Articles Posted in Contests & Promotions

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FCC Chairman Wheeler released a blog post today discussing a number of changes and proposed changes to rules impacting TV and radio broadcasters. While his blog contained good news for the radio industry, TV broadcasters are likely to be less pleased.

On the TV side there are two major initiatives. First, the Chairman is proposing to his fellow Commissioners that the FCC adopt an order eliminating what he termed “outdated exclusivity rules”–the FCC’s network non-duplication and syndicated exclusivity rules. These “non-dup” and “syndex” rules, as they are more commonly known, essentially provide a process by which TV broadcasters can efficiently implement the geographic exclusivity they negotiated in their programming agreements without the need for expensive court actions.  The purpose of these rules is to prevent multi-channel video program distributors (MVPDs) from violating that exclusivity by importing the exclusive programming from out-of-market TV stations.

These rules are of particular importance during retransmission negotiations, since without such rules, MVPDs could import, for example, a distant affiliate of the same network (one which obviously did a poor job of negotiating its own retransmission agreement) to violate the local station’s exclusivity.  With the rule change proposed by the Chairman, the local station could no longer quickly and efficiently resolve the problem by filing a complaint at the FCC. Instead, it would need to initiate a long and costly court battle that would inevitably pull in (1) the distant affiliate, and (2) the network whose contract the distant affiliate breached by entering into a retransmission agreement exceeding that affiliate’s geographic right to the network’s programming.

It’s not hard to understand why an MVPD would like blocking the importation of exclusive programming to be a complex, time-consuming, and expensive proposition for a local TV station, but it’s less clear why the federal government would want to create a less efficient process that further clogs up the courts with multi-party litigation.  The obvious answer is that it is not merely a procedural change, but one meant to alter the balance of substantive rights that existed when Congress created the retransmission consent process.

The second major TV-related item is the Chairman’s circulation among his colleagues of a Notice of Proposed Rulemaking (NPRM) to review the process used to determine whether broadcasters and MVPDs are negotiating retransmission consent rights in “good faith”. The purpose of the good faith regulations is to determine whether a party is negotiating with an intent other than that of reaching a deal (e.g., stalling for time).  To implement this requirement, the FCC created a list of bad faith tactics that are prohibited (for example, refusing to show up for negotiations), as well as a “totality of the circumstances” test which seeks to determine whether a party’s conduct as a whole indicates that the party has not made “good faith” efforts to reach a deal.

While only cable systems have been found to have engaged in bad faith negotiations by the FCC, the MVPD industry has long sought to alter the traditional meaning of “good faith” in an effort to limit certain negotiating tactics that have nothing to do with whether a party is intent upon reaching a deal.  Indeed, the focus has been on limiting the negotiation options available to broadcasters, even where, perversely, the result would be longer MVPD program blackouts.

The NPRM proposed by Chairman Wheeler, responding to a congressional directive to examine the matter, will apparently seek to alter the FCC’s approach to determining whether parties are engaging in good faith retransmission consent negotiations. Networks, local TV stations, and MVPDs all will no doubt eagerly await release of this NPRM to determine how the FCC’s proposals are likely to affect negotiating leverage and fees in the retransmission consent world–an odd result given that Chairman Wheeler’s blog post said the reason for eliminating the network non-dup and syndex rules is to “take [the FCC’s] thumb off the scales” in retransmission negotiations.

Call us cynics, but we’ll be surprised if “importing a station into a market where that station has no program rights” joins the list of bad faith negotiating tactics, even though it is the epitome of seeking a way around entering into an agreement with the local broadcaster.

From the broadcast industry’s “glass is half full” perspective, the Chairman’s blog post also indicated that the FCC will soon conclude a nearly four-year effort to update the FCC’s station contest rule.  That rule requires broadcasters to regularly describe the material terms of station contests on-air.  After long consideration, it appears the FCC will allow contest rules to be posted online as an alternative to speed-reading contest rules on-air. We earlier wrote about this proceeding at various stages in FCC Proposes to Clear Airwaves of Boring Contest Rules, But State Law Issues Remain and Bringing the FCC’s Contest Rule Up to Date. This rule change has had broad support, and while applicable to both TV and radio, is of greater practical importance to the radio industry, which tends to run more station contests and doesn’t have the option of airing written rules onscreen.

Finally, following up on his promise before the NAB Show in April, Chairman Wheeler indicated that he will also recommend to his colleagues that the FCC move forward with adopting several proposals in the 2013 AM Revitalization NPRM. This was a hot topic at the NAB Show in Las Vegas earlier this year when the Chairman signaled that the establishment of a window specifically for AM stations to apply for FM translators was essentially off the table, as Scott Flick wrote last April. Most considered an AM-only filing window to be the most practical and effective path to AM revitalization, particularly for AM daytime-only stations.  In fact, the outcry in response to the Chairman’s dismissal of that option appeared to have stalled the AM Revitalization proceeding. While it looks like AM radio broadcasters can expect some relief from the FCC soon, most will be watching to see if an FM translator window for AM stations is part of that relief.  Regardless, today is one of those days where you’d rather be a radio station than a TV station.

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It is an unusual occasion indeed when the FCC offers to revise its rules to provide regulatory relief to both television and radio stations. Yet that is precisely what the FCC proposed in a Notice of Proposed Rulemaking (NPRM) to update its station-conducted contest rule to allow broadcasters to post contest rules online rather than broadcast them. As the proposal now stands, stations would no longer need to broadcast the contest rules if they instead announce the full website address where the rules can be found each time they discuss the contest on-air.

The FCC’s current contest rule was adopted back in 1976 when broadcasters could only provide contest information via printed copies of the rules available at the station or by announcing the rules over the air. The FCC’s existing rule states that broadcasters sponsoring a contest must “fully and accurately disclose the material terms of the contest” on-air, and subsequently conduct the contest substantially as announced. (For a refresher on the contest rule, you can take a look at the Pillsbury Advisory drafted by Scott Flick covering a number of on-air rules, including the contest rule, here). A note to the rule explains that “[t]he material terms should be disclosed periodically by announcements broadcast on the station conducting the contest, but need not be enumerated each time an announcement promoting the contest is broadcast. Disclosure of material terms in a reasonable number of announcements is sufficient.” The challenge for broadcasters has been airing the material terms of each station contest on-air a “reasonable number” of times without driving audiences away.

In the NPRM, the FCC acknowledged that things have changed since 1976, and that the Internet is now “an effective tool for distributing information to broadcast audiences.” More than three years ago, Entercom Communications filed a Petition for Rulemaking advancing the notion, among others, that the FCC should let broadcasters use their websites to post contest rules instead of having to announce them over the air. Not surprisingly, the Entercom proposal received a great deal of support and it remains unclear why the FCC waited so long to act on it.

The proposed rule would allow stations to satisfy their disclosure obligations by posting contest terms on the station’s Internet website, the licensee’s website, or if neither the individual station nor the licensee has its own website, any Internet website that is publicly accessible. Material contest terms disclosed online would have to conform with any mentioned on-air, and any changes to the material terms during the course of the contest would have to be fully disclosed on-air and in the rules as posted on the website.

Comments on the FCC’s proposals were due this week and it seems most parties are on the same page as the the FCC; namely, that it is the 21st century and the contest rule should be modernized to keep up with the times. In fact, Entercom in its comments asks the Commission to permit stations to announce contest website information an average of three times per day during a contest as an effective way to announce contest information to to public.

While this is generally good news for broadcasters, there is a catch or two. Under the new rule, stations that choose to disclose their contest rules online would be required to announce on-air that the rules are accessible online, and would also be required to announce the “complete, direct website address where the terms are posted … each time the station mentions or advertises the contest.” For stations that promote (or even mention) their contests frequently, this could become a pain really quickly, for both the station and their audience. Listening to a complete and lengthy URL “each time” anything regarding the contest is uttered on the air will grow old fast. There is a reason you rarely hear an ad that contains more than just the advertiser’s domain name, as opposed to the full address for a particular link from that domain. Advertisers know that people will remember a home page domain name much better than a full URL address, and that the full URL address will only cause the audience to tune out, both literally and figuratively.

In light of these concerns, Pillsbury submitted comments this week on behalf of all fifty State Broadcasters Associations urging the Commission to simplify matters by exempting passing on-air references to a contest from any requirement to announce the contest rules’ web address. Additionally, rather than require the broadcast of a “complete and direct website address,” which is typically a lengthy and easily forgettable string of letters and punctuation, the State Broadcasters Associations’ comments urged that the rule only require stations to announce the address of the website’s home page, where a link to the contest rules can be found. Those on the Internet understand quite well how to navigate a website, and will have little difficulty locating contest rules, either through a direct link or by using a site’s search function.

As Lauren Lynch Flick, the head of Pillsbury’s Contests & Sweepstakes practice, noted in a November 2014 post, station contests also must abide by applicable state law requirements. In that vein, the State Broadcasters Associations reminded the Commission that any FCC micro-management of the manner or format of a station’s online contest rule disclosures could subject stations to dueling federal and state requirements with no countervailing benefit. As pointed out in her post, an improperly conducted contest can subject a station to far greater liability under consumer protection laws and state and federal gambling laws than the typical $4,000 fine issued by the FCC for a contest violation. As a result, broadcasters need no further incentives to make sure their contests are fairly run and their rules fully disclosed to potential entrants.

In short, the FCC has an opportunity to ease the burden on both broadcasters and their audiences by allowing stations the flexibility to elect to make their contest rule disclosures online. The FCC shouldn’t diminish the benefit to be gained by reflexively imposing unnecessary restrictions on that flexibility.

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At its Open Meeting this morning, the FCC adopted a Notice of Proposed Rulemaking to “modernize” its station-conducted contest rule, which was originally adopted in 1976. The proposal would allow broadcasters to post the rules of a contest on any publicly accessible website. Stations would no longer have to broadcast the contest rules if they instead announce the full website address where the rules can be found each time they promote or advertise the contest on-air.

Currently, the FCC’s rule requires that broadcasters sponsoring a contest must “fully and accurately disclose the material terms of the contest” and subsequently conduct the contest substantially as announced. A note to the rule explains that “[t]he material terms should be disclosed periodically by announcements broadcast on the station conducting the contest, but need not be enumerated each time an announcement promoting the contest is broadcast. Disclosure of material terms in a reasonable number of announcements is sufficient.”

Of course what terms are “material” and what number of announcements is “reasonable” have been open to interpretation. A review of many past issues of Pillsbury’s Enforcement Monitor reveals numerous cases where a station was accused of having failed to disclose on-air a material term of a contest, or of deviating from the announced rules in conducting a contest. Even where a station’s efforts are ultimately deemed sufficient, the licensee has been put in the delicate position of defending its disclosure practices as “reasonable,” which has the effect of accusing a disappointed listener or viewer of being “unreasonable” in having not understood the disclosures made.

Adopting the rule change proposed by the FCC today would simplify a broadcaster’s defense of its actions because a written record of what was posted online will be available for the FCC to review. Accordingly, questions about whether the station aired the rules, or aired them enough times for the listener/viewer to understand all the material terms of the contest would be less important from an FCC standpoint. Instead, the listener/viewer will be expected to access the web version of the rules and benefit from the opportunity to review those rules at a more leisurely pace, no longer subjected to a fast-talker recitation of the rules on radio, or squinting at a mouseprint crawl at the bottom of a television screen. While the FCC’s willingness to accept online disclosures is certainly welcome, the question of what disclosures must be made in the first instance remains. In fact, the FCC asks in the NPRM whether its rules should dictate a set of “material” terms to be disclosed online.

In our Advertising and Sweepstakes practice, we frequently advise sponsors of contests and sweepstakes on how to conduct legal contests, including the drafting of contest rules and the sufficiency of the sponsor’s disclosure of those rules in advertisements. In addition to the FCC’s rule requiring disclosure of “material” terms, the consumer protection laws of nearly every state prohibit advertising the availability of a prize in a false or misleading manner. What terms will be “material” and essential to making a disclosure not false or misleading is a very fact-specific issue, and will vary significantly depending on the exact nature of the contest involved. As a result, regardless of whether the FCC dictates a prescribed set of “material” terms to be disclosed, the terms will still have to satisfy state disclosure requirements.

The FCC (with regard to station-conducted contests) and state Attorney Generals (with regard to all contests and sweepstakes) investigate whether contests and sweepstakes have been conducted fairly and in accordance with the advertised rules. These investigations usually arise in response to a consumer complaint that the contest was not conducted in the manner the consumer expected. Many of these investigations can be avoided by: (1) having well-drafted contest rules that anticipate common issues which often arise in administering a contest or sweepstakes, and (2) assuring that statements promoting the contest are consistent with those rules.

While, as Commissioner Pai noted, the public does not generally find contest disclosure statements to be “compelling” listening or viewing, and may well change channels to avoid them, the individual states are going to continue to require adequate public disclosure of contest rules, even if that means continued on-air disclosures. If the FCC’s on-air contest disclosure requirements do go away, stations will need to focus on how state law contest requirements affect them before deciding whether they can actually scale back their on-air disclosures.

In fact, while a violation of the FCC’s contest disclosure requirements often results in the imposition of a $4,000 fine, an improperly conducted contest can subject the sponsor, whether it be a station or an advertiser, to far more liability under consumer protection laws and state and federal gambling laws. In addition, state laws may impose record retention obligations, require registration and bonding before a contest can commence, or impose a number of other obligations. As promotional contests and sweepstakes continue to proliferate, knowing the ground rules for conducting them is critically important. If the FCC proceeds with its elimination of mandatory on-air contest disclosures for station-conducted contests, it will make broadcasters’ lives a little easier, but not by as much as some might anticipate.

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April 2014

Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • FCC Proposes $12,000 in Fines for Contest Violations
  • $20,000 Fine for Unlicensed Operation and Interference
  • Violations of Sponsorship Identification and Indecency Rules Lead to $15,000 Consent Decree

Changing Rules and Delay in Conducting Contest Lead to $12,000 in Fines

Late last month, the FCC’s Enforcement Bureau issued two essentially identical Notices of Apparent Liability for Forfeiture (“NALs”) against two radio station licensees for failure to conduct a contest as advertised. Although the stations have different licensees, one licensee provided programming to the second licensee’s station through a time brokerage agreement. The brokering station’s response to a letter of inquiry (“LOI”) addressed both licensees’ actions with regard to the contest. In the subsequent NALs, the FCC’s Enforcement Bureau proposed a $4,000 fine against the brokered licensee and an $8,000 fine against the brokering licensee.

In July of 2009, the FCC received a complaint that several radio stations held a weekly contest called “Par 3 Shoot Out” but did not conduct the contest substantially as announced or advertised. Specifically, the complaint maintained that at least one participant did not receive a promised prize of a golf hat and was not entered into a drawing to win a car or other prizes (as was promised in the contest’s rules). About four months later, the FCC issued an LOI to the licensee conducting the contest about the claims made in the complaint. In its response to the LOI, the licensee conducting the contest indicated that the contest consisted of two phases. The first was an 18-week, online golf competition where the highest-scoring contestant each week would win a hat from a golf club. Each weekly winner and one write-in contestant would be able to participate in the second phase of the contest, a real golf competition consisting of taking one shot at a three par hole. As was publicized online, the prize for the winner of the second phase was a $350 golf store gift certificate, and if anyone hit a hole-in-one, they would win a Lexus car.

According to the brokering licensee, the first phase of the contest took place between June and November 2008. The contest took place entirely online, and although the second phase was scheduled to begin in November 2008, it was postponed due to inclement weather and ultimately did not occur at all because the employee who was tasked with running the live golf competition was fired, and the remaining staff never resumed the contest. The brokering licensee further indicated that it forgot about the contest until it received the FCC’s LOI, and, after receiving the LOI, the second phase of the contest occurred and was completed by January 2010. The brokering licensee indicated that it had provided additional prizes of a $25 golf store gift card and a catered lunch to each finalist in the second phase given the delay in conducting the contest.

Section 73.1216 of the FCC’s Rules requires that a station-sponsored contest be conducted “substantially as announced or advertised” and must fully and accurately disclose the “material terms,” including eligibility restrictions, methods of selecting winners, and the extent, nature and value of prizes involved in a contest.

The Enforcement Bureau determined that the contest was not conducted as announced or advertised because the rules were changed during the course of the contest and the contest was not conducted within the promised time frame. The Bureau further found that the licensees failed to fully disclose the material terms of the contest as required by the Commission’s rules. According to the Bureau, the on-air announcements broadcast by the stations failed to mention all of the prizes the licensee planned to award and failed to describe any of the procedures regarding how prizes would be awarded or how the winners would be picked. The brokering licensee argued in its response to the LOI that the full rules were included online, which was a better way to make sure that potential contest participants were not confused. However, the Bureau found that while licensees can supplement broadcast announcements with online rules, online announcements are not a substitute for on-air announcements.

The base fine for failure to conduct a contest as announced is $4,000. The Bureau determined that, contrary to the argument presented in response to the LOI, “neither negligence nor inadvertence” due to the overseeing employee’s departure “can absolve licensees of liability.” The Bureau also said that providing additional prizes to make up for the delay does not overcome the violation of Section 73.1216. Finally, the FCC found that the licensees had failed to disclose the material terms of the contest because the advertisements that were broadcast over the air did not mention certain prizes.

The FCC proposed to impose the base fine amount of $4,000 against the time-brokered station after determining that the licensee had violated Section 73.1216. For the brokering licensee, the FCC proposed an increased fine of $8,000 because of the licensee’s “pattern of violative conduct, and because it conducted the Contest over four stations, not one, thus posing harm to a larger audience.”

Nine Years of Unauthorized Operation and Interference to Wireless Operator Lead to Large Fine

The FCC recently issued a Forfeiture Order to the former licensee of a Private Land Mobile Radio Service (“PLMRS”) station. The Forfeiture Order follows an NAL that the FCC released in July of 2012 proposing a fine of $20,000 for the former licensee of the facility for operating without a license for nine years and causing interference to another wireless service provider.

The former licensee initially received the license for the PLMRS station in April 1997 for a five-year term. Three months before the expiration of the license, the FCC sent the licensee a reminder to renew the license, but the licensee never filed a renewal application. Therefore, the license expired in April of 2002. Nevertheless, the licensee continued operating the station, and on July 31, 2011, filed a request for Special Temporary Authority (“STA”) with the Wireless Telecommunications Bureau of the FCC. The licensee stated in the application that it had recently discovered that its license had expired and that it needed an STA to continue operating the station. The Wireless Bureau granted the STA three days later for a period of six months, until the end of January 2012. Continue reading →

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While it has been around since 2009, Bitcoin has seen substantial media coverage in the past few months. Media outlets (as well as many other businesses) have been increasingly dabbling in the Bitcoin world, if for no other reason than to show they are up to date with the latest consumer fixations.

While numerous businesses have begun accepting Bitcoin transactions, the most likely place to find them in the media world is as contest prizes or as part of an advertiser promotion. Of course, one of the principal reasons for the novelty of Bitcoin is its goal of being an electronic currency unregulated by governments. As a result, how businesses have been treating their usage of bitcoins from an accounting and legal perspective is highly variable, since it is in many ways a new frontier.

That frontier changed significantly yesterday, when the IRS ruled that virtual currencies like Bitcoin are to be treated as property for federal tax purposes, with transactions using virtual currency subject to much the same tax treatment as those involving U.S. currency. Our own Jim Gatto, head of Pillsbury’s Social Media and Games Team, distributed a Pillsbury Client Alert discussing the ruling. In that Alert, Jim notes that the impact of the IRS ruling includes:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by the employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue IRS Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
  • For purposes of computing gross income, a taxpayer who receives virtual currency as payment for goods or services must include the fair market value of virtual currency received as measured in U.S. dollars, as of the date that the virtual currency was received.

The Client Alert provides additional detail, but if you are using bitcoins for any type of transaction, whether as contest prize, currency for purchases on your website, or payments to employees and vendors, the IRS has made clear that you will need to follow the same procedures (and pay taxes) as though the transaction had occurred in dollars.

While that is a big issue for businesses doing large Bitcoin transactions, businesses dabbling in small and occasional Bitcoin transactions will need to pay even closer attention than they would to a transaction using traditional currency. For example, if the prize in a station contest is one bitcoin, the station will need to assess whether awarding the prize triggers the need for issuing IRS Form 1099 to record the awarding of the prize. In a cash prize contest, that is straightforward, since the Form 1099 currently specifies a prize of $600 or more as the threshold for needing to issue the form. As I write this, however, the current Bitcoin exchange rate is roughly $582 U.S. dollars per bitcoin. That means a one bitcoin prize would not trigger the need for a Form 1099, but a two bitcoin prize would.

Similarly, yesterday’s IRS ruling seems to indicate that the bitcoin must be valued for tax purposes at the time it is received. As a result, the station holding the contest would need to check the value of a bitcoin on the day the prize is awarded to see if it is above or below the $600 threshold for tax purposes. Of course, given the volatility of the Bitcoin exchange rate, this raises other questions, such as how do you value the bitcoin for tax reporting if the exchange rate was below $600 for part of that day and above $600 for part of that day, or if the day the prize is “sent” is not the same day as the prize winner receives or “cashes” it.

Like so many things, Bitcoin appears to be another example of something meant to simplify life, but which is turning out to only make life more complicated. Look for life to get even more complicated as individual states formally adopt a similar approach in treating virtual currency transactions as taxable events.

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Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • Failure to Heed Warning by FCC Field Agent Costs Broadcaster $10,000
  • FCC Fines AM Broadcaster $6,000 for Excessive Nighttime Power Levels
  • AM Broadcaster’s Limited Disclosure of Contest Rules Nets $4,000 Fine

FCC Fines Pennsylvania Broadcaster $10,000 for Repeated Failure to Employ Adequate Personnel

In keeping with lasts month’s “meaningful management and staff presence” Notice of Apparent Liability (“NAL”), the FCC again upwardly adjusted a fine, totaling $10,000, against a Pennsylvania broadcaster for repeated failure to maintain at least one management level and one staff level employee at the main studio during regular business hours as required by Section 73.1125 of the FCC’s Rules. At the time of the initial inspection by a local Enforcement Bureau Field Agent, the “main studio”, which was located within a church, was unattended and locked.

The FCC requires that licensees maintain a “meaningful management and staff presence” at a station’s main studio. Based on a 1991 FCC decision, the FCC defines “meaningful” as at least one management level employee and one staff level employee generally being present “during normal business hours.”

Continue reading →

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Anyone who has enjoyed March Madness knows that Lady Luck often intervenes in a team’s journey to the NCAA Final Four. But is getting to the game a literal roll of the dice for spectators too? The Seventh Circuit Court of Appeals in Chicago has recently ruled that a lawsuit can go forward which claims that the NCAA’s ticket sales for the NCAA tournament are an illegal lottery akin to a game of poker or roulette.

Those who run sweepstakes and contests live in fear of having such an accusation leveled against their promotional campaigns. While they know that they must avoid combining the three elements of a lottery: (1) prize, (2) chance, and (3) consideration (such as money), those who are new to the industry can often be heard to say “it’s not like this is real gambling or anything.” Much of the time, the focus is on how to make sure that “chance” or “consideration” (or both) are not present in your promotional game. There is very rarely any debate as to whether there is a “prize,” as there is usually little point to having a promotion without one. Yet, it is that issue which is at the heart of the case against the NCAA. More to the point, the Court seems to have been influenced by the fact that Final Four tickets are highly sought after, so the chance to buy them in and of itself could be a “prize.”

For years, the NCAA has used random selection to determine who will be allowed to purchase tickets to its Final Four basketball games. According to the plaintiffs in this case, to have a shot at scoring a pair of tickets, they were required to pay the NCAA in advance for both the face value of the tickets and a “non-refundable handling” fee of $6-$10. To maximize the chance of being selected, each person could enter up to ten times, submitting the face value of ten tickets plus handling fees, although participants would only be allowed to purchase a single pair of tickets if selected, regardless of the number of entries submitted. After the random selection process, “winning” entrants would receive two tickets and a refund of the face value of the other nine entries, while those who were not selected would receive a refund of the face value of ten pairs of tickets. However, none of the applicants received a refund of the handling fees.

The plaintiffs filed a class action lawsuit alleging that the ticket distribution process is an illegal lottery. They allege that the opportunity to purchase a pair of Final Four tickets at face value is a prize, that the prize is distributed by chance, and that they paid consideration for that chance in the form of the handling fees that were not refunded. From this assessment, the plaintiffs conclude that the NCAA is engaged in illegal gambling in the sale of Final Four tickets.

The trial court initially dismissed the case based on an Indiana court of appeals case, Lesher v. Baltimore Football Club, which held that the Indianapolis Colts were not engaged in gambling when they used a similar ticketing system. In Lesher, however, the handling fees were refunded for all but the tickets that were actually purchased. The Lesher court decided that there was no “prize” involved in the Colts ticket distribution scheme because a “prize” is “something of more value than the amount invested.” Ticket purchasers “invested the price of the tickets and received in exchange either the tickets or the entire amount invested . . . those receiving tickets got nothing of greater value than those who received refunds.” With regard to the NCAA’s ticket sales, though, the Seventh Circuit faulted the trial court for relying on Lesher. According to the Seventh Circuit, the plaintiffs had adequately argued the existence of a “prize” because they asserted that the fair-market value of the NCAA Final Four tickets was much greater than the face value at which the winners had purchased them, and that the plaintiffs had “invested” the handling fees to participate in the random drawing.

While the trial court will ultimately have to decide these issues, the Seventh Circuit’s ruling certainly nudges the trial court in an interesting direction, and the result may expand the definition of what qualifies as a “prize.” This case is a reminder of the importance of structuring promotions with care to avoid the legal morass and potential liability facing the NCAA in this class action lawsuit. Marketers and broadcasters cannot merely rely on doing things the way they were done in the past to protect against lawsuits and prosecution. That approach is, quite simply, a gamble.

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7/16/2009
As the sources of content available to the public proliferate, attracting and retaining an audience grows more challenging. A common strategy is to use provocative or “attention-getting” on-air elements to increase station awareness among media-saturated listeners and viewers. However, stations must be mindful of the numerous legal restrictions on content, particularly given that illegal on-air content can garner fines as high as $325,000 per violation. In addition, certain types of illegal on-air content can subject a broadcaster to civil and criminal liability, as well as loss of its license.

Introduction
Familiarity with the FCC’s rules regarding on-air content is not optional for on-air talent, station programmers or station management. In most cases, editorial judgments made in advance, especially in the case of syndicated or pre-recorded programming, can prevent illegal content from reaching the air. It is therefore important that those involved in airing broadcast programming be up-to-date on the boundary lines that the FCC and the courts have drawn to distinguish legal from illegal on-air content.

Continue reading →

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May 2006
The FCC recently fined a television licensee $4,000 for violations that occurred during a contest run by the station in 2004. The FCC determined that the station failed to conduct the contest substantially as announced and advertised, a violation of Section 73.1216 of the Commission’s Rules. It was discovered during the investigation that the licensee excluded multiple entries from consideration, misplaced legitimate entries, and failed to award all announced prizes.

A PDF version of this entire article can be found at FCC Fines Television Licensee $4,000 for Violations of Contest Rules.