Tuesday, July 15, 2014

The Skinny on Dipping

What is a dip?
A dip is a raffle in which a person pays $1 (or any amount of money) to purchase a discount to a WAHM’s store and for every discount purchased, they receive an entry to win an item. In reality, it is really just paying $1 to enter to win a prize. It is a great way for a WAHM to make a lot of money quickly and an awesome way for someone to win a product for only $1, however, that brings me to the next question.

Is it legal?
No it is not legal. In the United States all fifty states have statutes that PROHIBIT illegal lotteries/raffles that are FOR profit. For your promotion to be legal, at least ONE of the following three “elements of a lottery” needs to be REMOVED:
1. Prize (having a prize)
2. Chance (drawing a winner randomly)
3. Consideration (Money, time, or something a person gives up to enter to win)
{Example: Contests are legal because #2 (Chance) is removed. Contestants can pay to enter a contest because the winner is not being drawn by chance, but skill. Giveaways are legal because #3 is removed. You do not pay or have to purchase anything to enter into a giveaway. Raffles are illegal because it contains all three elements. Most states allow raffles to be conducted for nonprofit or charitable purposes, but most states require a license to be purchased.}

"State law governs most forms of gambling, including raffles. Some states allow nonprofit organizations to raise money by selling raffle tickets, but no state allows individuals or for-profit groups to conduct raffles." http://www.ehow.com/facts_5751573_selling-raffle-tickets-profit-legal_.html

 "if a contest or sweepstakes is not run correctly, it could be considered a lottery. Lotteries, unless state-run, are illegal in every state and could subject your business to civil and criminal penalties and fines." 
http://www.ohiostartuplaw.com/is-your-business-running-an-illegal-lottery/

Dips are illegal because even though the person is technically purchasing a discount and receiving an entry into a “giveaway”, all three elements are still there. There is still a prize, there is still a chance of winning, and there is still consideration present.

In order for a Dip to be legal, there has to be free entries allowed. By allowing free entries, you cannot limit the amount of free entries unless you limit the amount of “paid” entries. Free entries HAVE to be EQUAL to the paid entries. In other words, the entrant has to have the same odds of winning whether they paid to enter or not. Also when I say “paid to enter”, I don’t really mean you can straight out purchase a raffle ticket. By altering a dip to be this way, you are turning the dip into a sweepstakes, which has a whole nother’ ball park of rules and regulations.

The safest promotion to use to promote a business is just a plain giveaway in which people enter for free and someone is randomly picked to win the prize.

I also have to mention that when a raffle/sweepstakes/giveaway is done online, the promotion has to comply with the regulations of every jurisdiction in which the participants enter. So if the promotion is open to the United States, the rules for every state in which an entrant enters applies. A blanket statement like “void where prohibited by law” can help the person running the promotion.

Here is a great article if you would like to learn more, I will also link a bunch more articles at the end: http://www.jonesday.com/files/Publication/69ea168c-4173-4321-9fa5-d4b8bb86ae1c/Presentation/PublicationAttachment/b9a311c5-f53d-4a89-97fc-d85993081c2e/Bennet.PDF

Paypal does not allow raffles either. Under their Acceptable Use Policy, PayPal may not be used to send or receive payments for activities that involve an entry fee and a prize, such as raffles, drawings or lotteries. Due to applicable laws and industry regulations, they do not offer approval for these types of transactions. Paypal will close your account and ban you from their services if you are caught using their service for these things. Paypal's acceptable use policy: https://cms.paypal.com/us/cgi-bin/?cmd=_render-content&content_ID=ua/AcceptableUse_full&locale.x=en_US

About "Draw to Purchase"
What is it?
It is when an item is posted, but the seller wants to give everyone a fair chance of being able to purchase an item, so everyone interested in buying said item will say they are interested and then a random drawing takes place and the winner wins the right to purchase the item. It’s like drawing names from a hat.

Is it legal?
Yes! It contains #2 Chance and #3 Consideration. It does not include #1 Prize, but instead the right to purchase an item. With that being said, if it is labeled as a “giveaway”, it can become illegal. The definition of the word giveaway is “a thing that is given free, especially for promotional purposes”. When it is a “giveaway to purchase” it then includes #1 Prize, because in a giveaway the winner receives a prize.  So if someone enters, they may be expecting to win something, not pay for it. It is just best to watch how things are labeled to avoid confusion.

Links to learn more:



http://www.nals.org/?p=1340 (pertaining to fundraising raffles)

http://www.rafflefaq.com/united-states-raffle-laws/ (pertaining to fundraising raffles)


https://www.khlaw.com/3155  (Structuring Online Sweepstakes and Contests: New Challenges for Marketers)






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