Insider’s Tips to Run a Successful Contest for Small Businesses

Insiders Tips to Run a Successful Contest for Small Businesses image Legal NoticeInsiders Tips to Run a Successful Contest for Small Businesses

“No Purchase Necessary–” Okay, I know you’ve seen that line at least a hundred times before. There are a lot more considerations that you need to keep in mind when launching a successful and legal contest for prospects and customers. There are so many requirements and guidelines, it can be a bit dizzying for entrepreneurs to keep up.

After being at the forefront of a number of contests at Infusionsoft, I’m comfortable revealing some of the legwork that we put into our contests to ensure they are fair, functional and drives significant business value. While I’m no attorney (perhaps in my next life), this advice is not to be construed as legal advice. Regardless, my experience and advice here will help you steer clear from sticky situations when running contests.

Contests usually occur in two forms: a contest of skill and a contest of chance. The primary difference is that skill means that you will score and judge the entries; whereas, chance means that you will randomly select participants. Federal and state laws regulate these types of contests in an effort to prevent unregulated gambling.

Running contests can be a great method for businesses to raise awareness for their brand, launch new products and services, and have fun at the same time. Not everyone realizes how much work goes into a contest. At the outset, you need to think about the hook or the angle for the business, the benefits for entrants, the selection process and the legal terms that glue it all together. This can be a bit overwhelming the first time, but I’ll guide you through the rest here.

Lawful Contests & Sweepstakes

As a responsible business owner, you don’t want to break the law. There are various consumer protection laws that you must not break – and it’s easy to break them even if you never even intended to do it. There are four non-negotiable aspects when it comes to lawful contests operated by businesses:

  1. No Purchase Necessary – For contests of chance, federal law mandates that you cannot require, or even suggest, that purchasing improves the chances of winning a prize. For contests of skill, you must be up front about any and all purchasing requirements. Otherwise, you would be in essence, operating an illegal, unregulated lottery. If you have a contest geared toward customers, you must disqualify entries from people who purchased during your contest period. Non-profit organizations may be granted an exemption from their state regulators when funds that are raised are used exclusively for charitable purposes.
  2. Eligibility & Participation Requirements – You need to clearly articulate the grounds for eligibility. Think through the objective of the contest and any requirements you wish to impose on entrants. Be sure to define the contest period (dates), minimum age of entrants and exactly what is being awarded and when.
  3. Determination of Winners – You need to make your contest fair and equal among participants. You should be transparent about the selection process, explain what happens in the event of a tie, ability to exchange or modify prizes and how people can access or request the Winner’s List. Basically, this is needed so people have a fair chance at winning.
  4. Liability Release, Governing Law & Disputes– This is the stuff that lawyers LOVE TO WRITE IN CAPS. You need to make it clear that you won’t be liable for any reason in the event the contest was sabotaged or if an entry was destroyed. You also need to have a statement that releases your company of any liabilities including loss of life, damages, publicity, etc. You need to specify what statutory laws are in effect so people know what courts have jurisdiction. You also need to explain how disputes will be handled including arbitration, if applicable. And you must also include any additional binding rules and regulations that entrants must abide by.

Once you’ve got your terms written up, you’re not done. Many states, including my state, Arizona, require contest operators to notify their state officials about a contest — a process known as “registering.” For Arizona, operators don’t need to get prior consent to operate a lawful contest, but you must provide written notification about it. Every state will vary in its laws and requirements, so check with your local Attorney General’s Office for more information.

Drafting Contest Rules

While there can be any number of rules in a contest, consider these two points:

Your rules should be so iron-clad that people can’t manipulate your contest or otherwise find loopholes. The best ways I’ve found to achieve this, is to ask one of your shady, obnoxious friends to try to find a way to win. I come from a checkered past of malice and social engineering, so this works out in my favor. Be sure to explain what constitutes “cheating” and what causes someone to be disqualified. Expect that entrants may do the absolute minimum in order to win, even if you expected them to go above and beyond.

As long as your rules do not discriminate based on gender, race, ethnicity, country of origin, sexual preference or disabilities, you should be good to go. The rules have to be configured to discriminate only on the entry and not the person submitting it. You are allowed to exclude persons who are not able to enter into contracts (minors) or are unable to consume age-restricted products (like tobacco or alcohol).

Prizes, Value & Trademark Infringement

You must fully disclose the actual retail value of prizes that will be awarded. Additionally, you must explain the tax liabilities of the potential winners. When giving away prizes that contain a trademark from another company, you must disclose that those trademarks belong to other rights holders and that your contest has no affiliation with them.

A perfect example of this is when you run a giveaway for an Apple iPad®. Apple doesn’t want their brand damaged by your contest. Apple, in particular, is very aggressive about ensuring that contest operators do not infringe on their trademarks.

Notifying Winners

You need to make sure that you have a list of winners made available publicly and/or that people may contact you to receive a list of the winners. Providing your postal address and terms on how to much such a request are needed.

Related, you might want to secure permission to use the images, names, locations for marketing, advertising and sales purposes, too. If you don’t, someone could allege losses resulting from your use of their image publicly.

Use of Submitted Information

As many people know, there’s always a catch in entering contests. Sometimes that catch is that your business will market or make sales attempts toward them. You must make it clear exactly how you intend to use the information entrants provide. Specifically, you must make clear how you will use their email address, mailing address and phone numbers. You must also explain how people can opt-out of such contact from your business. The good news from this is this meets the minimum requirements to gain consent to contact people for marketing or sales purposes.

To be an awesome marketer, make these expectations clear on the contest entry form so there aren’t any surprises later. No matter what you put here, you need to be sure you meet the additional legal requirements of the Federal Trade Commission and your state’s consumer protection laws.

Final Thoughts

When people come to me and say, “Let’s run a contest,” you now see why I have a slight bit of trepidation, a heap of questions and put on my consumer advocacy hat. In the end, you want your contests to be fair, fun, and operated within the bounds and spirit of the law. I don’t think business owners (or fellow marketers) intend on maliciously operating a contest, but ignorance isn’t a very defensible excuse in the eyes of the law.

I definitely recommend seeking a qualified attorney who specializes in consumer protections and has experience with clients who have operated contests.

Once you’ve got a couple successful contests under your belt, the fear of the legal process fades away and you will in fact look forward to them. Even today, I still run my drafted contest rules past our attorneys just in case I missed something – as they’re well worth being involved in the process.

So, fellow entrepreneur, think of a great way to engage and reward your audience and do it right!

Image via Shutterstock

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