The FCC recently released a Notice of Apparent Liability (“NAL”) for a forfeiture of $8,000 that should be a cautionary tale for other broadcast licensees that conduct contests for listeners or viewers.  This fine arose out of the station’s failure to conduct a contest in accordance with its announced terms, and specifically to make payment of a prize by the deadline which the station had established for itself.  The FCC found that this failure was a violation of its contest rules. 

Section 73.1216 of the FCC’s rules requires that broadcast licensees must fully and accurately disclose the material terms of any licensee-conducted contest and also must conduct such contests substantially as announced and advertised.  Included among “material terms” are not only eligibility restrictions and details as to how winners will be selected, but also the extent, nature, and value of prizes, which must be awarded promptly. 

In this case, Station KXOL-FM, Los Angeles, California, conducted a contest in 2019 which promised to award each winner a cash prize of $396.  KXOL-FM’s announced contest terms specified how and when winners would receive their prizes, with a self-imposed payment deadline of 30 business days after a winner had submitted all required documentation to the station.  One listener won the prize on October 24, 2019, and had turned in all of the required documentation by January 16, 2020, but the station did not award the prize until May 2021.  Although the FCC focused on this incident, it also indicated that KXOL-FM had admitted that payment of a large number of other prizes also was delayed. 

When asked to explain itself, KXOL-FM pointed to the beginning of the COVID-19 pandemic and inability to access files during the transition to work-from-home, a ransomware attack that disabled corporate IT systems from October 2020 until March 2021, and staffing shortages after the ransomware attack.  Unfortunately for the station, the payment deadline established by the contest terms was March 2, 2020, and the problems used as excuses all started after that.  No matter how compelling they may have been, they did not explain why the prize was not awarded when due.  That fact left the station with no reasonable explanation for what could only be described as undue delay in paying the prize.   

As a result, the FCC determined that a fine was warranted.  Fortunately for the licensee, the decision was made that a forfeiture would be assessed for only the one incident about which the full facts were known and not for the other, admitted prize payment delays.  Less fortunately, while the base fine for violation of the contest rules is $4,000, the FCC has proposed a fine double that amount because the licensee’s corporate parent is large and prosperous.  It is not clear why good business management increases culpability, but the FCC has long said that profitable businesses may expect increased fines so that such punishments create some pain and are not viewed as acceptable costs of doing business.   

The lessons from this case are that stations need to pay attention to the rules that they have established for contests, follow them carefully, and award the stated prize reasonably promptly.  Before announcing contest terms, a station should be confident that it can carry them out and has access to the prize described.  In particular, while a station should not unreasonably delay awards of prizes, it also should not set for itself too short a deadline because the licensee will be bound by its own rules.  Here, contest terms that allowed for a slightly longer period before payment was due might have made all the difference.  For this reason, stations would be advised to periodically review, and where warranted, update their contest rules.  If they have questions, they should consult with their counsel here at FHH.