A Revealing History of Lotto Scratch-Offs
Two things happened to John Koza in December 1972 that would forever alter the course of state-sponsored gambling. First, Koza earned his Ph.D. in computer science from the University of Michigan, cutting him loose from academia. Second, the company he worked for part-time fired him, freeing up the rest of his schedule.
Koza had been an employee of J&H International, a firm specializing in promotional gaming cards that were popular with grocery stores and gas stations in the 1950s and 1960s. The free cards could be compared to supermarket ads in newspapers in a manner similar to the game Bingo: If a card matched the graphic symbols in print, the consumer could win food, money, or prizes.
Koza assisted J&H with odds calculation, making sure the games were fair and the winning cards evenly distributed. Some had a waxy coating that could be rubbed off to reveal prizes—“probability” games that required players to reveal only the winning symbols—and that intrigued him. State lottery drawings were beginning to spread throughout the country, and Koza believed that an “instant” scratch-off game with serious money offered would be preferred over having to wait for a weekly prize drawing.
Koza was confident that the idea would be a hit with lotto players. The trick would be in convincing lotto officials.
Koza was a computer scientist who could handle algorithms; he decided to partner with Dan Bower, a retail promoter and fellow J&H employee who could help sell the notion of instant-win tickets and acted as co-developer. By March 1973, the two were operating Scientific Games Corporation out of Atlanta, Georgia. They flew from state to state explaining their concept—at the time, roughly eight had lotteries—and tried to convince lotto commissions that the games would be secure.
Eventually, Koza and Bower found a guinea pig in Massachusetts. The head of the lotto commission, William Perrault, had graduated from the University of Michigan in 1949 and may have felt a kinship toward Koza. He agreed to give Scientific a shot, ordering 25 million cards for the state.
Koza and Bower put themselves to work in the nascent field of scratch-off lotto and immediately ran into trouble. Federal laws were in place prohibiting the transport of gaming cards across state lines, making their production in Georgia and shipment to Massachusetts a tangle of legal red tape; there were taxes levied on non-horse related gambling, which shouldn’t have applied to the cards but had to be explained to accountants; and there was the concern of counterfeiting, which necessitated a secret recipe for the silicone coating that can be rubbed off with a coin.
The tickets were called “The Instant Game,” with a top prize of $10,000. (Players could also win entry in three monthly $100,000 drawings.) When the scratch-off debuted in May 1974, players in Massachusetts had been buying roughly $1 million dollars’ worth of six-digit lotto drawing tickets every week. By the end of the first seven days of marketing instant-win cards, the state had sold $2.7 million dollars’ worth of them. Just as Koza had predicted, the immediacy of the result proved irresistible to lotto fans.
Scientific Games went on to provide scratch-off tickets for multiple states, growing their revenue from $1.1 million in 1974 to $15 million in 1976. In 1981, Bally Manufacturing bought out the company, leaving Koza a golden ticket of his own. By 1985, California had ordered a staggering 700 million scratch-offs, with Scientific earning two cents for every one they delivered.
The instant-win, however, still had another growth opportunity. In 1985, a small business owner named Cal Tigner stopped off at a convenience store in Oregon and noticed the cashier kept the scratch-off tickets in the register drawer. Tigner bought some, but wondered how much better sales would be if the tickets were visible. That night, he made a cardboard display that sat on a retail counter and dispensed the cards. Graduating to clear plastic, his Take-a-Ticket revolutionized the lotto world, which currently collects more than $75 billion per year from instant win alone [PDF].
As for Koza: While he left Scientific Games in 1987 a wealthy man, he can still appreciate the entertainment value of his creation. In an interview with ScratchCards.org, he confessed to impulsively buying a scratch-off in Quebec. He won $500.