For decades, sweepstakes and game of chance promotions have been used as effective marketing techniques to sell products and services. At any given time, there are literally hundreds, possibly thousands, of sweepstakes offered by marketers to help entice consumers to buy more products. A recent review online turned up sweepstakes conducted by Coca-Cola, MTV Networks, Sony Pictures, Circuit City, Hershey's, Nabisco, Xbox, Microsoft Office, and Liberty Mutual, just to name a few.
Over the years, these promotions have kept pace with technology, integrating telephones, television, 900 numbers and the Internet. And today - as the use of handheld devices continues to explode - cell phones and text messaging have made prize promotions more popular than ever. Increasingly, sponsors are giving consumers the ability to enter their sweepstakes by sending a simple text message (e.g., "enter" or "win"), to a specific short code. In certain cases, there may be a premium cost (e.g., 99 cents) associated with sending the text message, over and above the normal text message rates charged by a cell phone provider. Television shows such as "American Idol," "Deal or No Deal" and "The Apprentice" have all woven text messaging sweepstakes neatly into the fabric of their shows.
This latest twist on the classic sweepstakes, however, is now coming under attack. In February 2007, a class-action lawsuit was filed in Georgia State Court against Donald Trump, NBC Universal and others, charging them with running an illegal gambling scheme for the "Get Rich With Trump" sweepstakes. The sweepstakes, which ran during "The Apprentice," allowed viewers to submit a non-binding vote on which "Apprentice" candidate deserved to be sent to a fictional "Tent City." Viewers who entered the sweepstakes by sending a text message from their mobile phones were charged a 99 cent premium charge on top of the standard text messaging rates charged by their cellular providers. Viewers were also permitted to enter the sweepstakes for free via "The Apprentice" Web site. The suit alleges that regardless of the availability of the free online method of entry, under Georgia law, an illegal lottery exists even if only some participants pay consideration for a chance to win a prize.
To understand why the Trump case is important, it is first necessary to understand how sweepstakes are regulated in the United States. Most states and the federal government have specific laws that prohibit unlicensed gambling and lotteries, which are typically defined as the risking of something of value upon the outcome of a contest of chance or a future contingent event not under the person's control or influence, with the understanding that something of value will be paid in the event of a certain outcome. In very broad terms, an activity containing all three elements of consideration, chance and prize create an illegal lottery or constitute gambling. Promotional sweepstakes enjoy an "exemption" of sorts from the lottery and gambling laws by virtue of the fact that there is no purchase required in order to enter, thus eliminating the "risking something of value" element in the definition, and leading to the now ubiquitous "NO PURCHASE NECESSARY" language that accompanies every promotional sweepstakes. The outcome is a fine balance in situations where a sweepstakes is connected in some way to the purchase of a product. While courts and regulators have historically recognized that an automatic entry in a sweepstakes with the purchase of a product is permissible as long as there is a means to participate without making a purchase, there are limits. Notably, the purchase method of entry must be accompanied by receipt of something of equivalent value for the purchase, and the no purchase method of entry must be given "equal dignity" to the purchase method (i.e., it must be treated the same).
The balance starts to shift when the value associated with the purchase entry appears to be nothing more than a vehicle for entry into the sweepstakes. A textbook case in this area is Midwestern Enterprises v. Stenehjem. In 2001, the Supreme Court of North Dakota affirmed a finding against a sponsor that required participants to pay $1 for a two-minute pre-paid phone card that also entitled them to receive an instant-win game piece. The court noted that a high percentage of the participants in the promotion were discarding unused phone cards, and continuing to buy them, (and thereby receive game pieces), even when free discarded and unused phone cards were readily available. The court concluded that the phone cards provided no value to participants, the promotion was a form of illegal gambling, and the machine that dispensed the phone cards and game pieces were illegal gambling devices. Following this same logic, courts in California and Michigan have reached similar decisions. See People ex rel. Lockyer v. Pacific Gaming Technologies, 82 Cal.App.4th 699 (2000); Face Trading v. Liquor Control Commission, 2006 Mich. App. LEXIS 1169 (Ad-Tab tickets that contained a coupon on one side and a cash prize game on the other and were sold to consumers for one dollar per tab found to be an illegal lottery).
Numerous state Attorneys General have also weighed in on this issue. For example, the Attorney General of Alaska found that a company that sold "informational cards" - a card that had a photograph of an Arctic animal on the front and information about that animal on the back - with an attached game piece for $1 was guilty of promoting illegal gambling, even though an alternate free method of obtaining the game piece was available. The Alaska AG noted that the company had never sold the cards without the game pieces attached, had no intention of doing so, and that almost all purchasers discarded the "information card" after playing the game piece. The Alaska AG concluded, therefore, that the game piece was the company's product, rather than the incidental "information card." 1992 Alas. AG LEXIS 82.
The Attorney General of Texas found that a company that sold one minute long distance phone cards with an attached game piece through a dispensing machine for $1 could be running a prohibited lottery, even if an alternate free method of entry existed, if it was found that persons who paid for the cards regarded them as having no value as a phone card. The Texas AG noted that "in order to avoid characterization as a lottery, a promotional scheme must also involve the legitimate sale of a product. If a product of little or no value is being sold in conjunction with a sweepstakes ticket, the consideration may be deemed to have been paid for the privilege of entering the sweepstakes." 1997 Tex. AG LEXIS 9.
Finally, the Attorney General of Georgia found that a sweepstakes insert in a newspaper which required persons to call a "900-number" with a 35 cent charge in order to learn if they had won a prize, was an illegal lottery under Georgia law, even though an alternate mail in entry was available. The Georgia AG opined that the fact that some contestants might participate without having to pay consideration to the operator of the sweepstakes does not automatically mean that a sweepstakes is not an illegal lottery. Citing a 1937 Georgia Appeals Court opinion, the AG stated that the test in Georgia to determine what is an illegal lottery is not whether it is possible to win without paying consideration, but rather whether some participants paid consideration in part for a chance to win a prize. 1984 Ga. AG LEXIS 11.
The rationale posited by the Georgia Attorney General, and followed in other Georgia cases (see, e.g., Felix Kemp v. American Telephone & Telegraph Company; Tierce v. State, 122 Ga. App. 845 (1970)) is the same as that being relied upon by the plaintiffs in the Trump case. The question that has not yet been answered by the courts, is ignored by plaintiffs, but critical in the "Get Rich with Trump Sweepstakes" is: Are participants actually receiving something of value for their 99 cents or, like the phone card cases cited above, is the game promotion nothing more than a scheme to make money without providing value. In this case, the answer is yes, there is value to the participant and, thus, no lottery or gambling law violation has occurred. Premium text messaging as part of participatory television has been around for quite a while now. Millions of "American Idol" fans have paid a premium charge to interact with the program, even without a prize as an inducement. The "value" stems from the entertainment and interaction they receive as part of the television viewing experience. It is inconceivable to believe that the many consumers who have participated in non-sweepstakes premium text messaging campaigns have not helped set that value. The same holds true for the "Get Rich with Trump Sweepstakes," where participants receive the opportunity be a part of the show for the price paid.
Where there is value, no gambling law violation should be found, as in Mississippi Gaming Commission v. Treasured Arts. In this 1997 decision by the Supreme Court of Mississippi, the court held that a promotional scheme in which participants paid $2 to purchase a three-minute pre-paid phone card and receive a scratch-and-win game piece was not an illegal gambling operation because, in part, the operator of the promotion itself had paid nearly $2 to purchase the same phone cards that it was selling to participants for $2. The fact that participants did not overpay for the phone cards in order to acquire a game card led the court to conclude that no illegal gambling had occurred.
What will ultimately be decided in the Trump case remains to be seen. If participatory television using wireless devices continues to engage consumers, it is likely that the industry - including wireless carriers, production companies, and television networks - will take a strong stance against the class action. Either way, for "Get Rich with Trump" and similar promotions, strong defenses exist and should be pursued.
Joseph J. Lewczak is a Partner in the Advertising, Marketing and Promotions Department of Davis & Gilbert LLP. He represents numerous multinational, national and local advertising, promotion and public relations agencies, as well as leading advertisers in all aspects of advertising and marketing, and is a nationally recognized expert on sweepstakes and contest law. The author would like to acknowledge the assistance of Matthew Smith, an associate at Davis & Gilbert, in the preparation of this article.