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Scratch That Itch!: The California Lottery Was Limping Along Until It Changed the Game 

Tuesday, Sep 30 2014
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Lucky Day has two specialties: Chinese entertainment and the California Lottery.

The store in Oakland's Chinatown is crammed floor to ceiling with brightly colored DVDs and CDs bearing names like Highs And Lows and The World Is Lonely.

But Chinese entertainment isn't the store's main attraction. The stream of customers entering the store pays little attention. They are here to play the lottery.

Behind the counter at Lucky Day, and in a vending machine a few feet away, are thousands of lottery scratch tickets. They blend in with the DVDs and CDs, sharing the same eye-catching colors: loud yellows, greens, and reds. Orange and white "hits" — receipts from winning lottery tickets — paper the walls of the shop. In a corner, there's a shrine where customers can pray for luck.

On the day before Chinese New Year, people are in the streets, lighting firecrackers and celebrating. But Jason Li, who owns Lucky Day, isn't closing his shop early. He's busy selling scratchers, as the tickets are called. His customers, mostly Chinese, many older, ask Li to recommend scratchers. Some customers go out of their way to play here, buying their tickets and scratching them off on Li's counter. Losing tickets stack up to one side.

Tom Ko walks into the store and asks Li to pull a $5 Million Jackpot scratcher from the middle of the pack — Ko wants his lucky number. He takes the shiny blue $20 ticket and scratches it off on Li's counter. It's not a winner, so Ko moves on to other, less expensive tickets. "Only one, no good," he says.

Ko then pulls out a thick roll of $20 bills and lays down $300 in cash to buy scratchers. He finishes them one by one and leaves Lucky Day.

Li says many customers play the $1, $2, and $5 tickets, along with familiar draw games like Powerball and Mega Millions. But the $5 Million Jackpot, which costs $20, occupies a special space here. With its higher price come better odds and fatter jackpots.

"Twenty dollars sells very good," Li says. "Most people, they like this game." There's a poster for the game above the scratchers vending machine. "Biggest Scratchers Jackpot Ever," it proclaims, with a lottery ticket rising out of a pile of money. Li has taped a "hit" for a $1,000 winner to the middle of the poster.

When news of the expensive scratcher first arrived, Li says his customers exclaimed, "Oh, a $20 game [is] coming? Wow!" Li has had players come in and buy an entire roll of scratchers — 30 at once — at $600 a pop. And Li's players aren't alone: In the year since the $20 ticket launched, more than 20 million have been sold in California.

The $20 scratch ticket took a long road to arrive at Lucky Day. A pricing scheme that required a change in state law, a hyper-focused ad campaign aimed at dedicated players and Asian-Americans, and decisions about the color scheme: They were months, sometimes years, in the making. California Lottery spokesman Russ Lopez says the lottery believed this $20 ticket represented "an exciting new game at a new price point."

Lottery employees from other states describe the process of marketing a scratcher. "You are always taking a chance when you send a ticket out," says Lauren Luttrell, who manages scratch tickets at the Massachusetts State Lottery.

Ticket design is "as much of an art as a science," says Don Feeney, research and planning director of the Minnesota Lottery. "There's a lot of guesswork, and sometimes we guess wrong."

In the Golden State, decisions are made by the California State Lottery, a 760-employee government agency. This year marks the 30th anniversary of Proposition 37, which created the lottery in 1984. Since tickets first went on sale a year later, more than $74 billion in lottery tickets, including upwards of $34 billion in scratchers, have been sold by the California Lottery.

The California Lottery declined interview requests for this story, along with requests to tour its operations. Lopez writes that lottery employees had "little interest to participate," but agreed to answer "specific" questions about its business and the $20 scratcher by email. Other information was obtained through California Public Records Act requests.

While the Lottery and news outlets hype big jackpots and winners, those business operations, and making sure that players at corner stores are enticed to lay down $20 to hit the jackpot, fly under the radar.

What does it take to design a successful ticket? And how does encouraging people to gamble on the long odds of a winning ticket square with the California Lottery's stated aim of support for public education?

"'Education lottery' is an oxymoron," says Erik Owens, a religious ethicist at Boston College and editor of a book on gambling. While proposals to build casinos usually generate heated public debate, Owens says, "the lottery chugs along without controversy."

Until recently, more expensive scratchers — and the bump in revenues they bring — weren't practical in California. When Texas introduced a $50 scratcher in 2007, the most expensive scratcher in the Golden State cost just $5.

Sales were anemic. In 2007, then-Gov. Arnold Schwarzenegger floated the idea of privatizing the lottery, washing the state's hands entirely. Then sales fell even further and Schwarzenegger vented about California's "underperforming" system. Matthew Sweeny's 2009 book The Lottery Wars called the California Lottery "by many measures the worst in the country" and "an industry byword for weak lottery sales."

And there was high turnover at the top: The Lottery has burned through 20 directors and interim directors in just 30 years, including eight since 2004.

The Lottery saw troublesome restrictions in Prop. 37, which created the agency. When voters approved the measure in 1984, they capped the amount of money that could go towards prizes at 50 percent of Lottery revenues. The law also required the Lottery to return 34 percent of revenues to public education.

That made it impossible to offer the big prizes needed to attract players to $20 tickets. As the Lottery's Deputy Director of Business Planning Jim Hasegawa said at a conference last year, the law "really restricted what we could do with our scratchers games."


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Aaron Mendelson

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