How to Run an Online Contest for Your Home Business

10 Tips and Laws to Keep Your Online Contest Legal

Online Contest Laws
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 Credit: KLH49 | Getty Images

Contests by businesses have grown in popularity, especially online. They’re an excellent way to increase your reach to your market, as well as build your business. Through an online contest, among other things, you can:

  1. Increase traffic to your website
  2. Create interest in your business or new product launch
  3. Build your email list
  4. Strengthen relationships with your customers and followers
  5. Boost social media following and engagement
  1. Increase sales

However, there are laws that govern contests and it’s important that you adhere to them. Here’s what you need to know to keep your contest legal.

Legal Terms

The first thing you need to understand are the terms. In fact, what you’re calling a contest may actually be something else.

Prize: A prize is the item that people can enter to win. You can have one prize or several. 

Entry: This is the submission used to determine who wins the prize. Depending on your promotion, you can limit people to one entry or several.

Contest: A contest is won by merit and not by random drawing. The winner either achieves something (first place) or is judged or voted on. For example, you can have a cutest baby photo contest where the image with the most votes wins. Or you can have a writing contest that is judged by editors.

Sweepstakes: A sweepstakes is won through random drawing. Most social media and blogging “contests” are actually sweepstakes.

In this case, participants submit an entry that then is chosen by random through a drawing. Some sweepstakes allow for only one entry, but it is possible to have them with multiple entries. 

Lottery: A lottery requires a consideration (something of value) to enter a chance to win. Often the consideration is money, however; depending on the state you’re in, asking people to “like” or share to earn entry could be considered something of value depending how much time and effort it takes.

Because this is legally tricky, you should get legal advice before running a lottery.

The Laws Regarding Online Contests and Sweepstakes

There are federal and state laws that you need to be aware of when running your contest or sweepstakes. The Federal Trade Commission (FTC), The Federal Communications Commission (FCC), the United States Postal Service (USPS), and the Department of Justice all have laws related to contest and sweepstakes. Any contest/sweepstakes that is open to nationwide participation must comply with federal laws, but also, the rules of each state where people are eligible. For example, New York and Florida both have bonding rules for contests/sweepstakes.

Things can get more complicated if your constest/sweepstakes is open to people outside the U.S. For example, in Quebec, Canada, contest rules must be both in French and English.

The diversity and complexity of contest/sweepstakes regulations is why many of them exclude entries from various states and countries.

Here are some rules you should adhere to when running a contest/sweepstakes:

1) Establish clear rules and guidelines for your promotion. This should include:

  • Prizes including the number, value and description. Don’t trick or try to be clever. If you say you’re giving away a car, and it’s a toy car, make that clear. You could be held liable to provide a real car if the winner reasonably was expecting one.
  • Specifying that there is “no purchase necessary to enter”
  • Alternative methods for entering (i.e. mailing an entry)
  • Contest start and end dates
  • How to enter. Be specific such as filling out a form, submitting something (essay, photo etc), or whatever it is you require to count an entry.
  • How entries are counted/collected
  • Sponsor of the contest/sweepstakes
  • Requirements (eligibility i.e. over 18, or country/state)
  • How the winner is selected (i.e. random drawing, panel of judges, votes, etc)
  • How and when the winner will be contacted
  • How the proof of winning will be determined (i.e. how you’ll prove eligibility or if you’ll require an Affidavit of Eligiblity)
  • Where a list of winners can be obtained
  • Privacy statement. If you plan to announce your winners, you need to disclose that you’ll be sharing their name and any other information.
  • How you’ll deal with invalid or ineligible entries
  • Disclaimers. For example, Facebook and Instagram both require that you indicate they’re not endorsing or a part of the promotion.
  • Any rules or regulations required by the state or country you’re running the event in.

2) Don’t charge to enter your contest/sweepstakes. This would make your event a lottery, which has more complicated and stringent rules. Be sure to include "no purchase necessary" in your contest/sweepstakes rules. You might also rethink requiring other things of value (i.e. an email subscription, “like,” or share) as it could be construed as “payment.”

3) If you’re running a sweepstakes, your winner must be chosen at random. Random.org can help you choose your winner, so you can be sure you’re not having any bias.

4) Exclude your family, people who live with you, your employees or contractors, sponsors, and your sponsor’s employees or contractors from entering.

5) In the U.S., don’t run a promotion that involves tobacco, alcohol, dairy products, insurance, financial services, or gasoline. They have specific rules that make them fairly prohibitive to a home business owner.

6) Adhere to the rules and guidelines you establish in running your contest/sweepstakes. You can’t change the rules or extend or shorten the timeline in running the promotion.

7) Accept all valid entries. In a sweepstakes, even if the respondent doesn’t give the “right” response, but does fill out the entry, you need to include it as an entry.

8) You must award the prize. Even if you have only one entry, you need to give the prize. Also, if you’re running a contest for a sponsor (i.e. you’re a blogger working with a brand), and the sponsor backs out of the deal, you still need to award the prize (which means you may need to buy it).

9) If you’re running your promotion on social media, be sure to read and follow the contest and sweepstakes rules of each platform:

10) If your award is valued at more than $600, you’ll need to send your winner a 1099 form at tax time, which requires you ask them to fill out a W-9 tax form.

A contest or sweepstakes can be a fun way to engage and expand your market, and create excitement around your business. Just make sure that you adhere by the rules. Being honest, upfront, and clear, as well as following the law can make contests/sweepstakes a great success in your home business.