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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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So the state changed the law. A new bill, AB 142, was introduced in the Legislature with the lottery's support. It also had the backing of GTECH, the Italian lottery behemoth that has contributed to campaigns by former L.A. Mayor Antonio Villaraigosa, Assembly Speaker Toni Atkins, and Gov. Jerry Brown. GTECH officially registered its support for AB 142, noting low payouts by the lottery to public education in California, and adding that "the formula is simple ­— higher prize payouts equal more sales and more net revenue."

AB 142 would erase the requirement that 34 cents of every dollar go towards public education. Instead, the Lottery would be required to return 87 percent of all revenue to the public, in the form of contributions to education or beefed-up jackpots. The Lottery's Lopez calls this "prize payout flexibility." And because the higher prizes meant bigger sales, the thinking went, the lottery's contribution to schools would grow along with them.

In 2010, the bill sailed through the California Legislature and was signed by Schwarzenegger. As an "urgency measure," it went into effect immediately.

After AB 142 passed, the Lottery "started really launching our higher price-point games," Hasegawa told the conference. First came a wave of $5 scratchers. Then, a year and a half later, the lottery introduced its first $10 scratcher. The game sold out in a matter of months.

But California still trailed other lotteries: As of last year it was one of only four state lotteries without a $20 scratch ticket. As a Lottery spokesman told the press last year, "California has really been sort of behind the times on offering this price point."

That changed on Sept. 25, 2013, when the first $20 ticket went on sale in California. Within a week, hundreds of thousands had been sold.

The machinery behind scratchers is complex: Their loud colors and enormous prizes are carefully calibrated by the Lottery and its contractors for maximum impact and profitability. Ticket sales are the California Lottery's only source of revenue for its own operations, and they also provide the money for its contributions to education and prizes.

The agency offers a variety of different games, like Powerball and the quick-draw Hot Spot game. But scratchers have accounted for nearly half of all Lottery sales since 1985. Setting the right prizes is critical in attracting players.

Luttrell, who manages scratch tickets in Massachusetts, says that regular players respond when grand prizes are massive, even when their odds of winning aren't. Massachusetts has the highest per capita lottery spending in the country by far, as well as the largest prize payouts — the percentage of ticket sales returned as prizes — at every price level.

"We kind of go by the 80/20 rule, where 20 percent of our players make up 80 percent of our sales," Luttrell says. Those "core players" are "playing those high-end games, they're chasing that huge top prize," she says.

The Texas Lottery has been at the forefront of the move toward more expensive tickets, introducing its $50 scratcher in 2007. Scientific Games, a New York-based company that prints scratchers, advised Texas and other states to invest in games with high jackpots, according to a New York Times report.

Scientific Games introduced the first scratcher in 1974. Today, the company does business with many of the country's 42 lotteries. It reported more than $1 billion in revenue in 2013, half of that from scratchers business. Scientific Games recently won a six-year contract with the California Lottery to provide scratchers.

The company's presence in California goes back decades: Scientific Games' contribution of $1.6 million to the pro-Lottery campaign was critical to passing Prop. 37 in California in 1984.

Lotteries don't just obsess over prizes; they also design the details of each scratcher, keeping an eye on color, size, and competition from other tickets. California's $5 Million Jackpot ticket is particularly eye-catching, printed on shimmering, silver and blue holographic paper.

"These tickets are a little bit like the 'ding ding ding' you hear on a slot machine," says Kit Hinrichs. Hinrichs, a designer based in San Francisco who has done logos for the University of Southern California and the Disney Museum, says the colors are loud, but blend together without leaving a lasting impression.

Lotteries consider factors like which colors are in vogue, and which are already on the market. Recent Massachusetts scratchers feature Pantone's color of the year, "radiant orchid." "Literally because it's a trendy color," Luttrell says.

Ron Fornaro, who manages scratch tickets for the Ohio Lottery, keeps a board of the entire year's tickets behind his desk. "I can see what colors are going on out there, if we need more purples out there, if I need a green, a blue," he says. Luttrell keeps a similar board in her office.

Scratchers are "impulse items," she says, so they need to look good and send bold messages. "Ugly tickets don't sell. They really don't."

Feeney of the Minnesota Lottery says that designs start with vendors like Scientific Games. Lotteries keep up on the competition by looking at other states' tickets on a server maintained by Scientific Games, known as the "Game Gallery." The company's portal has images of more than 25,000 lottery tickets. Lotteries pay to browse and find inspiration from the Game Gallery.

"Lotteries steal shamelessly from each other," Feeney says.

The California Lottery printed 33.6 million of its $20 scratchers. The tickets went on sale in September 2013 at more than 20,000 retailers across California.

Just sending the sparkling $5 Million Jackpot ticket into stores wasn't going to cut it. The Lottery needed to get the word out to players about the brand new, more expensive offering. But there were "limited marketing dollars," Hasegawa said at the December conference, with other initiatives — including the launch of Powerball in California — eating up ad money. "So in order to market the $20 game, we really had to advertise it to its most likely buyers, and do it with great precision," he said.


About The Author

Aaron Mendelson

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