Canada’s Competition Bureau recently announced that Manitoba-based Elkhorn Ranch & Resort Ltd. agreed to pay $170,000 to settle charges that it conducted misleading promotional contests. The company used the contests to promote its time share business and consumers were solicited for participation by phone, at trade shows, and at time share presentations.
The Competition Bureau found that Elkhorn Ranch & Resort failed to fairly disclose the accurate odds of winning, failed to ensure that winners were selected on a random basis, failed to disclose the number and value of prizes, and failed to disclose the end dates and drawing dates. Additionally, the Competition Bureau concluded that the company overstated the value of the grand prize in its contests.
For example, the company advertised that the grand prize was a new SUV, when the prize was actually a one or two-year lease on an SUV for which the contestant was required to pay a security deposit and pledge to return the SUV in “immaculate condition.” In addition, certain participants were contacted and told that they had won a prize, and although the advertising indicated that there was no obligation to do anything in order to claim a prize, the participants had to attend a sales presentation in order to find out the prize they won.
In addition to the $170,000 penalty, Elkhorn Ranch & Resort is required to publish corrective notices in newspapers and on its website and maintain a Corporate Compliance Program. The order also lays out specific requirements with which Elkhorn Ranch & Resort must comply. These requirements serve as useful reminders of some of the key aspects of contest and sweepstakes rules that can help ensure that promotional contests and sweepstakes are run legally and fairly. Specifically, the Consent Agreement requires that Elkhorn Ranch & Resort: i) fairly and adequately disclose age and income requirements; ii) award all contest prizes offered; iii) determine winners on the basis of skill or as the result of a random draw; iv) provide a fixed closing date; v) have contest rules accompany entry materials at all points of entry; and vi) indicate the true value and benefits of the prizes.
These materials have been prepared by Winston & Strawn for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.