Friend of mine is running a type of lottery if you will. What he does is puts a bunch of plain letters on the AH for 5g. The letter will either be a winner or loser. If its a winner, you can get things such as gold, flasks, etc... if its a loser you get 1g back. You have to send it back to the toon he is doing it on to get the prize or 1g. Is this violating any rules?

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Q u o t e:
Here is the policy -

Casino Advertising
http://us.blizzard.com/support/article.xml?articleId=27048

This would include lotteries.

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Quoting for clicky! Advertising for a casino in any fashion, either in-game or via the forums, is a violation of our policies. Thus, this:

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Q u o t e:
Ok so all he does is says, That you can buy a plain letter in the AH from the seller with his name for 5g and you are guaranteed at least 1g back, but can win up to 1k gold or other things like orbs.

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is not okay.

Keep in mind that while casinos are not currently a violation of our policies, scamming can result in very serious consequences for a World of Warcraft account. A player endeavoring to take part in such a system would be best advised to exercise the greatest caution and circumspection.

Also, should any in-game activity appear to be damaging to World of Warcraft as a whole, our policies regarding that activity may swiftly change.