Legal guide to running contests and sweepstakes on the Internet

Legal guide to running contests and sweepstakes on the Internet

Letslaw has collaborated with Easypromos (an application for creating contests, sweepstakes, and promotions) in the development of a legal guide for conducting promotional contests and sweepstakes on the Internet. Everything you need to know about legal issues.

How to run an online sweepstakes?

Organizing an online sweepstakes or contest can be a very effective tool for attracting new users, building customer loyalty, or increasing brand visibility. However, it should not be improvised: behind every sweepstakes there are a series of legal obligations and formal requirements that the organizer must comply with to avoid penalties or conflicts with participants.

It is essential that the organizer of the sweepstakes or contest bears in mind that this is not just a promotional or marketing activity, but a regulated activity. Therefore, before launching any initiative of this type, it is necessary to analyze the applicable legislation in the country where it is being carried out, as the rules on games, contests, and promotions vary significantly between jurisdictions.

In addition to complying with general laws on advertising, consumer protection, data protection, and intellectual property, the internal policies of digital platforms (such as Instagram, Facebook, TikTok, or YouTube) must also be respected, as they impose specific conditions for conducting sweepstakes in their environments.

Free contest or raffles

Following the entry into force of the Gaming Law, if we are going to organize a contest or raffle without additional fees for participants, i.e., if participation is completely free, it is no longer necessary to obtain a license to carry out this type of activity.

On the contrary, in cases where participation does involve an additional cost for those who wish to participate, then certain legal requirements must be met and the relevant licenses obtained.

In the latter case, we would be talking about a raffle that requires authorization from the Directorate General for the Regulation of Gambling.

This type of authorization cannot be requested on a recurring basis, which means that it is not possible to request more than one per month.

Tax issues

Another issue to consider when organizing contests, sweepstakes, or raffles on the Internet is their tax and legal treatment.

In accordance with Law 13/2011, regulating gambling, promotional sweepstakes—those based on random combinations and held for advertising or commercial promotion purposes—are subject to a 10% tax on the value of the prize awarded. This tax is called the Gaming Tax and must be declared and paid by the entity organizing the draw to the Directorate General for the Regulation of Gambling (DGOJ), provided that the activity takes place at the state level.

Contests

Contests in which the selection of winners depends exclusively on objective or subjective evaluation criteria (e.g., photography, story, or video contests) are not subject to the 10% tax, as chance does not play a role. In these cases, the result depends on the skill, creativity, or performance of the participant, not on a random combination.

However, the prizes awarded are taxable for the winner as capital gains in their personal income tax (IRPF), and must be declared at their market value.

Sweepstakes

In raffles, the essential element is chance: winners are determined by a random combination:

• If the raffle is for promotional purposes (for example, “raffle of a tablet among followers of a brand”), it will be exempt from prior authorization by the DGOJ, but subject to a 10% tax on the value of the prize.
• If, on the other hand, the raffle is not promotional in nature and is carried out for profit, it could be considered a gambling activity and require express administrative authorization, as well as compliance with the technical requirements and guarantees required by the Gambling Law.

Raffles

Raffles are a specific type of gambling in which numbers or tickets are assigned in exchange for a price, and the winner is determined by a public draw.

In this case:

• If the raffle is organized for profit, it is considered a regulated gambling activity and therefore requires prior authorization from the competent authority (DGOJ or autonomous community, depending on the territorial scope).
• In addition, a 20% tax will be applied to the gross income obtained from the sale of tickets, unless it is a non-profit organization that allocates the profits to social purposes, in which case an exemption or reduction may be requested.

Taxation for participants

In all cases, prizes awarded (in cash or in kind) constitute a capital gain for the winner that is subject to personal income tax.

When the prize is in kind, the organizer must make a payment on account equivalent to 19% of the value of the prize (which is added to the value of the prize for tax return purposes).

Legal terms and conditions

When analyzing the contest or sweepstakes itself and how it works, it is advisable to include legal terms and conditions that are available to users at all times so that those who want to participate and wish to read these legal terms and conditions can consult them at any time. It is also advisable to deposit these terms and conditions with a notary in case of future claims or contingencies on the part of users, participants, or interested third parties.

Some of the clauses that should be included in these legal terms and conditions so that the organizer of the raffle is covered against possible contingencies are:

• Identification of the organizer.
• Free participation or, conversely, additional fees for participation.
• Start and end dates of the contest or promotional draw and the date on which the contest or draw will take place and the method used (draw before a notary, jury, etc.).
• Rules and conditions for participation.
• Value and nature of the prize offered.
• Protection of personal data.
• Penalties in the event of fraudulent use.
• Transfer of image and/or intellectual property rights of the winner or winners and/or participants.
• Possibility of extending or suspending the draw (e.g., in cases of force majeure).
• Possibility of removing or disqualifying users who violate the rules of the draw and exemption from liability for the organizer in the event of non-compliance by participants.

In conclusion, the legal basis of a contest or draw constitutes the contract that regulates the legal relationship between the organizer and the participants, establishing the rights, obligations, and conditions of participation.
These rules are the essential legal instrument for ensuring the transparency, security, and validity of the draw, avoiding ambiguities and reducing the risk of claims or penalties. They formalize the terms of the draw, the conditions of access, and the criteria for selecting the winners, while also ensuring compliance with regulations on consumer and user protection, advertising, and personal data protection.

Other considerations

With regard to posts or comments made by participants or users on any blog or in spaces reserved on social networks (e.g., Facebook wall), provision should be made for the possibility of removing such posts if their content is deemed inappropriate for publication or infringes on the rights of third parties.

As for the legal actions that can be taken if any of the legal provisions established in the rules are breached and fraudulent participation occurs, civil actions (claims for damages) and criminal actions (fraud offenses) may be initiated.

Finally, it should be remembered once again that ignorance of the law does not exempt one from compliance, so it is advisable to seek legal advice from professionals who specialize in this type of activity, such as lawyers specializing in the Internet and digital law.

Letslaw is a law firm specializing in digital and business law, with expertise lawyers in conducting sweepstakes and managing authorizations for raffles.