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When Scratch-Off Lottery Cards Offer Zero Payoff

The lottery, of course, is the moron's bet, a surefire way for anyone who knows his way around statistics to feel vastly superior to the mere mortals who line up at convenience stores to discard their hard-earned dollars.

The odds against winning big are so terrifically high that you'd be better off eating your dollars and hoping that your body magically transforms them into gold.

The statistical folly of state lotteries obviously isn't enough to dissuade millions from hoping for a miracle. Now comes a business professor at Washington and Lee University in Virginia with a design on a lottery that offers far better odds: The court system.

Scott Hoover, who teaches Investments, Managerial Finance and Applied Statistics in Washington and Lee's school of commerce, economics and politics, did a little computing and determined that the Virginia Lottery routinely sells many thousands of scratch-off cards for which there is not merely a slight chance of winning, but rather zero chance. Nil, nada, zippo--as in they already sold and redeemed the winning tickets and there ain't none left.

Hoover has filed a claim notifying the lottery that he plans to sue their collective rears for engaging in a massive fraud against the poor schlubs who buy tickets believing that they at least have some chance to win. As Hoover figures it, the state owes lottery players about $85 million in refunds. The lottery says everything's kosher and the professor should go away.

At first glance, I thought Professor Hoover was a hero of the people. Finally, an academic getting out of the ivy-covered tower to do some research on behalf of the little guy, right? It appeals to the populist in all of us. But as some of your comments on Tim Craig's news story point out, it's not quite so simple.

In fact, the state lottery has for years maintained a web page that notified lottery players when the top prizes in each game have been won, rendering that game rather pointless. Even if Hoover is right that the state has failed to live up to the letter of its own policy, which calls for removing such dead cards from retail outlets as soon as the winning tickets have been redeemed, the fact is that the lottery puts the correct info out there. And there's no evidence that the lottery is intentionally trying to keep games on the market after winners have already emerged.

To the contrary, the state does move to close down games in which the top prizes have been distributed--just not fast enough for the professor's taste. (It's admittedly a bit far-fetched to expect that your average scratch-off card buyer--an impulse buy if there ever were one--to first check in on the lottery's web page to see which games still have the most prizes extant.)

And there is the basic fact that since it is so well documented that lotteries are regressive and offer lousy odds, buyers ought to know better.

So while Professor Hoover is likely delighted to have had his few days of fame--watch for enrollment in his courses to spike next semester--I can't say I'd be too thrilled to have a large pile of tax dollars go his way in damages should he win his case against Virginia's lottery. The professor has made his point and given lottery players fair warning. Now it's time for him to go back to teaching Investments.

By Marc Fisher |  June 16, 2008; 8:13 AM ET
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Comments

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It's an interesting question, because if prof. is right it means scratch-offs are dead as a lottery game. Even with taking the cards off the market, I'm surprised they can survive.

Say the first buyer of a new scratcher wins the large prize. Well, then the state should stop the game? That means the state is paying out, say, $100000, but has ticket sales of only a few thousand dollars. Obviously it can work the other way, too, but it means the payoffs have to be a lot lower to ensure that the state normally makes at least some profit from the game.

Not a problem for the "numbers" games, since all the tickets are sold before the winner is announced.

Posted by: ah | June 16, 2008 9:54 AM

Does this analysis take into account all of the other prizes that are available? Sure, the few big prizes might be gone, but what about all the smaller prizes that get a person their money back, if not a little extra.

I'm usually thrilled if I throw down a dollar on a scratcher and win two dollars. I guess I'm easily amused, but still...

I guess I don't see the point in whining to the courts that you didn't hit the big time on a stinkin' scratcher.

Posted by: Pompous Magnus | June 16, 2008 11:23 AM

Marc:

Some ridiculous thoughts on your part.

1. You state or imply that the professor is doing this for himself (e.g., fame and lawsuite money). If he was in life for the money, believe me, he wouldn't be teaching. If he wins the suit, there is no theory by which he, himself, would be entitled to millions. He can't prove those damages. And any punitive damages would likely go to the public in the form of more winners, rebates, free scratch offs, etc. So the wry comments seem wholly misplaced. Maybe it is you who should go back to journalism school and learn how to write without engendering disgust.

2. If the VA lottery, or any lottery for that matter, is selling cards for which there are no winnners, that is fraud. Disclosing fraud (on a website) doesn't remedy that. So, would it be your position that if someone discloses they have or will rob you, that the theft is somehow excused.

Your view on this generally seems to make little sense to me.

Posted by: Barry WDC | June 16, 2008 11:35 AM

While the VA Lottery may put that kind of information on its website, stating that the big prizes have been won, that's still a disingenuous method of doing so. Those that play the lottery are disproportionately lower-income and have less access to a computer and the Internet.

Posted by: Chris L. | June 16, 2008 11:45 AM

Gambling always brings out the Puritan in Marc. Plenty of people are going to drop $10 on "Love Guru" and "Kung Fu Panda," money that they'll never get back. Plenty of people pay money to receive a newspaper that they can get over the internet for free. Yet we don't see Marc calling those people morons.

Don't get me wrong: anyone who blows his or her paycheck through gambling has a big problem. But someone who buys a scratcher occasionally is just buying a moment's entertainment and doesn't deserve to be insulted over it.

Posted by: Tom T. | June 16, 2008 1:16 PM

Tom T. is correct: statisticians should not get too high and mighty when considering the lotto. As long as people spend the money as a form of entertainment, then it is not an irrational thing to do. Certainly a lot of people spend money on the lotto above and beyond what they'd spend for two minutes of entertainment, but for those that don't, it is not illogical.

Moreover, even if it were not an entertaining thing to do, it is not necessarily illogical to spend money on the lotto. Statisticians argue that your chance of winning is basically zero, so despite the possible reward, it's not worth the money. But if you bet an amount of money that is negligible to you (and most people would consider $1.00 "every once in a while" to be negigible) than the possible reward is worth it, because you're risking nothing. Again though, those that spend over a negligible amount are being illogical.

Posted by: Reid | June 16, 2008 2:25 PM

Marc:

Do you really think that most buyers of lottery scratch-off cards access the web? The only time they cross the Digital Divide is when the convenience store clerk enters their losing numbers in the lottery ticket machine.

Posted by: Mike Licht | June 16, 2008 2:57 PM

Wow, I sure hope that the professor's enrollment doesn't go up in the fall. Any student interested in a quality education would do well to avoid a stats class taught by a lottery buyer.

And really, comparing lottery ticket purchases to casual entertainment like the movies? Maybe if it takes you 90 minutes to scratch 10 tickets....

Posted by: Don | June 16, 2008 4:53 PM

If the top prize is gone, why whine. I play and know the odds of hitting the big one is low. I am looking for the decent win, a mid tier prize that makes me happy. Seems to me this Prof (and his law firm) are looking to sue and hope they can "win" the big one their way. This guy is a joke, all press,personal gain and alot of whining.

Posted by: Alan Lewis | June 16, 2008 8:20 PM

LOTTERY GOOD.
MAN BAD.

Posted by: LARRY | June 19, 2008 11:41 AM

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