Sweepstakes Horror Stories

Promoting sweepstakes and contests are an excellent way to engage your customer, but always keep in mind that these promotions are heavily regulated by federal and state laws.   Here are some of the key points to keep in mind when promoting a sweepstakes or contest:

  • Don’t charge anyone for entering into a sweepstakes, otherwise it will be considered an illegal lottery.  Also, try to avoid any implication that a purchase will improve a consumer’s chance of winning.
  • Carefully draft official rules that fully disclose how the sweepstakes works, or you may run the risk of a false advertising lawsuit.  Think hard about what might go wrong with the sweepstakes, and be sure to address that in the rules.
  • Last but not least, follow your own rules!

 

Although simple in concept, these guidelines are much more complicated in execution.  In the spirit of the Halloween season, here are a few horror stories featuring real consequences suffered by advertisers who ran sweepstakes and contests without first seeking expert legal advice.

-  A Florida restaurant promoted a contest with a grand prize of a new Toyota.  Unbeknownst to the winner, the contest was meant to be an April Fools’ Day joke- instead of the expected car, the winner was presented with a new toy Yoda (as in Star Wars).  As gags go, this one was pretty good, but the winner was not so amused.  She sued, and the restaurant settled by giving the winner a new Toyota.

-  A Los Angeles radio station ran a weeklong contest in which listeners were supposed to follow how many miles two Hummer H2 vehicles traveled.  The radio station told listeners that the lucky winner would receive  a brand new Hummer H2.    At the conclusion of the contest, that selfsame lucky winner arrived at the station to take possession of her new gas-guzzler, and was presented with a radio-controlled toy Hummer.  More than a little disappointed,  the winner filed suit for $60,000—the price of a genuine H2.

-  Tylenol held a sweepstakes entitled “Survivor All-Stars—Tylenol Push Through the Pain Game.”  The ads appeared to imply that consumers had to purchase Tylenol to enter, which would make the sweepstakes an illegal lottery. Tylenol did include a statement informing consumers that no purchase was necessary to enter, but it was in small print at the very bottom of the ad.  The New York State Attorney General filed a lawsuit, which Tylenol settled by paying $52,000 in civil penalties and agreed to  (1) refrain from saying that consumers must purchase a product in order to enter a sweepstakes, (2) clearly and conspicuously indicate that no purchase is necessary to enter the sweepstakes, and (3) disclose the method of entry that does not require a purchase.

-  In a series of sweepstakes, A&P Supermarkets automatically entered customers who made purchases using its “Bonus Savings Card,” but otherwise failed to provide customers with a free method of entry, and also failed to post official rules conspicuously in the stores, and failed to register the promotion.  Like Tylenol, A&P was sued by the New York Attorney General, and settled by agreeing to pay $38,000 in civil penalties, and promising to make entry forms readily available at its retail locations for all future promotions, regardless of whether the consumer makes a purchase, and to correct the other deficiencies. 

-  Sweepstakes veteran Publishers Clearing House (PCH) often finds tself in hot water.   In 2000, it settled a multi-state attorney general enforcement action by refunding $16 million to customers in 23 states and the District of Columbia.  PCH was also required to modify its promotions practices by inserting in all mailings a clear and conspicuous “sweepstakes fact box” containing a statement that (1) purchases do not increase the chances of winning, (2)  the consumer has not won, (3)  the consumer does not have to buy anything to enter the sweepstakes, (4) states the odds of winning the sweepstakes, and (5) the consumer can enter as many times as desired.

Unfortunately for PCH, not all states agreed to the terms of the settlement.   In 2001, PCH settled with 26 states that rejected the earlier settlement for $34 million, consisting of $19 million in restitution to customers, $1 million in civil penalties, and $14 million for the states’ litigation and administration expenses. The company also agreed not to make any false statements in its promotions and to treat all entrants the same, regardless of whether they purchased magazines. Also in 2000, PCH agreed to pay $30 million in settlement of a class-action lawsuit.  In 2004, PCH was accused of falsely suggesting that a direct-mail recipient had won, and that purchasing products increased a recipient’s chances of winning.

-  In 2004, CVS Pharmacy promoted a sweepstakes that featured a trip to Hawaii. The advertisement for the sweepstakes informed customers that they would be automatically entered if they used their CVS ExtraCare Cards when printing digital photos in a CVS location.   The ads properly informed customers that no purchase was necessary to enter and that anyone could enter online at CVS.com.  However, when customers went online to enter, they were told that they could pick up an entry form in CVS stores.  When customers went to CVS stores to enter, no entry forms were available, and they were told to make a digital-print purchase to enter.  Once again, the New York Attorney General went into action, which resulted in a $77,000 settlement.    Apparently CVS failed to take that lesson to heart.  In 2006 it once again was investigated by the New York State Attorney General for failing to provide an adequate means for customers to enter a sweepstakes without a purchase, and was required to pay a $152,000 civil penalty for violating the previous settlement.

These horror stories should send a clear message: if these hapless companies first consulted with an experienced marketing and advertising attorney before initiating their ill-fated promotions, they would not have made this list.

 

About the author

Seth Heyman

Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.

Posted on by Seth Heyman in Marketing & Advertising Law, Sweepstakes and Contests

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