The Illinois Lottery collected hundreds of millions of dollars from ticket sales for instant-win games and ended many before paying out grand prizes or simply did not award the prizes, according to a Chicago Tribune investigation. The games included the Good Life, which cost $30 per ticket and was ended by the lottery before the two $46 million grand prizes were awarded. The Birthday Surprise and another version of the Good Life also offered life-changing prizes that were not paid out.
In fact, the Tribune learned, from 2011 to 2015, the Illinois Lottery did not award 23 grand prizes for its biggest instant-win games–more than 40 percent. Other state lotteries sometimes do not award every grand prize in every game, however, Illinois’ top-prize award rate in these games was significantly lower other states the Tribune studied. The investigation also found the lottery often paid a lower percentage of revenue than the games were meant to pay due to the way they ended. As a result, players could have won millions more dollars.
The Tribune obtained and analyzed thousands of pages of records and data sets from Illinois and other states to ticket sales and profits of instant games, which are state lotteries’ best-selling and fastest-growing revenue stream. Reviewing the 138 instant games Northstar began and ended in the last five fiscal years, through June 2016, reporters focused on the 17 games that offered the biggest grand prizes that cost the state at least $1 million to fund. Those 17 big-prize games made up only one-eighth of the instant games, but they accounted for more than one-third of the sales.
When the Illinois Lottery hired Northstar Lottery Group to manage the daily operations in July 2011, it was a first. Northstar was formed by International Game Technology, formerly GTECH, and Scientific Games. The Illinois Lottery hired Northstar to more or less shake up the lottery with new and creative games that would generate much-needed revenue. Traditional draw games still would be offered but Northstar would focus on the instant game category with huge prizes to significantly boost profits. But Northstar has not delivered the profits it promised Illinois and the state currently is seeking a replacement.
In response to Tribune questions, IGT wrote, “Northstar consistently and unwaveringly made decisions for the benefit of the players and the Illinois Lottery and not its suppliers IGT or Scientific Games.” IGT and Scientific Games did not deny that many major prizes were not awarded, nor that those games’ payout rates were lower than designed. But they said the Tribune’s findings were irrelevant or misleading, and interfering state officials and players’ lack of understanding were to blame, among other reasons, and players’ odds of winning were not affected even if a grand prize was not awarded.
One of the key issues regarding instant games is the number of tickets that are printed for each game. In other states, lottery officials said they print only as many tickets they believe they can sell per game. Sales tend to taper off after a while, so the goal is to award the final grand prize before that happens. However, in Illinois, Northstar convinced officials to allow them to dramatically increase the number of tickets printed per game. As a result they could offer bigger game prizes and players bought more instant tickets than ever before, according to the Tribune.
IGT and Scientific Games were paid a percentage of the sales, and the state benefited from increased profits. But too many tickets were printed. So as sales dropped in many of the larger-prize games, Northstar removed tickets before all, or in some cases, any, of the grand prizes were awarded. Northstar told the Tribune it printed too many tickets to make sure it had enough in case demand was high. In a similar situation in other states, the Tribune said, lottery officials simply ordered more tickets and offer more prizes.
For example, in 2012 for a $5 instant game called Birthday Surprise, which offered two top prizes of $150,000 immediately and on the winner’s birthday for 20 years, Northstar printed nearly 10 million tickets—3 ½ times more than the state printed when it ran the lottery. Scientific Games, the minority partner in Northstar, told the Tribune it objected to the over-printing of tickets. Northstar, through its majority owner IGT, declined to tell the Tribune exactly how many tickets it expected to sell for Birthday Surprise or other games, but it acknowledged, in general, it printed more tickets for big-prize games than it expected to sell.
A winner came forward and Northstar awarded the first grand prize live on TV. Yet within weeks Northstar made plans to end the game, making it less likely the second prize would be awarded. Northstar gave the Tribune a business plan indicating it told the state the game was a “current player favorite and well performing,” but not selling well enough, so Northstar planned to “reintroduce” it later. It pulled Birthday Surprise without awarding the second grand prize.
Possibly someone had purchased the second grand prize-winning ticket and never claimed it. IGT and Scientific Games said, for security reasons, nobody knows exactly where a winning ticket sits among the millions of tickets printed. However, only 64 percent of the game’s tickets sold. A new version came out 10 weeks later, but it was ended after less than 10 months with 49 percent of tickets sold.
For the previous six years before Northstar was hired, the state awarded 87.5 percent of the grand prizes the games were designed to pay out. That’s comparable to other state lotteries. Ohio Lottery Head of Instant Tickets Ron Fornaro commented, “Our players are pretty smart. If we did that a couple of times, they’d be blowing up our Facebook, saying, ‘Hey, you’re ending games without giving out top prizes.'”
Scientific Games wrote, “Our efforts helped Northstar increase gross sales revenue, provide incremental funding for the state’s beneficiaries, offer more player prizes and generate more commissions for retailers.” IGT and Scientific Games told the Tribune they sold more tickets than ever, helping the state’s bottom line, while awarding more prizes than ever. Players won an extra $340 million a year, on average, compared to the last year of state management. The Tribune found players also spent an extra $490 million a year, on average.
But prizes that go unawarded affect the prize payout percentage, which is the percentage of revenue returned to players in the form of prizes. For example, if a game is designed to sell $100 million in tickets and designed to pay $70 million in prizes, the payout rate would be 70 percent. To keep the payout rate from fluctuating too much, game designers insert prizes relatively evenly throughout a ticket print run. This works better for games with smaller grand prizes since more are spread out. Under Northstar, based on when the games ended, the payout rates routinely ended up lower than designed because the bigger games had only a few massive grand prizes each.
One example is the Good Life: $30,000 A Week For 30 Years. The Tribune found the game was designed to award 78 percent of its revenue, primarily in smaller prizes among two huge grand prizes. But it was pulled after selling less than 15 percent of the tickets printed and no grand prizes were awarded. The game had raised about $63 million in sales and awarded about $38 million in smaller prizes. The payout was 61 percent, 17 percentage points less than expected. The Tribune noted if players had been paid out at the 78 percent rate, even adjusting for possible unclaimed prizes, players could have won an additional $10 million. Considering all 138 games operated by Northstar, players could have collected another $32 million.
Northstar commented gaps in payout rates are irrelevant because the odds already had been established when sales began, and each player had the same chance to win when he or she purchased a ticket. That didn’t change even if the lottery decided to end that game weeks of months later, before any big prizes were awarded. Northstar told the Tribune it was “able to uphold our commitment to deliver the odds printed on the back of each ticket, for each ticket/transaction.” IGT noted the fine print on the back of an instant game ticket promises only “approximate” odds of winning, not that players actually will win a specific number of prizes. It added the state of Illinois is the actual guarantor of the odds.
The gap between what a major-prize game was designed to pay and what it actually paid was wider in Illinois than other states in the Tribune study. Michael Sweeney, executive director of the lottery in Massachusetts, which has the highest rate of instant game sales per resident, said he would not allow games with huge print runs to advertise large prizes if they ended early with lower payout rates. Sweeney compared it to a bar “watering the beer down a little bit. Consumers know the difference and are going to be smart. We want to be respectful and run this business a certain way,” he said.
The Tribune found IGT and Scientific Games did bring in hundreds of millions dollars more in each of Northstar’s first three years than the state likely would have produced. That benefited the state and Illinois taxpayers—and also boosted by tens of millions the fees collected by IGT and Scientific Games. Although Scientific Games claimed it did not support printing extra tickets, it also profited from the dramatic increase in sales. That’s because when games were ended and payout rates were lower than designed, the excess money was counted as profit. However, IGT and Scientific Games told the Tribune they ended games to benefit the state and players and it had nothing to do with payout rates.
In the last three of the 17 Northstar-run games the Tribune studied, every grand prize was awarded and fewer tickets were printed. Currently the state pays Northstar a flat fee to manage the lottery while it seeks a new operator.
Northstar attorney Kim Barker Lee said, “Because the Illinois Lottery removes games from the market due to low sales and general underperformance of the specific game in question, the only relevant conclusion that can be drawn from the 17 games selected by the Tribune is that Illinois Lottery players did not appreciate and purchase these types of games as much as the lottery and Northstar anticipated.”
Lottery spokesman Jason Schaumburg told the Tribune the agency “believes strongly that lottery games should be run with transparency, integrity and in complete fairness to players.”
Senate President John Cullerton said he was “very concerned” about the Tribune study. “If the players are not treated fairly, then they’ll stop buying it, and then we’ll lose money,” he said.
