How To Do a Promotional Lottery (Without Breaking the Law)

Let's look at a common marketing tool business owners often use to draw traffic at trade shows and other events: the prize raffle. It can be a great attention-getter, but it can also be an illegal lottery. 

Here's a hypothetical example to show how to do a raffle without committing a misdemeanor:

Molly owns a thriving mobile personal training service and has recently decided to expand her routes to include North County residences. As part of her marketing strategy for the expansion, she will have a table at an upcoming Chamber of Commerce event. There, she plans to give away prizes as an incentive to draw in new clients. This means she needs to avoid violating the California law prohibiting lotteries.

Conducting a lottery (other than certain charitable raffles) is a misdemeanor under California law. Penal Code § 319 defines a lottery as “any scheme for disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property...” 

In everyday language this means:

1. a prize
2. distribution of the prize by chance, and
3. payment for that chance. 

Let’s look at the terms that define the code:

1. Prize: Anything of value can be a prize, from a beach towel with Molly’s logo on it to a free hour of training.
2. Chance: Chance is present when a person is not automatically entitled to a prize, but instead only has a possibility of receiving the prize.
3. Payment: Payment includes anything given in exchange for a chance to win – not just money. If Molly requires a person to sign up for her services in order to be entered into the raffle, she has accepted a payment for that raffle.

Molly’s promotion will not be a prohibited lottery if at least one of the three elements – prize, chance or payment – is missing.

Molly wants to give away a prize, so she needs to omit either chance or payment to keep her promotion legal. A promotion without chance includes a free giveaway. Molly can decide to give a beach towel to every person who signs up for personal training at the chamber event. Since everyone who signs up automatically receives the prize, no chance is involved. If Molly has a limited towel supply, she can restrict the giveaway to the first 10 people who sign up. No chance is involved because those 10 people receive the prize and no one else could possibly win.

If Molly wants chance involved, she can still hold a legal lottery so long as anyone can enter without paying for that privilege. Molly can set up a fishbowl at her table to collect business cards and give a free workout to one winner. As long as anyone can contribute a card without being required to sign up for her services, no payment is involved.

Knowing the law, Molly is able to offer fun incentives to her prospective clients at the chamber event. She gives away beach towels to eager visitors who want to sign up right away, and she can market her services through a free trial session to the lucky few who have their cards drawn. With her perfectly legal promotions, Molly is ready to take on new business.