The other day I received an email from one of my competitors offering their customers a chance to win a prize with every order they place. At first it may sound like a perfectly reasonable promotion to run, but upon closer inspection it's actually illegal!
In order for a contest to not be considered an illegal lottery, there are three important words that must appear: NO PURCHASE NECESSARY.
There are three components to an illegal lottery: chance, consideration, and a prize. If only two elements exist, you have a perfectly legal contest. If all three exist, you are breaking federal gambling laws! I'll break down each piece:
Chance: If a contest is not skill-based, it falls into the category of chance.
Consideration: This basically means an entry fee. If there is a cost to enter the contest, then consideration exists. A postage stamp, for example, is not consideration. Requiring the customer to purchase a product, on the other hand, is a good example of consideration.
Prize: Without a prize you probably wouldn't have a contest.
This is why most contests you see advertised have fine print that instructs you to send a self-addressed stamped envelope for a free entry. If you run a contest, make sure you do the same!