House Bill 156 requires the North Carolina State Lottery Commission to adhere to the following advertising requirements:

- Advertising that states a total of payments to be paid over a period of time must also state the present value of the prize.
- Advertising that states the probability of winning a prize must not omit the value of the lowest prize to be won.
- When stating the odds of winning a prize the advertisement, at a minimum, must include the odds of winning the prize with the largest value.
- Advertising or sponsorship of the NCEL in connection with any high school or collegiate sport or sporting event is prohibited.
- Advertisements must not refer to the role of accountants or auditors.

Lastly the bill asks that the University of North Carolina develop material and teaching methods that explain the probabilities and other mathematical aspects of a lottery game. This information will be available as a component of high school courses in mathematics and civics.

**How is the North Carolina Education Lottery Currently Advertising?**

- The North Carolina State Lottery Act did little to regulate the tactics used to advertise the lottery. It did not ensure completely
*honest*advertising. - Although advertisements were required to include the overall odds of winning a prize, there was no requirement that advertisements match the odds to the prize. For example, the disclaimer in a NCEL ad just last year read, “Approximate odds of winning are 1 in 3.9,” but, only advertised the top prize of 200,000. While the overall probably of winning any amount of money, from $5 to $200,000, may be 1 in 3.90, the probability of winning the top prize may only be
*1 in 800,000*. - The Lottery Act also did not require advertisements to include the lowest prize to be won. For instance, the same TV advertisement clearly omitted the lowest prize to be won by only including the top prize of $200,000 in the ad. As a result of the leniency regarding advertising standards, the NCEL is inducing people to engage in the lottery by advertising the largest prize amount along with the overall odds of winning (the smallest ratio) in order to smokescreen the near
*impossible odds*of becoming a big winner. - The Lottery Act did not require advertisements to include the present value of a prize that is paid out over a period of time. For example, the headline of a recent 2012 TV advertisement read, “Jackpots Start at $40 MILLION,” which is the amount received if the winner chooses to take the prize received over twenty years instead of the lump sum. There is no mention of the amount the player receives if the player chooses to take the lump sum; the lump sum being a significantly lower amount and the
*true value*of the prize. - For examples of advertisements click here.

**Why Should the General Assembly Improve the Advertising Standards for the North Carolina Education Lottery? **

- Lottery advertisements overstate the true value of winning a jackpot by failing to communicate that if winners choose to receive their winnings over a twenty year period then their earnings are subject to
*inflation*and*lost interest*.[i] - The state of New Jersey compiled a study in 1988 and found, “[an annuity system of lottery payment] would be considered fair if it were not for the fact that only
*one person in twenty*even has the remotest idea of what an annuity is.”[ii] - Lottery advertisements do not point out that the winnings a jackpot winner receives are subject to
*income taxation*, thus, overstating the true value of the prize.[iii] - State Lotteries are not held to the same advertising standards that private gambling institutions must adhere to. For example, the Federal Trade Commission mandates that commercial sweepstakes provide the
*probabilities of winning various prizes*for a game.[iv] - James M. Stearns and Shaheen Borna found that omitting objective information about the actual value of a lottery ticket is
*deceptive*and that more complete information would allow lottery players to make more*informed decisions*.[v] - Charles T. Clotfelter and Philip J. Cook found that in lottery advertising the absence of information regarding the odds of winning a top prize can
*distort consumers’ perception*of winning.[vi]

**Academic Support for Lottery Advertising Requirements**

- “What are the Consequences of this kind of advertising? While no one can be sure, it seems likely that all attention to prizes and winning at the expense of information on the odds…increases players’ ‘subjective probability’ of winning. [T]he virtual absence of information on the probability of winning a grand prize-these are the essential ingredients in lottery promotion…One possible if unproven effect of this lottery advertising policy is that consumers’ perception of the chance of winning might be systematically distorted. Another possible effect is an undermining of the credibility of the state government in general.”[vii]
- “The results of this research demonstrate that the value of a lottery ticket is relevant to lottery players because their intentions to buy changed when such information was present…Based on the behavioral intentions results of this research, the omission is ‘serious’ in that fewer tickets would be sold under most conditions if expected values were known…This research presents some evidence that more understandable, complete information might allow those who play the lottery to make more informed decisions. Lotteries, therefore, should publish expected value information for a reasonable sampling of payoff level…”[viii]
- “Whether or not elaborate statements of odds are feasible, it is instructive to note that in the case of sweepstakes under the jurisdiction of the Federal Trade Commission advertising must disclose the odds of winning all prizes as well as other facts about the game. Applying these standards to lottery advertising would necessitate a dramatic shift in current industry practice.”[ix]
- Research shows “that simply providing information may reduce the effects of error on decision making (Fischoff 1984, 1995). For example, Arkes, Dawes, and Christensen (1986) find that merely providing people about probability information improves performance in a prediction task. Fong, Krantz, and Nisbett (1986) show that training decision makers about expected values and simple statistics also leads to more accurate predictions. Therefore, providing information that counters misconceptions regarding lottery play decisions may reduce or eliminate those misconceptions and their associated effects on intended or actual lottery play.”[x]
- “Assume once again that $2 million dollars are wagered in order to create an alleged million-dollar jackpot. The state, instead of paying out the million dollars, must make installments of fifty thousand per year…If the winner were to receive the actual jackpot, steps could be taken by the winner to protect their winnings from further tax obligations by investment in exempt bonds…[A]t the end of the twenty years, the winner would have the redemption value of the bonds…[T]he effects of inflation is never mentioned by states…The cost of an annuity that will pay its owner $50,000 per year for the next twenty years was, in spring of 1988, less than $500,000. The winning player prevailed over odds that were indeed one in a million, yet the real value of his win is substantially less than what the odds warranted. The annual payment method lost its justification years ago, but the cynicism that pervades the lottery system continues to triumph, and again, it is a matter of what the market will bear.”[xi]

[i] Joshua Wolf Shenk, “Everyone’s A Loser,” *Washington Monthly*, 1995.

[ii] Alan J. Karcher, *Lotteries* (New Brunswick: Transaction Publishers, 1989), 44.

[iii] Charles T. Clotfelter and Philip J. Cook, *Selling Lotteries: State Lotteries in America* (Cambridge: Harvard University Press, 1989) , 209.

[iv] Charles T. Clotfelter, Philip J. Cook, Julie A. Edell, and Marian Moore, “State Lotteries at the Turn of the Century: Report to the National Gambling Impact Study Commission,” (1999): 8, accessed March 25, 2013, http://www3.nd.edu/~jstiver/FIN360/lottery.pdf.

[v] James M. Stearns and Shaheen Borna, “The Ethics of Lottery Advertising: Issues and Evidence,” *Journal of Business Ethics* 14, no. 1 (1995): 50, accessed March 25, 2013, http://www.jstor.org/stable/25072621.

[vi]Charles T. Clotfelter and Philip J. Cook, *Selling Lotteries: State Lotteries in America* (Cambridge: Harvard University Press, 1989), 211-12.

[vii] Charles T. Clotfelter and Philip J. Cook, *Selling Lotteries: State Lotteries in America* (Cambridge: Harvard University Press, 1989), 210-12.

[viii] James M. Stearns and Shaheen Borna, “The Ethics of Lottery Advertising: Issues and Evidence,” *Journal of Business Ethics* 14, no. 1 (1995): 49-50, accessed March 25, 2013, http://www.jstor.org/stable/25072621.

[ix] Charles T. Clotfelter and Philip J. Cook, *Selling Lotteries: State Lotteries in America* (Cambridge: Harvard University Press, 1989), 209.

[x] Anthony D. Miyazaki, Anne M. Brumbaugh, and David E. Sprott, “Promoting and Countering Consumer Misconceptions of Random Events: The Case of Perceived Control and State-Sponsored Lotteries 20, no. 2 (2001): 255, accessed March 25, 2013, http://www.jstor.org/stable/30000592.

[xi] Alan J. Karcher, *Lotteries* (New Brunswick: Transaction Publishers, 1989), 44-5.