Difference between lotteries and events that involve randomness?

Question

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?

Answer 1

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.

Answer 2

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.

Answer 3

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.