Nonprofit fundraising is an important way to raise money for a good cause. However, it’s important to make sure that you are legally compliant when you are raising money.

Many nonprofit promotions take the form of sweepstakes or raffles, but there is a big difference between the two. In this article, we will discuss the difference between sweepstakes and raffles for nonprofits, and explain when a nonprofit promotion becomes an illegal lottery.

Sweepstakes vs Raffle for Nonprofit

Sweepstakes are games of chance where a prize is awarded to a lucky winner chosen at random. Raffles are different from sweepstakes because they involve the sale of tickets, and the winners are chosen through a random drawing. The key difference between these two promotions is that raffles require participants to purchase tickets, while sweepstakes do not.

There are cases where businesses are interested in running purchase-to-enter sweepstakes. They can be legally compliant if the legal aspects of the sweepstakes are correctly managed. For more information, check out our article on No Purchase Necessary Laws. 

Nonprofit Raffle

A nonprofit raffle is a fundraising effort that involves the drawing of lots to select a winner or winners if there are several prizes. An online raffle (also known as an electronic raffle) uses computers and technology for ticket sales, winner selection, and prize delivery.

A traditional raffle (also known as an offline or in-person raffle) involves the distribution of physical tickets on-site for a few hours during an event. The primary difference between online and conventional raffles is online raffles have their entire process online. This includes setting up a landing page with accessible payment options for ticket purchases and a digital prize. 

In The United States, just like in many other countries, only nonprofit entities can run raffles. 

Raffles are legal with various restrictions in 47 of the 50 states. The 3 states that prohibit raffles altogether are Alabama, Hawaii, and Utah. 

For more information on the difference between sweepstakes, raffle, and a lottery check out What’s the Difference Between a Sweepstakes, Contest, Game, Raffle and Giveaways and Which is More Popular?

Nonprofit Sweepstakes

Sweepstakes are similar to raffles in 2 ways: random selection of winners and distribution of prizes. The major distinction between them is in the method of entry. A participant does not have to purchase in order to enter a sweepstake—this is why sweepstakes are not considered gambling and can be offered throughout all 50 states.

When running a sweepstake, there are a few laws you need to pay attention to. Multiple agencies, including the FTC (Federal Trade Commission), USPS (United States Postal Service), FCC (Federal Communications Commission), and several state agencies regulate sweepstakes and giveaways. 

No Purchase Necessary laws state that you cannot ask entrants to make a purchase or provide some other form of consideration for entry. By offering sweepstakes, you may entice participants to donate as the primary point of entry as long as there is an alternate method of entry that does not require donations..

An alternate means of entry (AMOE) could be:

• An online entry form
• A mail-in entry
• An email entry
• A text message or phone entry 
• Via social media platforms like Facebook, Instagram, or Twitter
• In-person entry at stores, offices, or events

Is Your Nonprofit Fundraising an Illegal Lottery?

In the United States, only the government can run lotteries. They have both federal and state regulations in place for lotteries and must comply with the following:

1. A prize with monetary value
2. Luck. The outcome of the campaign is not dependent on skill.
3. “Consideration.” An entrance fee is required. This payment may be money or anything else that takes a significant amount of time away from the entrant or provides a benefit to the promotion’s sponsor.

So, what happens when nonprofits try to combine elements of both sweepstakes and raffles?

This is where things can get tricky, and it’s important to understand the law before you launch your promotion. If your nonprofit promotion involves the sale of tickets AND an element of chance, it will be considered an illegal lottery.

However, there are some exceptions to this rule. For example, if the prize is awarded based on skill, rather than chance, then your promotion may be considered a contest and not a lottery.

Here are some examples:

• Sweepstakes: Sweepstakes aren’t classified as lotteries since there is no purchase necessary to enter—only a prize and luck.
• Contests: Although most contests provide a prize and consideration, they are not luck-based. True contests are trials of skill, which removes the element of chance from the equation.
• Raffles: Raffles are a gray area and are seen as lotteries in certain states. 

Conclusion

Promotions are a great way to raise money for your organization, but they can also create issues, especially if they aren’t structured properly under federal and state regulations.

If you are unsure whether or not your nonprofit fundraising is sweepstakes, raffle, or illegal lottery, it’s always best to consult with an experienced sweepstakes administrator like Sweeppea. This will ensure that you are following the law and that your promotion is fair and legal. Need help with sweepstakes or contest management? Call 305-505-5393 or email us with your questions.

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Are you planning to run sweepstakes for brand awareness, lead generation, or sales? Before you do, ensure that you are compliant with sweepstakes laws.

Sweepstakes are a great marketing tool for your brand. 

However, sweepstakes are different from contests or lotteries. A contest is where the winner(s) are selected based on skills and can be offered by brands, while a lottery is a game of chance and must be state- or federally sanctioned. Sweepstakes, on the other hand, is also known as a giveaway and a game of chance, but they can be run by brands. 

Overall, sweepstakes are largely used for promotional purposes and can be an effective way to raise brand awareness and increase visibility. It is important to know that sweepstakes are governed by different laws and regulations within the United States — both state and federal laws.

Why Do You Need to Comply with Sweepstakes Law?

Before running sweepstakes for your brand, make sure that you are compliant with sweepstakes laws, rules, and regulations. Here are the reasons why:

1. Avoid Legal Risk 

A sweepstakes law, if disregarded, might increase legal risk. Your business can face substantial fines if you run illegal sweepstakes. There have been incidents involving lawsuits against sweepstakes sponsors.

2. Avoid Bad Publicity for Your Brand

Building a brand relies on trust and running illegal or poorly designed sweepstakes may break that trust. Participants commenting or complaining about the unfairness or inequity of the promotion or how the rules were not followed may damage the relationships you built with your target audience and partners.

3. Avoid Putting Other People at Risk

When people enter your sweepstakes, they are entrusting you with their information — mostly personal information. It is crucial to make these people feel safe in handing you their information.

Looking into sweepstakes law compliance is your number one priority. Here are some of the major sweepstakes law compliance tips for your brand:

1. Official Rules

First thing’s first — draft your official rules. This set of rules must align with your local, state, and federal laws. Promotion details should exist within these official rules including how many times a person may enter, or the start and end dates of the promotion.

Many brands often make the mistake of selecting a non-compliant sweepstakes software, forgetting to properly include the set of official rules, and then dealing with the consequences later. Sweeppea offers a compliant self-serving platform where you can run legally compliant sweepstakes.

Additionally, it is advisable to get a proper legal consultation or hire a Sweepstakes administration company to ensure full sweepstakes law compliance.

2. Privacy Policy

Privacy Policy is a vital part of running sweepstakes. A privacy policy discloses how personal information will be used. If you are going to use the participants’ information to build audience profiles, email marketing lists, and other marketing assets, make sure that a link to your Privacy Policy is included in the sweepstakes official rules.

3. State Registration & Surety Bonding

Did you know that certain states require sweepstakes bonding and registration? These may vary based on the prize value.

For example, in New York, the state requires registration and bonding if the prize is more than $5,000 in value. The same goes for Florida.

Rhode Island requires registration for prizes valued at $500 or more. There are different state laws and regulations for sweepstakes registration and bonding.

4. NO PURCHASE NECESSARY & Other Eligibility Requirements

It is important to note that according to the Federal Trade Commission (FTC), a sweepstakes promotion that requires a purchase is illegal in the United States and is considered an illegal lottery.

No Purchase Necessary is the first statement within official rules to protect the participants. Asking participants to take actions that require time, money, or effort is considered a consideration. Consideration can be tricky, as it’s best to consult proper legal services to ensure compliance.

Furthermore, you should also include an eligibility section, indicating who can participate and enter the sweepstakes. Is it limited to people’s residency, or age? This will help you protect your brand and hone in your target audience.

5. Abbreviated Rules

Abbreviated Rules are essentially a shortened version of the sweepstakes’ official rules. These may vary by state, which means they should be tailored based on the state’s law. For example, some states require that sweepstakes must disclose information such as the “No Purchase Necessary” statement, jurisdictions, eligibility requirements, and more.

In addition, some states have disclosures about details such as the size of the text in advertisements containing promotions.

6. Winners: Notifying, Affidavits, & Releases

It’s important for you to know that notifying the winners of the sweepstakes must happen before you formally announce the winners to your audience. The winner(s) should be required to sign an affidavit of eligibility to declare the winner(s) as eligible to win. This affidavit should be completed before they receive their prize.

Often, an affidavit of liability and publicity release is also required. This allows brands the right to use, display, and publish winners’ information on different promotional platforms including social media. More importantly, liability statements release your brands from claims or other legal risks. 

7. 1099 Forms

What are 1099 Forms? It reports certain types of non-employment income that a taxpayer earned. The Internal Revenue Service (IRS) requires sweepstakes winners to declare their prizes in their income. So along with the affidavits, winners will receive a 1099 form for the value of the prize. You will need the winner(s) social security number, which is typically requested in the affidavit they will sign if they decide to accept the prize.

These are some of the most important sweepstakes law compliance tips to follow. There are other rules and regulations such as social media policies if you decide to promote your sweepstakes on social media.

Conclusion

Running sweepstakes for brand awareness is an effective marketing strategy. However, not complying with sweepstakes law is risky. Don’t put your brand at risk. Get a proper legal consultation or hire a Sweepstakes administration company that understands the law and can protect your brand.

Need help with sweepstakes or contest management? Call 305-505-5393 or email us with your questions.

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