LegalMatters: Sweepstakes: Legal Considerations and Best Practices

Running a sweepstakes campaign offers a fun, engaging way for a nonprofit to boost fundraising and gather information on its donors and supporters. Of course, when giving away items or experiences, there are legal obligations every nonprofit must follow.

To get a handle on the key legal matters and more in regard to running nonprofit sweepstakes, I spoke with Marla Altberg, CEO of sweepstakes administration and management company Ventura Associates International.

Joe Boland: If a nonprofit is looking to run a sweepstakes, what are the legal steps it needs to take to ensure it stays within the boundaries of the law?

Marla Altberg: It is always a good idea to use a specialist in this area to ensure compliance. That can take the form of a sweepstakes administration/independent judging agency or attorney with this type of expertise. The most important thing to remember is that, unlike a true raffle, in a sweepstakes you can ask for a donation, but not require it. Furthermore, sweepstakes offering prizes that total over $5,000 must be registered and bonded in the states of New York and Florida. However, Florida has an exemption for nonprofits.

JB: How can a nonprofit make sure it has all its i's dotted and t's crossed legally?

MA: Again, it's always a good idea to use a specialist. Importantly, in a direct mail package, there are mandatory legal disclosures, in addition to the official rules that must be made. That is, you must say, "No purchase is necessary to enter or win. A purchase will not improve your chances of winning" on the reply device, in the solicitation and at the beginning of the rules. The same is true for a telemarketing script, i.e., various legal disclosures must be made at certain points within the script and you must tell the consumer where she can get the official rules.

JB: What are the insurance implications and steps a nonprofit must take to avoid any wrongdoing?

MA: There are a few insurance considerations. First to note is the surety bond, which is required as part of the N.Y. state registration for sweepstakes offering prize value in excess of $5,000. This surety bond is equivalent to an insurance policy that guarantees the prize structure in the event the sponsor goes out of business. The other type of insurance is a bit more technical. Though not required, it is a sound idea for extra protection. That is insurance that backs up the indemnification clause (i.e., protection) that the independent judging agency gives you insuring that the rules and random drawing are all legal, fairly conducted and in proper compliance.

JB: Who should be involved in running the sweepstakes at a nonprofit?

MA: Many times this is the direct response acquisition team; it also could be the social media team, public relations, donor relations, cause marketing group, etc. It can vary based on the objectives of the particular campaign.

JB: How can nonprofits identify sweepstakes opportunities? Should they seek out partners — both consultants and corporations — to run them?

MA: Certainly the least amount of money spent out-of-pocket on the prizes the better. However, you need attractive and motivating prizes to generate a successful response. So the options for a nonprofit are either to solicit prize donations from its corporate donor base or to test a sweepstakes using a cooperative sweepstakes program whereby the prize costs are borne by either the sweepstakes agency provider or direct marketing agency. There are various relationships available.

JB: What are some common errors and/or complications? How can those common mistakes be avoided?

MA: Do not confuse sweepstakes with true raffles whereby you have to register in every single state and then you can require the donation. That is much too cumbersome and expensive, I might add! With sweepstakes we can still ask for the donation. And you have a very respectable percentage of consumers who do give, even though they are not technically required to do so for their chance to win. Get guidance on administration and compliance from a sweepstakes administration agency or attorney with this type of expertise.

JB: What should an organization do if a sweepstakes goes wrong?

MA: Notify your in-house counsel immediately or, if you don't have one, then your outside attorney. Do not field any questions by phone.

JB: Anything you'd like to add?

MA: Don't be afraid to test what a sweepstakes can do for your organization. Consumers really love having the chance to win and are quite accustomed to making donations to nonprofits for a chance. It's worth a try!