FEATURE ARTICLE I THE CALIFORNIA STATE LOTTERY'S W J MCONTRIBUTION TO EDUCATION: THE STATE LEARNS TO DECEIVE by Elisa M. D'Angelo* INTRODUCTION Living in California, it is impossible to ignore the massive advertising cam- paign sponsored by the California State Lottery. During the past five years, radio spots, billboards, magazine advertise- ments, newspapers, posters, television commercials, and even television shows have constantly reminded Californians that "millions of dollars" are theirs for the taking-and "our schools win, too!" How much of this expensive advertis- ing is necessary? How much of it is on the level? Is the state telling us every- thing we have a right to know? Does the State Lottery engage in advertising and marketing techniques which are not tol- erated when engaged in by private enter- prise? What laws exist to protect the public from misleading or false claims made by the State of California in pro- moting its Lottery? Unfortunately, the answers to some of these questions are not satisfactory. Many private businesses routinely walk that fine line between advertising claims which are legally acceptable and claims which are fraudulent and/or misleading. The actions of the State of California should not approach that line. But the California State Lottery promotes gam- bling by engaging in advertising cam- paigns which misstate the value of the prizes, distort the odds of winning, overemphasize the significance of Lot- tery proceeds on the state's education budget, and encourage those who can least afford it to waste unlimited funds on an ephemeral fantasy. LOTTERIES TODAY In General. At present, 33 states operate lotteries. Eleven of these lotter- ies have been launched since 1981. Although a number of subsidiary forces may have lurked behind the legalization of each lottery, it is fairly safe to say that one reason overshadows all others: lot- tery revenues are perceived by most vot- ers (and legislators) as an alternative to *The author is a staff counsel at the Center for Public Interest Law and Associate Editor of the California Regu- latory Law Reporter. tax increases. During the 1970s and 1980s, legislators across the country were quick to recognize that when faced with either a tax hike or the legalization of a lottery, their constituency was more receptive to the lottery.' Moreover, in approximately half the states operating lotteries today, the rev- enue is statutorily dedicated to a specific program-often one considered to be fundamentally important to the well- being of the state and politically palat- able to the electorate. These programs include worthy causes such as education, senior citizens' programs, transportation, parks and recreation, and job develop- ment.' If there is no such specific man- date, the revenues are usually deposited in the state's general fund for disburse- ment. Creation of the California State Lot- tery. During the early 1970s, the Califor- nia Senate Committee on Governmental Organization was presented with no few- er than twelve separate measures which would have authorized the establishment of a state lottery. 3 This fact prompted the Committee to direct its staff to conduct a study regarding the effects of a state-run lottery in California. This study, released in 1975, acknowledged that gaming rev- enue may be "regressive, inequitable, costly, variable and unpredictable."' Fur- ther, the report noted that in order for a lottery to be successful, the state would have to promote gambling as a business, 5 presumably through intensive marketing strategies. The Committee report discussed some of the arguments against legalized gambling. Initially, gambling is general- ly viewed as a vice; it compels people to act irrationally in the vain hope of get- ting something for nothing.' Also, many fear that gambling corrupts government. The Reverend Dean M. Kelley, Director of Governmental Relations for the National Council of Churches in New York, has stated, "They say that by legal- izing gambling you take it out of the hands of criminals, but it's my impres- sion that rather than making gambling honest, it makes government corrupt." Another fear is that the sponsorship of gambling is a peculiarly inappropriate activity for government participation.' Finally, the establishment and promotion of legalized gambling could depress business markets by diverting money away from consumer purchases. 9 These concerns reveal just a few of the reasons the state legislature consis- tently rejected attempts to establish a lot- tery. However, in 1984, the matter was taken out of the legislature's hands and put into the hands of the California elec- torate in the form of Proposition 37, the California Lottery Act. Proposition 37 was a constitutional and statutory initia- tive which authorized the creation of the California State Lottery and the Califor- nia State Lottery Commission, a five- member board authorized to implement and manage the Lottery.' 0 The initiative specifically directs that 50% of Lottery revenues be paid as prizes, no less than 34% be allocated to public education, and no more than 16% be used for over- head expenses.". The initiative was draft- ed and promoted by a group called "Cal- ifornians for Better Education." However, the primary sponsor of and contributor to this group was Scientific Games, one of the largest vendors in the lottery industry and a subsequent recipi- ent of major California State Lottery contracts. Proposition 37 was heavily promoted to the California voters. One estimate of the amount spent by Scientific Games alone put the total figure at over $2 mil- lion.' 2 And the promoters of the initiative were rewarded: Proposition 37 was approved by the California voters. Thus the California State Lottery (CSL) was created-and it quickly become the largest state-run lottery in the country.' 3 Further, its annual administrative budget is larger than those of California's most important regulatory agencies combined. In 1989, the Commission on California State Government Organization and Economy (also known as the "Little Hoover Commission") reported that the estimated amount of money spent by CSL that year on its own administration (excluding the amounts directed to pub- lic education and prize money) exceeded the combined budgets of the Air Resources Board, the California Waste Management Board, the Coastal Com- mission, the Fish and Game Commis- sion, the Board of Forestry, the Water Resources Control Board. the Public The California Regulatory Law Reporter Vol. 11, No. I (Winter 1991)
Transcript
FEATURE ARTICLE
I THE CALIFORNIA STATE LOTTERY'SW J MCONTRIBUTION TO EDUCATION:
THE STATE LEARNS TO DECEIVEby Elisa M. D'Angelo*
INTRODUCTION
Living in California, it is impossibleto ignore the massive advertising cam-paign sponsored by the California StateLottery. During the past five years, radiospots, billboards, magazine advertise-ments, newspapers, posters, televisioncommercials, and even television showshave constantly reminded Californiansthat "millions of dollars" are theirs forthe taking-and "our schools win, too!"
How much of this expensive advertis-ing is necessary? How much of it is onthe level? Is the state telling us every-thing we have a right to know? Does theState Lottery engage in advertising andmarketing techniques which are not tol-erated when engaged in by private enter-prise? What laws exist to protect thepublic from misleading or false claimsmade by the State of California in pro-moting its Lottery?
Unfortunately, the answers to some ofthese questions are not satisfactory.Many private businesses routinely walkthat fine line between advertising claimswhich are legally acceptable and claimswhich are fraudulent and/or misleading.The actions of the State of Californiashould not approach that line. But theCalifornia State Lottery promotes gam-bling by engaging in advertising cam-paigns which misstate the value of theprizes, distort the odds of winning,overemphasize the significance of Lot-tery proceeds on the state's educationbudget, and encourage those who canleast afford it to waste unlimited fundson an ephemeral fantasy.
LOTTERIES TODAY
In General. At present, 33 statesoperate lotteries. Eleven of these lotter-ies have been launched since 1981.Although a number of subsidiary forcesmay have lurked behind the legalizationof each lottery, it is fairly safe to say thatone reason overshadows all others: lot-tery revenues are perceived by most vot-ers (and legislators) as an alternative to
*The author is a staff counsel at theCenter for Public Interest Law andAssociate Editor of the California Regu-latory Law Reporter.
tax increases. During the 1970s and1980s, legislators across the countrywere quick to recognize that when facedwith either a tax hike or the legalizationof a lottery, their constituency was morereceptive to the lottery.'
Moreover, in approximately half thestates operating lotteries today, the rev-enue is statutorily dedicated to a specificprogram-often one considered to befundamentally important to the well-being of the state and politically palat-able to the electorate. These programsinclude worthy causes such as education,senior citizens' programs, transportation,parks and recreation, and job develop-ment.' If there is no such specific man-date, the revenues are usually depositedin the state's general fund for disburse-ment.
Creation of the California State Lot-tery. During the early 1970s, the Califor-nia Senate Committee on GovernmentalOrganization was presented with no few-er than twelve separate measures whichwould have authorized the establishmentof a state lottery.3 This fact prompted theCommittee to direct its staff to conduct astudy regarding the effects of a state-runlottery in California. This study, releasedin 1975, acknowledged that gaming rev-enue may be "regressive, inequitable,costly, variable and unpredictable."' Fur-ther, the report noted that in order for alottery to be successful, the state wouldhave to promote gambling as a business,5
presumably through intensive marketingstrategies.
The Committee report discussedsome of the arguments against legalizedgambling. Initially, gambling is general-ly viewed as a vice; it compels people toact irrationally in the vain hope of get-ting something for nothing.' Also, manyfear that gambling corrupts government.The Reverend Dean M. Kelley, Directorof Governmental Relations for theNational Council of Churches in NewYork, has stated, "They say that by legal-izing gambling you take it out of thehands of criminals, but it's my impres-sion that rather than making gamblinghonest, it makes government corrupt."Another fear is that the sponsorship ofgambling is a peculiarly inappropriateactivity for government participation.'Finally, the establishment and promotion
of legalized gambling could depressbusiness markets by diverting moneyaway from consumer purchases.9
These concerns reveal just a few ofthe reasons the state legislature consis-tently rejected attempts to establish a lot-tery. However, in 1984, the matter wastaken out of the legislature's hands andput into the hands of the California elec-torate in the form of Proposition 37, theCalifornia Lottery Act. Proposition 37was a constitutional and statutory initia-tive which authorized the creation of theCalifornia State Lottery and the Califor-nia State Lottery Commission, a five-member board authorized to implementand manage the Lottery.'0 The initiativespecifically directs that 50% of Lotteryrevenues be paid as prizes, no less than34% be allocated to public education,and no more than 16% be used for over-head expenses.". The initiative was draft-ed and promoted by a group called "Cal-ifornians for Better Education."However, the primary sponsor of andcontributor to this group was ScientificGames, one of the largest vendors in thelottery industry and a subsequent recipi-ent of major California State Lotterycontracts.
Proposition 37 was heavily promotedto the California voters. One estimate ofthe amount spent by Scientific Gamesalone put the total figure at over $2 mil-lion.'2 And the promoters of the initiativewere rewarded: Proposition 37 wasapproved by the California voters. Thusthe California State Lottery (CSL) wascreated-and it quickly become thelargest state-run lottery in the country.'3
Further, its annual administrative budgetis larger than those of California's mostimportant regulatory agencies combined.In 1989, the Commission on CaliforniaState Government Organization andEconomy (also known as the "LittleHoover Commission") reported that theestimated amount of money spent byCSL that year on its own administration(excluding the amounts directed to pub-lic education and prize money) exceededthe combined budgets of the AirResources Board, the California WasteManagement Board, the Coastal Com-mission, the Fish and Game Commis-sion, the Board of Forestry, the WaterResources Control Board. the Public
The California Regulatory Law Reporter Vol. 11, No. I (Winter 1991)
*FEATURE ARTICLE
Utilities Commission, the CaliforniaEnergy Commission, the AgriculturalLabor Relations Board, the Fair PoliticalPractices Commission, the Fair Employ-ment and Housing Commission, and theCommission on Teacher Credentialing.'4
LOTTERY ADVERTISING
Is It Necessary? Once a state deter-mines that it is going to operate a lottery,the question remains whether activemarketing, promoting, and advertisingof its lottery is warranted. Lottery offi-cials across the country-as well asadvertising executives-defend theirmassive advertising budgets by assertingthat the more the public is made awareof the lottery, the more it will play thelottery. And more people playing the lot-tery means more money becomes avail-able for state spending. In California,supporters hasten to add that the ultimatebeneficiaries of the advertising cam-paigns are children, through the Lot-tery's contribution to the state educationbudget.
However, some commentators likenthe authorization of a lottery to statelegalization and regulati on of horse rac-ing or dog racing. These commentatorsassert that legalization and subsequentregulation is one thing, but active partic-ipation and promotion is another. Thestate of California, for example, regu-lates the horse racing industry andreceives a percentage of all racetrackhandles,6 which it deposits into its gen-eral fund. Likewise, California presentlyimposes special taxes on cigarettes andalcohol. Revenues received from bothtaxes are used for needed programs. Yetthe state does not actively encourageCalifornians to bet on horse races orconsume liquor or tobacco products,even though it could increase availablefunds for worthy programs if suchadvertising were undertaken.
However, Lottery officials prefer tocreate a distinction between participa-tion in a state-run lottery and engagingin other gambling forums or alcohol andtobacco consumption. Chon Gutierrez,Executive Director of the CaliforniaState Lottery, contends, "The lottery isnot gambling. It's entertainment.""Echoing this argument is Susan Clark,former marketing director of CSL, whohas stated, "I don't consider the lotterygambling....It's a game. People play it tohave fun and help the schools."'" Lotteryofficials continue to make similarremarks despite growing evidence prov-ing the contrary-that lotteries are aform of gambling, potentially as addic-tive and destructive as alcoholism ordrug abuse.'9 These critics contend that
Lottery participation is gambling, andthat the refusal by Lottery officials torecognize it as such is irresponsible.21
Another issue raised by lottery adver-tising is whether it is worth its enormouscost-that is, whether it is as effective asLottery officials and advertising execu-tives would like the public to think. EvenCSL officials admit that its ubiquitousadvertising does not encourage people toplay the Lottery as effectively as otherstimuli, such as large jackpots and theword-of-mouth and media attention thataccompany those jackpots.2'
Additionally, studies show that themajority of Lottery tickets are generallybought by the same group of people.One study revealed that a core group of18% of Lottery players bought 71% ofthe Scratcher tickes sold during the first45 days of the Lottery.2 Another surveyestimated that 20% of all lottery playersaccount for more than 65% of all moneywagered.3 This fact tends to show thatthe general public is not significantlyswayed by the Lottery's advertisingcampaigns. As a result, one wonders ifthere would be any recognizable changein Lottery participation if the state dis-continued or restricted its promotion.
Assuming arguendo that some levelof Lottery promotion is acceptable, is thecurrent $67 million annual advertisingbudget4 of the CSL justifiable? At thatamount, it constitutes one of the largestwest coast advertising accounts outsidethe automobile industry.23 The nation'ssecond largest lottery, the New YorkState Lottery, spends about $19 millionannually on advertising.6 Recently, theNorthern California Broadcasters Asso-ciation announced that CSL is the topradio advertiser in the San Franciscomarket, based on radio advertising dollarexpenditures.7 According to a survey byGaming & Wagering Business magazine,California's annual lottery advertisingbudget as a percentage of ticket sales isby far the highest among the sevenbiggest lottery states.2" Further, althoughthe Lottery has now existed for over fiveyears, its advertising and public relationsprogram has expanded nearly 170%since the Lottery's debut.29
What types of expenditures are in-cluded in this enormous advertising/pub-lic relations budget? The Lottery cur-rently has a four-year advertisingcontract with Dailey & Associates worthup to $175 million. Further, the Lotteryhas agreed to pay another public rela-tions firm a maximum of $7.5 millionover four years to work with its owntwelve-member public affairs unit,which itself has a $3 million annual bud-get; and CSL has agreed to pay $57,300to a Sacramento lobbying firm to help
the Lottery improve its image with edu-cators.3"
For all its self-promotion, only about3-4% of the state's education budgetcomes from Lottery revenues.3 Further,the Lottery Act contains no anti-sup-planting language. Prior to the 1988enactment of Proposition 98, this omis-sion enabled the legislature to simplydivert from the education budget anamount equal to the Lottery contribu-tion-thus reducing the oft-advertised"supplemental" impact of the Lottery oneducation monies to zero. Other statesreport that the overall economic effect oftheir lotteries is also significantly lessthan anticipated. Lotteries in NewHampshire and New York have createdlittle revenue for their states.32 Overall,states usually raise no more than 2-3% oftheir revenues from their lotteries.33
Is the result worth it? The answer tothat question depends on whom you ask.However, one thing seems certain. If theState of California chooses to activelypromote its Lottery, it must do so honest-ly and in good faith. It must abide by allapplicable laws with respect to advertis-ing form and content. And because theState is acting, an extra burden must bemet. The State must continue to meet itsmost vital function of protecting its citi-zens. Has the State of California suc-ceeded in meeting all of these criteriawhile actively encouraging its citizens toplay the Lottery? Consider the follow-ing.
SIGNIFICANT FLAWS INCALIFORNIA STATE LOTTERY
ADVERTISING
Prize Amounts. In the California Lot-tery, prizes of $1 million or more arepaid in twenty equal annualinstallments.4 Using the amount of $1million as an example, this means that awinner receives $50,000 in cash initially,and each subsequent year will receive acheck in the amount of $50,000. Will thenumber of dollars received total1,000,000? Yes, before taxes and anyother deductions are made. Does thismean that the winner has received aprize worth $1 million, as advertised?Absolutely not. The Lottery does not payout grand prizes in today's dollars, yetthat is how it describes the prizeamounts. In other words, CSL fails todescribe the amounts of the grand prizesusing the discounted present value. AsCSL knows, it costs only about $450,000in today's money to buy an annuity thatwill supply the $950,000 worth ofchecks needed over the nineteen-yearperiod following the initial cash pay-ment." And, as CSL knows, $1 million
The California Regulatory Law Reporter Vol. 11, No. 1 (Winter 1991)
FEATURE ARTICLE
spread out over a twenty-year period isworth significantly less than a $1 millioncash payment. As a result, prizes adver-tised by the Lottery as being worth $1million are actually worth approximatelyhalf that much, even before taxes enterthe picture.
So what's the difference between $1million now and "$1 million" over twen-ty years? There's a big difference. A pru-dent investment of $1 million now willyield $100,000 per year ad infinitum;whereas the Lottery's payment planyields only $50,000 per year, and theincome-generating principal is gone bythe end of the twentieth year.
Is CSL deceiving the public when itadvertises its "$1-million-plus" prizes asit does? Lottery spokeswoman JoanneMcNabb attempted to defend the state'spolicy by declaring that "[a]nyone whowins a million dollars gets a million dol-lars. The question is, is someone whowon a million dollars over twenty yearsa millionaire? I'd say he's a million-dol-lar winner."36
CSL also points to its "disclaimer"which sometimes-but notalways-accompanies its advertising.This disclaimer simply states: "Prizes of$1 million or more paid over 20 years."CSL apparently believes that the typicalLottery player translates this piece ofinformation into the fact that CSLinvests about $450,000 in cash, depend-ing on the bond market, in bondspayable over twenty years, and that theinterest accrued plus the principal overthe specified term makes the annual pay-ments to the winner and equals the sumof the prize won. 7
The advertising claims of the Lotteryin this respect are obviously misleading,and the current occasional disclaimerdoes nothing to alleviate the problem.Could this information be clearly andconcisely stated on documents dissemi-nated to the public? It is interesting tonote that CSL executes a document enti-tled ".Prize Structure" for each of its"Scratcher" games; this is basically aninternal CSL document, available to thepublic only through a California PublicRecords Act request. On many of thesedocuments appears the following state-ment: "A $1,000,000 prize ($50,000 for20 years) costs about $500,000 (50% of$1,000,000).""3 Californians have yet tosee this succinct, informative sentenceused in any Lottery brochure, commer-cial, or billboard routinely thrust uponthe public. The Lottery should either payits winners what it advertises when itadvertises (that is, pay a million-dollarwinner $1 million immediately), or clari-fy and include its disclaimer on all rele-vant Lottery materials.
TABLE A
CALIFORNIA STATE LOTTERYINSTANT GAME NO. 21
PRIZE STRUCTURE
120,000,000$1 TICKETS
$120,000,000REVENUE
PRIZE ODDS WINNERS WINNERS IN WINNERS IN1:IN IN 500 240,000 120,000,000
Odds of Winning. Table A contains aportion of the information contained inCSL's "Prize Structure" document relat-ing to Instant Game Number 21 (aScratcher game). The information con-tained in this document is typical of sim-ilar information relating to otherScratcher games. The document setsforth the odds of winning each prizeamount, ranging from l-in-16 odds ofwinning a $2 prize to l-in-l,200,000odds of winning a $10,000 prize.Although the best-stated odds of win-ning a particular prize are 1-in-16 ofwinning a $2 prize, CSL described the"overall estimated odds" of winning aprize as being I in 6.74, and printed onlythis information on each ticket in thisparticular Scratcher game.39 How doesCSL arrive at this figure? This figurerepresents the odds of winning someprize, but not a specific prize amount. Inother words, out of 120,000,000 totaltickets, 17,803,250 will be winners (1 in6.74). The use of this singular piece ofinformation standing alone implies thatthe odds of winning $10,000 are no dif-ferent from the odds of winning $2, andthat the odds of winning even a $2 prizeare much better than they actually are.
For CSL's Instant Game No. 20,"Lucky Streak" (another typical Lotterygame), the printed brochure issued toretailers by CSL simply stated that"[o]verall odds of winning are betterthan I in 6.3." There was no reference tothe actual odds of winning each prizeamount. In order to discern that informa-tion, a Lottery player must be fairlyknowledgeable in math and have a
calculator handy. One can only wonderhow many Lottery players were awarethat the odds of winning even the small-est prize offered in the game were 1-in-11 .9-worse than the "overall odds"printed on the Lottery material-and thatthe odds of winning the largest prizeoffered in the game were 1-in-800,000.
Surprisingly, CSL's policy of disclos-ing only "overall estimated odds" ofwinning on tickets is authorized bystatute." This same statute also requiresCSL to make available to the public alist of either "the estimated number ofprizes of each particular prize denomina-tion that are expected to be awarded ineach Lottery Game", or "the estimatedodds of winning the prizes."'" Not sur-prisingly, the Lottery refrains from pub-lishing the odds of winning the prizesand chooses instead to publish the morepositive number of prizes to beawarded.2
"Instant" Winners? In "Lucky Jok-er", a typical Scratcher game offered byCSL, players could win $2, $5, $50,$500, $5,000, or $100,000. However, aplayer could instantly redeem only $2and $5 winning tickets at the Lotteryretailer. To claim any of the four largerprizes, a winner had to obtain a "WinnerClaim Form" from a Lottery retailer orLottery office, and mail or hand-delivera completed Claim Form and winningticket to any Lottery office, keeping acarbon copy of the Claim Form as proofof the claim. The prize payment wouldthen be mailed to the winner followingvalidation of the ticket. Despite thepotentially lengthy process involved, the
The California Regulatory Law Reporter Vol. It, No. 1 (Winter 1991)
I
FEATURE ARTICLE
Lottery's promotional material for thisgame touts "instant prizes up to$100,000.,41
Is this an "instant" prize? One groupin direct competition with the Lotterydid not think so. In 1986, Santa AnitaRace Track threatened court action toforce CSL to engage in "full, prominentdisclosure of...pertinent details."' Oneof Santa Anita's complaints was thatCSL's use of the word "instant" impliedimmediate payment of all possibleprizes, and was therefore misleading.45
Unfortunately, Santa Anita failed to pur-sue its challenge to CSL's questionableadvertising technique.
More Chances To Win? In calculat-ing the odds of winning a prize in itsScratcher games, CSL determines thatone ticket equals one chance. Pursuantto the game structure, a Lottery playermay win only one prize per ticket, if atall. However, despite that fact, no lessthan three CSL Scratcher games havebeen advertised as providing Lotteryplayers with "three chances to win" perScratcher ticket. In June 1988, CSLadvertised its "Triple Header" Scratchergame with the following statement:"Each ticket starts with not one, butthree chances for you to win."" Thegame consisted of three separate linescontaining baseball box scores. If thenumber in the "Your Score" column washigher than the number in the "TheirScore" column, the player won the prizeprinted on that line. If the Lottery play-er's score exceeded the other score pro-vided for all three games, the player didnot win three separate prizes: he/shewon one independent prize (the opportu-nity to go to the "Big Spin").
In order for CSL's claim to be true, a"Triple Header" player would have to becapable of winning a separate prize oneach of the three lines containing boxscores. However, this was not the case:no ticket contained only two winningbox scores, and tickets with three win-ning box scores won one distinct prize.Therefore, each ticket provided only onechance at winning a prize.
Further, in May 1990, CSL publisheda press release announcing the expan-sion of its Lotto field size from 49 to 53numbers. The expansion of the fielddecreased the chance of winning theLotto jackpot from 1-in- 14,000,000 to I -in-23,000,000. But how did CSL explainthe effect of this change on a Lotto play-er's odds of winning a prize? "Theexpansion of the Lotto number field sizefrom 49 to 53 will increase the numberof possible winning Lotto number com-binations...."'" This statement, of course,implies that it will be easier to win withthe expanded field size.
Marketing Strategies. The CaliforniaState Lottery devotes substantialresources toward encouraging membersof specific ethnic groups to play variousLottery games.9 Specifically, CSL hasdeveloped consumer marketing planstargeted at Hispanics, African-Ameri-cans, and Asians. Each marketing planappears to focus on perceived stereotypi-cal characteristics of each group. Forexample, CSL's Hispanic consumer mar-keting plan includes the following tac-tics:
-"Emphasize the proceeds to educa-tion campaign to Hispanics because ofthe high regard and respect for educationand teachers that is profoundly felt bythe Hispanic community... .Considerusing a well known personality asspokesperson."0
-"Use [a] newly contracted Spanish-speaking spokesperson extensively sincethe Hispanic consumer more easilyestablishes a loyalty and a trust relation-ship with a familiar figure."'
The Lottery's Asian marketing plan isaimed at the Filipino, Chinese, Japanese,Korean, and Vietnamese cultures. As ofSeptember 1988, CSL had "not conduct-ed any comprehensive Asian researchprimarily due to the relatively small sizeof the individual groups compared to theHispanic and general groups."5' Howev-er, the Lottery proposed to "generateaccurate data in order to successfully tapthe full sales potential of the Asian mar-ket." 3 Specific marketing tactics of CSLregarding its "Asian Consumer Market"are as follows:
-"A grassroots retail marketing pro-gram should be adopted. This approachwould start with the use of ethnic-specif-ic in-store, on-premise promotional/mer-chandising efforts such as posters, tabletents, signages, point-of-sale displays,premiums, and free ticket giveaways.This effort should work its way to thestreets where the out-of-home media,such as billboards, bus shelters and busbenches, could have a profound sublimi-nal effect on the Lottery's objective ofimage building."
-"Education is an important issueamong Asian Pacifics, so the Lottery ismissing a major opportunity by not moreeffectively communicating the educationproceeds message to this segment."5
One Lottery advertising companyassigned the task of developing Asian-targeted advertisements stated that as agroup, Asians tend to value control overluck, and therefore recommended toheavily feature the few games thatappear to involve some element of con-trol5 6
Regarding its African-American con-sumer marketing strategy, the Lotterynotes the following:
-"[T]he Lottery must continue to becareful not to overlook the unique cultur-al needs of Black consumers in favor ofthe more obvious language interpretationneeds of other ethnic groups."57
"The Lottery ethnic creative resultsshould be evaluated on an ongoing basisto ensure that they are effective, believ-able, and motivating."5 (No similardirective was included to ensure thatthey are true and accurate.)
One commentator noted that whenadvertising to African-Americans, Lot-tery advertisements appeal to aspirationsfor upward mobility with slogans such as"Think Big." 9
So what's wrong with CSL research-ing its customers and adapting differentadvertising campaigns for different sec-tors of society? The same things thatwere wrong with a similar marketingcampaign proposed by the R.J. ReynoldsTobacco Company (RJR) in early 1990.Soon after RJR announced its plans tomarket "Uptown"-a cigarette aimedexplicitly towards African-Ameri-cans-sharp criticism by civil rightsgroups and Dr. Louis W. Sullivan, Secre-tary of the U.S. Department of Healthand Human Services, caused RJR towithdraw its plans.° Sullivan describedthe marketing strategy as "slick and sin-ister."' 6' Four weeks later, the Washing-ton Post reported that RJR planned tomarket a cigarette brand named "Dako-ta" aimed at eighteen- to twenty-year-oldwhite women with only a high schooleducation or less, working in an "entrylevel service or factory job. 62
Why might RJR be eager to attractthese groups? Because, like CSL, RJRappears to know which groups of peoplemight be attracted to its product. Despitegrowing numbers of non-smokers, thosewho continue to smoke tend to be lesseducated, women, or African-Ameri-cans." Similarly, according to the LatinoIssues Forum, a study conducted by CSLitself showed that the typical HispanicLottery player purchases 2.5 times asmany Lotto tickets as the typical whiteLottery player, even though Latino per-capita income is about half the whiteper-capita income statewide.' Moreover,a study by the San Jose Mercury Newsdemonstrates that Californians earningbetween $7,000 and $18,000 per yearspend more than twice as much per per-son on the Lottery as do those earningbetween $34,000 and $75,000.5 Aiminga "get-rich-quick" gambling schemeat those least able to afford the inevit-able loss is pernicious. Marketing aharmful product toward anyone is
The California Regulatory Law Reporter Vol. 11, No. 1 (Winter 1991)
FEATURE ARTICLE
improper; targeting a vulnerable groupwith an addictive product they may notbe able to afford is intolerable. Whilethis type of behavior is not unexpectedfrom a private enterprise, such conductby government is unconscionable.
LEGAL STANDARDS
Before certain advertising and/ormarketing techniques of CSL could bechallenged in court, a review of theapplicable law is necessary.
Federal Provisions. The FederalTrade Commission (FTC) Act broadlyprohibits unfair methods of competitionin commerce, and unfair or deceptiveacts or practices in or affecting com-merce.' In order io prove a violation ofthis provision, one need only show thatthe challenged practice has a tendency orcapacity to deceive the consumer. Thelikelihood of deception or the capacity todeceive is the criterion by which theadvertising is judged.67 An advertisementsoliciting the purchase of goods is an"unfair method of competition" for pur-poses of 15 U.S.C. section 45(a)(1)where the advertisement contains falserepresentations.8 Further, the mere factthat words and sentences may be literal-ly and technically true does not preventtheir being framed in such a way as tomislead or deceive so as to constitute aviolation of the FTC statute.9
The FTC's review of deceptiveadvertising by a seller to the publicinvolves five elements. First, it is imma-terial whether the seller has an intent todeceive or knowledge of the falsity ofthe representation made to the public."Second, it is not necessary to show thatany consumers were actually deceived."Third, the FTC traditionally judges thetendency to deceive from the viewpointof the gullible consumer.72 Fourth, thedeception must relate to a material fact,one that could affect a consumer's pur-chase decision.73 Finally, the FTC inter-prets the meaning of an advertisementby judging the overall or net impression.Thus, the FTC will look at the context inwhich the representation is made, corre-sponding pictures, and disclaimers,among other things. The FTC will alsolook for half-truths or innuendo, decep-tion by omission, and double meaningsof words or phrases used.74
Although the FTC's authority tointerfere with the actions of a state act-ing in its sovereign capacity has recentlybeen called into question,75 the FTC canand does proceed against state agenciesand entities engaged in deceptive adver-tising in their proprietary capacities."
In addition to the FTC Act's proscrip-tions against deceptive advertising,
another federal statute, 18 U.S.C. section1301, places specific restrictions on thelottery industry. However, 18 U.S.C.section 1307 specifically exempts state-run lotteries from these provisions.
State Provisions. In California, Busi-ness and Professions Code section 17500provides:
[i]t is unlawful for any person,firm, corporation or association,or any employee thereof withintent directly or indirectly to dis-pose of real or personal proper-ty...to make or disseminate orcause to be made or disseminatedbefore the public in this state...inany newspaper or other publica-tion, or any advertising devise, orby public outcry or proclamation,or in any other manner or meanswhatever, any statements con-cerning such real or personalproperty.. .which is untrue or mis-leading, and which is known, orwhich by the exercise of reason-able care should be known, to beuntrue or misleading....
Any act which constitutes a violation ofsection 17500 also satisfies the defini-tion of "unfair competition" in section17200. Section 17200 provides that"unfair competition shall mean andinclude unlawful, unfair or fraudulentbusiness practice and unfair, deceptive,untrue or misleading advertising and anyact prohibited by Chapter I (commenc-ing with 17500) of the Business and Pro-fessions Code."
Unlike the federal statute restrictinglotteries, the Business and ProfessionsCode's deceptive advertising provisionsare expressly applicable to CaliforniaState Lottery advertising. In 1986, AB2008 (Bronzan) was enacted into law;77
AB 2008 amended Government Codesection 8880.24 to specifically requirethe California Lottery Commission, "[i]ndecisions relating to advertising and pro-motion of the Lottery [to] ensure that theLottery complies with both the letter andspirit of laws governing false and mis-leading advertising, including Section17500 et seq. of the Business and Profes-sions Code." Further, AB 2008 amendedGovernment Code section 8880.35 toimpose the same duty on CSL's Director.Therefore, CSL is specifically prohibitedfrom engaging in any type of unfaircompetition or misleading advertising.
Case law interpreting section 17500emphasizes the fact that a statement neednot be untrue in order to be prohibited.The Ninth Circuit Court of Appeals hasheld that "[i]rrespective of its truth orfalsity, any statement which is deceptiveor merely misleading- without intent todeceive, violates [the section]." 8 It is not
necessary that a statement actually leadto deception or confusion to be action-able under section 17500. "What consti-tutes 'unfair competition"...under anygiven set of circumstances is a questionof fact, the essential test being whetherthe public is likely to be deceived."'7
Actual damage resulting from mislead-ing advertising is not necessary to con-stitute a violation of section 17500.80
Also, courts have held that a defen-dant need not have actual knowledge ofthe untrue or misleading nature of thestatements made if, by the exercise ofreasonable care, the defendant shouldhave known that the statements wereuntrue or misleading." Further, if a per-son "makes such an absolute, unquali-fied and positive statement on his part,when in fact he has no knowledgewhether his assertion is true or false, andhis statement proves to be false, he is asculpable as if he had willfully assertedthat to be true which he knew to befalse.
012
Courts have found advertising to bemisleading when words having a doublemeaning are used by an advertiser. "Onewho does this cannot escape the chargeof misleading or deceiving by sayingthat to him, or as he meant the words,they were true."3
With regard to CSL's advertising ofthe value of its prizes, Business and Pro-fessions Code section 17501 specificallyrequires the "value of any thing adver-tised [to be] the prevailing marketprice...at the time of publication of suchadvertisement...." The phrase "prevail-ing market price" contained in section17501 means the predominating pricethat may be obtained for merchandisesimilar to the article in question on theopen market and within the communitywhere the article is sold.4 The "prevail-ing market price" is determined whollyand exclusively by the conditions of themarket at the time and place of sale."Further, the purpose of section 17501,when considered in conjunction withsection 17500, is to ensure the truth andcandor of advertisements which describeor characterize merchandise as possess-ing a certain worth or value."
Business and Professions Code sec-tion 17539.1 places certain restrictionson any person engaged in the operationof any contest. CSL is arguably subjectto these provisions, as it is not one of theentities specifically excluded from itscoverage by Business and ProfessionsCode section 17539.3. Section 17539.1prohibits operators of contests fromactivity such as misrepresenting in anymanner the odds of winning any prize;failing to clearly and conspicuously dis-close with all promotional material all
The California Regulatory Law Reporter Vol. 11, No. 1 (Winter 1991)
lFEATURE ARTICLE
rules, regulations, terms, and conditionsof the contest; failing to clearly and con-spicuously disclose the exact nature andapproximate value of the prizes whenoffered; and using the word "lucky"under specified circumstances.7
Turning to remedies for violations ofthese laws, section 17534 of the Busi-ness and Professions Code provides thatany person, firm, corporation, or associ-ation, or any employee or agent thereof,who violates the misleading advertisinglaws, including the above-referencedstatutes, is guilty of a misdemeanor.
Section 17535 provides that untrue ormisleading advertising may be enjoinedand restitution ordered to a party injuredby prohibited acts. Actions for injunc-tion may be prosecuted by the AttorneyGeneral, any district attorney, countycounsel, city attorney, or city prosecutorin the name of the people of the State ofCalifornia upon their own complaint, orupon the complaint of any board, officer,corporation, association, or by any mem-ber of the general public."
LEGAL APPRAISAL
Based on the foregoing description ofCSL advertising techniques, and in lightof the applicable provisions of law, sev-eral of CSL's activities appear to consti-tute false or misleading advertising. Forexample, if California law requires thatthe value of any thing advertised be theprevailing market price, and the prevail-ing market price of an annuity whichprovides $50,000 a year for nineteenyears is $450,000, it is doubtful that acourt of law would allow CSL to contin-ue advertising the value of such a prizeas being $1,000,000 without a clear andexpress disclaimer provided prior to pur-chase. The brunt of CSL's advertise-ments do not include any disclaimer andmislead about the actual value of theprize. Moreover, a subsequent clarifica-tion or disclaimer cannot cure the priordeceit; a misleading statement used to"bait" a consumer violates deceptiveadvertising statutes applying to privateparties even if corrected prior to pur-chase.89
Further, the public is likely to bedeceived by CSL's claim that a singleScratcher ticket has "three chances towin," when each Scratcher ticket consti-tutes one and only one chance to win aprize. Also, CSL's use of the "overallestimated odds," combined with itsdeliberate decision not to publicize theactual odds of winning each prizeamount, arguably constitute a practicewhich is likely to deceive the public intobelieving that the odds of winning cer-tain prize amounts are better than they
actually are. Finally, CSL's use of theword "instant" in reference to Scratcherprize amounts is likely to mislead a Lot-tery player into believing that any prizewon could be redeemed instantly.
Although some of CSL's marketingtechniques discussed here-such as itsminority-targeting strategies-might notviolate express provisions of law, theydo breach the State of California's socialand ethical responsibilities to its citizensand demonstrates the conflict of interestin which the State has placed itself bypromoting gambling. Further, evenassuming arguendo that CSL's advertis-ing does not violate the letter of Califor-nia's laws prohibiting false and mislead-ing advertising, many of CSL'sadvertising techniques clearly violate thespirit of those laws. And, as notedabove, the CSL Director and Commis-sion are statutorily obligated to ensurethat Lottery advertising and promotioncomply with both the letter and the spiritof those laws.'
LEGISLATIVE OPTIONS
On October 3, 1990-the fifth birth-day of the California Lottery, the SenateCommittee on Governmental Organiza-tion held a hearing regarding CSL. Dur-ing that hearing, members of the Comit-tee expressed considerable misgivingsregarding CSL's advertising and promo-tional revenue expenditures. The Centerfor Public Interest Law (CPIL) testifiedat that hearing regarding its concernsover both the amount and content ofCSL's advertising, and provided possiblelegislative options for correcting some ofthe present problems. Specifically, CPILmade the following recommendations,which are presently under considerationby members of the Committee:
Repeal CSL's Exemption from theAPA. Currently, the California State Lot-tery Commission is exempt from therulemaking provisions of the Adminis-trative Procedure Act (APA);" thismeans that the Commission is free topromulgate rules and regulations withoutnotice, hearing, or opportunity for publiccomment. As a result, the Office ofAdministrative Law has no jurisdictionto review CSL's rules or to ensure thatCSL's rules comply with the clarity, con-sistency, necessity, authority, reference,and nonduplication requirements of theAPA.92 No governmental entity reviewsthese rules prior to their implementation.Other entities which administer con-stantly-changing programs promoted tothe general public-including the Cali-fornia Horse Racing Board-are fullysubject to the APA, and there is no rea-son to distinguish the Lottery. CPIL rec-
ommends that the legislature remove theCommission's exemption from the APA,thus ensuring public notice, commentand debate regarding CSL's proposedrules and regulations.
AG Should Review All CSL Materi-als Intended for the Public. As notedabove, the California State Lottery Com-mission is statutorily required to ensurethat CSL complies with both the letterand spirit of laws governing false andmisleading advertising, including sec-tion 17500 of the Business and Profes-sions Code.93 In June 1989, CPIL made aPublic Records Act request to CSL,requesting copies of the minutes fromany and all Commission meetings sinceJanuary 1987 at which advertising formand/or content were discussed. Inresponse to this request, CPIL receivedminutes from only five of the Commis-sion's 48 monthly meetings since 1987;none of the minutes received indicatethat the Commission takes an active rolein ensuring that CSL's advertising formor content complies with all applicablelaws. As a result, CPIL recommends thata separate state office, such as the Officeof the Attorney General, review all Lot-tery advertising-prior to its release-toensure compliance with both the letterand spirit of the laws governing false andmisleading advertising 4 CPIL also rec-ommends that the Attorney General'soffice review the prize-claiming in-formation printed on all Lottery tick-ets-which has proven to be extremelyconfusing to many Lottery players.95
Restructure Composition of CSL.When the California voters approvedProposition 37, it was with the under-standing and directive that CSL's Direc-tor and the Commission would, in alldecisions, "take into account the particu-larly sensitive nature of the CaliforniaState Lottery and.. .act to promote andensure integrity, security, honesty, andfairness in the operation and administra-tion of the Lottery."96 In manyinstances-such as in endorsing adver-tising campaigns which seem to exploitCalifornia's low-income and minoritypopulations-both the Director and theCommission have abdicated this respon-sibility. In order to ensure that the Com-mission acts in a more socially responsi-ble manner, CPIL recommends that theCalifornia Lottery Act be amended torequire that at least one Commissionerhas experience in consumer representa-tion or public interest law, and to requirethat at least one Commissioner has atleast five years' experience dealing withthe treatment of gambling or other addic-tive behavior.
The California Regulatory Law Reporter Vol. 11, No. 1 (Winter 1991)
FEATURE ARTICLE
Other Suggestions. In addition tothese recommendations, CPIL alsooffers the following legislative options:
-As noted above, the California Lot-tery Act currently requires CSL to printthe "overall estimated odds of winningsome prize or some cash prize" on eachScratcher ticket, and to make available ateach Lottery retail location either a"detailed tabulation of the estimatednumber of prizes of each particular prizedenomination that are expected to beawarded in each Lottery Game, or theestimated odds of winning the pri-zes.... "I This provision should be am-ended to require that the odds of winningeach prize amount be made available tothe public at each location where ticketsare sold, and that CSL note on eachScratcher ticket that the "overall odds ofwinning some prize or some cash prize"does not reflect the odds of winning anyparticular prize amount.
-Currently, the California Lottery Actstates that "no more than 16% of thetotal annual revenues shall be allocatedfor payment of expenses of the Lot-tery.... '.. Because CSL's annual Lotteryadvertising budget (as a percentage ofticket sales) is by far the highest amongthe seven biggest lottery states,99 andbecause CSL's advertising and publicrelations program has climbed nearly170% since the Lottery's debut,"° CPILrecommends that this provision beamended to require that no more than10% of the total annual revenues may beallocated for Lottery expenses, and thatthe share set aside as allocations to vari-ous educational programs be increasedby the 6% removed from the administra-tive budget.
-Pursuant to the California LotteryAct, CSL's Director is authorized to"engage an independent firm experi-enced in the analysis of advertising, pro-motion, public relations, incentives, andother aspects of communications to con-duct a special study of the effectivenessof such communication activities andmake recommendations to the Commis-sion.... "'°' Although this may be a worth-while use of Lottery funds, many firmsmay hesitate to be too critical of CSL outof fear of losing future Lottery contracts.As a result, CPIL recommends that theOffice of Auditor General be required tomake an annual, independent reportregarding the efficiency and/or effective-ness of all Lottery operations, includingbut not limited to Lottery advertising.This report would be presented to theGovernor, the Legislature, the Con-troller, the Treasurer, the Attorney Gen-eral, and the Commission not more thanninety days after the close of each fiscalyear.
CONCLUSION
Lotteries have become a popular wayto raise money. Research indicates thatlotteries work because they appeal totwo elements common to mass chi-canery: the prospect of dream-likeenrichment, and the inability of thehuman mind to calculate rationally thereal odds of success. This latter failurederives from a basic inability of thehuman mind to countenance the real sig-nificance of a scale of millions or bil-lions. And lottery advertising seeks toinfluence those groups most amenable toinfluence: those for whom the dream isalluring because they lack even necessi-ties, and those whose abstract powers ofreasoning and calculation are not welladvanced. Let's be more blunt: Lotteryadvertising is aimed at people who arepoor or naive, and it works-partlybecause it fails to impart sufficient factu-al information to enable the player tomake an informed choice.
Lotteries certainly work in obtainingmonies from persons in the lowerincome brackets. Studies by the Califor-nia State Lottery of who plays avoid,with deliberate care, inquiry into theregressive effects of the Lottery's collec-tions. The data they gather indicates thatpersons in all income groupings havebought a ticket with equal incidence. Butthey avoid calculation of amount gam-bled and of percentage of income gam-bled. Here, we do not need to survey thevolume of Lottery sales at liquor storesin Logan Heights, Watts, or HuntersPoint. We know who is paying big. Thepoor are. Those who have hungry kids athome.
Some would say, "So what?" Thoseare the same people who think that EdMcMahon will be opening up theirsweepstakes ticket, or that the 1/4-caratdiamond on the land solicitation gift listthey may have won is equivalent to theCadillac and Hawaiian vacation whichthey may have also won with equal odds.Or they believe that they too may getrich immediately on real estate with nodown and all financing from governmentprograms nobody else knows about.Why be paternalistic? If they want towaste their money, let them. Besides, alittle gambling is the spice of life. Isn'tthe ball game a little more fun if we have$10 riding on it?
Gambling is not intrinsically evil,particularly if one follows the admonish-ment of Aristotle and maintains "moder-ation, moderation in all things." But thecritics have a point. Isn't the State sup-posed to stand for something? Sure, itneeds money too. But should it exploithuman weaknesses and actively take
large sums of money from people with-out at least clearly informing them oftheir real odds of a return? The Stateenforces a law prohibiting gambling.Then it turns around and finances itselfby promoting gambling-and promotingit hard among those who are the mostvulnerable to its abuse, and brooking nolimits on the amount which can be bet.
Worse yet, it sells the whole schemeby wrapping itself in the flag of educa-tion. Except the Lottery initiative waswritten so sloppily that the money itraised simply replaced money already inthe education budget, which was movedout and into the general fund (beforeProposition 98 was enacted). So thepoliticians stole the money from the fundthey used to sell the Lottery. It is clearthat the only real beneficiaries of theCalifornia Lottery are the liquor stores,advertising executives, mass media, lot-tery contractors, and the bureaucratsadministering and selling the Lottery.
And the critics have another philo-sophical problem. The State is supposedto represent our consensus values. Itshould work toward our highest aspira-tions. And one of our cultural premiseshas been that people reap what they sow.Hard work and performance will winout. If one offers goods and services inthe marketplace which benefit others,he/she will be rewarded. Instead, theLottery promotes a very different ethic:"dream a little dream with me," the adspurr, more reminiscent of the values ofthe drug culture than of the culture ofHoratio Alger. Take a chance, life is justa big spin, whether you win or losedepends not upon what you do, but blindluck.
That such a message should be toler-ated is debatable; after all, this is a freecountry. But should it be the message ofthe State? Should it be the means for it tofeed itself? That is also debatable. InCalifornia, those opposing State entreinto gambling while prohibiting it forothers have lost. And they lost in theproper crucible for such an issue-by avote of the people. But the doubtsexpressed by the critics have a last safeharbor: the way in which the Lotteryconducts its gambling venture, as theState, must be beyond reproach and mustminimize the harm to those most vulner-able to its abuses. The Lottery must notbecome the twentieth-century miracleelixir barkers, not when that very sameState is prosecuting vigorously any pri-vate gambling and any advertiser in theprivate sector for misleading advertisingunder strict scrutiny.
The concerns of Lottery critics sur-vive their defeat on its allowance,and are embodied in legislation to,
The California Regulatory Law Reporter Vol. 11, No. 1 (Winter 1991)
FEATURE ARTICLE
theoretically, preclude deception or mis-leading advertising, to require meaning-ful contribution to educational revenueneeds of the state, and to gather data onthe impact of this State system of gam-bling on the poor and those with a psy-chological addiction to gambling. But,all of these provisions are administeredby a Lottery Commission given the con-comitant legal obligation to raise maxi-mum funds for state consumption; a pre-occupation which regrettably hasdominated legislative review of the Lot-tery. Our examination of the recordreveals that the original critics of the lot-tery system have been proven correct,and that the legal protections successful-ly emplaced in law to assuage that criti-cism have failed. The Lottery has forgot-ten about ameliorating abuse; it isknee-deep in the self-promotion of agambling system above all and at allcosts. It has become the largest paidadvertiser in the state, and the media hasrolled over to push its sleazy message atseemingly every news break. And thisfrom the State-the enforcer of decep-tive advertising and unfair competitionand gambling prohibition laws. TheState of California has failed to set anexample of propriety, taste, integrity, orpublic interest concern. It has becomeking of the hucksters.
FOOTNOTES
1. Cordtz, Betting the Country,Financial World (Feb. 20, 1990) 23, 25.
2. Donoghue and Monroe, The StatesLike The Odds, Time (July 10, 1989) 19.
3. Senate Committee onGovernmental Organization, PublicGaming: Lottery, A Staff Analysis (Sept.1975) at introduction.
4. Id. at 20.5. Id.6. Id. at 16.7. id. at 17-18.8. Id. at 21.9.Id.10. Assembly Committee on Go-
vernmental Organization, FademLottery Initiative Proposition 37 (Aug.22, 1984) transcript of proceedings at i.
11. Proposition 37, codified atGovernment Code § 8880 et seq.
12. Gambling: On a Roll, TheEconomist Newspaper, Ltd. (Jan. 20,1990) 29.
13. Ellis, Lottery Wins Some, LosesSome, Los Angeles Times (Oct. 3, 1990)Part A at 1.
14. Little Hoover Commission(LHC) letter to Governor GeorgeDeukmejian, the Honorable DavidRoberti, the Honorable Willie L. Brown,
the Honorable Kenneth Maddy, and theHonorable Ross Johnson (July 18,1989). The LHC reported the fiscal year1988-89 administrative budgets for mostof California's regulatory/administrativeagencies, including the Air ResourcesBoard ($56,704,000), the CaliforniaWaste Management Board ($4,094,000),the Coastal Commission ($4,207,000),the Fish and Game Commission($319,106), the Board of Forestry($374,433), the Water ResourcesControl Board ($129,505,000), thePublic Utilities Commission($71,868,000), the California EnergyCommission ($32,501,000), theAgricultural Labor Relations Board($6,260,000), the Fair Political PracticesCommission ($3,864,000), the FairEmployment and Housing Commission($851,000), and the Commission onTeacher Credentialing ($10,626,000),which combine for a total of$321,173,539. The CSL reported spend-ing $322,697,895 on its own administra-tion during that same period.
15. Burnett, The Lottery DreamMachine, Oregon Business (Dec. 1989)37.
16. Business and Professions Code §19400 et seq.
17. Donoghue and Monroe, TheStates Like The Odds, Time (July 10,1989) 19.
18. Morain, Offside? Pro SportsStars Running Interference for LottoCould Attract Penalty Calls, LosAngeles Times (Oct. 10, 1986) Part 1 at3.
19. Barron, Gambling in America,New York Times (May 31, 1989)Section A at 18.
20. Id.21. Testimony of California Lottery
Commission marketing director at LittleHoover Commission hearing on Lotteryprocedures (Sept. 15, 1989).
22. Schreiner, Who Plays Califonia'sLottery? American Demographics (June1986) 52.
23. Cordtz, Betting the Country,Financial World (Feb. 20, 1990) 23, 25.
24. Letter from Senator Ralph C.Dills, Chair of the Senate Committee onGovernmental Organization, to DennisMalody, Chair of the California StateLottery Commission (Sept. 21, 1990).
25. Lev, The Media Business:Advertising, New York Times (Nov. 7,1989) Section D at 21.
26.Id.27. California State Lottery Top
Radio Advertiser in New San FranciscoMarket Radio Advertiser Report,Business Wire, Inc. (July 11, 1990).
28. Deitz, Ailing California LotteryDue for an Overhaul, San Francisco
Chronicle (Nov. 5, 1990) at A4.29. Id.30. Id. Further, on June 13, 1990,
CSL reported the following as estimatednon-advertising budget expenditures forfiscal year 1989-90: over $28 million toGTECH Corporation for-among otherthings-terminals, software, terminalmaintenance and facility; $10 million toDittler Brothers, Inc., to produce anddeliver a minimum of 250 millionInstant Game Lottery tickets and pro-vide related services to CSL; $11 mil-lion to Scientific Games, Inc., to pro-duce and deliver 300 million mini-mum/i billion maximum instant ticketsand provide related services; and over$14 million to Pacific Bell for-amongother things-"on-line games/'localloop' circuits." Other estimated budgetexpenditures for fiscal year 1989-90include: $8,827 "to provide live plantsand plant maintenance"; $24,000 "toprovide design and layout direction forCSL's 1989 annual report"; $20,000 "toprovide signage for the CSL headquar-ters complex"; $25,000 "to providearchitectural services for future projectswith the CSL"; $37,650 "to provideconsulting services to assist CSL ininterface with the California educationcommunity"; over $75,000 "to providemaintenance and service of photo-copiers", as well as over $34,000 (to adifferent contractor) "to provide mainte-nance and repair" for photocopiers and$6,000 (to yet another contractor) to"provide maintenance service" forcopiers; over $17,000 "to provide land-scape maintenance for the CSL [head-quarters] complex"; and over $245,000to various private law firms to providelegal advice in the areas of entertain-ment, broadcasting, communicationsand television, trademark, copyright,civil litigation, and taxation matters, inaddition to $261,000 to the StateDepartment of Justice "to represent theCSL in all legal matters, including butnot limited to litigation and bad debtcollections in excess of $25,000 andprovide legal advice as needed." SeeCSL's Contracts Listing (June 13, 1990).
31. According to the Governor'sProposed Budget of 1990-91, a total of$23.9 billion was allocated to K-12 edu-cation during 1988-89; during that sameyear, the Lottery contributed $834 mil-lion to K-12 education (3.5%). During1988-89, community colleges received atotal of $2.09 billion, $96.8 million ofwhich came from the Lottery (4.5%).See also Lu, Fund Drive Launched forSan Marino Schools, Los Angeles Times(Mar. 12, 1989) Part 9 at 1; Pipho, TheLottery Luster, Phi Delta Kappan (Dec.1987) 254, 255.
The California Regulatory Law Reporter Vol. 11, No. 1 (Winter 1991)
FEATURE ARTICLE
32. Senate Committee onGovernmental Organization, PublicGaming: Lottery, A Staff Analysis (Sept.1975) at 19.
33. Burnett, The Lottery DreamMachine, Oregon Business (Dec. 1989)37.
34. California State Lottery,Explanation of Annuity Prize PaymentProcedure (undated).
35. Id.36. United Press International,
Critics Attack Jackpot AdvertisingClaims by California Lottery, San DiegoUnion (Feb. 10, 1990) at A-4.
37. California State Lottery, Expla-nation of Annuity Prize PaymentProcedure (undated).
38. See, e.g., California StateLottery's Prize Structure document forScratcher Games 9, 11-14, and 16-19.
39. Government Code section8880.29 does not require CSL to publishfurther odds breakdown per prizedenomination on the tickets; instead, itdirects CSL to print "the overall esti-mated odds of winning some prize" oneach ticket in every Lottery game utiliz-ing tickets.
40. Government Code § 8880.-29(a)(1).
41. Government Code § 8880.-29(a)(2).
42. See, e.g., California StateLottery's game information sheets forScratcher games "Eureka" (1989);"California Match" (1989); "SurprisePackage" (1987); and "The Good Life"(1986). Of the 25 different Scratchergame information sheets in the posses-sion of this author, 100% contain onlythe estimated number of prizes of eachparticular prize denomination expectedto be awarded in each game; not one ofthe 25 different information sheets con-tained the estimated odds of winningeach of the prize amounts.
The Lottery's tendency to advertisethe overall odds of winning also appliesto the Lotto game. A May 23, 1990,CSL press release announcing theexpansion of the Lotto field size from49 to 53 numbers included the followingstatement: "Overall odds of winning theLotto game with the larger field sizewill be I in 67." Although the phrase"winning the Lotto game" is so ambigu-ous that it may be susceptible to a vari-ety of meanings, it is difficult to form apersuasive argument that it means some-thing other than winning the Lotto jack-pot, However, this was the phrase usedby CSL to inform the public that theoverall odds of winning some prize inthe Lotto game was I in 67. The actualodds of winning the Lotto jackpot arealmost I in 23 million.
43. CSL defends its use of phrasessuch as "win $25,000 instantly" and"win up to $10,000 instantly" by assert-ing that a player finds out instantly(upon scratching the ticket) whetherhe/she has won a prize. CSL's advertise-ments, however, erroneously imply thatall Scratcher prizes are instantlyredeemable.
44. Track Challenging LotteryClaims, Chicago Tribune (Jan. 17, 1986)Sports at 11
45. Id. Interestingly, the Wall StreetJournal agreed with Santa Anita, statingthat "in order to attract financially unso-phisticated people to the lottery, the state[of California] misrepresents the win-nings in almost exactly the same wayfinance companies used to do before the[1969] Truth-in-Lending Law." Id.
46. See CSL information sheet for"Triple Header" (1988) (emphasis origi-nal).
47. The June 1988 "Triple Header"Scratcher game was not the only occa-sion on which CSL erroneously adver-tised that a single ticket carried multiplechances to win. In 1987, CSL claimedthat its "Triple Chance" Scratcher gameoffered "three chances to win," and in1989, CSL advertised its "Lucky Deal"Scratcher game with the statement,"[y]ou have three chances to win witheach ticket." These statements are equal-ly inaccurate for the reasons discussedherein.
48. California State Lottery, LottoGame Changes Set for June 21 (May 23,1990) 1.
49. California State Lottery, Com-munications Effectiveness Study (Sept.1988).
50. Id. at 12-10.51. Id. at 12-7.52. Id. at 14-3.53. Id.54. Id. at 14-5.55. Id. at 14-6.56. Orr, California Gold Rush,
Across The Board (July/August 1988)53, 56.
57. California State Lottery, Com-munications Effectiveness Study (Sept.1988) at 13-1.
58. Id. at 13-3.59. Orr, California Gold Rush,
Across The Board (July/August 1988)53, 57.
60. Black, Who's That Making Wavesin the Cabinet?, Boston Globe (Mar. 18,1990) at A22.
61. Id.62. Ramirez, New Cigarette Raising
Issue of Target Market, New York Times(Feb. 18, 1990) at Part 1-28. Despitevigorous opposition from Dr. Sullivan,U.S. Surgeon General Antonia Novello,
the Women vs. Smoking Network, andDakotans Against Dakota Cigarettes,among others, RJR continues to test-market Dakota in Tennessee and Texas.See Bass, Dakotans, Surgeon GeneralOppose Dakota Cigarettes, United PressInternational (June 13, 1990).
63. Ramirez, New Cigarette RaisingIssue of Tat-get Market, New York Times(Feb. 18, 1990) at Part 1-28.
64. Gamboa, Latinos: Lottery's BigLosers, Los Angeles Times (May 26,1988) Part 2 at 11.
65. Id.66. 15 U.S.C. § 45(a)(1).67. Montgomery Ward and Company
v FTC, 379 F.2d 666 (7th Cir. 1967).68. Gimbel Brothers v. FTC, 116 F.2d
578 (2d Cir. 1941).69. Bockensteete v. FTC, 134 F.2d
72. Exposition Press, Inc. v. FTC,295 F.2d 869, 872 (2d Cir. 1961), cert.denied, 370 U.S. 917 (1962) ("[iun eval-uating the tendency of language todeceive, the Commission should looknot to the most sophisticated readers butto the least").
73. In Re Leonard F. Porter, Inc., 88ET.C. 546, 628 (1976).
74. Rhodes Pharmacal Co. v. FTC,208 F.2d 382, 387 (7th Cir. 1953), aff'd,348 U.S. 940 (1955).
75. California State Board of Op-tometry v. FTC, 910 F.2d 976 (D.C. Cir.1990), pet'n for reh'g denied __ F.2d
- No. 89-1190 (Jan. 8, 1991). Thiscase is likely to be appealed to the U.S.Supreme Court.
76. See, e.g., In Re California MilkProducers Advisory Board, et al., 94F.T.C. 429, 554 (1979) ("...there can beno legitimate state interest in freeing itsindustries or citizens from the operationof the Federal Trade Commission Act topermit false advertising. In short, whereallegations of false advertising are con-cerned, there can be no 'state action'exemption to the national policy incor-porated in the Federal Trade Commis-sion Act").
77. Chapter 428, Statutes of 1986.78. Audio Fidelity, Inc. v. High
83. Garvai v. Board of ChiropracticExaminers, 216 Cal. App. 2d 374, 379,31 Cal. Rptr. 187 (1963); Smulson v.Board of Dental Examiners, 47 Cal.App. 2d 584, 590, 118 P.2d 483 (1941).
84. 30 Op. Cal. Att'y Gen. 127(1957).
85. Id.86. Id. at 128.87. Business and Professions Code §
17539.1.88. Business and Professions Code §
17535. However, injunctive relief undersection 17535 may not be used to enjoinan event which has already transpired; ashowing of threatened future harm orcontinuing violation is required. Peoplev. Toomey, 157 Cal. App. 3d at 1, 20,203 Cal. Rptr. 642 (1985).
Also, individuals are not authorizedto recover damages under these statutes;they are limited to the filing of actionsfor injunctions. Civil penalties are avail-able under sections 17535.5 and 17536,recoverable only by specified publicofficials. Chern v. Bank of America, 15Cal. 3d 866, 875, 127 Cal. Rptr. 110(1976).
89. Exposition Press, Inc. v. FTC,295 F.2d 869, 872 (2d Cir. 1961), cert.denied, 370 U.S. 917 (1962).
90. Government Code §§ 8880.24,8880.35.
91. Government Code section8880.26 exempts CSL from the provi-sions of the state AdministrativeProcedure Act, Government Code sec-tion 11340 et seq.
92. Government Code § 11349.1.93. Government Code §§ 8880.24,
8880.35.94. According to its June 13, 1990
"Contracts Listing" document, theCalifornia State Lottery spends over$500,000 per year on attorneys'fees-to both private law firms and theState Department of Justice; yet theLottery consistently distributes ques-tionable and probably illegal advertisingto the public.
95. See, e.g., Abrams, $32 Million inLottery Prizes Goes Unclaimed, AuditFinds, Sacramento Bee (Dec. 5, 1990).In the Lottery's "Spinsation" Scratchergame, a ticket containing three "SPIN"symbols automatically entitled the hold-er to appear on the "Big Spin" televisionshow (which guarantees a minimumprize of $10,000); a ticket containing
three "PAL" symbols merely entitled theholder to enter a drawing. TheSpinsation tickets contained explicitinstructions for holders of winning"PAL" tickets: "Submit one Spinsationticket with 3 "PAL" symbols to:Spinsation-Spin Pal Sacramento, CA95877." No similarly explicit languagewas printed on the Spinsation ticketsdescribing the process for submittingtickets with three "SPIN" symbols, eventhough winning "SPIN" tickets wereworth a guaranteed minimum prize of$10,000. The language that the Lotterydid include on the ticket-which Lotteryofficials now assert sufficientlyinformed players how to submit ticketscontaining three "SPIN" symbols-wasextremely vague and ambiguous:"Claim prizes of $50 or more (includingSPIN) by using claim form available atretailer and Lottery offices." Wherewere the multitude of CSL-paid attor-neys when this language was approved?Why were the instructions for entering adrawing more precise and explicit thanwere the instructions for submitting aguaranteed winning ticket? TheSacramento Bee states that LotteryDirector Chon Gutierrez admitted thatthe mailing instructions for tickets in theSpinsation game don't "really say whereto send (winning) tickets greater than$10," but that he is "really confusedhow people are getting confused."
Because of the Lottery's failure tospecifically describe the procedure forsubmitting tickets with three "SPIN"symbols, approximately 250 Lotteryplayers contend that they have sent awinning "SPIN" ticket to the Lottery'sdrawing location, and have requestedthe opportunity to retrieve their enve-lope from the Lottery's warehouse. TheLottery's response to these requests hasbeen delayed and unnecessarily restric-tive: it is limiting each player's search toeight hours; allowing each player tobring only four people to assist inhis/her search; and imposing a $13.50per hour fee on each player's search. Inother words, CSL is allowing playersonly one day to search through what theLottery itself estimates to be 4,300,000envelopes. Most regrettably, the Lotteryhas refused to accept any responsibilityfor the confusion, has consistentlyrefused to assist the players in any wayin locating their envelopes, and is nowthreatening to destroy all the envelopesbecause the game is over.
96. Government Code §§ 8880.24,8880.35.
97. Government Code § 8880.29(a).98. Government Code § 8880.4.99. Deitz, Ailing California Lottery
Due for an Overhaul, San Francisco
Chronicle (Nov. 5, 1990) at A4.100. Id.101. Government Code § 8880.45.
The California Regulatory Law Reporter Vol. 11, No. 1 (Winter 1991)
