Last week, Florida Governor Rick Scott signed into law FL HB 155, a bill that makes significant changes to the Florida Game Promotion Statute with regard to nonprofits and could have a significant effect on certain charitable promotions.  The bill, entitled “Prohibition of Electronic Gaming Devices,” was intended to clarify Florida’s prohibition on electronic gambling and slot machines and make it clear that the exception to prohibited lotteries for charitable drawings does not provide an exemption from other gaming prohibitions.  The way in which the language of the amendments to the existing statute was drafted, however, could be interpreted to prohibit gaming promotions in a cause-related marketing campaign (a type of marketing campaign where it is advertised that the purchase of a good or service will benefit a charitable cause).

The bill, which moved quickly through the Florida legislature a couple of weeks ago, was likely a reaction to the recent publicity surrounding former Lt. Gov. Jennifer Carroll’s resignation.  Ms. Carroll had been involved with a nonprofit 501(c)(3) known as Allied Veterans of the World that operated more than 36 Internet cafes throughout Florida that allowed players to reserve computer time and then use the computers to check instant numbers.  The operation brought in millions in profits to Allied Veterans, but, reportedly, only 2% of those millions went to veteran’s causes, while the rest of the income was allegedly paid to a for-profit subsidiary and then transferred to the pockets of two individuals.  Ms. Carroll was previously a paid consultant to Allied Veterans, and in 2011 – when she was a member of the Florida House of Representatives – she introduced legislation that would have explicitly declared electronic gaming activity of the type conducted by Allied Veterans permissible.  That legislation was withdrawn two days after its introduction, and HB 155 was subsequently introduced in an effort to prohibit future use of this type of “sweepstakes game machine,” and similar collaborations between commercial and nonprofit entities.

Like many states, Florida provides an exception to the general prohibition against lotteries so that certain nonprofit organizations may conduct drawings and raffles, so long as the charitable organization follows specific requirements related to disclosures and rules of the raffle.  The new law revises the definition of drawings and raffles that may lawfully be conducted by charitable nonprofit organizations, adding that permissible charitable drawings do not include “game promotions.”  A game promotion is defined by statute as “a contest, game of chance, sweepstakes, or gift enterprise, conducted by an operator within or throughout the state or other states in connection with and incidental to the sale of consumer products or services, and in which the elements of chance and prize are present” (emphasis added).

The law also also defines an “operator” of a game promotion as a “retailer who operates a game promotion or any person, firm, corporation, organization, or association or agent or employee thereof who promotes, operates, or conducts a nationally advertised game promotion” (emphasis added), which leaves open the  question of whether regional or local game promotions are prohibited or permitted.  In addition, new provisions define a slot machine as a device that can be activated not only with a coin but also with a code, number, or information, which would potentially extend the definition to prohibit prize contests conducted through mobile devices or even online that involve entering a code, number, or other information.

While the clear intent of the law was to close down cyber-cafes in Florida, and legitimate promotions were presumably not intentionally targeted, a plain language reading of the amended law suggests that cause-marketing game promotions are prohibited as “in connection with and incidental to” the sale of products or services.  Although game promotions might lawfully be conducted by for-profit entities as an advertising and marketing tool in national advertising campaigns, the amended law would arguably prohibit charitable/nonprofit organizations from conducting such promotions – and leaves cause-marketing promotions that involve a sweepstakes or game in legal limbo, at least for now.

Charities are still allowed to conduct raffles or games of chance that are not incidental to the sale of consumer products or services, provided the charity meets other requirements for the promotion specified in the statute.  These requirements include making certain disclosures, such as the sponsor name and address and prize award dates, on all raffle ads.  The statute also requires clear disclosures that no purchase or contribution is necessary to enter the raffle; at most, any fee associated with an entry fee may be a “suggested minimum donation.”

The Florida Department of Agriculture and Consumer Services has released an alert regarding the new law that makes it clear that gaming promotions may not be conducted by nonprofit charitable organizations and that violation of the law constitutes a deceptive and unfair trade practice under the Florida Deceptive and Unfair Trade Practices Act.

Venable is involved in efforts to seek clarification regarding the new law and its intended application, and our sources indicate that the Florida Department of Agriculture and Consumer Services may conduct a rulemaking or request legislative revisions to the new law.  The Florida legislature is in Regular Session until May 3, 2013.  Stay tuned for further updates.