Follow, Like, Comment, and Repost to Enter!
By Lydia Kautsky · Wed, May 1, 2024 5:35 PM
What constitutes “consideration” for operating sweepstakes under California law?
Sweepstakes are a great method for building goodwill with customers, promoting products or services, or bringing attention to a brand or event. In the age of social media and digital supremacy, sweepstakes are simple and inexpensive to operate. The proliferation of online sweepstakes is evident in the gaming industry; publishers, content creators, and esports organizations consistently host sweepstakes to promote their brand and third-party sponsors. Despite being simple to operate, sweepstakes are governed by a patchwork of state law and regulations that make legal compliance complicated. This article investigates what sweepstakes entry methods constitute consideration under California law and legal precedent, in order to evaluate and determine best practices in operating sweepstakes within California.1
What is a Sweepstakes?
A sweepstakes is a type of giveaway that does not constitute an illegal lottery.2 Lotteries are criminalized under California law; California Penal Code §319 defines a lottery as “any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it…”3 There are three elements which can be distilled from this statute, each of which must be present for an activity to constitute a lottery: “(1) The disposition of property; (2) upon a contingency determined by chance, (3) to a person who has paid valuable consideration for the chance of winning the prize.”4 In other words, if (1) prize, (2) chance, and (3) consideration are all present in a giveaway, an illegal lottery is being operated; to transform an illegal lottery into a legal giveaway, operators must eliminate one of these three elements.
Awarding a prize and the random distribution of the prize are the core elements of a sweepstakes.5 Therefore, to ensure that a giveaway is a legal sweepstakes, operators must ensure the third element, consideration, is not present. Many modern sweepstakes operators often request that entrants follow, like, comment, and/or repost certain social media posts and/or pages to enter giveaways. Could requiring this type of action constitute consideration?
Consideration is a complex legal concept with no clear definition, particularly when it comes to operating sweepstakes. To legally operate sweepstakes in California, operators need to understand the current guidelines California law and court decisions have provided regarding what type of actions rise to the level of consideration, particularly in the age of technology, where entry methods for giveaways often include social media use.
What is Consideration?
At common law consideration is generally defined as “a promise, performance, or forbearance bargained by a promisor in exchange for their promise”6 in a contract. Within the context of operating sweepstakes, however, consideration is defined slightly differently. The California Supreme Court interprets California Penal Code §319 as follows: “In order to constitute consideration within the definition of a lottery, there must be a valuable consideration paid, or promised to be paid by the ticket holder.”7 This definition of consideration is not entirely clear, as it includes the defined term, consideration, in the definition.8 Defining something “valuable” is difficult to ascertain from the definition provided. Money, time and effort all hold value and therefore may rise to the level of consideration in the context of sweepstakes. California court decisions provide further guidance on what type of entry methods constitute consideration.
Case Law
California courts are clear that “the question of consideration is not to be determined from the standpoint of the” operator of the sweepstakes, but from that of the entrants in the sweepstakes.9 Rather than determining if the operator is receiving a benefit, operators must evaluate if value is being forfeited by the entrant in exchange for participation in the sweepstakes.10
In People v. Gonzales, patrons of a theater were given free tickets to enter a giveaway; they did not pay for the lottery tickets, but received them as a benefit of purchasing their theater tickets. Tickets were not distributed to any other individuals besides theater attendees. The court held that “the consideration to make such a transaction a lottery need not be paid exclusively for the chance to win the prize. It is sufficient that the consideration…be paid for something else and the chance to win the prize.”11 As a result, consideration does not need to be paid specifically to enter a lottery; if an individual is paying for something else, and an ancillary benefit of such payment is entrance into a giveaway, that payment is considered consideration to enter the giveaway, making the giveaway an illegal lottery.
Operators often get around the obstacle of consideration by offering a free method of entry. In People v. Cardas, a theater operator tried to operate a sweepstakes to give away two tickets to Catalina Island. While the theater did provide sweepstakes entry tickets to individuals who had purchased tickets to attend the theater, it also distributed sweepstakes entry tickets around the theater via 5,000 free pamphlets passed out to the general public and 2,000 free pamphlets distributed to passing motorists. Additionally, the giveaway was advertised outside the theater to the general public, and an employee was positioned outside the theater who would distribute sweepstakes entry tickets to anyone who requested an entry. In no instance were entrants required to pay the theater to receive a sweepstakes entry ticket or retrieve their prize.12 The court found that this was sufficient to remove consideration from the giveaway, classifying it as a legal sweepstakes. California courts have further articulated that in order for a giveaway to avoid consideration, the free method of entry must be available to all entrants; no entrant can be forced to pay in order to participate.13
California courts provide further guidance on what type of entry method is considered a “free” method of entry. In California Gasoline Retailers v. Regal Petroleum Corp., tickets to a giveaway were distributed by gas stations, whether individuals made purchases at the gas stations or not. To be eligible to win the giveaway, however, entrants needed to be present at the gas station at the time of the winner drawing. The California Supreme Court held that “in view of [California Penal Code 319] defining a lottery and which provides that the consideration necessary is a ‘valuable one’ paid, or promised to be paid by the one receiving the ticket, the fact that a ticket holder must go to the place of business of the sponsor of the scheme to deposit the ticket stub cannot be considered the necessary consideration.”14 As a result, the time and effort to travel to a specific destination to receive a prize does not rise to the level of consideration while operating a sweepstakes.15 In Haskell v. Time, the United States District Court in the Eastern District of California held that mailing in a postcard does not rise the level of “valuable consideration,” as it requires less time, energy and effort than requiring a entrant to deposit an entry form at the sponsor's place of business (which was ruled to be permissible per California Gasoline).16 In other words, despite the time, effort, and cost of mailing in an entry form, the consideration is so minimal that this entry method is considered “free.”
Although consideration in the context of sweepstakes is not entirely clear, we know from California statutes and case law that (1) something of value is consideration; (2) consideration must be evaluated from the perspective of what the entrant is giving in exchange to enter the sweepstakes; (3) payment for something else (such as entrance to a theater or membership in a club) that results in entry into a giveaway is consideration; (4) a free method of entry, available to anyone who requests, can be provided alongside a paid method of entry, and the giveaway will be considered a legal sweepstakes; (5) going to the place of business to enter the sweepstakes (or to receive the prize) does not rise to the level of consideration, despite the time and effort it may take the entrant; and (6) mailing in a postcard to enter a sweepstakes does not rise to the level of consideration, despite the time and effort it may take the entrant.
Analysis
The elements these decisions identify can guide operators in ensuring their giveaways are operated as legal sweepstakes in California. In the age of the internet, common sweepstakes entry methods include liking, following, commenting, reposting, or otherwise interacting with social media posts. There is no direct value paid by the entrant in order to follow, like, comment, or re-post a social media publication or page to enter a sweepstakes. Furthermore, in the constantly online world, interacting on social media takes very little time and effort, certainly less than physically going to a place of business to enter a giveaway or mailing a postcard.17 As a result, it is reasonable to consider liking, commenting, or reposting a social media publication or following a certain page as a free entrance method into a sweepstakes; such an entry method takes so little value (monetary or otherwise) from the entrant, it can certainly be argued to be a free method of entry. Unfortunately, there is very little modern case law directly analyzing the use of social media and the internet in the operation of sweepstakes. For this reason, many sweepstakes operators opt to include a mail-in entry form as an alternative method of entry because a mail-in entry form is a proven, accepted alternative method of entry method, despite the strong argument that interacting on social media does not rise to the level of consideration.
Modern Complications
Entering a sweepstakes through social media does require use of the internet and technology (phone, computer, etc.). In 2011 a class action suit was filed in New York against NBC, alleging that because viewers were charged a $.99 cent premium text charge in order to enter a sweepstakes, the sweepstakes (affiliated with America’s Got Talent) was actually an illegal lottery.18 The case was never decided; NBC settled by agreeing to repay each premium text charge to any affected entrant and 5.2 million in attorney’s fees.19 Despite settlement, the case raises an interesting issue – do the ancillary fees associated with modern technology constitute consideration? For example, accessing the internet costs money, owning a phone or computer costs money, and having a cell phone plan costs money; are these indirect fees considered consideration for entering a sweepstakes that requires entry through liking or sharing a post on social media? Is it enough that such a sweepstakes could be entered at a library, or at another location with free computers and internet access (such as a school)? It seems unlikely that such costs would be considered in the analysis of consideration; for example, in California Gasoline, there is no analysis of the ancillary costs of owning a car, or paying for public transportation, or anything else of value that may be needed for the entrant to physically travel to the location of the drawing. However, without case law directly reflecting modern sweepstakes entry methods, these ancillary costs are something to consider when operating sweepstakes in the modern age.
Conclusion
It is likely that liking, commenting, or reposting a social media publication or following a certain page is taking so little value from the entrant, it would not rise to the level of consideration under California law, and therefore a giveaway offering such entry methods would be considered a legal sweepstakes without being required to offer an alternative, free method of entry. There is no settled case law, however, supporting this conclusion. Until such direction is given from California courts (or the state legislature) publishers, content creators, and esports organizations hosting sweepstakes in California may want to consider including a free, alternative method of entry, such as mailing in an entry form, when operating a sweepstakes where the primary entrance method is interaction on social media.
1.
Please note that lottery, gambling, sweepstakes, and contest laws and regulations differ drastically from country-to-country and, within the United States, from state-to-state. Nothing herein should be used to inform decisions regarding operating sweepstakes in any country besides the United States of America or in any state besides California.
2.
California Penal Code §320 and 321; this is subject to certain exceptions, but generally applies to all for-profit businesses operating without specific permission from the State of California.
3.
California Penal Code §319.
4.
People v. Cardas, 137 Cal App.Supp. 788, 790 (1933), citing People v. Hecht, 119 Cal App. (Supp) 778.
5.
Generally, if the giveaway instead contains a prize and consideration, but eliminates the random distribution of the prize, and the prize is instead distributed based on skill, it is considered a contest. This varies slightly state-to-state; operators should contact their attorney for legal guidance on operating contests within the United States.
6.
https://www.law.cornell.edu/wex/consideration#:~:text=Consideration%20is%20a%20promise%2C%20performance,a%20contract%20cannot%20be%20enforceable.
7.
California Gasoline Retailers v. Regal Petroleum Corp, Supreme Court of California, 50 Cal.2d 844, 862 (1958), citing People v. Carpenter 141 Cal.App.2d 884.
8.
Consideration is also defined in California Civil Code §1605 as “Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise.” California courts have rejected the use of this definition while evaluating sweepstakes, simply stating that the plain provisions of the penal code must apply. Id.
9.
People v. Cardas, 137 Cal App.Supp. 788, 791 (1933).
10.
This perspective is highly variable state-to-to state. Other states consider benefits earned by the operator in evaluating consideration for sweepstakes; this interpretation is much more difficult for the operator, as even something as seemingly simple as data collected from the entrant can rise to the level of consideration if it brings benefit to the operator.
11.
Holmes v. Saunders, 114 Cal.App.2d 389, 390, 391, 250 P.2d 269, 270, distilling the ruling in People v. Gonzales 62 Cal.App 2d 274 (1944).
12.
People v. Cardas, 137 Cal App.Supp. 788, 789 (1933).
13.
People v. Shira, 62 Cal.App3d 442 (1976).
14.
California Gasoline Retailers v. Regal Petroleum Corp, Supreme Court of California, 50 Cal.2d 844, 862 (1958).
15.
The court does not discuss how onerous the travel may be in order to rise to the level of consideration. For example, would requiring an entrant to travel to a different state rise to the level of consideration? This issue is not discussed in this case, but is interesting to consider when determining how to operate a sweepstakes in California.
16.
Haskell v. Time, Inc., 857 F. Supp. 1392, 1404 (E.D. Cal. 1994). While not in california, in Pepsi Cola Bottling Co. of Luverne, Inc. v. Coca Cola Bottling Co., 534 So. 2d 295, 297 (Ala. 1988), the court ruled that entrants having to call or write the operator to receive entry forms was a free method of entry, again indicating that something which takes very little time or effort may not rise to the level of consideration.
17.
There are people and communities (even within the US) who may not have as easy access to the internet and social media. As a result, it could be argued that interacting on social media is burdensome to certain entrants.
18.
There is precedent in New York where a court ruled that a low cost entry method was considered “free”; in Glick v. MTV Networks, 796 F. Supp. 743, 748 (S.D.N.Y. 1992), the court determined that a $2 phone charge did not rise to the level of consideration. Although we don’t know how the court would have ruled in the America’s Got Talent suite, there is at least some existing precedent to support that this nominal fee would not rise to the level of consideration.