Legal Question in Business Law in California

[This is a followup to this question: https://www.lawguru.com/answers/question/show/qABDp49GHq.]

I previously asked why commission pay schedules for salespersons are not considered "contests" under state laws even though such arrangements arguably satisfy the definition of "contest" or even "lottery" (if an element of chance is present). I received a couple good answers. The most persuasive arguments, I think, were (1) employment law supersedes contests/lotteries law and (2) the law shouldn't be read so literally.

These are persuasive answers, but the question can be re-framed to non-employment arrangements. A good example, I think, is Google's AdSense program. Google places ads on third-party websites (e.g., latimes.com). When users click those ads, Google collects money from advertisers and shares a portion of the proceeds with the hosting website. Google only promises to pay an amount "related to the number of valid clicks..." and does not reveal how it arrives at the amount of those payments. (This opaque arrangement is very beneficial to Google.)

So how is AdSense not a contest? Website owners are the participants, they certainly provide valuable consideration to participate (they let Google place ads on their Webpages), and they receive a reward that is a function of their skill in attracting users. One might even argue there's an element of chance and this is a lottery...

I realize I'm perhaps interpreting the definition of contest too literally, but I'd like to use a similar arrangement in my business and I'd really like to know, as clearly as I can, where the boundaries lie. Maybe standard forms of contract supersede contest/lottery laws? E.g., revenue sharing arrangements similar to Google's AdSense are long established contract forms and have never been thought of as contests or lotteries? Therefore, by convention, they are not contests/lotteries?

Again, I'd just like to say, THANK YOU.


Asked on 1/03/14, 6:59 pm

2 Answers from Attorneys

You are not using the term literally ENOUGH. You are missing the key element of a contest or lottery, which is you put in your money and you only get anything if you "win." Everyone else gets nothing. Neither commission sales nor AdSense have that element. How MUCH you make is subject to a great many variables, but what causes you to make money is directly related to producing a result that you control in large part if not exclusively. Make a good site, get traffic, get clicks, get paid. Be a good salesperson, earn commission. There is no real similarity to a contest or lottery. Only by being vague and glossing over the differences, rather than being specific and literal can you compare those arrangements to a lottery or contest.

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Answered on 1/03/14, 9:04 pm
Edward Hoffman Law Offices of Edward A. Hoffman

Sales commissions and the other systems you describe compensate people for services rendered to the payor. Contests don't.

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Answered on 1/04/14, 11:46 am


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