In 2012, marketing teams will spend less time defining the term “social media” for corporate executives and more resources justifying increased expenditures in cyber platforms that have questionable returns on investment. Despite the unknown value of social media, conventional wisdom seems to suggest that companies require some form of social media presence. Frankly, a lack thereof sends red flags to consumers that a brand is unsophisticated or out of date.
Dialogue between brands, existing consumers, and potential customers has evolved in these online social spaces. The increased convenience for consumers to share images, videos, and status updates through mobile devices has made social media extremely resource-efficient by providing customer satisfaction survey tools, customer acquisition mechanisms, and grass-roots marketing platforms. In an effort to increase social media participation, some of the more creative marketing teams have begun to engage consumers or lure new customers with promises of prizes.
While the marketing teams may not give much thought to product giveaways or contests, corporate counsel must be vigilant in overseeing how these campaigns are conducted. Such contests, sweepstakes, and giveaways in the social media space involve heightened responsibilities and potential pitfalls that can often be overlooked due to lack of experience or available resources.
Federal and State Laws Apply
It is important to understand the difference between contests and sweepstakes: contests are games of skill; sweepstakes are games of chance. This distinction is fundamentally important, because what a state might require for contests might be different from what it would require for sweepstakes. (Note that lotteries are prize drawings where people must make a purchase for a chance to win. Lotteries are highly regulated and are usually only legal if they are run by the state.)
Just like traditional sweepstakes and contests, social media promotions are still governed by federal and state laws, which can require registration, prohibit certain practices, and carefully define the limits of permissible promotions. Companies must be familiar with these laws and regulations, and ensure their careful compliance with them.
For example, some states require sponsors of a contest or sweepstake to register with the state before conducting the contest. Specifically, New York and Florida require registration with the Secretary of State where the approximate retail value of the prize exceeds $5,000. Similarly, in Rhode Island registration is required where the retail value of the prize exceeds $500 and the contest is run by a retail store. Other states, such as California, have laws or regulations that restrict sweepstakes in highly regulated industries including, but not limited to, alcohol, tobacco, weapons, motor fuel, and time-shares.
If you have neither the time nor resources to become familiar with these laws and regulations, it is imperative to hire or find someone with this expertise. For instance, in light of the recent question as to whether Twitter followers have “value,” requiring a user to “retweet” a tweet or “like” a brand on Facebook in order to win a prize could be construed as an illegal lottery. Unfortunately, ignorance of the law could result in government inquiries, civil enforcement actions, or—even worse—criminal penalties.
