ELIZABETH FARNSWORTH: Lee Hochberg of Oregon Public Television has the sweepstakes story.
SPOKESMAN: We're from Publishers Clearing House. You've just won $10 million.
GIRL: (Screams) No!
LEE HOCHBERG: They're apple pie American stories, average people winning direct mail sweepstakes and becoming millionaires.
WINNER: Oh, how exciting!
LEE HOCHBERG: Publishers Clearing House claims its Prize Patrol has given out $135 million in awards.
WINNER: I've won something.
WINNER: Oh, that's wonderful!
LEE HOCHBERG: But critics say sweepstakes are not wonderful; they're misleading and predatory. They say publishers, to pedal magazines and other merchandise, promise huge jackpots to customers, and while there have been a few big winners, most don't get a penny. Since 1997, 41 states have taken legal action against American Family Publishers, with celebrity pitchmen Ed MacMahon and Dick Clark, for deceptive advertising. Fourteen States sued Publishers Clearing House. The suits have been settled, with the companies agreeing to change their approach, but now attorneys general have filed new suits.
CHRISTINE GREGOIRE: The dreadful deceptions by these companies are tragically effective, and we contend they are illegal under Washington State law.
LEE HOCHBERG: Washington State Attorney General Christine Gregoire said sweepstakes seduce customers with "you are the winner" messages that don't clearly tell the odds.
CHRISTINE GREGOIRE: Take a look at this solicitation over here. "We are now authorized to pay $833,000 in cash." The companies make clear promises that consumers have won millions even though their odds are astronomical.
LEE HOCHBERG: The real chance of winning can be as low as one in 150 million. Richard Lusk didn't know that. He spent $1,700 to fly from California to Florida to try to collect the $11 million this letter from American Family seemed to promise him.
RICHARD LUSK: I knew it was a gamble. All these things are, but the way it was stated this time, I couldn't see how they can back out of it.
LEE HOCHBERG: Lusk's son called Florida police to try to find the elderly man. The Florida attorney general says almost 100 people have flown to the state, and, like Lusk, gone home empty-handed. Other victims spend thousands buying products, thinking it will help their chances. Though it's illegal to require a purchase to win, entering without buying often requires poring through hard-to-read, complex directions.
ROSE GROSS: My father just fell for it hook, line, and sinker.
LEE HOCHBERG: Rose Gross of Port Orchard, Washington, was astonished at what she found in her father's home recently after he moved into a nursing facility.
ROSE GROSS: This is the room that kind of blew me away.
LEE HOCHBERG: The home was stacked with piles of products her father had ordered and hundreds of sweepstakes solicitations.
LEE HOCHBERG: "Strike it rich prize announcement."
ROSE GROSS: "Final notice, last chance for cash prizes if you fail to respond."
LEE HOCHBERG: The fact that he had won nothing usually was in fine print. But the elderly man saw only the large print. Trying to cement his fortune, he bought and bought.
ROSE GROSS: This is just junk. It's just junk. A vanity tray -- why would he order a vanity tray? A powder brush.
LEE HOCHBERG: A powder brush?
ROSE GROSS: A powder brush. Something my father would use, I'm sure. A cover for your TV Guide.
LEE HOCHBERG: Gross estimates her father, on his meager retirement, spent up to $500 a month on these items, over 12 years, maybe $50,000. The state says there are hundreds of stories like this. The family of this 87-year-old Washington State man says he killed himself after falling deep into debt playing sweepstakes. Kelli Carson says her grandfather was a frugal, hard-working man who never went to Las Vegas, but spent $70,000 on sweepstakes. His garage was heaped to the ceiling with twice-a-day U.P.S. deliveries.
KELLI CARSON, Granddaughter: He wouldn't ask anybody for help, and I think he felt the only way out was for him to take his own life.
LEE HOCHBERG: American Family and Publishers Clearing House send some 400 million direct mail pieces per year. They send follow-up mailings to those who respond, making it seem they're getting closer to the prize. A first offer might announce imminent prize delivery. Another, like this one from American Family, tells recipients they're one of only two finalists.
This one has Spokesman McMahon and Clark warning recipients to reply fast or risk a deadly 10 percent per day late penalty. Washington State sued the two announcers for promoting what it said was illegal marketing. American Family refused to talk to us about its marketing. But Publishers Clearing House spokesman Christopher Irving says he doesn't see how his company's offers are misleading.
CHRISTOPHER IRVING, Publishers Clearing House: There is no way to know why consumers may be confused. Publisher's Clearing House is in the business to delight our customers, to make them happy, not confuse them.
LEE HOCHBERG: Critics say this mailing has confused many customers. It says the Prize Patrol will be at the customer's house at a specific time and date and the customer should call if unable to be there. Irving says customers know the odds of the Prize Patrol of actually showing up are low.
CHRISTOPHER IRVING: Any consumer has to read a mailing in its full context and in doing that, there will be no opportunity for that consumer to be confused.
LEE HOCHBERG: And he says consumers know buying merchandise doesn't help their chances. Three customers out of four enter his company's sweepstakes without purchasing anything. But both the Washington State and Wisconsin lawsuit said 30 percent of those who buy from Publishers Clearing House are over age 65 -- perhaps with failing eyesight or judgment. The states allege the company targets that vulnerable population, a claim Irving denies.
CHRISTOPHER IRVING: I do not think it's accurate to indicate that the senior citizen group as a whole is vulnerable or is more likely to be confused. They are a vibrant audience.
LEE HOCHBERG: "Congratulations from both of us." Flowery card. "Dear Patty" -- the states say these seemingly personal notes the company sends are especially manipulative of seniors. "So here's a chance to win a prize for special folks with true-blue ties to P.C. H. because you know we're proud to say we love you so. Fondly Dorothy. Best wishes, Dave."
CHRISTOPHER IRVING: What are the messages in that communication? You have a chance to win a prize. Absolutely true. Personalization is a way to communicate with consumers. Consumers understand that. They know what it is.
LEE HOCHBERG: "We love you so. Fondly Dorothy. Best wishes, Dave."
CHRISTOPHER IRVING: Like any marketer, we certainly are very happy with our customers. We very much love our customers. We're glad that they choose to patronize Publishers Clearing House. That is simple marketing, simple business.
LEE HOCHBERG: It is also big business. The magazine industry sells one-third of its new subscriptions through sweepstakes offers. That's key in driving up circulation figures, and in turn, advertising rates. The industry group, Magazine Publishers of America, says many magazines wouldn't survive without sweepstakes.
AD SPOKESMAN: If you won the lottery, would you quit your job?
LEE HOCHBERG: And some marketing experts say what sweepstakes do, promoting, getting rich quick, is no different than what 38 state governments, including Washington State, themselves do when they advertise their lottery.
AD SPOKESMAN: What's your dream?
LEE HOCHBERG: Elizabeth Stearns worked in direct marketing before joining the University of Washington Business School.
ELIZABETH STEARNS, University of Washington: Should they be sued? Not in that environment where the people doing the suing are conducting their own lotteries, making lots of money with equally at-risk populations.
LEE HOCHBERG: Still, state attorneys general and now Congress are demanding sweepstakes offers include a clear disclaimer that buying merchandise does not increase the chance of winning. Publishers Clearing House says it already has sent letters to 10,000 customers who spend more than $80 a month on products, reminding them no purchase is necessary to win.
ELIZABETH FARNSWORTH: Yesterday, the Senate passed legislation that would require sweepstakes sponsors to include "clear and conspicuous messages" telling customers that no purchase is necessary to enter or win. Violators could face up to $2 million in fines. A House committee is expected to hold hearings on sweepstakes regulation later this week.