The Sweepstakes Biz Isn't Feeling Lucky

Congress starts cracking down on magazine contests

It was a riveting display, even for an impeachment-numbed Congress. Eustace Hall, 65, a retired medical technician from Florida, broke down in sobs on Mar. 9 as he told a Senate investigations subcommittee about the $20,000 debt he racked up trying to win magazine sweepstakes. Behind him, a roomful of high-dollar lobbyists for the sweepstakes industry sat stone-faced, scribbling notes for the counteroffensive.

For decades, promoters have dangled the lure of million-dollar prizes to entice people to buy magazine subscriptions. The tactic is wildly successful. Time Inc. says it won 1.4 million new subscribers in 1998 through sweepstakes promotions. (BUSINESS WEEK gets a very small number of subscriptions from sweepstakes promotions.) But outrage is building as appeals become ever more slick and personally targeted, leading people to believe they actually have won something. Now the industry must convince lawmakers that the sweeps don't need more federal oversight. That's not going to be an easy sell.

Small wonder that the companies that run these sweepstakes--such as Time, Publishers Clearing House, American Family Enterprises (partly owned by a Time Inc. subsidiary), and Reader's Digest Assn.--have signed up some of Washington's premier influence peddlers. Time, for example, is represented by former Reagan White House Chief of Staff Kenneth M. Duberstein's lobbying firm and powerhouse O'Melveny & Myers.

At stake are 1.5 billion pieces of mail sent out each year, generating about one-third of all new magazine subscriptions in the country. The sweepstakes industry is already under fire from state attorneys general, 36 of whom last year got the industry's biggest players to stop the most misleading mailings. The AGs are watching legislation on Capitol Hill closely to make sure industry doesn't slip in language preempting states from taking more action.

The industry's goal: to keep federal regulation at a minimum. It helped shape a bill requiring new disclosures that has wide bipartisan support. Sweepstakes operators would have to provide the odds of winning, disclose that no purchase is required to win, and point out that buying something doesn't increase your chances of winning. The bill authorizes the U.S. Postal Service to draft the regs, with fines of up to $2 million for noncompliance.

"LIFE OR DEATH." Most legit promoters already do much of what the legislation, sponsored by Senator Susan M. Collins (R-Me.), demands. They figure the industry can improve its image simply by accepting the restrictions. Magazine subscriptions from sweepstakes promotions have declined by almost 30% over the past couple of years as the public has grown mistrustful of the come-ons. "We all agree there should be some legislative standards," says Gerald E. Cerasale, top lobbyist for the Direct Marketing Assn., a group of bulk mailers.

Standards, yes. But the American Association of Retired Persons, for example, wants the disclaimer language to be as big as the headlines that shout "You are a Winner!" It also wants "No Purchase Necessary" displayed on the envelope. The AARP will get support from Democrats such as Senators Carl Levin (Mich.) and John Edwards (N.C.). But such changes "mean life or death" to the industry, worries Michael Pashby, vice-president of the Magazine Publishers of America. "It's like putting a sign in a shop window saying `Don't come in here, we don't have anything for you."'

The big guns of K Street may have helped shape the Collins measure. But with more hearings scheduled for spring, lawmakers growing more indignant by the minute, and an election looming next year, the industry could soon be getting a brown envelope in the mail proclaiming: "You May Already Be A Loser!"

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