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Investigation: Illinois Lottery didn't award 40% of scratch-off grand prizes

Illinois LotteryIllinois Lottery: Investigation: Illinois Lottery didn't award 40% of scratch-off grand prizes
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It was called The Good Life and offered the biggest grand prize of any instant game the Illinois Lottery had ever produced.

Two lucky winners could scratch their way to $46 million each, paid in periodic installments. At $30, tickets weren't cheap, but millions were sold. Then the game ended before the lottery sold most of the tickets that were printed, with neither top prize awarded.

The same thing happened with another instant game, called Birthday Surprise. Two large grand prizes offered. Neither awarded.

And with another version of The Good Life. Three large grand prizes offered. None awarded.

An investigation conducted by the Chicago Tribune found the Illinois Lottery collected hundreds of millions of dollars from selling tickets to instant games in which it did not hand out all of the life-changing grand prizes — sometimes awarding no grand prizes before ending a game.

For the biggest instant games, beginning in 2011 and ending in 2015, the lottery did not award 23 grand prizes, or more than 40 percent of those designed into the games, the Tribune found. While lotteries across the country sometimes do not hand out all grand prizes in every game, Illinois' rate of awarding the top prizes in these games was significantly lower than any state studied by the Tribune.

The Tribune also found that, because of how the games ended, the lottery often paid a lower percentage of revenue than the games were designed to pay. While fluctuations are common in the industry, Illinois' results were lower than found elsewhere — keeping millions of dollars from players' pockets.

The findings frustrated longtime players like Jim Jurewicz, a retiree from Harwood Heights.

"A person's playing that game hoping to win a big one. And maybe they played it for six months or longer. And then all of a sudden the game's gone with all these winners supposedly unclaimed," he said.

Illinois became the first state in the nation to turn over day-to-day management of its lottery to a private firm. The firm, Northstar Lottery Group, took over the Illinois Lottery in July 2011. Since then, Northstar has been criticized for failing to deliver the profits to the state it projected when it won the Illinois bid. The state is now looking for a replacement.

But there has been little talk of how private management affected players.

International Game Technology, formerly known as GTECH, and Scientific Games, which formed Northstar, are multinational companies that have long done behind-the-scenes grunt work for state lotteries, including Illinois.

The management company has been paid based on how much profit it brought the state. The firms have touted their work in Illinois as they pushed to expand their business and manage lotteries in other states.

IGT, which controlled Northstar, and Scientific Games did not dispute the Tribune findings that many big prizes weren't awarded, nor that those games' payout rates were lower than designed. But they argued the findings were irrelevant or misleading, and whatever problems may have existed could be blamed on a host of reasons, from meddling state officials to players not fully appreciating the innovative games offered. And the firms also said that players' odds of winning were never affected, even if a grand prize was never awarded.

"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 wrote in response to Tribune questions.

One of the state's most powerful lawmakers, Senate President John Cullerton, said the Tribune's findings left him "very concerned."

He said the unawarded prizes and payout rates could cause lasting damage and cost every taxpayer — even those who have never bought a lottery ticket — in a cash-strapped state that's grown dependent on lottery profits to help make ends meet.

"If the players are not treated fairly, then they'll stop buying it, and then we'll lose money," said Cullerton, D-Chicago.

A bold experiment

State lawmakers were hopeful when they turned over management of the lottery to a private company in 2011.

In their eyes, the lottery had become a moribund business. Private hands, state officials argued, could spur new and creative games that would generate badly needed revenue for the state.

"Government bureaucrats simply are not in the best position to overhaul and remarket the Illinois Lottery," Cullerton said at the time.

Northstar's winning pitch was bold.

While it would continue to grow traditional draw games — in which bouncing numbered balls are randomly selected, for example — the Northstar consortium would look to supercharge sales in the popular instant game category with never-before-seen prizes in Illinois to capture the public's imagination and dramatically increase profits to the state.

The Tribune obtained thousands of pages of records and analyzed scores of data sets from Illinois and several other states to study instant tickets, the best-selling and fastest-growing revenue stream for state lotteries.

With names such as Dazzling Dollar$ and Freezing Your Bucks Off, each instant game tries to attract potential players with a mix of quirky themes and lucrative prizes. Unlike Lotto-type jackpot games, instant games are each preplanned, self-contained products. Each game pays for its prizes from the money it raises in sales.

And that leaves a critical question: How many tickets should they print?

Lottery officials from other states say they try to print only as many tickets as they think they can sell for each game. They know sales tend to taper off for games over time, and they say the goal is to award the final grand prize before sales tank. While printing fewer tickets may limit how many and the size of the prizes they can advertise, those states say they would rather be conservative.

In Illinois, Northstar pushed to dramatically increase the number of tickets printed for games. This allowed them to offer bigger and better prizes for games. Players — enticed by bigger potential wins — bought more instant tickets than ever, the Tribune analysis found.

Players' increased appetite was lucrative for IGT and Scientific Games, who were paid a cut of sales, as well as the state, which received more profit. But the appetite was not nearly enough to gobble up the sea of tickets printed, records show.

And as sales eventually dropped in many of the big-prize games, Northstar pushed to remove tickets from store shelves before all, or sometimes any, of the grand prizes were awarded.

The Tribune reviewed the 138 instant games begun and ended by Northstar in the last five fiscal years, through June 2016. Reporters focused on the 17 games that offered the biggest grand prizes: games with a grand prize costing the state at least $1 million to fund.

Those 17 big-prize games made up only one-eighth of the instant games, but they played an outsize role in Northstar's efforts to meet its ambitious sales targets, accounting for more than a third of the sales.

And the first of those 17 to end was a highly touted game called Birthday Surprise.

Surprise ending

The top of the ticket said Happy Birthday, with the letters positioned as if they were hanging from a string banner at a party.

Below them: the scratch-off area, its coating superimposed with an image of a massive present tied in a bow.

In between were the details of just what could be behind the box: "Win $150,000 immediately and $150,000 on your birthday for the next 20 years!"

For $5, a player could scratch off the present to see if it was a winner.

The game's design called for two grand prizes, and nearly 10 million tickets were printed. That's 3 1/2 times more tickets than the state, when it ran the lottery, had typically sold for a $5 game.

Northstar, through its majority owner IGT, declined to tell the Tribune exactly how many tickets it expected to sell for this game or others, but it acknowledged, in general, it printed more tickets for big-prize games than it anticipated it would sell. One reason it did so, it said, was to make sure it had enough tickets in case players really liked a game. Other states told the Tribune another solution to such a welcome dilemma is to order more tickets and offer more prizes. Northstar did it for one of the 17 games, but not Birthday Surprise.

Scientific Games, the minority partner in Northstar, told the Tribune it objected at the time to the large number of tickets printed to support what it called the Birthday Surprise game's "poorly designed prize structure." The firm declined to provide further details on exactly how it believed the game should have been designed.

Birthday Surprise hit the shelves in late 2012. Northstar's business plan showed the game sold slightly better than traditional instant ticket games through early 2013, when it awarded its first grand prize in a made-for-TV moment.

A struggling cable installer, on his birthday, stopped into Casey's General Store in downstate Auburn and scratched off the first grand prize winner. The state issued a news release on the win, touting the game as one of its most popular on the market.

Within weeks, the lottery invited TV cameras to record officials handing the winner the ceremonial oversize check. A local TV reporter wrapped up her story by showing the face of a Birthday Surprise ticket and noting: "There's actually another winning ticket just like it floating around out there."

To capitalize on the positive coverage, the Illinois Lottery posted that TV report on its YouTube channel.

Yet that same month, Northstar drafted a plan to end the game — making it less likely the second prize would be awarded.

'Player favorite'

In written business plans Northstar provided to the Tribune, the company told the state that the game was a "current player favorite and well performing," but still wasn't selling well enough. So the game would be "reintroduced."

Sure enough, Birthday Surprise was soon pulled from shelves without awarding the second grand prize.

Nobody can say for sure whether someone bought 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.

But the game sold just 64 percent of its tickets. The remaining tickets sat in a warehouse until the game ended and then were destroyed. No winner of the second grand prize came forward.

The lottery offered players no explanation.

Ten weeks later, a new Birthday Surprise entered store shelves nearly identical to the first: same number of tickets printed and same prize structure. Only the ticket design was slightly different, with balloons and smaller presents.

Northstar released a commercial featuring the first version's only grand prize winner — the cable installer — who pitched what Northstar called the "newest edition" of the game. He recounted his lucky win and ended with a variation of the lottery's catchphrase: "Anything's possible."

The second edition of Birthday Surprise was ended after less than 10 months and 49 percent of tickets sold.

Neither of its grand prizes were awarded.

Lagging other states

Both Birthday Surprises were among 17 instant games whose combined results awarded a smaller share of grand prizes than similar games run under state management, or in other states studied by the Tribune.

For comparable big-prize games begun and ended in Illinois in the 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 in line with how other states have run their big-prize games.

The Tribune sought data from states with the highest sales of instant tickets. Six states provided enough data from recent years for comparison.

For grand prizes that cost lotteries $1 million or more to fund, New York awarded nearly 80 percent of them.

In Pennsylvania, it was 83 percent.

In Texas, it was 88 percent.

Florida, Massachusetts and Ohio each had a perfect record: 100 percent.

In Illinois, under Northstar, the rate was 59.6 percent.

Other states' lottery officials said they would be worried about how their players might react to such a statistic in their states.

"Our players are pretty smart," said the Ohio Lottery's head of instant tickets, Ron Fornaro. "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.'"

The two firms behind Northstar — IGT and Scientific Games — declined interviews but responded to written questions.

"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," Scientific Games wrote.
The firms said it was misleading to focus on the big-prize games that were a fraction of all games offered, the rest of which awarded a greater share of grand prizes. They said players bought tickets to win smaller prizes too. And they said other states' data were irrelevant because those states weren't privately managed like Illinois.

In fact, IGT said, the private management deal required aggressive sales goals, and the two firms noted they sold more tickets than ever, helping the state's bottom line, while awarding more prizes than ever.

Players did win more: 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.

The firms said players won in other ways because they got to experience a rotation of popular games, versus being offered only the same games that they may have grown tired of playing.

But that's not how some players saw it.

While buying tickets at Mare's Mini Mart & Deli on Chicago's Northwest Side, Jim Carter viewed it as the "smoke and mirrors effect."

In a follow-up conversation, Carter, a veteran lottery player, questioned why many of the large grand prizes had not been awarded.

"There has to be accountability for that," he said.

Payout rate

The unawarded grand prizes also affected something called the prize payout percentage. It's the percentage of revenue that's returned to players in the form of prizes.

It works like this: If a game is designed to sell $100 million worth of tickets, and designed to pay $70 million in prizes, the payout rate would be 70 percent.

Not every ticket sells, nor is every prize claimed. So game designers insert prizes relatively evenly throughout a ticket print run, which helps to keep the payout rate from fluctuating too much.

That works better for games with smaller grand prizes, because there are generally more of them to spread out, which lowers fluctuations.

Under Northstar, the concept was strained for the bigger games with just a few massive grand prizes each. Based on when those games were ended — and which grand prizes had been awarded by then — the payout rates routinely ended up lower than designed.

Take the game The Good Life: $30,000 A Week For 30 Years.

Based on internal design documents kept by the lottery, the game was designed to award 78 percent of its revenue — most of it in smaller prizes but anchored by two mammoth grand prizes.

It was pulled after selling less than 15 percent of the tickets printed; no grand prizes were awarded.

On an Internet bulletin board devoted to core lottery players, one poster lamented to his peers: "I don't know why they are pulling it, but ... I was playing this game for months and feel they must have made a whole lot of money and paid out very little."

Indeed, by then, the game had raised about $63 million in sales.

It awarded about $38 million in smaller prizes.

The payout rate ended up being just shy of 61 percent, 17 percentage points less than the designed rate of 78 percent.

A sliver of that gap can be attributed to players mistakenly tossing or losing winning tickets. In Illinois, accountants assume 1 percent of all games' sales, collectively, will be lost to the phenomenon.

Still, a Tribune analysis found that, had players been paid out at the 78 percent rate — even adjusting for potential unclaimed prizes — it could have meant another $10 million in players' pockets.

Studying other big-prize games, including the two Birthday Surprises, players could have received another $8 million in prizes if the games had met their designed rates, even after adjustments.

For all 138 games operated by Northstar, players could have collected another $32 million.

Northstar and its firms say they should get bigger adjustments for unclaimed prizes and, regardless, any remaining gaps in payout rates are irrelevant. They say the odds had already been established at the time sales began, and each player had the same shot at winning when he or she purchased a ticket. That didn't change even if, weeks or months later, the lottery decided to end that game before it awarded any big prizes.

The private manager and its firms "were able to uphold our commitment to deliver the odds printed on the back of each ticket, for each ticket/transaction," IGT said in its written responses.

Not everyone agrees that odds are the only way to measure fairness.

Don Lange, an associate business professor at Arizona State University, has studied lotteries and argued that players as a group had an "expected value" of winning back the percentage of revenue the games were designed to produce.

For the game The Good Life: $30,000 A Week For 30 Years, he said, the state committed by the nature of the game's design, in his opinion, to return 78 cents on the dollar to the people who bought tickets.

"It's pretty clear there was a lot of money promised to this group of players that was not paid to this group of players," Lange said.

When measuring the difference between the rate big-prize games were designed to pay and the rate they actually paid, Illinois' gaps were wider than other states studied by the Tribune. That included the state with the highest rate of instant game sales per resident, Massachusetts.

Massachusetts Lottery Executive Director Michael Sweeney said he wouldn't allow games with massive print runs touting big prizes if they ended early and significantly lowered payout rates. He said it would be like a bar "watering the beer down a little bit."

"Consumers know the difference and are going to be smart," Sweeney said. "We want to be respectful and run this business a certain way."

Financial gains

IGT and Scientific Games did significantly increase revenue, boosting sales by hundreds of millions more in each of the first three years than the state would have been expected to do based on its past performance, the Tribune found.

That helped the state and Illinois taxpayers, but it also increased the fees collected by IGT and Scientific Games by tens of millions.

Scientific Games said it had no reason to support Northstar printing extra tickets because it had to eat the printing costs of tickets not sold. But records show it also made more money from the Northstar-managed lottery's dramatic increase in sales.

Because of when games were ended, and payout rates being lower than designed, the excess money was counted as profit — a metric for which Northstar was judged.

IGT and Scientific Games said when games ended was unrelated to payout rates, and the sole reason for ending games was to benefit the state and players.
The Tribune found, in practice, Northstar had fallen so short of its promised profit targets for the state that any extra money kept from unawarded prizes in the games studied by the Tribune would have done little to improve Northstar's performance.

Still, state Rep. Jack Franks, D-Marengo, a longtime Northstar critic, questioned why Northstar ended games early. In other states, where the consortium's members are merely vendors, the gaps in designed payout rates versus actual payout rates are smaller.

"So why is it so different when they frankly have a profit motive?" Franks asked.

That profit motive was phased out two years ago.

Northstar's years of missed profit targets led to years of fights with the state that led to a series of deals in late 2014 and 2015 to change the basic structure of the contract — paying Northstar a flat fee to manage the lottery while the state looked for a replacement.

As pressure was building to change the structure of the deals, Northstar began the final four of the 17 games studied. The last three awarded every grand prize, and since then games have generally printed fewer tickets and are on track to award a greater share of grand prizes.

IGT said it didn't change its philosophy during its management of the lottery, but it attributed the difference in game structures to the realization that players didn't warm to its big-prize strategy, as well as the state taking greater control of the instant ticket management as the structure of the deal changed.

Scientific Games offered a different response. It said the state gave up more control of games recently, allowing the firm to better shape how the games are designed and run.

The state declined to clarify its view of what happened or offer its opinion on the Tribune's findings. The lottery asked the Tribune for written questions, then forwarded those questions to the firms, which responded that they acted in the best interest of the state and players.

"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," Northstar attorney Kim Barker Lee wrote to the state in October.

Lottery spokesman Jason Schaumburg later issued a statement to the Tribune saying the agency "believes strongly that lottery games should be run with transparency, integrity and in complete fairness to players."

The agency, however, did not answer a series of questions about how Northstar managed and marketed instant games to players.

The front of instant game tickets often contains splashy "shoutouts" hawking either the grand prize or the total value of all prizes. And the lottery posts on its website a weekly list of all instant games, noting the number of total grand prizes in games and number awarded so far.

But IGT points to the fine print on the back of a ticket as proof it made no promises it didn't keep. It notes the ticket promises only "approximate" odds of winning, not that players will actually win a specific number of prizes.

And, the firm said, the actual guarantor of the odds is the state itself.

Some players questioned the lottery's practices regarding instant games. Lottie Sowinski, who often plays scratch-offs, said she assumed a game was stopped only after all the tickets were sold.

"It makes you feel, like, that we're a fool to put money into it if they're not going to give out the top prizes," she said.

How the Tribune conducted its lottery investigation

In its investigation of the Illinois Lottery, the Tribune reviewed thousands of public documents it obtained through open records requests and conducted dozens of interviews with lottery officials and experts.

The Tribune reviewed detailed performance and prize data on each of the lottery's instant ticket games begun and ended under its private manager, Northstar Lottery Group, which took over July 1, 2011.

The Tribune limited its inquiries to games that ended sales by June 30, 2015; winners had one year to claim a prize before games officially closed. Of those 138 games, the Tribune focused on the 17 biggest games that contained at least one grand prize that cost the lottery $1 million or more to fund.

Based on the Illinois Lottery's planning documents and game data, the Tribune first calculated the raw number of grand prizes designed into the games and how many of those were actually awarded.

The Tribune's analysis then determined, based on the lottery's records, the designed payout rate of games.

To determine how a game's payout rate actually performed, the Tribune also calculated each game's sales and the value of all prizes awarded.

Chicago Tribune, Lottery Post Staff

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30 comments. Last comment 1 month ago by JoeBigLotto.
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luckyshoes's avatar - nw lady.jpg
Pennsylvania
United States
Member #79502
September 2, 2009
6446 Posts
Offline
Posted: December 9, 2016, 2:17 pm - IP Logged

Bait and Switch.

    lejardin's avatar - Lottery-014.jpg

    United States
    Member #118609
    November 4, 2011
    1056 Posts
    Online
    Posted: December 9, 2016, 2:34 pm - IP Logged

    Illinois AGAIN?  This is a troubling story.  If I lived there I would not be buying any lottery tickets.  Shameful.

      Drenick1's avatar - villiarna
      USA
      United States
      Member #152799
      February 25, 2014
      1095 Posts
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      Posted: December 9, 2016, 3:02 pm - IP Logged

      That is absolutely horrible. I can't believe people are still supporting the Illinois lottery after the IOU payment debacle. If I lived there, I wouldn't sink another penny into any lottery game, even the MUSL.

        Avatar
        South Carolina
        United States
        Member #18322
        July 9, 2005
        1744 Posts
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        Posted: December 9, 2016, 3:19 pm - IP Logged

        Illinois appears to be a Criminal State >> Lacking in Integrity >>> Dishonest Behavior all the time.   Dead

          mypiemaster's avatar - 2015021003pileofcash
          JACKPOT HUNTER

          United States
          Member #141034
          April 2, 2013
          1419 Posts
          Offline
          Posted: December 9, 2016, 3:20 pm - IP Logged

          Jack-in-the-BoxSurprise!!!   Not Really.

          Seek and ye shall find -Matt. 7:7 ...Ask and ye shall receive -John 16:24 ...Give and it shall be given unto you -Luke 6:38 ...Be careful what you ask for!!! -Mypiemaster 1:1

          Having Money Solves Problems That Not Having Money Creates Yes Nod ****John Carlton****

            MaximumMillions's avatar - Lottery-013.jpg

            Germany
            Member #164603
            March 8, 2015
            639 Posts
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            Posted: December 9, 2016, 3:23 pm - IP Logged

            Illinois is the Patel of states it seems.

            Nolege is power.

              Avatar
              New Member
              northern fl
              United States
              Member #161495
              December 1, 2014
              12 Posts
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              Posted: December 9, 2016, 3:49 pm - IP Logged

              Illinois is the Patel of states it seems.

              Knowledge IS POWER....too bad IGNORANCE IS THE NORMAgree with stupid

                Avatar

                United States
                Member #164725
                March 12, 2015
                365 Posts
                Offline
                Posted: December 9, 2016, 4:15 pm - IP Logged

                This is what I think when I think of Illinois:

                 

                City Of Chicago Working Around Clock To Clear 18 Inches Of Bullet Casings From Streets

                 

                http://www.theonion.com/article/city-chicago-working-around-clock-clear-18-inches--54833

                 

                Party

                  noise-gate's avatar - images q=tbn:ANd9GcR91HDs4UJhjxO7cmeMQWZ5lB_FOcMLOGicau4V74R45tDgPWrr
                  Bay Area - California
                  United States
                  Member #136477
                  December 12, 2012
                  4144 Posts
                  Offline
                  Posted: December 9, 2016, 4:17 pm - IP Logged
                  • It's called Theft! Without players, any lottery would belly up.In this case it's  nothing less than biting the hand that feeds you.

                  People who say it cannot be done should not interrupt those who are doing it- George Bernard Shaw.

                    Avatar
                    Chicago
                    United States
                    Member #171107
                    December 31, 2015
                    83 Posts
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                    Posted: December 9, 2016, 5:23 pm - IP Logged

                    People had noticed this thru years with Northstar but Tribune is first one to go indepth

                    The "Good Life" game was a crock and did infact vanish with very little actual winners

                    Honestly how do we even know winning tickets were ever created to begin with?

                    Either way another blow to image of Illinois lottery which has done nothing but decline in eyes of Illinois residents over last 6-8 years

                      Avatar
                      Jacksonville
                      United States
                      Member #153806
                      March 26, 2014
                      361 Posts
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                      Posted: December 9, 2016, 6:30 pm - IP Logged

                      I don't know how they arrived at the 100% payout on $1M+ prizes in Florida since there are games that have ended with unclaimed top prizes of $1M or more.  Not nearly as bad as Illinois, but not 100% either.

                        Avatar
                        New York, NY
                        United States
                        Member #140634
                        March 23, 2013
                        3196 Posts
                        Offline
                        Posted: December 9, 2016, 8:32 pm - IP Logged

                        Check any state with any scratch off game. There are always grand prize jackpot tickets left unsold or unclaimed. Always. Not sometimes. Always.

                          Avatar
                          riverdale il.
                          United States
                          Member #86112
                          January 29, 2010
                          21 Posts
                          Offline
                          Posted: December 9, 2016, 8:50 pm - IP Logged

                          Always cheats when we saw the balls coming out the hole they will put up other numbers and we know didn't come so you wouldn't get paid

                          MS.VICKEYBanana

                            Avatar
                            casper wyoming
                            United States
                            Member #136345
                            December 9, 2012
                            40 Posts
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                            Posted: December 9, 2016, 10:34 pm - IP Logged

                            As pressure was building to change the structure of the deals, Northstar began the final four of the 17 games studied. The last three awarded every grand prize, and since then games have generally printed fewer tickets and are on track to award a greater share of grand prizes.

                             

                             

                            So the only reason they awarded every grand prize was because they knew they were being replaced.

                             

                            So they don't award all the grand prizes, print more tickets then they will need and even shut the games down early when they were running the lottery but when the state says they will be going with a new company they finally start doing things like they should have been doing all along. Too little too late I say.