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Contract Teardown

Online sweepstakes are a common technique for businesses to grow customers and brand awareness while also raising funds. Ideally these are a win-win for all parties: the business has a fun and accessible marketing scheme, and consumers get the excitement of participating in (and maybe winning) a low-stakes, high-value contest. However, when setting up a sweepstakes, it’s necessary to follow certain legal procedures.

Not everyone knows that these contests actually involve a contractual relationship between business and consumer. These aren’t your typical “read and sign” documents, but they still require businesses to draft their contest language using specific guidelines. If businesses don’t follow the marketing laws behind their campaign, they could end up with a PR nightmare on their hands.

Keep reading to see the language and approach of a recent sweepstakes by Audi Club of North America, in which one lucky participant won a 1985 Quattro Coupe. This high-stakes prize was valued at over $60,000, and had a nostalgic appeal reminiscent of Back to the Future . The example highlights lots of dos and don’ts of contracting for online marketing contests. It’s a great illustration of how legal expertise should always be at the center of any sweepstakes giveaway.

Questions in this Episode:

  1. Are sweepstakes legally binding?
  2. How do you enter for free?
  3. When do sweepstakes need a bond?
  4. Why do sweepstakes dislike Quebec?
  5. What compels businesses when drafting a sweepstakes?

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The Iconic Audi Quattro Sweepstakes

Starting January 11, 2022, the Audi Car Club of North American ran a six-month sweepstakes to raise money for their 501(c)3 organization to help operate their 32 chapters across North America. The clubs sponsor safe-driving clinics and other public programs like, winter skills training, teen driver safety, high performance driving and more. The prize was the spectacular and classic 1985 Audi Quattro Coupé, which was showcased at the Audi Allentown dealership.

The sweepstakes was administered by RallyUp, Inc. an online fundraising platform for nonprofit organizations. While the public sees the  gorgeous Quattro and the glitzy sweepstakes marketing, Attorney Lee analyzes the official rules, guidelines, and laws behind this and other sweepstakes contests.

How a Contest Creates a Legally Binding Contract

The RallyUp website is a well-crafted marketing page that instantly draws in the consumer. And although a sweepstakes creates a contractual relationship between the entrant and the company, that is not the feeling generated by this website.

Your first thought as you are captivated by the sleek lines of the silver Quattro in the photo that dominates your screen is, “How can I win this historic car?”

This web page is well designed  for marketing, branding, and user experience with great pictures and compelling content. To read the small-print legalese and rules, you have to click a hyperlink to get to the Official Rules page detailing the terms and conditions.

So what is the nature of these kinds of sweepstakes agreements that turns them into contracts?

Generally, companies are legally required to be clear and upfront about the rules of the sweepstakes, including the date the contest begins, the date of the drawing, and other rules of the contest.

In this sweepstakes, like in most others, you participate by entering the drawing for a fee. The more times you enter and the more fees you pay, the higher your odds are of winning. The company makes an offer, and the entrant accepts; hence the contractual relationship is formed. As long as you meet the requirements, like age and acceptable country of residence, you are forming a valid contract.

Enter for Free, if You Can Figure Out How

The site prominently states “No Purchase Necessary.” And that is true if you can figure out how to navigate your way through the process.

Paying an entrance fee is quick and easy. Entering for free is laborious and time-consuming. Understandable, since this is a fund-raising site.

To enter for free you have to find the inconspicuous link that takes you to the Official Rules. There you have to find the specific link that takes you to a page where you can request an  email form.Fill that out, wait for the email, and follow those instructions and you have entered for free. It is free, but it is not easy.

Describing the Prize

On the website, the car looks fantastic. And the marketing description is in full gear with phrases like “known as ‘ur quattro’ (German for “original quattro,” and “asserting the four rings as a rallying legend,” and “painted Zermatt Silver Metallic,” and “300 hp, sport shocks and springs, Porsche brakes, RECARO seats and more.”

But one descriptive fact required in most states is the dollar value of the prize. To find that number in this sweepstake, you have to click the link for the Official Rules, which states the approximate retail value of the car is $60,000.

The laws vary from state to state, but generally, the business has to list the prize’s fair market value. And this can be problematic when the company exagerates that value. If the company lists a value much higher than the prize, technically, in most states, they would have to make up that difference in cash or a quantifiable equivalent.

For example, if this car were worth only $3,000 and not $60,000, then the company would have to give the winner an additional $57,000 worth of value in addition to the car.

You May Need a Bond

Some states require bonds for prizes over a certain amount to protect consumers.

For example, suppose you are running a sweepstakes open to Florida or New York residents with a prize over $5,000. In that case, you are required to obtain a bond. Some states also require additional paperwork and fees.

But getting a bond can take more than a month, which can be a problem for promoters or businesses who did not plan ahead.

When that happens many businesses change the prize, so it is less than $5,000 or they hire a third-party company that already has a bond in place.

The Scope of the Sweepstakes

Businesses typically want to restrict their sweepstakes to their target audience and certain non-restrictive jurisdictions. But when a sweepstakes is on the internet, everyone visiting the landing page believes the contest is open to them.

To avoid problems with the wrong states or jurisdictions, your clients need to define the scope of the contest and designate who is and who is not eligible. And while many sweepstakes are national or international, all states and countries have different laws and regulations when it comes to sweepstakes. For example, suppose your client is running a national sweepstake. In that case, they should clearly disclose that it is limited to United States residents.

Why Sweepstakes Avoid Quebec

This offer is limited to United States and Canadian residents and explicitly excludes Quebec residents.

And in the world of sweepstakes, avoiding Quebec is quite common. Quebec had laws requiring sweepstakes promoters to register and pay a fee to the Province of Quebec and translate all materials into French if they wanted the resident of Quebec to be eligible. To avoid those extra issues, many sweepstakes simply excluded Quebec in their eligiblity requirements.

Just last year, Quebec abolished the marketing fee for international contests. But since they kept the translation requirement, many sweepstakes still avoid the province.

Audi Misstep # 1 – Right to Use Names, Likeness, and Quotes

Audi and RalllyUp did not include specific language allowing them to use the entrants’ names, likenesses, and quotes.

This is a legal and marketing miss for Audi. When drafting for your client, be sure to include appropriate permissions and rights so they can continue the buzz and the marketing campaign.

The language should allow your client to use the winner’s name, likeness, and quotes for business purposes. There is a considerable difference between describing the winner or showing a picture or video clip of the excited winner with their brand new Quattro.

Many sweepstakes make this general release a requirement for entering the contest or redeeming the prize. But state laws vary, and Tennessee is the one state that says you cannot require people to sign a publicity release as a requirement to redeem a sweepstakes prize.

But in every other state right now, it is legal to require that contestants provide you with that permission before they can redeem the prize.

Audi Misstep #2 – Claiming the Prize

Audi did not list the turnaround time for responding. This is language that your client should have in their agreement.

Once a drawing is done, sweepstakes promoters reach out to the winner and notify them. But what if the winner does not timely respond?  How long should the company wait before eliminating the first person drawn and going on to the next?

In this case, things turned out well, and the winner claimed the car.

But without proper language, this lack of clarity could lead to bad publicity and litigation.

Compelling Reasons for Clients to Do it Right

When advising your clients about drafting the best language for sweepstakes, there are definitely varying state and international laws and regulations that should be followed.

But in today’s world of instant communications, Tweets, Facebook, and Instagram, many clients are most concerned about their business reputation and brand.

One of the reasons for running sweepstakes is to improve brand awareness, in addition to raising funds. It is in the client’s best interest to run a sweepstakes where everything is spelled out clearly and easy to understand for the consumer.

This practice is good for legal compliance reasons but also for increasing brand trust with the public. Bad publicity is costly, while good publicity brings in revenue.

I think the more compelling reason for my clients is reputational. - Alina Lee #ContractTeardown Click To Tweet

Update – And the winner is……

The drawing for the Audi Quattro was held on July 7, 2022, after this Contract Teardown episode was recorded.

The winner is Erica Mouzon, who was ecstatic about winning this iconic Audi Coupé.

The Audi representative reported, “Congratulations! I had the pleasure of contacting Erica and she was more than thrilled to hear that she had won.  In fact, I think she blew out my eardrums…”

And that is great publicity!

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Show Notes

Businesses use sweepstakes to improve their brand awareness, increase their customer base, and raise funds. In this episode, attorney Alina Lee reviews a recent contest by the Audi Car Club of North America, in which the iconic 1985 Quattro Coupé was the winning prize. Lee explains what Audi did right and what they could have done better, and offers tips to advise your client on their next online marketing giveaway.

THE CONTRACT: Audi Sweepstakes Rules

THE GUEST: Alina Lee formerly served as in-house corporate counsel and outside counsel to public and private corporations. She now focuses on serving as an outside general counsel to companies in the marketing, tech, and consulting space.

THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com .

If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com .

Interview Transcript

Mike Whelan Hey everybody, welcome back to The Contract Teardown show. I’m here with Alina Lee. Alina, how are you today?

Alina Lee I’m great.

Mike Whelan We are having a conversation about a car, and it is a car like a Back to the Future car. And it’s so awesome. And it’s interesting, the context of this thing. This is a sweepstakes. I’m going to share the website that this comes from real quick with you guys. And also, it’s got one of these, if you click through, you can see the rules. Let me show you the rules real quick. Before we dig into it, Alina, what is this thing? When are we going to run into it?

Alina Lee So as a common marketing tactic, a lot of companies nowadays want to run these sweepstakes to promote their products or services or just promote their company and get people excited, get social media activity. And right here, we’ve got a sweepstakes hosted by Audi Club North America, which is a 501c3 on this website Rally Up, which provides sweepstakes platform for nonprofits.

Mike Whelan Right. And before we get into the awesomeness that is this car and the details of how you will win it, tell us about you real quick, Alina. What’s your background? What brings you to documents like this?

Alina Lee Great. My name is Alina Lee. I am the founding partner of my own law firm,  Your Ad Attorney, LLC. Ad, short for advertising. I help companies with their marketing and advertising compliance. And I also have another DBA for my law firm called Your Tech Attorney. I also help a lot of tech companies with their day-to-day legal work as well. Today, of course, we’ll be talking about the marketing law side. You know, in addition to reviewing all your standard marketing campaign stuff—your TV ads, your radio ads, your landing pages, your digital ads, your email marketing, your text messages—I also draft and structure sweepstakes giveaways and contests for you. And so that’s what we’re going to be talking about today. I work with a lot of different companies to help them structure these sweepstakes so that they stay legally compliant and limit their legal risk.

Mike Whelan And this is, like, we as lawyers obviously know that advertising compliance can be tricky, because when I practiced in Texas, I had to send them like $75 as an aside, plus every communication I ever thought to have. So we know there’s some compliance stuff, but this is an interesting context. I remember in the mid-Facebook days of ten years ago, everybody wanted to, “I’m just going to do a sweepstakes!,” and all these brands were doing sweepstakes, but it was creating a contract. So as we dig into this, we’re going to look first at the front page of this experience for a consumer, which is on this Rally Up website. You mentioned that this is a bit of an aggregator for different sweepstakes, but this bit of marketing is a contract. It’s creating a contractual relationship. So as we dig into this, talk to me about that. What is the nature of these kinds of sweepstakes agreements that turns them into a contract?

Alina Lee Sure. Basically, these are open offers which people can then accept during the term of the promotional period. So it is generally legally required that they are very upfront about when the offer expires. So the date that you have to, in this instance, enter into the drawing should be very clear and upfront. And as long as you meet the terms for basically providing an eligible entry, then you’re forming a contract with the party who’s making the offer.

Mike Whelan Got it. So offer acceptance, consideration—we’re going to do all the cool law cool stuff. [Both laugh.] Let’s talk first about what you have to do—you, the consumer— what you have to do to get what you want. So take me on—I’m on the marketing side of it, on the front page type of experience here. Tell me about on here, what it tells me I need to do to get something. What’s my side of this agreement as a consumer?

Alina Lee Great. So as a consumer, you’re like, wow, a free car potentially. How do I get this? Well, when you scroll down on the page, you can see that there is a way that you can purchase entries, and there’s different levels, and you can click one of these buttons and the program will take your credit card information and enter you into the sweepstakes for the number of entries that you purchased. You’ll also notice that it says in several places, no purchase necessary. It’s actually quite difficult to find where that is. In order to figure out how to enter for free, you do actually have to click into the official rules, read the official rules, find the specific link that provides you with the web page where you can then actually have to request a form for that is an email to you which you then fill out. So it is quite the process and certainly quite buried.

Mike Whelan Right, so I’m looking at the contract now, and it has a how to enter bit which is again, over to another link. So if I’m the consumer and I land on this page, I’ve now clicked more than one link to go figure out how to do this magical entry. And I’m looking at the bit of marketing material as sort of a contract cover page. Most of this page is not about the relationship between purchaser and seller. It’s not about the steps that people have to take. That’s all elsewhere. Most of this is a bit of marketing. It’s a description of the actual product. Before we get into what you get, tell me about that. Tell me about this car and how this bit of marketing handles describing it, and how that might impact the nature of the sweepstakes. Tell me about the car. The car’s awesome.

Alina Lee [Laughs] The car is great! I love this photo of the car. So first off, they do describe the car in some detail here, and then they do have a link to see more specs and there is a link there to see it. Normally in these types of sweepstakes, you do have to clearly disclose what the value of the car is. And I’m scrolling through this page now, and it is…it doesn’t appear abundantly clear to me, actually, I had to find it when I clicked into the official rules to see that they believe the value of this car could be 60,000 United States of America dollars, which is a lot of money for a 1985 car.

Mike Whelan And at the same time, still not enough. Look at that beast. It is sexy. There’s going to be some car aficionado watching this episode that’s like, “That’s an Audi 1985 Quattro Coupe sweeps”—you know, like, “This is awesome. I love this!” I don’t know.

Alina Lee There are only two in the world! [laughs]

Mike Whelan Yeah, this looks like my dad’s car. Just—side note, I remember my dad had a Mustang at about this time and it looked about like this, and we had this long driveway and he used to drive, and I would get behind it because I saw Back to the Future, and I’d have skates on, and I’d hang on to the back of my dad’s car while he, like, went down our mile-long driveway. I used to get in so much trouble. It was awesome. When you think about that, Alina, and what this car could provide for you in a Back to the Future reenactment, is $60,000 even enough? That’s what I want to know.

Alina Lee Yeah. I mean, to some people, this is priceless. [Both laugh.]

Mike Whelan That’s a good memory. So when you’re doing one of these sweepstakes, your point is, like one thing that you have to do is, yes, describe what it is that you get. But then it sounds like you have to be really particular about the description of the value of that thing. How, when you’re doing that, when you’re giving away, for example, a service, right? Like it’s my time or whatever, I’m going to give you a free consulting session or whatever. How do you have to come to the determination of the value of these offerings? Any rules for that?

Alina Lee Yes. So the law, which again, it’s a state by state basis for these sweepstakes laws, but in general, across the United States, you do have to list the fair market value. So if this specific car were put, you know, listed on…gosh, I don’t know, if it was sold by any of these like, you know, used car resellers, you know, how much would the real retail value be? And it can’t be higher than that, because what happens is if you list a retail value that is higher than the actual value, then technically you do have to provide the difference in the value to the person who wins. So you could in this case, they’re claiming at 60,000, if it is actually only worth $3,000, then you gotta give the person the car and then you potentially have to also pay them the difference, which is $57,000 or something of a similar value.

Mike Whelan Yeah. And I think you mentioned that some states even require that you have a bond to back up your claim that it’s worth $60,000. How do I go about getting that? What’s the rules for that bond backup?

Alina Lee That’s right. So in the United States, if you’re running a sweepstakes, that is— where the total value of the prizes is over $5,000, then in New York and Florida—if it’s open to residents in New York and Florida—you need to get a bond with the state. And it requires some additional paperwork, and paying some fees. And more importantly, it takes a bit of time. And so that’s where a lot of my clients kind of run into trouble, is they realize they’re under a lot of pressure to go ahead and run the sweepstakes in the next two weeks. Meanwhile, it’s going to take over a month to get the bond set up. So what they end up having to do is changing the prizes, so it’s under $5,000 or hiring a third party company that already has the bonds in place.

Mike Whelan Gotcha. All right. Well, speaking of, I was thinking about the, you know, the scope of the sweepstakes. You mentioned if it’s open to people who play in Florida or whatever. How do you advise clients to make that decision in terms of who it’s open to and how they restrict it? Obviously, you put something on the Internet, you know, anybody landing on this page thinks it’s open to them. Talk to me how you advise clients in terms of the scope of the thing and how you designate it in a way that doesn’t get them in trouble later with the wrong state.

Alina Lee Sure. So a lot of times my clients do business internationally and they also do business in many, many states. And so every country has different laws when it comes to sweepstakes. And, you know, I again, I am only licensed to practice law in the United States, so I try to help my clients navigate the US requirements. And then there are attorneys in other countries that can also advise on what they can and can’t do in other countries. But many other countries also require registering ahead of time, which requires hiring an attorney or a professional in that area to register for you. And so it’s just important to make sure, like, depending on your audience, that you’re clearly disclosing that it is limited to people in the United States. This particular offer is actually limited to the residents of the United States and Canada, excluding Quebec.

Mike Whelan It’s the French Canadians, every time! It’s Celine Dion, coming in and trying to take my super awesome car, then I’m going to do my Back to the Future reenactment on. Thanks, Celine.

Alina Lee Yeah, you’ll notice that’s a really common thing, “excluding Quebec.” And it’s because Quebec has a law that says you have to translate your marketing material into French if you want to make it available to their citizens—although they did recently—and they used to also require you paying a fee to Quebec—the province of Quebec. And so a lot of people just started excluding Quebec because they didn’t want to pay the fee, they didn’t want to register, and they didn’t want to translate it. Just last year, Quebec actually passed a law saying that they’re no longer requiring the fee or the registration as long as it’s international. So as long as it’s open to people outside of Canada as well. But they didn’t change the restriction on the translation, so I don’t think they’re getting the desired effect.

Mike Whelan Yeah, apparently everybody in Quebec wants to be involved in this purchase as well. Alright. Well, I want to talk to you about the big picture of using marketing in the way it creates contracts in this sort of conflict. Before we get to that, is there anything else in the actual rules in the PDF document that we’ll have attached that you want to underline?

Alina Lee So a few other things that are pretty important to keep in mind when you’re doing these, especially if you’re not a nonprofit, you are a for-profit company that is doing this again for marketing and advertising purposes. The whole point is marketing and advertising. So you’ll want to make sure that your terms specifically call out that you can use the prize winner’s name and photo and potentially quotes because you’ll want to continue your marketing campaign, right? To continue to get more buzz. And so these particular terms actually don’t include anything about obtaining somebody’s permission to use someone’s name and likeness or quotes to continue the marketing activities afterwards. That would be a big problem. In general in the United States, you’re not allowed to use somebody’s name, name, likeness or quotes for business purposes, like, for profit, without their consent. And actually, in Tennessee, there’s a specific law that says that you cannot require people to sign a publicity release in relation to…like, as a requirement to redeem a sweepstakes prize. But in every other state right now, it is legal to require that they provide you with that permission before they can redeem the prize. So that’s a big you know, that’s a big miss by Audi here if they are interested in continuing the buzz after this is over. Also, a few pretty big misses in here: They did not list what the turnaround time is for responding. So usually the way this works is people enter, there’s all these entries. As part of entering, you have to provide your email address, phone number, and then what you have to do is you do the drawing, it’s usually several months later, and then you reach out to the person who won. But if the person doesn’t respond usually within like two to four business days, then you get to move on to the next person and that first person’s no longer eligible. And you can see why this is important, right? Because you want to close out the sweepstakes. But if you never hear from the person and you didn’t say, like, in the rules, you get two business days or you get four business days to respond, then you’re kind of stuck, right? You could potentially, if you did move on, you could potentially have to give the prize to more than one person. So that’s a pretty big miss here. And then relatedly, delivery of the prize: Usually you want to be really clear to say that after all, you’ve been determined to be like the actual verified winner of the prize, the company has usually six to eight weeks to provide the—usually mail the prize to you or deliver the prize to you. Here, they didn’t say that at all.

Mike Whelan Imagine winning this thing and you’re the guy who didn’t respond in four days. And so somebody else got your Quattro Coupe. That would be the worst.

Alina Lee No, that person would be like, well, actually, I’m the real winner here. You know.

Mike Whelan I demand two, I would like one in silver—give me one in silver and one in red. Well, as we wrap up, I know when you’re dealing with clients—again, I remember the day when people were just putting things up on Facebook real quick because they want this outcome. And it’s a pretty effective marketing tool. But obviously, they come to you and you’re just like, rules, rules, rules. And they’re like, We hate you. We’re not doing this anymore or we’re not coming back. How do you think about these kinds of activities that have these compliance requirements and argue that these, you know, your clients should still work on these? What kind of—how do you talk clients through the decision-making process for using these kinds of tactics effectively?

Alina Lee I think it’s not just like a pure legal argument, right? I think it’s not very compelling to say like, well, technically it’s illegal if you do what you’re doing. I mean, it’s true, but that’s not a very compelling reason. I think the more compelling reason for my clients is reputational. So if you don’t cover yourself, you don’t clearly explain how it’s going to work. And then basically, you know, the winner is upset for whatever reason, they make a big splash about it in the news. You know, that bad publicity is, you know, you just turned a situation that was supposed to be positive publicity into bad publicity. And I think my clients are a lot more willing to spell things out and do things correctly when they realize it could be bad PR.

Mike Whelan And I guarantee you the bad publicity will spread way better than whatever your sweepstakes was. That would be an awesome story: I lost my 1985 Coupe that was going to change my life because this company is the worst. Yeah, that story will spread. Well, you know, it’s such a, I mean, sort of a niche thing and yet one that all kinds of people get involved in because we’re all on the internet. If people want to connect with you and learn how to use sweepstakes in their marketing in a way that doesn’t get them in trouble but is effective. Alina, what’s the best way for people to reach out to you?

Alina Lee So you can go to my website, which is your ad attorney dot com y-o-u-r-a-d-a-t-t-o-r-n-e-y dot com. And you can also email me at alina at your ad attorney dot com and Alina is spelled a-l-i-n-a.

Mike Whelan Perfect. Well, we’ll have that information, along with the picture of this awesome car and the documents that are relevant over at law insider dot com slash resources. And if you want to be a guest on The Contract Teardown Show, just email us. We are at community at law insider dot com. We would love to have you here to beat up some contracts. Alina, thank you for joining us and we will see you all next time.

Contributors

Alina Lee
Alina Lee
Founding Partner, Your Ad Attorney, LLC
Mike Whelan
Mike Whelan
CEO @Lawyer Forward

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