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Thread: Internet lottery, is it legal?

  1. #1
    poet and narcisist argonauta's Avatar
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    Internet lottery, is it legal?

    I was thinking that this would be an easy way to make money:

    sell 'virtual' tickets for $1 dollar. You set a limit for how many you sell, for example 110 tickets. When all the tickets are sold, choose a random winner...he wins $100, and you keep $10.

    Infact, I think it'd be to sell just 11 tickets, and make the price $1. And, you could have a $1 earning for each lottery you make. The chances of winning $10 are big (1 in 11).

    The main concern is that it could be a scam, because it's easy that the winner is always you or somebody you know.

    The second concern is the legal part. This looks like a very easy idea to implement, so I don't know why I haven't seen it elsewhere in the internet...maybe it isn't legal?

    I mean paying $1 dollar and have good chances to win $10 or $100 seems like a good deal to me. This idea falls between a pyramid scheme and gambling, but what if you have ads on your site, and from all your earning, you have a 'win an ipod' contest every month...isn't that very similar thing?
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  2. #2
    supervillain gerbick's Avatar
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    It's very illegal. Lotteries are usually overseen by a third party/committee to ensure that it's not a scam or that the results are not influenced by any other means.

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  3. #3
    poet and narcisist argonauta's Avatar
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    Well, some additional questions then:

    - I'm assuming that an internet business would need to obey the laws of the country it is based on. So, if this company is based in Ecuador, where it is not illegal (i really don't know) and if there isn't a law that says that this type of thing can only be sold to people inside the country...then that'd mean:
    a. a site like that could exist, just 'overseas'
    b. as you don't need to limit the participants to your own country, there'd be nothing to forbid people in the US to participate.

    Although then you'd need to see if it's illegal not only to run such a thing, but also to participate in it. But either way, there are so many countries with different laws regarding 'lotteries' that I guess it's definitely legal somewhere...the thing is, I've never seen such a site.

    Also, at least over here, it's a very common practice, when you need to gather funds, to create 'lotteries' (rifas in spanish). This is done in offices, schools, neighborhoods. You sell tickets to family and friends (usually $1 or $2 per ticket), with one big prize (a radio or some gadget, with a cost of around $90) and two smaller prizes (usually houseware). It's not uncommon that little kids in your neighborhood sell you these tickets for some event they're organizing in their school, and it's done with the school's sponsorship. I don't know what the law is over here, but I'd guess that this is legal as long as the amount of money you're dealing with is less than x dollars. So, under certain conditions (small 'prizes', limited number of participants) I don't think why it should be audited by some big entity. The same way casinos are illegal, but you can play for money at poker nights at your neighbor's house...I guess you could do something like this in smaller communities (forums, family blogs, etc).

    I also see a few ways to go around the illegality of this, maybe making it go into a gray area:

    - It's not illegal to ask for donations, right? So, it's ok to say:
    i've seen this in a lot of people's site where they create software and ask for donations to start developing for a new platform: 'please donate to my project, I need $300 to buy a gadget so I can develop software for it'
    Is that ok? but it'd be illegal if I say: "please donate. I need $300, but I'd collect $600, so that when we reach that amount, I'll give away $300 to somebody within the list of people that donated" ?

    - I don't think it's illegal to make an offer like: "join the site for only $5 a month, and you can be one of the lucky ones that win 1 of the 10 free lifetime memberships we offer every month"...would it be illegal to make people subscribe to my site for $1 a week, with the chance to win a membership for 10 weeks ($10) paid in cash so that they can decide whether they can continue the membership or go spend the money somewhere else?

    I do understand that you might get into scamming or illegal issues with such a thing, but it's kinda dumb if it's illegal under certain conditions. For example, in a forum, on one side you can ask people to support the site (with a paypal button), and if donations do work, you usually want to do something good for the community, so it wouldn't be unusual that you give away an ipod or something to your members...is that illegal? this 'lottery' idea would be more focused and straightforward, but it's based on these sort of 'donate' and 'win' schemes.

    Also, keep in mind that I'm talking about small amounts of money (I guess there's a big difference between a contest that claims to pay $10000 and another one for $5) and for a limited number of people (for example, something between just the people you know on facebook, or your twitter followers).
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  4. #4
    poet and narcisist argonauta's Avatar
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    Quote Originally Posted by gerbick View Post
    It's very illegal. Lotteries are usually overseen by a third party/committee to ensure that it's not a scam or that the results are not influenced by any other means.
    Also, I guess it's very illegal (in the US) if this is done informally. But I guess that you can do all the paperwork to make it legal (hire a lawyer, ask for permission and auditing from this committees, insurance, etc)...although that might mean a lot of expenses and time spent for such a thing to become a good business for you.
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  5. #5
    poet and narcisist argonauta's Avatar
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    Just answering my own questions. First, I think the term I was referring to is 'raffles' not lotteries (my first raw post was about cash prices, but I was thinking more in gift certificates or something similar).

    A quick research seems to indicate that:
    - raffles are legal as long as they are for non-profit purposes (which would still be something really nice to have online, like, to help a kid get an operation or something, would probably be more successful than just asking for donations, because of the selfishness of people).

    - raffle laws vary from state to state...this might mean that they might vary even more from country to country.

    - some states have restrictions in prizes (like if your big prize is more than $5000 you have to comply to a different set of rules).

    There also seem to be a bit of raffle/lottery scripts out there, although I read one and it seemed more like a pyramid scheme than a raffle.

    It looks like there are a lot of ways to use prize promotion legally (sweepstakes, raffles, contests) even for for-profit purposes (like increasing your number of readers/subscribers/members which would increase the revenue in your business). So it looks like it all depends on how you run those contests, why and where.

    I'm just thinking out loud. I just think that it'd be nicer an more effective to have things like that (legally) become more popular. Having a real contest/raffle to win an ipod by paying a very small price instead of those 'win a free ipod' scams.
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  6. #6
    Hood Rich FlashLackey's Avatar
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    I think you could run it from a country that doesn't consider it illegal.

    It might fall under the internet gambling laws here in the US. Meaning, it is technically illegal. But, people would play anyway.

    I suppose that the biggest hurdle would be in establishing that you would pay out reliably and that it isn't a scam. A lot of people would be wary of sending cash overseas for a chance to win a small lottery.
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  7. #7
    poet and narcisist argonauta's Avatar
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    well, i was just brainstorming. I was thinking of ways to promote sites. Giving away free stuff could attract traffic, which if done right would increase your revenue (ad revenue or if you sell something). It could be an organic process where you can give stuff away as long as people visit your site, which is what lets you give away stuff in the first place. It's not a get rich fast scheme, but done right, it could work.

    Then I thought about making users pay for this give aways...it's safer because you don't give away anything until you have 100% of the money in your pocket...but that's where you get into risky business and probably illegal activities.

    I was talking to my dad today and actually came up with a few ideas (not internet based) that were so simple that we were scratching our heads without understanding why there aren't people out there doing it. We thought that it's because it's illegal, or are so simple that people think it won't work.

    But from my experience, it's usually the most simple ideas the ones that have the most success.
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  8. #8
    Chaos silverx2's Avatar
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    what about membership fees

    $15 a month.

    depending on the amount of members you put them into groups weekly. each week one person from each group wins randomly.
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  9. #9
    Wait- what now? tidenburg's Avatar
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    That would still count as a lottery, and so you'd need a license. A prize-draw as you're trying to get it classed as, requires that no extra expenses are required (other than the normal costs of the type communication) in order to participate.
    "I'd only told them the truth. Was that so selfish? Our integrity sells for so little, but it is all we really have. It is the very last inch of us, but within that inch, we are free."

  10. #10
    poet and narcisist argonauta's Avatar
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    I've seen many sites, blogs and podcasts do promotion contests, like leave a comment in this blog post and you might win one of the 10 licenses we have for software x. Or do something to promote our podcast, and the most original will win a membership to our premium site. Tell us a joke, people will vote and the funniest will win a tshirt, etc.

    I doubt that all of those site are getting any type of permission, but I think it's also because you're not giving away thousands of dollars (although there are some communities that give away software like photoshop or flash). There are some conditions, like, I think it's legal if what you're giving away is donated by somebody else. Also I think it's not such a big issue if your prizes are not in cash, but some sort of goods (physical or digital).

    I guess that if your site/business is based only around these 'contests', you might get in trouble, but if they are just promotion devices for your main service, I think you can get away with it.

    I think that mainly, you can't have such a business because of so many scams that have happened. It's a shame though, if you did all things by the book, it'd be pretty easy to make really good raffles with real prizes. Wouldn't you pay $1 for the chance to win an ipod, if you knew that it is not a scam and you have real chances to win?

    Think of all the money that everybody wastes: people spend .99 cents in fart apps for the iphone, you buy a bottle of water instead of drinking the water you have at home, etc. There are a lot of little expenses everybody makes. I think raffles done in small amounts with limited participation can be transformed into a big machine where almost everybody wins. Again, I'm not thinking about get rich quick schemes. I think it could even be used for nice causes...if you create a script, you can leave it running with no cost for you, and people can keep playing. For example, make raffles of three people, for $1 dollar per entry. The script closes the raffle once 3 people have donated, and choose a random 'player'... he wins $2 and you keep $1. You can have the script do it all automatically (receiving entries and paying via paypal), and once you have $100 collected, the script can automatically send that to a non-profit organization. Imagine: $1 dollar is almost nothing, and you have a 1 in 3 chances of duplicating the dollar. If you don't win, it's ok, because part of your money is going to a good cause, if you win, it's such a small amount that you'd either participate again or spend the $2 in some dumb thing that you'd anyway would have wasted on anyway. But there's a huge psychological effect here: win money and help fight cancer at the same time. This sounds to me like that scheme of someone stealing the cents from bank accounts, because the pc would round the numbers. In such small amounts ($1) you could have a real money making machine going on. The problem would be ambition: say you get $1 as earnings for every $99 you donate (to get to that point, you've already given away $200, that's a 100 contests). It feels like a waste, so you would want to game the system you created, donate less, or participate in the contests yourself, making sure that you win 50% of the time (and that's exactly why the laws exist)...but keeping in mind that this script does all the work for you, if this site becomes really popular, you could get to have 100 contests every day (meaning you're donating $99 a day, and you earn $30 a month). The real winner is the non-profit organization, but you're still getting 'free' money. That simple idea, if you keep it clean, won't make you rich, but will generate some sort of profit by moving around some money that you'd otherwise would have wasted in a bottle of water or a fart app.

    You could make some adjustments to your script, so that the more you pay, the more chances you have to win. For example: pay $1 and you have 1/8 to win $7 (a contest with 10 participants), pay $2 and you get a 1/6 to earn $10. Pay $5 and your chance to win $11 is 1/3 (there would need to be more thought on how to optimize this). You could make people earn more money, you make more money (or the same amount, but quicker) and the non-profit gets more money.

    The key thing is play with very small amounts, and have big chances to win. Although I think that people would rather spend their money in a lottery ticket that offers millions (but they're chances are minimal) rather than spend it in something were they have really really good chances of winning.
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  11. #11
    supervillain gerbick's Avatar
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    heh, sounds like you're describing moola.com

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  12. #12
    Hood Rich FlashLackey's Avatar
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    We went through some of this recently when we were exploring the possibility of offering a prize for a free-to-enter on-line game. From what I found out (which by no means should be assumed to be complete and accurate ) it's ok to offer prizes for free games. But, the player has to be at least 18 and it has to be free. It's considered gambling if you charge them to play in any way. That's why you see candy bar prize give aways offering a free alternative way to play the game by sending an entry to some address.

    I think that a lot of the ideas you are describing have been tried in one way or another. There have been numerous attempts to involve users to drive traffic and "earn" payment. Haven't seen it much lately. But, there were a number of those systems out around 2-3 years ago.

    If there was a way to make it work. I believe that Amway would have been all over it by now.
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  13. #13
    poet and narcisist argonauta's Avatar
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    Quote Originally Posted by gerbick View Post
    heh, sounds like you're describing moola.com
    well, i think the main difference is the approach. I don't think that you can get rich, or could get a million dollar from my 'scheme', but it can create some revenue by moving small amounts of money around. I think that might be why people don't try it out, just because it's not really profitable unless you create a scheme you can really benefit from.

    For example, here at the coffee lounge we have at least 15 regulars. Gather the regulars from the other forums, and we could reach 100. Each pays $1 via paypal, and we figure out a way to get the winner (something out of our control, like some mathematical operation involving the numbers of the lottery in Austria and California). One of us gets $100, the rest of us have a very small loss that you won't even feel. It's not profitable, not a business, no one gets rich, no scam, but in the end someone benefited from it.

    I think that the problem nowadays is that everything has to be seen from a business perspective. How can you make money out of it, and how can you keep making a profit (either as the 'bank' or as the 'player'). If we just consider this as a simple clean idea, without double intentions or trying to take advantage of anyone, then it'd work just fine.

    It's funny how kids are allowed to have their own economy and currency, but once you grow up, it's illegal, just because as a grown up, you get greedy. I was thinking that when I was a kid, there were a few 'currencies' around: marbles had their value depending on quality, size, colors, rarity. There was a whole economy based on that (I remember there even were 'loaners' that would lend you a marble to let you recover the ones you lost, but then you had to pay them back with interests). You could use them to exchange for other goods/toys/currencies...the other currencies were cards, album stickers, some little round cards called 'tazos'. It was kinda fun to win and get 'richer', but it was healthy, because nobody was taking advantage of anybody.
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  14. #14
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    As far as I know that's illegal.

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