Sweepstakes versus Lottery

WHAT’S THE DIFFERENCE BETWEEN SWEEPSTAKES AND LOTTERY?

Sweepstakes and lotteries are all useful mechanisms for promoting a company online. But only some can be done legally, so businesses need to know the difference between them, however, if they’re going to use one as a marketing tool or offer a giveaway for their business.

What’s a sweepstakes?

A sweepstakes is a promotional drawing in which prizes are given away at no charge to the participants. Winners are selected at random. It’s important to note: sweepstakes must generally be available at no charge (no purchase or consideration necessary to enter). And compared to a contest being a game of skill, sweepstakes are a game of chance.

Our winners are selected at random – for instance, we use a service like Random.org to ensure true randomness.

What’s a lottery?

A lottery is a means of raising money by selling numbered tickets and giving prizes to the holders of numbers drawn at random. For example, think of school fundraisers with raffles or your state’s lottery. The winner is chosen at random, like in a sweepstakes, but entrants have to pay to play (unlike a sweepstakes). A lottery is essentially a game of luck that has an entry fee.

Every state has strict laws barring private lotteries, however, and most lotteries for promotion of a business are going to be illegal lotteries. Sweepstakes must differentiate themselves from lotteries in order to stay within the law. Usually this is done by taking away the element of consideration (aka sweepstakes are usually free whereas lotteries are not).

Why do you need to know this?

We are in the business of offering sweepstakes. We have an official set of rules and make certain the sweepstakes is legitimately different from a private lottery. Any winnings you receive will need to be reported to the IRS or state taxing authorities.

This excerpt courtesy of Odin Law

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