To attract consumers in this increasingly competitive environment, NFT minters turn to promotional NFT contests to both generate excitement among consumers and increase company revenue. Where minters decide to market their NFTs through sweepstakes, they must adhere to relevant state and federal laws, rules, and regulations. For example, while minters may allow participants to enter contests by purchasing their NFTs, unless a free alternative means of entry ("AMOE") is offered, these contests will violate applicable state lottery laws. Further, minters must properly disclose their NFT sweepstakes AMOE in the contest rules, disclaimer, and marketing materials.
Sweepstakes Consideration
A lottery is made up of 3 elements: prize, chance, and consideration. Lotteries are only legal if run by state governmental agencies. However, if the element of consideration is removed, a lottery becomes a legal sweepstakes.
Consideration is defined as the exchange of anything of value. In practice, sweepstakes consideration can take the form of any transaction that involves a monetary payment or quid-pro-quo. Courts have found consideration to be present where: (1) entrants were required to watch multiple long video advertisements; (2) entrants were required to link multiple promotion-related posts to their own social media; or (3) winners were required to submit payment in order to claim their prizes.
Sweepstakes sponsors may accept sweepstakes consideration, provided that they offer a free AMOE.
NFT Sweepstakes AMOE
Where an NFT contest advertises that consumers may gain entry through the purchase of an NFT (or other consideration), an AMOE must be offered. Common AMOEs include entry through U.S. Mail, email, or calling a toll-free number. Please note that entrants who utilize the free AMOE method must be given the same opportunity, with the same odds, to win all featured NFT prizes.
Notably, AMOEs must be disclosed in a "clear and conspicuous" manner. AMOE disclosures should be included in the sweepstakes contest rules, the sweepstakes disclaimer, and all relevant marketing material. These disclosures should clearly state that no purchase is necessary to enter the contest and that a purchase will not increase the odds of winning. Operators who fail to include proper NFT sweepstakes AMOE disclaimers and disclosures may find that their promotional contests become the subject of litigation.
Suski v. Coinbase Global Class Action
For example, Dogecoin cryptocurrency traders (collectively, "Traders") recently brought a class-action lawsuit against Coinbase Global, Inc. ("Coinbase") and Marden-Kane, Inc. ("MKI") (collectively the "Defendants") for allegedly engaging in false, deceptive, and misleading sweepstakes advertising. Coinbase, one of the largest online cryptocurrency exchanges, hired MKI to design, market, and execute a $1.2 million "Dogecoin Sweepstakes" that began on June 3, 2021.
In their complaint, the Traders allege that they had to buy or sell $100 in Dogecoin in order to enter the sweepstakes. Although Defendants did provide an AMOE, Traders allege that Defendants specifically designed their email and website advertising to prevent users from easily finding the AMOE information. The Traders have alleged that Defendant's marketing misled them, claiming that they would not have paid the consideration (traded Dogecoin) if the NFT sweepstakes AMOE option had been properly disclosed.
This case highlights the fact that in order to run a compliant sweepstakes promotion, NFT minters must disclose the AMOE option in a prominent location in all sweepstakes advertising.
Get Help with Your NFT Sweepstakes AMOE
If operators do not take the necessary steps to ensure that their NFT sweepstakes are compliant, they may face significant legal and regulatory repercussions. Given these risks, it is advisable to obtain guidance from attorneys experienced with both NFTs and contests before conducting any NFT-related promotion or sweepstakes.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
