It will likely be called a raffle because buying the "tickets" costs money and you will very likely get nothing for it.
In almost all states in the USA, raffles are illegal as part of the private lottery statutes. In practice, enforcement agents usually look the other way for small non-profit raffles like the kind held in church basements for pies and such.
They are extremely unlikely to look the other way in this case!
You're wrong on both accounts. For one, it's clearly not a raffle because there is no random selection method. It's most definitely an auction. Exact laws on raffles and other forms of sweepstakes vary from state to state, but all require some sort of random selection method. Some merely require any randomness to exist, some require it to be primarily random (more luck than skill) and many fall in between. But none would consider something a sweepstakes that has no randomness at all.
For another, state Attorneys General are hesitant to try internet-related cases that violate sweepstakes laws unless it's more or less in the bag. It's a giant legal gray area and they don't want to set an unfavorable precedent.
"It will likely be called a raffle because buying the "tickets" costs money and you will very likely get nothing for it."
It is NOT a raffle because a raffle winner is selected 100% by chance whereas at swoopo the winner is the person who bids the highest price -- and bidding the highest price is not based on chance.
Right, it's clearly not a raffle or a lottery. It's an auction. I don't think it would violate the sweepstakes laws of any state, though there are 6 I wouldn't push it in if I were running it.
Matt, you seem to know more about the legal framework than most other posters here. Which 6 states would you avoid? I have an important reason for asking since I'm working on a startup that uses a similar system -- very different in some respects, but certainly similar enough in others that your insights are valuable to me. You can email me privately if you prefer, my email is owkaye at gmail dot com.
Arizona, Iowa, Louisiana, Maryland, Montana, and Vermont all have very restrictive gaming/sweepstakes laws. You'll notice nobody who does fantasy sports or skill games for money (cbssportsline.com, worldwinner.com, etc.) allows customers from those states.
I'm really not sure if this auction system would qualify. I would really check with a lawyer versed in online gaming and sweepstakes if I were doing something like this. If you need, I can recommend the firm that almost every American who runs a casino or poker site uses.
If they reduce the charge per-bid enough, then it does become an auction site. (And if it's large enough by that point, they'll still be raking it in.) They could also invite others with goods to sell and share the per-bid fee. If both of those things happen in a timely fashion, then it will be difficult for the authorities to argue that it's not an auction site.
If they are not charging for the bid (chance to win) but for the bandwidth when submitting a bid from the web page, then they get around this. They can demonstrate that by having another channel for bids, like email messages formatted Majordomo command-style.
Make this easily accessible, and it will be hard to argue that they are not an auction site. However, it can still be arcane (and slow) enough that the majority of the public still won't use it. Again, no one's gone broke underestimating the intelligence of the American public.
In almost all states in the USA, raffles are illegal as part of the private lottery statutes. In practice, enforcement agents usually look the other way for small non-profit raffles like the kind held in church basements for pies and such.
They are extremely unlikely to look the other way in this case!