One of the elements in determining whether something is gambling is whether a person is providing consideration for the opportunity to win.
In the majority of states and under federal law the test for consideration is whether the participant provides something of economic value or money in exchange for participation in the game or contest. In these states, consideration requires some measurable value passing from the participant to the organizer or measurable detriment to the participant, other than a nominal effort to enter the contest. This test focuses on the burden to the participant. In these states, offering participants a “no purchase necessary” or alternative means of entry (“NPN” or “AMOE”) will suffice to avoid the element of consideration, provided the NPN means is not burdensome and gives the participant an equal opportunity to win, and provided those persons who do pay consideration when entering the contest are doing so for a good or service and not just for the contest entry.[i]
In Federal Communications Comm. v. American Broadcasting Co., (1954) 347 U.S. 284, 286, 290-91, the Supreme Court held that because gambling is a criminal offense, “consideration” must be judged more narrowly by whether the contestant must provide something of economic value, and regardless of whether the promoter benefits from staging the contest or whether the participant’s effort would be sufficient to form a contract under civil law.
California, Georgia, Illinois, Michigan, North Carolina, Pennsylvania and Texas use this majority or economic value test.[ii] Because consideration is judged from the perspective of the participant, the fact that a benefit is realized by the organizer (more visits to the business) does not mean the promotion is gambling. In addition, the consideration must be “valuable” to the participant. The fact that a ticket holder must go to the place of business of the organizer to deposit a ticket stub is not considered the necessary consideration.[iii]
Eliminating consideration therefore involves either: (1) not charging anyone to enter the contest, and not linking any entries to a purchase or expenditure of significant effort, or, as discussed above, (2) offering a no purchase necessary option. The first option has been called a “branding” promotion or something designed just to acquire attention, clicks or visits for marketing or advertising.[iv] Increasingly, online games are using a “free play” model, but trying to generate revenue from ancillary sales (“fremium games”).
In other states the test for consideration focuses on whether there is any benefit to the operator, or detriment to or reliance by the participant, sometimes called “simple contract consideration.” New York, Washington and Florida use the contract consideration test. Under this test even a no purchase necessary option may not suffice if the participant has to expend any effort to enter, including visiting a retail location.[v] In addition, if a participant provides services to qualify to enter, that will suffice as consideration even if the services were compensated in other ways at fair value.[vi]
A few states judge consideration by even more broadly including any likely benefit to the contest operator, including the fact that the vast majority of the contest entries are from people who bought products or services from the operator even if the participants had the opportunity to enter for free. Under this test, courts have looked at whether the contest promoter intended to receive economic value from some participants in the form of increased sales, even if some or many participants did not pay to enter. A Kansas court held that providing free raffle entries at a theater to anyone who asked was consideration because the theater intended to stimulate sales.[vii]
[i] Under this test, the fact that a contestant had to pay for a stamp to mail an otherwise free entry does not suffice for consideration. Haskell v. Time, Inc. (E.D. Cal. 1994) 857 F.Supp. 1392, 1404. See also, Cabot, Anthony N.; Light, Glenn J.; and Rutledge, Karl F. (2010) “Economic Value, Equal Dignity and the Future of Sweepstakes,” UNLV Gaming Law Journal: Vol. 1 : Iss. 1 , Article 7 (“Cabot”) (gathering cases).
[ii] Gas Retailers, supra, 50 Cal.2d at 859-862; State v. Socony Mobil Oil Co., Inc., 386 S.W.2d 169 (1964), Lindey v. Pa. State Police, Bureau of Liquor Control Enforcement, 916 A.2d 703 (1999), American Treasures, Inc. v. State of North Carolina, 173 N.C.App. 170, 617 S.E.2d 346 (2005), G.A. Carney, Ltd. v. Brzeczek, 453 N.E.2d 756 (Ill. App. Ct. 1983), Georgia Stat.. 16-12-20(4), Monte Carlo Parties, Ltd. v. Webb, 253 Ga. 508 (1984). In a court decision nearly 100 years ago, an Ohio court used the promoter benefit test. State v. Bader, 24 Ohio N.P.(n.s.) 186, 192 (1922). But more recently in Cleveland v. Thorne, 2013-Ohio-1029 (2013) the Ohio Court of Appeal used the valuable consideration test.
[iii] People v. Shira, (1976) 62 Cal.App.3d 442, 459.
[iv] See Cabot, supra.
[v] For example, the Florida Attorney General wrote in a 1990 opinion:
Consideration, for purposes of a lottery, need not involve money or anything of monetary value; rather, any consideration sufficient to establish a simple contract is adequate.[5] It may consist of either a benefit to the promisor or a detriment to the promisee. However, it is not necessary that a benefit accrue to the promisor as long as something valuable flows from the person to whom the promise is made or that he suffer some prejudice or inconvenience with the promise as an inducement to the transaction.[6] There is consideration if the promisee, in return for the promise, does anything which he is not bound to do, or refrains from doing anything which he has a right to do, whether there is any actual loss or detriment to him or actual benefit to the promisor.[7]
Florida Attorney General Op. 90-35 (May 1, 1990), citing Blackburn v. Ippolito, (Fla. 2d DCA 1963) 156 So. 2d 550, 553, cert. denied, (Fla. 1964) 166 So. 2d 150. See also, NY Attorney General Op. 96-F1 (Jan. 29, 1996) (“any right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”)
[vi] People v. Psallis, (1939) 12 NYS 2d 796. NY AG Op. 96-F1 (Jan. 29, 1996). Fla. A.G. Op. 057-170 (June 19, 1957).
[vii] State v. Fox Kansas Theater Co., (Kan. 1936) 62 P.2d 929, 939. See also, Cabot, supra (gathering cases).
