As part of the promotional mix, many iPhone apps have started using various sales promotions that include a number of different types of sweepstakes, contests and giveaways in order to drive downloads. While a sweepstakes or contest can be great for promoting your app, there are a few things to keep in mind.

GunSmoke uses a Re-Tweet promotion to virally promote their app

One of the most common questions I get from app developers when it comes to these is “What is the difference between a sweepstakes, a contest and a lottery?” Why do they ask? Because a “lottery” has very strict rules and generally can only be legally operated by a state government. There are some legal loopholes when it come to Vegas and Indian Casinos, but as we are talking about iPhone apps here, that have national distribution (If not global – we will get to that in a minute) -you have to be legal across the country. Running an illegal lottery will quickly land you in front of a judge and you could be subject to some pretty heafty fines.

There are three components that we need to take a look at:

1. Prize

Does your promotion include some sort of prize? It can be monetary(Many apps give away iTunes gift cards), physical (some sort of actual gift), digital (software) or even experiential (some sort of experience that would be hard to get someplace else).

2. Chance

Is there some element of chance involved? This is opposed to a game of skill such as having to be the first person to beat a specific level of a game, answer a set of questions correctly or collect specific items from within your application.

3. Consideration

Consideration is a legal term which translates into: “I had to pay for it” (The lawyers will say “an undertaking in response to a promise”). Mind you that consideration is not always financial – it can mean an investment in time or effort as well. A great example is a car dealership that requires you to  “come in and test drive” to participate. Because you had to get to the dealership and probably spend gas money (or bus fare for you first time car buyers!), many courts would define that as consideration. There are ways around consideration however – which is where the infamous “No Purchase Necessary” comes into play. Just because there is a “paid ” method of playing, doesn’t mean there can’t be a free method as well. Often this comes in the form of a sent in 3×5 card or an online form. It doesn’t have to be easy (sure, hide the free online form deep in your site, I don’t care), but it has to be available and explained in the official rules.

So what happens when you have two of the three?

Prize + Chance: This is your typical sweepstakes. You enter, you have a chance to win. Pretty straight forward. What you do need to keep an eye out for is the monetary value of your prize. A few states require that prizes over a specific monetary value (often $500) require your prize to be bonded.

Prize + Consideration: Well… not to be blunt… but this just means you are selling something! You paid (consideration) for an item (Prize)

Chance + Consideration: Not really sure WHAT to call this other then, well, a donation.

Finally… what happens with you have all three?

A lawsuit.

Having all three makes you a lottery, of which is not allowed by anyone but the state.

Looking for help putting together a winning promotion? Give us a shout – we would be glad to help you out, following all applicable state laws of course!