Sweepstakes and contests seem like they’re a dime a dozen these days, and social media sites like Facebook and Twitter have made the administration of giveaways more accessible and user-friendly for even small business users.  We find that some businesses downplay the complexity of the rules and regulations governing these valuable promotional tools while others don’t even know such laws exist.  A case brought recently by the U.S. Department of Justice (“DOJ”) against the World Triathlon Corporation (best known for running Ironman® Competitions), however, should serve as a warning to think twice before running a sweepstakes or contest without conducting proper legal due diligence.

On May 12, 2015, the DOJ filed a complaint alleging that the World Triathlon Corporation (“WTC”) should forfeit $2,761,901 it obtained in entrance fees from various sweepstakes it conducted from 2013 to 2015.  According to the complaint, the WTC has run the “Ironman Lottery” (the “Lottery”) since 1983 as a means to provide athletes with an opportunity to compete in the Ironman World Championship if they did not otherwise qualify.  In 2015, the fee to enter the Lottery was $50, and participants had the option of purchasing “membership” in the Passport Club for an additional $50, which afforded them an increased chance of being selected in the Lottery.  Winners of the Lottery were selected in a random chance drawing and given the “prize” of participating in the Ironman World Championship.

The DOJ alleged that the requirement that people pay money to enter the Ironman Lottery was legal consideration in violation of Florida’s prohibition against lotteries, Fla. Stat. § 849.09, and, in turn, Title 18 of the United States Code, Section 1955, which makes it a crime to conduct an “illegal gambling business.” In its complaint, the DOJ sought to recover all money derived from the proceeds that could be traced to that unlawful activity:  (1) the lottery entrance fees and Passport Club fees collected between 2013 and 2015; (2) lottery entrance fees for two other 2014 lotteries with similar entrance fees; and (3) fees collected from the Ironman “Valentine’s Day Lottery” and the Ironman “Gift of Kona Drawing.”  Agreeing with the DOJ that the Ironman Lotteries were gambling, on May 14, 2013, the United States District Court in Tampa, Florida, issued an order authorizing the U.S. government the authority to seize the $2,761,901 in lottery proceeds.

The Ironman case demonstrates that running a compliant sweepstakes or contest may not be quite as simple as it may seem at face value, and getting it wrong can carry significant, and even criminal, penalties.  Moreover, it’s not only the DOJ that may bring a case against an illegal sweepstakes or contest—federal agencies like the Federal Trade Commission, the Federal Communications Commission, the United States Postal Service, state regulators like state Attorneys General, and self-regulatory bodies like the National Advertising Division and the Children’s Advertising Review Unit at the Better Business Bureau, have their own rules and overlapping jurisdiction in this area.

Sweepstakes and contests are governed by a complex system of rules and regulations, ranging from the criminal gambling laws to the informal rules imposed by the social media platforms and the broadcast networks.  Running one successfully may seem sometimes seem like a challenge equivalent to a triathlon, but working with competent counsel can simplify the process and ensure that your promotion doesn’t hit the wall at Heartbreak Hill.