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Advertising, Marketing & Promotions Alert >> NYC Marathon Organizer Sued Over Alleged Illegal Lottery

January 25, 2016

Two Utah residents have filed a class action lawsuit in a New York federal district court against the organizer of the New York City Marathon, claiming that the method it uses to select runners to participate in the race is an illegal lottery. Although the lawsuit alleges specific violations of New York State's lottery law, the lawsuit may have a far reaching impact on the way companies in a broad range of industries make tickets available for concerts, athletic contests, and other events.

The plaintiffs allege that there are more runners who want to participate in the New York City Marathon than available spots and that, as a result, the organizer – New York Road Runners, Inc. – uses a "random, chance-based drawing or lottery" to determine who can participate. This system, the plaintiffs contend, involves prospective runners paying a non-refundable fee for the chance to win a "prize" – the right to run in the marathon.

The plaintiffs assert that, from 2010 to 2015, about 80,000 prospective runners paid a non-refundable fee of up to $11 each for the chance to run and that fewer than 18% of them were selected to participate in the race. Moreover, they allege, during this period, New York Road Runners grossed "millions of dollars" from this "lottery."

In the plaintiffs' opinion, this entry system is an illegal "chance-based drawing or lottery" under New York law. In general, an illegal lottery exists in most states when all three elements of prize, chance, and consideration are present. Here, the plaintiffs argue that all three elements do exist as the $11 fee constitutes consideration, the random drawing for participation is the chance, and the prize is the ability to run in the marathon. Although exceptions to New York State's lottery law exist for certain charitable organizations, according to the plaintiffs, these exceptions are rigorously enforced and the New York Road Runners failed to satisfy these exceptions.

The plaintiffs are seeking approximately $10.56 million in damages, plus attorneys’ fees and other costs, as well as an injunction to prevent New York Road Runners from conducting the drawing again.

Ironman Action
This action is similar to a complaint filed by the U.S. Attorney for the Middle District of Florida last May against the World Triathlon Corporation. The government contended that World Triathlon illegally charged athletes $50 for a chance to win the opportunity to compete in the "Ironman World Championship," held each October in Hawaii, and that thousands of athletes purchased multiple entries.

The government asserted that this was an illegal lottery, and World Triathlon agreed to settle the action by forfeiting $2,761,910 in proceeds to the U.S. government.

In announcing the settlement, the government said that World Triathlon "would have been permitted to give away the opportunity to compete in the race, but violated the law when it charged athletes money for the chance to win."

The Bottom Line

Many industries have similar systems for selecting those who can purchase a ticket or participate in an event, and even without a fee to participate, the New York Road Runners lawsuit raises the question as to whether or not these lotteries should be treated and legally analyzed as sweepstakes. The lawsuit against the New York Road Runners demonstrates that lottery and sweepstakes laws should be taken into account in structuring distribution of anything of value based on chance. As noted in the Alert, the suit is not the first to challenge this type of entry process, and it likely will not be the last one.