Under the Influence with Terry O'Reilly - Johnny Wants the Jet: The Loopy World of Loopholes

Episode Date: April 15, 2023

There are some very interesting loopholes in the world of marketing.Because businesses are always looking for an upper hand in a competitive category, loopholes can offer legal advantages.A loophole can help a company overcome barriers in the marketplace. Sometimes, the way a product is marketed can give customers a loophole they can take advantage of.And sometimes a 20-year-old kid can spot a loophole that panics a giant corporation. Hosted on Acast. See acast.com/privacy for more information.

Hi, it's Terry O'Reilly. As you may know, we've been producing a lot of bonus episodes while under the influences on hiatus. They're called the Beatleology Interviews, where I talk to people who knew the Beatles, work with them, love them, and the authors who write about them. Well, the Beatleology Interviews have become a hit, so we are spinning it out to be a standalone podcast series. You've already heard conversations with people like actors Mark Hamill, Malcolm McDowell, and Beatles confidant Astrid Kershaw. But coming up, I talk to May Pang, who dated John Lennon in the mid-70s. I talk to double fantasy guitarist Earl Slick, Apple Records creative director John Kosh. I'll be talking to Jan Hayworth,

who designed the Sgt. Pepper album cover. Very cool. And I'll talk to singer Dion, who is one of only five people still alive who were on the Sgt. Pepper cover. And two of those people were Beatles. The stories they tell are amazing. So thank you for making this series such a success. And please, do me a favor, follow the Beatleology interviews on your podcast app. You don't even have to be a huge Beatles fan, you just have to love storytelling. Subscribe now and don't miss a single beat. This is an Apostrophe podcast production. You're so king in it.

Your teeth look whiter than no nose You're not you when you're hungry You're a good hand with all teeth You're under the influence with Terry O'Reilly. Roger Nielsen coached hockey for over 50 years. At one time or another, he was head coach of 10 different NHL teams. He was also one of the most innovative strategists in hockey history. Nielsen was the first to analyze video to pick apart opponents' weaknesses. He was the first coach to insist his players follow a fitness regime during the off-season

But more than anything, Roger Nielsen would pour over the rulebook constantly And he had a knack for spotting loopholes Before he broke into the NHL, Nielsen coached the Peterborough Peets in the OHL, and it was there he spotted a loophole when it came to penalty shots. Nowhere in the rulebook did it say that a goaltender had to be on the ice during a penalty shot. So, whenever a penalty shot was awarded to the other team, Nielsen would pull his goaltender and put a defenseman out there instead. His reasoning was that a defenseman could rush the shooter and check him one-on-one instead of letting

the opponent enjoy a breakaway against the goalie. His strategy worked. Every penalty shot against the Peets was thwarted by his defensemen. But the OHL finally put an end to that tactic and instigated a new rule stating a goalie must be in net for penalty shots. The NHL adopted the same rule shortly after. Whenever his team had two men in the penalty box in the last few minutes of a game, Roger Nielsen figured out a way to overcome a five-on-three disadvantage. He leveraged an existing rule that stated a team can never have less than three men on the ice at any given time. Knowing that, he would intentionally put too many men on the ice every 10 seconds.

He would inevitably get a penalty each time, but he knew that no matter how many penalties he got, his team would always have at least three men on the ice. But by disrupting the play every 10 seconds, he would kill the other team's momentum and run the clock out. So the OHL wrote a new rule. Intentionally putting too many men on the ice in the last two minutes of a game would result in a penalty shot. The NHL adopted the same rule shortly after. Nielsen exploited another loophole in the final minutes of a losing game. When the face-off was in the opposite end,

and he pulled his goaltender to put an extra attacker on the ice, Nielsen would tell his goalie to leave his stick directly in front of the net. That way, if a puck was shot from the other end, it would bounce off the stick, preventing a goal. There was no rule against it. The OHL put an end to that nifty trick pretty quickly, making the practice illegal. The NHL enacted the same rule not long after.

All of those changes had a big effect on hockey. Roger Nielsen, the innovator, didn't break the rules. He just had a talent for spotting loopholes. There are some very interesting loopholes in the world of marketing, too. Businesses are always looking for an upper hand in a competitive category, and loopholes sometimes offer legal advantages. Businesses are always looking for an upper hand in a competitive category, and loopholes sometimes offer legal advantages. A loophole can help a company overcome barriers in the marketplace. Sometimes, the way a product is marketed can give customers a loophole they can take advantage of.

And, as we'll see today, sometimes a 20-year-old kid can spot a loophole that panics a giant corporation. You're under the St. Louis Cardinals had a problem. He was about to serve a 15-month jail term for tax evasion and was forced to sell the baseball team. Not long after, he accepted a bid from Anheuser-Busch for $3.7 million. Sportsman's Park, where the Cardinals played, was shared with another baseball team called the St. Louis Browns, who actually owned the stadium. But the Browns organization couldn't afford upkeep on the aging building,

so it sold Sportsman's Park to Anheuser-Busch. The Browns then moved to Baltimore, where they became the Orioles, and the Cardinals now had the ballpark all to themselves. With all that settled, Anheuser-Busch changed the name of the building from Sportsman's Park to Budweiser Stadium, after its biggest selling beer. But the commissioner of Major League Baseball vetoed that decision, saying a ballpark could not be named after an alcohol product. That's when the brewery took advantage of a loophole. Anheuser-Busch changed the name of the ballpark to Busch Stadium.

Not long after, the brewery launched Bush Beer. Thus, instead of naming a ballpark after a beer, they named a beer after a ballpark. A few years ago, I toured the famous Motown Studios in Detroit. While on that tour, our guide told us a story of how founder Barry Gordy Jr. used a loophole to kickstart his legendary R&B record company. Before Motown was Motown, Gordy started Tamla Records in 1959, named after the Debbie Reynolds song, Tammy.

The first hit Tamla had was titled Money, That's What I Want by Barrett Strong. One year later, the label had its first million seller, courtesy of Smokey Robinson and the Miracles, called Shop Around. In 1961, the label landed its first number one record, Please Mr. Postman by the Marvelettes. Then the hits just kept on coming and coming, and that created a big problem. Radio stations in the early 60s shied away from playing too many records from one label.

It invited accusations of favoritism, and worse, payola, where record labels paid radio stations to play their songs, and a legal practice that prompted a congressional investigation. With all the new songs rolling out of Tamla records, Barry Gordy was having a difficult time getting them played on commercial radio.

He needed hits to generate revenue. So, he took advantage of a loophole. He created multiple labels. The original was Tamla, then came Motown Records, then Miracle Records,

then Gordy Records, then Melacle Records, then Gordy Records, then Melody Records, Divinity Records, VIP Records, Soul Records, and a dozen more. Each label had its own distinctive style and color scheme. That loophole eliminated the problem of reduced airplay and got Motown songs played on thousands of radio stations. From 1961 to 71, Motown had 110 records in the Billboard Top Ten, an incredible achievement for a small record label. Or should I say, labels. Speaking of music, the Michigan-based funk band Volpec wanted to go out on tour, and they wanted the admission to be free. Except they had one problem.

They didn't have enough money to mount a tour. Over the years, Volpec had released half a dozen albums on Spotify, but the revenue was minimal. For every song played on Spotify, the band only received about half a cent. At that rate, it would take a long time to generate

enough money to stage a free tour. That's when the band came up with an idea. In March of 2014, Vulpac decided to put out a new album on Spotify They titled it Sleepify It was a very quiet album The reason? All 10 tracks were silent Completely silent Then Vulpac released a video on YouTube explaining their idea.

I'm proposing that if you stream Sleepify on repeat while you sleep every night, we will be able to tour without charging admission. So if you stream the Vulpix album on repeat while you slept all night, you would generate a grand total of $4. But if enough people streamed Sleepify on repeat all night every night, the royalties would add up. As the band pointed out, Never in the history of music has it been so easy to support a band's tour. All you need to do is make your sleep productive. Each track on Sleepify was just 31 seconds long,

for a reason. Spotify requires a song to be played for at least 30 seconds to be registered as a play. It only took five minutes to stream all 10 tracks. If a fan slept for, say, seven hours and streamed the album all night, they'd generate $5.88 for Volpec. If a fan slept for, say, seven hours and streamed the album all night, they'd generate $5.88 for Volpec. If 100 fans did that, it would generate $588 for Volpec per night.

And if thousands of fans streamed the album on repeat every night, it could add up. After 10 days, Sleepify had racked up 1 million plays. Seven weeks later, the album had 5.5 million, which translated to over $20,000 in royalties. That's when Spotify

removed the album from its site. Spotify sent Volpec an email saying, while they thought Sleepify was clever and funny, it violated their terms of content. In response, Volpec posted a new album to Spotify. The title was Official Statement.

The first track was titled Hurt. It was a spoken word performance where the band read Spotify's email and said it was Hurt their Sleepify album had been removed. The second track was titled Reflect where the band said they wanted to take 31 seconds to reflect on the situation,

which was followed by 31 seconds of silence. Too funny. Because Spotify said Sleepify violated its terms, the band was unsure if they would receive any royalties. But Spotify did come through and sent Volpec a check for $20,000. The loophole had paid off. Which reminds me of the time a retired couple figured out a loophole in a lottery. Jerry and Marge Selby lived in a small town in Michigan. They ran a convenience store for 17 years, then retired. One day in 2003, Jerry walked into the store they used to own

and noticed a marketing brochure for a new state lottery called Windfall. He read it, and in less than three minutes, he spotted a loophole. Unlike other lotteries that keep building until there is a winner, once the windfall jackpot reached $5 million and no one had matched all six numbers to win, a roll-down would happen. That meant the money rolled down and was split between winners who matched just five, 4, or 3 numbers.

Jerry quickly calculated that if he spent $1,100 on 1,100 tickets, odds are he'd have one 4-number winner that would pay out $1,000 and at least 18 or 19 3-number winners that paid $900. That meant his $1,100 investment would yield a $1,900 return for a tidy profit of $800. 64-year-old Jerry Selby had a bachelor's degree in math

and he loved solving puzzles. But because the loophole logic was based on rudimentary arithmetic, he feared a lot of other people would figure it out too. But for the longest time, no one did. So Jerry decided to test his theory.

When a roll-down was announced, he purchased $3,600 in windfall tickets. Sorting through 3,600 tickets took hours, but he made a $2,700 profit. That confirmed his math. Next, he purchased $8,000

worth of tickets and nearly doubled his money. But he still hadn't told his wife Marge. One night, while sitting around a campfire, Jerry let Marge in on his secret. He was playing the lottery. He knew how to beat it.

He had a system. He had already won over five figures. Marge didn't react. Jerry told her he wasn't doing anything illegal. He was just playing the game the way it was meant to be played. Except he had found a loophole. Marge was all in.

As it turned out, roll-downs would happen every six weeks. He and Marge knew all the convenience store owners in the area, so they weren't bothered when the Selbys would stand at a lottery machine for hours on end, buying thousands of tickets. The strategy became so profitable, the Selbys invited their six grown children to participate. Then, Jerry created a corporation called GS Investment Strategies and sold shares for $500 apiece to friends and neighbors. After 12 weeks of big roll-down profits,

the windfall lottery was shut down due to declining ticket sales. But a friend alerted Jerry to another similar windfall lottery in Massachusetts, nearly 700 miles away. So the Selbys traveled to Massachusetts every time there was a roll-down, going as far as spending $720,000 on $2 lottery tickets. Then they would rent a motel room and go through each and every one of the 360,000 tickets looking for winning numbers. After nine years, the Selbys had grossed over $27 million in winning tickets,

for a net profit of $7.75 million before taxes. That's when a Boston newspaper started investigating locations where lottery tickets were being sold at an extraordinary volume. That triggered an investigation by the Inspector General. But as it turned out, the Selbys had been playing by the rules. The lottery had worked the way it was designed to work. The Selbys had just discovered a very lucrative legal loophole. Back in 1996, Pepsi launched a new promotion called Pepsi Points. Essentially, you could save Pepsi labels and redeem them for points. Those points could get you anything from a mountain bike to a baseball hat.

Then Pepsi put a lot of money behind this commercial. It begins with a young man wearing a Pepsi T-shirt. Words appear on the screen that say, T-shirt, 75 Pepsi points. Then the kid appears wearing a jacket, leather jacket, 1,450 Pepsi points. Then he walks outside and puts on sunglasses, shades, 175 Pepsi points. Introducing the new Pepsi Stuff catalog. Then the commercial shows a group of students in a classroom, and the shadow of a jet flies overhead.

Outside the school, a fighter jet lands on the grass. Now, the more Pepsi you drink, the more great stuff you're going to get. When the cockpit slides open, the kid we saw in the Pepsi t-shirt looks at the camera and says... Sure beats the bus. Words on the screen say, Harrier Fighter, 7 million Pepsi points. Drink Pepsi, get stuff.

One day, a 20-year-old named John Leonard saw the commercial on TV. He recorded it on his VCR and played it back over and over again. He couldn't believe what he saw. The Pepsi commercial had no fine print. No disclaimer. That meant you could actually get the Harrier jet if you could find a way to accumulate 7 million Pepsi points. He did some quick calculations.

His family would have to drink 190 Pepsis a day for 100 years. That wasn't going to work. The other way was to buy 16 million cans of Pepsi, which would cost over $4 million. Being a 20-year-old, he had no money. But he knew someone who did. John Leonard loved to climb mountains, and he had met a millionaire named Todd Hoffman on one of those climbs.

So he called Hoffman and pitched the idea. 16 million cans of Pepsi, it would take 600,000 cubic feet of storage space and 45 people to cart and stack it all. Cost? $4 million. But that $4 million would get you a Harrier jet worth $32 million. Hoffman was interested.

His first question was, is it legal to own a Harrier fighter jet? Leonard called the Pentagon and asked. He was told, yes, as long as the jet had no missiles. Next question. What if we start buying 16 million cans of Pepsi and the contest ends before we accumulate them all? What do we do with 16 million cans of Pepsi and the contest ends before we accumulate them all? What do we do with millions of cans of Pepsi?

The idea was just too insane. Hoffman was out. Not long after, John Leonard walked into a convenience store and saw a marketing display for the Pepsi promotion. He grabbed a Pepsi catalog and noticed some fine print. It said once you submitted labels totaling 15 Pepsi points, you could buy additional points for 10 cents each. That meant you could purchase 7 million Pepsi points for $700,000.

That was a lot less than $4 million. It was a major loophole. When he told Hoffman, Hoffman wrote a check for $700,008.50 and they sent it to Pepsi. Then they waited. And waited. One day, a letter finally arrived from Pepsi. It basically said, ha ha, the Harrier jet thing was a joke. Here's your check back and coupons for two cases

of Pepsi. Todd Hoffman took that letter to his law firm. The lawyers gathered in the boardroom and asked to see the commercial. They asked for it to be played again and again. There was no fine print, no disclaimer. So they drafted a letter to Pepsi saying, You made an offer. Your offer was accepted. We sent the check. Send us the jet. Otherwise, it was false advertising. Pepsi responded by suing John Leonard.

So Leonard and Hoffman sued them back. They knew Pepsi outgunned them in the legal department, but they had one powerful thing in their back pocket. They had the commercial. Pepsi then invited Leonard and Hoffman to New York to try and settle the issue. At that meeting, Pepsi wrote an offer on a piece of paper and slid it across the table. It was for $750,000. They were paying them to go away.

John Leonard and Todd Hoffman excused themselves to chat in the hall. When they came back, the lawyer said, So what do you think? Hoffman said, Johnny wants the jet. From that point on, it was a legal waiting game. Then Leonard's lawyer discovered Pepsi had run the Harrier jet commercial in Canada at the same time, but that ad carried a disclaimer.

Obviously, Pepsi had made a mistake by leaving it off the American version. Then, in 1998, three full years after John Leonard had first seen the commercial, the lawsuit finally went to court. The judge ruled in favor of Pepsi, stating a reasonable person wouldn't find the offer credible. After all the time and effort, John Leonard didn't get his Harrier jet. Over the years, the advertising agency took the brunt of the scorn for the commercial snafu. But in a Netflix documentary titled Pepsi Where's My Jet, the creative director on the Pepsi account, Michael Patti, revealed something.

He said when he first presented the commercial idea to Pepsi, he had written 700 million Pepsi points to get the jet. The Pepsi client said the 700 million line was too hard to read on screen. He insisted it be changed to 70 million. But then he thought 70 million was still too hard to read. So he had it changed to 7 million. It wasn't the advertising agency that got Pepsi in trouble after all. It was Pepsi itself.

It's remarkable to think that, with all the law firms, the lawyers, the impenetrable legal language, and the vetting, loopholes can still be missed. That's why when Jerry Selby first read the Windfall marketing brochure, he was convinced a lot of people would spot the same loophole. As he said, all it took was grade 6 math, yet people still missed it. In all of our stories today, marketing played a significant role. Whether it was the brochure that triggered the Selby's plan, or Anheuser-Busch short-stopping a rule to promote its beer,

Barry Gordy figuring out how to generate record sales, or Volpec using a video to leverage their fans to take a loophole for a loop. Then there was John Leonard and the Pepsi commercial. A 20-year-old kid who took on a major corporation and probably should have won that lawsuit. All of which proves one thing. It pays to read the fine print when you're under the influence.

I'm Terry O'Reilly. This episode was recorded in the Terrastream Mobile Recording Studio. Producer, Debbie O'Reilly. Sound Engineer, Jeff Devine. Research, Patrick James Aslan. Producer, Debbie O'Reilly. Sound engineer, Jeff Devine. Research, Patrick James Aslan. Under the influence theme by Ari Posner and Ian Lefevre.

Music provided by APM Music. Follow me on social at Terry O'Influence. This is Season 12. If you're enjoying this episode, you might also like The Risk in the Asterisk, Fine Print and Advertising Disclaimers, Season 8, Episode 23. You'll find it in our archives on your favorite podcast app. You can now find our podcast on the Apostrophe YouTube channel. And if you think too many ads in a show about advertising takes you for a loop. You can now listen ad-free on Amazon Music. See you next week.

Fun fact. When Wolfpack uploaded a response criticizing Spotify's decision, the band was able to make money off that, too.