Sweepstakes Marketers Take the Heat

Sweepstakes marketers are ending the summer under renewed scrutiny as their methods drew fire from Capitol Hill, American Family Publishing settled with New York State and Florida reinstated contest registration requirements.

Amid testimony of confused elderly people traveling to Tampa, FL, to collect prize money and spending thousands of dollars on magazine subscriptions to enter drawings, witnesses at a Senate panel hearing last week suggested tough measures to curb sweepstakes fraud. Among them:

* Giving the U.S. Postal Service greater subpoena authority against companies that send sweepstakes.

* Outlawing sweepstakes marketing techniques such as implying that a mailing recipient has become part of an elite group still vying for the grand prize or calling everyone a guaranteed winner and then sending a trinket.

* Giving people the right to sue companies that send them misleading mailings.

* Forcing sweepstakes mailers to clearly post winning odds on the envelope.

“Reforming the sweepstakes marketing industry cries out for a comprehensive, nationwide approach,” Florida Attorney General Bob Butterworth said, adding that the National Association of Attorneys General has created a committee to explore sweepstakes fraud.

Witnesses also discussed the Honesty in Sweepstakes Act, a bill introduced by Sen. Ben Nighthorse Campbell (R-CO) in June that would require sweepstakes envelopes and the first page of the enclosed material to include notices like, “This is a game of chance” and “You have not automatically won” in large type.

The Direct Marketing Association contends that the bill would put legitimate marketers out of business by killing response to sweepstakes mailings and would not curb “inappropriate responses” from the elderly.

“A legal mandate that specific, negative announcements be placed prominently on the outer envelope and on the first page of a legitimate promotion would almost guarantee the response would drop so precipitously as to endanger the operations of many legitimate companies,” Richard Barton, senior vice president of congressional relations at the DMA, told the Senate panel. “Fraudulent marketers would ignore the law, and those who responded inappropriately to legitimate sweepstakes would likely continue to ignore the disclaimers they have already ignored.”

Sen. Carl Levin (D-MI) called current civil penalties available against fraudulent sweepstakes marketers too lenient and suggested raising them from the current $10,000.

“The only way we are going to deter these guys is if we let them know that they are not going to profit from their deception,” he said.

In related news, the Florida Legislature re-appropriated money to process sweepstakes registrations. As a result, games launched on or after Aug. 12 that reach contestants in Florida must be registered with Florida's licensing division. In June, the state failed to include money for sweepstakes registration in its 1999 fiscal budget, which effectively eliminated its registration requirement for contests launched after July 1.

Because of the funding gap, games launched between July 1 and Aug. 12 don't have to be registered. The state will review unregistered contests launched after Aug. 12 on a case-by-case basis to determine how to treat them.

“There appears to be a window of leniency, but [sweepstakes] marketers should get their ducks in order now,” said attorney Andrew Lustigman, partner in The Lustigman Firm, New York. “Florida has traditionally sought to enforce its registration requirements to the letter of the law.”

Florida law requires sponsors of sweepstakes offering prizes worth more than $5,000 to file a copy of the rules and regulations of the game promotion, a list of all prizes and a $100 nonrefundable filing fee at least seven days before the start of the promotion. The law also requires game sponsors to establish a trust account or a surety bond large enough to pay for the total value of all prizes offered at least seven days before the start of the promotion.

Meanwhile, American Family Publishers (AFP) late last month agreed in a settlement with New York State Attorney General Dennis C. Vacco to create a $750,000 consumer fund for people who, Vacco claims, thought that ordering subscriptions from AFP's mailings would increase their chances of winning.

About 12,000 New Yorkers who ordered at least six magazine subscriptions from AFP between Nov. 1, 1996, and Nov. 30, 1997, and at least one subscription in either December 1997 or January 1998 will receive a $60 check by Oct. 1, the attorney general's office said.

As part of the settlement, AFP, Jersey City, NJ, agreed to alert consumers that no purchase is necessary to enter the sweepstakes and that they can cancel their magazine subscriptions at any time and get a pro-rated refund. It also agreed to have all entries sent to the same location whether they include a subscription order or not. It also will refrain from using language implying that the recipient is part of a select group and has a better chance of winning than other recipients.

AFP admitted no wrongdoing. “While we maintain that our mailings are clear and not misleading, we wanted prompt resolution of the issues raised by Attorney General Vacco,” Susan Caughman, president/CEO of AFP's parent company, American Family Enterprises, said in a prepared statement.

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