Don’t know how it works in the US, but I imagine its the same way this sort of thing happens in the UK. These companies very rarely pay out the sums mentioned, and it works like this…
The company will create a large mailing file from their database, or from bought-in data. These are typically about fairly large files (probably 1 million+ people). Then, a person is randomly selected from the file, and designated the winner (normally, this is done under fairly tight security. We used to have a lawyercome in to actually make the selection).
Then, the job is run, and all those people are sent the letter. However, this type of mailing is a known as a ‘scattergun’ mailing, meaning that the people in the data are randomly selected. Most mailings these days are ‘targetted’, ie they will profile the people in the database based on a huge variety of factors (age, location, buying history, household income etc etc), and tailor the offer and message based on your demographic. There is a huge amount of demographic information about individuals commercially available these days.
A properly targetted mailing will get a response rate of around 10%. However, a scattergun mailshot has a response of less than 1%.
So, the chances of the designated winner actually contacting the company to claim their prize are 100-1, and those are pretty good odds that they won’t have to pay out. Because it is so rare that they do, they will take out insurance on the mailing before they send it, so in the unlikely event that the winner does get in touch, the insurers will have to fork out.
Apologies for not adding the link. Don’t think I’ve posted on this board before, but Cecil has stumbled onto a subject that I actually knew something about
Many sweepstakes do work as the OP suggests – if the winning entry is not returned, nobody wins that big prize.
Other, more honest ones, if the winning entry is not returned, hold a 2nd drawing from those that were returned. In those, someone always wins the big prize.
And as svd678 says, often winners will choose cash rather than the big prize. Generally winners are given the choice of the prize itself, or its’ cash value. If the prize is a $100,000 limo, and the winner already has a car, they may prefer the cash. Especially as if they take the car, they have to come up with about $20,000 cash to pay the income tax on that.
Though if they take the cash instead, often it is not the full $100,000 value of the prize, but the wholesale price – so maybe $75,000 instead of $100,000. And the IRS will immediately withhold a share of that, toward their income tax. So the person may actually get only a $60,000 check. Still quite a windfall.