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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?

Tim
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stevec
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    Does a community member have to pay to be one? If so, this is a (likely illegal) lottery. Also, is this twitch giving it away, or a streamer on the platform? The latter may be ignorant of the rules, or willing to flout them because they’re unlikely to be called out. The world of online influencer regulation is poorly enforced. – Tim Jan 19 '22 at 15:02
  • @Tim the recipient isn't paying anything. The gifter is. The gifter can choose a particular recipient or have it be picked "at random". "Community member" here is someone watching the stream. – Caleth Jan 19 '22 at 15:47
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    @Caleth if the recipient has already paid (to become a “community member”) then they are paying to enter this competition. And it’s a lottery. – Tim Jan 19 '22 at 15:50
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    @Tim Twitch is free to view. The thing being gifted is a removal of ads and access to custom emojis – Caleth Jan 19 '22 at 15:52
  • @Caleth I know it’s free to watch. That’s not what I’m asking, and I’m not asking about what the gift is. My question is, is it free to become a “community member”? Is “community member” a term equivalent to “channel member” on YouTube? Or is it free to become a “community member”? – Tim Jan 19 '22 at 15:54
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    @Tim “community member” is the nomenclature for people who have watched or interacted with a particular streamer on Twitch. It's the equivalent of "ever watched a video" on Youtube. The thing being gifted is similar to “channel member” on YouTube – Caleth Jan 19 '22 at 15:57
  • @Caleth I see. I’m surprised the streamer has access to a list of those people (YouTube certainly doesn’t offer a list of viewers to the channel owner) in order to gift it, but fair enough. – Tim Jan 19 '22 at 15:58
  • @Tim when it's "at random" the choice isn't under the streamer's control, it's fully automated. – Caleth Jan 19 '22 at 16:02
  • I suspect that it's weighted to people that Twitch thinks will renew it when it expires – Caleth Jan 19 '22 at 16:03
  • With respect to Twitch, a "gifted" subscription is paid for by a community member at the normal price and then just given to someone else (either by name or randomly) at no cost to the recipient. The recipient does not need to pay anything to be eligible for a chance to get the free subscription. They only need to have an account, and creating an account, and watching content are free. – user4574 Jan 20 '22 at 20:48

3 Answers3

42

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.

Dale M
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    Similarly, there are online poker tournaments for real money structured as sweepstakes to avoid violating US laws against online poker. Most people can't be bothered to mail in the form to save $5 or whatever. – JimmyJames Jan 19 '22 at 15:03
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    Note this uses American terminology - it makes little sense to readers in the UK and the question doesn't specify a jurisdiction but mentions a global platform (not a problem, just wanted to avoid confusion) – Chris H Jan 19 '22 at 16:25
  • But, to take the example of the question, Twitch subsribers have wagered something: they subscribed to the streamer's channel, who is doing the giveaway/sweepstake and thus given them money. Or the distinction is sufficient that they are not giving money for the sweepstake itself but as a general subscription and sweepstakes just happen to happen in this group? – D. Kovács Jan 19 '22 at 19:49
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    @D.Kovács When a gift subscription is given randomly, the pool of people it can be given to is not paying subscribers, but all viewers (whether or not they have paid for anything). – kaya3 Jan 19 '22 at 20:03
  • @kaya3 That's totally true. I was thinking about giveaways for already subsribers (giving away swag like mugs, T-shirts or even game subscriptio.s, etc.) – D. Kovács Jan 20 '22 at 06:38
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    "In a sweepstakes, tickets are free to anyone that asks in the right way." - in the US anyways, this is why you can see/hear "no purchase necessary" in order to participate in a sweepstakes. Yeah you can, buy buying a box of Chocolate Frosted Sugar Bombs, but you can also write the company and ask for a ticket without buying the cereal/whatever. – BruceWayne Jan 20 '22 at 15:36
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    @D.Kovács Such twitch giveaways needs to be careful that they're not running an illegal lottery - if a streamer runs a giveaway for a game code, say, and limits it to subs only, or give subs extra luck, then it becomes a lottery, and they need to comply with the applicable laws. – Showsni Jan 21 '22 at 19:35
  • @Showsni Would giving extra luck be allowed? It's no different than having someone mail in asking for a ticket, and they get one (free viewer) vs someone that buys 15 boxes of cereal and gets 15 entries (sub). Presumably they got a benefit of 15x luck by paying for it. Not sure how it would work...or can I mail them 15 times and get as many entries as I'd like? – Flats Jan 21 '22 at 22:15
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    Of course, entering a sweepstakes does cost something of value (time, effort, postage, etc.), it just isn't being provided to the people running it. – Acccumulation Jan 21 '22 at 22:37
11

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.

BCLC
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hszmv
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    If we are really worried about Willi Wonka legal woes probably slavery and human trafficking would be on top of the list... – Maja Piechotka Jan 20 '22 at 08:13
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    But what if there were a way to sign up for the golden ticket lottery, but in such a fine print and with ridiculous work to do that it becomes irrelevant? – Hobbamok Jan 20 '22 at 11:23
  • If run in the UK, the Golden Ticket scheme would have been (and in fact is, since sevieral companies have done it) since 2005, when the law was clarified to allow purchase of goods at the their ordinary retail price to be a condition of entry. – origimbo Jan 20 '22 at 13:19
  • @origimbo I'm going by the original film, where the story is clearly set in the United States (though the teacher is clearly a British Teacher and the city is clearly Dusseldorf, but let's not let that distract us.). – hszmv Jan 20 '22 at 18:49
  • Is there any guidance on how many hoops you can make someone jump through to get a "free entry"? Can the method to obtain "free entry" still require things like stamps (ie you have to mail something)? – eps Jan 21 '22 at 15:58
  • @eps: Most non-purchase entry requires mail in requests so yes, Stamps would be required, however, you are not purchasing the stamps from the contest host but from the post office and would be the cost of using their service. – hszmv Jan 21 '22 at 16:09
  • Wonka's factory was located in the UK, and therefore not under the jurisdiction of US agencies/regulations such as FDA and OSHA. Also, the novel was published in 1964, and OSHA was created in 1970. – Acccumulation Jan 21 '22 at 22:48
5

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.

BCLC
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Zach Lipton
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    Interestingly in the ongoing saga of loot boxes, one work around I've seen to is place a minimum guaranteed prize equal in value to the consideration plus the chance to win something more. They then argue the extra prize has no associated consideration. – David Waterworth Jan 21 '22 at 00:42
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    Promotional Management Companies also get around laws that state the entity promoting the contest cannot run the contest. A well known fast food company can promote their contest and pay the PMC to run it for them, while offering to distribute the game pieces on their products (which aren't charged extra). Fun fact, McDonald's will almost always have a game piece given with a Fish Filet sandwich because they are Incredibly popular with Catholics, who cannot eat meat except seafood on Ash Wednesday and Fridays in Lent. It's often jokingly called a "Catholic Big Mac". – hszmv Jan 21 '22 at 16:15
  • "something of value that you give up to enter" I think it has to be "given to the contest organizers" rather than "given up", as it's legal to require people to use stamps. – Acccumulation Jan 21 '22 at 22:51
  • @DavidWaterworth If they're selling it, that's rather strong evidence that its value is less than the price charged for it. And what is the "value" of loot boxes, anyway? – Acccumulation Jan 21 '22 at 22:51
  • @Acccumulation yes but you can buy the same amount of in game currency as the cost of the lootbox which gives you the ingame currency and maybe more - hence the argument re value (it's a one off Christmas event - otherwise obviously no one would buy the ingame currency instead of the lootbox) – David Waterworth Jan 23 '22 at 23:42
  • @DavidWaterworth But that puts it in the same category as a sweepstakes that requires purchase. If a store normally sells a bottle of wine for $20, but they have a special where they sell a bottle of wine and a lottery ticket for $20, that's gambling. – Acccumulation Jan 24 '22 at 21:54
  • @Acccumulation yes I believe so, the game developer seems not to agree but I don't think regulators have really gone after loot boxes much yet so they're still operating in a grey zone (in their eyes at least). – David Waterworth Jan 25 '22 at 22:38