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Belch: Advertising and
Promotion, Sixth Edition
VII. Special Topics and
Perspectives
21. Regulation of
Advertising and Promotion
important considerations in developing contests (including games) and sweepstakes.
First, marketers must be careful to ensure their contest or sweepstakes is not classified
as a lottery, which is considered a form of gambling and violates the Federal
Trade Commission Act and many state and local laws. A promotion is considered a
lottery if a prize is offered, if winning a prize depends on chance and not skill, and if
the participant is required to give up something of value in order to participate. The
latter requirement is referred to as consideration and is the basis on which most contests,
games, and sweepstakes avoid being considered lotteries. Generally, as long as
consumers are not required to make a purchase to enter a contest or sweepstakes,
consideration is not considered to be present and the promotion is not considered a
lottery.
The second important requirement in the use of contests and sweepstakes is that the
marketer provide full disclosure of the promotion. Regulations of the FTC, as well as
many state and local governments, require marketers using contests, games, and
sweepstakes to make certain all of the details are given clearly and to follow prescribed
rules to ensure the fairness of the game. 80 Disclosure requirements include the
exact number of prizes to be awarded and the odds of winning, the duration and termination
dates of the promotion, and the availability of lists of winners of various prizes
(Exhibit 21-14). The FTC also has specific rules governing the way games and contests
are conducted, such as requirements that game pieces be randomly distributed,
that a game not be terminated before the distribution of all game pieces, and that additional
pieces not be added during the course of a game.
Recently a number of states have responded to what they believe is widespread
fraud on the part of some contest and sweepstakes operators. In 1995, at least 13 states
either passed or tightened prize notification laws, requiring fuller disclosure of rules,
odds, and the retail value of prizes. And many of the states are following through with
tougher enforcement of these laws. For example, Publishers Clearing House, known
for its million-dollar giveaways, agreed to pay $490,000 to 14 states and to change
some of its language, better defining terms like “finalist” and “tie breaker.” It also
began to disclose the odds of winning prizes. More recently the controversy resulting
from the lawsuits filed against American Family Publishing for misleading consumers
regarding their odds of winning large cash prizes in its annual magazine subscription
solicitation sweepstakes has led to investigations and stricter regulation of sweepstakes
in a number of states. 81 For example, New York passed a law requiring the odds
of winning a sweepstakes “must be conspicuously disclosed in the same type face, size
and boldness and adjacent to the most prominent listing of the prizes on the front of
the first page of the offer.” The state law also prohibits statements that someone is a
© The McGraw−Hill
Companies, 2003
Exhibit 21-14 Marketers
are required to provide
consumers with full details
of a contest or sweepstakes
741
Chapter Twenty-one Regulation of Advertising and Promotion