Charity sweepstakes are a fun and effective way to raise money and awareness for your organization. However, before you get started, you’ll need to be aware of the legal requirements for running a sweepstakes experience. This article provides an overview of these requirements and recommendations that will streamline your experience’s approval process.
Why does my sweepstakes need to be approved?
For Sweepstakes to meet the legal definition that allows them to exist with limited regulation, they must have several essential fundraising activities. Our approval process ensures these fundraising activities comply with regulations.
What are Official Rules?
Sweepstakes must have official rules that detail the terms of the experience. These official rules act as a contract between the sponsor (your organization) and the donor to protect both parties.
MemberHub provides built-in, legally compliant official rules for each sweepstakes. The rules cover a worldwide drawing where people purchase an entry to win any prize listed on the fundraising page. The rules create automatically by the information entered in the experience setup. You can view the rules on the sweepstakes page when previewing the experience.
What is an Alternate Method of Entry?
Sweepstakes are legally required to include an alternate method of entry (a free entry option). Instructions for the free entry option must be included in your official rules, and only one free entry per person is allowed. In our experience, mail-in entries typically total less than one percent of the number of donation-based entries. Some sweepstakes receive no mail-in entries at all! We find that most people are willing to donate to participate since the cause is charitable.
The free method of entry requirement does impact some aspects of your sweepstakes. Read more about this in the following help article.
What types of drawings can I run?
With MemberHub, you can only run a sweepstakes drawings where entrants have a chance to win any of the prizes listed on your experience.
- A 50/50 or split the pot type format like some raffles.
- Drawings with a limited number of entries.
- A manual option for drawing winners (drawings must be done at random, electronically, by our system).
Good To Know:
- Because of the different legal aspects of raffles and sweepstakes, please ensure that the word ‘raffle‘ does not appear on your sweepstakes fundraiser page. Any raffle reference is required to be removed before the fundraiser is live.
Approximate Retail Value (ARV)
The approximate retail value of your prize(s) is an essential legal detail for your sweepstakes. Most organizations determine the ARV based on the cost of purchasing the prize(s) or using the “street” price. However, some prizes, such as lunch with a celebrity, may not have an ARV since these prizes are unique to the experience and can’t be purchased. In this case, the ARV would be an estimated price for the lunch.
If the prize is cash, then the actual cash value should be listed as the ARV.
Registration and Bonding
If the total ARV of your prize(s) is $5,000 or more, then you’ll need to register and bond your sweepstakes in the state of New York if you want its residents to be able to participate. If your organization is not a 501(c), then registration and bonding are also required in Florida. The process of registering and acquiring a surety bond is simple but can take up to two weeks. Your experience must be completely set up before acquiring the bond. No changes can be made to the experience once the bond has been obtained.
MemberHub will provide you with all the information you need to navigate the registration and bonding process. If you prefer not to register and bond your sweepstakes, you may choose to exclude New York (and Florida) residents from your sweepstakes. The MemberHub team can add this exclusion to the official rules.
If you register your sweepstakes in one of these states, you will need to provide the state with the winner’s information within six months of the end of the experience. We will provide a link to the form and the address to send the form in your registration and bonding packet.
To receive the funds you raise for your experience, your organization will need to set up a Stripe Connect account via your MemberHub store. We’ve compiled the simple steps you can take to set up funding in this short article.
Advertising and Promotion
If you plan to promote your sweepstakes via social media, radio, television, or other channels, be sure to check with each media source to ensure that you comply with their guidelines for these experiences. For instance, you may be required to include specific language in your postings (such as “No purchase necessary”).
To view examples of these disclosure requirements for different promotional methods, see the article Promoting your charity sweepstakes.
Sweepstakes sponsors are responsible for providing an Affidavit of Eligibility and a Liability and Publicity Release to the potential winner(s) as needed. The Affidavit of Eligibility declares that a winner is legally eligible to win. The winner is responsible for returning the affidavit before receiving the prize(s).
The Liability and Publicity release gives the sponsor and other parties (like the sponsor’s marketing agency) the right to use and publish the winner’s name and other non-personal information in promotional materials related to the sweepstakes. This document also releases the sponsor from liability concerning taxes or claims related to the sweepstakes winner. For a sweepstakes offering trips on which the winner can bring a guest, the sponsor is also responsible for supplying the winner with a guest release.
These documents can be found online, but we’ve also included templates below that you can use for your experience if desired. Of course, you’ll want to customize these templates before sending them, and then contact the winner(s) to find out the best way to provide them the documents for signature.
The IRS mandates that the value of a sweepstakes prize should be included in the winner’s gross income. Therefore, if the prize(s) value is $600 or more, your organization will need to issue a Form 1099 to the winner. You can download a 1099 form here: Form 1099.
The information provided on the 1099 Form will include the sponsor’s name, address, tax ID, the value of the prize, the winner’s name, address, and social security number. The amount of tax the winner must pay on the prize is determined based on their income and tax bracket.
Please feel free to contact us if you have questions about running a sweepstakes or need help with specialized requirements. We’re happy to help! You can reach us at any time at email@example.com