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Contest Entry Fees: Check your State and Local Laws

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October 21, 2013

Even when the element of chance has been eliminated, certain states still prohibit or restrict a skill-based contest if there is an entry fee or purchase requirement.  This is not a complete list of all local laws pertaining to contests or entry fees, so have your attorney look into your local laws before creating a contest, especially those with an Entry Fee.

1.     Arizona: 

A strict reading of Arizona’s law on gambling indicates that any skill contest requiring an entry fee, as opposed to a product purchase, would constitute illegal gambling.  Florida law defines amusement gambling as: “Gambling involving a device, game or contest which is played for entertainment if all of the following apply:

(a)   The player actively participates in the game or contest or with the device;

(b)  The outcome is not in the control to any material degree of any person other than the player;

(c)   The prizes are not offered as a lure to separate the player from their money; and

(d)  Any of the following:

 

i.         No benefit is given to the player other than an immediate and unrecorded right to replay which is not exchangeable for value;

 

ii.         The gambling is an athletic event and no person other than the player derives a profit or chance of a profit from the money paid to gamble by the player;

 

iii.         The gambling is an intellectual contest or event, the money paid to gamble is part of an established purchase price for a product, no increment has been added to the price in connection with the gambling event and no drawing or lottery is held to determine the winner or winners; or

 

iv.         Skill and not chance is clearly the predominant factor in the game and the odds of winning the game based upon chance cannot be altered, provided the game complies with any licensing or regulatory requirements by the jurisdiction in which it is operated, no benefit for a single win is given to the player or players other than a merchandise prize which has a wholesale fair market value of less than four dollars or coupons which are redeemable only at the place of play and only for a merchandise prize which has a fair market value of less than four dollars and, regardless of the number of wins, no aggregate of coupons may be redeemed for a merchandise prize with a wholesale fair market value of greater than thirty-five dollars. A.R.S. §13-3301.

 

The statute defines gambling as “one act of risking or giving something of value for the opportunity to obtain a benefit from a game or contest of chance or skill or a future contingent event . . . .”  While amusement gambling is specifically excluded from those acts that are unlawful under the statute, section 1(d)(iii) of the definitions of “amusement gambling” (set forth above) implies that the only type of skill contest that involves the payment of money and that falls under the definition of “amusement gambling” is one where such payment consists only of a product purchase.

2.     Colorado.

The Colorado Consumer Protection Act contains a section that regulates sweepstakes and contests.  The statute provides that “[n]o sponsor shall require a person to pay the sponsor money or any other consideration as a condition of awarding the person a prize, or as a condition of allowing the person to receive, use, compete for, or obtain a prize or information about a prize.”  “Prize” is defined as “cash or an item or service of monetary value that is offered or awarded to a person in a real or purported sweepstakes or contest.”  The provisions of this statute only apply to a sweepstakes or contest sponsor who distributes information about a sweepstakes or contest by means of a “prize notice,” which is a “a written notice,” other than an advertisement appearing in a magazine or newspaper of general circulation, delivered by the postal service or by a private carrier, that contains a representation that the recipient will receive, or may be or may become eligible to receive, a prize.”  Thus, this statute most likely applies only to direct mail promotions.  However, many in the industry have taken a conservative approach and void this state in all skill promotions requiring an entry fee.

3.     Connecticut.

Connecticut’s restriction on the payment of an entry fee for contests is applicable only to contests where the value of the prize is more than $200.  The statute provides that no person shall advertise a game of skill where a prize with a value of over $200 is awarded to a winner if participants must pay an entry or judging fee or are solicited to purchase a good or service designed to assist the participant in winning the game of skill, provided the participant may be required to purchase a product or service if the game of skill is designed primarily to promote such product or service.”  A violation of this provision is an unfair or deceptive trade practice.  “Prize” “includes, but is not limited to, an award, gift certificate, travel coupon or anything else of value regardless of whether there are any conditions or restrictions attached to the receipt of the prize that is separate and distinct from the goods, services or property promoted by the sponsor.”

4.     Florida:

The definition of prohibited gambling in Florida can be accurately described as follows: (1) payment of consideration (2) to participate in a game of chance or skill (3) for the opportunity to win a prize.  The primary issue with the breadth of Florida’s gambling prohibition is that if the mere combination of a prize and an entry fee equals “gambling,” then even literary or essay competitions are all illegal gambling operations under Florida law.  To avoid the absurdity of this result, developing Florida law purports to draw a distinction between bona fide entry fees for “prizes” as opposed to “bets or wagers.”  Under this formulation, the payment of an entry fee (1) to participate in a contest of skill, (2) in which the sponsor does not participate, and (3) where the prizes offered are not derived from the entry fees, does not constitute a “stake, bet, or wager” and thus does not fall under the prohibition of wagering on games of skill.

5.     Illinois.

The Illinois Prizes and Gifts Act provides that “[n]o sponsor may require a person in this State to pay the sponsor money as a condition of awarding the person a prize, or as a condition of allowing the person to receive, use, compete for, or obtain information about a prize.”  “Prize” is defined as “a gift, award, or other item or service of value that is offered or awarded to a participant in a real or purported contest, competition, sweepstakes, scheme, plan, or other selection process that involves an element of chance.”  A technical reading of the statute indicates that it only applies to promotions that involve an element of chance.  However, many in the industry take a conservative approach and void Illinois if the promotion involves the payment of an entry fee.

6.     Maryland

The Maryland Consumer Protection Act provides that “a person may not notify any other person by any means, as part of an advertising scheme or plan, that the other person has won a prize, received an award, or has been selected or is eligible to receive anything of value if the other person is required to purchase goods or services, pay any money to participate in, or submit to a sales promotion effort.”

7.     North Dakota

In North Dakota, “a sponsor may not require a person to pay the sponsor money as a condition of awarding the person a prize, or as a condition of allowing the person to receive, use, compete for, or obtain information about a prize.”  “Prize” means “an item or service of value that is offered or awarded to a participant in a real or purported contest, competition, sweepstakes, puzzle, drawing, scheme, plan, or other selection process.”

8.     Vermont

It is an unfair and deceptive trade act and practice under Vermont law for any person to solicit any other person to engage in any kind of a game of skill, contest, sweepstakes, giveaway or other promotion which, inter alia, requires any kind of entry fee, service charge, purchase or similar consideration in order to enter or to continue to remain eligible.

 

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