Prize Promotions Near Top of FTC Consumer Complaint List. Do Marketers Know the Law?

On March 8, 2011, the FTC released its list of Top Consumer Complaints areas for 2010. In 4^th place out of ten, the category of “Prizes, Sweepstakes, and Lotteries” had 64,085 complaints, accounting for five percent of all complaints the FTC received. (See http://1.usa.gov/dRX5nC.)

The category falls within a broader Fraud division and is defined to include: “promotions for ‘free’ prizes for a fee; foreign lotteries and sweepstakes offered through the phone, fax, e-mail or mail; etc.”  Within the category, the FTC reported more than three times the number of complaints in the area of “prizes, sweepstakes, and gifts” than “lotteries and lottery ticket buying clubs.”

The number of complaints in this category has almost doubled since 2008. A close look at the report shows that in many states, complaints in this area rank in the top two or three categories. In Minnesota, it was the top complaint category with ten percent of complaints. One has to wonder what is going on in Minnesota!

Reading the FTC report should give sweepstakes promoters pause. The FTC’s statistics suggest that the use of prize promotions as a marketing device is on the rise. At the same time, the rise in complaints suggests that many marketers either are unaware of the morass of governing statutes or they do not care to follow the law.  Ignorance of the law is no defense, however, and intent to ignore the law can lead to stiffer financial and even criminal penalties.

Under the Obama Administration, we are seeing an emboldened, activist FTC at work. State regulators are following suit. Companies that are using prize promotions need to be aware that this is a highly regulated area. They should partner with specialized legal counsel, early in the process, to help structure promotions that pass legal muster.

Prize promotions are uniquely qualified as marketing devices in the social media and mobile marketing arenas. The legal issues require analysis in light of these unique platforms’ capabilities. Does requiring a consumer to like a Facebook page constitute consideration to render a sweepstakes an illegal lottery? Probably not, but requiring multiple Foursquare checkins from various locations might taint a promotion without an alternate method of entry. Can a jingle contest incorporate public judging via Facebook or Twitter? Possibly, but only if chance does not overtake the objective criteria for judging. Can a marketer require text message entry into a sweepstakes? Text messaging has not permeated the marketplace sufficiently to obviate the current need for an alternate method of entry.

Implementing a prize promotion requires thoughtful analysis of the elements of prize, chance, and consideration to be sure that the promotion is not an illegal lottery. In addition, these promotions should be subject to detailed analysis from a legal, business, and public relations perspective to avoid the increasing trend in consumer complaints before the FTC.