Taking the Suds Out of Sweepstakes
Without warning, authorities in various states have taken a sudden, renewed interest in the marketing of alcoholic beverages. These initiatives have compelled alcohol manufacturers, distributors, and retailers to carefully reconsider the manner in which they advertise and sell product to the public.
In South Carolina, Section 61-4-580 of the Code prohibits certain activities at establishments that are licensed to sell alcohol. Beyond prohibitions concerning the sale of wine (or beer) to minors and persons who are already intoxicated, the relevant provision of this law forbids “gambling or games of chance” at retail locations. In an information letter dated June 30, 1998, the State Department of Revenue interpreted the provision as applying to any game of chance, including promotional games sponsored by manufacturers of goods and services other than alcoholic beverages. Violations could constitute grounds for suspension or revocation of the retailer’s permit, forcing the establishment to cease selling alcohol either for a certain period of time or permanently.
With this interpretation, South Carolina has arbitrarily collapsed the crucial distinction between illicit gambling and lawful chance promotions. By focusing only on the existence of chance, the state’s Department of Revenue has indiscriminately lumped clearly lawful promotional sweepstakes (and other games of chance) with more questionable enterprises, such as video poker.
Still, in a letter to the South Carolina Merchant’s Association, the Department of Revenue suggested that it would enforce the provision only under certain circumstances. Specifically, it apparently will not challenge chance promotions conducted by traditional packaged goods companies and similar entities. Rather, only those companies that do not vend so-called “legitimate” goods need be concerned about regulatory challenges.
The critical question then becomes: what types of products qualify as being “legitimate?” While one may easily list some examples of “legitimate” items, such as candy bars or cola, a straightforward answer proves quite elusive. Would a telephone debit card constitute a “legitimate” product? What about a collector card?
Much like the First Amendment debate concerning the definition of “obscenity,” the “legitimacy” of goods and services ultimately involves a subjective assessment of the merits of the product. For this reason, it is imprudent to view the Department of Revenue’s letter as in any way having settled the issue. Any real change must instead come from the State legislature. And, I understand that the Legislature will reconsider the scope of the provision during its next session.
Miller 7, California 0 This development comes after California’s recent startling reassessment of its alcoholic beverage laws. As discussed in an earlier edition of this column, the Alcoholic Beverage Control Department has strictly construed Section 25600 of the California Business and Professions Code as prohibiting the award of prizes in sweepstakes (and other) promotions.
As if to reinforce this position, several weeks ago, the Alcoholic Beverage Control Department sued Miller Brewing Company for violating the provision, after Miller attempted to conduct its annual Super Bowl Sweepstakes in California. While the case is still pending, an appeals court vacated an injunction granted by a lower court and suspended all enforcement activities initiated against Miller. Although the Alcoholic Beverage Control Department might ultimately prevail, Miller may conduct the Super Bowl Sweepstakes in the state as originally planned.
While undoubtedly a hopeful sign, one must not misjudge the significance of the Miller litigation. Pivotally, Miller has not “won”; depending on the outcome of the case, the company may still be faced with a fine or other penalty.
How then should an alcohol manufacturer respond to the Miller case? Logic would seem to suggest postponing the introduction of alcoholic beverage sweepstakes in California until after the court reaches a final result.
However, as a counterpoint, such a “wait and see” strategy would have the deleterious effect of placing smaller alcohol manufacturers at a disadvantage to their larger competitors.
Perhaps more so than ever before, the advertising and marketing of alcoholic beverages is a highly sensitive proposition. Although, in both South Carolina and California, there is reason to believe that the regulatory climate may change, the industry must continue to proceed with great caution.
Stay tuned for further details.