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I frequently see promotions like the following: "If [and only if] you make a purchase or donation, you will be entered into a drawing to win X."

Larger and more conservative corporate sponsors of such drawings often have fine print saying "No purchase necessary, for official rules that include an alternative method of entry click here." This leads me to think that alternative methods of entry are required and that there are rules about requiring purchase or donation in order to be entered (and they probably fall under "illegal lottery" rules).

However, I also commonly see examples where there are no alternative methods of entry (e.g. no official rules, short official rules that don't include it, official rules that link to a 404 Page Not Found for alternative method of entry, or alternative method of entry pages that don't allow you to enter the drawing being advertised as tied to the purchase/donation).

From the perspective of a potential offerer of such promotions, I can see why there's clear incentive to simplify and only offer an actual chance to win to anybody who's doing the requested action.

From the consumer perspective, I don't see how any individual would have standing or individual damages that would motivate or permit anybody to do anything about it. Individuals/consumers also don't have places to report such observations (do they?), and any state or federal agencies would find even giveaways worth a few thousand dollars not worth doing anything about. Most prizes are worth a lot less; are there official thresholds where the rules do/don't apply?

As described above, incentives seem aligned to permit organizations to advertise publicly even if some percentage of observers will notice potential violations of rules/laws. What, if any, practical consequences could (or recently have) come to organizations for offering such an incentive?

Assume US law; if states matter try NJ, PA, NY, and/or CA and/or assume Web-based promotions, according to what's most convenient for you to answer.

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    The reason the no purchase necessary term is part of the rules is because if you did require a purchase, you would be conducting an illegal lottery. If you see an organization that breaks these rules you could either sue them, or report them to the fcc. Take a look at venable.com/files/Publication/… if such a contest does not require a purchase, it is no longer a lottery. – Viktor Sep 9 '15 at 21:27
  • Yes, in theory that's true. The link provides advice on what a promoter probably should do under the law, but in practice what if any penalties exist for failing to do so? For small lotteries, the cost of complying with all these rules may exceed the value of the prize being offered, and this question asks what consequences there are in practice, not just in theory. – WBT Sep 9 '15 at 23:12
  • If it's a small thing could you specify more about, how it's being promoted and whether or not it is exclusive to a single state. – Viktor Sep 9 '15 at 23:13
  • I've seen a lot of these - generally promoted online, and while they generally don't say they're exclusive to a single state there are some where that limitation is practically true (e.g. you have to come to a geographic location in a particular state in order to make the purchase or claim the prize). For an example of the latter, "We'll randomly pick someone to have a fancy dinner with the distinguished speaker from those who buy the $26 general admission ticket+t-shirt option instead of the $0 general admission tickets." – WBT Sep 9 '15 at 23:21
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In California, you are correct that this is an illegal lottery if you require that customers to purchase something in order to qualify for the drawing. The elements of a lottery are: a prize, distributed by chance, with consideration required to be eligible for the prize (e.g. "you must make a purchase to be eligible"). If the store would actually let someone enter without a purchase but represents that paying is necessary or helpful, or treats people who paid differently than those who didn't, it isn't a lottery, but is an illegal sweepstakes (source).

Running a lottery in California, with the exception of chartable bingo, charitable raffles, and the official state lottery, is a crime. So is running an illegal sweepstakes. It can be reported to the police; the entity with standing to bring a case is the People of the State of California.

As for lawsuits, it is possible that someone who paid to enter could sue under section 17200 of the Business and Professions Code, which allows those directly harmed by unlawful business practices to sue. A case before a California appellate court found that someone who paid to enter an illegal lottery could sue a payment processor who had actual knowledge that the site was a lottery; I can't find the ultimate result of the lawsuit (and the appeal doesn't cover the website itself), but it at least strongly suggests that someone who paid to enter can have standing to bring a lawsuit.

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    So to make it legal you must (a) let people enter without a consideration, and you must (b) tell them that they can enter without consideration? – gnasher729 Sep 9 '15 at 18:50
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    @gnasher And c) treat entries without payment the same as entries with payment, and not tell people something different. Alternatively, you can award the prize based primarily on skill instead of chance; this makes it a contest, which can have an entry fee. – cpast Sep 9 '15 at 20:33
  • Which if any of these are consequences in practice? What police officer would care if somebody reported that Y was requiring people to pay to enter their lottery, when they've got other work to be attending to? What individual would care enough to file a lawsuit (given the high costs of doing so) and what damages would they be able to practically recover (esp. if entry was by purchase and they received the item purchased)? What incentive would an individual have for filing such a suit? Have there been any examples of consequences for these kinds of lotteries happening in practice? – WBT Sep 9 '15 at 20:59
  • @WBT - Just do a search for prosecuted for illegal lottery. Lots of real-world examples come up. – feetwet Sep 11 '15 at 18:30

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