Hoosier Lottery often pulls plug on high-dollar scratch-off games before all prizes can be won

Brittany Mowell and her husband purchase Hoosier Lottery scratch-off tickets a couple of times a week in hopes they’ll win big.

The Indianapolis woman said she felt cheated out of that dream once she learned the lottery was pulling certain high-dollar scratch-off games off the market before all the big-money prizes could be won and paid out.

It felt so unfair she questioned whether such a move was legal.

“That really ticks me off,” Mowell said, “and I feel ripped off.”

Not only is the practice legal, but it is happening with much greater frequency since Indiana hired a private operator — IGT Indiana (formerly GTECH) — to run nearly all of the operations of the Hoosier Lottery.

More than 51 percent of high prize scratch-off game tickets worth more than $1 million have gone unclaimed in the five years since IGT took over. That’s because the company pulled the plug on those games before about half of the tickets could be sold.

In all, Hoosier Lottery players have lost out on $28.7 million worth of high-dollar scratch-off prizes since IGT signed the contract in 2012.

Similarly-sized lotteries surveyed by IndyStar end some games early, but not nearly at Indiana's rate. In four states considered peers by the Hoosier Lottery, up to 20 percent of high-dollar prizes aren’t awarded. In Wisconsin, no high prizes were unclaimed.

Prior to IGT's takeover of the Hoosier Lottery, 10 percent of high-dollar scratch-off prizes weren't awarded.

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Indiana lottery officials defended the increased rate of unsold prize-winning tickets, saying the timing of ending a game is all based on sales performance and player demand, not on how many top prizes have been claimed.

They also argue that the odds on the tickets are still the same, regardless of how many tickets are sold.

“As long as a game is open, the overall odds of winning a prize remain the same,” the Hoosier Lottery said in a statement. “Our game closing statement is printed on the back of our tickets along with odds statement(s). Additionally players can see how many top prizes are remaining on every open game on the lottery website as well as game rules for each game.”

Phillip Stark, a statistics professor at the University of California-Berkeley, who studies lottery odds, disagreed with the lottery's interpretation of a player's odds.

"Conditional on the fact that the prizes have not been claimed after some fraction of tickets has been sold, the odds for future buyers would have been higher," Stark said. 

He also noted that truncating games before winning tickets have been sold saves the lottery money. And IGT's contract with the state has put it under pressure to boost revenues.

In its original contract, IGT was supposed to bring in a net income of $410 million by 2017, but that goal was slashed to $290 million in an amended contract, after IGT repeatedly fell short of its goals. 

While the contractor is failing to meet state goals, it is also shorting customers, some say.

From a player's perspective, all lotteries are inherently unfair because of the low odds of winning, said John Kindt, who teaches economics at the University of Illinois. The large number of unclaimed prizes should be of greater concern, he added.

"I think the public should be suspicious of anything the lottery is doing when there are so many unclaimed prizes and those administrating the lottery aren’t suffering at all even though they haven’t performed up to satisfaction," Kindt said.

Deja vu

For those in the lottery industry, IGT’s approach in Indiana is a familiar one.

A related company – Northstar Lottery Group, whose majority owner is GTECH – operated the Illinois Lottery and was criticized for not awarding 40 percent of scratch-off grand prizes.

The relationship between Illinois and Northstar quickly soured as the private consortium failed to deliver the revenue stream promised in its bid. Eventually, Illinois ditched the company.

Unlike Illinois, the Hoosier Lottery has no plans to end its contract early, despite IGT Indiana’s inability to reach the revenue amounts promised in its bid.

"It's no surprise that Indiana, by ignoring what happened in Illinois, is starting down the same path," Kindt said.

After a Chicago Tribune investigation revealed the Illinois Lottery’s rate of unclaimed high-dollar prizes in December 2016, the Hoosier Lottery appears not to have made any changes in its decisions to end certain games early.

For example, the $25-a-ticket game called “20 Years of Cash” and $5 game “$5,000 A MONTH 20 YEARS OF CASH” were both ended in June 2017, with two of their three grand prizes unclaimed.

Similarly the $20 “HOT 5s HOT STREAK” was pulled from shelves in February 2017, with only 41 percent of tickets sold and none of the three $2.5 million prizes claimed.

That game, the Hoosier Lottery said, ended because a second-chance drawing was already planned. In second-chance drawings, those who bought a non-winning scratch-off ticket can still be entered to win a high-dollar prize. 

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The Hoosier Lottery said high-prize scratch-off games only offer a small look into the Hoosier Lottery operations. In addition, it noted that when second-chance drawings are taken into account, the rate of unclaimed high-dollar prizes drops to 34 percent.

“By focusing only on select games, and then on select prize tiers within those games, your readers may get a false impression of the entire Hoosier Lottery,” Dennis Rosebrough, spokesman for the Hoosier Lottery, said in an email. “Since FY2010 the Hoosier Lottery has launched over 400 different Scratch-off games.”

The rate of unclaimed prizes on all instant games, not just the high prize ones, is largely unchanged since the Hoosier Lottery was privatized, lottery officials said. About 37 percent of prizes went unclaimed overall after privatization, compared to 27 percent prior to privatization.

Hoosier Lottery officials largely consider the operation's semi-privatization, or “sourcing agreement” as they call it, a success, despite IGT's inability to hit the lofty revenue goals set in the contractor's bid. In 2017, the lottery brought in just under $293 million which is $117 million less than they agreed to in the original contract before it was rewritten. 

The Hoosier Lottery said sales and revenue increased by 40 percent since fiscal year 2013, while instant game sales increased by 60 percent.

“Applying innovative product development and consumer marketing principles – a skill set provided by IGT Indiana – has proven to be very successful,” lottery officials said in a written statement. “Instant sales continue to grow as our players enjoy the variety of games and price point options available to them."

'Imagine That'

Soon after the Hoosier Lottery was privatized, it poured money into advertising campaigns. The $11.7 million advertising budget in Fiscal Year 2012 jumped to $21.3 million in Fiscal Year 2013 after IGT was hired.

With that money, the Hoosier Lottery started an “Imagine That” campaign focused on what people said they would do with lottery winnings. Previously, the lottery had taken a more conservative approach to advertising, emphasizing what the lottery's revenue funded.

At the time, some people questioned whether the new advertisements and slogan presented an “unrealistic” dream by not including how slim the odds were of actually winning. For example, Hoosiers had about a one in 962,000 chance of winning the top prize in "50X THE MONEY," which ended in 2015 with two of the three high prizes unclaimed.

The odds on more recent high-prize games make it even more challenging to win. On the "$5,000 A MONTH 20YEARS OF CASH" game that ended in 2017, Hoosiers had a one in 2.9 million chance of winning the grand prize.

In some of its advertisements, the Hoosier Lottery hyped the perks of winning — only to cut ticket sales off early and not award many of the grand prizes.

Les Bernal, the national director of Stop Predatory Gambling, called it a scam.

“It’s encouraging people to play games that are designed to beat them and they don’t even offer (all of the prizes),” Bernal said. “...The Indiana lottery doesn’t market itself as,’ We’re only going to pay out half the prizes.’”

Hoosier Lottery officials said their strategy doesn’t involve limiting prizes. They said sales performance and player demand determine when games end.

“Much like an out-of-style product occupying valuable shelf space in a store, where the demand for that product no longer warrants the space it is occupying, stores remove it to make for a new product that customers want to purchase,” lottery officials said in a statement. “Much the same, we need to remove an underperforming game from the valuable counter and bin space… at the retailer and replace it with another game that retailers can sell and players are looking to purchase.”

On average, the Hoosier Lottery started printing 3.6 times as many tickets for each high-dollar game after the lottery was privatized, meaning the demand would have had to be that much higher or games would need to run longer in order for the percentage of tickets sold not to drop.

But the lottery chose to end many of those games early, leaving 51 percent of high-dollar scratch-off prizes unclaimed. "Peer" states surveyed by IndyStar have significantly lower unclaimed rates:

• In Colorado, 13 percent of high prizes were unclaimed over the last 10 years.
• In Washington, 18.4 percent of high prizes were unclaimed between 2005 and 2016.
• In North Carolina, 13.5 percent of high prizes were unclaimed between Fiscal Years 2014-2017.
• In Wisconsin, no high prizes were unclaimed in the last five years.

None of those states’ rates included the $1 million prizes offered in second-chance drawings.

A representative from the Colorado Lottery said they were “fearful” when one of their $50 ticket games — their highest priced game — ended with one unclaimed grand prize left.

“We were all kind of in a panic,” spokeswoman Kelly Tabor said.

While he said he didn’t know the specific payout rates, David Brunori, a state tax expert who teaches at George Washington University, said most lotteries are starting to cut back on grand prizes. He didn't find the fact that Indiana had decreased their payout rates on high prizes particularly concerning. 

“That’s usually good for the bottom line in the short run,” Brunori said. “In the long run, making it harder to win might make people less excited to play.”

For the most part, most people won’t be incredibly angry unless it’s a particularly nefarious situation, he argued.

So far, it appears that many Hoosier Lottery customers either haven’t noticed or don’t care.

Sales on instant tickets have steadily gone up year after year. In fiscal year 2017, sales were 1.6 times higher than they were in fiscal year 2012. The Hoosier Lottery also has given out more prizes in general, as instant ticket sales have increased.

Indiana recently became one of only 4 states to offer a $50 scratch-off ticket, which critics fear could exacerbate what they already consider to be a regressive tax on the poor. Sarah Taylor, executive director of the Hoosier Lottery, said the lottery refrained from marketing those tickets because it wouldn’t be “socially responsible.”

If the Hoosier Lottery ends that game early, Hoosiers could stand to lose out on some of the three $1 million prizes and two $5 million prizes — the biggest prize offered at one time on a scratch-off since privatization. (One $1 million prize has already been claimed.)

For players like Mowell, the discovery that the Hoosier Lottery has been ending games early is a game changer. She likely won’t keep purchasing high-prize instant scratch off games.

"I think it’s ridiculous," Mowell said. "I better get into the Powerball and start picking my own numbers."

Call IndyStar reporter Kaitlin Lange at (317) 432-9270. Follow her on Twitter: @kaitlin_lange.

How to check status of scratch-off games

To check the status of a scratch-off game or see how many of its prizes have been awarded, go to: https://www.hoosierlottery.com/games/scratch-offs/current-games.