The Master Settlement Agreement (abbreviated as the MSA, and sometimes referred to as the Multistate Settlement Agreement) is a 1998 legal document in which the biggest tobacco companies in the US agreed to financially compensate the governments of 46 states for the cost of healthcare and other state services provided to smokers with lung cancer, emphysema, and other smoking-related illnesses. The MSA also details exactly where, how, and to whom the tobacco industry may advertise their wares.

In 1994, a Florida jury awarded $200 billion in a class action lawsuit filed against the tobacco industry on the behalf of smokers in that state. Although this suit was certainly not the first attempt to hold the tobacco companies liable for their dangerous products, it was the first case to succeed on such an unprecedented scale. Shortly thereafter, having discovered that the deep pockets of Big Tobacco can indeed be tapped, the governments of all 50 states filed separate civil suits against the industry in an effort to recoup Medicare and Medicaid funds spent on diseased smokers.

Big Tobacco justifiably feared that if any of these cases ever made it into a courtroom, it would mean more massive payouts along the lines of the Florida lawsuit. Therefore, the various companies put together a coalition of lawyers to attempt to negotiate out-of-court settlements in each case. After settling separately with the states of Florida, Minnesota, Mississippi, and Texas to the tune of several tens of billions of dollars, the tobacco industry, working with the attorney generals of the remaining states (through the National Association of Attorneys General or NAAG), drafted the MSA, which went into effect on November 23, 1998.

The Players

The plaintiffs named in the agreement are all of the states in the US excluding the four mentioned above, as well as five US territories (specifically American Samoa, the Northern Marianas, Puerto Rico, the US Virgin Islands, and the District of Columbia, which technically isn't a territory, but neither is it a state). The original defendants (called "participating manufacturers" in the text of the document) are Philip Morris, R.J. Reynolds, Brown & Williamson, and Lorillard. The Liggett Group later added themselves to the list of participating manufacturers.

It is important to note that the original scope of the MSA is specifically limited to the manufacture and marketing of cigarettes or loose tobacco that can reasonably be used to roll cigarettes. For this reason, the document is unofficially known as the Cigarette MSA to differentiate it from a separate agreement signed in 1999, the Smokeless Tobacco Master Settlement Agreement.

Monetary Compensation

Immediately following the signing of the MSA, the tobacco industry had to pay $2.5 billion to an escrow agent, with the responsibility for the sum divided among the tobacco companies according to each company's market share. The escrow agent then disbursed the funds to the state governments, dividing up the payoffs according to the population size of each state.

For every year thereafter, the tobacco industry has to pay gradually increasing amounts, using the same setup with the escrow agent as the means of disbursing the money. In 1999, the sum was $2.7 billion, in 2000 it was $4.5 billion, in 2001 it was $5 billion, in 2002 and 2003 $6.5 billion, and then the payment amount is set at $8 billion annually, subject to adjustment for inflation, interest, and other market factors. The MSA also dictates the payment of sundry smaller (in this context, meaning less than $1 billion apiece) fees and fines, mostly for the states' legal costs. In theory, these payments will continue into perpetuity, but for practical matters, most legal analysts limit the active time period of the agreement to 25 years. Using the 25 year model, Big Tobacco will pay upwards of $200 billion as a result of the MSA.

These figures are not set in stone. One noteworthy provision of the MSA is the Non-Participating Manufacturer Adjustment, a concession to the tobacco industry. The manufacturers who signed the agreement knew that they would have to hike prices to meet the required payments. The cigarette companies feared that this would open the door for other companies who had not signed the agreement to gobble up significant portions of the market by selling cheaper cigarettes. Thus, the Non-Participating Manufacturer Adjustment states that if any of the participating manufacturers can prove a significant loss in their market share due to competition with a non-participating manufacturer, the annual payments can be scaled down commensurate with the loss of profits. This clause of the MSA does not set a bottom limit on the reduction of payments, so it is possible that the annual payments could be eliminated altogether, but only if the named defendants universally declare bankruptcy due to outside competition.

As to the ways that the states use the funds, the MSA is remarkably silent. The document makes use of some rather ambiguous language regarding improving public health and funding smoking cessation programs and anti-smoking education, but there are no specific requirements as to the use of the money. In recent years, this has caused much controversy as many of the states have spent only a small fraction of the settlement money on anti-tobacco programs, using the remainder as a sort of legalized slush fund to cover budget deficits in other areas.

Advertising Restrictions

Advertising to Minors

As much as tobacco prohibitionists hate to hear it, cigarettes are currently legal in the United States, and adult Americans have the right to smoke or not to smoke as they see fit. Thus, the MSA is carefully worded to avoid treading on this personal freedom - the bulk of the document concentrates on underage smoking and the prevention thereof, as it is illegal to sell cigarettes to anyone under the age of 18 in almost all states.

With this in mind, it is not surprising that the first section of the MSA (after all the legal definitions and whatnot) addresses the problem of tobacco advertising that specifically and blatantly targets minors. Studies have shown an amazing trend towards brand loyalty regarding cigarettes; the majority of adult smokers will continue to buy the brand they first started smoking, regardless of the amount or intensity of advertisements that are thrown at them. As a result, much of the advertising produced by the tobacco companies is geared towards younger potential smokers who have not yet selected a brand. The empirical evidence proves the success of such an approach - 88% of smokers under the age of 18 smoke Marlboro, Camel, or Newport cigarettes, which are by far and away the three most heavily advertised brands in the US (in contrast, approximately 40% of smokers over the age of 18 smoke these three brands).

The MSA says little about what constitutes youth-targeted advertising, relying on the broad definition that "the primary purpose of which is to initiate, maintain or increase the incidence of Youth smoking." There is, however, one extremely specific restriction regarding such advertising - the use of cartoons. The so-called "cartoon clause" was in response to R.J. Reynolds mascot Joe Camel. Cartoon Joe, with his hip leather jacket, sharp skills at the pool table, fanatic devotion to hard rock, and the admittedly phallic stylings of his nose (although that can't be blamed altogether on the ad execs - camel noses are somewhat phallic-looking anyway), was carefully designed to appeal to pubescent potential smokers. An internal R.J. Reynolds memo confirmed that the company intended Joe Camel to increase sales among the 14-18 year old demographic, known as FUBYAS in the company's documents (it stands for "First Usual Brand Young Adult Smokers").

Outdoors Advertising

The MSA prohibits outdoor cigarette advertising, defined as billboards, transit advertising (such as on the sides of buses or the tops of taxicabs), and any signs or placards located in arenas, stadiums, shopping malls, and video arcades. All such advertising had to either be removed within 150 days after the MSA was signed, or replaced with suitable alternative advertising that discouraged the use of tobacco products by underaged persons.

There are some exceptions to the ban on outdoor advertising. Establishments that cater exclusively to adult clientele (e.g. bars) are allowed to display tobacco advertisements outdoors, but only if the ads are placed in such a manner as to not be visible to anyone outside of said establishment. Cigarette advertisements related to adult-only events may be displayed outdoors for up to two weeks prior to the event. Outdoor advertisements at retail establishments that sell cigarettes, referred to as "point of sale" advertising, are allowed. Advertising that is located outside of tobacco manufacturing facilities is also excluded from the ban. Finally, and most importantly, there is no restriction on indoor advertising at all, unless the advertisement is affixed to the inside of a window, but faces outwards.

Brand Name Sponsorship

Brand name sponsorship had long been used to circumvent the existing ban on advertising cigarettes on television. A tobacco company could sponsor a televised event and thereby have the brand name of their product mentioned several hundred times during a broadcast, without ever explicitly airing a cigarette ad. The MSA greatly curtailed this practice.

Under the terms of the MSA, cigarette brand name sponsorship is expressly prohibited for concerts, events at which minors constitute a significant percentage of the audience, events at which performers or contestants may be minors, and athletic events or teams related to the sports of football, basketball, baseball, soccer, or hockey. Also, in light of the recent overwhelming trend of renaming athletic venues after products or businesses (as a small example, there's the FedEx Field, MCI Center, and PSINet Stadium all within an hour's drive of my house), the tobacco companies are prohibited from allowing their brand name to be used as part of a stadium name.

This is not to say that all brand name sponsorship is now taboo. Tobacco companies are allowed to sponsor one event every twelve months, as long as that event is not included among those listed above (auto racing is a glaring omission from the list, undoubtedly because of the popularity of the Winston Cup and other races that have cigarette brand name sponsors). Also, Brown & Williamson is allowed to hold either the GPC Country Music Festival or the Kool Jazz Festival as their annual sponsored event, even though these are concerts and would otherwise be prohibited. Finally, there are no restrictions on corporate sponsorship. This means that while you'll never see "The Marlboro Junior Spelling Bee," something like "The Philip Morris Junior Spelling Bee" is perfectly acceptable. The restrictions apply specifically to the use of the cigarette brand name, not the tobacco company's name.

Youth Access Restrictions and Enforcement

Promotional Giveaways

The creators of the MSA made a concerted effort to plug any loopholes in the advertising restrictions that might be exploited by Big Tobacco. One such potential loophole is the use of promotional materials that target minors but do not technically qualify as advertising.

First, and most obvious, the tobacco companies are prohibited from distributing free samples of tobacco products in any location that might be frequented by minors. Secondly, the tobacco industry may not put a cigarette brand name on any apparel, key chains, or other non-tobacco products that may be available to youths (a practice that ran rampant before the MSA - I still have a Marlboro bottle opener that I received as a freebie at a gas station when I was 16). This restriction on non-tobacco products also applies to products marketed via direct mail or catalog. Both Philip Morris and R.J. Reynolds had engaged in such marketing (through their Marlboro Miles and Camel Cash programs, respectively), where they offered catalogs brimming with merchandise emblazoned with cigarette brand names and logos in exchange for proofs of purchase from packs of cigarettes.

Point of Sale and Prevention Programs

As part of the MSA, the tobacco industry was required to "promulgate or reaffirm corporate principles that express and explain its commitment to comply with the provisions of this Agreement and the reduction of use of Tobacco Products by Youth." What does this mean, exactly? Not much.

Other than the advertising restrictions, the MSA makes precious little provision for exactly how the tobacco companies are to demonstrate their newfound commitment to stopping underage smoking. First of all, the MSA prohibits the sale of any tobacco product that contains less than 20 cigarettes or 0.6 ounces of tobacco, as presumably such small, relatively cheap packages would be more attractive to cash-strapped youths. Secondly, each tobacco company is required to appoint an executive level manager to "identify methods to reduce Youth access to, and consumption of, Tobacco Products."

Other than that, the MSA requires diddly from the tobacco companies regarding underage smoking prevention, but makes a few vague suggestions as to anti-smoking education and stricter enforcement of age restrictions at the point of sale. Some of the tobacco companies have followed the advice in the interest of public relations (such as Philip Morris with their new "We Card" program), but they are not explicitly required to do so.

Interestingly, the MSA says absolutely nothing about point-of-sale methods that make the age restriction difficult or even impossible to enforce, such as cigarette vending machines.

Lobbying Restrictions

Anti-Tobacco Legislation

Lobbyists. No one likes them. They always seem to bear the brunt of public ire whenever a policy decision goes awry. However, to a certain extent, the practice of lobbying and the existence of lobby groups are protected by the US Constitution. Thus, the greater part of the MSA section dealing with lobbying restrictions actually defends lobbyists and the tobacco industry's right to lobby for or against various legislative items.

Like much of the MSA, lobbying restrictions are based on underage smoking. Basically, the tobacco companies are allowed to "oppose, or cause to be opposed (including through any third party or Affiliate)" almost any legislation they dislike, with the exception of laws designed to reduce minors' access to or consumption of tobacco. Additionally, tobacco companies may not lobby against the MSA itself or try to influence the distribution of funds resulting from the MSA. Finally, participating manufacturers are required to fully disclose all payments made to lobby groups.

Special Interest Groups

The MSA may not be able to prevent the tobacco industry from lobbying in general, but the agreement does call for the disbandment of several special interest groups, namely The Tobacco Institute, The Council for Tobacco Research, and The Center for Indoor Air Research. These groups were non-profit organizations that ostensibly conducted "independent" tobacco-related research. In fact, all three groups were funded exclusively by Big Tobacco, and existed for all practical purposes as lobby groups that were far more involved in politics than science, though they occasionally released misleading study results when it served their purposes (such as the Council for Tobacco Research's claims that "there is little causal evidence linking smoking tobacco to disease" and their massive amounts of research attempting to isolate some "third factor" that caused both lung cancer and the propensity to smoke that would explain the statistical correlation).

A National Foundation

The MSA calls for the establishment of a national non-profit organization to "support the study of and programs to reduce Youth Tobacco Product usage ... and the study of and educational programs to prevent diseases associated with the use of Tobacco Products." This foundation was to be created and initially managed by NAAG until an 11 member board of directors could be formed. Two of the members would come from NAAG, two from the National Governors' Association, and two from the National Conference of State Legislatures. These six directors would appoint the remaining five. In addition to all of the other monetary stipulations in the MSA, the tobacco companies were required to pay roughly $300 million a year for ten years to fund this foundation's operating costs.

Since the MSA went into effect, the national foundation is up and running under the name American Legacy Foundation. According to their website, the foundation's declared goal is "creating tobacco-free generations" by curbing underage smoking, decreasing the nonsmoking public's exposure to secondhand smoke, and increasing the success rate of current smokers who try to quit. The organization attempts to achieve these goals mostly through grant awards for education and research, and anti-tobacco marketing (in other words, by throwing money at the problem. Of course, this may be a valid tactic seeing as it was the method the tobacco companies used to create "tobacco-saturated generations" in the first place). The American Legacy Foundation's most visible work is The Truth campaign, a series of slick, aggressively marketed public service announcements.

Odds and Ends

Over the years, Big Tobacco has engaged in some shady practices when marketing their cigarettes (although, to be fair, marketing and advertising can be a rather underhanded business to begin with), and the MSA includes various small clauses that address some of the ways that might be used to circumvent some of the advertising restrictions.

Tobacco companies may not inhibit the display of anti-tobacco advertising (it used to be common practice for the tobacco industry to prohibit any store or venue that displays their cigarette advertisements from displaying anti-smoking ads). They may not pay any public persona or member of the media to be a spokesperson for their cigarettes, nor may they pay any movie or television production company for product placement. They can not sell the rights to use their cigarette brand names to any third party, nor can they use any brand names of non-tobacco products in conjunction with the cigarette brand names.

Note: The text of the MSA is long, excruciatingly dry, and filled with boring legalese. Therefore, I have attempted to address only the salient points of the document, while neglecting several hundred pages of chaff relating to the specifics of enforcing the agreement and providing the names and addresses of every individual who had ever been involved in this particular legal battle at any given time. For the curious, the full text of the MSA and its amendments can be found at: http://www.naag.org/tobac/cigmsa.rtf

Sources:
http://www.naag.org
http://www.tobacco.neu.edu/msa/
http://monitoringthefuture.org/pubs/occpapers/occ45.pdf
http://www.cdc.gov/mmwr/preview/mmwrhtml/00016275.htm
http://www.washingtonpost.com/wp-srv/national/longterm/tobacco/stories/memos1.htm
http://www.tobaccoinstitute.com/
http://www.prwatch.org/improp/ctr.html
http://www.americanlegacy.org