Brian G. Ritz

Article Summary:

Contests can be an effective way for a company to promote its product or service.

Prize Promotions

Contests can be an effective way for a company to promote its product or service. However, they involve more than just a catchy name, entry forms and prizes. Following are a few basic pointers to keep your company out of trouble with the law and to avoid embarrassment in the marketplace.

First and foremost, you need to be certain that your company is not inadvertently conducting a lottery. Lotteries are unlawful unless specifically authorized by the state, e.g., the Pennsylvania Lottery. In most states a lottery requires three elements:

  1. a prize to be won
  2. a winner to be determined by chance and
  3. the payment of consideration by the participant.
With any prize promotion, the first two elements are almost always present. It's usually the third element - consideration - that causes trouble.

Generally, requiring a person to purchase your company's product or service in order to enter a contest results in an unlawful lottery because the purchase constitutes consideration. However, if you permit people to enter the contest by an additional means, such as by submitting their name, address and telephone number on a postcard, consideration will be absent since a purchase is not required for entry; it is simply one method of entry. Most states have also concluded that requiring a person to visit your company's store or web site to enter a contest does not constitute the payment of consideration, and is thus acceptable.

Of course, your company needs to make sure that people know that they can enter the prize promotion without making a purchase. Three simple words accomplish this: "No purchase necessary."

Your company needs detailed contest rules, and must conduct the contest in accordance with those rules. Generally, the rules should include:

  1. how to enter the contest
  2. eligibility restrictions
  3. entry deadlines
  4. how and when a winner will be selected
  5. the odds of winning and
  6. a list and approximate value of the prizes.

It's wise to include a provision that permits your company to revise the rules, substitute prizes, and to terminate the prize promotion at any time upon notice. Moreover, before you award the prizes, have the winners sign an Affidavit of Eligibility / Waiver and Release giving your company permission to use the winner's name, voice and likeness, and releasing your company from claims related to the prize.

Brian G. Ritz is an attorney at Eckert Seamans Cherin & Mellott. Mr. Ritz assists clients in a myriad of tasks, including mergers, acquisitions, and dispositions; general contract drafting; formation of business entities; and general business counseling. The clients he assists range from single member limited liability companies to publicly traded corporations. For more information, visit

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