Articles

Companies Sponsoring Promotional Contests And Sweepstakes Need To Know The Rules Of The Game

Doreen Costa*

Sweepstakes, contests, and similar promotions occupy a special place at the heart of modern American advertising tactics. Companies such as Publishers Clearing House, American Family Publishers, and Reader’s Digest inundate our mailboxes — and in turn, our wastebaskets — with their clever marketing ploys that offer opportunities to win fantastic prizes. These promotional games do not come through the mail alone. Companies such as Pepsi and McDonald’s, among others, also develop elaborate retail store-based sweepstakes and contests to promote their products, advertising these promotions on television and in virtually every other media outlet. However one regards them, promotional games are certainly powerful and effective marketing tools and, as effective tools tend to be, are sometimes misused by less-than-reputable entities.1

Some particularly egregious examples of promotional game misuse were brought to Congress’s attention in the 1990s, and in response the federal government, along with many state governments, enacted statutes, or amended those that existed, to “establish strong consumer protections to prevent a number of types of deceptive mailings.”2 However, the enactment of such legislation did not occur in uniform fashion across the country, but rather took stronger form in some jurisdictions and weakly-to-minimally-regulated form in others, throughout the late 1990s. Thus, the landscape of promotional game law, varying as it does amongst jurisdictions, can be fraught with unique or unexpected, and sometimes not wholly consistent, requirements depending upon where the promotional game is to be promoted and played. This article will examine the Federal Deceptive Mail Prevention and Enforcement Act, as well as certain exemplary state laws on the subject of promotional games, in an attempt to distill the substantive differences and nuances between them, so as to provide a synthesized overview of sweepstakes and contest law requirements in commercially-significant regulatory regimes nationwide.

A. The Deceptive Mail Prevention And Enforcement Act

The federal Deceptive Mail Prevention and Enforcement Act (the “DMPE Act”) was enacted in 1999 for the purpose, as noted above, of “establish[ing] strong consumer protections to prevent a number of types of deceptive mailings.”3 While requiring total uniformity amongst the states would have clarified the legal requirements for companies that wished to utilize promotional games, such was not the purpose of the DMPE legislation and therefore, preemption of state law, although arguably a simpler solution, was explicitly rejected in favor of a limited, non-preempting federal regulatory regime.4 Therefore, a company looking for guidance in creating a “nationwide compliant” promotional game should be aware that the federal statute is just the starting point, and certainly not a comprehensive statement of all promotional game-related compliance duties on a nationwide basis.

That said, the federal DMPE Act sets forth some specific requirements that must be met when promoting a contest or sweepstakes. First and foremost, all required disclosures must be “clear and conspicuous,” i.e., “presented in a manner that is readily noticeable, readable, and understandable” to the audience at which the promotion is aimed. Based upon this “clear and conspicuous” requirement, a sweepstakes promoter must disclose the terms and conditions of the contest, the sponsor and sponsor’s address, the odds of winning, and all relevant particulars about the prize(s) being offered.6 The promoter of a sweepstakes must even “more conspicuously” disclose, in the mailing, in the rules, and on the entry form, that no purchase is necessary to enter, and that purchases will not improve the chance of winning.7 Promoters may not indicate that those not placing orders will be disqualified; require that an entry form be submitted with an order; represent that an individual is a winner unless he has in fact won; or send a facsimile check unless it includes notice that the check is non-negotiable and has no cash value.8

The federal Act further outlines specific requirements for promoters of skill contests (i.e., games wherein the skill of the contestant is a factor in winning and it is implied that a payment or purchase is required to enter, as opposed to sweepstakes wherein the winner is selected at random).9 Like sweepstakes, skill contests must disclose the terms and conditions of the game as well as the sponsor and its address.10 The contest must also disclose the number of rounds, the cost of each round, the fact that subsequent rounds may be more difficult, the maximum cost to enter all rounds, the estimated number of entrants and information about the past three contests, who the judges will be and how they will judge, the date the winner will be decided, detailed information regarding the prize, and the schedule of payments.11 As with a sweepstakes, a contest promoter may not send a facsimile check unless it includes notice that the check is non-negotiable and has no cash value.12

A unique feature of the federal Act is a required opt-out notification system. Game promoters of both sweepstakes and contests must maintain a “notification system,” and must provide notice regarding the availability of such system with an address or toll-free number on all mailings, whereby an individual receiving a mailing can elect to receive no further solicitations.13 The promoter must maintain this list and cease all promotional mailings to the electing individual within 60 days of receipt of notice.14 If the promoter fails to meet the obligations under § 3017(d), the electing individual is provided a cause of action to recover at least $500, and potentially more, in damages from the promoter.15

This notice system represents an excellent incentive for promoters to honor the wishes of individuals who do not wish to receive promotional game mailings. It is important to note that, while the federal Act covers promotional games offered through the mail, it does not cover promotional games generally.

B. Strict State Statutes: California And Texas

What will be labeled here as “strict state statutes” represent “activist,” usually recently-enacted, versions of promotional game law. Both the Texas and California game statutes, specifically, are not only explicit in their restrictions, but are very clearly directed at addressing recent promotional game tactics and perceived abuses associated with such tactics.17

In California, the game-regulation act requires that “contest” promoters (i.e., those promoting the same sort of skill contests as listed in the federal Act) must disclose, in each solicitation, the number of anticipated winners based on the last three contests; the actual number and percentage, upon request, of contestants who correctly solved the last contest; the exact nature and value of the prize; and, upon request, a list of all winners, their prizes, the promoter-defined winning puzzle solutions, and the winner’s actual puzzle solutions.18 Moreover, the promoter must distribute all prizes offered, and, further, must maintain, for at least two years after the contest, copies of all solicitations and puzzles, completed puzzles and correspondence from contestants, and specific information about the dates and recipients of each puzzle.19 For each puzzle or game within a contest, the promoter must disclose the maximum number of puzzles and the maximum amount of money that contestants may have to spend to win; must also state the fact that future round puzzles may be significantly more difficult; must disclose the date on which the contest will be terminated and all prizes will be awarded; and also must describe the method of selecting a winner after the last tie-breaker has been completed, as well as disclosing all of the other general rules and regulations of the contest.20 With regard to facsimile checks, the California rule requires that in any such check be marked with “SPECIMEN — NONNEGOTIABLE.”21

In addition to the above requirements, under California’s statute, contest promoters are prohibited from misrepresenting the odds; misrepresenting the rules; representing that a person has definitely won a prize if further qualifications or selections are actually necessary before he can receive the prize; representing that a person has won a prize without disclosing its nature and value; using the word “lucky” or otherwise suggesting that a person has better odds than others of winning the contest; requiring a payment to enter a tiebreaker; or conditioning the awarding of a prize on the number of entrants in the contest.22

With regard to sweepstakes, a promoter must include a “prominent statement” in the official rules and on the entry device that no purchase is necessary to participate.23 Further, this “prominent statement” must be in a separate paragraph, in all capital letters in a typeface no smaller than the largest typeface in the rules.24 A sweepstakes promoter may not, further, represent that an individual has won when he has not, nor may he disadvantage entrants whose entry forms are not accompanied by an order form, nor indicate that entry forms accompanied by order forms will render the participant more likely to win or result in a larger prize.25

The Texas promotional game statute applies only to sweepstakes offered through
the mail for which the top prize has a value of $50,000 or more.26 Like the previously-discussed statutory provisions, the Texas statute prohibits a promoter from requiring an order or promise of a future order as a condition to enter a sweepstakes, or from sending any material that suggests any individual has better chances than other persons. A promoter may not, further, suggest that the winner will be selected in a manner other than the precise manner in which he will, or that the participant has received special treatment. Suggesting that a purchase will result in better chances, and/or that not ordering will lessen the contestant’s chances, is also prohibited, as is stating that the recipient is a winner when he isn’t, or may be a winner, or will be a winner, or may be in a group from which the winner is selected.27 Unlike some other states’ statutes, the Texas version contains further nuances addressing other potentially-misleading promoter tactics, in that it prohibits automatically entering a contestant because he has made a purchase, soliciting business using an order form that has a role in the sweepstakes, using a mechanism for entering the sweepstakes that has a connection to purchasing goods,28 soliciting an entry or allowing the choice of a prize to be made in conjunction with an order (unless that choice is made on an entry form not related to an order form), offering a contest or sweepstakes during the 30 days after which the participant has entered into another sweepstakes, asking a participant for information that would be consistent with awarding a prize unless that participant has actually won a prize, providing someone with an item or document that simulates an announcement of winning the sweepstakes, requiring one entrant to comply with restrictions that not everyone else was required to comply with, using a scratch-off device or any other device that suggests an element of chance, awarding a prize unless all prizes are awarded on the same day through the same selection process, publishing advertisements that do not identify prizes and the date they will be awarded, or providing for entry by mail unless only one address is used and that address is used for nothing else.29

Clearly the California and, to an even greater extent, the Texas statutes severely restrict a promoter’s ability to conduct promotional games in those respective states. Specifically, Texas makes it potentially very difficult to organize a compliant sweepstakes because issues such as concurrency of prize determination and the dates of a participant’s last sweepstakes entry must be monitored. The administrative expense of conducting a promotional game in such jurisdictions might thus be cost prohibitive to all but the largest sweepstakes and contest promoters.

C. Registration State Statutes: New York And Florida

The “registration state statutes” are those statutes that require promoters to register their games and sweepstakes with a state agency, providing the latter (and by inference, the public) with very specific information at very specific time intervals. In New York, the statute applies only to sweepstakes and games wherein the prize value totals more than $5,000.30 Similarly, in Florida, registration and trust creation requirements only engage if the value of the prizes totals more than $5,000.31

Specifically, in New York, in the case in which prizes total more than $5,000, the promoter must file with the Secretary of State, at least 30 days prior to the game, and with a $100 filing fee, a statement providing the minimum number of the promoted product(s) being made available, the minimum number of prize-winning products being made available, the chances of winning a prize, the minimum value of a prize, and the rules of the game including the time length and geographic area covered thereby.32 Additionally, the promoter must conspicuously and prominently post the rules, the covered geographic area, and the prizes available, in every retail outlet where the game may be played and in every advertisement concerning the game.33 Finally, the promoter must establish a surety bond or a trust account with a value sufficient to purchase or provide all prizes, give notice to the Secretary of State at least 30 days prior to the start of the game, and must, within 90 days of the end of the game, provide the Secretary of State with a list of all winners of prizes greater than $25.34

Similar rules exist in Florida, where, when the total prize value is greater than $5,000, the promoter must file a copy of the rules and a list of all prizes and prize categories at least seven days prior to the promotion, accompanied by a $100 administrative fee, with the Department of Agriculture and Consumer Services; must conspicuously post the rules in every retail outlet where the game is played and in every advertisement for the game; must establish a trust account or surety bond with a value equal to the amount necessary to purchase all prizes; and, when the game is finished, must provide a list of all winners of prizes greater than $25 to the Department of Agriculture and Consumer Services.35 The filing requirements, however, may be waived by the Department of Agriculture if the promoter has been involved in offering promotional games in the state for five consecutive years without an action being filed against it.36 Further, in all games in Florida, the promoter may not predetermine a winner or rig the game, arbitrarily reject or remove an entry, fail to award the prizes listed, or require an entry fee, payment, or proof of purchase as a condition to entering.37

For a company contemplating promoting a game in New York, Florida, or any state having a similar regulation regime, the obvious obstacle lies in the requirements of filing with a state agency. While it may seem simple to comply with such requirements on an individual state level, maintaining all of the necessary data, meeting all of the appropriate deadlines, and administrating the reporting process, across multiple jurisdictions, will in many instances likely prove to be expensive and difficult.

D. Permissive State Statutes: Connecticut

The final type of game statute, the “permissive” statute, is one that has, in most cases, not been enacted as a recent activist response to perceived promotional game abuses and that imposes only minor restrictions on what a promotional game proprietor can do. In the Connecticut statute, sweepstakes promoters must disclose, in “immediate proximity” to and in the same font size as the prize description, the retail value of the prize, the odds of winning the prize in the form of a fraction or ratio, and whether the prize is subject to restriction.38 The promoter must also clearly and conspicuously disclose the name and address of the promoter and sponsor, any conditions on the eligibility to receive prizes, and, on any facsimile check, diagonally display the phrase “THIS IS NOT A CHECK.”39 The promoter may not, further, impose a condition or restriction on winning a prize unless that condition or restriction does not involve purchasing a product.40 With regard to contests, the Connecticut statute only provides that, when the prize is greater than $200, a promoter may not require the purchase of a product to enter unless the promotion of that product is the purpose of the contest.41 Clearly, the restrictions on and compliance requirements for promotional games within the State of Connecticut are much less stringent than those on promotions within a state such as Texas or even Florida, but that does not mean that they need not be paid attention to, or that they may not eventually be supplanted by a more restrictive activist regime.

Conclusion

Because of the uneven landscape of promotional game law, proprietors must be careful to ensure that their games comply with a variety of statutory compliance requirements. It would be prudent to start by ensuring compliance with the Federal Deceptive Mail Prevention and Enforcement Act, but that is certainly not the end of the analysis when planning a nationwide promotional game; each state has its own laws and regulations that must be complied with if the game is to be played within that state. Some of those requirements overlap and the requirements of a particular jurisdiction may be satisfied by compliance with the policies of more restrictive regimes. For instance, complying with the portion of the Texas statute that forbids a sweepstakes from implying that a purchase is necessary to enter will certainly satisfy the comparatively-tolerant requirement in the Connecticut statute that entrance may not be contingent on a purchase. However, simply complying with, for instance, California’s rule on notifying the participant that a facsimile check is non-redeemable, by printing “SPECIMEN — NONNEGOTIABLE” on it, will not satisfy Connecticut’s requirement that “THIS IS NOT A CHECK” be printed diagonally on the facsimile check.

For all of its potential marketing value, running a promotional game involves a host of legal issues, and with no cure-all solution available, the most conservative way to minimize promoter risk may be to promote the game only in states whose laws have been deliberately and diligently explored by the promoter and promoter’s counsel.

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1 See , e.g ., Douglas Franz, Florida Files Suit Accusing Sweepstakes Company of Preying on Elderly , N.Y. Times , Nov. 7, 1998, available at http://www.globalaging.org/elderrights/us/eldrights.htm (accessed July 21, 2005).

2 S. Rep. No. 106-102, pt. 1 (1999).

3 Supra n. 2 .

4 “Nothing in the provisions of this title (including the amendments made by this title) or in the regulations promulgated under such provisions shall be construed to preempt any provision of State or local law that imposes more restrictive requirements, regulations, damages, costs, or penalties.” Deceptive Mail Prevention and Enforcement Act, Pub. L. No. 106-168, § 109 (1999) (codified as 39 U.S.C. §§ 3001, 3005, 3007, 3012, 3017).

5 39 U.S.C. § 3001(k)(1)(A) (1999).

6 Id. at § 3001(k)(3)(A).

7 Id. at §§ 3001(k)(3), (5).

8 Id. at § 3001(k)(3)(A).

9 Id. at § 3001(k)(1)(C).

10 Id. at § 3001(k)(3)(B).

11 Id.

12 Id. at § 3001(k)(5).

13 Id. at § 3017.

14 Id. at § 3017(d)(2).

15 Id. at § 3017(e).

16 California's promotional game law went into effect in 1999 and Texas's went into effect in 2001.

17 For example, consider the tactic of writing “You May Have Won” on an entry form where the only portion visible through the envelope says “You Have Won,” in view of California's statutory recital that: “[i]f the representation is made on or visible through the mailing envelope containing the sweepstakes materials, the context in which the representation is to be considered, including any qualifying language, shall be limited to what appears on, appears from, or is visible through the mailing envelope.”

18 Cal. Bus. & Prof. Code § 17539.1(a) (West 2005).

19 Id .

20 Id.

21 Id. at § 17539.1(a)(13).

22 Id. at § 17539.1(a).

23 Id. at § 17539.15(b).

24 Id.

25 Id. at §§ 17539.15(a), (c), & (d).

26 Tex. Bus. & Com. Code Ann . § 45.003(j) (Vernon 2005).

27 Id. at §§ 45.002(1) & (12).

28 The mechanism for entering the sweepstakes may have a connection to purchasing goods if it includes the statement: “Buying Will Not Help You Win. Your chances of winning without making a purchase are the same as the chances of someone who purchases something. It is illegal to give any advantage to buyers in a sweepstakes.” Id. at § 45.002(4).

29 Id. at § 45.002.

30 N.Y. Gen. Bus. Law § 369-e(1) (McKinney 2005).

31 Fla. Stat. ch. 849.094(3) & (4)(a) (2004).

32 N.Y. Gen. Bus. Law § 369-e(1).

33 Id. at §§ 369-e(2) & (3).

34 Id. at §§ 369-e(4) & (5).

35 Fla. Stat. ch. 849.094(3),(4)(a), & (5).

36 Id. at § 849.094(4)(b)

37 Id. at § 849.094(2).

38 Conn. Gen. Stat. § 42-297(a) (2005).

39 Id. at §§ 42-297(b), 42-299.

40 Id. at § 42-296.

41 Id. at § 42-298.

*Summer Associate Jamie R. Lynn contributed substantially to the preparation of this article

The materials in this document are made available by Baker Botts L.L.P. for informational purposes only and are not legal advice. The transmission and receipt of information contained in the document do not form or constitute an attorney-client relationship. Persons receiving the information in this document should not act upon the information without seeking professional legal counsel. The materials in this document may not reflect the most current legal developments, verdicts or settlements, and should not be considered an indication of future results. If these materials are inconsistent with the rules governing attorney communications in a particular jurisdiction, and the materials result in a client contact in such jurisdiction, Baker Botts may be prohibited from assuming representation of the client contact.

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