Lottery Sales Continued After Top Prizes Gone

The California Lottery allowed the sale of millions of dollars worth of tickets for its most popular lottery games even after all the top prizes had been awarded and purchasers had no chance of winning them, according to court documents.

Lottery Chief Deputy Director Dennis Sequeira testified in July during a little-noticed court case involving the ticket sales that an internal analysis found 11 Scratchers instant lottery games since 1996 had been “active” after all the grand prizes had been awarded. In four of the games, 1% to 5% of the tickets were still available for sale.

Up to $6.6 million worth of tickets were kept on sale for those four games: Red Hot 7s, Triple Payout, Double Down and Wild Bills. The lottery “simply does not know” how many of those were sold when it was too late for buyers to win the advertised top award, officials said.

The state’s practice differs sharply from several other state lotteries, which end ticket sales when top prizes have been claimed.

The California Lottery has refused to disclose its method of ending those games or how long sales continued.

What it does say is that after the awards were gone, it was still distributing tickets to retailers--$892,000 worth for the 11 games, the lottery said Thursday.

The lottery said in a statement this week to The Times that it was surprised by the findings of its internal analysis, adding: “The lottery in no way justifies this.”

“To the extent there was any perceived problem, it was very small,” the lottery said.

After being sued by a disgruntled player last year, the agency has begun taking remedial action.

In June, it added a disclaimer about prize awards on the back of Scratchers tickets, along with standard information about deadlines for claiming prizes, the odds of winning and other rules.

“Some prizes, including top prizes, may have been claimed,” the new disclosure says. Players probably will see the warning only after they have purchased their tickets, and the tickets still don’t indicate that all of the top prizes may be gone.

The lottery also said it began new procedures to terminate games more quickly. In its statement to The Times, it said that when the next-to-last top prize is gone, it starts shutting down the game, a process that takes four weeks.

But even as the agency says it is moving to end the sale of hopeless tickets, it has mounted a defense of the practice.

Lottery Commission spokesman Vince Montane said the lottery hadn’t done anything wrong.

Players understand that some of the grand prizes worth as much as $100,000 can be gone by the time they buy a ticket, he said: “It’s just part of the way the game is structured.”

In court papers and earlier interviews, the lottery said it could legally sell the tickets for its Scratchers instant games for months after the big prizes are gone because, as a state agency, it is exempt from false-advertising laws.

“Public entities are specifically immunized for any injury caused by misrepresentation by an employee,” even if the acts are intentional, the lottery argued in the court case.

But critics don’t buy it.

“That’s obviously dishonest,” said Art Croney, executive director of the Committee on Moral Concerns, which lobbies on a range of issues in Sacramento. “It should be an embarrassment that they even went to go to court.”

Scratchers, which also offers small cash prizes on the same tickets, is the most popular of California’s lottery games, bringing in $1.2 billion out of total annual revenue of $2.6 billion. There have been 137 Scratchers games over the last five years.

The games can last for more than a year, and many games are run simultaneously. Over the 15 years that the lottery has been in operation, Scratchers games have racked up $11 billion in sales, with net proceeds going to public schools.

In some states, games are halted immediately after the last big prize is claimed.

Massachusetts sends out electronic notices to stores to stop selling the instant tickets less than an hour after the last top-tier prize is claimed. Arizona halts its sales as soon as its employees can get to the retailers, which takes less than 10 days.

Florida allows sales to continue but yanks all its commercials and in-store advertising because, spokesman Leo DiBenigno said, “When you advertise something, you don’t want to be accused of falsely advertising.”

Many state lotteries have debated how quickly to end instant games. The discussion doesn’t spill into public view because “it’s the sort of thing that they don’t want players thinking about,” said Whittier Law School professor Nelson Rose, one of the top U.S. experts on gambling.

“The average player doesn’t have any idea that the big prizes may be gone.”

San Diego lawyer Kevin Roddy agreed. “Everyone assumes that when the prizes were gone, they stopped selling tickets,” he said.

Roddy filed a Sacramento suit on behalf of Bay Area resident Amy Stanley, who routinely bought tickets for such Scratcher games as Cash Vault, Gold Rush and $100,000 PayDay and was dismayed to learn that she might never have had a chance to win.

The suit was filed in October 2000, seeking authority to proceed as a class-action case on behalf of all Scratchers players who bought too late. The California attorney general’s office, which represents the lottery, succeeded in getting most of the case thrown out, including the class-action claim and the request for damages, on grounds of government immunity.

Ironically, a separate division of the attorney general’s office responsible for protecting consumers said that if a private nonprofit group was conducting a raffle in the same way, it probably would be in violation of state laws against deceptive business practices.

“If a person said you have a chance, and there is no opportunity anymore,” there would be grounds for a suit, said Herschel Elkins, head of the consumer division.

The remaining piece of the case asks the court to order the state to change its practices. In fighting even that, the attorney general’s office still argues that the Lottery Commission isn’t subject to the fair business practices rules.

That argument comes despite a state law passed in 1986 that says in the “advertising and promotion of the lottery, the commission shall ensure that the lottery complies with both the letter and the spirit of the laws governing false and misleading advertising,” including the relevant sections of the state Business Code. The law was passed after complaints about promotions for “instant cash” games that had delayed payouts.

In court, the lottery has said the 1986 law is essentially unenforceable.

After an appeals court refused to throw out the case, the lottery switched tacks. Nine months after the suit was filed, the agency said it had conducted its internal analysis and decided to add the disclaimers and change the way it ends the games.

The agency then asked the judge in Sacramento to throw out the rest of the lawsuit as moot.

But Judge Ronald Robie was unmoved at a July hearing. Instead of debating what fix might be appropriate, the state is arguing that “it’s OK, we’re doing it, so don’t bother us anymore.’ That’s not the way it works,” Robie said in turning down the lottery’s request. He scheduled a trial in the case for January.