Not too long ago, Pumpkin posted about her frustrating experience entering the lottery for the Medtronic Twin Cities 10 Mile, observing at the outset, “Slots, craps, black jack, road race lotteries: they’re all the same.” Well, a couple of runners who lost out after paying to enter the New York City Marathon lottery last year agree, and they’ve literally made a federal case out it.
In January, Charles Konopa and Matthew Clark filed a class-action lawsuit against the New York Road Runners, the organization that hosts the New York City Marathon, claiming that the marathon’s entry drawing constitutes an illegal lottery under New York law. The parties recently settled. Consequently, New York City Marathon lottery is now free!
But what, you may be wondering, was the big deal behind this lawsuit? And what does it mean for other races going forward?
The Basics: Lottery vs. Sweepstakes vs. Contest
All fifty states and the District of Columbia prohibit private parties from running unlicensed lotteries. But what does that mean exactly? To understand the lawsuit against the New York Road Runners (or NYRR), it’s helpful to understand how a “lottery” is usually defined under the law.
Generally, a “lottery” has three components: (1) consideration; (2) selection of winners by chance; and (3) a prize. Consideration is just a fancy term for something of value: normally, in the lottery context, it’s the money you pay to enter. Selection of winners by chance generally means that the winners are picked randomly. And a prize is just whatever it is that the entrants are trying to win. For the most part, only state governments can run lotteries. Anyone else who wants to have one must get a license from the state, which can often be prohibitively expensive.
But, Zest, you might be thinking, I see drawings and giveaways everywhere! Have I been unknowingly entering illegal lotteries this whole time? It depends on the circumstances, but probably not. Lotteries must have all three elements listed above, or they’re something else entirely.
Sweepstakes (No Purchase Necessary)
So, for example, if you get rid of the entry fee (consideration), you have a sweepstakes. This is why whenever you buy a specially marked box of cereal and check under the box top to see if you’re a winner, you’ll also read on the box that there is “no purchase necessary” to enter or win. If you read the fine print on the box, you’ll see that there is an alternative, no-cost way to enter, usually by sending a self-addressed stamped envelope to the address provided.
Similarly, if you eliminate the element of chance by, for example, making the giveaway a skilled competition, you have a contest. That’s why winning prize money at a road race doesn’t turn the race into a lottery; the winner is chosen through skill and not at random.
A Boring Game
Finally, if you get rid of the prize, you have, well, a not-very-fun game, but, again, not a lottery.
The New York City Marathon Lawsuit
Because demand to run the New York City Marathon far exceeds the number of available slots, for the past six years, NYRR has selected entrants through a random drawing, assessing a non-refundable “processing fee” for each applicant. Last year, the processing fee was $11, and only 18% of those who entered the drawing were selected for a spot in the race. In their lawsuit, the plaintiffs alleged that NYRR was operating an illegal lottery without a license by seeking consideration (the $11 processing fee) for a chance (via random drawing) to win a prize (a spot in the New York City Marathon).
This argument raises several potential questions. First, although the random drawing was the most common method of entering the New York City Marathon, it was not the only one: runners could also gain entry by running a qualifying time, raising money for a charity, or participating in NYRR’s 9+1 program. Remember the “no purchase necessary” scenario discussed above? Do these other avenues to getting a spot in the marathon turn this “lottery” into a sweepstakes?
Here, there were several ways to enter the race without paying to participate in the random drawing. Although consideration is most often money, it isn’t always: some courts have held that expending substantial effort to enter a contest is sufficient consideration in some contexts. Also, those alternative means of entry were ways to enter the marathon itself without entering the drawing; they were not alternative ways to enter the lottery. Would that have mattered?
Second, NYRR apparently charged the same $11 fee for all methods of applying to enter the marathon, not just for the random drawing. Did that fact mean that the $11 fee was merely a processing fee, as NYRR claimed, or did the fee still constitute consideration for those runners who entered the drawing? If the $11 was just a processing fee, did that make the drawing a sweepstakes?
Third, New York law allows some private lotteries for charitable organizations. NYRR is a registered 501(c)(3) not-for-profit organization, so this might have been an available defense. But an organization wishing to run a drawing under this exception also must meet very specific criteria, like registering with the State and submitting detailed reports to the State after each drawing. It’s not clear whether NYRR would be able to satisfy the criteria and whether it had taken any steps to submit the required registration to the State.
We may never know the answers to these questions because, last month, the parties, Konopa and Clark and NYRR, settled. Although it denied any wrongdoing, NYRR agreed, among other things, to provide credits toward future entry fees for all runners who entered the drawing for the New York City Marathon or New York City Half Marathon from 2010-2015. The settlement also provides that entry into drawings for the New York City Marathon and New York City Half Marathon will be free for the next three years, unless NYRR applies for a State lottery license, which could cost up to $3.1 million.
What Does This Mean Going Forward?
So what exactly does this mean for races in the future? The settlement will obviously have the most immediate impact on the New York City Marathon and Half Marathon. Because the entry drawing will be free in the coming years, NYRR has already announced that it will be raising entry fees for both races.
Beyond that, the settlement itself is unlikely to affect many other races. To begin with, a settlement is not binding on anyone besides the parties involved, so even if another organization were running an entry drawing similar to NYRR’s, it would not be required to follow NYRR’s lead. Also, a settlement does nothing to resolve the underlying legal questions, so there has still been no final word on whether an entry drawing like NYRR’s actually does violate New York (or any other state’s) laws. In fact, last year, the federal government sued Ironman Kona on a theory similar to the NYRR lawsuit, alleging that its entry lottery was unlawful under federal law. That suit also settled before any of the underlying issues could be clarified.
Finally, it does not appear that many other races have entry drawings like NYRR’s at any rate. Of the fifty biggest road races in the United States, only five of them besides the New York City Marathon and Half Marathon hold entry drawings, and none of those races charges a fee to enter the drawing. Some smaller races, like the St. George Marathon and the Twin Cities 10 Mile, do hold entry drawings that charge non-refundable fees, but this seems to be more the exception than the rule.
The bottom line is that the settlement is not likely to affect much beyond the New York City Marathon and the New York City Half Marathon, at least for now. But it will be interesting to see if the smaller races that currently charge non-refundable fees for their entry drawings continue to do so in light of the issues surrounding NYRR’s practices.
Have you ever entered the entry drawing for the New York City Marathon or New York City Half Marathon? Do you think races that charge non-refundable fees for their entry drawings should change their practice?
*** Disclaimer: The above article is explanatory in nature only and does not constitute legal advice. It should not be construed to draw any conclusions about whether the New York City Marathon entry drawing (or any other similar drawing) is legal. Zest has written this piece in her personal capacity as a Salty Running writer and, to the extent it contains any opinions, the opinions are hers alone. ***