How the scratch off lottery changed America

Summary

Planet Money Episode Summary: "How the Scratch Off Lottery Changed America"
Planet Money, Host/Author: NPR
Release Date: February 5, 2025

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Introduction

In the February 5, 2025 episode of Planet Money, hosts Kenny Malone and Ian Coss explore the transformative journey of scratch-off lottery tickets and their profound impact on American society. Titled "How the Scratch Off Lottery Changed America," this episode delves into the origins, challenges, and explosive growth of scratch tickets, highlighting how a simple innovation reshaped the landscape of gambling in the United States.

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Massachusetts: The Lottery Capital

The episode opens at Joe's Market in Quincy, one of Massachusetts' largest lottery retailers. Hosts observe an overwhelming presence of scratch tickets, contrasting with the store's typical convenience staples. Through interactions with an anonymous mechanic, the podcast illustrates Massachusetts' extraordinary lottery spending habits.

Anonymous Mechanic [00:42]:
"I'm dreaming to get that big one so I can retire. I'm 75 years old. I don't have money in retirement. Too late to start now because I already spent so much money. So maybe this one. But end up getting broke and broke."
(Timestamp: 01:12)

This mechanic reveals he spends substantial amounts on scratch tickets daily, epitomizing the state's high per capita lottery expenditure of $1,037 annually—a stark contrast to other states. As Ian Coss notes, Massachusetts stands out as an outlier in lottery spending, prompting further investigation into how this phenomenon began.

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The Birth of the Scratch-Off Ticket

John Koza's Early Ventures

The narrative shifts to the late 1960s, introducing John Koza, a graduate student at the University of Michigan studying computer science. Koza's initial foray into game design—a board game involving the electoral college—was a commercial failure. However, this setback led him to collaborate with a Chicago-based game company, J&H, which specialized in supermarket and gas station giveaway games.

John Koza [05:58]:
"When I was a graduate student at University of Michigan in the late 60s, I had published a board game involving the electoral college. It was a commercial failure and way too complicated."
(Timestamp: 05:58)

Innovating the Game Mechanism

J&H aimed to develop a game where every ticket could be a winner, utilizing scratch-off technology akin to proto scratch tickets. Koza's expertise in probability and combinatorics was pivotal in creating a system that could generate half a million unique patterns, ensuring unpredictability and security.

John Koza [08:06]:
"We came up with a system of printing that produced half a million different patterns, which was an extraordinarily large number. And that was enough to provide security."
(Timestamp: 08:06)

Despite these advancements, half of the tickets were compromised as players discovered patterns or methods to predict winners, highlighting the fragile balance between security and accessibility.

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Overcoming Challenges: The Path to Scientific Games

J&H's Bankruptcy and New Beginnings

In December 1972, J&H went bankrupt, coinciding with Koza's graduation and exit from academia. Undeterred, Koza and colleague Dan Bauer founded Scientific Games, operating initially out of modest settings in Ann Arbor, Michigan, and Chicago.

John Koza [09:59]:
"In the last year of J&H's existence, we actually made some sales calls on state lotteries, trying to see if they would like to run a game like this."
(Timestamp: 09:59)

Their goal was to elevate scratch-off tickets from promotional gimmicks to legitimate gambling products, capable of offering substantial prizes and instant gratification—an innovation that had yet to resonate with state lotteries.

Pitching to Massachusetts

In 1973, Scientific Games revisited their previous pitches, this time targeting Massachusetts. Unlike other states, Massachusetts' Lottery Director, Dr. Perrault—a PhD in mathematics and bridge expert—was receptive to Koza's scientific approach.

However, Massachusetts had already contracted another company to produce instant tickets using a rudimentary advent calendar-style system. Koza was determined to demonstrate the superiority and security of his design.

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Demonstrating Vulnerabilities and Securing the Contract

Exposing Flaws in Existing Tickets

Koza was granted access to 50 pre-printed tickets to identify and showcase vulnerabilities. His demonstration revealed three critical flaws:

1. Cystoscope Technique:
   Using a medical device, Koza peered beneath the scratch-off layers to uncover hidden numbers.
   John Koza [21:45]:
   "One of them involved a cystoscope, which is a medical device."
   (Timestamp: 21:45)

2. Photocopy Revelations:
   Running tickets through a standard photocopier made the indented numbers visible in copies.
   John Koza [22:04]:
   "It was compelling, let's put it that way."
   (Timestamp: 22:04)

3. Fresca Solution:
   In a dramatic demonstration, Koza poured Fresca soda on the tickets, causing the glue to dissolve and reveal the numbers without visibly altering the ticket.
   John Koza [22:04]:
   "It was compelling, let's put it that way."
   (Timestamp: 22:04)

Despite skepticism, Koza's evidence was undeniable, leading Massachusetts Lottery to cancel their existing contract and award Scientific Games the new, secure ticket contract.

John Koza [23:07]:
"It was compelling, let's put it that way."
(Timestamp: 22:04)

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The Explosion of Scratch-Off Ticket Popularity

On May 29, 1974, Massachusetts witnessed the debut of the world's first genuine scratch-off lottery ticket, characterized by secure indentation-free paper and a shiny metallic film. The launch was an immediate success:

• "Instant Insanity": Described by a liquor store owner, the rush to purchase tickets was unprecedented.
• Separate Sales Counters: Pharmacies set up designated areas to manage the influx without disrupting regular customers.
• Rapid Sell-Outs: Stores across the state quickly depleted their stock, mandating swift resupply efforts.

John Koza [24:53]:
"Absolutely."
(Timestamp: 24:25)

The success in Massachusetts acted as a catalyst, inspiring other states to adopt similar instant lottery systems. By the mid-1970s, multiple states had launched their own scratch-off tickets, contributing to a surge in lottery revenues.

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Organized Crime and State Lotteries: A Complex Relationship

The episode also delves into the interplay between state lotteries and organized crime. In the early 1970s, lotteries were closely monitored to prevent mob influence, which historically had a strong presence in illegal gambling operations.

Vincent Teresa/Vinnie [14:26]:
"I'm talking about a definite syndicate operation that strictly starts with gambling. It all starts with gambling."
(Timestamp: 14:26)

Efforts to legitimize gambling through state lotteries aimed to undermine illegal rackets. However, the introduction of scratch-off tickets inadvertently perpetuated some aspects of organized crime by maintaining the allure and accessibility of instant gambling, albeit in a regulated environment.

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The Transformation of American Gambling

Scratch-off tickets revolutionized the American gambling landscape by aligning with the cultural shift towards instant gratification. This innovation not only increased lottery revenues but also normalized legal gambling as a mainstream activity accessible to a broad demographic.

Ian Coss [28:38]:
"It's kind of a little uncomfortable. I mean, the way I see it, state lotteries and scratch tickets in particular are really kind of the key to understanding the world we live in today."
(Timestamp: 27:12)

The ubiquity of scratch-off tickets has made them a staple in convenience stores nationwide, surpassing traditional lottery games like Powerball in daily sales. This shift highlights the profound impact of scratch tickets on consumer behavior and the gambling industry's evolution.

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Conclusion and Future Implications

The episode concludes by reflecting on the enduring legacy of scratch-off tickets. From their inception in Massachusetts to their dominance in American lotteries, scratch tickets have become a fundamental aspect of modern gambling. They have not only generated substantial revenue but also shaped societal attitudes towards gambling, embedding it deeply into the fabric of everyday life.

Ian Coss [27:50]:
"If you want to know how we got from there to here, the answer is lotteries."
(Timestamp: 28:38)

This transformation underscores the intricate balance between innovation, regulation, and consumer demand, illustrating how a single advancement can ripple across various facets of society.

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Notable Quotes with Timestamps

• Anonymous Mechanic [00:42]:
  "I'm dreaming to get that big one so I can retire... But end up getting broke."
  (Timestamp: 01:12)

• Anonymous Mechanic [02:55]:
  "Six $50 tickets keep going until I'm broke."
  (Timestamp: 02:55)

• John Koza [22:04]:
  "It was compelling, let's put it that way."
  (Timestamp: 22:04)

• Vincent Teresa/Vinnie [14:26]:
  "I'm talking about a definite syndicate operation that strictly starts with gambling. It all starts with gambling."
  (Timestamp: 14:26)

• Ian Coss [28:38]:
  "It's kind of a little uncomfortable... The answer is lotteries."
  (Timestamp: 27:12)

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Key Takeaways

1. Innovation in Gambling:
   The introduction of scratch-off tickets revolutionized the lottery industry by providing instant results and enhancing consumer engagement.

2. Security and Trust:
   Addressing vulnerabilities was crucial in establishing trust and credibility for state-run lotteries, distinguishing them from illegal gambling operations.

3. Economic Impact:
   Scratch-off tickets have become the primary revenue source for lotteries, significantly contributing to state finances.

4. Cultural Shift:
   The normalization of instant gambling through scratch tickets has deeply influenced American gambling habits and societal norms.

5. Legacy of Scientific Games:
   John Koza's Scientific Games continues to be a pivotal player in the lottery industry, shaping the future of gambling through ongoing innovations.

---

This episode of Planet Money provides an insightful exploration into how scratch-off lottery tickets emerged from humble beginnings to become a cornerstone of American gambling, illustrating the complex interplay between innovation, regulation, and consumer behavior.

Transcript

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[Kenny Malone]

This is Planet Money from NPR. Joe's Market in Quincy is one of the biggest lottery retailers in Massachusetts. It. It's got all your convenience store staples, but. But the area behind the counter is dominated by scratch tickets. At least like 50 different clear plastic boxes, all numbered and all dangling. These colorful tickets.

[Ian Coss]

Could I ask you a few questions for the podcast?

[Anonymous Mechanic]

Sure.

[Ian Coss]

So what are you playing right now?

[Anonymous Mechanic]

I play $50 every day.

[Ian Coss]

Have you won yet?

[Anonymous Mechanic]

Right there. So far I already spent 300 bucks on the bucket. There's nothing.

[Ian Coss]

What this man is playing is the State's brand new $50 scratch ticket. He points at the serial number on the top right corner to show he's keeping track.

[Kenny Malone]

This is ticket number seven for today. The other six are in the trash bucket already.

[Anonymous Mechanic]

Six $50 tickets keep going until I'm broke.

[Ian Coss]

So why do you keep playing?

[Anonymous Mechanic]

I'm dreaming to get that big one so I can retire. I'm 75 years old. I don't have money in retirement. Too late to start now because I already spent so much money. So maybe this one. But end up getting broke and broke.

[Ian Coss]

This man is happy to talk money. A couple times he opens up his wallet and shows me exactly how much he has left, how much he's spent. But he doesn't want to say much about himself, including his name.

[Kenny Malone]

We know that he lives nearby, that he works as a mechanic, which, you know, fits with a dark blue work pants and black T shirt. He comes here on his lunch break, part of his daily routine.

[Anonymous Mechanic]

Yesterday I had 1500 count that. Only about 900 left, 600 already out. If the wife find out, you're dead. Done.

[Ian Coss]

The U.S. census Bureau collects lottery sales figures for every state. And you can see right away there are some stragglers on the low end like, like Wyoming, North Dakota, where the average adult spends around $50 a year on the lottery.

[Kenny Malone]

Then there are a lot of states in the middle, California, Texas, Illinois, all in about the $300 range. Towards the top you've got New York, Michigan, Georgia. They're all around 5 or $600 per adult per year.

[Ian Coss]

But then there is the loan outlier, way off the charts at $1,037. That's $1,037 of lottery tickets per adult sold every year in the state of Massachusetts. That is the reason I'm here at Joe's Market to try and understand that number, you got a winner right now.

[Anonymous Mechanic]

100 ohn.

[Kenny Malone]

On his next $50 ticket, number eight for the day, our anonymous mechanic catches a break. He wins 100 bucks.

[Ian Coss]

So what are you going to do with that $100?

[Anonymous Mechanic]

I'm going to buy number two. All right.

[Ian Coss]

That hundred dollars he won turns into another round of tickets. Then another round, not a loser. Then one last round.

[Anonymous Mechanic]

I'm gonna buy one more and that's it.

[Ian Coss]

This time it sticks.

[Anonymous Mechanic]

That's it. I'm done. Back to work.

[Ian Coss]

I try to ask his name one more time as he opens the door. And he responds. Jack. Jen. Jack. Thank you, Jack, for talking to me.

[John Koza]

What?

[Ian Coss]

Which I know is not his name. It's the name of the store clerk. Everyone turns to look.

[Anonymous Mechanic]

I am the Jack.

[Ian Coss]

Everybody's Jack. Everybody's Jack, someone says. And with that, the man is gone.

[Kenny Malone]

Hello, and welcome to Planet Money. I'm Kenny Malone.

[Ian Coss]

And I'm Ian Coss.

[Kenny Malone]

And Ian, you are here today as the host of of a special series from NPR member station GBH in Boston. That series is called Scratch and Win. It chronicles the history of lotteries in America. And Ian, you have brought us part of that series today. Yes.

[Ian Coss]

Yeah. Specifically, we're talking about the birth of the scratch ticket, which, more than any other lottery game, totally transformed the way we gamble. Kenny, get this. Americans now spend more on scratch tickets than we do on pizza, more than we do on all Coca Cola products. Yet the scratch ticket as a, you know, consumer item has only existed for 50 years. And it all started in Massachusetts.

[Kenny Malone]

Today on the show, the unlikely story of how Massachusetts became the lottery capital of America. It's a tale of high level mathematics, organized crime, and perhaps the single most important use of a can of Frank in American history.

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[Kenny Malone]

The story of scratch off lottery tickets begins with an apparently not very good board game.

[John Koza]

When I was a graduate student at University of Michigan in the late 60s, I had published a board game involving the electoral college.

[Ian Coss]

This is John Koza, which by the.

[John Koza]

Way, was a commercial failure and way too complicated.

[Ian Coss]

So back in the 1960s, John was in grad school studying computer science. The board game was one in a string of side hustles and pet projects.

[John Koza]

In any case, an executive of this game company in Chicago, this was a company that made supermarket and gas station giveaway games. Read an article about this game that I had produced, and he thought it might be relevant to his company's business.

[Kenny Malone]

So this company's business, the supermarket games, these, these were popular in the 1960s. Stores would give them out for free as a little treat to customers. And the prizes were fairly small. We're talking like as small as half a penny. But these games did use a kind of rub off film. What the company was making was in effect, proto scratch tickets.

[John Koza]

And we got to talking and it turned out that they were trying to produce a kind of game where every ticket could be a winner.

[Kenny Malone]

Yeah, so, so the way this particular game worked was there were 10 scratch off spots on the game ticket and each revealed a playing card, you know, like ace, king, queen, jack. So you scratch off three spots. If those match, you win again, mostly just small prizes like pennies.

[Ian Coss]

The catch was that if the company printed all the game tickets exactly the same, people would notice the pattern and just keep winning. So what this company needed help with from John was a way to make many, many different versions of this ticket, all different, so that people couldn't just know where the matching cards were.

[John Koza]

They were looking for somebody who knew something about probability and combinatorics and finite mathematics, which, as it happened, was something I was very much involved in as a student.

[Kenny Malone]

So while still, you know, chipping away at his PhD, John started to work with this game company.

[John Koza]

We came up with a system of printing that produced half a million different patterns, which was an extraordinarily large number. And that was enough to provide security.

[Ian Coss]

For the games, at least security in theory.

[John Koza]

Probably in about half the games we ran, there would be a sort of a little run of tickets in a little town, and you'd realize that somebody in that town figured out some weakness in the game that we had missed.

[Ian Coss]

For example, a player might notice some subtle but distinct pattern in the layout of the tickets and be able to predict where the matching cards were. Or maybe they'd figure out a way to actually see what was printed underneath that scratch off film.

[John Koza]

And of course, we would fix it for the next game. So we never had a big problem, but it was a knife edge process.

[Kenny Malone]

Still, you know, like having a chance to encounter those weaknesses, those vulnerabilities in a low stakes environment. It was kind of giving John the chance to beta test a method and work out all the bugs.

[John Koza]

We had perfected a system that could.

[Ian Coss]

Produce a very, very secure ticket, unpredictable and unhackable. A perfect game of chance with the odds calibrated exactly how the company wanted. And just when it seemed like they had it all figured out, this game company John was working for, J and H, went bankrupt in December of 1972.

[John Koza]

They cut John loose, which coincidentally was exactly the month when I graduated and got my PhD.

[Ian Coss]

So now you're a newly minted PhD, unemployed, with years of experience in the nascent instant ticket business. What do you do with all that?

[John Koza]

Well, again, a lucky coincidence. In the last year of J&H's existence, we actually made some sales calls on state lotteries, trying to see if they would like to run a game like this.

[Kenny Malone]

Yeah, so the idea was to take this ticket design that John had perfected in the form of a fun promotional gimmick and bring it into the big leagues of actual gambling. Like, instead of pennies, the ticket could offer up thousands of dollars. If, that is, they could find a state willing to try this.

[Ian Coss]

So at that time, 1972, there were just seven states operating lotteries. And to be clear, these were generally, at best, weekly drawings. There weren't like ping pong balls and giant fishbowls on television every night. It was not that.

[Kenny Malone]

It was not the Pennsylvania Lottery Seared.

[Ian Coss]

In your mind, oh, for the rest.

[Kenny Malone]

Of my life, that jingle will exist anyway. Yes, in other words, the, the lottery was boring and slow, Notably slow. You buy a ticket, you wait, which is definitely not like, I don't know, a slot machine where you, you pay and then you play and you get the adrenaline rush of finding out right away.

[Ian Coss]

The scratch ticket promised to change all that. It was an instant lottery in your hands.

[Kenny Malone]

In fact, that was John's pitch. Like instant gratification, excitement, like, that was the lottery of the future. And when states heard that pitch, well, it apparently did not work, actually did not land.

[John Koza]

State government bureaucracies are not usually known for being too innovative too quickly. And since it was a State government operation. They were super concerned with security and credibility and integrity.

[Kenny Malone]

Right, credibility and integrity over innovation because of organized crime.

[Ian Coss]

I mean, it's hard to imagine passing on the instant ticket now, but gambling in the 70s was largely associated with the underworld, the mob. So these state run lotteries were very, very conservative yet.

[Kenny Malone]

Lotteries, gambling was a shadowy business that states were wading into cautiously. And any whiff of irregularity, a fear mixed, drawing a forged ticket, it would shatter the public's trust.

[Ian Coss]

States were so concerned about organized crime that they didn't hire people who designed games for a living to run these lotteries. They got former FBI agents.

[Kenny Malone]

So yeah, organized crime may have been in the back of states minds when they were not interested in John's flashy new lottery scratchers. However, ironically, the mob might also be the reason that Massachusetts decided to be less conservative about their lottery. Which brings us to the tale of Fat Vinnie the Stool Pigeon.

[Ian Coss]

It's the early 1970s. The head of the organized crime strike force based out of Boston was a man named Ted Harrington.

[Ted Harrington]

I took over the strike force sometime in 69 or 70, and Ted helped.

[Ian Coss]

To develop a key mafia informant right there in Boston named Vincent Teresa, known to his critics as, you guessed it, Fat Vinnie the Stool Pigeon. The two would meet secretly in guarded motel rooms around the state.

[Ted Harrington]

He was a big, big burly guy and he knew a lot of people. I remember that.

[Ian Coss]

Was he a little intimidating?

[Ted Harrington]

No, he was a, there's different type of gangsters, at least in my judgment. There's the killer or there's the con man. Vinnie was the con man and Finney.

[Kenny Malone]

Was also the informant. Of, of course. And, and as an informant. Mr. The stool pigeon testified in court lots of times and, and perhaps most notably for our story, he also testified in front of a United States Senate hearing about organized crime.

[Ted Harrington]

When you speak of, of the mob.

[Anonymous Mechanic]

When you speak of that.

[Ian Coss]

So here we've got Vincent Teresa sitting in front of federal lawmakers, slick suit, TV cameras rolling, and he says this organized crime stuff, it all boils down to one thing.

[Anonymous Mechanic]

I'm talking about a definite syndicate operation that strictly starts with gambling. It all starts with gambling. All starts with gambling. Without gambling, they got nothing.

[Ian Coss]

Did his testimony inform your thinking?

[Ted Harrington]

Well, of course it shaped everybody's conception of organized crime.

[Ian Coss]

Vinnie once described gambling as, quote, a, a chain link fence that stretches to every place in the world. From it comes the corrupt politician and policeman, the bribes and payoffs, and sometimes murder. If you could crush gambling, you would put the mob out of business.

[Kenny Malone]

In fact, part of the reason state lotteries were popping up in the first place was to do just that, to offer a legal alternative. And ideally, put the mob out of business. And I mean, also so that the states could have a little extra revenue stream, but, you know, whatever. Yes, put the mob out of business, but that was not working.

[Ian Coss]

Yeah, the illegal numbers rackets were still popular because the illegal games could offer their customers things the state lottery couldn't.

[Kenny Malone]

Daily action, winnings with no worries of taxes.

[Ian Coss]

Yep.

[Kenny Malone]

Better odds, better payouts, anonymity, I guess, and also the ability to bet on credit if you feel pretty good about your kneecaps.

[Ian Coss]

Kneecaps aside, though, why would you want to play the boring state lottery?

[Ted Harrington]

As Al Capone said, I'm performing a public service. I'm giving the public what they want. And at the initiation of the lottery, the underworld was still providing better services.

[Ian Coss]

When something that was illegal becomes legal, it's tempting to think you get a simple substitution. What once happened in the shadows now happens in the open. But the reality is that the two worlds compete. They innovate, they dance. They force each other to change. And the end result is something entirely new, often unexpected. One of those strange outcomes is the scratch ticket.

[Kenny Malone]

Yes. To John Koza, our unemployed computer scientist, the potential of his game design seemed completely obvious. Again, it was instant lottery, something that even the Mafia could not offer their customers.

[Ian Coss]

So after John was laid off, he and another jobless colleague, Dan Bauer, decided to start their own company, Scientific Games. It was just the two of them, operating out of an apartment in Ann Arbor, Michigan, and a kitchen table in Chicago. And in 1973, the year after his first round of pitches, John started going back to those same lotteries they had pitched before.

[Kenny Malone]

But. But this time, there was one place that was ready to hear them out. Massachusetts. Even better, the director of the Massachusetts Lottery was not one of those FBI agents.

[John Koza]

The director there was a PhD in mathematics, so he happened to really understand the scientific basis for what we were doing.

[Ian Coss]

Everyone called the lottery director Dr. Dr. Perrault. And in addition to being a mathematician, Dr. Peralt also happened to be an expert bridge player who once took his eight children on a family vacation to Las Vegas, in part to study the wheels and cards as illustrations of statistics.

[Kenny Malone]

You know, those kids still talk about that vacation and hate it, right, Ian? There's no way that was a good vacation.

[Ian Coss]

No.

[Kenny Malone]

But when John Koza was there, lucky for him, the PhD in computer science worked well for Dr. Peralt. He arrived in Massachusetts with his pitch for an instant ticket. Things seemed promising. You know, that man in charge spoke his language, combinatorics and all, and the people around him were eager to try something new. There was just one problem.

[John Koza]

They had already given a contract for the instant game to another company.

[Ian Coss]

So it turned out another company had beaten them to the same idea. It was not a scratch ticket this other company was offering. It was much more low tech, like an advent calendar with little paper flaps. But still, it claimed to offer the same basic novelty of an instant reveal. And those brand new tickets, they were already in the warehouse.

[Kenny Malone]

Yeah, quite bad for John. But he was convinced his ticket was better. You know, John had spent so much time making those supermarket scratcher tickets. He had seen the ways that people hacked those tickets at first, and he was sure that this other company, they could not have made a ticket as secure as his. There was no way.

[Ian Coss]

So John told Dr. Peralt and the lottery officials as much, and they made a deal on the spot. John was allowed to take home 50 of these new tickets and do his best to prove they could be hacked.

[John Koza]

They gave us the tickets. I went back to Ann Arbor, Dan went back to Chicago, and they gave us.

[Kenny Malone]

A week or so after the break. How to hack a lottery with a can of diet citrus soda.

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[Kenny Malone]

Now, the thing the Massachusetts Lottery was worried about, the danger in starting a brand new instant lottery ticket is that if that instant ticket had a vulnerability, then any convenience store clerk with a stack of tickets might be able to figure out which ones of those are winners, which ones are losers, and then, you know, hand out the winners to friends, keep them for themselves, like just. Just corrupt the whole system again.

[Ian Coss]

Lotteries were terrified of losing credibility and trust. This would have done just that.

[Kenny Malone]

So John Koza, back in Ann Arbor, he got to work. This other company's ticket was made of pretty thin paper with flap doors over the hidden numbers held down by glue. So John's goal was to see if he could reveal those numbers without visibly altering the ticket. That would be hacking the ticket.

[Ian Coss]

And within 24 hours, John was ready to report his findings. So he flew back to boston.

[Kenny Malone]

This time, Dr. Peralt, great vacation giver. No, just kidding. This time, Dr. PERalt was waiting on the Runway to greet them and carry their bags. Everybody convened at lottery headquarters, probably like half a dozen men in dark suits gathered around a conference table, eagerly awaiting this presentation from John.

[John Koza]

Remember, they had not only given a contract to this company to print the tickets, Tickets were already printed and in the warehouse ready to be issued, and there were 25 million of them.

[Ian Coss]

Patiently, John began to walk the lottery staff through his findings. There were, he explained, at least three distinct vulnerabilities.

[John Koza]

One of them involved a cystoscope, which is a medical device.

[Kenny Malone]

A cystoscope has a tiny lens on the end of a thin, flexible tube. A doctor might use it to examine the inside of a patient's bladder, for example. John used it to peer underneath the ticket's flap doors.

[John Koza]

That was one way in. And these tickets were printed on just really ordinary paper with line printers. A line printer is like a typewriter. It would make a physical bang impression and indent the paper.

[Ian Coss]

So method number two was that if you ran the tickets through a photocopier, that raised impression from the printer was just prominent enough that the hidden numbers would come out in the copy.

[Kenny Malone]

Now, the average convenience store clerk probably does not have access to a cystoscope and may not have a copier in 1973. And so John presented his final foolproof technique. In a dramatic demonstration, John opened a bottle of Fresca, something you certainly could find in the average convenience store. He poured the Fresca on the ticket and the glue, which was supposed to be the ticket's sacred seal, it simply let go. You could peel the whole thing apart, read the numbers, and glue it back together again.

[John Koza]

It was compelling, let's put it that way. When the demonstration was over, there was no doubt.

[Kenny Malone]

Now, Ian, do we know why Fresca? Was it like what John had around? Was it an ingredient in Fresca? Like, what is happening, you know?

[Ian Coss]

John did not elaborate on why Fresca in particular, but as you're saying, you know, it's a citrusy, acidic kind of drink. So, I don't know, maybe it's a good solvent. I'm just speculating. I have no idea.

[Kenny Malone]

We're an economics podcast. We're not a scientist.

[Ian Coss]

I'm totally out over my skis here. What John did say is that after this presentation, the lottery staff were horrified.

[John Koza]

Had they run it, it would have been a disaster, and there would never have been an instant lottery, I'm sure, in any state for decades, it would have been a totally discredited idea.

[Kenny Malone]

At that point, the lottery canceled their existing contract and put out a new bid. John Koz's company, Scientific Games, won the new contract and their product, which used an indentation free paper and of course, that famous shiny metallic film that became the world's first scratch ticket ever.

[Ian Coss]

On May 29, 1974, just over 50 years ago, people walked into convenience stores and gas stations around the state and saw that ticket.

[Kenny Malone]

One liquor store owner described the scene as, quote, instant insanity. A pharmacy had to set up separate sales counters at the back of the store just for lottery tickets so that non lottery customers wouldn't be disturbed by the apparently unruly crowds. Within a day, stores across Massachusetts had run out of tickets and were waiting to be resupplied.

[Ian Coss]

Did you realize that you had created something that would be huge?

[John Koza]

Absolutely.

[Ian Coss]

That would spread.

[John Koza]

In fact, when I submitted the business plan to our local bank, I had predicted that we would sell $6 million in tickets the first year. And the vice president of the bank that I was working with at the time, he said, I can't submit this to the loan committee. They will just laugh at this. So we cut it back to a million and the first year sales was $6 million. And that was because the other lotteries in 75, I think it was, five or six other state lotteries simultaneously started instant games. Yeah.

[Kenny Malone]

The other states had waited for someone else to take the plunge, but once they saw what was happening in Massachusetts, they jumped right in.

[John Koza]

We knew we hit the world by the tail.

[Ian Coss]

Today, Americans spend over $100 billion a year on lottery tickets. Almost 2/3 of that total is spent just on scratch tickets. Yes, the big powerball jackpots are what you see in the window of the convenience store on the billboard. They get more press and the keynote numbers are always flashing on the TV screen in the corner. But the scratch ticket, that's the bread and butter, day in, day out game that keeps the money flowing. Do you play other lottery games or just scratch tickets? Just scratch tickets.

[Kenny Malone]

We now spend more on scratch tickets than we do on movie tickets, on concert tickets, on sports tickets combined. And the fact that the scratcher all started in Massachusetts, well, that is part of the reason that Massachusetts is spending more per person on average on lottery than anywhere else in the country.

[Anonymous Mechanic]

It's just been a hit.

[Kenny Malone]

Scratch tickets.

[Anonymous Mechanic]

People want scratch tickets. Absolutely. You want to win on the spot.

[Ian Coss]

Is that why you still play?

[Anonymous Mechanic]

Yeah. Lack of brains.

[Kenny Malone]

So, Ian Kosher, Massachusetts native, now lottery expert. How do you end up feeling about being from a home state that is like the scratch capital Being part of a state that spends way more on the lottery than any other place, do you have a sense of pride in this? How are you feeling?

[Ian Coss]

Look, so, I mean, Kenny, have you been to Massachusetts ever?

[Kenny Malone]

Yes, a bit.

[Ian Coss]

If you've ever set foot in this state, you know, we take great pride in like, our firsts, our distinctions. We love a good historic mark. We've got plaques for everything. Here's the thing. I've never seen a plaque celebrating the lottery or the invention of the scratch ticket. I didn't really know any of this stuff before I started working on this story. And I think that's kind of telling. It's like it's something that people are not entirely sure how they feel about whether they're proud of or not. And I'll include myself in that.

[Kenny Malone]

Sure.

[Ian Coss]

Which is ultimately why I love this topic so much. It's kind of a little uncomfortable. I mean, the way I see it, state lotteries and scratch tickets in particular are really kind of the key to understanding the world we live in today. And it's a world where gambling, right. Legal gambling is everywhere. It's at the corner convenience store, it's on your phone, it's on tv. And it's pretty crazy if you think about it, that in just a few decades we went from this world where gambling is like a shady business run by the mob, kind of on the margins, to now. Gambling is an industry. Right. It's, it's, it's this ubiquitous, incredibly aggressive industry. And however you feel about that, if you want to know how we got from there to here, the answer is lotteries.

[Kenny Malone]

Yeah. And, and, and I suppose it's the, the instant gratification of the instant ticket.

[Ian Coss]

Yeah.

[Kenny Malone]

Is so much more like the kind of gambling we see today on our phones for sports than what lotteries ever were. So in that sense, we can thank instant lottery tickets for creating a social norm around that kind of thing.

[Ian Coss]

Instant gambling in the palm of your hand. That's where it starts.

[John Koza]

Yeah.

[Kenny Malone]

Well, look, if you would like to hear more of Ian's fantastic series, just go look for scratch and win to, to listen to the entire eight part series. I mean, what we've basically just played for you now is sort of episode one. So Ian, why don't you tell folks what they can expect from the rest of the series?

[Ian Coss]

Yeah. So in part two, we're actually going to go back to before the scratch ticket to the story of how a state like Massachusetts got into the gambling business in the first place. The answer, which was very surprising to me, involves Churchill bingo. And it also involves a state treasurer who is so into vaudeville music that he installed a piano in the State House and started his own singing group called and this is one for the Planet Money listeners, the Treasury Notes.

[Kenny Malone]

I mean, come on, the T notes. If that gets you to listen, I don't know what will. This episode of Planet Money was produced by James Sneed. It was edited by Alex Goldmark, engineered by Valentina Rodriguez Sanchez and fact checked by Cierra Juarez. The series Scratch and Win from GBH News is produced by Isabel Hibbard and edited by Lacey Roberts. The executive producer is Devin Maverick Robbins.

[Ian Coss]

Special thanks to Jonathan Cohen for helping me connect with John Koza and for sharing so much material and insight from his own research. Thanks as well to my brother Sebastian for all the great hand me down shoes and clothes. They do still fit. And also to the staff at Joe's.

[Kenny Malone]

Market in Quincy and also to all the Jacks over at Joe's Market at Quincy.

[Ian Coss]

This one's for the Jacks.

[Kenny Malone]

Shout out Jacks 1 through 15.

[Ian Coss]

Yeah, I'm Ian Coss.

[Kenny Malone]

I'm Kenny Malone. This is NPR. Thanks for listening.

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