Is the New York Road Runners Club Running a Sweepstakes or an Illegal Lottery?

Is the New York City Marathon running an illegal lottery? According to a class action complaint filed in the Southern District of New York last week, the answer is “yes”.

The two named plaintiffs in Konopa v. New York Road Runners Club, Inc. assert that the Marathon is an illegal lottery because entrants must pay an $11 processing fee for the chance to be selected to run the race.  Since the classic elements of an illegal lottery are: (1) consideration (paying money); (2) chance (like a random drawing to select entrants); and (3) a prize (entry into the Marathon), the plaintiffs contend that the Marathon is an illegal lottery and they are entitled to more than $10.5 million in damages to account for the processing fees collected over the past six years, plus attorney’s fees.

At first blush, the plaintiffs would seem to have a point. However, in drafting rules for contests, promotions and sweepstakes, there are many ways to run around one of the three elements that make up an illegal lottery, making what would otherwise be prohibited legally permissible.  One common way of doing this is to provide what is known as an alternative means of entry — or “AME” — a way for entrants to participate in a contest or sweepstakes that does not require the payment of money or other consideration.

The complaint acknowledges that there are ways to secure entry into the Marathon other than by paying the $11 processing fee, like raising money for certain charities or attaining a certain qualifying time in another race.  Whether these AMEs are sufficient to take the element of consideration out of the Marathon entry structure so that it is not an illegal lottery is one of a number of issues raised by the case. Because the propriety of contests and promotions is not an issue that gets litigated frequently, this case, if it goes forward, may provide useful guidance to practitioners in the field and businesses as to what is and is not permissible.