Sweepstakes, contests, and lotteries all give people chances to win prizes. However, despite having that thread in common, they are very different from one another in terms of how they're held, how they choose winners, and even whether they're legal to run at all. Here's a breakdown of everything you need to know to keep sweepstakes, contests, and lotteries straight.

What Are Sweepstakes?

Sweepstakes are prize giveaways where the winners are drawn at random from among all valid entries. Prizes can range from stickers and t-shirts to houses, cars, and enormous sums of cash. Sweepstakes sometimes offer additional entries for various activities like referring friends, sharing the sweepstakes on social media, or visiting a website or watching a video.

What Are Contests?

Contests are giveaways that select winners based on merit. The entry with the funniest pick-up line, most moving essay, most scenic photograph, tastiest recipe, or whatever else fits the contest's theme will be chosen as the winner. Public voting can also be used to help select contest winners.

What Are Lotteries?

Lotteries are prize drawings where entrants must pay money to buy a chance to win. Lotteries are heavily regulated and are usually only legal if they are run by the government. Powerball and Mega Millions are two popular lotteries in the United States, while EuroMillions is a popular lottery in Europe.

A raffle is a type of lottery that is usually run by charities and small groups as opposed to the government. While they are legal, the groups who run them have to meet certain criteria and, depending on where the raffle is being held, may have to get permission ahead of time.

The Difference Between Sweepstakes and Lotteries:

The U.S. has strict laws barring private lotteries, so in order to be legal, sweepstakes have to differentiate themselves from lotteries. A lottery is defined by law as a promotion that has all three of the following elements:

The promotion is offering prizes that have value The winners of the promotion are chosen at random There is an element of consideration

To avoid being classified as an illegal lottery, sweepstakes must ensure that at least one of these elements is missing. Because prizes and luck are central to sweepstakes, legitimate sweepstakes usually eliminate the element of consideration.

Consideration is loosely defined as something of monetary value to the company offering the promotion. This could be straight-up money (such as purchasing a ticket for entry) or something of indirect value (such as needing to dine at a sponsor's restaurant to get an entry form).

That means you will never have to pay to enter legitimate sweepstakes and purchasing a product will not improve your odds. Any sweepstake that asks you to pay to play is a scam. If a legitimate giveaway requires you to buy a product to enter, it must also offer a non-purchase entry method that lets people enter without spending any money.

Some states have their own sweepstakes laws and regulations in addition to federal laws. For example, sweepstakes sponsors in New York must bond prizes valued above $5,000.

The Difference Between Sweepstakes and Contests

Many people use the terms "contests" and "sweepstakes" interchangeably, but they're actually quite difficult. Contests are giveaways that have an element of skill to them. For example, entrants might need to answer a trivia question, write an essay, share a photograph, or create a recipe to participate.

This rules out the second element of an illegal lottery: winners chosen by chance. This means that it is legal to charge a fee to enter contests or to have an element of consideration that is beneficial to the sponsor (i.e., a recipe that will be used in advertisements for a product).

In Canada, giveaways also have to avoid the same three indications of a lottery, but they usually also eliminate the element of chance by asking a skill-testing question. For that reason, Canadians usually call all of their giveaways contests, and the people who enter them "contesters".

Why Do Sponsors Hold Prize Giveaways?

Contests and sweepstakes come out of the marketing budget of companies who are looking for innovative ways to promote their products, so it is important to support sponsors whenever possible. When sweepstakes are very successful, sponsors are more likely to continue to offer prizes. For more information, read 6 Reasons Why Companies Offer Sweepstakes.

Remember to try sponsors' products whenever possible, to be polite and gracious when asking questions about sweepstakes, and to thank them in writing for your wins