As most of the readers of this blog already know, a sweepstakes or contest that contains a prize, consideration, and chance may be found to be an illegal form of gambling in most states. For that reason, it is important to eliminate one of these elements of gambling if you intend to create a legal promotion.
When creating a sweepstakes it is important to determine if any form of consideration is required in order to participate. If consideration, such as paying money, making a purchase, writing an essay, answering a survey, and doing or contributing something else of value, is required the sponsor must either delete the requirement and/or add an alternative method of entry that is available to all potential entrants.
However, when creating a contest it is another of the three elements of gambling, i.e. chance, that needs to be analyzed to determine if luck plays a part in who will win a prize. The key threshold question when analyzing a contest is whether the promotion is a game of chance or a game of skill.
Many courts use what is called the “Dominant Factor Test” to determine whether a promotion is a game of skill or chance. This Test recognizes that most promotions involve some type of chance, therefore in those instances where some skill is included, the Test focuses on determining whether luck or skill is the more important aspect in selecting the winner.
There are four fundamental factors that are often used in the Test to determine if a contest is a game of skill.
- Is the contest impossible to win without skill and is there an opportunity to use the skill and information for entrants to make informed decisions?
- Does the average player have enough skill to participate in the game?
- Does skill determine the actual result of the game – not simply some aspect of the promotion?
- Are the participants aware of the skill and criteria that will be used to determine the winner?
Even though many courts use the Dominant Factor Test, their opinions may be difficult to predict. For example, contests that were found to be games of skill include Three Card Monte, video games that award free replays, word puzzle games, etc. At the same time, contests found to be a game of chance include shell games, dice games and bingo. Not surprisingly, some games, such as pin ball and poker, have been found to be a game of chance by some courts and a game of skill by others.
Determining whether a promotion is a game of skill or game of chance is not easy. Nevertheless, sponsors of contests need to be aware that it is essential to analyze their promotions to be sure that they know whether they are creating a game of skill or chance. This determination is best done by a lawyer who is familiar with these issues and particularly application of the Dominant Factor Test.
This post was written by retired Thompson Coburn partner Dale Joerling. If you have any questions about the topics discussed in this post, please contact Thompson Coburn partner Hap Burke.