Legal requirements for running promotions and competitions
If you run brand promotions, competitions, Facebook promotions, or any other type of sweepstake, you should take a read of the following guide to make sure you are covering all your legal bases.
Why permits and terms and conditions?
Terms and conditions are required for every competition you run, whether it is a game of skill or game of chance, and are considered the ‘rules of the game’. They cover the basic things like open and close dates, prizes, and competition mandatories. The terms and conditions must detail all conditions of entry.
You must make these terms and conditions freely available to anyone who is likely to enter your competition. Common practice is to have abbreviated terms on your promotional materials or promotional site, with reference to a full set posted online.
Rules for running competitions are different in every state with only some states requiring permits, and various types of competitions being exempt. You can call each of the various state lottery departments (unfortunately there is not a national body), but this is where you should call a promotional marketing agency expert or specialist promotional marketing lawyer for the correct up-to-date information.
Permits are considered expensive, time consuming and an all-around hassle, however they are legally mandatory if you are running a promotion that has an element of chance. They don’t need to be complicated and if you have all the correct application details, are relatively easy to obtain.
There are ways to run smart competitions; this is where the science of prizing comes in, and the expert knowledge of how to run a promotion minimising the permit costs and application times.
Game of skill versus game of chance – what is the difference?
A game of chance is when someone has a random chance of winning. Example of a game of chance: ‘Buy this product for the chance to win $50,000 cash’.
A game of skill is a competition utilising judges for the outcome. Example of a game of skill: ‘Tell us in 25 words or less why you like a product’.
A game of skill is generally judged on either creative or literary merit, but might also be the closet correct answer in something like a ‘jelly bean’ guessing contest.
Merely asking someone a question does not constitute a game of skill. As soon as more than one person can get a correct answer, the rules change and the competition becomes a game of chance (requiring permits).
When are permits required?
All promotions which contain an element of chance in the winner’s outcome (eg. via a draw, instant win, etc) are known as ‘trade promotion lotteries’ and require a permit number. Permit requirements vary depending on state, promotion mechanics and total prize pools.
Permit fees vary depending on state, promotion mechanics and total prize pools. Permit fees are worked out on the total value of the prize pool.
Blanket Permits are a great option if you plan to run several trade promotions in a defined period (one year). This is how the radio stations are able to constantly have competitions on air. They still require permits, but we can apply for a blanket permit and then update the terms and conditions for every promotion.
Consequences – what can go wrong?
Terms and conditions play an important role in protecting all parties involved in the promotion. They create a fair playing field for all and leave no room for misinterpretation. The promoter and agency are able to use these as a reference and fall back when speaking with entrants and winners.
The terms and conditions are a contract and when finalised cannot be changed or altered once the promotion has started. Permit changes can be made prior to launch or publication but new permits need to be applied for and this can take additional time. Permit numbers must appear on all promotional material along with other legal mandatories such as open/close dates, draw dates, onerous conditions, etc.
Simple mistakes can happen and a great example is calling a winner who doesn’t answer, leaving a message and then calling the next person on the list. Trust me, this happened and it cost an agency $15,000 to rectify.
Every competition needs some type of conditions of entry. Without these guidelines, the promoter (your client), your agency, and in some cases you can find yourselves in breach of the Competition and Consumer Act 2010. Breaches can attract big fines, especially when things like privacy come into play.
Terms and conditions are often considered an afterthought that nobody reads. In fact, they are more widely read than you would think. Sadly, in many cases consumers are looking for ways to get around the rules or to see if there is some type of loophole overlooked when devising the promotion. Remember, you don’t want the negative PR story on ACA from a jilted winner.