Fighting the System: Scott

Lottery Scam?

"There is no doubt in my mind that I was cheated by the Virginia Lottery," Scott says. "In the Beginner's Luck game, the grand prize was $75,000. The data I looked at said it was a good investment. There's something very wrong when the lottery's Web site says there are six grand prizes remaining when there were actually zero. The odds of winning the grand prize in the Beginner's Luck game were one in 367,000. When I was buying tickets, the grand prize that I was after was not available. What I'd like to get from the lawsuit is a change in the lottery so that it's fair to everyone who plays it."

"So you just think they're ripping people off right and left?" Dr. Phil asks Scott.

"Well, we know that from about 2002 through 2007 that they were. We have hard proof of that," he says. "Since then, they've said they've stopped this. We're not sure about that, but they've claimed that they've stopped."

"Really? Ralph, is this going on? Are the consumers getting ripped off here?" Dr. Phil asks.

"Definitely," Ralph says. "About half the states that sell state lotteries are doing this. They've already had the top prizes claimed, and people are still buying these tickets, thinking the top prizes are still there. That's about as clear of a deceptive practice that you can have."

"How did you find this out?" Dr. Phil asks Scott.

"I'd never bought a scratcher ticket before this, but I looked online because a buddy of mine said, ‘Hey, let's look at this,' and it showed that a whole bunch of high-dollar prizes were still available," Scott says. "And so I looked at it and said, ‘Gee, this is actually a good investment based on their data,' and bought a bunch of tickets. But something didn't make sense, something nagged at me, so I started tracking it over time online, the data they posted. And I finally realized, ‘Gee, this is violating the basic law of statistics.' The data they are putting up has to be false data. So at that point, we filed a long series of Freedom of Information Act requests and finally got the pieces of information out, so we could definitively prove what they were doing."

"You say you tracked this across time? That's anal," Dr. Phil jokes.

"Well, I am a finance professor, and I also teach applied business statistics. I'm a numbers junkie," Scott says.

Dr. Phil turns to Scott's attorney, John Fishwick. "You say they haven't fixed the system? Why is that?"

"Well, right after we filed the lawsuit and after we met with them, they issued a press statement saying that it was possible that there was a chance that what Scott was saying was true. To us, that's really saying it's happened," John says. "They haven't released what they say the figures are; how much money they say they've taken from people. We say it's $85 million. What's their number? They won't share that with us. They won't officially stop it, and they also won't refund the money to the folks."

"I want to be sure I've got this right. They are continuing to sell tickets promising that that ticket is a chance for a grand prize that is not available," Dr. Phil says. "That's just out and out fraud!"

"Well, the main thing it is, it is certainly a breach of contract," John says. "Because the ticket itself says, ‘Win up to $75,000' and when that's off, then you can't win it. It also is potentially a fraud claim, and we're likely to add that to the lawsuit, and we've given them notice of that as well."

Scott demonstrates how the Virginia Lottery works by using two decks of cards. He holds up one stack of playing cards. "Let's suppose that these cards are lottery tickets, and it costs $1 per ticket, and let's suppose that the four Aces are each worth $10. If you get an ace, you win $10," Scott says. "OK, so you started buying tickets." Scott starts laying the cards down one at a time. "And other people are coming in to buy the tickets, and gradually they are depleted, but here, somebody won."

 

He pulls out the Ace that he laid on the table. "You just won $10. So one of the four Aces is now gone, and we know there are only four of them in there. So we keep going and other people keep buying," he says as he lays more cards down on the table, coming across another Ace and setting it aside. "Oh, here somebody else won. Two Aces are now gone." He continues until all four Aces have been found. "The last Ace disappears, so it's now been claimed. The lottery knows that, because people have to file and fill out paperwork, so they know that last prize is gone. The question is, if you know what's happened here, do you want to buy a ticket now?"

"I'll pass," Dr. Phil says.

"Yeah, and nobody in their right mind would buy one here. And the lottery has said there are second and third place prizes here, but you wouldn't buy it anyway because there's another lottery ticket right next to it with a different game that has top prizes out there," he says. "Now, the Lottery has a problem because they post data online, and it shows the number of winning tickets remaining. And so at this point, they'd have to report a zero, right? So what they do, on their most popular games, when they want to continue it, is they create a second shipment of tickets and they slide it underneath that first shipment."

Scott slides a second deck of cards under the ones that remain from the first deck. "They don't mix these again. They can't because these are sold on long rolls. And so, now what they do is they put on their lottery Web site that there are four grand prizes remaining. Now, in my example here, I've got a red deck and a blue deck, so you can see the difference. The lottery makes the tickets identical in these shipments so there's no way to tell. The consumer has no idea," he says.

 

Scott continues. "So the question is " I'm telling you that there are four grand prizes available here. Do you want to buy a ticket? And the answer is, of course, no, because we're still in the first shipment. You and I know that in this example, but the consumer in Virginia does not know that because the tickets are the same, and until these tickets are sold, until they are off the table," he says, showing the first deck, "nobody has a chance to win."

"That doesn't sound right to me," Dr. Phil says. He reads a statement by the Virginia State Lottery: "The Virginia State Lottery ‘stands behind the integrity of our games,' they say, ‘emphatically disagree with [Scott's] allegations, and are eager to vigorously defend the integrity of the Virginia Lottery in a court of law.'

 

"So they say they are anxious to vigorously cross-examine you with your decks of cards," Dr. Phil says. He turns to John and says, "I think he's going to be a good witness."

"Absolutely. We're anxious too," he says.

Dr. Phil's audience members receive a copy of Ralph Nader's book, The Frugal Shopper. For more information about his book, go to NaderBooks.org.