Let’s say that an affiliate marketer makes the following offer:
“If you buy Product X through my affiliate link, you will be entered to win an iPhone through a random drawing!”
This is clearly an illegal lottery and constitutes gambling, as the three elements of prize (an iPhone), consideration ("buy Product X through my affiliate link”) and, of course, chance (the random drawing), are present.
Now, if you remove any one of the three elements from the scenario, you no longer have an illegal lottery. Sounds easy, right?
Let’s start with the "prize". A prize is anything of value awarded to a winner of the contest. As consumers likely would be uninterested in a contest that did not offer a prize, this element is difficult to eliminate.
"Consideration" is giving something of value to the contest sponsor that the consumer provides as a prerequisite to participating in the contest. Consideration may be monetary (an entry fee or a purchase requirement) or non-monetary (a significant amount of time or effort that the participant expends to the benefit of the sponsor).
It is relatively easy to remove consideration from a promotion. The most common way to eliminate consideration is to provide an alternate method of entry, commonly known as an “AMOE” - Alternate Method of Entry (or Alternate Means of Entry). This is usually manifested with the “no purchase necessary” language that you often see. (Publishers Clearing House is very careful to advise that purchasing a product will not improve your odds of winning its sweepstakes).
Going back to our affiliate marketer example, the element of consideration could be eliminated if consumers were permitted to enter the iPhone drawing by way of an AMOE - perhaps by sending in a postcard, calling a toll-free number, or filing out a simple free online entry form.
The random drawing in our example is a common game of chance. Chance may be eliminated by awarding a prize to every entrant. In the example, chance could be eliminated by awarding an iPhone to every person who buys Product X through the affiliate marketer’s link. Alternatively, the marketer could eliminate chance by conducting a game of skill in which winners are selected on the basis of some sort of ability, knowledge, creativity, judgment, or expertise.
If winners are selected based upon some skill or merit, it eliminates the element of chance, allowing a sponsor to impose an entry fee or other consideration without creating an illegal lottery. Skill contests can involve photography, essay writing, athletics, cooking, or mathematics. Skill contests must have objective criteria upon which entries are judged, and the judges must have sufficient qualifications to apply such criteria.
If you were to look at the rules for the National Geographic Travelers Photo Contest referenced above, you would find the following:
"This is a skill-based contest and chance plays no part in the determination of winners” ... “Judging consists of two (2) rounds of evaluation. In Round One, each judge in a panel of photographic experts (at least one of whom will be independent of Sponsor) ("Judges") will select ten (10) entries from among all eligible entries based on the following criteria ("Judging Criteria"): (1) Creativity 50%; (2) Photographic quality 50%. The entries selected in Round One will proceed to Round Two. In Round Two, the Judges will collectively select a Winner for each prize level based on the Judging Criteria.”
That All Sounds Pretty Simple, Doesn’t It?
Don’t be fooled! If everything were simple, there’d be no need for lawyers . . . and wouldn’t that be a wonderful world! (Just kidding).
The reason why the whole illegal lottery/gambling thing is not simple is primarily because terms such as "consideration", "chance", "skill", "merit", etc. are somewhat ambiguous and open to interpretation.
To illustrate how complicated and confusing this can get, let’s look at another hypothetical. Suppose, ABC Company runs a “Refer-a-Friend” contest in which, for every friend they get to sign up for the company’s newsletter, contestants receive an entry in a drawing for an iPhone. Is this an illegal lottery?
You might be quick to say, “No. There is no consideration. Participants don’t have to pay an entry fee, buy a ticket, or purchase a product”.
However, it’s not a clear cut as that. It is true that there is no monetary consideration; however, consideration can be non-monetary, as well. Common examples of non-monetary consideration include filling out a lengthy registration form as a prerequisite to entering the contest, or providing the sponsor with personal information.
Generally, courts have decided that requiring a nominal degree of effort is not deemed to constitute consideration (e.g., telephoning a toll-free number, completing a short survey, or visiting a store).
In our example, getting friends to opt-in on ABC Company’s website may or may not constitute consideration, depending on such things as the length of the registration form and the type of information the friends must provide.
To be safe, ABC Company could allow consumers to enter the drawing without referring their friends to the company’s Website. This could be accomplished by adding an AMOE (mailing in a postcard, calling a toll-free number, etc.)
More about AMOEs
In general, AMOE entrants must have the same chances of winning as purchasing (or consideration-giving) entrants. They must also have equal deadlines and equal prizes.
Additionally, it goes without saying that the AMOE cannot itself rise to the level of consideration, and it must be clearly and conspicuously disclosed in all advertising materials for the contest. In short, the AMOE must not be seen as disadvantageous or burdensome with respect to the purchase entry method. For online contests, sponsors must be particularly careful to ensure that the AMOE provides the same opportunities to entrants as online entries. (For example, if ABC Company’s "Refer-a-Friend" contest awarded a prize to the first 100 people to respond, it would be problematic, as the AMOE responders clearly would be at a disadvantage if they only way they could enter was by mailing a postcard, whereas the other entrants could immediately enter via the Website.)