Is it a contest or a lottery?

August 8, 2014

By Tonda F. Rush
Legal Standing

Q One of my advertisers wants to help out the newspaper by holding a drawing for prizes at his store. Only subscribers to the newspaper would be eligible to win. He would also benefit by bringing in new traffic to his business. It seems like a win/win to me. How do we write this up to make it legal?

A The classic elements of a lottery are present here: chance, consideration and prize. There is chance, in that a random drawing will decide who wins. There is “consideration” or exchange of money or items of value because participants have to pay for a subscription to the newspaper to play. And there is, clearly, a prize for the successful participant.

Every state has gambling rules governing lotteries. There is some variation among them—such as permitting some types of lottery in certain licensed non-profits. A bingo night at a fraternal lodge might be an example. Or a licensed casino that offers a roulette wheel, in states permitting them. Or, in notable cases, a state-run lottery where the government has exempted itself to offer a prize in exchange for a purchased lottery ticket.

Unless your newspaper falls into a special exemption from lottery rules, this promotion plan probably runs afoul of the gambling laws.

In most states, lottery law violations are misdemeanors carrying hefty fines and sometimes jail sentences. In a few jurisdictions, like the District of Columbia, illegal gambling is a felony.

In some states, introducing an element of skill may overcome the problem. For example, giving a prize to everyone who earns a passing grade on a news quiz drawn from stories in your newspaper might involve enough skill to eliminate “chance” from the game. But not all states recognize the dominance of an element of skill.

How, then, do newspapers use prize drawings as a circulation incentive? They make it possible for people to enter without paying for a subscription. That doesn’t mean the newspaper has to make it simple. Some newspapers have sports score contests, permitting entrants to tear a sheet out of the newspaper to enter their predictions on football weekend outcomes. But a blank sheet is also available at selected advertisers, who must provide them without requiring a purchase of any sort. Equal win/win. The newspaper gets entries from subscribers and the advertisers get traffic from non-subscribers. All entries have to be judged equally, of course.

Some states permit social gambling, where no dealer, bookie or contest manager is involved, like a little game among friends. But not all states allow even that. Iowa, for example, allows social gambling so long as a player can lose no more than $50 in 24 hours.

Knowing that, the newspaper executive asks, how do we get to do our weekly football pool in the fall? People put in a dollar and their guesses and the winner takes all. Answer: that may be illegal, too. Or it may be social gambling, if your state allows it.

Many states also require businesses that are soliciting funds from the general public to register for licenses.

When in doubt, check with your state attorney general.

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