Sweeping Up

Publishers Clearing House, Time settlements have implications for all sweepstakes.

As direct-mail marketers spend an estimated $28 million to comply with new sweepstakes regulations, all marketers should examine how their own sweeps measure up.

New standards have emerged from August settlements between state attorneys general and Publishers Clearing House (which made deals with 23 AGs and the District of Columbia) and Time, Inc. (48 AGs and DC). The settlements include a total of $26.1 million in restitution to consumers, and strict notification guidelines for future direct-mail sweeps (see box at right).

“These agreements reflect a sensitivity to certain creative techniques in sweepstakes,” says Linda Goldstein, partner at Hall Dickler Freeman & Kent, New York City. “It’s a mistake for packaged goods companies to think this has no application for them. There’s a message here for all marketers.”

Five points in the settlements stand out. Most significantly, the regulations put the onus on marketers to cut off contact with heavy users who think purchases enhance their chances to win. Second, consumers must readily understand that no purchase is required to play. Third, it must be as easy to enter without purchase as it is to enter with purchase. Fourth, marketers should avoid “involvement devices” that appear to involve chance but don’t – for example, gamepieces that ostensibly earn a prize for matching symbols, even though all the gamepieces have matching symbols. Lastly, a sweeps can’t be an “everybody wins” event.

“Any time you have global settlements with so many states among industry leaders, other companies have to look at the guidelines for their own activities,” Goldstein says. “It’s prudent for any direct marketer to use [the settlement] provisions as their guidelines.”

“Sweepstakes marketing in general has come on the radar screen of attorneys general and federal regulators,” says Stephanie Beougher, spokeswoman for Ohio AG Betty Montgomery, who chairs the National Association of Attorneys General’s committee on consumer protection. “The difference with direct-mail sweepstakes is that they get very personal. A sweepstakes that McDonald’s or Nabisco might do with massive advertising is not as personalized.”

Port Washington, NY-based PCH will pay $18 million in restitution to the states, a chunk of which will be given back to 15,000 consumers who spent more than $2,500 each trying to win.

At least 14 states continue suits or investigations against PCH. “We’re seeking a national settlement with all states” using the August settlement as a template, says PCH spokesman Christopher Irving. “We think the settlement will restore consumer confidence in sweepstakes in general and PCH specifically.”

This month, PCH breaks its second annual Prize Patrol Blitz, giving a $10,000 prize in each of the top 100 markets. The company won’t cut back its schedule of sweeps, and will absorb the “substantial cost” of inserting required forms into mailings. (The cost of separate no-purchase reminders runs “in the thousands of dollars,” Irving adds.)

New York City-based Time agreed to pay states $8.1 million for refunds to consumers who spent more than $500 trying to win its Guaranteed & Bonded sweeps.

Both companies will establish a “Do Not Contact” database and stop soliciting what NAAG calls “high-activity customers.”

NAAG has been successfully cleaning up direct-mail sweeps since its March settlement with U.S. Products Exchange, which also regulates notification. The association recommended that its guidelines be added to The Honesty in Sweepstakes Act of 1999 (H.R. 170), which was forwarded to the Senate last fall and is still awaiting a vote there. The Deceptive Mail Prevention and Enforcement Act, which the Senate passed in August, went into effect last December.

The settlements are “the final wrap up of a long process,” says Stephen Durchslag, partner with Winston & Strawn, Chicago. “Hopefully, with federal legislation, this will become moot.”

What marketers agreed to do. Publishers Clearing House and Time, Inc. – will include in all mailings a Sweepstakes Facts sheet, similar to FDA nutrition labels, that include odds of winning, deadlines, prize values, and quantity of prizes offered.

– won’t call a consumer a “winner” unless he has actually won.

– when saying someone could be a winner, will state in equal-sized type the conditions necessary to win.

Publishers Clearing House – will send “no purchase necessary” notes to consumers spending $1,000 or more a year.

– will survey those spending $2,500 or more to make sure they understand they need not buy to enter.

– will discontinue sweepstakes mailings to any surveyed recipients who continue to believe that their odds of winning are enhanced by purchases.

– won’t use a document designed to simulate a check unless the face of the document clearly states it is not a check.

Time, Inc. – will establish a “Sweepstakes Do Not Promote List” for “high-activity” customers and stop sending new solicitations to customers who either have a current subscription lasting more than five years or who have spent more than $500 in response to previous promotions.

– won’t represent that packages were sent by special courier or a special class of mail if they haven’t.

Source: National Association of Attorneys General