Copyright 1999 Times Publishing Company
St.
Petersburg Times
October 30, 1999, Saturday, 0 South Pinellas
Edition
SECTION: NATIONAL; Pg. 1A
LENGTH: 816 words
HEADLINE:
Sweepstakes settlement expected
BYLINE: PAUL WILBORN
BODY:
American Family Publishers' filing
for bankruptcy is said to be a step toward settling a federal class
action lawsuit.
Facing plummeting sales, dozens of lawsuits and
reform legislation in Congress, sweepstakes giant American
Family Publishers petitioned for bankruptcy protection Friday.
The
filing comes just days before an expected settlement of a federal class action
lawsuit alleging deceptive advertising practices in the sweepstakes plugged by
television stars Ed McMahon and Dick Clark.
"We're hoping in the next
week we'll be able to announce a settlement," said Rich Tauberman, a
spokesman for the Jersey City company. He declined to disclose what the terms
might be. Tampa lawyer Guy Burns, a lead counsel for the plaintiffs in the suit
against American Family, said the bankruptcy filing will not affect the class
action agreement.
"It is being used to help achieve the
settlement," Burns said.
While declining to discuss the terms,
Burns said the settlement reached in federal court in New Jersey would include a
package of sweepstakes reforms.
The company already had promised to
reform some of its advertising and marketing practices as part of prior
settlements with 40 states and the District of Columbia. Those settlements
included some $ 6.9-million in penalty payments.
American Family's
troubles started in the fall of 1997 when a series of stories in the St.
Petersburg Times told of customers, many of them elderly, flying to Tampa to
claim sweepstakes prizes they had not actually won.
Others spent
thousands of dollars on magazines and other products, thinking such purchases
would increase their chances of winning.
Sweepstakes entries were
processed by Time Customer Service, a Tampa-based company that is owned by Time
Warner, which also owns a major share of American Family Publishers. Sweepstakes
mailouts carried a Tampa return address.
Burns filed the first federal
class action lawsuit against the company on Jan. 20, 1998. Days later, the
Florida Attorney General's Office also sued the company.
Other states
followed Florida's lead and some 30 private lawsuits were also filed.
Burns credited the Times with bringing the company's practices to light.
"As a result of your investigative stories, Tampa became ground zero for
these cases," he said.
One American Family customer profiled in the
Times articles was Richard Lusk, an 88-year-old California man who spent much of
his retirement savings on magazines and who twice flew to Tampa hoping to claim
a prize he hadn't won.
Lusk's son, Bill, said he was gratified by the
news of the bankruptcy and the proposed settlement.
"When they couldn't
do business in a way that disadvantaged the customers, their profitability
suffered," Lusk said. "Which points up the moral issue involved here - if
you break trust with your customers eventually it will hit you."
The
company said the Chapter 11 reorganization would not affect its sweepstakes or
magazine subscription operations.
The company's next drawings, for $
1-million on Nov. 24 and for $ 10-million on Jan. 31, still are scheduled, all
entries are valid and all prizes will be awarded, said Susan Caughman, president
and chief executive officer.
She said all of the prizes for its contests
"have been prefunded and are held in trust by federally insured independent
financial institutions until the award date."
"No prize winners have
been affected. People can still buy magazines. There is no impact for
consumers," Tauberman said.
The privately held company said it
filed for bankruptcy "to resolve its pending litigation, strategically
restructure its finances and operations, and to enable it to compete
successfully over the long term."
Figures on assets and liabilities, and
its largest creditors, were not available, Tauberman said.
The company
also said it had obtained funding to assist it through restructuring, but
Tauberman would not say how much.
It is clear the controversy and the
legal cases have hurt the company's bottom line.
According to a story in
the April issue of Advertising Age, American Family will lose at least $
30-million this year. The company had generated annual profits of $ 100-million
or more and had never lost money in its 25-year history.
American Family
Publishers is jointly owned by Time Warner and the Pritzker family, which owns
hotels and other businesses.
The bankruptcy filing and the proposed
settlement of the class action cases, comes as Congress is considering
legislation reforming industry practices.
The Senate, after a series of
critical hearings, voted 93-0 in August to put new restrictions on the
sweepstakes industry. The House has not yet acted on similar legislation.
Another major sweepstakes operator, Publishers Clearing House, has been
sued by nine states over its advertising.
- Information from the
Associated Press was used in this report.
LOAD-DATE: November 4, 1999
