Dealers often sponsor or become involved in sweepstakes promotions. Campaigns saying things like “Win a new car from Smith’s Hupmobile at the Q109 Prize Extravaganza” are common.
For a dealer, there is more to participation than just providing the prize. Dealers must be careful about the sweepstakes rules. Federal and state laws categorize certain types of gaming promotions as illegal lotteries. An illegal lottery involves a prize, chance and the legal concept of “consideration”, which in this context means an entrant giving up something of value in exchange for the opportunity to participate.
Every promotional sweepstakes involves a prize (what good would it be without one?) and chance (it can get very expensive if everyone wins). Therefore, dealers must be especially careful that a campaign does not include consideration. That can generally come from the requirement of a monetary entry fee or a required purchase, but can also include less obvious examples of consumers giving up something of value, depending on state law.
As a rule, a sweepstakes promotion should not require a purchase for entry. The rules should clearly and conspicuously state, “No Purchase Necessary”.
A common inquiry is whether a test drive or a visit to the dealership as the sole method of entry is consideration. Some jurisdictions permit sweepstakes with those provisions, and others permit them as long as there is an equivalent free entry method. On July 30, 2010, the Virginia Attorney General issued an official Advisory Opinion clarifying illegal gambling rules. According to the opinion, in Virginia, the legal concept of consideration is not present:
because of any person’s attendance upon the premises of another; his execution, mailing or delivery of an entry blank; his answering of questions, verbally or in writing; his witnessing of a demonstration or other proceeding; or any one or more thereof, where no charge is made to, paid by, or any purchase required of him in connection with.
The advisory opinion analyzed a sweepstakes promotion involving a company selling internet and computer access for periods of time. The sweepstakes game allowed customers to obtain entries in a sweepstakes promotion with or without purchasing internet time. The Attorney General stated that consideration is missing when no purchase is required to enter into the sweepstakes. Therefore, the critical lesson is that a Virginia dealership must allow anyone to enter into a sweepstakes without a purchase requirement. A sweepstakes promotion granting entry to participants based on free test-drives or a visit to the dealership may be permissible under Virginia’s interpretation of consideration, as long as no purchase is necessary.
Additionally, well-drafted sweepstakes rules should address the following:
- Time period for the sweepstakes to run.
- Procedures for entry, selecting the winner, and the manner of collecting the prize. Clearly state the number of winners (“only one winner of the vehicle”), and make the dealer or other promoter the sole decision maker in the event of any necessary interpretation of the rules.
- Eligibility requirements (e.g., necessity of driver’s license or age requirement).
- Odds of winning, or a disclosure that the odds depend on the number of applicants.
- Specific explanation of the prize or prizes that may be awarded. Here it is advisable to be as specific as possible, reserving the right of substitution by the dealer of a comparable prize. The specific vehicle may not be available at award time, so the dealer must be in a position to provide a comparable vehicle.
- Disclosure that all taxes, registration, and fees are the responsibility of the winner.