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I know how much some of you hate hypotheticals, but please bare with
me. This question is very important to me. I appreciate any input
you can give.
It is hard to find lawyers with an expertise in this area
Facts:
1. Sam wants to start an online club for people who like roses
2. People would join the club for $20 per month, and receive a dozen
roses each month.
3. As a marketing tool Sam wants to run a members only drawing for a
trip to Washington DC to see the rose garden.
4. For every 200 members in the club Sam will randomly select one to
go to DC each month.
5. Sam intends to advertise the drawings as a means of increasing
membership in rose club.
6. Sam discloses fully all details and odds of the drawing
Q.1 Is this gambling?
What I think: It could be argued that some people might be paying the
$20 for a chance to get to DC. But since they are receiving the dozen
roses as consideration for their $20 that is contract. Therfore it is
not gambling
Q.2 Is this a Raffle?
What I think. Internet raffles represent one of the largest
percentages of fraud on the internet. The laws as vary from state to
state. For example in NY and Florida someone running a raffle must put
up a bond for 10% of the value of the raffled item. This is not
possible for Sam. I do not believe that it is a raffle for the same
reasons I do not believe it is gambling
Now here is the tricky part. Just because I have reasonable
arguements why it is not gambling or a raffle does not preclude the
idea that some other person, perhaps my states (NY) attorney general
from reaching different conclusions and prosecuting me (er I mean
Sam). Sam does not want to go to prison. And neither do I.
Sam could protect himself by incorporating offshore in a gambling
friendly country. Like Costa Rica. Then set up a complex network of
offshore bank accounts. As much as this appeal to my desire to be an
international man of mystery. It does seem like a bit of overkill. It
has the drawback of making Sams rose club look more like a con job.
(offshore, secret accounts, I smell a rat) And having to place the
server offshore has other problems.
Assuming what I have said before is accurate I think the club should
be able to incorporate and transact its business
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* Some of the prizes I will be giving away will be worth a lot more
than a trip to DC * I don't think this matters, but I want to be
thorough and honest
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So.
1. Is this gambling?
2. Is it a raffle?
3. Where should the rose club incorporate to have to most latitude
and least cost? Nevada, Delaware, or really Costa Rica anywhere?
4. Can we access the likelihood of any prosecutions by civil
athorities?
5. If Sam should actually see an attorney before doing this,
recommendations of ones who would understant this issue would be
appreciated.
(I am not an Attorney)
Thanks for any insights and information
Tom
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I know how much some of you hate hypotheticals, but please bare with
me. This question is very important to me. I appreciate any input
you can give.
It is hard to find lawyers with an expertise in this area
I am not a lawyer, and my advice may be worth less than what
you paid for it. If you are worried about doing something
that might get you sent to jail, see a real lawyer. You can't
afford NOT to.
Facts:
1. Sam wants to start an online club for people who like roses
2. People would join the club for $20 per month, and receive a dozen
roses each month.
3. As a marketing tool Sam wants to run a members only drawing for a
trip to Washington DC to see the rose garden.
4. For every 200 members in the club Sam will randomly select one to
go to DC each month.
5. Sam intends to advertise the drawings as a means of increasing
membership in rose club.
6. Sam discloses fully all details and odds of the drawing
Q.1 Is this gambling?
To the best of my knowledge, there is no legal definition of
"gambling", and therefore this is more of a philosophical or religious
question (and you're asking the wrong question). There are legal
definitions of things like "game of chance" and "lottery" and
"raffle".
What I think: It could be argued that some people might be paying the
$20 for a chance to get to DC. But since they are receiving the dozen
roses as consideration for their $20 that is contract. Therfore it is
not gambling
What you are describing is commonly used in marketing (a nice word
for what's probably fraud, see just about any TV commercial), but
YES, I think it is gambling (on the part of the customers). But
since I don't think there is a legal definition of "gambling", who
cares about my opinion?
Q.2 Is this a Raffle?
What I think. Internet raffles represent one of the largest
percentages of fraud on the internet. The laws as vary from state to
state. For example in NY and Florida someone running a raffle must put
up a bond for 10% of the value of the raffled item. This is not
possible for Sam.
Please explain why not, and how he intends to pay for the prizes.
Advertising prizes which will be paid for out of estimated future
sales which may or may not ever happen is something the law is
trying to prevent. Oh, yes, such scams pre-date the Internet by
centuries.
I do not believe that it is a raffle for the same
reasons I do not believe it is gambling
Inability to put up a bond doesn't change the nature of the transaction.
It is arguable (but nobody will believe it) that a state lottery
ticket is not gambling because you get a pretty piece of cardboard
as a souvenier. Sure, there probably ARE people who buy the lottery
ticket so they can come back and use it to card open the convenience-store
door to burgle it. Or the EMT who buys a lottery ticket to use it
to hold open the emergency breathing hole he has cut in some guy
who can't breathe until he gets to the hospital. But to say even
a significant minority of lottery ticket purchasers do it for the
cardboard? Get real.
One test for whether the transaction is primarily done (by the
customer) for a game of chance is the relative amounts of the fair
market value of the product received vs. the mathematical expectation
of the value of the prize. "mathematical expectation" is a technical
term of probability math but roughly you take the total value of
the prizes and divide by the number of people playing. It gets
messier if people have unequal chances of winning. If you don't
know how many people will be playing, make a reasonable estimate -
surely you have an estimate of how many sales this promotion will
get you.
For examnple: that trip has a market value of $1000. You give out
one trip per 200 members, so that's $5 each. $15 is for the roses.
25% of the price is going towards the raffle. That's a much larger
percentage than, say, buying soft drinks and maybe winning a trip
to the Super Bowl if you get the right bottle cap, which might be
$0.99 for the soft drink and $0.005 for the trip, where 0.5% of the
price is for the prizes. I think Texas State Lottery tickets only
give back about 45% of the ticket sales in winnings. Blackjack in
Las Vegas probably gives back over 90%, provided you don't start
figuring in hotel costs (you don't have to stay at the hotel to
gamble in their casino).
Now here is the tricky part. Just because I have reasonable
arguements why it is not gambling or a raffle does not preclude the
idea that some other person, perhaps my states (NY) attorney general
from reaching different conclusions and prosecuting me (er I mean
Sam). Sam does not want to go to prison. And neither do I.
I suspect that your promotion meets the legal definition of a lottery
or raffle (said definition will vary by state). You are giving
away prizes with selection by chance based on a purchase requirement.
That doesn't make it illegal, but it is likely regulated to be sure
that the prizes are real. It probably doesn't matter if you are
giving away a DVD player (fair market value $50) to purchasers of
an Internet Service Provider (fair market value in the millions to
billions) with a 1 in 10,000 chance of winning.
Sam could protect himself by incorporating offshore in a gambling
friendly country. Like Costa Rica. Then set up a complex network of
offshore bank accounts. As much as this appeal to my desire to be an
international man of mystery. It does seem like a bit of overkill. It
I have my doubts that this will do that much good if he stays in the
United States. It might make him harder to find, but so does
wearing a ski mask in all the ads.
has the drawback of making Sams rose club look more like a con job.
(offshore, secret accounts, I smell a rat) And having to place the
server offshore has other problems.
Assuming what I have said before is accurate I think the club should
be able to incorporate and transact its business
-------------------------------------------------------------------------
* Some of the prizes I will be giving away will be worth a lot more
than a trip to DC * I don't think this matters, but I want to be
thorough and honest
-------------------------------------------------------------------------
So.
1. Is this gambling?
In my opinion, yes, but I think you're asking the wrong question.
2. Is it a raffle?
Probably.
Do you know of other small businesses who have used promotions
like this? How did THEY do it? Hopefully they had legal advice.
It's worth some research.
3. Where should the rose club incorporate to have to most latitude
and least cost? Nevada, Delaware, or really Costa Rica anywhere?
I suspect the regulations apply if you are advertising in New York State
regardless of where you are incorporated.
4. Can we access the likelihood of a
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Tom Cairpre wrote:
I know how much some of you hate hypotheticals, but please bare with
me. This question is very important to me. I appreciate any input
you can give.
It is hard to find lawyers with an expertise in this area
Gambling has been legally defined. It is defined in every state by law.
And perhpas even on the federal level.
As you omay know, "Publishers clearing house" runs a "contest" continously.
Is what they do legal? Yes it is. Why? No monies passes hands in order to
see the result.
In gambling, you, the player, makes an offer to the dealer "betting" that
you will beat him.
In return for winning, you get an equal amount, or more, back for your bet.
In a raffle, you buy a "ticket" hopping that yours will be the chosen one to
win.
What you have proposed is perfectly legal and is neither gambling nor a
raffle.
You are simply offering an incentive for continued membership.
That's like any business giving away something to the 1,000th customer.
In essence, it's called advertising.
You could also relate this to an employer who gives away a trip to a his
employees every month.
You just have to make sure that everyone understands that the drawing is
only open to members.
Need legal advice? Hire an attorney. Newsgroups are for discussion only.
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hanks for your thoughts Gordon.
My comments are interwoven
(SECTIONS have been cut)
gordonb.vt623@sneaky.lerctr.org (Gordon Burditt) wrote in message news:<c0vmei$prc@library2.airnews.net>...
I am not a lawyer, and my advice may be worth less than what
you paid for it. If you are worried about doing something
that might get you sent to jail, see a real lawyer. You can't
afford NOT to.
I am actually looking for lawyer how has some experience in this area.
Just any attorney probably will not due.
Q.1 Is this gambling?
To the best of my knowledge, there is no legal definition of
"gambling", and therefore this is more of a philosophical or religious
question (and you're asking the wrong question). There are legal
definitions of things like "game of chance" and "lottery" and
"raffle".
Asking is it gambling is a poor choice of words on my part. The
question is whether or not the described activity would be subject to
the same regulations as an internet casino or other similar activity.
This whole area of law is not very clear. That is why all online
casinos incorporate overseas
What you are describing is commonly used in marketing (a nice word
for what's probably fraud, see just about any TV commercial), but
YES, I think it is gambling (on the part of the customers). But
since I don't think there is a legal definition of "gambling", who
cares about my opinion?
Certainly someone could engage in an activity like this with the
intent of commiting fraud. But that does not in anyway prove that
someone engaging in this activity is commiting fraud.
The fact that people are paying their $20 to get the dozen roses is
critical.
That is the transaction. The trip is something that is being given
for free to people who belong to the club. People are also in some
sense paying for the chance of the trip. If the trip is worth $1000
and their are 200 people in the pool. A gambler would say the
membership had a $5 current value + the value of the roses. However
this calculation does not change the fundemental structure of the
transaction. $20 a month for a dozen roses.
Please explain why not, and how he intends to pay for the prizes.
Advertising prizes which will be paid for out of estimated future
sales which may or may not ever happen is something the law is
trying to prevent. Oh, yes, such scams pre-date the Internet by
centuries.
Lets use different numbers to understand why not. If instead of the
trip Sam says for example "When the club reaches 100,000 members I
will give one of them a million dollars If its really a raffle, Sam
needs to put up a $100,000 bond." I am sure I could scrap together
the hundred bucks bond for the DC trip.
But having to cough up the hundred grand would take a little
creativity.
Yes it's about the money.
Your point about estimated future sales is important, and critical to
this analyis.
Please note my fact 6
6. Sam discloses fully all details and odds of the drawing
It is stated very clearly that the gift is based on 200 members. There
is no prize until their are 200 members. That is very different than
offering the prize and hoping that you get 200 members. The reason
you word it that way is to avoid commiting fraud and to reduce the
financal risk.
There is some element of intent in fraud. If someone sells lifetime
memberships to a health club and goes out of business because they did
not make enough money have they commited fraud. No. Unless their
intent was take the money and run.
The fact that you already define this as a "scam" troubles me. What
you are saying is that if you don't have a lot of money and try to
finance a venture in a creative manner you are by definition a con
man. Sam is going to send people the roses and he is going to send
that 1 in 200 person to DC. Why is that a scam? I agree that some
people could abuse this idea, but that does not mean Sam or I would.
Do you mean to imply that only the rich are moral? I think the point
of it all is being up front is quite important from a legal and moral
standpoint. And always read the fine print.
Inability to put up a bond doesn't change the nature of the transaction.
True but it is a reason why one would argue against the idea that it
is a raffle.
It is arguable (but nobody will believe it) that a state lottery
ticket is not gambling because you get a pretty piece of cardboard
as a souvenier. Sure, there probably ARE people who buy the lottery
ticket so they can come back and use it to card open the convenience-store
door to burgle it. Or the EMT who buys a lottery ticket to use it
to hold open the emergency breathing hole he has cut in some guy
who can't breathe until he gets to the hospital. But to say even
a significant minority of lottery ticket purchasers do it for the
cardboard? Get real.
This is not the same thing. A piece of cardboard does not have
anywhere near the value that one pays for a lottery ticket. The dozen
roses do have close to the value of the membership. People are not
buying a chance to get to DC. They are buying a membership and the
dozen roses per month.
One test for whether the transaction is primarily done (by the
customer) for a game of chance is the relative amounts of the fair
market value of the product received vs. the mathematical expectation
of the value of the prize. "mathematical expectation" is a technical
term of probability math but roughly you take the total value of
the prizes and divide by the number of people playing. It gets
messier if people have unequal chances of winning. If you don't
know how many people will be playing, make a reasonable estimate -
surely you have an estimate of how many sales this promotion will
get you.
For examnple: that trip has a market value of $1000. You give out
one trip per 200 members, so that's $5 each. $15 is for the roses.
25% of the price is going towards the raffle. That's a much larger
percentage than, say, buying soft drinks and maybe winning a trip
to the Super Bowl if you get the right bottle cap, which might be
$0.99 for the soft drink and $0.005 for the trip, where 0.5% of the
price is for the prizes. I think Texas State Lottery tickets only
give back about 45% of the ticket sales in winnings. Blackjack in
Las Vegas probably gives back over 90%, prov
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Usually there is a way to enter any contests that don't require a purchase.
It's in the fine print.
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