drawing to win a 10th sandwich,” it
would be deemed an illegal lottery
because all three elements of prize (10th
sandwich), chance (random drawing) and
consideration (buying 9 sandwiches) are
Gender-specific promotions could give
rise to discrimination claims. California-based Major League Baseball teams have
been sued for gender-specific Mother’s
Day giveaways under California’s Unruh
10 which prohibits businesses from
engaging in unreasonable, arbitrary or
invidious discrimination based on a person’s sex (among other protected classes).
11 The plaintiffs and their lawyers in
these cases also filed a multitude of similar
lawsuits against local bars and restaurants
for conducting “Ladies Nights,” in which
female customers were given free or discounted drinks while male customers did
not receive the same benefits.
Although Arizona does not have a law
specifically parallel to the Unruh Act, promoters should be aware that A.R.S. § 41-
1442(B) prohibits discrimination against
any person because of race, color, religion,
sex, national origin or ancestry in connection with the price or quality of goods and
services by or at any place of public accommodation.
13 As such, making giveaway items
available to all persons (regardless of gender
or any other protected class) will limit the
risk of a discrimination claim under A.R.S. §
Notably, “age” is not included in A.R.S.
§ 41-1442(B). As a result, most age-specific promotions are permissible. For example,
a restaurant is permitted to have a “Kids Eat
Free” promotion, and a baseball team is
allowed to have a special giveaway promotion in which only the first 5,000 children
under the age of 13 will receive a free bob-blehead toy. On the other end of the age
spectrum, businesses can also offer discounted rates to senior citizens without
being in violation of Arizona law.
may result in a different age restriction.
Liquor laws such as the Federal Alcohol
Administration Act and alcohol industry
standards prohibit the direct marketing of
alcohol to persons under the age of 21.
Accordingly, liquor industry promoters
should require that entrants be at least 21
years old in order to participate in a promotion.
When conducting a promotion catered
towards minors (persons under the age of
18), additional matters need to be taken
into consideration. General contract law
principles apply to commercial transactions
15 meaning that certain restrictions set forth in the official rules may not
be binding on the minor entrant. To
address this issue, the promotion should
require express parental consent to the
entry (much like youth sports participation
waivers). However, keep in mind that the
enforceability of a document signed by a
parent or legal guardian on behalf of a child
is still not settled in Arizona.
16 The most
conservative approach is to make the promotion open only to adult entrants, but the
prize will be awarded to a child designated
by the winner.
PHO TOS YNC © SHU T TERSTOCK.COM
Children’s Online Privacy Protection Act
(“COPPA”), which restricts the collection
of information of minors under the age of
13. COPPA requires the promoter to
obtain verifiable parental consent before
collecting personal information from children via the Internet.
6. Age Restrictions
Although certain age-specific promotions
are legal under Arizona law, promoters
should be aware of other age-related issues.
Generally, opening the promotion to only
persons 18 or older (the age of majority
in Arizona) is the safest route to take.
However, applicable laws and other issues
7. Online Issues
Whether through the promoter’s website or
social media avenues (e.g., Facebook and
Twitter), promotions activated on the
Internet give rise to many additional issues.
For example, an online promotion may be
subject to the laws of multiple jurisdictions.
Because most promotions laws are different
in every state, it is virtually impossible to
operate a promotion that complies with the
laws of all 50 states. Accordingly, the promoter should clearly state in the official rules
that the online promotion is governed by
Arizona law and open to only Arizona residents. Several safeguards can be used to
ensure entrants are in fact Arizona residents
(or at least located within Arizona) at the
time of entry. Such safeguards include requiring the entrant to provide his/her residence
on the entry form or using a checkbox
affidavit confirming that the entrant is eligible under the promotion’s official rules.
Promoters can also use an IP address verification system to ensure that the online entrants
are using computers located in Arizona.
If the promotion is open to minors,
promoters should be familiar with the
8. Tax Considerations
There are several tax implications associated
with the awarding of prizes. The Internal
Revenue Service generally characterizes promotions winnings as reportable ordinary
18 For sweepstakes, contests and
other promotions in which no entry fee is
required for participation, the promoter
must issue a Form 1099-MISC for a prize
valued at $600 or more.
The tax implications of winnings for winners of raffles and contests that required an
entry fee are handled differently, because the
entrants were required to provide monetary
consideration in order to participate.
Accordingly, such winnings are characterized
by the IRS as gambling winnings. In these
circumstances, the promoter must issue a
Form W2-G if the prize is valued at $600 or
more and the payout is at least 300 times the
cost of the raffle ticket.20 For example, the
tax form will not need to be issued if the
prize is valued at $1,000 and the cost of the
raffle ticket was $5. In such raffle, at least
5 300) would have to be awarded to a single winner before a Form W2-G
would need to be issued.
If any prize is valued at $5,000 or more,
the promoter is required to withhold 25