Archive for May, 2010

Sweepstakes Explained

Tuesday, May 25th, 2010

Sweep-stakes [sweep-steyks] – noun.

“A sweepstakes is a legal contest or game where anything of value is distributed by lot or chance.” (from USLegal.com)

It is a self-funded promotion that offers a chance for participants to win. Winning sweepstakes entries are selected from a finite pool of entries. A Sweepstakes Internet Cafe is a business that uses sweepstakes promotions to market a product (frequently Internet time). Customers enter the Internet Cafe, purchase Internet access time, and are given free sweepstakes entries. The customers then surf the Internet and/or use computer terminals to reveal, in a very entertaining way, whether or not the free entries they received are winning entries.

Sweepstakes entries must be given away for free upon the purchase of a product (which can include goods, services, or intangible products). Thus, sweepstakes promotions are used to increase sales of that product.

Generally sweepstakes laws require a free, alternative method of entry into the sweepstakes as well. The McDonald’s Monopoly Game, for example, requires participants to mail in a self-addressed envelope to obtain a free entry.

It is critical to understand that the method used to reveal the sweepstakes entries and the way in which the results are displayed to the participant DOES NOT MATTER as long as it does not affect the results. McDonalds uses a Monopoly game wherein participants collect game pieces over time and stick them to a game board. Coca-Cola prints a number on the bottom of its bottle caps that participants must enter into a website on the Internet from their computer to participate in a simulated “Wheel of Fortune” game.

The results of the sweepstakes can be delivered or conveyed in ANY way. It doesn’t matter if the results are revealed by using a board game simulation (McDonalds), a computer website simulating a casino (Coca-Cola), a singing telegram, or a carrier pigeon! The method of displaying results does NOT affect the legality of the sweepstakes.

Some of the games used to reveal sweepstakes entry results on our sweepstakes platform resemble slot machines or have keno or poker themes. Consequently, participants may feel like they are actually playing casino games. Although sweepstakes games can resemble gambling (just like Coke’s simulated roulette), those that follow sweepstakes rules properly are legitimate, perfectly legal, and are definitively NOT gambling.

Finite Games

Tuesday, May 25th, 2010

A question that frequently arises is “what, exactly, is a finite system” or “what’s the difference between a finite system and games of chance?”

A true sweepstakes system is “fixed” or “finite”. When we say FIXED we don’t mean that it’s RIGGED. We mean that before the contest or sweepstakes even starts, we know with a 100% certainty what the outcome will be. We know exactly how many entries there will be, how many winners there will be, and how much each will win. We do NOT know WHO will win. This also applies to computer sweepstakes games in our sweepstakes internet cafe businesses.

Let’s use the McDonald’s Monopoly game as an example. These aren’t the exact numbers, but to illustrate the point we can say that McDonald’s knows that by the end of the contest there will only be a fixed, or finite, number of grand prize winners. If the maximum prize is a million dollars and in order to win this prize participants need to get the Park Place piece and the Boardwalk piece of the Monopoly game, McDonalds may only print 4 Boardwalk pieces. McDonald’s knows that there can NEVER be more than 4 grand prize winners.

This is because the McDonald’s Monopoly game is a FIXED or a FINITE sweepstakes system.

Here’s another example. Let’s play a game. I have a can with 7 marbles in it. Six of the marbles are white and one of them is red. Seven different people each pay $1 to pick one marble. The person that picks the red marble wins $5. In this case we don’t know who will win (that part is random), but we DO know that only ONE person will win and we know exactly how much that person will win ($5). We also know that I will end up keeping $2 every time. This is a FINITE system.

Compare this to a Vegas-style or RANDOM system. In this example 7 people roll a standard six-sided die. Everyone has to pay $1 to play. If any of them roll a SIX, I’ll give them $5. Statistically speaking, one of the seven people should roll a six in each round. However; it is possible, but not likely, that all seven people could roll a six and I’d have to pay out $35. If I played this game a million times, eventually the average payout would be about $5 per round. But since it’s NOT a “finite system” we never know for sure how much I’m going to be paying out every round.

Sweepstakes software that is truly based on a finite system does not involve random number generators (like a Vegas style game). The only luck involved is WHO will win each of the prizes in the computer sweepstakes. The exact total payout for each sweepstakes pool is predetermined and “revealed” by the computer sweepstakes machines.

The number of wins and the amount paid out is completely figured out in advance by the sweepstakes software–hence the term “finite” gaming.

Where Can I Legally Open a Sweepstakes Internet Cafe?

Tuesday, May 18th, 2010

We get this question all the time. “Can I start a sweepstakes business in Arkansas?” or “I’m interested in starting an Internet sweepstakes cafe in North Carolina” or “What about Cleveland?” or “I live in New York and was visiting my sister in Florida. I saw Internet sweepstakes machines there and want to start a business like that where I live.” Is it legal?

We would never presume to know every law about each city, county, and state (or COUNTRY!). No kidding, we get international calls fairly regularly, especially people interested in sweepstakes gaming in Central and South America. Furthermore, we are not a law firm and cannot legally give… well… legal advice!

We have retained a few of the very best sweepstakes attorneys in the nation who help guide us through our sweepstakes platform design and give general direction on a national level. But most of the legal information we have about specific jurisdictions is gathered from people who are “in the trenches”. We talk to LOTS of people about the sweepstakes business every day. Some of them are running their own sweepstakes cafes, some of them are doing research trying to open a new sweepstakes internet cafe, some work with sweepstakes software companies, and some are distributing internet kiosks. From these people we get a picture of what’s going on in the legal world of sweepstakes. But I want to repeat–we don’t profess to know everything about the law in your city!

Anyone considering entering the business of opening an Internet cafe with sweepstakes promotions should do a little homework to determine whether or not the business model is accepted in their city, county, or state. How is this done? Start with the local government offices. City offices or County offices will frequently be able to tell you if there will be any legal issues with your new sweepstakes business.

When you go to obtain a business license, TELL THEM what you’re doing! Many people try to “sneak” their way into business, telling the city or the county that they’re a “business center”. Is this technically correct? Yes. Should you be required to explain your marketing plans to local law enforcement or to the city / county? Not really. When McDonald’s applies for a business license I’m sure they don’t tell the city that they’re part of a burger restaurant chain that will be using sweepstakes promotions. They just say they’re a burger joint. But in the interest of being CAUTIOUS, it makes sense to put it all out on the table. If there are going to be any issues with sweepstakes law or problems with what your sweepstakes business is doing, you want to find that out BEFORE you spend a bunch of money opening the business. When the stakes are high, don’t gamble with your investment! BE UPFRONT and FORTHCOMING.

The same people who try to “sneak something by” on the city or on local law enforcement are often shocked that a few months later the local authorities start harassing them because their “business center” appears to be a casino. This is one scenario where asking permission is MUCH better than asking forgiveness.

That said, there are a handful of states where computer sweepstakes businesses are absolutely going crazy right now. These include North Carolina, Florida, Texas, Ohio, and a few others. Some areas of Virginia have sweepstakes, some don’t. Arizona, Georgia, Arkansas, Louisiana, Oaklahoma, Mississippi, Kentucky, Michigan, Alabama, California… All have some level of Internet sweepstakes cafes. You’d be surprised where they’re popping up. I was visiting family in Idaho a few months back and saw one there. Some states require smaller setups (no more than 5-6 terminals) inside of another business. This is a PERFECT scenario for our proprietary Internet kiosks (sweepstakes Totems). Some states are MOSTLY good but have a few counties that are having troubles understanding the sweepstakes business concept. Ultimately ANY STATE that allows sweepstakes gaming should also allow sweepstakes Internet cafes. Can you play the McDonalds Monopoly game in your state? If the answer is YES, then you should also be able to open a sweepstakes Internet cafe in your state.

To my knowledge, the only state that has proactively passed a law to try to specifically eliminate sweepstakes Internet cafes is Utah. But that ruling is being challenged right now and will likely be overturned. Even if it isn’t overturned, clever sweepstakes software companies are busy creating sweepstakes machines that jump right around that law by offering sweepstakes games in less controversial formats–avoiding slots, keno, and card games. Should the method that is used to reveal the sweepstakes entries create a legal challenge? Absolutely not! But does it? Unfortunately, sometimes the answer is yes. However; unless a state is willing to take on McDonalds, Coca-Cola, Time Warner, and dozens of other extremely large companies with very deep pockets, it’s not going to be able to completely prohibit sweepstakes as a viable way of marketing and promoting products to customers.

Ultimately it’s up to YOU to make sure that you’ve done homework in your area. Talk to the city or county offices. Talk to the local law enforcement. Be straightforward and candid with them. Remember, honesty is the best policy. If you have any questions about what to tell them, ask us and we can help. That’s what we’re here for. Good luck with your business, good luck with your sweepstakes promotions, and stay out of trouble!