No Purchase Necessary Laws
If you're looking for an efficient way to engage your audience, drive powerful actions and grow your business, then there's no better option than running a contest or giveaway.
As powerful as contests, giveaways and other prize promotions can be, you need to exercise caution while running them. In most countries, contests, giveaways, lotteries, raffles, and other forms of promotions involving a prize are legally covered by gambling acts and No Purchase Necessary laws.
These are essentially laws which prevent companies from requiring users to purchase a product or provide other forms of consideration in order to enter a contest or giveaway. As you set up your campaign, you need to ensure that you aren't violating any No Purchase Necessary laws, as even a small mistake could lead to civil or criminal charges.
But don't let this put you off running a contest or giveaway, because contest marketing remains an incredibly powerful method for acquiring and retaining customers. In this post, we'll cover everything you need to know about No Purchase Necessary laws:
- Types of Campaigns Covered by No Purchase Necessary Laws
- Prize Promotion Laws in Specific Countries
- Choosing the Right Type of Campaign to Achieve Your Goals
Lotteries, Sweepstakes, Contests & Raffles
Any type of online contest you run will fall under one of the few distinct categories which all interact with No Purchase Necessary laws in different ways.
These are:
Lotteries
A lottery is a type of promotion which requires participants to make a purchase in order to enter a draw to win a prize.
In the U.S.A. and many other countries, lotteries are run by local, state, or federal governments and serve as a valuable revenue raising tool. As a result of this, lotteries are, for all intents and purposes, illegal unless you’re the government!
To help you ensure your campaign doesn't fall under the lottery category, we'll take you through exactly what a lottery is.
A lottery is defined by 3 key features:
- The promotion gives participants a chance to win money or a prize with value
- The winners are chosen at random (i.e. by chance)
- Participants need to buy tickets or otherwise procure consideration
That last word — consideration —is particularly important. It refers to buying entries with monetary or non-monetary actions.
- Monetary actions are any entry actions which require entrants to make a financial contribution. This includes purchasing a product or buying a lottery ticket.
- Non-monetary actions are entry actions which require entrants to forfeit a significant amount of their time to enter. This includes having to fill out an in-depth survey or make multiple visits to a store.
If you want to avoid violating No Purchase Necessary laws and ensure that your promotion is legal, you will need to eliminate one of the three defining factors of lotteries. This is something you can easily do by running one of the following types of promotional campaigns:
Sweepstakes/Giveaways
A sweepstake or giveaway is a type of promotion you can legally host as a business without violating any No Purchase Necessary laws. For a promotion to be considered a sweepstakes it must include three key features:
- The promotion gives participants a chance to win money or a prize with value
- The winners are chosen at random
- Any member of the public can participate without making a purchase or providing other forms of consideration
The main factor which separates a sweepstakes from a lottery is that no purchase is necessary for entry, making the promotion legal in most countries.
Despite the fact that you can't use sweepstakes or giveaways to incentivise purchases, there are still a number of other powerful actions you can use these campaigns to drive.
If you want to run your own giveaway and drive a host of powerful actions then you should check out Gleam's Competitions App. Using our powerful platform you will be able to easily set up highly effective giveaways which can drive email signups, social media interaction and a wide range of other actions.
Take a look at this demo we've put together to see a small sample of what's possible with Gleam. 👇
Learn More About Running a Giveaway With Gleam
Contests
A contest is a type of promotion you can run in which an element of skill is involved. For a promotion to be considered a contest, entries must be skill-based and winners must be chosen based on merit. Meaning they cannot be drawn randomly.
Examples of contests include:
- "Best Photo" Competition
- Voting Contest
- Sports-Based Contest
- Essay Competition
- "Tell us in less than 20 words..." Competition
When you run a skill-based contest, winners are not randomly drawn, hence removing one of the three defining features of a lottery. As a result, contests are not impeded by No Purchase Necessary laws.
In the U.S.A. and many other countries, this means that as long as you are drawing winners based on merit you are free to incorporate monetary or non-monetary consideration into your campaign.With this in mind, you can run campaigns which ask users to post photos of themselves with your product, videos of your product in use, or any number of other actions which would have otherwise been in violation of No Purchase Necessary laws.
If you want to see what your own photo contest could look like with Gleam's Competitions App, just check out the demo below:
Learn More About Running a Photo Contest
Raffles
A raffle is a lot like a lottery in the sense that users buy entries with money or other consideration (e.g. a donation). Then, a randomly drawn winner will be the recipient of a prize. However, there are two key features which differentiate raffles from lotteries:
- Raffles must have a winner every time, the prize pool cannot be "carried over".
- Raffles can be privately run.
This second point is an important one. It may make it seem like raffles are a roundabout way of running randomized giveaways that require consideration (i.e. lotteries), but this is not the case.
In the U.S.A., the U.K., and most other countries, raffles are limited to non-profit organisations. Exceptions are sometimes made for charitable events run by private organisations, but as a general rule raffles are off limits to all for-profit businesses.
Prize Promotion Laws in Specific Countries
Now that we've gone over the different types of promotions that you can and can't run, we're going to go over the specific No Purchase Necessary laws of certain countries:
- U.S.A.'s No Purchase Necessary Laws
- U.K.'s No Purchase Necessary Laws
- Canada's No Purchase Necessary Laws
- Australia's No Purchase Necessary Laws
- New Zealand's No Purchase Necessary Laws
- International No Purchase Necessary Laws
U.S.A.'s No Purchase Necessary Laws
The No Purchase Necessary laws in the U.S.A. are fairly straightforward. You cannot ask for a purchase or other forms of consideration as an entry for your contest or giveaway if winners are randomly selected. If you run a skill-based contest where winners are selected based on merit, you are free to ask for purchases or any other form of consideration.
If you're a for-profit business, you can legally run promotions like these in the U.S.A.:
Contest laws in the U.S.A are set and regulated by 4 different bodies:
The Federal Trade Commission
The FTC is a government-owned body that protects consumers. It doesn’t directly intervene in sweepstakes scams or illegal lotteries, but if someone registers a complaint, they are legally obligated to step in and conduct an investigation.
If this happens, you may end up getting prosecuted, charged, and potentially penalized by a local or federal government agency.
The Federal Communications Commision
The FCC is a federal body which regulates messages broadcast over all media including the Internet, television, and radio. This means it can step in and immediately cease a marketing campaign that appears to be promoting illegal contests.
The FCC’s mechanism of action is a lot like the FTC’s. If someone files a consumer complaint, the agency will step in to investigate and potentially take action.
Mail Carriers
According to Section 1303 of the United States Code (Chapter 18), the government can fine (and imprison) Postal Service workers who facilitate and enable businesses to run illegal contests. Due to this, most post organizations will step in and take action if they suspect you are violating the law.
State Laws
Promotions run by private businesses are governed by different laws depending on which state you operate in. For this reason, checking out your local laws or consulting a lawyer is always a good idea. The same applies for checking state laws before accepting entries from other states (or shipping prizes there).
U.K.'s No Purchase Necessary Laws
The No Purchase Necessary laws in the U.K. are fairly straightforward. You cannot ask for a purchase or other forms of consideration as an entry for your contest or giveaway if winners are randomly selected. If you run a skill-based contest where winners are selected based on merit, you are free to ask for purchases or any other form of consideration.
If you're a for-profit business, you can legally run these promotions in the U.K.:
Prize Competitions
In the U.K., Contests are classed as Prize Competitions. Prize Competitions are legal and do not need to adhere to any No Purchase Necessary laws as long as winners are determined through knowledge, skill or judgement (as opposed to luck), and that the the CAP code is adhered to.
The CAP code is a detailed set of rules which outlines how you may organize and promote a contest. It is enforced by the Advertising Standards Authority. The ASA rarely bothers businesses unprovoked, however their actions can be swift and unforgiving if they receive a consumer complaint.
If someone is a repeat offender, the ASA will call in the Office of Fair Trading; an organization that can literally shut down British businesses’ operations. This isn’t something you want, so it’s best to always stay on this governing body’s good side.
Free Draws
Another legal campaign you can run as a for-profit business in the U.K. is a Free Draw. A Free Draw is the same as what we have been referring to as Sweepstakes. They are promotions with randomly drawn winners and they are completely legal to run as long as no purchase is necessary for entry.
If you’re running a Sweepstakes or Giveaway in the U.S. you can almost always promote it in the U.K. without breaking any laws.
You can run your own Prize Competitions and Free Draws with Gleam's powerful Competitions App.Society Lotteries
In the U.K., Lotteries and Raffles are treated as one event type - a Society Lottery. This means that charities and private businesses running charitable fundraisers can run lotteries to collect money for donations and other causes. What matters is that the money ends up going to a “good cause". In order to run a Society Lottery, you must obtain a licence, unless you are running a Small Society Lottery.
A Small Society Lottery cannot have proceeds that exceed £20,000 for a single draw or aggregated proceeds in excess of £250,000 per calendar year. While a licence is not needed to run a Small Society Lottery, the lottery must be registered with the local authority in the area where the principal office of the society is located.
Canada's No Purchase Necessary Laws
In Canada, all promotional contests and giveaways are classed as Contests, and there are two types of Contests which you can legally run:
No Purchase Necessary Contests
A No Purchase Necessary Contest is similar to a Sweepstakes, except there are some key differences. Much like a Sweepstakes or Giveaway, you cannot require users to make a purchase or otherwise provide consideration in order to enter.
However, you also cannot draw winners based purely on chance. All contests run in Canada must include a skill testing componant. The easiest way to include this element into your contest is by having all participants complete a skill-testing question and then randomly drawing a winner from those who successfully answered the question. This will turn your contest into a legal game of mixed chance and skill.
For your skill-testing question, time-limited, multi-step and multi-operational mathematical questions without assistance are generally sufficient.
If you run your No Purchase Necessary Contest using Gleam's Competitions App then including a skill-testing question is a simple task. All you need to do is use our Secret Code Action to create a skill-testing question and make it mandatory so only users who correctly answer the question can access the other actions and enter the contest.
Canada Skill Testing Question Demo
Skill Based Contest
A Skill Based Contest is very similar to the type of promotion which is commonly referred to simply as a Contest. The winners of Skill Based Contests are determined purely based on merit, and since there is no element of chance in these contests, there is no need to include a skill-testing question.
If your contest winners are determined purely by skill without any element of chance, then you may be able to incentivise purchases or other forms of consideration. This includes running photo contests where users must send you a photo of themselves enjoying your product where the most creative entry is selected as the winning entry. You can read more about requiring purchase for entry here.
You can run your own No Purchase Necessary and Skill Based Contests with Gleam's powerful Competitions App.Australia's No Purchase Necessary Laws
If you're running a Competition or Giveaway in Australia then you don't need to worry about No Purchase Necessary Laws. You can freely ask individuals to buy a product or even give you money in exchange for entry into a promotion.
Australia is the only English-majority country where you can sell entries for money, or give them in exchange for other actions that would typically count as consideration. This is excellent news for marketers, and the reason Australia sees a relatively high number of contests.
When running a Competition or Giveaway in Australia, you do need to be mindful of any Competition Permits you may need. Many Australian states require you to obtain a permit before running a Competition, especially ones with an element of chance. If you want to learn more about Australian Competition Permits, just check out our helpful guide:
Learn More About Australian Competition Permits
New Zealand's No Purchase Necessary Laws
Prize promotions in New Zealand are covered by varying No Purchase Necessary Laws depending on the nature of the promotion. In New Zealand, Prize Promotions fall into three main categories:
- Skills Competitions (i.e. Contests)
- Prize Draws (i.e. Sweepstakes/Giveaways)
- Promotions which incorporate an element of both skill and chance
Skills Competitions
Skills Competitions are a type of Prize Promotion where winners are chosen based purely on merit. If a Competition satisfies this criteria, then No Purchase Necessary laws do not apply and contestants can be asked to pay a fee or purchase a product to enter.
You can learn more about the rules and laws surrounding Skills Competitions here.
Prize Draws
Prize draws are a type of promotion where winners are randomly drawn, they are essentially the same as a Sweepstakes or Giveaway.
When running a prize draw, you can ask users to purchase a product in order to enter the promotion as long as the promotion meets the requirements of a sales promotion scheme. The requirements are listed below:
- Participation in the prize promotion requires purchase of the goods or services being promoted for a price not exceeding the usual retail price.
- The entrant is not required to pay direct or indirect consideration to enter the promotion (other than purchasing the relevant goods or services).
- The date or period over which the outcome of the promotion will be determined is clear to the entrant at the time and place of sale.
- The promotion is run by the creator, distributor or vendor of goods or services to promote those goods or services.
- The promotion does not involve a gaming machine nor a restricted or prohibited prize.
Depending on the value of your prize and the turnover of your promotion you may need to acquire a licence from the Department of Internal Affairs. However, if no product purchases or fee payments are required to enter your promotion, no licence or permit will be necessary.
You can learn more about the rules and laws surrounding Prize Draws here.
Prize Promotions With Elements of Skill & Chance
If you're running a prize promotion where the outcome is based partially on skill and partially on chance (i.e. a promotion where participants who successfully answer a maths question go in the draw to win a prize) then you can ask users to purchase a product as a part of their entry as long as the promotion meets the requirements of a sales promotion scheme listed above.
Once again, depending on the value of your prize and the turnover of your promotion, you may need to acquire a licence from the Department of Internal Affairs. However, if no product purchases or fee payments are required to enter your promotion, then no licence or permit will be necessary.
You can learn more about the rules and laws surrounding these promotions here.
You can run your own Skills Competitions and Prize Draws with Gleam's powerful Competitions App.International No Purchase Necessary Laws
Broadly speaking, the U.S.A.'s promotional laws regarding contests and giveaways are generally found around most of the world.
Lotteries tend to be run by governments, Giveaways and Sweepstakes where winners are randomly selected tend to have strict No Purchase Necessary laws, and Contests where winners are decided on merit are typically allowed to incentivise purchases.
While you can use the laws and regulations of the U.S.A. and other English-speaking countries as a guideline, if you wish to run a promotion in a country not covered here, it's probably a good idea to seek legal counsel prior to running a campaign.
There are some countries in particular which you should consider very carefully before deciding to run a prize promotion in them. The following list of 13 countries have restrictive, sometimes-unique, promotion rules:
- South Korea
- Portugal
- Italy
- Austria
- China
- Russia
- Hong Kong
- Greece
- France
- Japan
- Spain
- The Czech Republic
- Germany
- South Korea
If you’d like to host a contest in any of these countries, we recommend getting legal counsel first. Most large corporations avoid running competitions in them, and you may want to do the same.
Choosing the Right Type of Campaign
Now that we've covered the types of prize promotions you can run legally and the variation of No Purchase Necessary Laws in different countries, let's go through some of the most powerful objectives you can achieve from running a contest or giveaway.
No Purchase Necessary laws can often make it challenging to drive instant sales with a prize promotion, but there are loads of other goals you can use contests and giveaways to accomplish which will help you engage your audience, grow your brand and ultimately drive long-term sales.
- Traffic and Lead Generation
- Collecting User-Generated Content
- Market Research
- Customer Advocacy
- Instant Sales
Traffic and Lead Generation
One of the most powerful aspects of contests and giveaways are their ability to drive traffic and generate leads. If you want to grow your audience and expose your brand or product to a wide array of users, running a contest or giveaway can prove to be very effective.
If you are looking to grow your traffic and strengthen lead generation, it's important that you minimise the barriers to entry. You want as many people as possible to be able to enter your campaign, which means you should make entry fairly straightforward. You definitely shouldn't ask for purchases.
If you run your giveaway using Gleam's Competitions App then reaching out and engaging with a massive audience is easy. Using our social media actions for Facebook. Twitter, Instagram and more allow users to enter your campaign by completing various free social actions.
Gleam Competitions also includes a built-in Viral Share action which will incentivise peer-to-peer referrals and score your campaign a lot of extra attention.
Check them out here 👇
Collecting User-Generated Content
User-Generated Content is one of the most powerful tools a marketer can get their hands on. The authenticity and relatability of fan-made content makes it perfect for engaging an audience and developing brand trust. If you run a skill-based contest, you'll be able to collect user-generated content in droves.
Gleam makes running a photo contest a breeze so you can easily collect UGC, select winning entries and automatically surface high-quality content (check out our Voting Galleries) to display across social media or in a stunning Gleam Gallery.
If you're determining contest winners based on merit, you generally don't have to worry about No Purchase Necessary laws, so you can ask users to take a photo of themselves with your product without running the risk of violating any laws.
Learn More About Running a Photo Contest
Market Research
Sweepstakes and Giveaways can be used to generate and collect valuable market research which can help you gain a better understanding of your audience and improve your offering.
With Gleam's Competitions App you can run free-to-enter giveaways to procure customer feedback. You can use Question actions to encourage direct feedback on specific topics. You can also use Custom Actions to set up entry methods which allow users to enter your giveaway by leaving you a review or testimonial. This is a fantastic way to not only acquire useful feedback but to also incentivise the spread of some positive word of mouth on your platforms.
Customer Advocacy
If your main goal is to provide your customers with value and develop stronger consumer relations then running either a skill-based contest or a sweepstakes can help you reach your objectives.
No Purchase Necessary laws generally dictate that sweepstakes or giveaways can't be run exclusively for customers, but that doesn't mean that they can't be used for customer advocacy. By directing your marketing copy towards your existing customers and making them the focus of your promotional efforts, your campaign will still serve as an outstanding way to enhance your customer relationships, even if the giveaway isn't exclusively for them.
Plus, by making your giveaway accessible to everyone you put yourself in a position to attract and engage potential new customers.
Instant Sales
No Purchase Necessary laws can make using contests and giveaways to drive instant sales a challenge, but that doesn't mean it isn't still possible.
Skill-based contests where winners are chosen based on merit over chance generally allow for purchases to be included in entry requirements. A great way to utilize this is by running photo contests which offer prizes to users who submit images of themselves with your product. This is a great way to not only drive instant sales, but also collect valuable user-generated content.
There are some countries, such as Australia, where purchases can be required for entry into giveaways with randomly drawn winners. If you operate a business in a country with laws permitting this, it's a great idea to run a giveaway where people who purchase your product go into the draw to win a prize. This type of Competition is easy to set up with Gleam's Custom Actions, just make sure your campaign is 100% regulation-compliant.
Another less direct way to use contests and giveaways to drive sales is by using your contest or giveaway to attract attention and promote your brand, and then offering vouchers or coupons to all unsuccessful entrants as a consolation prize. Discounts are a great way to encourage purchases, and by offering them at a point in time when people's interest in you is at a peak you should be able convert a lot of users into customers.
Remember, No Purchase Necessary laws can often be vague and unclear. If you're still unclear about running a regulation-compliant campaign, it's still a good idea to seek legal advice.