Question about the legality of a system that resembles a private lottery

[TWNeal]

I want to create an app that facilitates sales via a lottery-esque system, but with a few differences:

-"Tickets" to be submitted can be purchased, but users will also receive up to 4 tickets a day for free just by logging in.

-The winners will not be chosen randomly. Rather, the seller of the item/service will be able to view relevant information about each entrant and choose the winner. However, monetary incentives to choose each entrant will be also randomly assigned (for example, choosing Person A to be the winner may earn the seller 80% of money garnered from the sale, while choosing Person B may earn 90%). Obviously, there will also be natural incentives against choosing the highest monetary incentive (such as if that entrant doesn't seem safe to do business with or if they are located farther away). Those not chosen may also win some kind of award, such as a discount on future-purchased tickets that is applicable until they win one.

I understand that private lotteries are illegal, but would the system I've described satisfy the definition of "lottery" as it pertains to these laws?

[Freelancier]

What you are describing is not a "games of chance for money" (which would be a lottery, video poker, etc.), where the house keeps some of the money and it's highly regulated by the state.

What you are describing sounds more like a rewards system for encouraging people to purchase from one vendor or another, which is usually legal but you'll want to talk with a local attorney to make sure the rules are airtight and legal.

[Harold Mansfield]

I want to create an app that facilitates sales via a lottery-esque system, but with a few differences:

-"Tickets" to be submitted can be purchased, but users will also receive up to 4 tickets a day for free just by logging in.

-The winners will not be chosen randomly. Rather, the seller of the item/service will be able to view relevant information about each entrant and choose the winner. However, monetary incentives to choose each entrant will be also randomly assigned (for example, choosing Person A to be the winner may earn the seller 80% of money garnered from the sale, while choosing Person B may earn 90%). Obviously, there will also be natural incentives against choosing the highest monetary incentive (such as if that entrant doesn't seem safe to do business with or if they are located farther away). Those not chosen may also win some kind of award, such as a discount on future-purchased tickets that is applicable until they win one.

I understand that private lotteries are illegal, but would the system I've described satisfy the definition of "lottery" as it pertains to these laws?

In my opinion what you're describing sounds completely illegal. A fixed contest? I'm pretty sure this won't pass muster of most state laws.
I think you're overlapping what sounds like a giveaway or contest or grant kind of situation with something else. I'm no lawyer but I'm pretty sure the whole "monetary incentive to choose each entrant" is where you're going wrong.

Also, if people aren't eligible, then the reasons why should be clear. You can't claim to be running a contest yet completely on the fly disqualify people because of their location. If it's local, then only take local applicants.

However, if you're having a contest or giving something away, reviewing the applicants is perfectly normal for a lot of corporate giveaways and grants.
But your thing, the way you've described it, doesn't sound like an honest contest. It sounds like you trying to run a fixed contest and are trying to make it seem legit. Like a payola kind of thing.

[TWNeal]

In my opinion what you're describing sounds completely illegal. A fixed contest? I'm pretty sure this won't pass muster of most state laws.
I think you're overlapping what sounds like a giveaway or contest or grant kind of situation with something else. I'm no lawyer but I'm pretty sure the whole "monetary incentive to choose each entrant" is where you're going wrong.

Also, if people aren't eligible, then the reasons why should be clear. You can't claim to be running a contest yet completely on the fly disqualify people because of their location. If it's local, then only take local applicants.

However, if you're having a contest or giving something away, reviewing the applicants is perfectly normal for a lot of corporate giveaways and grants.
But your thing, the way you've described it, doesn't sound like an honest contest. It sounds like you trying to run a fixed contest and are trying to make it seem legit. Like a payola kind of thing.

Are you saying there's something about this system that probably legally defines it as an illegal contest, or are you saying that it sounds like a system designed to secretly achieve something illegal?

I assure there's nothing dishonest about it. It would be an app that would let people start their own "contests" (much like members of eBay can start their own auctions); participants are clearly told that those who start the contests are able to choose the winners, and that the percentage of money rewarded for choosing each participant will be assigned at random. And it will be random, as promised. So entrants will have to analyze their own likelihood of being chosen before entering; if they are 20 miles away and are entering to win a service or an item that cannot be sent digitally or by mail, then obviously they naturally have a smaller chance of winning than someone who is 5 miles away, and may thus feel the need to enter more "tickets" in order to have a higher chance of being assigned a higher monetary incentive. And I forgot to mention this in the original post: entrants who are assigned higher amounts of money for being chosen than the one who is chosen, will be refunded their tickets to use in future contests in the app.

Did this in-depth explanation dispel any of your concerns or does it still sound like something that wouldn't fly?

[Harold Mansfield]

Are you saying there's something about this system that probably legally defines it as an illegal contest, or are you saying that it sounds like a system designed to secretly achieve something illegal?

I assure there's nothing dishonest about it. It would be an app that would let people start their own "contests" (much like members of eBay can start their own auctions); participants are clearly told that those who start the contests are able to choose the winners, and that the percentage of money rewarded for choosing each participant will be assigned at random. And it will be random, as promised. So entrants will have to analyze their own likelihood of being chosen before entering; if they are 20 miles away and are entering to win a service or an item that cannot be sent digitally or by mail, then obviously they naturally have a smaller chance of winning than someone who is 5 miles away, and may thus feel the need to enter more "tickets" in order to have a higher chance of being assigned a higher monetary incentive. And I forgot to mention this in the original post: entrants who are assigned higher amounts of money for being chosen than the one who is chosen, will be refunded their tickets to use in future contests in the app.

Did this in-depth explanation dispel any of your concerns or does it still sound like something that wouldn't fly?

It still sounds kind of sketchy, and like it steps on the toes of lottery regulations. Maybe I'm not completely understanding. Are people paying to win a contest? Also, are you suggesting that ineligible people or those disqualified by location actually purchase MORE entries?

[TWNeal]

It still sounds kind of sketchy, and like it steps on the toes of lottery regulations. Maybe I'm not completely understanding. Are people paying to win a contest? Also, are you suggesting that ineligible people or those disqualified by location actually purchase MORE entries?

People can pay for tickets or they can use tickets they earn from logging in. Users can receive up to four tickets a day by logging in every few hours. These tickets are used in the contests.

I'm not sure why you're considering these people ineligible or disqualified. Without monetary incentives, you're right: someone who is 20 miles away would be extremely less likely to be chosen than someone who is 5 miles away; but with incentives, the person who is 20 miles away might be randomly assigned the 90% incentive, while the person who is 5 miles away might be assigned 75%. If that's the case, then it would be logical to think that the seller might choose either to be the winner, depending on whether he/she would prefer to receive a higher profit or travel less to deliver the product/service.

That's why I said the one who is 20 miles away might be compelled to buy more tickets: because they don't have the advantage of being within convenient distance, so if they really wanted the product/service, they may be willing to buy more tickets in order to secure a higher chance of receiving one of the higher incentives in order to compete. That said, by no means would people be required to buy more tickets for any reason. If the item/service cannot be mailed or sent digitally and you are so far away that there's no way in hell you'll be chosen, then obviously it would be stupid for you to submit even one ticket. But unsendable items/services will only be presented to locals regardless.

There will also be other information tied to each entrant which may also influence the choice, such as what they would use the product/service for, buyer ratings from past engagements, etc.

[Harold Mansfield]

I don't know the legalities of your idea state by state, but just from a marketing perspective I'll be honest, it sounds too complicated. It doesn't seem to solve a problem, provide a solution to anything, or make anything easier or better. It actually seems to over complicate something that isn't broken. An idea that exists to make the creator money, but not do anything special for the users.

The core of what you seem to be proposing...making it easier to run contests sounds great. But you don't seem to be doing that. You seem to be making it harder.

JMO of course.

[TWNeal]

I don't know the legalities of your idea state by state, but just from a marketing perspective I'll be honest, it sounds too complicated. It doesn't seem to solve a problem, provide a solution to anything, or make anything easier or better. It actually seems to over complicate something that isn't broken. An idea that exists to make the creator money, but not do anything special for the users.

The core of what you seem to be proposing...making it easier to run contests sounds great. But you don't seem to be doing that. You seem to be making it harder.

JMO of course.

Fair point; I've been struggling to find out how to make it simple and intuitive to understand from the user interface, and I may have to change the system entirely in order to accomplish that. But as far as marketing goes, the system itself actually isn't the selling point; it's the kind of product/service this system is meant to accommodate, which I haven't disclosed in order to protect my idea. All of this would probably make more sense if I had. But I'm not here to market to anyone, so I'll keep it on the down-low.

Any recommendations as to what the best outlet for seeking professional legal help on this issue would be?

[Harold Mansfield]

Any recommendations as to what the best outlet for seeking professional legal help on this issue would be?

I'm probably not the best person to ask that, but maybe steer clear of anything that has different rules state by state, and simplify how it works.

Start from the basics. Enter a contest for a chance to win something. Let the business determine how they run the contest. It's going to be hard to create a default contest structure that satisfies everyone's needs.

I think you probably have a good intent and idea, but it needs some fine tuning, simplification, and more focus on the user experience. If it's too complicated it won't be do businesses any good because people won't use it and they'll spend more time fielding complaints, than benefiting from what a contest is supposed to do and that is bring attention to a company or product.

[TWNeal]

I'm probably not the best person to ask that, but maybe steer clear of anything that has different rules state by state, and simplify how it works.

Start from the basics. Enter a contest for a chance to win something. Let the business determine how they run the contest. It's going to be hard to create a default contest structure that satisfies everyone's needs.

I think you probably have a good intent and idea, but it needs some fine tuning, simplification, and more focus on the user experience. If it's too complicated it won't be do businesses any good because people won't use it and they'll spend more time fielding complaints, than benefiting from what a contest is supposed to do and that is bring attention to a company or product.

It's a very specific product/service that this app is accommodating, and I feel letting the "seller" diversify the rules of the contest at all will create confusion for potential entrants, so I'll probably stick to a single structure. Like I said, the focus of the app isn't its unique way of selling things; it's the unique kind of product/service it's selling (which I haven't discussed at all in this thread), with the contest system being a suitable complement to such a product/service. That said, it's not really fitting to have a customizable type of contest.

I completely understand that this sounds like a horrible idea without the proper context, but right now I am unfortunately only willing to discuss the aspects that don't convey its brilliance ;)

But as for fine tuning and simplification, you're absolutely right. Working hard to make it easy for the user, but trying to not step on any legal booby traps along the way.

[Brian Altenhofel]

Anything that involves chance or entries is going to differ greatly from state to state on regulation, and even the definitions of some contests will vary state to state and context to context.

[Harold Mansfield]

Well it looks pretty obvious that we don't have enough details to give you any specific advice. I understand you not wanting to post details, but given that, you're the only one who knows enough about the product to be able to answer your own questions.

Professionally anytime anyone comes to me with "Lottery" or some new contest scheme I steer clear because it generally invites trouble with the varying laws concerning them. So far no one has ever suggested a "new way" of running contests and lotteries to me that I wasn't expecting to see on CNBC's "American Greed" sometime in the future. It's just not the place you want to mess around because people will complain with a quickness if they think (or it simply appears like) you're pulling a fast one. And that's not good for any business.

The details that you have posted about it don't seem like something that I, as a user, would bother with. Too complicated. Too many variables. And it gives off the impression that it's easily fixed. People like (and trust) simple..."Enter to win". That's it.

Contests are already a hard sell. It's not like it was back in the 90's when the internet was new and you could sell pixels for $1.
There are very few contests that people are going to jump through hoops for. A new car, or home.. maybe. I'll enter to win a new computer or some kind of tech from a reputable source that I regularly frequent.

Of course there are people who do nothing but enter contests, but that's not most of us, nor your target demo.

Most other things, if it's not simple or looks sketchy in some way, they won't bother to risk giving your their information to enter. And that's what it all comes down to, trust and credibility.

Log in more times for more entries, "get" more entries if you're outside of the delivery area...all those things are too complicated, are easily manipulated, and that affects the credibility of the "Contest" and the people running it.

Seems like you're too focused on trying to create a new kind of contest and contest rules, than what contests are for. Contests aren't about the contest. They are a marketing strategy to gain users, subscribers, press, or overall promotion of a product or company. This is why the rules are simple for the user. Because it's not about the contest. It's about creating the awareness of whatever it is.

Starting a contest is pretty easy. Promoting and getting people to enter it is the hard part, especially since most prizes suck. Creating complicated rules and structure isn't helpful.