Sweepstakes and "no purchase necessary" drawings for charities

Our guide to raffles and gaming covers raffles, bingo and casino nights: games where people pay for a chance to win. This guide is about the other kind of prize drawing: the sweepstakes, where anyone can enter for free. Charities use them to grow an email list, add excitement to an appeal, or run a promotion with a sponsor. They can be a good tool, but only if "free to enter" is really true.

Raffle or sweepstakes: the three parts

IRS Publication 3079 describes a lottery as a type of wagering in which:

1. a prize is offered,
2. participants pay for the opportunity to win the prize, and
3. the prize is awarded by chance.

A raffle has all three, which is why it needs to fit within your state's charitable raffle law. A sweepstakes removes the second part: nobody has to pay to enter. Federal mail law defines a sweepstakes the same way, as "a game of chance for which no consideration is required to enter" (39 U.S.C. 3001(k)).

The hard part is the word "pay." It can mean more than buying a ticket. Florida's law on charitable drawings, for example, lists an entry fee, donation, payment, proof of purchase or contribution as things a free drawing can't require. So a drawing that's only open to people who give may well be treated as a raffle, not a sweepstakes.

Making "no purchase necessary" real

If you want to invite donations alongside a free drawing, the free way to enter has to be genuine. Florida's law on charitable drawings by chance shows what one state looks for. It allows certain tax-exempt organizations, including 501(c)(3)s, to run drawings, and makes it unlawful for them to:

• require an entry fee, donation, substantial consideration, payment, proof of purchase or contribution to enter or to be selected to win (though the organization may suggest a minimum donation),
• treat entrants who gave differently from those who didn't, or reject entries arbitrarily,
• make the drawing depend on selling a minimum number of tickets or raising a minimum amount,
• cancel the drawing, or fail to award all the prizes offered, or
• use false, deceptive or misleading advertising.

Florida also requires every brochure, advertisement, ticket or entry form to clearly state the rules, the organization's full name and principal place of business, where the prize money or prizes come from, the date, time and place of the drawing (with an exception for materials offered no more than three days before), and that no purchase or contribution is necessary.

Other states' rules differ, but the Florida list is a good test for any "free" drawing. If someone who gives nothing doesn't have the same chance, in practice as well as on paper, you may be running a raffle.

Sweepstakes by mail

If you mail sweepstakes entry materials, federal law (39 U.S.C. 3001(k)) treats them as nonmailable unless, among other things, they:

• state, in the mailing, the rules and the order or entry form, that no purchase is necessary to enter and that a purchase will not improve a person's chances of winning,
• state all the terms and conditions, including the rules and how to enter,
• name the sponsor or mailer, with its principal place of business or a contact address, and
• include rules that give the estimated odds of winning each prize, the quantity, estimated retail value and nature of each prize, and the schedule of any payments made over time.

The law also bars mailings that say someone is a winner when they haven't won, or that suggest people who don't buy may be dropped from future mailings. The statute speaks of purchases; if your mailing asks for donations, treat "no donation is necessary" the same way and say it just as clearly.

Sweepstakes with a business sponsor

Some states regulate prize promotions run alongside the sale of products or services, which can matter if a business sponsor runs a "chance to win" promotion that benefits your charity:

• New York. General Business Law § 369-e covers games of chance and similar promotions in connection with the promotion, advertising or sale of consumer products or services. When the total announced value of the prizes is more than $5,000, the operator must file a statement with the Secretary of State at least 30 days before the promotion starts, and keep a trust account or furnish a bond for the total value of the prizes.
• Florida. Section 849.094 covers "game promotions" connected with the sale of consumer products or services. When the total announced prizes are worth more than $5,000, the operator must file the rules and a list of prizes with the Department of Agriculture and Consumer Services at least 7 days before the promotion starts, set up a trust account to cover the prizes, and later report winners of prizes worth more than $25. The section says it doesn't apply to the activities of nonprofit organizations, so it matters mainly when a business runs the promotion.

If a sponsor proposes a promotion, agree in writing who is the operator, who files anything the state requires, who holds the prize money, and how your charity's name will be used. Our guide to corporate partnerships covers the rest of the agreement. If a business will advertise that buying its products helps your charity, ask your state charity regulator whether any registration or reporting applies.

Online sweepstakes

An online entry form makes it easy for people in every state to enter, which means the rules of every state may matter. Before you launch:

• Decide who can enter. You can limit entry to residents of states you've checked, and say so in the rules.
• Offer a free way to enter that's as easy as the paid route, and give it equal weight in the rules.
• Collect only the data you need, and say in the rules and your privacy policy how you'll use it. If you'll add entrants to your newsletter, say so and offer a way out.
• Check the platform's terms before you run a promotion on social media.

Prizes and taxes

Prizes have tax consequences for winners and reporting duties for you. Publication 3079 lists sweepstakes, wagering pools, lotteries and raffles together in its withholding rules. Our raffles and gaming guide explains Form W-2G and Schedule G; read it before you offer a valuable prize, and ask your accountant.

Official rules: what to include

Whatever your state, written official rules protect you and the entrants. Include:

• the sponsor's full name and address,
• who may enter (age, location) and who may not (for example, board members, staff and their families),
• how to enter for free, and any other way to enter,
• "No purchase or donation necessary. A donation will not improve your chances of winning."
• start and end dates and times, with the time zone,
• each prize, how many, and its estimated retail value,
• the odds, or how they're determined,
• how, when and where the winner will be chosen, and how they'll be told,
• what happens if a winner can't be reached or declines, and
• how you'll use entrants' information.

Sweepstakes checklist

• Anyone can enter free, and a gift doesn't improve their chances
• We've checked our state's law on charitable drawings, and any state where we invite entries
• Our materials say "no purchase or donation necessary" clearly, everywhere entry is offered
• Official rules list the sponsor, eligibility, dates, prizes and values, odds and how winners are chosen
• Mailed entry materials meet the federal sweepstakes disclosure rules
• Any business sponsor's promotion has a written agreement on who files and who holds the prizes
• We know the tax reporting for our prizes