First, it helps to understand the difference between a sweepstakes, contest and lottery. In a sweepstakes, winners are chosen randomly from all participants. In a contest, the winners’ entries are usually judged and are based on a skill or criteria. In a lottery, winners are chosen at random, but in order to enter, the participant must pay. A payment is called a consideration. Only states can hold lotteries, so all private lotteries are illegal.
To avoid being classified as an illegal lottery in any state, your promotion can only have 2 of these 3 elements: prize, chance and consideration. Keep in mind, consideration can mean anything of value, including a fee or even a significant effort (i.e., time spent shooting/submitting a photo, etc.)
Hawaii is another state that asks for a “Seller of Travel” registration if the prize includes travel. It also doesn’t allow promotions in which some or all of the prizes may not be awarded. If your prize includes real property (a home or condo, for example), you must file a bond of $10,000 or more, with requirements for naming the obligator and surety.
Contests: are allowed as long as the sponsor awards the prize based on skill and not chance.
Sweepstakes: are allowed as long as the sponsor awards the prize based on chance.
Legal Review Criteria: Material Element Test when assessing whether or not chance determines the outcome of a promotion.
Note: the information above is for informational purposes only and should not be construed as legal advice. Sweepstakes and Contest promotional laws change and the above may not reflect the must current laws.