By Dietrich Knauth

NEW YORK, April 9 (Reuters) - Publishers Clearing House, the sweepstakes company known for showing up on prize winners' doorsteps with oversize checks, filed for bankruptcy protection in New York on Wednesday.

The company will use its bankruptcy to shed its legacy direct mail catalog marketing and magazine subscription businesses, so that it can strengthen its digital advertising and online gaming businesses. It will use its bankruptcy to explore a sale of its assets or find a business partner willing to fund a long-term business plan for its digital businesses, the company said.

Publishers Clearing House, which filed for bankruptcy in Manhattan, entered bankruptcy with $490,000 in cash and about $40 million in debts to employees, vendors, service providers and landlords after a years-long decline in its legacy direct mail marketing business.

The company's magazine and merchandise advertising business brought in $879 million in revenue in 2018, but it began suffering losses as consumers shifted to online shopping, a trend exacerbated by the COVID-19 pandemic, according to court filings. The company's rising costs for printing, mailing and TV advertising became unsustainable, leading the company to pull back from its direct mail marketing business.

Publishers Clearing House will continue to send big checks to sweepstakes winners during its bankruptcy, and it plans to name a winner of its weekly $10,000 sweepstakes later this week.

“Our world-renowned sweepstakes will continue to be a cornerstone of our experiences, and we intend to continue offering free-to-play entertainment and awarding prizes in the ordinary course of business during and after this process to uphold the historic legacy of Publishers Clearing House," CEO Andy Goldberg said in a Wednesday statement.

Publishers Clearing House largely exited its print marketing business by 2024, and it now earns revenue from digital advertising on free-to-play online games with a chance to win cash prizes, according to court documents.

The company has awarded over half a billion dollars in prizes since it was founded in 1953 by Harold and LuEsther Mertz and their daughter Joyce, according to bankruptcy court documents. The company has 105 employees and an annual gross revenue of about $38 million, according to court documents.

The company paid $18.5 million in 2023 to settle U.S. Federal Trade Commission allegations that it misled consumers about its contests. The FTC alleged that the company manipulated consumers into believing that they had to make a purchase to win or to have a better chance of winning games that were advertised as “free to win."

The company pays about $30,000 to prize winners each week, with approximately $1.8 million owed to recent prize winners. It also offers lifetime prizes, and it currently owes those prize winners about $26 million over the next 60 years, according to court documents.

It intends to fund its bankruptcy restructuring with a $5.5 million bankruptcy loan from lender Prestige Capital.

(Reporting by Dietrich Knauth)