How design contest and crowdsourcing sites refund and guarantee policies protect their service charges while the risk and exposure of unpaid designers, working on spec, is almost 100% whether contests are ‘guaranteed’ or not.

We’ll begin this post with a simple question. What do spec, design contest and crowdsourcing sites sell? Logo design? Uh-uh. Web design? Not that either. Graphic design of any type? Nope. Most design contest sites sell contest listings. That’s it. Contest listings. That little nugget can be found in most of the ‘Terms & Conditions’ of most design contest sites. When it comes to prizes, awards or whatever else you want to call them, designers are completely, and utterly, on their own. Regardless of what designers are promised about contests being ‘guaranteed’ and regardless of how many entries, revisions and edits are pitched, And it all involves credit cards. And something called a charge back. And while contest sites are practically guaranteed their ‘listing fees’, participating designers are at the total whim of contest holders. You thought you had a slim chance of winning before? You have no idea.

The 100% Guarantee.

Placing the words ‘100% Guarantee’ in a starburst is one of the most powerful callouts a company, particularly a web-based one, can out on their site. All fair enough, I suppose, when dealing with widgets and trinkets and a seemingly simple concept. You don’t like the product, or it’s defective, return it to the vendor and get your money back. The rejected product is put back on the shelves for sale to someone else (or returned to the manufacturer). Marketing 101. Other than a few shipping charges here and there (often subtracted from the 100% guarantee) nobody’s out. When it comes to design and artwork, it’s a little more difficult to offer a 100% guarantee, especially based on some nebulous terms such as ‘like’ and ‘satisfaction’. Design is completely objective, so unless things are completely out-of-whack, a company name misspelled for example, there is no right or wrong. Design is a service, not a product, and if performed ethically requires a time investment that cannot be recouped.

How design contest & ‘crowdsourcing’ sites can do it.

The only reason that design contest and ‘crowdsourcing’ sites can offer a 100% guarantee is because none of the participating designers, save the winner if selected, are getting paid a thin dime. If a project tanks, the host site isn’t out anything significant at their end, as the time investment is shouldered completely by participating designers, working on spec. Obviously, this is a system that’s ripe for abuse. Want to get some free ideas for a new logo? Launch a design contests, right-click- save the images then ask for your money back. Have an idea for a company that’s not been fleshed out just yet? Launch a web design or naming contest, and when you decide that the company idea isn’t so swell after all, cancel it, and get a refund. Notwithstanding the fact that dozens, or even hundreds, of designers wasted their time helping develop marketing material for a now-abandoned pipe dream. It’s a system that favors the contest holder almost exclusively.

Cynical word juggling to placate designers.

When contest sites first started a few years ago, most of them operated on a ‘Satisfaction Guaranteed – Pay On Win’ concept. The contest holder was left to voluntarily submit payment to the winning designer via their own account at Pay Pal or Western Union. Like most things that are open to abuse, this one was abused heavily and it wasn’t long before designers began to get hip to the fact they were being screwed. Contest sites were presented with an issue. How to maintain the 100% guarantee starbursts and graphic callouts while still placating designers who were hesitant to enter contests where there was no guarantee for them. That begat the ‘Pre Paid’ contest, when rather than voluntarily submitting payment directly to the winning designer, the contest holder submits a payment with their contest submission to the host site, where it’s held, supposedly in ‘escrow’ until contest close. The contest holder could still walk, but the theory went that if they plunked down some cash, they were at least committed, on some level anyway, to see the project through to its conclusion. The number of contest holders walking, leaving participant designers holding the bag, was still high, and whatever safety they felt, frittered away. That begat the ‘Guaranteed Contest’ (or project) where the winner’s fee was supposedly ‘guaranteed’, and if the contest holder walked, the host site would pick a winner for them. And award the prize money, taken from the ‘guaranteed’ funds paid back at the beginning (less their cut of course). Some sites featured performance clauses – receive a minimum of X number of proposals and you can’t get your money back – and designers believed that someone, anyone, would get selected even if the contest holder took a powder. It was a lovely theory. In practice, not so much. Turns out most ‘guaranteed’ contests aren’t ‘guaranteed’ at all. Usually, the contest holder can still get a refund, regardless of whatever ‘guarantees’ the host sites are giving to designers. And rather than pay designers out of their own bank accounts, most contest sites shrug it off, telling participating designers a variation of “sorry about that”.

The credit chard chargeback.

All of this involves something known as a credit card chargeback. That’s when a credit card holder disputes a charge on his or her bill, usually a charge that doesn’t involve a physical signature, and almost always involves an online sale. Having been involved with online logo billing since 1996, I’ve watched the evolution of credit card sales for over a decade, and over The Logo Factory‘s history, have been privy to almost every wrinkle and scenario imaginable. When ecommerce first began, online vendors were completely at the mercy of credit card holders. The bottom line was this – no charge slip with a card holder’s signature – the card holder could reverse any charge. Called a chargeback, this is when the person who owns the card claims they didn’t make a purchase on their bill, or that the company who charged their card didn’t perform the service, or deliver the product as promised. It didn’t matter if the service was provided. Or the product delivered. If the credit card company’s customer disputed the charge – and there was no point-of-sale slip with a signature – the CC company sided with their customer each and every time. And the money was unceremoniously yanked out of the vendor’s account.

A change in attitude.

Several years ago, credit card companies started lightening up on this absolutist policy. Online commerce accounts for trillions of dollars, and credit card companies wanted their piece. They don’t only make on purchaser interest rates and service charges, they also make from the merchants themselves. Processing and access fees. It is very big money. By making credit card sales so precarious for merchants, credit card companies risked losing large amounts of money. In order to encourage legitimate online companies, while still keeping a tight leash on the hucksters and fraudsters, credit card companies started listening to merchants and offering a little bit of protection. It’s a complicated formula, but the bottom line is that if an online merchant can prove they did what they said they’d do, what the credit card holder paid for, and they had a decent set of terms and conditions, then they’d at least listen to the merchant.

No longer arbitrary.

Chargebacks aren’t as arbitrary as they used to be, and it the credit card company sides with the merchant, they’ll refuse to allow the chargeback to go through. The money is released back to the seller, and the charge appears on the holders bill once again. Generally speaking, it’s not as easy to jam an online merchant over bogus chargebacks as it once was. This little back story is relevant to design contest and crowdsourcing sites, because that’s how most consumer level spec sites collect their money.

Proof of the purchase.

When it comes to many design contest sites, the contest listing is a separate charge to the fee that the contest holder pays to participating designers. The listing fee is separate because it’s the only tangible item the contest site can prove to the credit card companies. If someone tries to chargeback the ‘listing fee’, all the spec site has to do is prove that the listing actually occurred. Of course it occurred. The project details are still on the server. The listing can still be found in the ‘browse contests’ area of the site. Credit card holder paid for the listing. Listing was placed on site. The terms and conditions are iron clad. No charge back. Some sites now offer listing ‘add-ons’. ‘enhancements’ and ‘up sells’ that are supposed to make contests more notable on a page with lots of other listings. Bold borders. Larger titles. Screened backgrounds. Little icons. Each are small enough to appeal to the most frugal. $5.00 for a bold border. $10.00 for a featured listing. By the time the up sell is finished, a $39.00 listing fee can become as $60.00, $70.00, $100.00 or more. And the same chargeback principle applies. You paid $30 for enhanced listing? There it is. You paid $5.00 for a bold border. There’s the bold type. I would imagine that listing fees are pretty well bullet-proof in the chargeback department. The contest site is practically guaranteed their ‘listing payment’, regardless of how the contest pans out for the designers participating.

Contest fees and designer ‘prizes’.

When it comes to prizes paid to designers, things get a lot more nebulous. What are credit card holders paying for when they launch a contest? A logo? A website? A company name? The terms and conditions of most contest and crowdsourcing sites are so nondescript as to what contest holders are actually buying, it’s extremely difficult to define. When you add words like ‘to your satisfaction’, and ‘like’ to terms and conditions, it’s no longer clear what the contest fee actually pays for. When it comes to a lack of clarity, credit card companies side, almost completely, with their client, the card holder. As they should. Do you actually believe that VISA or MasterCard representatives are going to read terms and conditions that are 5 or 6 monitors deep, most of which deals with how designers uploading work onto the host server are not employees, and the contest site isn’t responsible for their actions? Not likely. Judging by the number of ‘guaranteed’ contests that ened up in cancellation, and the number of contests that flitter away without a winner ever being selected, the number of chargebacks, or refunds, must be extraordinary.

The clawback.

And even if the refund is requested, because someone’s not happy with a contest, they’re likely to accept a $70 listing fee. A $1,000 charge for designs they don’t like? Hardly. Most design contest sites have no teeth when it comes to enforcing whatever ‘guarantee to designers’ they try to set up. Regardless of how well-intentioned they may be.

The guaranteed contest that isn’t.

Here’s the fine print of one logo design contest site under a subsection that deals with “Other circumstances in which a refund may be paid”:

“…in (the contest site’s) sole opinion, (the contest site) considers that it is likely that the refund is necessary to avoid a credit card charge back.”

Let me translate. If a contest holder so much as hints at a chargeback, we’ll refund their contest fee to avoid the, hassle, service fees or both. Whether the contest is “guaranteed’ or not. Another cuts right to the chase:

“The contest listing fees of $19 and all additional services fess (sic) are NON Refundable in any case.

The caps lock is theirs. The additional service fees are upsells for “promoting contests” (isn’t that what the original nineteen bucks covers?), making a contest “private”, etc. By front-loading as many charges into the contest listing fees, which the majority of contest sites are doing, the host site makes sure they gets as much money into safe territory as possible, while the actual contest money, where the ‘award’ to the designer comes from, is pretty well open-season. Kinda gives you the warm and fuzzies about how far the guardians of these ‘design communities’ will go to protect the members of that ‘community’, huh?

Turns out, it ain’t very far at all