What are the step-by-step requirements for legally running a contest or sweepstakes for my California-based business?

To legally run a contest or sweepstakes in California, you must provide clear rules and ensure any chance-based promotion does not require a purchase to enter, which would make it an illegal lottery. Here are the step-by-step requirements: Step 1: Distinguish Between a Contest and a Sweepstakes A contest requires skill, where winners are chosen based on performance (e.g., best photo, judged essay). A sweepstakes is based on chance, where winners are drawn randomly. This decision dictates your legal obligations, especially regarding payment. Step 2: Create a Free Method of Entry for Sweepstakes To avoid being an illegal lottery under California Penal Code 319, a sweepstakes (based on chance) cannot require "consideration" (a purchase or significant effort) to enter. You must provide a clear, easy, and free alternative method of entry (AMOE), such as an online form or mail-in postcard, that has an equal chance of winning. Step 3: Draft Comprehensive "Official Rules" Your "Official Rules" are a legal document. Under California Business and Professions Code 17539.1, they must clearly state: - Who is eligible to enter (e.g., age, location). - The exact start and end dates of the promotion. - A detailed description of each prize and its approximate retail value (ARV). - The odds of winning for a sweepstakes. - A full explanation of how to enter, including the free method. Step 4: Secure a Bond if Prizes are High-Value If the total value of all prizes offered is $5,000 or more, you are required to secure a bond in the amount of the total prize value. You must file a copy of the Official Rules and proof of the bond with the California Attorney General's Office before the promotion begins. Important details and nuances: - Your advertising must not be misleading. All claims about prizes must be accurate, and the "Official Rules" must be easily accessible from any advertisement. - Keep records of how winners were selected to demonstrate fairness. Award all prizes as described in your rules. Warnings and limitations: - Do not change the rules after the promotion has started. - Violations of these laws can lead to civil penalties, fines, and lawsuits from participants. Federal laws and regulations from agencies like the FTC may also apply. This is general information and does not constitute legal advice. For complex situations, or to have your "Official Rules" reviewed, consult with a qualified California attorney.