NY Renews Sweepstakes Enforcement
Though marketers who use sweepstakes as part of their efforts have seen a relative lull in enforcement activity in recent years, that may be changing.
Two recent actions brought by the New York attorney general's office targeted the sponsors of large retail chains offering in-store promotions in which buyers club cards provided the method of entry. These settlements, which include payment of penalties, require the stores to undertake additional efforts to ensure that consumers are reasonably aware of their legitimate opportunity to enter without making a purchase.
The CVS settlement. As is the law nationwide, New York requires that consumers get an equal opportunity to enter and win a chance promotion without making a payment or buying a product. Without a free method of entry, a sweepstakes would be deemed an illegal lottery. This legal requirement is why all legitimate chance promotions provide that "No Purchase is Necessary."
For CVS, the store sponsored a sweepstakes for its CVS ExtraCare Card customers. Consumers who visited a CVS store and bought digital camera prints using their ExtraCare Card were automatically entered. Consumers who wanted to enter without making a purchase were instructed, via the official rules on CVS' Web site, to obtain an entry form at participating stores.
However, when consumers sought information on how to enter in-store without making a purchase, CVS personnel directed them to make a digital print purchase with their CVS ExtraCare Card, thus essentially eliminating a non-purchase alternative.
Without admitting wrongdoing, CVS settled with the attorney general's office, agreeing to pay $77,000 in penalties. CVS must post promotion rules at participating CVS stores; maintain staff who are familiar with ongoing sweepstakes and are capable of directing consumers to non-purchase entry methods; and disclose with equal prominence an alternative non-purchase entry method in all advertising.
The settlement also requires CVS to "post at all participating stores ... entry forms to enable non-purchasers to obtain the information for entry into any" promotion. The practical effect of this requirement is unclear. The attorney general's press releases provide that CVS must make actual entry forms available in-store while the language of the agreement requires only "information" regarding the non-purchase method of entry.
The A&P settlement. A few months earlier, New York settled with grocery chain A&P regarding a sweepstakes in which consumers were entered automatically when making a purchase with their Bonus Savings Card. The attorney general found that consumers who did not make purchases were unable to obtain entry forms because when they inquired in-store, A&P employees lacked knowledge.
Failure to register sweepstakes in New York. For many sweepstakes, preregistration and bonding are required in Florida, New York and, additionally, for retail promotions, Rhode Island (no bonding). New York law requires that sponsors of games of chance offering prizes valued at $5,000 first register the promotion with the secretary of state.
Though the states vary in enforcement of these laws, with Florida being aggressive, New York has followed a less aggressive approach, with little enforcement activity. However, in this instance, A&P's failure to register resulted in an additional challenge.
Pursuant to the settlement, A&P paid $38,000 in penalties and, in the future, must comply with state registration requirements; ensure that staff at participating stores are familiar with promotions and can direct consumers to non-purchase entry methods; and post a statement at each retail location setting forth the number and value of the prizes, the geographic area of the promotion and the contest's rules.
And like CVS, A&P must "post at all participating stores ... entry forms to enable non-purchasers to obtain the information for entry into any" promotion. Thus, the same ambiguity presented by the CVS settlement — whether this means entry forms or information concerning how to enter — exists in the A&P settlement.
What do these settlements mean? The recent settlements make clear that, for an in-store promotion with a purchase method of entry, simply offering or advertising an alternative non-purchase entry method is not enough. Sponsors must conspicuously advertise the non-purchase entry method and make it easy for non-purchasers to enter. It remains to be seen whether the New York attorney general will release an opinion on this issue or whether a precedent will be set by how sponsors conduct in-store promotions in the future.
Though sweepstakes enforcement had appeared to wane after the enactment of the federal sweepstakes law and the settlements with the major sweepstakes marketers, marketers must wonder whether these recent actions signal more scrutiny ahead.