The Long, Hot Summer

Far from being sleepy dog days, the summer of 1998 featured several pivotal legal developments, and also negative publicity from the media. As discussed below, regulatory authorities and others outside the industry took an intense interest in promotion marketing. This scrutiny had a considerable effect.

The machinations surrounding Florida’s game promotion registration law was the most noteworthy occurrence. The law provides, in part, that chance promotions with prizes in excess of $5,000 must be registered at least seven days before commencement with the Florida Department of State’s Division of Licensing. Registration generally means the filing of a registration statement, including the official rules for the promotion, and a surety bond (or the establishment of a trust account) for the total value of the prize package. Beyond registration, the law also mandates a variety of other disclosures for chance promotions, including the requirement that the full official rules appear in all print advertisements.

In late June, the Florida State Legislature decided to trim the Division of Licensing’s budget for the 1998-1999 fiscalyear (ending June 30). Specifically, the division was denied the requisite funding to process registrations for chance promotions. Thus, beginning on July 1, registration was no longer possible as a practical matter. Significantly, while curtailing the division’s funding, the legislature did not modify or repeal the registration statute. This critical inconsistency made legal compliance in Florida a perplexing question, engendering a spirited debate on how best to proceed.

This bedeviling situation did not last long. As of Aug. 12, the registration requirement was reinstated, without a moratorium, grace period, or other accommodation. While noting that it would review the fairness of possible sanctions on a “case-by-case” basis, the Division of Licensing indicated that registrations were expected for any game promotions falling under the rules initiated on or after Aug. 12. The Division of Licensing agreed to waive the registration requirement for any promotions commenced when the division lacked funding; that is, between July 1 and Aug. 11, 1998.

In effect, Florida authorities came full circle, restoring the registration law. However, things are not “back to normal.” Quite to the contrary, the regulatory environment in Florida remains unpredictable and unstable. Sponsors of promotions (and their agencies) must now scramble to align their conduct with the division’s new enforcement strategy. And, even the most conscientious of efforts may not forestall a possible administrative action.

California rules Also during this summer, California’s State Department of Alcoholic Beverage Control indicated that its rules might be revised to limit the value of prizes offered in promotions sponsored by brewers, vintners, and manufacturers of distilled spirits to the following thresholds: 25 cents for beer, $1 for wine, and $5 for distilled spirits. If enacted, this modification would effectually prohibit alcohol beverage manufacturers from using traditional promotions as a means of marketing their products. The far-reaching impact of such a step cannot be lightly dismissed. As of this writing, the department is still considering the merits of this modification and has not adopted a final position. However, the enactment of an amended version of the rule appears to be imminent.

Lastly, in early August The New York Times ran a front-page news article that characterized sweepstakes promotions as an abusive marketing practice. While mainly targeting direct mail promotions, the inescapable implication was that many promotions were thinly veiled attempts to dupe consumers into buying unwanted products (or services). Like an editorial piece that ran in the Times last year, the article presented a rather unbalanced, one-sided view of a complex industry. As you might expect, the industry, primarily speaking through the Promotion Marketing Association, vigorously challenged the article’s premise, as well as its tenor.

So much for a quiet summer. As we approach the end of 1998, we can only hope the future brings more reasoned, coordinated judgment from legislators and reporters alike. Reminder: The Promotion Marketing Association’s annual Law Conference is November 5-6, 1998 in Washington, DC.