BEVERAGE ALCOHOL MANUFACTURERS - TO BE OR NOT TO BE... A "SPONSOR"
© 2002 By Jacob P. Bryniczka & Russell S. Ferguson
Beverage alcohol is one of the most highly regulated industries in today’s consumer marketplace. Not only do manufacturers have to comply with the federal "tied house" regulations, but also each state’s own alcohol regulations. While the principle behind state regulations is fundamentally the same, the language used in each state’s regulations are by no means mirror images of one another. The result is essentially 52 sets of alcohol regulations (federal, 50 states and the District of Columbia), as well as 52 sets of penalties that a manufacturer may incur if cited for an infraction of any particular regulation. As with many penal regulations, the severity of the penalty imposed on a manufacturer depends upon many contributing factors. These factors include, but are not limited to, the egregiousness of the infraction, the effort by the manufacturer to comply with the applicable regulation(s) and the perceived harm to the general public. Penalties could include: "letters of reprimand," monetary fines, temporary suspensions or even revocation of a manufacturer’s license to sell in a particular state. Despite the seemingly burdensome task of complying with the federal and state alcohol regulations, the cost associated with the extra effort required at the program planning stage is much less than the penalties that may be imposed for failure to execute a program correctly. Determining whether a beverage alcohol manufacturer is, in fact, a "sponsor" of a promotional program (i.e., sweepstakes, skill contest, etc.) is a key concern at the planning stage.
In all promotions (not just those involving beverage alcohol), identifying who is actually a "sponsor" is important for many reasons. Federal and state laws governing advertising and promotions place special responsibilities on the shoulders of the "sponsor." The sponsor’s responsibilities vary by type of promotion (e.g., chance, skill, rebate, coupon, etc.) and by the type of product being promoted. Confusion as to which company is the "Sponsor" can occur when two or more companies are named in advertising or promotional materials (or on a website) and it is unclear which of the companies is a "Sponsor" as opposed to an "Advertiser" (e.g., enter the sports network sweepstakes presented by XXX Vodka). Prospective sponsors must always keep in mind that, along with the perceived value of being a promotion sponsor come the responsibilities for full legal compliance and fair treatment of consumers who participate in the promotion. As a result, promotion "sponsors" are the natural targets of governmental regulators, consumer complaints and even consumer lawsuits (reference McDonald’s recent legal battles over its instant win game).
The definition of "sponsor" which is commonly used by alcohol beverage commissions (ABCs) is similar, but often broader in application, than the definition used where other non-alcohol products are involved. When a beverage alcohol manufacturer is sponsoring (either directly or indirectly) a game, contest or other promotion, the manufacturer must seek prior approvals from many of the state ABCs, exclude certain states (e.g., one state prohibits beverage alcohol manufacturers from sponsoring skill contests), and adopt special rules or terms/conditions depending on the type of promotion being "sponsored" (e.g., one state requires that manufacturers, retailers or wholesalers and their employees be prohibited from participating in "self-liquidating offers" ( such as the purchase of manufacturer logoed products – shirts, hats, coolers, etc. in exchange for cash)).
In our experience, the following tests/criteria can be used to determine whether a beer/alcohol manufacturer should be classified as the "Sponsor" of a promotion:
a. Is the manufacturer named as a "sponsor" in the rules/terms and conditions?
b. Does the manufacturer control, participate in, administer, or fulfill the promotion in any way (e.g., by drafting rules, selecting the winner, judging entries, carrying it on pack or funding the redemption)?
c. With the advent of Internet run programs, does the manufacturer own the host website?
d. Does the manufacturer directly or indirectly (through an agent) provide or pay for prizes or services needed for the promotion?
e. Do related advertisements or actual promotion materials clearly state or imply that the manufacturer is actively involved in running the promotion as a "co-sponsor"?
f. If the promotion is on radio, TV or the Internet, do the announcements and written copy or materials fail to disclose that the manufacturer is not a "sponsor" of the promotion, but merely an "advertiser"?
g. Despite any disclaimers, would the facts surrounding a promotion show that a manufacturer was actually actively involved in key elements? This includes what goes on "behind the scenes". Beverage alcohol manufacturers must always keep in mind that the tied-house regulations address direct and indirect involvement of the manufacturer. A manufacturer that pays a third party to act as its agent has not absolved itself of compliance with alcohol regulatory compliance.
If the answer to any of the above questions is "yes," there is an argument that the alcohol manufacturer would have to be classified as a "sponsor" and subjected to any and all ABC regulations as well as to the general federal and state laws related to promotions and sponsorships. The more times the above questions are answered with a "yes", the stronger this argument becomes. Conversely, the more times the answer is "no", the stronger the argument that the alcohol manufacturer is not a sponsor and is thus not subject to all of the regulatory limitations imposed by federal and state alcohol beverage control laws. If an alcohol beverage manufacturer receives heavy and significant exposure in a promotion offered by another company which does not otherwise produce or sell alcohol, regulators might attempt to treat the manufacturer as a sponsor, hence bringing the promotion under the control of the alcohol regulations. Should a regulator decide that an alcohol manufacturer is a sponsor (not just an "advertiser"), it will be left to the alcohol manufacturer to convince the ABC otherwise.
As has been noted above, sponsorship of a game, contest or other promotion by a beverage alcohol manufacturer carries with it regulatory compliance and liability issues not otherwise applicable to non-beverage alcohol programs. Do to the restrictive nature of federal and state alcohol regulations, manufacturers may be advised to seek the role of "advertiser" instead of "sponsor" if the specific facts surrounding a given program lend themselves to such a classification. In the event a beverage alcohol manufacturer cannot avoid being classified as a program "sponsor", experienced legal counsel should be consulted at the program’s planning stage in order to ensure compliance with the myriad of beverage alcohol specific marketing regulations.
AUTHORS’ NOTE: Over the past decade, Wake See Dimes, Bryniczka, Day & Bloom has had significant involvement with promotion and marketing programs that are sponsored by beverage alcohol manufacturers. Firm members regularly communicate with state ABC regulators and consequently are in a unique position to advise clients about current enforcement practices and policies. DUE TO THE EVER CHANGING ENFORCMENT AND REGULATORY CLIMATE, IT IS IMPORTANT TO NOTE THAT THE INFORMATION CONTAINED HEREIN, INLCUDING THE TESTS NOTED ABOVE, ARE BY NO MEANS EXHAUSTIVE AND SHOULD NOT BE USED IN LIEU OF EXPERIENCED LEGAL REVIEW OF A SPECIFIC PROGRAM.
