18

A common marketing strategy is a 'Free giveaway', where 'one lucky person will be selected from (some group) to receive a free (thing)'.

I was read that such arrangements can be deemed illegal lotteries.

Yet, contradictorily, I also see major websites doing this. For example on Twitch, when a subscription is 'gifted' to the community, a community member (a user who has ever, at no cost, watched or interacted with the streamer’s streams) is selected (somewhat randomly) to receive it.

How does the law look differently upon a website that gives away something randomly as opposed to a software process (like Twitch's) that randomly selects someone to give a reward to?

To me, (layperson) the two seem very similar, however, there must be some legal difference?

10
  • 5
    Does a community member have to pay to be one? If so, this is a (likely illegal) lottery. Also, is this twitch giving it away, or a streamer on the platform? The latter may be ignorant of the rules, or willing to flout them because they’re unlikely to be called out. The world of online influencer regulation is poorly enforced.
    – Tim
    Jan 19 at 15:02
  • @Tim the recipient isn't paying anything. The gifter is. The gifter can choose a particular recipient or have it be picked "at random". "Community member" here is someone watching the stream.
    – Caleth
    Jan 19 at 15:47
  • 1
    @Caleth if the recipient has already paid (to become a “community member”) then they are paying to enter this competition. And it’s a lottery.
    – Tim
    Jan 19 at 15:50
  • 1
    @Tim Twitch is free to view. The thing being gifted is a removal of ads and access to custom emojis
    – Caleth
    Jan 19 at 15:52
  • 1
    @Tim “community member” is the nomenclature for people who have watched or interacted with a particular streamer on Twitch. It's the equivalent of "ever watched a video" on Youtube. The thing being gifted is similar to “channel member” on YouTube
    – Caleth
    Jan 19 at 15:57

3 Answers 3

43

You are confusing a lottery with a sweepstakes

The fundamental difference is that to enter a lottery you have to provide something of value (cash, a product purchase etc.) to receive a ticket. In a sweepstakes, tickets are free to anyone that asks in the right way.

While both are games of chance, a sweepstakes is not gambling because the participants did not wager anything of value.

If you read the terms and conditions of a sweepstakes very carefully, you will find there is a way of getting tickets without having to provide consideration. Getting them is often laborious and time consuming but so long as they exist, you have a sweepstake not a lottery.

9
  • 3
    Similarly, there are online poker tournaments for real money structured as sweepstakes to avoid violating US laws against online poker. Most people can't be bothered to mail in the form to save $5 or whatever.
    – JimmyJames
    Jan 19 at 15:03
  • 6
    Note this uses American terminology - it makes little sense to readers in the UK and the question doesn't specify a jurisdiction but mentions a global platform (not a problem, just wanted to avoid confusion)
    – Chris H
    Jan 19 at 16:25
  • 6
    @D.Kovács When a gift subscription is given randomly, the pool of people it can be given to is not paying subscribers, but all viewers (whether or not they have paid for anything).
    – kaya3
    Jan 19 at 20:03
  • 6
    "In a sweepstakes, tickets are free to anyone that asks in the right way." - in the US anyways, this is why you can see/hear "no purchase necessary" in order to participate in a sweepstakes. Yeah you can, buy buying a box of Chocolate Frosted Sugar Bombs, but you can also write the company and ask for a ticket without buying the cereal/whatever.
    – BruceWayne
    Jan 20 at 15:36
  • 2
    @D.Kovács Such twitch giveaways needs to be careful that they're not running an illegal lottery - if a streamer runs a giveaway for a game code, say, and limits it to subs only, or give subs extra luck, then it becomes a lottery, and they need to comply with the applicable laws.
    – Showsni
    Jan 21 at 19:35
11

To give some examples to Dale M's answer, Sweepstakes can occasionally be advertised as "Give Aways" since the company in question is literally giving the grand prize away. As an example, most contests, when advertised will (often in a very rushed nature) say that "No purchase is necessary to play" and, if one bothers to read the contest rules, they will describe the method for playing without a purchase. As for buying products with the game pieces available, you aren't paying more for the product or packaging than you would if you bought it when the contest was not in play. The company running the contest is hoping that the contest will spur more purchases thus increasing profits to cover the game's prizes and then some.

A good example as a case study is McDonald's highly popular Monopoly contest which has been running for nearly 35 years and due to the fraud by the third party distributor of the prizes in the U.S. the behind the scenes distribution of the game are well documented (As part of legal requirements, McDonald's cannot run and promote the game. To get around this, McDonald's used a third party contracting company to run the game and they provided the promotion for it as well as backed the prizes. This is quite common and how most companies with sweepstakes contests actually run the contest. The fraud came when the head of security was able to steal the "rare" game winning pieces and hand them out to friends and family rather than see them distributed to the general public. Essentially, the third party contractor was doing the very thing McDonald's was paying them to eliminate McDonald's from even being accused of doing had they run the contest themselves.).

Fun Fact: Wonka's famous Golden Ticket Contest would have been an illegal lottery since he required a purchase of his product to compete. What if Charlie really wanted to see the local iconic factory despite being too poor to afford Chocolate or having an actual dislike of Chocolate as he explained to cover up his lack of embarrassment.

Of course, if we're going to come down on Wonka for legal violations, there's a bevy of problems from

  • violation of Minimum Wage Laws (Paying Oompa Loompas in Coco beans?!),

  • violation of

    • OSHA (pick an accident that befell the children within the plant) and

    • FDA guidelines (letting a child consume a gum product that clearly wasn't ready for human testing) and

    • Health and Safety inspectors ("No one goes in, no one comes out" means no health inspectors to make sure that Wonka's candy is being made in sterile environments, though he does make a point that Charlie and Grandpa Joe caused a production delay due to shut down for sterilizing of the ceiling following the Fizzy Lifting Drinks incident AND Wonka is very much distressed by Augustus Gloop contaminating the Chocolate River by drinking from it.).

  • At least Wonka had the hindsight to immunize himself by contract from any civil liabilities.

7
  • 2
    If we are really worried about Willi Wonka legal woes probably slavery and human trafficking would be on top of the list... Jan 20 at 8:13
  • 1
    But what if there were a way to sign up for the golden ticket lottery, but in such a fine print and with ridiculous work to do that it becomes irrelevant?
    – Hobbamok
    Jan 20 at 11:23
  • If run in the UK, the Golden Ticket scheme would have been (and in fact is, since sevieral companies have done it) since 2005, when the law was clarified to allow purchase of goods at the their ordinary retail price to be a condition of entry.
    – origimbo
    Jan 20 at 13:19
  • @origimbo I'm going by the original film, where the story is clearly set in the United States (though the teacher is clearly a British Teacher and the city is clearly Dusseldorf, but let's not let that distract us.).
    – hszmv
    Jan 20 at 18:49
  • Is there any guidance on how many hoops you can make someone jump through to get a "free entry"? Can the method to obtain "free entry" still require things like stamps (ie you have to mail something)?
    – eps
    Jan 21 at 15:58
5

In the United States, we usually talk about a lottery as having three elements:

  • Prize: something of value that the winners get. If you remove this element, you're essentially just accepting donations in exchange for nothing, or you're defrauding your entrants.
  • Chance: winners are determined by randomness. If you remove this element, you have a game of skill or contest (or even more simply, a store: the difference between a slot machine and a vending machine is the addition of chance). Different states vary in terms of the amount of chance required for something to be gambling: a slot machine is entirely random and is surely gambling; a sports tournament is a game of skill even if there may be some elements of chance like a coin toss involved; while poker can be more controversial given its heavy reliance on both skill and chance.
  • Consideration: something of value that you give up to enter, like an entry fee, purchasing a product, or even non-monetary items like your personal information. If you remove this element, you have a sweepstakes.

If you have all three elements, that's gambling, which is heavily regulated if permitted at all. If you remove one of these elements, you've created something else, like a sweepstakes or a contest. It sounds like that's what Twitch has done here, namely removing the third element of consideration.

So the usual way this is done is to remove the element of consideration and offer a sweepstakes. This is why the fine print of the offer will include something about an alternate method of entry, e.g. "No purchase necessary to win. Send a postcard to this PO Box for one free entry." That's cumbersome and inconvenient, but if you can enter for free, it's not gambling. There's a lot of nuance to this and specific details in certain states, which is why companies running sweepstakes will usually hire a promotions management company to write the official rules and ensure the sweepstakes complies with all the relevant law.

7
  • 2
    Interestingly in the ongoing saga of loot boxes, one work around I've seen to is place a minimum guaranteed prize equal in value to the consideration plus the chance to win something more. They then argue the extra prize has no associated consideration. Jan 21 at 0:42
  • 2
    Promotional Management Companies also get around laws that state the entity promoting the contest cannot run the contest. A well known fast food company can promote their contest and pay the PMC to run it for them, while offering to distribute the game pieces on their products (which aren't charged extra). Fun fact, McDonald's will almost always have a game piece given with a Fish Filet sandwich because they are Incredibly popular with Catholics, who cannot eat meat except seafood on Ash Wednesday and Fridays in Lent. It's often jokingly called a "Catholic Big Mac".
    – hszmv
    Jan 21 at 16:15
  • "something of value that you give up to enter" I think it has to be "given to the contest organizers" rather than "given up", as it's legal to require people to use stamps. Jan 21 at 22:51
  • @DavidWaterworth If they're selling it, that's rather strong evidence that its value is less than the price charged for it. And what is the "value" of loot boxes, anyway? Jan 21 at 22:51
  • @Acccumulation yes but you can buy the same amount of in game currency as the cost of the lootbox which gives you the ingame currency and maybe more - hence the argument re value (it's a one off Christmas event - otherwise obviously no one would buy the ingame currency instead of the lootbox) Jan 23 at 23:42

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.