More Gloom in the Sunshine State

Here’s an update on recent developments in Florida’s ongoing probe of the sweepstakes industry:

The Case of the Pre-Selected Winner The State of Florida recently instituted a challenge to a packaged goods promotion involving a large prize offered to a participant who found a specific prize package. The promotion included a free, non-purchase method of entry. And the judging organization did apparently use a random selection of both packages and write-in entries before ultimately seeding the winning prize in a package.

Despite the fact that the judging agency was the only entity that knew where the winning prize was seeded, Florida’s Department of State appears to have taken the position that the promotion was an illegal lottery, since there ultimately was no way to win the prize through the free, non-purchase entry option. Such an interpretation presents a serious risk to any promotion in which winning prizes are seeded in packages or connected to a purchase requirement.

The Promotion Marketing Association and other industry representatives will present arguments that such an interpretation would by contrary to the Florida statute, as well as to the legal requirements of other jurisdictions and long-established industry practice. Since the Florida action could seriously prohibit any type of in-pack or pre-selected promotion, it is imperative that the industry watch this matter closely and take as strong a position as possible.

It is important to note that this is only a preliminary action taken by an administrative department, and that no final decision has been reached. Further, the inquiry is very specific to this particular promotion and may not be applicable to promotions that place less emphasis on finding a winning package.

The Case of the Internet Contest We learned in March that Florida’s State Department for the first time was allowing Internet service providers (or similar companies) to conduct promotional games without requiring an alternative, non-Internet entry method – as long as the promotion is offered only to the ISP’s subscribers.

The rationale behind the decision is that if the participants all subscribe to an ISP prior to the commencement of the promotion, their continued participation in the promotion thereafter should not constitute consideration for entering. This is a rather significant development in the realm of Internet promotions.

The Case of the Unawarded Prizes The Service Merchandise case discussed in PROMO’s March issue has been settled, with the company agreeing to pay $180,000 to the state.

The retail chain ran a scratch-and-win sweepstakes offering a trip to Paris as the grand prize, 250 other prizes through print ads, and 1,013 additional prizes listed on the company’s Internet page.

Service Merchandise properly registered the game and provided a non-purchase entry method. But the state found that the complete rules were not available in either direct-mail fliers or newspaper inserts touting the sweeps; they were available only on the Internet and the backs of point-of-purchase materials. What’s more, the state determined that the rules were not adequately visible in stores.

Meanwhile, only 228 prizes were actually awarded. Gamepieces containing several prizes – including the grand prize – were delivered late and not put in general circulation (apparently due to a printer’s error).

Finally, no information regarding the non-purchase method of entry was included in direct-mail fliers or inserts. In fact, some newspaper ads stated that a purchase was required. Under the final consent order, the state said that a sweepstakes’ full rules must be published in all advertising other than TV and radio spots, which can direct consumers to retail outlets for the rules. The order also mandates that rules be posted at locations where entries can be obtained or made. The no-purchase-necessary disclosure is required in all advertising copy and must be a valid option.

Service Merchandise must also offer a second-chance drawing or other method acceptable to the Attorney General to ensure that all prizes will be awarded. If the prizes are not available, a gift certificate equal in value to the prize must be offered.

The most interesting aspect of this case is that the attorney general is requiring all prizes to be given away, even though the original promotion stated that unclaimed prizes would not be awarded. Of course, as noted above, the ruling came in a promotion that was legally deficient in numerous ways. So we do not know whether Florida will require all prizes to be awarded in promotions that don’t compromise as many legal requirements. (The Florida statute has generally been interpreted as requiring only the availability of all prizes being awarded.)

We’ll keep watching closely for further developments.