Are “Popularity” Contests Where Consumer Vote for Winners Skill Contest?

Promotions are constantly embracing the latest technology and trends in an effort to capture the public's attention and to generate positive embrace of a company's products. Promotions that involve user generated content (UGC) allow a marketer to get consumers intimately involved with a brand or a promotion. The Doritos' "Super Bowl - You Make It. We Air It" contest that allowed entrants to create and submit a Doritos commercial where the winning and second place ads were aired during Superbowl XLI, has led to an explosion in promotions that involve UGC. The Doritos promotion and along with the increasing popularity of Web 2.0 -- in which user-generated content is critiqued by an Internet community -- has significantly influenced the structure of a growing number of today's promotions. Whether these contests are considered games of skill or games of chance can impact not just the need for registration and bonding, but the entry requirement and structure of the promotion.

A hypothetical but typical promotion in this genre requires entrants to submit a video of themselves showing why they enjoy the Sponsor's product. The entrants' submitted videos are typically available online for public viewing, critiquing, and voting as to which video is the "best", whatever that may mean. The individual whose video is watched the most or receives the highest score will be declared the winner. Because these types of promotions are a hybrid of both skill (having the best video) and a chance (public voting popularity), they present new legal challenges to promotional marketers that must be carefully considered. However, given that this is a relatively new area of promotion, there is currently a dearth of express regulatory and judicial guidance. Thus, promotional marketers must look to analogous precedents and interpretation as guidance.

Promotion Law Overview

All games of chance (commonly referred to as a sweepstakes) are governed by state and federal statutes that prohibit unlawful lotteries. A lottery is defined as a promotion that contains the following three elements: 1) Prize; 2) Chance; 3) and Consideration. "Prize" is the item that will be awarded to the winner. To avoid structuring an illegal lottery, a promoter must remove one of the elements - which is typically either chance or consideration as most promoters will want to award a prize.

The term "consideration" remains a somewhat hard to define term in promotion law. Consideration can take form as either monetary or non-monetary. Monetary consideration is where the consumer must expend something of tangible value to enter or play (i.e. purchasing a product or the payment of an entry fee). Non-Monetary consideration is where the consumer must expend substantial time or effort that will somehow benefit the sponsor in some material way (i.e. watching a sales presentation and then being required to complete a detailed survey).

If consideration is not removed, then a valid no-purchase alternate method of entry must (AMOE) be established. While an AMOE may be appropriate in a non-voting type promotion, given the very nature of the requirements to enter a popularity contest that otherwise promotes the sponsor's products or services, it may infeasible to structure a promotion with a valid AMOE.

As the requirement to enter a promotion may entail the expenditure of consideration, such as buying the Sponsor's product to portray in the entry video, promoters may try to structure the promotion as being a contest - a game of skill - in which the component of chance is removed. Generally speaking a contest is one in which a winner is chosen by evaluating the entry under specific judging criteria which is disclosed in advance to the entrant. Thus, while some form of consideration may be present (monetary or non-monetary), where the winner is chosen on skill, consideration may exist in most jurisdictions given the elimination or minimization of the chance element. In other words, unlike sweepstakes, skill contests may legally require contestants to buy something or make a payment to enter, although the risk of a promotion being challenged increases greatly by requiring an entry fee.

Thus, the critical analysis is determining whether the degree of chance in a contest would transform a game of skill into a game of chance. A traditional definition of "chance" is where the winner is selected by a random process, for example a random drawing or pre-selection. Some states require that a skill contest only use a bona fide judge to determine the winner. Typically, a judge would be someone who possesses the ability to objectively evaluate entries and critique them based on predetermined criteria. In a state applying this doctrine, a promotion in which the winner is selected based on popular vote by would likely not be considered a skill contest.

In determining whether a promotion is a skill contest or chance promotion, states generally employ one of four tests, the Dominant Factor Doctrine, the Material Element Test, the Any Chance Test, and the Pure Chance Doctrine. Application of the doctrine is state specific.

The majority of jurisdictions have adopted the Dominant Factor Doctrine. In those states a promotion is considered a game of chance when chance dominates the distribution of prizes, even though the distribution may be affected to some extent by the exercise of skill or judgment. In an analysis of the Dominant Factor Doctrine the supreme court of Alaska, in Morrow v. State, 511 P.2d 127 (Alaska 1973), set forth a four-part test to determine whether skill dominates over chance. The following aspects are requisite to a scheme where skill predominates over chance.

1. Participants must have a distinct possibility of exercising skill and must have sufficient data upon which to calculate an informed judgment. The test is that without skill it would be absolutely impossible to win the game.
2. Participants must have the opportunity to exercise the skill, and the general class of participants must possess the skill. Where the contest is aimed at the capacity of the general public, the average person must have the skill, but not every person need have the skill. It is irrelevant that participants may exercise varying degrees of skill. The scheme cannot be limited or aimed at a specific skill which only a few possess. Whether chance or skill was the determining factor in the contest must depend upon the capacity of the general public-not experts-to solve the problems presented.
3. Skill or the competitors' efforts must sufficiently govern the result. Skill must control the final result, not just one part of the larger scheme. Where chance enters into the solution of another lesser part of the problems and thereby proximately influences the final result, the scheme is a lottery. Where skill does not destroy the dominant effect of chance, the scheme is a lottery.
4. The standard of skill must be known to the participants, and this standard must govern the result. The language used in promoting the scheme must sufficiently inform the participants of the criteria to be used in determining the results of the winners. The winners must be determined objectively.

For example, in the context of electronic gaming machines, the Ohio Attorney General issued a protocol to determine whether such machines are skill-based on an evaluation by a third-party laboratory as to whether skill constitutes at least 51% of the criteria necessary to win. Thus, Ohio applies the dominant factor test at least as it relates to skill contest machines.

A more difficult standard is the Material Element Doctrine. Under this doctrine, a contest will be considered a game of chance if the chance element is present in a "material" degree. In these states, a more stringent analysis as to the amount of chance present must be undertaken.

A third, and minority approach, is the Any Chance Doctrine. In these states, to the extent there is any element of chance present, a game will be considered a game of chance if there is any element of chance present whatsoever. Thus, in analyzing a promotion, one must carefully analyze all aspects of a promotion to determine if there is any degree of chance involved.

Another minority approach is the Pure Chance Doctrine under which a promotion must be solely based on chance to be a lottery. The exercise of any skill by a participant in the promotion removes the promotion from within the definition of a lottery.

Most would agree that a contest which includes popularity voting as a judging element would result in a skill contest being considered a game of chance in states applying the Any Chance Doctrine. On the opposite side of the spectrum, assuming that there is some degree of skill involved in submitting an entry, a contest that requires a participant to submit a video that is ultimately reviewed and voted on by the public would likely be considered a skill contest in a jurisdiction that applies the Pure Chance Doctrine. The more difficult question arises in determining how a hybrid promotion would be characterized in states applying the dominant factor or material element standards. Undertaking such a determination can be difficult and imprecise. Such an analysis requires a factually intensive analysis of the degree of skill and chance involved, such as:

• What degree of skill is required to make the submission?
• Is the person eligible to enter the promotion likely to have the degree of skill necessary to win?
• Is what the entrant required to submit likely to demonstrate a particular skill?
• Are there distinct voting criteria?
• Is the public qualified to apply defined criteria?
• How many rounds of voting exist and is public voting considered in each round?
• Is a qualified judge's vote considered? If so, how much weight does it have?
• Is there a limit on the number of votes a person can make? Unrestricted voting is more likely to be considered chance.

Skill v. Chance: How the States Handle Registration

Regulatory authorities in Florida and New York require games of chance to be registered and bonded if the total prize value of the promotion is greater than $5,000. Given that a chance promotion could trigger the registration requirement, it is important to evaluate how those authorities view these types of promotions.

It appears the Florida Department of Agriculture and Consumer Services has adopted the Dominant Factor Doctrine by informally stating that it is up to the Operator or Sponsor of the promotion to determine if chance outweighs the skill. Since Florida has not issued a formal opinion on this issue, promotion Sponsors need to make this determination carefully with the more conservative Sponsors registering and bonding when in doubt.

The New York Department of State has recently taken the position that the Game of Chance law does not apply to promotions that require video submission to enter. Indeed, the New York Department of State has rejected such Game of Chance registrations and stated that such promotion should not be registered because it requires that a video be submitted in order to enter. With this statement, the New York Department of State appears not to be concerned with other aspects of the promotion such as video content, winner selection and criteria used. Cautious marketers may nevertheless wish to attempt to register, even if it means that the registration will be rejected.

While the Registration requirements may not be determinative on the overall interpretation as to what constitutes a game of skill, and may not apply in other states, the New York Department of State's current interpretation provides precedent for game promoters conducting promotions in at least states applying the dominant factor standard.

Conclusion

Given that this is a relatively new area of promotion there is currently a dearth of express regulatory and judicial guidance, promotional marketers must look to analogous precedents and interpretation as guidance. In years to come there will continue to be more "popularity" contests. Companies looking to capitalize on this movement need to understand the latest interpretation of promotion law and carefully evaluate the structure to determine whether a game which includes popularity voting is a game of skill or a game of chance.

This article is intended to provide a general overview of legal issues. It is not intended to serve as legal advice or a replacement for specific advice of counsel.