Sweepstakes, Contests, and Lotteries – Why You Need to Know the Differences

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I see a lot of Silhouette Cameo and Cricut small business owners using social media giveaways to promote their businesses. Overall, this is usually an effective way to grow your small business. However, I’ve seen a few lately that worry me. These are ones that state: “Get entered to win with a purchase” or “Purchase xyz product for a chance to win”. As small business owners, we can’t have giveaways that require purchases. Unfortunately, these types of giveaways are classified as lotteries – which are illegal. Let’s look more at this:

3 Types of Giveaways

Sweepstakes – These are random chance giveaways. All participants have an equal chance of winning the prize.

  • Examples: Pick the name of the winner from a hat or a random number generator.

Contests – In these types of giveaways, a participant submits something and it is judged – then a winner is picked.

  • Examples: Cutest customer photo wearing a shirt you made, or best caption on a photo for your upcoming product line.

Lotteries – In these types of giveaways, a participant buys their way in to get a chance to win. Lotteries in the USA are government run – and cannot be run by small business owners.

  • Example: Raffle tickets are sold for a chance to win a prize. (It’s important to note that in most states, raffles are allowed for non-profit companies – which most small businesses are not.)

Who Regulates Giveaways?

Sweepstakes, contests, and lotteries are regulated by the state or country in which the participant lives in. Additionally, Federal agencies such as the FTC and FCC oversee them.

How to Be Sure You Don’t Have a Lottery

  1. Be sure that your giveaways fall into the definitions above of sweepstakes or contests. Steer clear of lottery style giveaways.
  2. Be sure that your giveaway has clear terms including: 1) The prize to be won, 2) Define who can enter 3) Have a clear start and end date 4) Detail how to enter 5) Explain how to enter 6) Tell how the winner will be announced 7) Address what will happen in the event of technical difficulties.
  3. Research the laws that govern giveaways and contests.
  4. Reach out to an attorney for assistance for giveaways with high value prizes.

A Few Miscellaneous Facts

  • It is good to know that Canada prohibits random chance giveaways. Instead, giveaways must have some element of skill.
  • Prizes worth more than $600 in the USA need to be reported to the IRS.

Tell me, do you use giveaways to build your business?

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8 thoughts on “Sweepstakes, Contests, and Lotteries – Why You Need to Know the Differences”

  1. Hi Christine! I just published my first website and blog. It’s very much a work in progress. I have toggled back and forth with the idea of giveaways in order to market my page (not to mention, I love sharing products that I use and love). Thanks for this article– very well timed.

  2. Where would door prize be along these lines? There are several craft shows I am in that I’m required to donate an item toward a door prize. Also a group of crafters I’m in a shop with will be having an open house soon and plan to give away door prizes. Thanks.

    1. It would really depend on the setup. If there is no purchase necessary to receive a chance to win a door prize, you’d be fine. If you have to pay to enter – you’d need to check the state laws. For the craft show, checking legalities would be the responsibility of the organizers. Hope that helps!

      1. But your “donation” would be tax deductible as a cost of doing business . The materials. Not your time, unfortunately. So you couldn’t write off the full retail price.

  3. Wow, I had no idea! Thank you for this information. I am not established enough to do a giveaway yet, but I bookmarked this page to remind me when I am ready.

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