March 21, 2019
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So, you have decided that apromotional tie-in would be a good marketing tool for your business. In order tooffer the promotional tie-in, you have decided to run a contest (or gamepromotion) in which the winner receives the promotional tie-in as a prize. Theprize you offer can be almost anything, from free services to a cash prize or atrip to Hawaii. The first step in planning the contest is to determine whatvariety of game promotion makes the most sense to your audience in yourparticular line of business. Game promotions traditionally fall into one of twocategories, “games of chance” and “games of skill.”

“Games of skill,” ifcrafted correctly, are legal game promotions in every state. Their winner(s) areselected based upon the skill of the contestant (for example, an essay writingcontest). In contrast, “games of chance” are illegal lotteries in theUnited States unless one of the three traditional lottery elements — prize,chance and consideration — is removed. Under existing regulation, onlygovernment-sponsored lotteries may include all three lottery elements.

Chance. Of the threeelements, determining whether chance is present is the most subjective. Thereare primarily two tests for evaluating whether the element of chance is presentin a game promotion. Please note that if the element of chance is established,consideration, as discussed below, must not be present or the game promotionwill be deemed an illegal lottery.

The majority of states including,but not limited to, New York, Ohio, Tennessee and South Carolina, employ the”dominant factor” test in evaluating whether the element of chance ispresent. A minority of the states, such as New Jersey, employs the”material factor” test in this analysis. When assessing games thatutilize elements of both skill and chance, use of the dominant factor test willresult in a decision that a contest is a “game of chance” where chanceis a more significant factor than the skill of the player in determining thewinner(s) of the contest. By comparison, the material factor test will find thata “game of chance” exists where chance was a material, but notnecessarily dominant, factor in determining the final contest result.

Some states, although in theminority, take neither approach. Arizona, for example, evaluates game promotionsemploying the state’s gambling statutes. Within this legal framework, Arizonaregulators refer to the definitions of “bet” and “wager” asused in their bookmaking statute in making the skill chance determination.Arizona has determined that the payment of an entrance fee is not an illegal betor wager in an otherwise legal competition where prizes are awarded by anonparticipant and where the entrance fees do not alone comprise the total prizepurse. Regardless of which approach is employed, the skill/chance exercise is acritical one to the game promoter. Where a contest can be shown to be a”game of skill,” rather than a “game of chance,” the sponsoris free to require payment of a fee, or purchase of a product or service, as acondition to entry.

Consideration. Caution: Inthe eyes of regulators, consideration can take many forms. Althoughconsideration, in the pure sense of the word, is cash or some other variety oflegal tender, requiring the purchase or even use of a particular product orservice in order to enter a contest will often trigger the element ofconsideration. In at least one state, a mere 37-cent stamp on an entry envelopehas been ruled sufficient value to invoke the consideration element. Where theother two lottery elements are already present, a consideration finding willresult in an illegal lottery determination. Because game promoters want to avoidthis eventuality at all costs, your promotion must be carefully vetted andassociated rules of entry drafted by seasoned promotional counsel before thecontest commences.

Because most game promotions have asignificant element of chance to them, the safest course of action for anycontest sponsor is to remove either the consideration element or choose not toprovide a prize. Understandably, failure to provide a prize in connection withwinning your contest is not an option. Without a prize, your contest will createabsolutely no buzz and will result in an almost certain promotional washout.Fortunately, however, removing the consideration element from the equation is arelatively simple and popular alternative.

As discussed in the first article inthis series, an alternative means of entry — one that does not require paymentor registration for services to enter — always should be offered to consumersto avoid triggering the consideration element. Bear in mind that entriesreceived in this manner must be accorded the same weight and opportunity to winas any other entry. Game promotions that offer alternative means of entry oftenuse the magic phrase “no purchase necessary” in their promotionalrules and associated advertising to clearly signal that the considerationelement is not present.

Prize. The final contestelement is that a prize ultimately be awarded to the winner(s). A prize can beanything from a month of free services to a trip to Hawaii. Applicable stategame promotion regulations require that the cash equivalent of any prize beoffered to participants in the alternative, should they so elect. In connectionwith awarding the prize(s), a list of all contest winners must be maintained bythe sponsor, made available to entrants (and Rhode Island) upon request, andfiled with Florida and New York at the close of the contest period.