. Louisiana simply requires payment of a license tax. A California SOT must pay a fee to the California Seller of Travel Program.

Promoters of contests and sweepstakes and sellers of travel must not, in a haste to benefit from the consumers’ affection for games of skill and chance and love of travel, give short shrift to the federal and state requirements in these areas. Violation of the applicable laws could easily cause a well-intentioned promotion to result in a monetary fine, an injunction against further operations, or even a criminal citation. Any of which could generate negative press coverage and injure the goodwill and public reputation of the business. Before saying “Congratulations to the Winner,” or “Bon Voyage,” care needs to be taken to ensure full compliance with all applicable laws.