Request By:
Hon. J. Granville Clark
Auburn City Attorney
Law Offices of the Clark Building
Russellville, Kentucky 42276
Opinion
Opinion By: Steven L. Beshear
This is in response to your recent letter, inquiring about the possible "lottery" status of a game which is currently being conducted in your area and in other areas throughout Kentucky.
Pepsi-Cola General Bottlers, Inc., is sponsoring the contest, which provides for the distribution of prizes -- including cash, groceries and other merchandise -- to persons who obtain specially marked bottle caps from various Pepsi-Cola products. To obtain these caps, a person must either: (1) visit one of eight listed Pepsi-Cola Bottling plants across the state (limit of six free caps per family per day); (2) call a toll-free number and request that caps be sent to you (limit of six free caps per family per day); or (3) buy an unlimited number of the different sized (bottled) soft drinks to acquire the maximum desired number of Pepsi caps.
The Constitution of Kentucky, at Section 226, explicitly prohibits lotteries by providing that:
"Lotteries and gift enterprises are forbidden, and no privileges shall be granted for such purposes, and none shall be exercised, and no schemes for similar purposes shall be allowed . . ."
The elements of "lottery" are a prize, an award thereof by chance, and consideration.
A. B. Long Music Company v. Commonwealth, Ky., 429 S.W.2d 391, 394 (1968). The courts in Kentucky have defined "lottery" as ". . . a scheme for the distribution of prizes or things of value purely by lot or chance among persons who have paid or agreed to pay a consideration for the chance to share in the distribution."
Otto v. Kosofsky, Ky., 476 S.W.2d 626, 629 (1971), cert. den., 409 U.S. 912 (1972). In the Pepsi bottle cap scheme, prizes are awarded to persons upon the basis of chance in finding specially marked caps. If it can be said that the public pays a consideration for the chance to win an award, then the Pepsi contest is a lottery.
The Kentucky Supreme Court has not, to our knowledge, had before it a case which turned on the precise definition of "valuable consideration" . However, this office feels that Kentucky courts would adhere to the pecuniary detriment test for determining whether "consideration" is present in a particular scheme. See OAG 73-500, copy attached. Also, see 29 ALR 3d 888.
We are supported in this view by KRS 528.010(5)(a) 1, and by the dicta gleaned from
Commonwealth v. Malco-Memphis Theatres, 293 Ky. 531, 169 S.W.2d 596 (1943), the leading case on lottery law in Kentucky. In KRS 528.010(5)(a) 1, "lottery and gift enterprise" is defined as:
"(a) A gambling scheme in which:
"1. The players pay or agree to pay something of value for chances . . ." (Emphasis added.)
In discussing lotteries in Malco-Memphis, supra, our Court of Appeals spoke in terms of "payment" of a valuable consideration; of people who had "paid" to participate; and those people having been induced to "purchase".
In Malco-Memphis, supra, the court held that persons paid a "valuable consideration" for the chance to receive a prize in a drawing of ticket stubs held in a theatre, where such consideration consisted of no more than purchasing the regular tickets of admission to the theatre for the usual price. It was not necessary that there be any additional charge for the added opportunity to participate in the drawing for prizes. The opinion reads in part as follows:
"The rule is that where the participants in a drawing by lot for a prize have paid admission fees the transaction is a lottery though the same admission fee is charged as on occasions when no drawing is held. The fact that there can be no loss to the participants does not prevent the scheme from being a lottery when there may be contingent gains. So long as prizes are distributed by chance among people who have paid consideration to enter the contest, it is of no importance that its conduct by the owner of a legitimate business is a means of stimulating sales. If the chance of winning a prize is part of the inducement to purchase goods or tickets of admission, the scheme is a lottery. " (Emphasis added.)
Were Pepsi purchases the only means by which one could obtain the bottle caps, then Malco-Memphis would be directly on point, and there would be consideration in the form of payment for the soft drink. However, since the Pepsi-Cola bottlers have provided alternatives for anyone to acquire free caps without purchasing the soft drink on a reasonably equal basis, Malco-Memphis does not apply.
It is the opinion of this office that the mere fact that some of the participants in a promotional scheme in fact make purchases of the sponsor's products does not, in and of itself, constitute consideration supporting a lottery, where chances to participate in the scheme are also freely given away on a reasonably equal basis without respect to the purchase of merchandise. These schemes, known as "flexible participation" schemes, are not to be confused with "closed participation" gift enterprise schemes, which are open only to patrons purchasing goods, services or whatever the promoter is trying to push by the scheme. Malco-Memphis, supra, clearly governs the latter, and dictates that such enterprises are illegal lotteries.
We are persuaded by arguments concerning lotteries found in decisions from Massachusetts, California and Oregon. All three jurisdictions have adopted the monetary consideration test (that which can impoverish the individual who parts with it), as we believe the Kentucky courts would. As a result of this position, these jurisdictions determine the question of consideration from the standpoint of the participants in the scheme, and not from that of the promoter (s).
In
Mobil Oil Corporation v. Attorney General, 280 N.E. 2d 406 (1972), the Supreme Judicial Court of Massachusetts considered the following factors to be crucial in determining whether a game promotion was a lottery: (1) the game did not require the presence of any participant at any particular place; (2) no purchase was required; and (3) those making purchases gained no advantage whatsoever over those who received their game pieces without making any purchases. That court went on to hold that a service station's promotional scheme, for which chances could be freely acquired, was not a lottery. The Supreme Court of Oregon held that a supermarket scheme, requiring only that participants come to the store to register, was not a lottery.
Cudd v. Aschenbrenner, 377 P.2d 150 (1962). The court observed that in order to participate in the drawings it was not necessary for anyone to spend any money to enter.
And, in California Gasoline Retailers v. Regal Petroleum Corporation of Fresno, 330 P.2d 778 (1958), the California Supreme Court noted that purchasers cannot be said to have paid a consideration for the chance to participate if they could have done so free of charge.
In
Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284, 74 S. Ct. 593, 98 L. Ed. 699 (1954), the United States Supreme Court could not find the consideration necessary for a radio giveaway show to attain "lottery" status. The Court observed that:
"[T]o be eligible for a prize on the 'giveaway' programs involved here, not a single home contestant is required to purchase anything or pay an admission price or leave his home to visit the promoter's place of business; the only effort required for participation is listening." (Emphasis added.) 347 U.S. 294.
Applying the above analysis to the situation as described by you leads us to conclude that the Pepsi-Cola contest is not a lottery because it involves a legitimate "flexible participation" promotional scheme. As long as the practical operation of the scheme allows anyone in the area to participate on a reasonably equal basis without the necessity of a purchase, the scheme is not a lottery. In making this determination, we would apply a stringent limitations test to see if what we are actually faced with is a "closed participation" promotional scheme, the "no purchase necessary" language notwithstanding.
We have already stated that if the only way to acquire the Pepsi caps was by purchasing the product, the situation would fall squarely within the ambit of Malco-Memphis, supra. However, the Pepsi bottlers have made it possible to acquire caps by two other ways -- by either calling a toll-free number, or by visiting one of eight bottling plants. Taken alone, the availability of the caps at the bottling plants (in addition to those which could be acquired via a purchase) would lead us to conclude that the promotional scheme was of the "closed participation" type, and thus illegal because of Malco-Memphis, supra. It would be difficult and impractical for one desirous of acquiring chances to play to travel to one of these plants to pick up their caps. Those wishing to enter the contest would, in effect, be forced to "pay to play" by going to their store and buying Pepsi products.
However, we believe that the availability of the toll-free number is the determinative factor in the present situation. Pepsi-Cola has provided the public with a alternative whereby anyone can participate in the contest on a reasonably equal basis without having to buy Pepsi soft drinks. Thus, the promotional scheme is not severely restricted, and it allows for meaningful participation by both purchasers and non-purchasers alike. Though technically "consideration" may be expended by Pepsi purchasers/ participants, the overall promotional scheme is not tainted with the characteristics of a lottery so as to necessitate its being banned as one. This fact situation is readily distinguishable from the one considered in OAG 61-489, copy attached. There the only alternate means of obtaining bottle caps was to find them in trash heaps or other such places. That situation does not present real opportunities for meaningful participation by non-purchasers.
The question as to what schemes are of lottery status is always a factual one. Under the facts and circumstances as presented by you, we do not see a problem with the lottery prohibition.
A note of caution should be stated here. While we feel that under the above-stated circumstances, the Pepsi-Cola scheme does not constitute a lottery, should this scheme not be advertised in the proper manner, there may be violations of the Consumer Protection Act, KRS 367.170. Case law and FTC trade guidelines clearly support our view that any advertisement of "no purchase necessary", without more, would in this situation be unfair and misleading by failure to disclose the other alternatives for obtaining bottle caps and participating in this scheme. Therefore, any advertisement of such a scheme must include all of the alternatives for participation in the scheme.