Random Selection
Winners are chosen from all eligible entries by chance — no skill or judgment involved.
Sweepstakes vs. Contest vs. Lottery
An Evergreen Guide for Marketers, Brands & Promotion Sponsors
When planning a promotional campaign that includes prizes, it's vital to understand the legal differences between sweepstakes, contests, and lotteries. Getting it wrong can lead to major legal risks — including fines or enforcement action — because each type of promotion is treated differently under U.S. law and regulated at both the federal and state level.
This guide breaks down what each type is, how they differ, and how to make sure your promotion stays legal and compliant in 2026.
The Three Key Legal Elements
Most U.S. promotional law revolves around three core elements:
Prize: Something of value awarded to participants.
Chance: Winning is determined randomly.
Consideration: Participants must pay or give something of value to enter.
A promotion's legal classification depends on whether it contains two of these three elements — but not all three at once.
Quick Comparison Table
| Element | Sweepstakes | Contest | Lottery |
|---|---|---|---|
| Chance in Winner Selection | ✔ | ✖ | ✔ |
| Skill in Winner Selection | ✖ | ✔ | ✖ |
| Consideration (Payment/Value) | ✖ | ✔ possible | ✔ |
| Legal for Businesses? | ✔ (if AMOE provided) | ✔ | ✖ |
| Requires Skills | No | Yes | No |
Sweepstakes — Prize + Chance (No Consideration)
A sweepstakes is a promotion where winners are selected by random drawing and no purchase or entry fee is required. That means anyone who meets the eligibility criteria can enter for free.
Key Features of Sweepstakes
No Purchase Necessary
Entrants are not required to pay money or give something of value. If purchase entries are offered, you must also provide a free Alternate Method of Entry (AMOE), such as a mail-in form or online form.
Official Rules Required
Sweepstakes must disclose eligibility, dates, how to enter, prize value, and how winners are selected in clear official rules.
Because sweepstakes eliminate consideration, they are generally not considered illegal lotteries — provided all legal requirements are met.
Example: "Enter your email for a chance to win a gift card. No purchase necessary."
Contests — Prize + Consideration (No Chance)
A contest is based on participants demonstrating skill, talent, or effort. Winners are chosen based on objective criteria — not at random.
Key Features of Contests
Skill or Merit
Winners are evaluated based on judging criteria such as creativity, performance, or skill level.
May Require Consideration
Contests can require participants to invest time, effort, or even pay an entry fee in some cases, as long as winners are chosen on skill.
Official Rules Needed
Clear criteria for how entries are judged must be documented and disclosed in the rules before entries are accepted.
Because winners are based on skill rather than chance, true contests generally do not fall under lottery laws, but they do have their own legal and regulatory requirements.
Example: Photo or essay competitions where a panel of judges selects the best submission.
Lotteries — Prize + Chance + Consideration
Illegal Unless Government-Sponsored
A lottery is a promotion that includes all three elements: prize, chance, and consideration.
Why Lotteries Are Illegal for Businesses
In the United States, only government authorities are permitted to run lotteries. If your promotion requires an entry fee or something of value, selects winners randomly, and offers a prize of value, then it meets the definition of a lottery, which is generally illegal for private entities without proper licensing.
Example of an illegal lottery: "Pay $5 to enter for a chance to win $1,000."
The Legal Tests Behind the Definitions
Dominant Factor Test
U.S. courts sometimes use the Dominant Factor Test to determine whether chance or skill predominantly governs the outcome of a promotion. If chance outweighs skill, the promotion resembles a sweepstakes or lottery rather than a contest.
This is why careful drafting of official rules and entry requirements matters — a promotion described as a "contest" but determined by mostly random factors could still be treated as an illegal lottery.
Official Rules & Compliance Standards
No matter the type of promotion, official rules are critical. They must clearly state:
Eligibility rules (age, residency).
How to enter and how winners are chosen.
Prize details and approximate retail value (ARV).
Dates and deadlines.
No purchase necessary disclosures (if applicable).
For sweepstakes especially, rules must include AMOE language so entrants who don't purchase anything have equal access to winning.
State & Federal Considerations
Registration & Bonding
Sweepstakes with high prize values (often over $5,000) may require registration and surety bonds in states like New York and Florida before launch.
Tax Reporting
Sponsors must understand and disclose tax obligations for winners. Prizes of $2,000 or more generally require IRS reporting via a 1099-MISC form.
Contest Fees
Some states restrict what consideration can be charged in contests — even when based on skill. Always review applicable state laws before charging entry fees.
Practical Examples
Sweepstakes: Enter email for a chance to win concert tickets (chosen randomly).
Contest: Submit a creative design; best entry wins based on judging criteria.
Lottery (Illegal): Pay $5 to enter a random drawing for cash — illegal for private businesses.
Understanding these distinctions helps protect your brand and ensures your promotion is legal and fair. When in doubt, consult a legal professional or work with a professional sweepstakes administrator.
Final Legal Tips
Always include clear, accessible official rules.
Offer AMOE for sweepstakes to eliminate consideration.
Avoid requiring payment when chance determines the winner.
Consult legal counsel for state-specific requirements or international promotions.