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Scratch 'n' Scam 

Just how stupid does the Colorado State Lottery Commission think you are?

By Malcolm Howard

Carl (not his real name) said he never gave the Colorado Lottery's instant scratch games much thought until last summer, when a man walked into his convenience store and asked about the Lottery's instant scratch game Trucks and Bucks.

"He asked me how many trucks there were left," Carl recalled. "It never occurred to me that there wouldn't be any big prizes left. I mean it says it right on the ticket: 'Win a 4-x-4 truck.'"

What Carl discovered, when he called the Lottery Commission, was that there was one 4-x-4 truck still available. But his curiosity was piqued. So he asked about the status of other games.

What Carl found out -- and the Independent confirmed with its own two-month scratch-and-sniff operation -- enraged the store owner. If you play the scratchers, you probably have been duped more than once. Unknown to millions of Coloradans who play the Lottery's instant scratch games each year and despite numerous catchy slogans that suggest customers can win big prizes on instant-win scratch games, the prizes advertised are, in many cases, no longer available.

In fact, at least eight scratch games this year have been sold for days, weeks and, in some cases, months after the grand prizes were awarded. Five of these games -- High Stakes, Deuces Wild, $250,000 Bonus Quick Pick, Instant Monopoly and Lucky Stars, are currently being sold over retail counters throughout the state. Meanwhile, the games are marketed with slogans such as "Match Seven to Win $250,000" and "Win up to $25,000!"

"It's just plain wrong. The people who come into my store and buy tickets are not well-to-do," said Carl, who said he's afraid to give his real name because he thinks his license might be pulled for criticizing the agency.

"My customers are playing for a chance to win something that doesn't really exist. This is just messing with their dreams."

The Independent investigation also revealed:

The Lottery Commission is violating state laws that require the agency to print the odds of winning and average return on the dollar on promotional advertisements for lottery games, including scratch games.

Despite a mission statement that requires the lottery to use business practices "appropriate for a state agency," the Commission's practice of selling tickets after grand prizes are gone also may violate the letter and spirit of numerous state and federal regulations governing advertising and games of chance.


Scratch and sniff

Take the case of the scratch game High Stakes, modeled after a game of poker. Emblazoned on the front of the ticket in bold letters are the words "Win up to $25,000!"

Although High Stakes can still be spotted on retail shelves, the Lottery gave away the last of the guaranteed 12 grand prizes of $25,000 nearly two months ago -- on Oct. 14.

At that time, there were still about a half-million tickets to be sold to retailers, according to Lottery scratch-game manager Lee Burnett.

And sell it has. Lottery records show the state has, in fact, sold 475,500 of those $1 tickets to retailers after the final, guaranteed grand prize was awarded. And that figure doesn't include the thousands of tickets still sitting on store counters in the Lottery's roughly 2,800 retail outlets.

Meanwhile, High Stakes still offers prizes up o $1,000. But of the 19 second-prize tickets printed by the lottery, only two $1,000 jackpots remain unclaimed. Still, at press time, Lottery officials have not set an end date for the game.


Putting their cards on the table

When Lottery officials were first contacted for this story, they expressed surprise at the practice. After all, said Commission Chair Courtney Cowgill, Mark Zamarripa, the Lottery's executive director, has pulled games from retail shelves in the past when all the grand prizes have been awarded.

Indeed, Zamarripa did pull three games (Spin and Win, Spin and Win '97, and Cash for Life), in part because the grand prizes had been awarded. However, Lottery staff conceded that the grand prizes in those games were all pegged to a specific date on which grand prize winners got the chance to "spin" for a larger prize or take part in a drawing.

(Just before press time, Zamarripa ordered the recall of all Bonus Quick pick tickets not yet sold to retailers because the last of the game's top prizes were awarded.)

Meanwhile, the Lottery's media specialist, Todd Greco, said he knows of no other case in recent years in which a game was pulled due to grand-prize status.

Other Lottery workers point out that the commission had no control when, over the course of a particular game, the last grand prize is awarded. "Generally, what happens is that most of the inventory had already been activated before the last prize has been awarded," said Lottery scratch-game ticket manager Lee Burnett.

And the Lottery does make an attempt to space out winning tickets through the course of a game, said Jim Colver, vice president of marketing for Scientific Games Holding, the Georgia company that prints Colorado's scratch tickets. In short, tickets are printed in batches of about a quarter million. Each batch has some grand prizes, and those batches are released in stages.

But even that safeguard doesn't always work. In at least eight of the 20 or so games that have circulated this fall, tickets with slogans like "Win up to $10,000!" were sold after all the grand prizes were awarded.

Confronted at a Dec. 2 public Lottery Commission hearing in Denver, Lottery officials defended their advertising strategy. Because the words "up to" are printed in ticket slogans that say "Win up to $25,000" or "Win up to $1,000" on each scratch-game ticket, they feel they are not deceiving lottery-game players.

"That shows that there are prizes other than $25,000 to win," Greco said at the hearing. "Focus groups have told us that the players prefer and do like the top prize and would love a chance to win the top prize. But most realize that that is not the prize that they are playing for and are actually playing for mid-level prizes. And in most of these games, where top prizes [have already been] sold, there are still quite a few mid-level prizes out there."

But if consumers are not buying for a chance to play for the grand prize, why put it on the ticket? "It's informative," said Greco. "It just gives them more of a choice."

It's a line Lottery officials like to use. But there's a problem with the logic. The Independent has discovered at least 20 instances in promotional literature -- on automated vending machines, TV commercials, point-of-purchase displays and the Lottery Commission's Web page -- that entice consumers with images of big winnings but that do not use the words "up to." In some cases, the top prizes advertised for those games are no longer available.

The Web site, for example, markets the game High Stakes with the following: "Top Prize: $25,000" Ditto for Deuces Wild: "Top Prize: $10,000." Nowhere are the words "up to" used. Nor are there any disclaimers printed showing the number of winning tickets still available.

And in at least 10 cases over the last year, the words "up to" didn't even appear on the lottery tickets themselves. In at least two of those cases -- for which the Independent could obtain sales records -- the Lottery was hawking a grand prize that it could not guarantee existed.


Market research

To get a sense of how consumers see such advertising strategies, I ran my own "focus group" outside convenience and liquor stores on a series of December days and nights.

After showing customers a series of scratch-game tickets, I asked them how much they thought they could possibly win by playing the games. A vast majority answered that they thought they had a chance to win the amount stated on the ticket: $250,000, in the case on Bonus Quick Pick; $25,000, in the case of High Stakes; $1,000 in the case of Lucky Stars, etc.

When told that the grand prizes were already gone, 48-year-old Colorado Springs cab driver Richard Saylor was miffed. "It's misleading," he said. "I don't think it's fair if that's the case."

Like most people interviewed, Saylor said, given a choice between buying a ticket with a grand prize and one without, he'd choose "the obvious one, the one with the grand prize."

Still, the answers were far from uniform. A daily scratch-game player, 37-year-old Steve Coldiron said he thought the most he'd win would be $20 on High Stakes, $2 on Lucky Stars and $25 on Bonus Quick Pick. A transient street dweller said he bases that on experience. "I've never seen anyone win more than, like $20," he said.

But when asked if the advertised grand prize influence his purchase, he said, "Yes, it influences my decision," adding that he would not buy a ticket if he knew the top prizes were all claimed. "It's no fun -- ya gotta go for the gusto."

Those who run gaming operations, for charitable nonprofits or big-money casinos, also have different views. Vince DiBattista, a dealer at Double Eagle casino in Cripple Creek, said the Lottery's grand-prize ads didn't bother him because, in a way, people play scratch games like slot machines. "People know they could win $75,000, but the odds of doing that are astronomically against them," he said, "so they play for smaller prizes, which are an incentive to get people to play."

But George Popelka, the business manager for the Tri-County Easter Seals Society, sees it from another angle. He likened the Lottery's scratch games to pull-tab operations that Easter Seals runs at area bingo halls. When people think a particular pull-tab bucket has no big prizes left, they turn to other buckets. "Would you buy a ticket knowing that there's no big prize?" Popelka asked. "I mean, 'Duh,' that's dumber than dirt."


Trumped?

But Lotter officials have saved themselves something of a trump card. They say the number of grand prizes advertised for most games only reflects the number of "guaranteed" winners in a given game. But, in fact, there could be more.

That's because the number of grand-prize tickets printed represent a percentage of overall tickets printed. With a 3 percent margin of error, it's possible to have one more grand-prize ticket than is actually guaranteed by the printer, Scientific Games Holding. And the Lottery Commission pays them all.

At first, Lottery officials claimed that's exactly what happened with the game Cold Cash. By Nov. 3 of this year, Greco noted, all of the six "guaranteed" grand prizes for Cold Cash were awarded. But since then, Greco pointed out, two more grand-prize tickets were awarded.

But what the Lottery's media specialist didn't say -- or perhaps didn't consider -- was that in early November, the Lottery Commission printed a new batch of tickets for the game Cold Cash. The reprint sent another 3-million-plus tickets onto the market even though there were nearly 500,000 tickets from the old, prizeless batch still on the street.

Confronted with this evidence, Greco then conceded that the two extra Cold Cash winners came from the new batch of tickets, not from any "overprint" of grand prizes in the old batch.

Beyond that, Greco said he knew of no other scratch games in which grand prizes were claimed after all the guaranteed prizes were awarded.

As for Cold Cash customers, there's no way for them to know which batch of tickets they're buying from -- the new batch of tickets that has grand-prize tickets, or the old batch with no chance for a grand prize.


The numbers game

Determining exactly how many scratch-game tickets are sold each year is a challenge, because according to media specialist Greco the agency retains no record of when the final grand prizes were awarded for games prior to this fiscal year.

(The Independent has challenged these claims in a Dec. 4 Colorado Open Records Act request, which asks for print-outs and computer back-up tapes that include such records.)

But based on the limited information the Lottery has provided coupled with the Independent's own reporting it's possible to show that the Lottery makes millions each year on tickets after the advertised prizes on those tickets are awarded.

The game Fat Cat stayed on retail counters from July 14 to October 26, a little over three months. Since the lst grand prize for the now-ended game was awarded on August 22, the game was sold and advertised for two months (with the slogan "Win up to $10,000") without a grand prize. That's more than 60 percent of the product's total shelf life without a grand prize(See chart above.)

Meanwhile, sales reports obtained under the Colorado Open Records Act show that roughly 377,000 Fat Cat tickets were sold after all the game's grand prizes were awarded. That's roughly 12 percent of the game's total 30 -million-ticket printing run.

And that's for a game that's already ended. With the continuing game High Stakes, roughly nine percent or roughly 630,000 tickets of the game's total sales have occurred after all the advertised grand prizes were awarded.

For the games Deuces Wild and Lucky Stars, only one to three percent of total sales have been made after the advertised grand prizes were awarded.

But these figures represent sales as of Nov. 20 the lst date for which the Independent has records. That's nearly three weeks ago, and the tickets are still selling.

Coming up with a complete tally of all tickets sold this year after advertised grand prizes are gone is difficult. That's because The Indy has not yet obtained all the information and documents it has requested from the Lottery Commission.

Nevertheless, the Independent has been able to determine that unless the Lottery changes its policy, by year's end it will likely have sold more than 2 million tickets for games that no longer have grand prizes.

That's because just this past week, when the last grand prizes for $250,000 Bonus Quick Pick and Instant Monopoly were awarded, there where roughly 112,000 -- inactivated Instant Monopoly tickets still to be sold to retailers.

As noted earlier, the Lottery on Dec. 4 ordered a recall of roughly 200,000 Bonus Quick Pick tickets still waiting to be sold to retailers.

But that doesn't include the thousands of Bonus Quick Pick and Instant Monopoly tickets already on retailers' shelves and going into consumers' hands.

Add all this to the 500,000 Cold Cash tickets mentioned earlier, and the 1.2 million ticket sales confirmed through sales reports, and you've got at least 2 million separate occasions this fall alone when customers scratched tickets that hawked grand prizes that the state could not guarantee existed.


Cards up their sleeves

But the Lottery Commission has yet another card up its sleeve. It's the one-page, pocket-sized sheets available at the retail "play centers" of some high-volume convenience stores.

On the back of each leaflet, the commission lists how many prizes are available for each dollar amount. And there's a cover-all disclaimer. "Odds based on 3,840,000 tickets available rather than on individual purchases," the one for Cold Cash reads. "Number of winners may vary based on sales, distribution and claims. Prizes equal 64 percent of sales."

And consumer can also turn to 8-by-11-inch fliers that some retailers place in their store's play center.

"Sales reps carry with them a monthly report on the games we have out there right now and how many grand prizes are left in that game," said Greco, who nevertheless conceded that many retailers don't post the information. "Some retailers request that information , and some don't request that information."

Further, noted Greco, customers who wonder how many grand prizes are left in any particular game can call the Lottery Commission using phone numbers listed on some lottery brochures. "So the information is available," said Greco.

But here's the catch.

Nowhere on the pocket-stuffer leaflets or on the monthly reports does it suggest that people call to find the status of winners; nor do they provide a phone number. Phone numbers are only listed on pamphlets not associated with scratch games.

More importantly, the blue, -Plexiglas play centers are only placed in high-volume stores such as 7-Eleven, Conoco and Total. Many customers who buy their tickets at liquor stores or small gas stations are not provided with any disclaimers since the tickets themselves don't list the number of grand prizes available.

And, after visiting dozens of retail scratch-game outlets over the past two months, I've seen only one of the monthly status reports mentioned by Greco. (That's no surprise, since Lottery director Mark Zamarripa has said that those monthly reports are, in fact, intended for retailers.)

Meanwhile, Lottery officials say it would be simply too difficult to do any more to protect the public. "What you're suggesting," Commissioner Jim Merrill, a Colorado Springs attorney, said during the commission's last public hearing, "is that we somehow pull or reprint [the tickets], or something like that. And when you look at the logistics of how scratch games are run, that's not a feasible thing to do."

But the Lottery does have options. It could provide a phone number on the tickets and recommend that people check on the scratch-game status. It could print a disclaimer on the tickets.

To date, lottery officials have no plans to adopt such measures.


Above the law?

While state statutes have no sections specific to the use of the words "up to" in advertising, the Colorado state legislature has set a clear tone regarding deceptive trade practices and retail advertising.

Consumer protection law says it's a crime to "knowingly make a false representation" as to the quantity and nature of goods available.

Meanwhile, the Secretary of State's rules for private bingo and raffle games say "no licensee. . . shall directly, or indirectly [emphasis ours] . . . make any untrue or misleading statement."

State laws governing casinos have similar proscriptions and ditto for Federal Trade Commission (FTC) rules on games of chance in the food retailing and gasoline industry. "It constitutes an unfair and deceptive act or practice," the FTC rules say, "to engage in advertising or other promotions which misrepresent by any means, directly or indirectly [emphasis ours], participants chances of winning any prize."

The rules to on to include the game piece itself as an advertisement.


Ordinary minds

But because state lotteries are public agencies, they are not explicitly governed by FTC regulations, which proscribe the practices of private enterprise.

Still, FTC prosecutions have resulted in numerous court decisions that shed light on what the judiciary construes as deceptive advertising. The case history shows that federal courts would likely frown on the Lottery's scratch-game claims.

In case after case since the 1930's, federal courts have set the standard for false advertising as the effect it could have on the ordinary mind, or "the probable effect which the advertiser's handiwork will have upon the eye and mind of the reader," as the courts ruled in FTC v. Sterling Drug, Inc., 1963.

In general, the courts have thoroughly rejected the claim that vague or even explicit disclaimers on packaging give manufacturers an excuse to use deceptive advertising elsewhere.

Further, the federal courts have also held that the stand for deceit is based on the overall impression left by an ad, not on the "most literal truthfulness" of each separate statement in the ad.

And that standard, the courts have said, is not based on the most sophisticated consumer, but rather the most gullible. "Laws are made to protect the trusting as well as the suspicious," the Supreme Court rules in FTC v. standard Education Society, 1937.

These same legal tenets are ingrained in Colorado common law in the 1992 Colorado Supreme Court case May Department Store v. State of Colorado.

Deputy Attorney General for Consumer Protection Jan Michael Zavislan would not return calls seeking comment on the Lottery's sales tactics. But asked generally at an earlier date about the practice, Zavislan implied that a private group would not likely get away with the same advertising strategy.

"The standard is what a reasonable consumer would think or expect from seeing the ad," said Zavislan. "In the case, what will he think he can win 'up to'?"

After all, Zavislan pointed out, knowledge that one could not in fact "win up to $25,000" could influence the consumer's decision. The player might buy another ticket or not buy one at all.


Scratching the surface

But the issue of selling tickets after the grand prizes have been awarded only scratches the surface. That's because there's a whole other arena in which the Lottery Commission has failed to adhere to state law.

For at least a year, the Lottery Commission has printed posters and promotional cards that do not contain the odds of winning and the average dollar return, as required by the very legislation that authorized the Lottery.

"Any promotional advertising regarding the lottery," the statutes says, "shall set forth the odds of winning and the average return on the dollar in prize money to the public."

This generally applies to ads for specific games, since a flier lauding the Lottery's funding of parks and trails, for example, could not feasibly list odds for all the agency's dozens of games.

But, in fact, many posters and fliers printed by the Lottery for specific scratch games do not mention the odds, or the dollar return. Take the 8-by11-inch posters that promote the game High Stakes. The happy-go-lucky green placard informs us twice in bold text that the grand prize is $25,000. Yet, nowhere on the poster does the Lottery Commission detail the odds or the average return on the dollar for the game High Stakes.

The same is true for at least two-dozen other games.

The same omission can be found on two different sets of promotional ads designed to look like oversized scratch games.

All the above-mentioned materials can be seen at numerous retail locations.

Lottery officials are quick to point out that a majority of the dozens of promotional campaigns for scratch and other Lottery games do list odds and average dollar returns.

The fliers without odds, they said, were generated for retailers by the Lottery's sales department. They were not created by the advertising department, which is accustomed to complying with the odds requirements in customer ads. Further, they blamed Lottery retailers for putting "internal retail network" promotional fliers in point-of-sale play centers that are visible to customers.

This [poster] is talking about inventory," said Lottery Commissioner Tracy Jenkins, a cable-television executive from Denver who was handed one of the offending fliers at a Dec. 2 public hearing. "This is clearly not for a consumer. . . I mean it's pretty evident on its face."

But Becky was only looking at one side of that face the side of the flier with a list of available inventory. The other side of the flier contained ads that are clearly directed toward consumers.

"Give him more than just a tie this year," read one of the ads.

"Win up to $150,000," read another.

"Win $50,000 playing. . . . Colorado Riches."

Etc.etc.

In fact, one of the fliers shown to the commissioners contained no information whatsoever indicated it was intended for retailers. It only advertised: "High Stakes. . . Win up to $25,000."

And retailers interviewed for this article point out that Lottery reps, not retailers, maintain the retail "play centers" where the ads appear.

Meanwhile, the state statute in question does not exempt promotional material for retailers from listing odds.

"The intent is certainly not to deceive in any way or put false information in the market," added Zamarripa. "If we have made some human errors or some oversights, we thank you for bringing those to our attention. We will correct those. But I believe our track record is superior."

In the past, for example, the Lottery Commission has voted to publish odds of winning jackpots on some TV and radio ads, thought they were not expressly required by law to do so, said Commission Chair Courtney Cowgill, a certified public accountant in Aurora.

But not everyone agrees that the Commission's record on advertising is flawless. Last year, the state auditors' office charged with keeping tabs on the Lottery's compliance with state law found much room for improvement in how the Lottery published odds for individual games. In the state auditors' September 1996 Interim Review, reviewers found "the Lottery is not accurately representing the prizes paid for. . . individual types of games.

"The Lottery informs consumers and the press that the overall payout percentage is at least 50 percent of sales for each type of game. . . However, this does not accurately report that the Lottery does not disburse at least 50 percent of sales for all prizes for all games."

In short, while the Lottery as a whole does payout more than 50 percent of its revenues in prizes, some games of Keno, Lotto and Scratch have, in fact, distributed less than 50 percent. The report put the lottery on notice that it must pay closer attention to the way it publishes odds, said State Deputy Auditor Joanne Hill.

"It appears that there was not appropriate follow through," said Hill, when informed of the questionable promotional material. "But I also need to give [the Lottery Commission] due process."


A manner appropriate for a public agency

But whether or not advertising prizes that don't really exist is legal or not misses a more fundamental point. As a public agency created by voters to raise revenue for the public good, the Lottery Commission is supposed to answer to a higher authority than money.

In fact, its mission statement requires its officers to "maximize revenues. . .in a way that demonstrates the integrity that is appropriate for a state agency."

The Lottery's business Plan through 2001 reiterates that message: "maximum revenue generation cannot be achieved without a public image of agency responsibility, integrity, and security."

The Colorado Auditor cited those phrases in a section of its 1997 audit that was highly critical of the Lottery's use of state funds to lavish food and booze on big-time lottery winners and to heap hefty bonuses on sales managers.

"We believe the Lottery should evaluate the costs and appropriateness of these activities and discontinue those functions that are not cost effective and/or are inappropriate for a state agency," the auditors wrote.

What Carl, the downtown Springs retailer who prompted this story, wonders is, if anyone can make the state discontinue its advertising practices.

"If this were anyone else, they couldn't get away with it," he said. "But I guess the state can do anything it wants." $

  • Just how stupid does the Colorado State Lottery Commission think you are?

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