It’s summer vacation time and what better way to spend it then basking in the sun after winning that all-expense-paid prize trip. Or is it?
Sponsors want to create buzz for their sweepstakes. And vacation prizes over the summer months may do just that. In my unofficial count, there are about 150 vacation sweepstakes currently running by major brands for trips to Hawaii, Lake Tahoe, Disney World, Miami, Las Vegas, NYC and even Cincinnati. But Caveat Sponsus, awarding a dream vacation could be a nightmare.
Issues and solutions when offering vacation prizes:
Issue: Taxes. Taxes. Taxes. The winner is responsible for the Fair Market Value of the trip. This could be in the neighborhood of 30% of the FMV.
Solution: Cash is king. Offer a cash component along with the trip prize. While the winner still has to pay taxes on the cash component itself, it will help offset the overall tax bill.
Issue: The more the merrier. The winner is also responsible for the FMV of her guest’s accompaniment.
Solution: While it sounds great to offer a trip for the winner and all of his Facebook friends, you can’t count on Pee Wee Herman winning that trip to the Alamo (“I’m a loner Dottie, a rebel”). You may want to consider limiting guests to one or two.
Issue: FMW ≠ ARV. The winner pays taxes on the FMV, not the ARV. A savvy winner may dispute the 1099 form and the Sponsor may have to substantiate the prices, which could be embarrassing if the Sponsor got that deeply-discounted vacation package.
Solution: The ARV required in the Official Rules is what the winner would pay if she had to go out and purchase the prize. There may be nothing wrong with the Sponsor stating the actual cost on the 1099.
Issue: Thanks, but no thanks – La La Land. Failed prize announcements are embarrassing. The bigger they are, …
Solution 1: Sponsor can provide a cash alternative. Big extravaganza not wasted; no need for alternate winner.
Solution 2: Make it very clear in the Official Rules and paperwork provided to potential winner that there will be taxes on the prize and that there will be a prize ceremony. Get her agreement that she will not decline the prize once announced.
Solution 3: Offer winner the opportunity to award the prize to charity. She’ll still have to pay taxes on the prize, but she may get a sizeable tax deduction and everyone will feel good.
Issue: Thanks, but no thanks: The clock is ticking. Sometimes there’s a time crunch; Major League Baseball won’t postpone the World Series if your winner strikes out.
Solution: Protect yourself in the Official Rules and winner paperwork by: (i) clearly specifying the exact dates for the trip; (ii) providing the winner with a strict deadline to provide paperwork/accept prize; and (iii) providing for the selection of an alternate only if time permitting.
Issue: Honeymoon in Vegas. Sometimes the winner and his friends may have different ideas of the term “all inclusive.”
Solution: Reign in that rogue cowboy. Official Rules and paperwork: (i) provide for background checks; (ii) have winner agree that he will conduct himself in a lawful manner and consistent with the Sponsor’s corporate standards; and (iii) provide for forfeiture of (or remainder of) prize if winner or guest gets arrested, acts in an unruly fashion, disturbs the peace, you get the point.
In 1648, Massachusetts declared idleness a crime. Today, Americans travel a combined 700,000,000 miles on their summer vacations. And some of them were on the house.
