Request By:
Hon Robert W. Willmott, Jr.
Attorney at Law
Suite 300
Security Trust Building
Lexington, Kentucky 40507
Opinion
Opinion By: Steven L. Beshear, Attorney General; Alan J. George, Assistant Attorney General
This is in response to your inquiry as to whether or not a planned promotional scheme by McDonald's Corporation would be considered a "lottery" and therefore in violation of Section 226 of the Constitution of Kentucky and Chapter 528 of the Kentucky Revised Statutes.
The mechanics of the promotional venture described by you are as follows:
1. With the purchase of each Big Mac sandwich, a customer would receive a poster of Ronald McDonald; attached to each poster would be one Sweepstakes Ticket.
2. The Sweepstakes Ticket would be of the "rub-off" variety. The customer would first rub-off a designated circle to determine the prize for which he or she would be playing. Then, from a group of five circles, the customer would rub-off any two circles. If these two circles matched, the customer would be a winner. If they did not match, or more than two circles were rubbed off, the customer would not win.
3. There would be no other way to obtain the poster or the Sweepstakes Ticket at the store level other than by the purchase of a Big Mac.
4. In the advertising of the promotional venture would be the address of a Post Office Box to which anyone (with no purchase whatsoever) could send their name and address, and receive, by return mail, a Sweepstakes Ticket.
5. Available in every store participating in the promotional venture would be a form which any customer (with no purchase whatsoever) could fill in with their name and address; this form would be picked up on a regular basis by the corporation and a Sweepstakes Ticket would be mailed to every person filling out the form.
6. The prizes to be won, as the result of a winning Sweepstakes Ticket, would be either cash or food or beverages.
7. McDonald's Corporation would be willing to return to each customer sending a request for a Sweepstakes Ticket by mail, a postage stamp to cover the cost of the customer's postage.
This office recently considered in detail a promotional plan not all that unlike the one contemplated by McDonald's. See OAG 81-146, copy attached. In that opinion we cited the cases wherein Kentucky's appellate courts have stated that the elements of a lottery, under Section 226 of the Kentucky Constitution, consist of a prize, an award thereof by chance, and consideration.
In the McDonald's promotional venture, prizes are to be awarded to persons upon the basis of chance. If it can be said that the public pays a consideration for the chance to win an award, then the McDonald's contest is a lottery.
We again refer you to OAG 81-146, supra. In that opinion we discussed
Commonwealth v. Malco-Memphis Theatres, 293 Ky. 531, 169 S.W.2d 596 (1943), which is probably the leading case on lottery law in Kentucky. We reiterate part of the discussion of Malco-Memphis in OAG 81-146, pages 2-3, as follows:
"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 or admission, the scheme is a lottery. ' (Emphasis added)."
Were Big Mac purchases the only means by which one could obtain the poster of Ronald McDonald and Sweepstakes Ticket, then Malco-Memphis would be directly on point, and there would be consideration in the form of payment for the sandwich. However, McDonald's has provided alternatives whereby Kentuckians could acquire sweepstakes tickets, freely and on a reasonably equal basis, and thereby compete without expending any consideration. As we concluded in OAG 81-146, 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. In support of our position, we cite you to
Mobil Oil Corporation v. Attorney General, 280 N.E. 2d 406 (1972);
Cudd v. Aschenbrenner, 377 P.2d 150 (1962);
California Gasoline Retailers v. Regal Petroleum Corporation of Fresno, 330 P.2d 778 (1958); and
Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284, 74 S. Ct. 593, 98 L. Ed. 699 (1954).
Again, as noted in OAG 81-146, if 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 Big Mac purchases were the only means to acquire sweepstakes tickets, the situation would fall squarely within the ambit of Malco-Memphis, supra. However, McDonald's has provided two other means by which these tickets may be acquired. If these are viable alternatives in that, for all practical purposes, one does not have to "pay to play", then this venture is not prohibited.
Anyone choosing to participate in the scheme could come to any participating McDonald's and fill out a form -- available to purchasers and non-purchasers alike -- and thereby qualify to receive a ticket through the mail. In and of itself, this appears to be a viable alternative. It allows for the same degree of participation by patrons of the establishment who purchase Big Macs as well as by non-patrons of McDonald's, who come by merely to register. In light of our belief that the Kentucky courts would adhere to a "pecuniary detriment" test of consideration, there can be no claim that one's traveling to McDonald's for purposes of registering involves any expenditure of consideration. Merely traveling to the place of business is insufficient to support a finding of consideration. See Cudd, supra. Therefore, this option alone removes the McDonald's scheme from "lottery" status.
McDonald's has also made available an address to which anyone can write and receive a free sweepstakes ticket. This is similar to the Pepsi toll-free number alternative in that one can participate, on a reasonably equal basis with Big Mac purchasers, without ever leaving home. This option, standing on its own, would also serve to remove the scheme from "lottery" status.
A sub-issue involved in this last option is the requirement that contestants utilizing it must pay postage. Whether this entails paying "consideration" is troublesome. Should McDonald's agree to return a postage stamp with the sweepstakes tickets, this question would not arise.
A note of caution should be stated here. While we feel that under the above-stated circumstances the McDonald's 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 sweepstakes tickets and participating in this scheme. Therefore, any advertisement of such a scheme must include all of the alternatives for participation in the scheme.