What's the catch with free giveaways?
General information, not legal, tax or financial advice.
Why would anyone give away a $90,000 truck? Usually because selling entries brings in more than the truck costs. The giveaway is a business, and a free entry is the part of that business the sponsor has to offer and would prefer you didn't notice.
Most of the catch is the odds. Sponsors who run these giveaways are often honest about it in the official rules, and a real free entry costs you little. You just need to know what it's worth and which promotions to skip.
Why these giveaways exist
A big prize is good advertising. A truck on Instagram draws attention that a T-shirt ad can't, and the people who see it may buy something, join a mailing list or follow the brand. Consumer brands run sweepstakes for the sign-ups and the publicity. Smaller operators often run them as their main source of income.
A drawing that only took paid entries would generally be an illegal lottery, so these promotions include a free way in. Our no purchase necessary guide covers why.
How merch-store giveaways make money
The usual model is a store selling shirts, hats or parts, where each dollar spent earns entries. You might see 10 entries per dollar, with packages that lower the cost per entry as the price rises. Some operators add monthly memberships that drop entries into every drawing.
The store keeps the margin on what it sells and pays for the prize, the marketing and a sweepstakes administrator. Plenty of these are real businesses that do award their prizes. The trouble is that the buyer is paying mostly for entries, and any given entry has a small chance. If you want the hoodie, buy the hoodie. If you don't, the free entry is there.
How charity giveaways make money
Charity giveaways work the same way with donations in place of merch. A gift earns entries, and a free entry is offered alongside it. Many are run by fundraising companies that take fees, and after those fees and the prize cost, the charity receives whatever is left. That can be a fair deal for a cause you already support. Just don't assume most of your donation reaches the charity. Look for the disclosed split in the rules or the charity's own reports.
Multipliers
Multipliers are sales tools. A store runs a "20X weekend" and every dollar briefly earns 20 times the base entries. Holiday promotions and bonus codes work the same way.
The effect is that more entries land in the pool. Free entries often don't get the multiplier, though some sponsors extend it to cards with a keyword. Either way, a flood of paid entries pushes your share down. A multiplier doesn't change the prize, so treat "10X" as a reason to compare prices, not a reason to buy.
What a free entry is worth
Each entry generally has the same chance in the drawing, so the question is how many entries you get. That varies a lot by sponsor. Here's an example with made-up numbers:
- A store sells entries at 10 per dollar.
- One mail-in card earns 100 entries, so that card matches a $10 purchase.
- At another store, a card earns 1 entry while $29 buys 40.
Now the odds. If a giveaway collects 2,000,000 entries and you hold 100, your chance is 1 in 20,000. If you hold 1 entry, it's 1 in 2,000,000. Someone who spends $100 at 10 entries per dollar holds 1,000, which is 1 in 2,000. That's ten times your card's chance and still very long odds. Free entry beats paying because it costs a stamp, but almost everyone who enters doesn't get the prize.
Most sponsors don't publish the entry total, so you usually won't know your real odds. That's a good reason to treat a free entry as a small, cheap shot and nothing more.
Minimum-proceeds clauses
This is the clause to look for. Some rules say the advertised prize will be awarded only if sales reach a set level. If they fall short, the sponsor may award a percentage of proceeds in cash or a smaller alternate prize. So a "$100,000 truck" giveaway can end with a much smaller payout. Search the rules for words like "minimum", "proceeds" and "alternate prize". Giveaways with a guaranteed prize are the better deal for someone entering free.
Taxes
Prizes are taxable. A winner owes income tax on the value of the prize, and a 1099 is typical for larger prizes. With a vehicle, that means owing tax on something you can't spend, and you may have to pay for title and registration too. Some winners sell the prize or take a cash alternative when one is offered. If you ever win something large, talk to a tax professional before you accept.
Scams
Fake giveaways copy real ones. These signs should make you stop:
- You're asked to pay a fee, shipping or "release" costs to receive a prize.
- Someone asks for payment by gift card, wire or crypto.
- You're told you won something you never entered.
- A copycat social account messages you from a name close to the real one.
- There are no official rules, or the rules name no sponsor.
Real winners are often asked to sign an affidavit and give a tax ID, so that request isn't a scam on its own. Before you send anything, confirm the contact through the sponsor or administrator named in the official rules. Any tax arrangement will be spelled out there too. Be wary of paid services that offer to enter for you as well, because many rules ban them. We never enter on anyone's behalf.
Common questions
Are these giveaways legit?
Many are, and some aren't. Look for official rules that name a sponsor, a free way to enter and a drawing date, and search for past winners. FreeEntry checks mailing addresses word for word against the official rules. A listing isn't an endorsement of the sponsor.
Is a free entry worth the stamp?
That depends on how many entries the card earns and whether the prize is guaranteed. A stamp is cheap, but the odds are long, so think of it as a small hobby. You can compare open giveaways and pick the ones worth sending.
Can a sponsor treat my free entry worse than a paid one?
Each entry should generally have equal treatment in the drawing, but the rules can give you fewer entries per request. A mistake on your card can void it, so follow the mail-in steps closely.
Do I owe tax if I don't win?
No. Tax applies to prizes you receive. Entering free costs you the stamp and nothing else.