Promosfera responds: prize-draws and -competitions in the United States

Useful information on prize-draws and -competitions in the United States

13/10/2021

Useful information on prize-draws and -competitions in the United States

Our “Promosfera responds” section continues!

This week we again respond to your questions and concerns about prize-draws and -competitions and gift with purchase promotions around the world.

This time we are talking about the United States with Chiara Napoli, International Senior Project Manager of Promosfera, to find out what mechanisms are allowed in that country and what prizes can be offered. 

 

What draw and competition mechanisms are not allowed in that country?
In the United States, most draw and competition mechanisms are legal but it is not possible to hold draw and competitions tied to purchases. 

Even a mechanism such as "take a photo with the product" and post it on Instagram or Facebook is forbidden in the United States because, although it largely pursues the objective of increasing awareness of the product, it still subtly incentivises sell-out since taking a photo with the product could imply the need to buy it.

In the United States, in order to be able to implement a draw or competition mechanism tied to a purchase, it is necessary that an alternative free participation mechanism is also offered that ensures exactly the same chances of winning and the same prizes, both to those who buy the product and those who participate for free.

The free alternative – which is often not easy to identify and reconcile with the principal mechanism – must be carefully designed, mediating between legislation and the objectives of the promotion in order not to invalidate the effectiveness of the draw or competition. 

 

What prizes is it forbidden to offer?
In general, there are no particular restrictions on prizes, except for certain categories of products. 

In the United States it is possible to offer money, indeed it is often highly recommended, especially in support of high-value prizes, such as a car or a dream vacation. 

This is because in the United States, the winner is heavily taxed on the prizes received, so much so that he/she often prefers to give up the prize rather than have to pay the taxes. 

For this reason, in order to support the winner in the payment of taxes, the promoter often offers a cash prize that will help the winner financially, encouraging him/her to accept the prize won. 

 

Is it mandatory to register a prize draw or competition in that country?
For certain types of draw or competition, with prize pools greater than a certain amount ($ 5000), in some States it is mandatory to register the contest and to request a prize bond too. 

It is also expected, if the draw or competition is organised in stores in the state of Rhode Island and the prize pool exceeds a set threshold, it must be registered in a particular fashion.

It should be borne in mind that, if the competition is organised to promote alcoholic drinks, prior approval must also be sought in certain States.

 

To learn more and to organise a prize-competition or -draw in the United States, contact us!

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