Florida Games Of Chance Law

1. In light of the foregoing, games of chance, raffles, or lotteries for money or for anything of value in the context of a community association violate Chapter 849, Florida Statutes, even to the extent that the community association does not receive a portion of the proceeds or a portion of the proceeds goes to a charitable “cause.”.
2. Most states do not expressly prohibit skill games by statute, but instead, focus restrictions on traditional gambling. States like Florida represent the exception, where wagering on skill games is prohibited by statute, along with games of chance.
3. One full year into the COVID-19 pandemic and people have really started to appreciate (or abhor) their neighbors. The extra time at home or stuck in one’s condominium unit has caused an increased sense of awareness and, in some cases, aggravation regarding the comings and goings and habits of our neighbors.
4. A violation of the game promotion law can result in a civil penalty of up to $1,000 per violation, an injunction and, in some cases if appropriate, referral for criminal prosecution. In addition, a violation may constitute a deceptive and unfair trade practice actionable under the Florida Deceptive and Unfair Trade Practices Act.

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The laws for sweepstakes and contests have very clear definitions and if what they’re doing violates those laws, it doesn’t matter what they call it. The legal definition say a “sweepstakes” is a game of chance one plays voluntarily and for which one is not required to pay anything to enter in order to win a prize.

Many nonprofits use games of chance and auctions as fundraising vehicles – without realizing that “legalized games of chance” are regulated activities, and indeed illegal in many states. So that poker night or silent auction that created such a buzz…make sure that the buzz is not the vibration of your cell phone letting you know that your nonprofit is being cited for criminal penalties. Even an auctions that is raising money for a charitable cause, can result in unintended consequences for donors and charitable nonprofits alike, unless you know and follow the rules. From fantasy leagues to casino nights, nonprofits and games of chance are a misunderstood minefield.

Know the rules

Your state may, or may not, permit charitable nonprofits to conduct raffles, Bingo, auctions, and other games of chance. If it does, it is likely your nonprofit will need to apply for a license from the state beforehand. The IRS regulates games of chance too, as well as the taxable income that is earned by victorious game-players. Here are some of the issues that games of chance raise for charitable nonprofits:

• Income from games of chance may be considered unrelated business income and therefore the charitable nonprofit may owe tax on the income, and winners may owe tax that the nonprofit is required to withhold.
  • The IRS has special rules for bingo.
  • Read the IRS notice about reporting requirements and income withholding for raffle prizes
• In some states, proceeds from games of chance have to be kept in a special bank account (e.g., Pennsylvania).
• Games of chance might trigger the requirement to conduct criminal background checks on the CEO or other staff of the nonprofit that is hosting the games.
• State or federal law may require the nonprofit to maintain special records and file certain reports about the games/winners.
• The nonprofit may be subject to gaming excise taxes (described in IRS Publication 3079).
• A nonprofit hosting an event such as a charity casino night, where alcohol is served, may need a separate alcohol license.
• How the nonprofit uses net proceeds from games of chance may be limited in some way. For example, in North Carolina the law states: “None of the net proceeds of the raffle may be used to pay any person to conduct the raffle, or to rent a building where the tickets are received or sold or the drawing is conducted.”

What can donors deduct?

Surprise: Nothing! Donors who are successful bidders at an auction or winners at a game of chance, often think that the money they spent in pursuit of their winnings is deductible just because the event is hosted by a charitable nonprofit, or the earnings are advertised as supporting a charitable cause. In fact, the winners of games of chance are not able to deduct what they spent to play the game, or bid at the auction.

• Auction donors may be surprised to learn – after the fact – that their “contributions” are not deductible. The reason is that in a silent or live auction their contribution is actually a payment for donated goods or a donated experience such as an all-expenses paid trip to Bermuda. Consequently, they did not provide the charity with a contribution in excess of the fair market value of what they received. Instead they engaged in a transaction to purchase an experience or goods. In the case of other types of games of chance, the person who plays the game is expecting (hoping) to win something in return, so the money exchanged is considered just like a purchase or sale of goods, rather than a voluntary gift to the charitable nonprofit with no expectation of receiving anything tangible in return.

Resources

• Tax-Exempt Organizations and Gaming (IRS Publication 3079)
• Exempt organizations and raffle prizes (IRS)
• IRS Phone Forum transcript: Federal tax and and information return responsibilities for tax-exempt organizations that conduct gaming (IRS)
• Special IRS Gambling Rules for Nonprofits (Nolo)
• Is your nonprofit overpromising tax-deductions? (Nolo)
• Gambling with your nonprofit (Charity Lawyer)
• Your state association of nonprofits can provide guidance on what is permitted in your state, e.g. this guidance from the Minnesota Council of Nonprofits.

Spinning Wheel Games: How to Keep Them Legal

Spinning wheel games are cropping up all over websites offering instant win prizes. Some brands also offer anyone who spins to win the additional chance enter into a grand prize sweepstakes drawing. The catch: the customer has to sign up for a newsletter or other marketing material. Several legal issues, revolve (sorry, pun intended!) around these spinning wheel games. To avoid violating sweepstakes and contest laws, brands should adopt some best practices.

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Where are these spinning wheels coming from? Typically, they come from a third party app developer who may not even be in the United States. The developer offers a template that is easy to install on a website and promises to drive traffic. In exchange, the app developer may receive payment based on the number of spins the wheel gets. The developer appears to offer a turnkey solution to generating traffic. On closer examination, however, these apps often use templates that are barely customizable and often are not vetted with American sweepstakes law.

Many marketers fail to recognize these spin to win games for what they are: games of chance sweepstakes. To protect the brand, the game should be accompanied by a set of rules. Even if the prizes are low-end, there should be abbreviated rules that cover at least eligibility, the entry period, odds of winning, full prize descriptions, and methodology for claiming a prize. The rules should also protect the brand in the event the spinning wheel malfunctions. The rules and the on-screen experience should also connect entrants to the brand’s privacy policy. Consider also whether the prizes would hit the threshold for required registration and bonding in Florida and New York.

The odds of winning are often a trouble spot when setting up a spinning wheel game. An algorithm on the back end usually determines how often a winning space might come up. That algorithm determines the odds of winning a given prize. The problem is that many marketers are not understanding how the algorithm works and do not know how to state the odds of winning, as required by law. Even more confusingly, marketers often want to limit the number of prizes. Why? if the game goes viral, the brand does not want to be on the hook financially for too many prizes. Restricting the number of prizes, however, likely would render the odds of winning incorrect and compromise the legality of the game. All of these problems need to be sorted through and handled appropriately on both the backend and in the rules to ensure legality.

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Another issue is requiring entrants to subscribe to email marketing lists. Per 50 states’ sweepstakes laws, you cannot ask someone to give money or something of value or consideration (substantial time or effort) in order to have a chance to win a prize. Does requiring a person to receive your newsletter before she can spin to win constitute illegal consideration? What if you require the person to stay subscribed to your emails for a period of time? The latter is particularly troubling. Can the right disclosures obviate the legal risk? Again, it depends on the particular program’s execution and how the consumer experiences the disclosures. In addition, marketers need to ensure that their e-newsletters and other marketing materials are CAN-SPAM compliant before linking a contest to them.

A final problem with these spinning wheel apps is that the templates are often rigid. They may not allow for sufficient customization. Many of the apps do not show the entire wheel to the consumer, leading to the potentially false impression of higher chances of winning something of value. The templates also may not have enough room to disclose clearly and conspicuously the details of the game and prizes or to publicize the rules properly.

BEST PRACTICES:

Steps to take to protect your brand:

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• Consider your goals for using a spin the wheel game. If it is merely to gather email addresses, realize that many people will unsubscribe right after your first newsletter comes. Work with your sweepstakes attorney to determine what legal exposure you have and then decide if the game is worth the risk.
• Draft rules for your spin to win game that protect your interests. Make sure to use disclosures to communicate the most important disclaimers and the existence of the rules. Experienced sweepstakes and advertising counsel can help you with these risk mitigation steps and ensure you meet the legal standard of “clear and conspicuous.”
• Do not copy another brand’s rules. You do not know what kind of vetting that brand has done and what kind of risk it is willing to take. Also clear the name of your spin to win game so that it does not infringe on another brand’s trademark.
• Consider limiting the length of your spinning wheel game and the value of your prizes to mitigate against the game going viral. A viral promotion can run way over budget and also implicate Florida and New York’s registration and bonding requirements.
• Look carefully at your contract with the spinning wheel app developer. What warranties and indemnities are there to protect you if the wheel goes haywire? How much customization does the contract allow?
• Check your insurance policy to make sure you have coverage for violations of sweepstakes and advertising laws. Many policies have exclusions in these areas.

Games Of Chance Examples

If you are considering running a spinning wheel sweepstakes or contest for your brand and want to understand the legal issues, click here to request more information.