I am considering running a regular stock picking contest with cash or
other prizes for registered users at my company web site. The site
provides stock selection tools (but not advice) in return for a
monthly subscription fee. My company is registered in Delaware, the site
is physically hosted in Florida and the service is marketed throughout
the US. Could such a contest be considered gambling under any state or
federal laws ? Are there any other legal or regulatory issues I should
consider before proceeding ?

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Request for Question Clarification by pafalafa-ga on 25 Oct 2005 04:23 PDT

Most contests seem to have a "no purchase necessary" option, which I
imagine is a legal requirement that distinguishes the contest from
gambling, where it is necessary to put up some cash, in order to
(maybe) make some cash.

Would you consider such an option for your site?  It could be, say, an
enter-by-mail option for those who are not yet registered at the site.
 Or, I suppose, it can be an online registration that involves
providing an email address, and agreeing to receive emails from you,
as a way of building up your distribution list.

If these are plausible options, let me know, and I'll see if I can
look into it a bit further from the legal perspective.


pafalafa-ga

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Clarification of Question by monsoons-ga on 25 Oct 2005 06:07 PDT

Yes, an acceptable option would be to allow everybody who has
registered on the site (by giving their name, e-mail address) to take
part in the contest even if they have not yet subscribed to the
service.

monsoons-ga,

Thanks for an interesting question.  Let me begin my answer with the
usual, but important, disclaimer:

As it says at the bottom of the page, Google Answers is not substitute
for professional advice.

Although I am confident in the information I am presenting here, it's
always the case that a recent or developing law case could change the
rules of game.  I suggest consulting with a legal professional before
going ahead with your plans.



That said, there are certainly no shortage of online contests and
sweepstakes, as you can see here:


http://www.online-sweepstakes.com/


where they list thousands of online sweepstakes.


The key to hosting these, and keeping them legal, is that the
sweepstakes must be free!


'Free' means more than just no money is charged.  It also means...

--the 'free' option must be made readily visible to users of the site

--the 'free' option must be easy to implement (e.g. if it's only free
if they show up in person in your office in Podunk, then that is not
easily implemented).

--the 'free' option should pretty much be no-strings-attached.


This last matter means that you cannot ask contestants for, say, a
whole lot of marketing information, or require them to fill out
detailed questionnaires.  The minimum information needed to enter the
contest is the best approach (e.g. tell us your name and email address
so we can contact you if you win).

I interpret this as meaning that you should go easy on any use of the
email lists, other than for winner-notification.  If you want to use
the emails (or other contact information) for future marketing, at the
very least, give contestants an opt-in check-off box where they can
let you know they'd like to receive materials.




Other things to be aware of:


--have participants attest to being over 18


--large prizes (over several thousand dollars) may trigger
contest-registration requirements with authorities in a few states
(notably, NY, FL, and RI).  I'm assuming your prize level will be
under these limits, however.


--rules should be clearly accessible on your site, and should clearly
explain what the prize is, how a winner will be chosen, how many
winners, etc.


--limit contestants to residents of the US, to avoid having to figure
out laws and restrictions in other countries.


--avoid use of the word 'contest' which can legally imply a game of
skill without a strong element of chance.


Here's a link to an online contest that very simply covers most of the
main elements I just described:



http://www.ice.com/customer/sweeps_Main.jsp?



Note, particularly, provisions 12-14 in the Rules, which are intended
to lessen the sponsor's liability in the event anything goes wrong. 
And things CAN go wrong, as covered in gory detail in this article:


http://www.lustigmanfirm.com/cgi-bin/safari/safari_retrv.pl?action=retrieve&&issue=6&&article=3
Daily News Sweeps Mess Offers Lesson


Note that the above firm also specializes in sweepstakes law, so they
are certainly a possible firm to contact for further advice in this
area.


Here's another overview article, also from a law firm with a specialty
in this area:


http://www.fredlaw.com/articles/marketing/mark_0310_srb.html



Here's another very useful article (even though dated from a few years
ago) that covers some of the main elements of law regarding online
contests and sweepstakes:


http://www.techfirm.com/InternetContests.htm
Online Contest or Illegal Lottery?



There's a lot written here about "games of skill", but I'd steer clear
of trying to get your event under this particular umbrella -- see the
example of picking winners of sports events to see some of the
pitfalls here.



I trust this information fully answers your question.

However, please don't rate this answer until you have everything you
need.  If there's anything more I can do for you, just post a Request
for Clarification, and I'm happy to assist you further.

pafalafa-ga


search strategy -- Google search on:

sweepstakes OR contests law

Thanks, very helpful.

I can't tell you for sure, but my guess is that you can avoid any
gambling implication by allowing people to participate without making
a purchase. This is why McDonald's allows you to get a contest
gamepiece by mail.

I spent two years doing sweepstakes and contest law. 

Do not do this. Florida is the most strict state for sweepstakes,
requiring registration and posting of a bond if it is even open to
residents of the state and the prizes are above a certain amount. NY
has similar laws. Also, Florida is very litigious in this area.  It is
against the law in all 50 states to hold an illegal lottery, defines
as a game comprising chance (which stocks will go up, thus who will
win), consideration (payment of the subscription fee, or other value
to the sponsor), and a prize (the money/prizes. Knock any one out and
you're ok. Kill chance and you have a contest, kill consideration and
you have a sweepstakes. If you do this, and you're site has really any
assets of consequence, you are putting them at risk.  You could either
kill the prize component or take out the consideration (ie everyone
whose stocks make 10%+ and everyone who emails you their contact info,
with the rules and alternate method of entry posted on a free section
of the site, will be entered into random drawing), but you'd still
have the NY/FL registration issues, and excluding residents of those
states isnt probably in your marketing plan.

Thanks, monsoons-ga.  Hope to see you again one of these days.

paf