Posted on Wed, Jun. 08, 2005

Attorney General investigating advertised Lotto jackpots

By John Moritz
Star-Telegram Austin Bureau

AUSTIN _ The Attorney General's Office will examine allegations that the Texas Lottery Commission is inflating the advertised jackpots for its Lotto game because ticket sales are too sluggish to support the high payouts.

Lottery officials rejected the allegations, but acknowledged that because of lagging ticket sales, for the first time in the game's history they would be unable to boost their jackpot estimate for Saturday's drawing if no one wins Wednesday night.

Dawn Nettles, publisher of the online Lotto Report and a persistent critic of lottery commission policies, first raised the red flag that ticket sales were running far behind the estimated jackpot when she sent a letter to Attorney General Greg Abbott on Monday accusing officials of false advertising.

On billboards across Texas and on the lottery's Web site, officials had touted an $8 million jackpot for Wednesday's drawing.

"They only have enough to fund a $6.5 million jackpot at best," Nettles said.

Bobby Heith, spokesman for the lottery, did not dispute that the jackpot would have been less than advertised, but not because anyone was skewing estimates.

But a spokeswoman for Abbott said Nettles' concerns would be addressed.

"We will treat this complaint like we treat all complaints that come into the agency," said Angela Hale, Abbott's communications director. "We'll examine it and determine whether there is something (we need) to do about it."

Lotto jackpots and ticket sales have a relationship akin to that of the chicken and egg. High jackpots are needed to sell tickets, but ticket sales must be robust for jackpots to escalate.

Lottery commission rules set the minimum Lotto jackpot at $4 million. If no one matches all of the numbers needed to win, the jackpot typically rises for the next drawing. Historically, ticket sales remain relatively flat until jackpots roll toward $50 million and higher. Drawings are held each Wednesday and Saturday.

Lottery commission figures show that when the jackpot rolled back to $4 million for the May 25 drawing, ticket sales totaled just over $2 million. Of that, $1.04 million $248,130 was paid to players who won lower-tier prizes for matching some, but not all, of the numbers drawn.

When the jackpot rolled to $5 million for the May 28 drawing, ticket sales totaled $2.33 million and nearly $1.2 million $275,828 was paid to lower-tier prize winners. The trend for ticket sales and lower-tier prizes continued for the next two drawings when the jackpot rolled to $6 million and then to $7 million.

(The reporter is including the jackpot prize amount in his total paid out.)

Under lottery commission rules, the state guarantees that a winner who takes proceeds under the 25-year annuity option will receive the full advertised amount if someone hits the Lotto jackpot during one of the first four drawings.

(No matter which payment option a player chooses, he receives the advertised amount in the first 4 draws in a roll.)

If the ticket sales are not strong enough to support the jackpot, officials are authorized to dip into the lottery's reserves to make the payment.

After the first four drawings in a Lotto roll, commission rules state that a jackpot winner with the 25-year option must receive 39.1 percent of all of the ticket sales during that run, regardless of the advertised jackpot.

(Again, no matter which payment option the player chooses, after the 4th draw in a roll he receives the amount allocated irregardless of what's advertised. And this is the way you want it as it the only way the People are guaranteed to receive their share of sales. Because of the guaranteed $3 & $5 prizes, as it stands today, the People have already been cheated out of $8.5 million just since May 2003.)

Nettles said there is no way the lottery commission could invest the proceeds of that 39.1 percent of ticket sales dating back to the May 25 drawing to earn $8 million over 25 years.

"The lottery commission is using false advertising, plain and simple," Nettles said.

Heith said jackpot estimates are based on historical sales trends, the time of year and the health of the state's economy.

"There were some concerns starting about last Friday that we were not seeing the level of ticket sales that we would like to see," Heith said. "There might be a problem (with the $8 million jackpot for Wednesday's drawing), but it is an estimate and the players know that."

Nettles, whose Lotto Report tracks trends for the Texas lottery and those around the nation along with her criticisms of the Texas Lottery Commission's policies, said players might expect the estimate to be off by a few thousand dollars, but not by more than $1 million.

Still, she suggested that there might be little risk in offering optimistic jackpot estimates during the early rounds of Lotto drawings.

Since the current configuration of Lotto went into effect in May 2003, only 14 jackpots have been hit in 218 drawings.

"The odds against hitting the jackpot are 48 million to 1, so there's a real good chance that no one's going to win it, at least for awhile," she said.

My Letter that was sent to the Attorney General and
the District Attorney of Travis County.

June 6, 2005

Attorney General Greg Abbott
Office of the Attorney General &
District Attorney Ronald Earle
Office of The District Attorney
Public Integrity Unit
P. O. Box 1748
Austin, TX 78767

RE: Texas Lottery - The Advertised $8 Million Jackpot - Deceptive Advertising

To Whom It May Concern:

The Texas Lottery is currently advertising the next Lotto Texas jackpot at $8 million. This is for the drawing to be held on Wednesday, June 8, 2005.

The problem is - if someone were to win - as per the Lotto Texas rule, the winner is entitled to 39.104% of roll sales which falls far short of revenues needed to fund a prize of $8 million - in fact, they only have enough to fund an estimated $6.5 million - at best. I feel the variance is entirely too high to support the amount they are advertising.

I contacted the TLC this morning to try to verify the factor applicable but they refused to tell me verbally. Because I am in the “lottery business,” so to speak, I track the rates/factors weekly and the rate I obtain is always higher than what Texas can obtain. Therefore, I am positive that the Texas Lottery can not fund the amount advertised.

Texans want and need pari-mutuel payouts as this is the only way a lottery can guarantee that players receive their share of sales - but - we also want and demand truth in advertising.

Just so that you know, the current Lotto Texas rule states that the TLC will pay the greater of either the amount in the prize pool or the “investment cost” for the first four (4) draws in a roll. After the 4th draw, a jackpot winner will receive 39.104% of roll sales. The TLC knew they would not have enough to fund $8 million but have chosen to falsely advertise the amount one would win if they won.

Your immediate attention to this matter would be appreciated. Consumers deserve to know the truth when it comes to purchasing lottery products.

Thank you very much.

Sincerely,

Dawn Nettles
Publisher

cc: Texas Lottery Commission

My Email to the Commissioners, Reagan Greer and Gary Grief

6-06-05

Subject: $8 Million Jackpot & Grievance Policy

Dear Commissioner Clowe, Commissioner Cox, Commissioner Olvera

I just wanted to be the one to tell you that I filed complaints with the AG and the DA of Travis County today regarding Wednesday's advertised $8 million Lotto Texas jackpot. I regret this but I feel the TLC should not knowlingly mislead the public.

As you know, the Lotto Texas rule states that the TLC will pay the greater of either the amount advertised or the amount in the prize pool for the first 4 draws in a roll. After the 4th draw, then they only pay the amount in the prize pool.

I certainly agree with paying pari-mutuel prizes - this is the only way to guarantee the people that they will receive their share of sales. But, I also believe in truth in advertising and if the jackpot is won, a winner would not receive $8M as stated.

I called Bobby Heith this morning and asked him what the factor was but he refused to tell me. He said I'd have to make an open records request. I do request jackpot estimates each Sunday but in this case there was not enough time to obtain the information thru channels so I was hoping the TLC would simply tell me the factor.

Since I obtain the factors from other lotteries easily, I was able to determine the approx costs for Texas. The rate I obtain is always higher than what Texas obtains so I am positive that a winner would only receive roughly $6.5 million and this is too far off the amount advertised. To me and others I've contacted today, this is deceptive advertising.

I've also been meaning to raise one more issue of importance. The TLC does not have an employee grievance policy. I took it upon myself to contact other state agencies - roughly 20 of them - and so far I haven't found one that doesn't have something in place for grieving employees. This includes the AG, Comptroller, State Auditors Office, SOS, Dept of Banking, Environment Quality Commission, DOT, CPS, Building and Procurement, plus many others.

The TLC is the only agency I found that doesn't have a grievance policy for their employees.

I would like to urge you to do the right thing and have the TLC provide an official source for employees to complain - if of course, they have a complaint.

Thank you for any consideration given to these two issues.

Dawn Nettles
P. O. Box 495033
Garland, Texas 75049-5033
(972) 686-0660