States Take Aim at Sweepstakes Promotions

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Sweepstakes marketers have been confronted recently with broad federal legislation and multistate consent orders against well-known marketers. Now, state lawmakers are moving to enact highly restrictive sweepstakes legislation that ultimately may prohibit sweepstakes promotions.


The sweepstakes legislation passed by the Texas House of Representatives and now before the Texas Senate is so restrictive that marketers may simply be forced to eliminate this critical, populous state. Yet even eliminating Texas from a mailing will not solve the problem, as other states will surely follow.


Prior legislation and enforcement activities. Consumers enjoy entering sweepstakes, and no purchase is ever required to enter or win. Marketers benefit from including a sweepstakes in their promotions because it allows them to generate excitement for a product or service.


Marketers had hoped that the federal legislation that took effect in April 2000, the Deceptive Mail Prevention and Enforcement Act, would finally provide uniform standards that not only protected consumers but also provided marketers with a fair opportunity to continue to use sweepstakes promotions. Moreover, multistate enforcement actions against the best-known sweepstakes promoters - including Reader's Digest, Publishers Clearing House and American Family Publishers - have been settled by requiring comprehensive restrictions on future marketing activities.


Near the end of last year, some states showed signs of pursuing an additional angle to challenge sweepstakes promotions. Colorado enacted a highly restrictive law, incorporating such onerous disclosures that most marketers have simply avoided the state. Now, other states may be acting.


Everything is big in Texas. The industry may face its greatest test in Texas. A wide-ranging bill that is on a fast track was recently passed by the House and is before the Senate. It expressly targets direct marketers - those that use mail or fax to generate orders. While the proposed law is not final and is being amended even as this article is written, some of the proposed requirements shows where the states might be heading.


As proposed, the legislation would:


• Prohibit soliciting orders using an order form that has any connection with a sweepstakes. Similar to the Federal Communications Commission requirement relating to the changing of long-distance service, the law would require that the only method to enter the sweepstakes is by using a separate entry form, identical for all entrants, that has no connection to ordering a good or service.


• Require the separate entry form to include large type (possibly even 400 percent larger than the largest font used) with the following disclosure: "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."


• Prohibit automatically entering a consumer in a sweepstakes because that person ordered a good or service or promised to order a good or service in the future.


• Prohibit conducting another sweepstakes through direct marketing during the same period the company otherwise offered a sweepstakes (plus 30 days) and otherwise prohibiting offering any other prize, gift, premium or similar incentive during the same period.


• Prohibit using different creative versions of the same sweepstakes in different creative presentations and awarding multiple prizes in a sweepstakes unless they are all awarded on the same date.


• Prohibit representing that a person could win, may be a winner or will win if certain conditions are met, even if these representations are true.


• Prohibit scratch-off game pieces that appear to involve an element of chance.


• Create extraordinary financial liability to a list owner that supplies a Texas resident's name, address or fax number that is used in conducting a sweepstakes in violation of the proposed law, if the list owner has reason to know that the list would be used in such a fashion. The amount of the fine is to equal to the cumulative penalty for each violation by the marketer ($5,000 to $50,000 per violation) and would not be offset by any payment from the marketer.


Though some exceptions appear to be developing that may protect some direct marketers, the message from this proposed legislation is clear: States are willing to take extreme measures to effectively outlaw sweepstakes promotions, even if the states know that they cannot prohibit sweepstakes outright.


Very few marketers that come within this legislation would be able to comply with the law's requirements, as they are so onerous and cumbersome that a campaign, no matter how legitimate, could not realistically be brought into compliance. Direct marketers should watch this legislation closely and do what they can to stop this and other legislation from taking effect around the country.
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