“Serious Questions of Fairness, Ethics, and Legality”: Congress Investigates Sweepstakes Promotions

In the 1960s, lottery-like contests designed to publicize products through sweepstakes competitions spread rapidly. In the 19th century, every state banned lotteries—defined as competitions in which chances to win prizes were sold—to protect citizens. In 1868, Congress prohibited the distribution of lottery materials through the mail. The mid-20th century sweepstakes, however, did not require contestants to purchase tickets or products to win prizes and were thus considered legal. In 1966, the number of national sweepstakes exceeded 600 and an FTC investigation in 1968 found evidence of deception. In the following statements by Representatives John D. Dingell and Silvio O. Conte that opened a Congressional investigation in 1969, the congressmen charged that small businesses were threatened by the spread of big business-run sweepstakes and condemned deceptive practices in ‘preselected winners’ promotions. Their compiled data revealed that only a small fraction of advertised prizes had actually been awarded. Congress failed to pass a regulatory bill that year, and by 1998, the FTC estimated that more than 400 million sweepstakes flooded the mail annually and that consumers lost more than $40 billion each year through sweepstakes and telemarketing scams. In 1999, Congress passed the Deceptive Mail Prevention and Enforcement Act. Among other consumer protections, this Act required sweepstakes materials to clearly state odds of winning, value of prizes, and rules.

Mr. DINGELL. . . The subcommittee has had many complaints from small businessmen that the use of certain types of “pre-selected winners” sweepstakes “promotions” result in unfair business competition to small businesses throughout the country. We also have had many hundreds of complaints from consumers from every section of the country contending that the promotional advertising used is deceptive or misleading, and that, in fact, the great majority of prizes advertised or offered, particularly the large prizes, are never awarded.

In order to verify the accuracy of the mounting toll of complaints, this subcommittee on July 18, 1969 sent a comprehensive 10-part questionnaire to 523 companies using the “sweepstakes” promotional methods, requiring detailed answers to various facets of their promotions.

We received replies from almost 100 percent of the companies contacted, by September 1, and since that date our statisticians and staff personnel have been compiling the data from over 1,000 different “sweepstakes” promotions conducted by those companies. We have now completed the compilation of the most meaningful data. Parts of this data will be introduced into the record today.

The facts gathered from our investigation more than substantiate the many complaints that have been made and are continuing to be made and prove that the complaints are indeed factual. This does not mean that all games or contests are deceptive or misleading or conducive to unfair competition to small business firms. In fact, we have found that the vast majority of true “games” or “contests,” particularly the kinds that use drawings to select the winners, are conducted on a high level of fairness and integrity, and some of the drawings games award all the prizes offered, and most of them award a substantial number of prizes, including the first and larger prizes.

However, such complimentary statements cannot be made about one particular type of sweepstakes promotion—the kind that is based upon the “preselection of winners,” with supposed possible “winning numbers,” being mailed out to literally millions of prospective participants, who, in order to be awarded one of the prizes, must mail back in the winning number, and thereby “claim” or “redeem” the prize. Our compiled data shows that often as few as 1 percent of the prospective entrants bother to mail back in the “preselected” numbers sent to them, with the result that usually not over 10 percent of the prizes offered are ever awarded, and that 90 percent of the prizes that are awarded are the smallest, most valueless ones of those advertised and offered.

For these and many other reasons which will be developed during these hearings, we believe that this subcommittee’s investigations will have resulted in many measurable benefits to American small businessmen and consumers.

The Chair is now happy to recognize his good friend, the ranking minority member of this subcommittee, the Honorable Silvio O. Conte. . . .

Mr. CONTE. Our study of these “preselected winners” contests clearly demonstrates that the manner in which they have been designed guarantees extremely small payoffs. The American public will find, I am sure, as I have found, that the statistics we have gathered reveal some incredible results. Companies of the highest prestige and reputation have led the general public to believe that grand exotic prizes were going to be given away. At the same time, however, statistics and experience have made perfectly clear to these companies that, in fact, they would only have to pay out a small percentage of the prizes that they have advertised.

When I say small, I am talking about actually awarding such low fractions as 1, 2, 3 or 10 percent of the prizes offered. Serious questions of fairness, ethics, and legality are all raised by these results and are to be examined by this subcommittee.

In addition, of course, we intend to closely examine the effect that these promotions are having on small businessmen, especially in the terms of those “sweepstakes” which use these promotions as a means of selling products to the general public normally sold by local small businessmen.

In this regard, I find it particularly ironic that during the period of our survey, from mid-1967 to mid-1969, 11 major oil companies sold more than $80 million, and probably more, than $120 million, worth of non-petroleum-related products such its radios, TV’s, and cameras, over 80 percent of which constituted products of foreign origin. I file here for the record two compilations of these sales. . . .

These are the same oil companies I have battled since I came to the Congress 11 years ago on the issue of this country’s restrictive oil import program. By blocking imports of foreign oil, they have created an artificial oil market in New England and throughout the country, at a cost of literally tens of billions of dollars to the American consumers.

These oil giants, however, who cannot face the thought of foreign competition for their domestic oil market, are at the same time importing and selling millions of dollars worth of foreign products, in competition with American manufacturers and distributors of similar domestic products.

The logic and ethical consistency in this approach by our oil companies simply escapes me. I join with Chairman Dingell in expressing the belief that these hearings we begin today will prove of substantial benefit to both the American small businessman and the American consumer. It is my hope, furthermore, that, as a result of these hearings, we will be able to establish the basic principle that, when the American public is led to believe $1 million in prizes are going to be awarded, $1 million in prizes will, in fact, be awarded. . . .

EXHIBIT 4

STATEMENT OF REPRESENTATIVE JOHN D. DINGELL, DEMOCRAT, MICHIGAN

PRESS CONFERENCE OF SEPTEMBER 17, 1969, ON INVESTIGATION OF “SWEEPSTAKES” PROMOTIONS . . .

Our statisticians have not yet completed their study and tabulation of the replies from the more than 1,000 promotions we have received as a result of questionnaires sent to 523 companies. That will take several weeks yet. And, while we are not at this time making any firm judgments or recommendations, several inescapable and interesting indications emerge from our preliminary study of the questionnaire replies.

First, there are many major oil companies, magazine or book companies, to cite but a few, that, in addition to promoting their own standard line of products, are selling “special contest products”, such as radios, vacuum cleaners, watches, cameras, luggage, typewriters, drill saws or tape recorders, items which are totally unrelated to their regular line of merchandise, items they have never sold before or will ever sell again. Moreover, a material percentage of these “special contest products” (not prizes offered) are manufactured not in America, but in foreign countries, such as Japan, West Germany, Italy, Holland, Switzerland or Great Britain. This may, of course, be perfectly legal, but many small businessmen and trade association officials with whom I have discussed the matter consider it unfair competition for small businessmen. They point out that the small merchant who ordinarily makes his living from selling such items is finding that it will be 5 to 10 years before his customers will again be in the market for such items, because his customer area has already been flooded and saturated with colorful promotional advertisings that have sapped up the market. . . .

EXHIBIT 5

STATEMENT OF REPRESENTATIVE SILVIO O. CONTE (REPUBLICAN, MASSACHUSETTS)

PRESS CONFERENCE OF SEPTEMBER 17, 1969, ANNOUNCING HEARINGS ON “SWEEPSTAKES” PROMOTIONS . . .

Chairman Dingell has already discussed the matter of most immediate concern to this Committee—the effect on small businessmen of these promotions, which often offer for sale “great bargain items” completely unrelated to the normal business activities of the sponsoring company. I would like to add this thought:

The small businessman in recent years has found it increasingly difficult and now practically impossible to obtain adequate financing with our tight money market and high interest rates. He has been severely challenged further by the tremendous competitive disadvantage he naturally faces from large corporations who offer, in the normal course of their business, products similar to his.

Now, all of a sudden, he is confronted with yet another challenge—a new form of competition from national organizations merchandising unrelated products as a sideline operation.

In many cases, what started out to be primarily promotional activity for these companies has now turned into profit-making business ventures. Untold hundreds of millions of dollars of merchandise are being sold today at significant profits through this process of national mailing campaigns.

We have received many complaints from small businessmen about this situation. We intend to examine this new phenomenon in marketing to determine whether it constitutes unfair competition to the small businessmen of this nation and, if so, what can and should be done about it. . . .

	1st prizes	Total prizes	Value
Explanation	Offered	Awarded	Offered	Awarded	Offered	Awarded	Number awarded (percent)	Value awarded (percent)
9 promotions during 1967–69	28	2	17,963	1,799	$1,195,397	$109,016	10.0	9.1
DATA FROM THE TOTAL OF 12 SPENCER GIFTS, INC., SWEEPSTAKES PROMOTIONS, CONDUCTED FROM APPROXIMATELY JULY 1, 1967, TO JULY 1, 1969
12 promotions 1967–69	12	0	24,374	907	$1,032,210	$35,150	3.7	3.4
DATA FROM TOTALS OF 5 GRACIOUS LIVING SWEEPSTAKES PROMOTIONS, CONDUCTED FROM APPROXIMATELY JULY 1, 1967, TO JULY 1, 1969
5 promotions 1967–69	9	0	7,568	174	$313,540	$3,272	2.3	1.0

Source: Congress, House, Select Committee on Small Business, Investigation of “Preselected Winners” Sweepstakes Promotions: Hearings before the Subcommittee on Activities of Regulatory Agencies Relating to Small Business of the Select Committee on Small Business , House of Representatives, 91st Cong., 1st sess., Washington, D.C., November 12, 13, and 14, 1969 (Washington: Government Printing Office, 1970).