Consumer protection

March 20, 2022

  • Anthony Cabot, Distinguished Fellow in Gaming Law at the William S Boyd School of Law at University of Nevada Las Vegas

Social media lotteries

Anthony Cabot argues that influencer promoted social media lotteries are legally questionable at best and should be easy to eradicate if regulators took the protection of their citizens seriously.

A person wishing to make money through gambling can attempt to secure a casino or other license by meeting financial and background suitability requirements and complying with stringent operational regulations. An alternative is to become a social media “influencer” and simply run lotteries on social media platforms. Based on the lack of legislation or enforcement, impacted state governments and the gaming industry seem fine with this situation.

I spend more time on Facebook than a person ought, which arguably should be naught. Still, I use social media networks to communicate with my friends and family. Facebook has algorithms that track the ads you click on and then steadily feed you related items. I clicked on an advertisement by a well-known web personality promoting a lottery in which, for US$35, “everyone” wins a car. In truth, most participants only get a 1/64 scale die-cast model that is likely worth much less than $35, while a few participants win an actual vehicle. This advertisement is unambiguously a ploy to generate significant returns by raffling rare automobiles. I was curious whether the promotion was legal, so I clicked on the ad and searched through its linked pages. Now I get an endless stream of lottery ads. After reviewing, most are of, at best, questionable legality.

United States lottery laws are primarily set at the state level. Although these laws vary, most states determined that illegal lotteries occur when a person pays consideration for the opportunity to win a prize based on chance. Therefore, a promotion that charges US$35 to have a chance to win a real car is a lottery, right? Not quite. States provide an exception for businesses, such as ’McDonald’s, to sell retail items, such as hamburgers, through promotions that give away lottery entries provided that non-paying customers have an alternative method of entry (AMOE). At first, most courts that considered this exception insisted that the promoter’s goal must be to increase sales of the primary product rather than simply make money selling entries to a lottery. This is still the prevailing case law in many states.

Assuming that all states now allow AMOE even where the only purpose of the promotion is to make money from raffling valuable items, AMOE rules generally require substantially equal opportunity for non-paying participants to (1) enter, (2) win the same prizes as paying customers, and (3) claim prizes. These rules are generally established by court precedent, so a state would be better served by codifying them. A model state act, however, should provide: “Every game promotion offered to a person located in this state must provide for non-paying persons to enter, claim, and win all offered prizes on equal terms as paying persons.”

I will not dwell on the second and third elements because they tend to have less relevance to these online raffles. The second concept of equal dignity is that non-paying participants should have equal chances to win all prizes offered. Separate prize pools may invalidate the flexible entry sweepstakes because the non-paying participants do not have the opportunity to win the same prizes as paying participants. As an aside, in the “everyone wins” car raffle, only paying participants can win the cheapest 1/64 model car. Non-paying entrants are excluded from “everyone ” and unlikely to win anything. You are merely given a chance to win a full-sized car. Despite its misleading title, the smaller print of the raffle written rules says if you buy a 1/64 car, you have the opportunity to win the real expensive vehicles. The third requirement of equal dignity is that non-paying participants must be able to claim their prizes just as easily as paying participants.

The most relevant AMOE requirement to social media raffles is equal opportunity to enter. This provision requires the promoter to allow non-paying participants to enter the raffle similarly to paying participants.

Central to the notion of equal opportunity to enter is that the public knows (1) that they do not need to pay to enter, (2) how to enter the sweepstakes, and (3) that no purchase is necessary. Many states have disclosure requirements set by statute or court decisions requiring “clear and conspicuous” communication of the free entry method to adequately inform consumers. If they do not, States should consider adopting statutes that spell out these requirements. Colorado law, as an example, requires the“no purchase necessary message” to be clearly and conspicuously disclosed in a manner integral to representation. This message must be in the same type size, typeface, color, style, and font as the representation and cannot be separated from it using intervening words, graphics, colors, or excessive blank space.

In several Facebook promotions, the availability of free entry is revealed only after multiple clicks. For example, the car giveaway referenced above starts with an ad on the main Facebook page without mentioning free entry. Click on that, and it brings you to the second page of advertising, where you can buy up to a ten pack for a mere $289.95 with no mention of a free entry. Next, there is a link “[f]or Official Rules, prize descriptions[,] and odds disclosure,” where finally the third-page states, “NO PURCHASE NECESSARY TO ENTER OR WIN. A PURCHASE DOES NOT INCREASE YOUR CHANCES OF WINNING.” Best practice suggests that state law require this language be conspicuously displayed on every page of a promotion.

Another principle of equal opportunity to enter a sweepstakes is that the method of entry for non-paying persons must be substantially the same as paying customers. In non-internet sales, offering an alternative way to enter at the store is often impractical. For example, a particular brand of trading cards may provide the purchaser with a chance to win game-used sports equipment via an entry mechanism on the cards themselves. However, the trading card company may allow thousands of retail locations like convenience stores to sell these cards and cannot practically have an alternative method for persons to enter for free at the store. So, the trading card companies typically offer non-paying customers the opportunity to enter by mail. States can end abuses by mandating that paying and non-paying persons can enter using the same method where feasible. Where this mandate is unfeasible, promoters should provide a similar and not burdensome alternative to non-paying persons. Promoters should not use the“mail-in” method without a legitimate reason to discourage free entry. Unlike store sales, requiring mail-in entries for internet promotions is far less justifiable given that online free entry should be available in virtually all cases. Unfortunately, many Facebook promoters use the “mail-in” method to stifle free entries. Here is an example from a Facebook promotion:To enter without making a purchase, on a plain piece of 3”x5” paper, hand print your complete first and last name, street address, city, state/province/territory, zip/postal code, date of birth (mm/dd/yyyy), e-mail address plus daytime telephone number including area code. Then, on the opposite side of your entry, in at least 25 words complete the sentence “I want to win because…”. … Mail-in entry, including outer-mailing envelope must be handwritten. No mechanically reproduced entries or metered mail permitted. Statements contained in mail-in entries will not be judged but must be unique.

Another questionable ploy is to “limit one entry per envelope” for non-paying participants, where paying customers can receive multiple entries on a single purchase or paid entry. In one of the more egregious examples, a person could buy 14,000 entries for $700, but if they wanted the same number of free entries, they would need to send in 14,000 separate envelopes (which cost 58 cents each or a total of $8,120). Instead, state law should provide that a non-paying customer should receive with a single entry the same number of entries as the maximum number of entries that a paying customer can get in a single transaction.

Most social media platforms are not policing their content to ensure that the raffles offered make more than minimal efforts to appear legally compliant. This is the opposite of the due diligence that often accompanies developers’ efforts to get their social gaming apps into the popular app stores. It is confusing how one sector of an industry (social media) can take such a different approach from another (app stores). Yet, the potential legal liability for aiding an unlawful lottery is the same in both cases. Moreover, it is equally perplexing that states with lotteries and other forms of legal gambling are not proactive in protecting their industries and citizens from unregulated gambling. A single letter from a state attorney general would suffice to end the most egregious practices in many cases. However, a better solution would be to agree on a model act.

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