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Scratch 'n' Stiffed 

Despite California's embarrassment, the Colorado Lottery continues its scratch-ticket shell game

The Colorado State Lottery continues to sell millions of "instant-win" scratch-game tickets long after the advertised grand prizes have been given away -- this despite a lawsuit challenging the practice in Colorado and the fact that other states are halting such sales.


One of the country's largest state lotteries, The California State Lottery, last month apologized for selling scratch-game tickets after grand prizes had already been awarded. The move came after a lawsuit and a subsequent Los Angeles Times investigation exposed the practice.

"The Lottery deeply regrets having done anything that may make even one citizen lose confidence in the integrity of the games," California Lottery Chief Executive Joan Wilson wrote in a "Dear Californians" letter sent to 19,000 scratch-game retailers after the practice was exposed.

Because the scratch-game tickets are emblazoned with catchy enticements to win anywhere from $25,000 to $250,000, Wilson said California will stop selling instant-win games after advertised grand prizes were awarded. The California Lottery quickly announced a "second-chance" drawing for effected scratch players and said it would begin electronically notifying retailers selling scratchers to stop selling the instant tickets after the last big prize in a particular contest had been won, according to the Los Angeles Times.

Like the Colorado lawsuit that has challenged similar practices here, the California suit was inspired largely by a Dec. 10, 1997 article in The Colorado Springs Independent that revealed more than $2 million in tickets were sold that year after the advertised grand prizes were already given away. Click here for the original 1997 story.

The Colorado Lottery has never disputed the Independent's findings. But unlike their California counterparts, Colorado officials have never apologized for selling scratch-game tickets long after the advertised top prizes are gone, claiming that the practice is the industry norm. California's decision to quickly end games after grand prizes are claimed would likely prove unrealistic here, Colorado Lottery spokesman Todd Greco told the Indy last week.

"We're watching to see what happens in California," said Greco, adding that because ticket sales representatives only visit each store once every two weeks, it would be impossible to "pull" unsold tickets in a timely enough manner to make the policy worthwhile.


Wild money

Because of the Indy articles and subsequent lawsuit filed by a Colorado Springs attorney, the Colorado Lottery has made some changes. First, in 1989, it clarified its policy on when to end scratch games, giving the Lottery director more leeway to end games when top prizes have already been claimed, but not requiring him to do so. And just last year, after it was sued -- and California changed its policies -- the Colorado Lottery began posting the number of top prizes available in each scratch game on the Internet.

According to its Web site, www.coloradolottery.com, five instant-win scratch games -- Wild Money, Casino, $250,000 Holiday Riches, Sizzling 7s, and 7-11-21 -- are currently being sold throughout the state for which no grand prizes are still available. Four of those games, which advertise grand prizes ranging from $10,000 to $250,000, are widely available at retail stores around Colorado Springs.

Still, the Lottery, which generates more than $200 million a year in ticket sales, is unapologetic about selling scratch games after the grand prizes are gone. Echoing its position when the Indy first exposed this practice four years ago, Greco said that because the Lottery uses the words "up to" on scratch games -- in slogans such as "win up to $25,000" or "Win up to $100,000" -- the Lottery is not misleading anybody.

"The words 'up to' specify that there are other prizes," Greco said, noting that people who play scratch games aren't necessarily playing for the top prize. Depending on the game, the bulk of the prize-winning tickets offer $2 to $5 in winnings.

But to the lawyer who filed the Colorado and California lawsuits, Robert B. Carey, the Lottery is simply misleading people.

"To your average consumer, if you sell a game that says 'Win up to $25,000,' the consumer thinks you have at least a chance to win $25,000," said Carey, owner of The Carey Firm and Norton-Frickey & Associates, a personal injury practice on Pikes Peak Avenue.

"It may not be a great chance, but it's at least a chance."

A former chief deputy attorney general for consumer protection in Arizona, Carey has also filed similar lawsuits in Arizona and Washington state, where he maintains law offices.

To date, lawyers for the attorneys general in those states have argued on behalf of the Lottery agencies that sovereign immunity protects the state-run games of chance from such suits. Further, they say Carey's clients did not follow the proper administrative appeal process before filing suit.

With the exception of Arizona, where a judge has allowed Carey's suit to continue largely on breach-of-contract grounds, the state lawyers have so far prevailed: The cases have been dismissed by lower-court judges based on the states' claims of sovereign immunity and because Carey failed to follow the proper administrative appeals processes. Carey has appealed in Washington and Colorado and plans to do the same in California.

"None of [the state lotteries] want to defend these cases on the merits," he said. "Not one of these attorneys general, whose job it is to protect the consumer, told their client, the Lottery, to stop. This is a sad state of affairs and a pitiful commentary on the power of the buck."


Luck of the Zodiac

Carey filed the Colorado suit in August 2000 on behalf of former Colorado Springs resident LaVonne Bazemore, a longtime scratch-game player who said she purchased two "Luck of the Zodiac" scratch-game tickets on July 24, 1998 at a Texaco StarMart in Colorado Springs.

A copy of the ticket, which was entered into evidence, features various astrological signs and the slogan: "Win up to $10,000." More than two months earlier, the complaint alleges, the Lottery learned that the last of the Zodiac's $10,000 grand prizes had been claimed.

"Plaintiff was not notified by [the Lottery] of the fact that the last grand prize had been awarded nearly nine weeks earlier and that Plaintiff -- and anyone else playing after May 13, 1998 -- had no chance of winning the advertised prize of $10,000," the complaint alleges.

Bazemore and Carey also sued Texas-based Texaco Inc., alleging breach of contract, violations of Colorado's Consumer Protection laws, and other unfair business practices. Bazemore demanded a jury trial and restitution of lost money spent on tickets.

The Lottery, represented by lawyers from the state attorney general's office, did not dispute the fact that the last grand prize for Luck of the Zodiac had been awarded long before the game ended. But that's about the only thing they didn't dispute.

In essence, the Colorado attorney general argued the Colorado Governmental Immunity Act protects the Lottery from such lawsuits. Because it is a governmental agency, not a business, they contended, the state-run Lottery is not subject to the state's consumer protection laws.

Further, they argued that Bazemore should have first appealed to the agency through its internal administrative appeals process, set up by statute to deal with such complains. In oral arguments in Pueblo last year, the Lottery's lead lawyer, Deputy Attorney General Maurice Knaizer, said that most people know that at some point in the game, the top prizes may no longer be available. It's the nature of the game, he said.

"It's a random game," Knaizer told District Court Judge David A. Cole. "The rules require that the prizes be randomly distributed. If that's the case, it's possible the top prize will be gone. The purchaser accepts that as a part of the contract."

In other words, he said, players of instant scratch games know that each batch of scratch-game tickets contains anywhere from three to seven top prizes, which are distributed randomly throughout the entire ticket pool.

Ultimately, Judge Cole sided with the state, dismissing the case on a technicality because the plaintiff did not first follow the Lottery's administrative appeal process.

"In class actions, the unnamed class members need not exhaust administrative remedies so long as the named plaintiff [Bazemore] does so," Cole wrote, citing Colorado precedents. "Here, Ms. Bazemore has failed to exhaust her administrative remedies and, therefore, is not in a position to represent the putative class members."

Had Bazemore followed the process, the Lottery might have changed is procedure, Cole reasoned, thereby negating the need for a lawsuit. Cole also agreed with Lottery lawyers that the administrative complaint process has "first jurisdiction" because the Lottery, not the court, has the "expertise" to determine the facts, offer corrective remedies, and question some of Bazemore's basic assertions.

Though Cole based his decision on the administrative appeal issue, he went on to offer his opinion on some of the case's underlying issues. He agreed that the suit was essentially a "tort," and was therefore blocked by the state's sovereign immunity. He labeled the breach of contract claim "illogical."

"To extend the Plaintiff's breach of contract claim to its illogical extreme," Cole wrote, "a breach could in fact occur when the last grand-prize ticket of each game is sold [emphasis his]," since it's impossible for the Lottery to know when the last grand-prize ticket is sold.

Indeed, a winner can wait months to redeem his or her winning ticket. But Carey, who has appealed the case to the Colorado Court of Appeals, said the breach occurs not when the ticket is sold, but after the last grand prize is claimed. That's when the Lottery begins knowingly selling tickets that offer no possibility of a top-prize win, he said.

As for the administrative appeal? In court hearings, Carey argued that the Lottery had pre-judged the case, making an administrative appeal meaningless. In an interview, Carey also refuted the notion that the Lottery has more expertise on this issue than the courts.

"The agency has no particular expertise ... to adjudicate a consumer protection claim," Carey said.


Wild Willie

Whether or not Carey's lawsuits will go anywhere on appeal, they have made a splash, particularly in California, where the most dramatic changes in scratch-game policy have occurred.

California's reaction has, in turn, sent ripples through the lottery industry. In Arizona, the scratch-game controversy even spilled over into state politics. In August 2000, independent gubernatorial candidate Richard Mahoney made the scratch-game controversy a campaign issue, accusing the state Lottery of "fraud," according to The Arizona Republic.

The accusations came on the heels of Carey's lawsuit on behalf of Curtis Brown, who bought five "Wild Willie" scratch tickets -- which boasted prizes up to $4,000 several weeks after the last grand prizes were awarded. In response to the lawsuit and Mahoney's very public charges, the Arizona Lottery said that it had made several changes to its policy, which are designed to end games within 10 days of the final grand-prize claim.

That policy didn't become official until in December 2000, a month after Carey filed suit. Here in Colorado, reaction has been mixed. Although the Colorado Lottery now posts grand-prize status online at its Web site, there is nothing on the scratch-game tickets, or in point-of-sale displays, telling customers to check online before purchasing tickets.

And while small posters showing the status of prizes are now seen in more retail stores, the ones spotted on retail shelves in Colorado Springs don't even mention that fact that five games currently being sold have no grand prizes left.

In one store, for example, a 7-11 on the corner of Platte Avenue and Wahsatch Avenue, a Lottery flier spotted last week failed to identify the games that have no grand prizes remaining, even though two of those games -- Sizzling Sevens and Casino -- no longer offer any grand prizes.

The Lottery's Greco, meanwhile, says another problem is that the state agency has no control over whether or not retailers actually post prize information at the store. Because sales reps only visit specific stores once every two weeks, and prize availability changes daily, such postings would not be timely, Greco insisted.

"The information would be two weeks old, because things change on a day-to-day basis," he said. (At the time of the Indy's original report, Lottery officials claimed that prize status reports were sent to retailers and were often put in display racks where tickets are sold. A survey of dozens of retail outlets, however, found only one such announcement, in a 7-11 store in Monument.)

Still other policy revisions do little but continue the status quo. Several months after the Indy published its original story, the Lottery did script a new policy on when to end scratch games, though Greco said the policy really just "clarified what his agency was already practicing."

In short, the new policy gave Colorado Lottery director Mark Zamarrippa the discretion to end games "at the time it is determined that insufficient prizes remain in a game." The policy goes on to note, however, that "there may be games in which the primary selling benefit of the game is not the top level prize."

Essentially, the statement gives Zamarrippa the ability to continue a game even after the top prizes are gone.


Pay day

Meanwhile, more ambitious reforms, such as the ones enacted in California, are deemed unrealistic.

While California officials have decided to notify retailers "electronically" when grand prizes are all gone, Colorado's Greco said that would not be practical here.

The Lottery does send updated information about the games to some retailers via its Lotto and terminals on a daily basis. But he noted that not all retailers who sell scratch games sell Lotto tickets. Some retailers, therefore, who don't have Lotto terminals would be left in the dark.

Greco listed several other reasons why it's difficult to pull scratch-game tickets once the grand prizes are awarded. For one thing, he noted, scratch tickets are sold to retailers in packs of anywhere from 100 to 300 tickets. Once a pack is opened, or "activated" to use Lottery jargon, those tickets are the property of the retailer. If the last top prize in a particular game has been awarded, chances are that retailers all over the state have half-sold, open packs of that game, Greco noted. Thus, reimbursing retailers on a ticket-by-ticket basis would be next to impossible, he suggested.

But according to the LA Times, other states do pull games on short notice. Massachusetts tells retail shops to stop selling the games immediately after the last top prize is won, the Times reported.

Other states take a still different tack. In Florida, ticket sales continue, but ads for those games are pulled. Said a Florida Lottery official to the Times, "When you advertise something, you don't want to be accused of falsely advertising."

In another smaller gesture, the Colorado Lottery did begin using the words "win up to" on all its scratch tickets.

"At the time of your [first] story," Greco told the Indy last week, "some of the tickets just listed the grand prizes, so we've changed that."

The lottery has also begun printing a new disclaimer on the back of its scratch-game tickets: The words "availability of prizes subject to prior sale" can now be seen at the end of the fine print of most scratch-game tickets.

The Colorado Lottery also contends it's always done its level best to make sure grand prizes are available through the life of the game. In short, they try to keep prizes out there by releasing the tickets in batches, each batch with at least one grand prize available. That way, top prize tickets should be available through most of the game's time on retail shelves.

But to Carey, all these suits could be resolved if a few very simple changes were made.

"They could change the language on the tickets," he said. "They could disclose the lack of grand prizes, or they could add grand prizes. Instead, they chose to put their heads in the sand."

Carey says he knows why they don't want to put such language on scratch tickets. "Because it would hurt their sales," he said, adding that their reluctance proves that the Lottery knows people do, in fact, care about whether or not grand prizes are still available.

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