Why your social media giveaway (Patreon, Twitter, etc.) may not be legal.
Giveaways are one of the greatest marketing tools that continually appear on social media, especially small businesses, streamers and artists. You may come across a post with an abundance of likes and retweets with text or a graphic that more or less says “I’m giving away something, like, follow and retweet this post to enter!” For something so small and negligible that can fetch a lot of engagement for a prize as small as a $20 commission, what’s the big deal?
The issues arise when you enter “pay to play” territory. Let’s look at the basics of how to identify first if you’re entering gambling law territory. There are generally three things to look for: (1) prize; (2) chance; and (3) consideration. The first two are fairly obvious, so let’s focus on the third item here, consideration or the “pay” in “pay to play” endeavors.
Payment is not necessarily liquid money, otherwise the rule would have said currency instead of consideration. What is consideration? Consideration is a bargained-for benefit between contracting parties and is an essential reason for a party entering into the contract. This means that asking someone to “like, follow and retweet” your Twitter and giveaway post is a bargained-for benefit. The entrant is getting the benefit of being included in the giveaway for a chance at the prize, and you’re increasing your post engagement and social media following.
This doesn’t mean you should never ever host a giveaway on your platform to engage viewers. What it means is that you should get informed and follow the rules to protect yourself and your participants. The good news is that many social media and other platforms include rules and specifics about running promotions that involve chance giveaways like sweepstakes. (Facebook, Twitter, Instagram)
Additionally, things get complicated because gambling laws vary depending on where your giveaway is located as well as where your participants are located. While there are some general concepts about gambling laws this article will cover, you should know certain concepts and exceptions may work in some locations, but not others. This is especially pertinent if you have contestants in different countries, too.
The Bad – Lottery. A lottery is where you likely are trying to avoid ending up. This is a chance-based giveaway that requires consideration, even non-currency buy-in like social media engagement, Patreon membership, etc. These are also raffles where you’re bargaining for tickets or entry slots for a chance to receive something randomly.
Private lotteries are generally illegal under state laws. So how do you run a legal raffle? You’ll need to find out your state’s specific laws and regulations on registering a raffle, as well as any issues that may arise if your lottery is advertised to a very broad multistate audience. A great resource to start is the Chance2Win website, but more likely than not, you’ll probably find yourself wanting to consult with a gaming (not to be confused with video gaming) lawyer. (Although, if you’re doing a Twitch giveaway, maybe you’ll want an attorney who does both!)
The Good – Sweepstakes. A sweepstakes has a prize and chance, but no consideration for entry. Promoting a sweepstakes or contest over social media is subject to some FCC required disclosure, such as contest terms, eligibility, prizes, start and end times. There are also some rules meant to protect consumers participating in sweepstakes. For example, did you know that you can’t ask winners to pay for shipping the prize? You may want to think twice before giving away something in a sweepstakes you intend to ask for shipping on!
A great example of a comprehensive well-known and well-run sweepstakes is the McDonald’s Monopoly sweepstakes. While the most popular way of entering is buying their food that comes with monopoly pieces, if you read their terms carefully, you’ll see there’s alternative methods of entry (“AMOE”) that do not require a purchase. While mimicking McDonald’s sweepstakes is not the way to go for most small businesses and individuals like artists and streamers, there are countless guides out there that can give you some of the best practices for setting up a proper sweepstakes.
One thing you should also be aware of is that certain means of using contestants and contestant information could transform “free” entries into consideration and thus an illegal lottery. For example, you may need contact information to deliver the prize; however, if you’re also signing those participants up for your marketing emails as part of the sweepstakes or using a script to collect likes and retweets on a social media post as a means of contact, you’ve just created a bargained-for benefit and exited the sweepstakes category, oops! Engagement is a valuable thing to businesses, so if your sweepstakes gives one or more entries based on engagement that is of value to you and your business, you may be exiting sweepstakes territory!
As a small business or an artist you might feel overwhelmed about having to do all of this work just to host something like a simple Twitter giveaway. Are you or your small business prepared to fight a dispute or potentially pay a fine that could be in the thousands if it could be prevented simply by taking an afternoon to read a few guides, learn the rules, and write some terms out? Even a few hours with legal counsel to help advise you on how to go forward with a safe and compliant sweepstakes (or properly seek how to register a lottery if consideration is necessary) can save you the headache and cost of penalties down the road.
TL;DR: If you’re running a social media giveaway, the government may consider your “free” requirements to enter (subscriptions, likes, reposts, follows, etc.) “consideration” because they’re bargained-for benefits, making chance-based prize giveaways illegal lotteries rather than lawful sweepstakes.