Lottery watchdogs: Is there a way to beat the system?

COLLEYVILLE (CBSNewsTexas.com) – Lottery watchdogs say the April 23 $95 million Texas Lotto drawing should alarm state leaders and avid players about a way they say syndicates can beat the system.

For the last 30 years, Dawn Nettles has played the Texas Lottery, written about the Texas Lottery and scrutinized the Texas Lottery.

"Because I count every penny, and I know how to figure sales," Nettles said.

Through her blog, Lotto Report, she monitors every drawing, offers player tips and at times, has criticized an operation that she has finds is not always fair.

"They've lost all credibility with this latest incident," she continued.

Nettles predicted that last month's $95 million dollar jackpot would have a winner and where the winning ticket had been purchased.

"I knew that there was going to be a ticket sold because I computed and saw what sales had to be," Nettles said.

That winning ticket was purchased in Colleyville at a place called Hooked on MT.

It's billed as a souvenir store with no signs promoting lottery ticket sales. Still, it was the biggest ticket seller in the state last week with $11 million in revenue.

It's also the registered location of Lottery Now, which owns an app called Mido Lotto, that allows people buy lottery tickets online through a third party.

"So I knew that the apps were selling them," Nettles said.

Buying tickets directly online is illegal in Texas but there are a number of apps using courier services to conveniently get around it.

The apps link ticket buyers and retailers with third party couriers who are supposed to physically pick up the tickets from the retailer.

When sales of Texas Lotto tickets skyrocketed over the weekend of April 22, the top 10 retail sellers all just happened to also be lottery apps.

Nettles believes a conglomerate of investors, possibly outside of Texas, tried to buy up all the possible combinations of the six numbers knowing the jackpot would be much higher.

She says the data shows 99% of the possible combination of numbers were chosen for Saturday's jackpot which was way above average.

"The Texas lottery has confirmed that the coverage was 99.4%," Nettles said. "That tells you that 99.4% of all combinations were sold that night, the only way they can do that, coverage is normally 4%. The only way that can happen is if somebody buys up all the combinations."

The Texas Lottery Commission even suggested Saturday night's winner was a syndicate, saying in a news release:

"...the vast majority of the buying activity focused at those retailers who appeared to be selling to various purchasing groups. In fact, it appears that the winning ticket was likely bought by one of the purchasing groups."

In a statement, the commission told CBS News Texas says tickets are supposed to be sold at established retail businesses and:

"...the lottery courier business model is not contemplated by current Texas law and is now being examined closely by the Texas Legislature. Legal and policy issues related to courier service are for the Texas Legislature to determine."

The operators of Hooked on MT, where the winning ticket was sold, said that all 11 million tickets were sold in person to customers at the Colleyville location, which was closed both afternoons we drove by.

In a statement, the management also defended the use of apps, saying:

"For this drawing, the winner was a retail customer in our store and was not a customer of our courier app, Mido Lotto.

Our app, Mido Lotto, and the app offerings of other couriers, only benefit Texan consumers and Lottery beneficiaries, and we strongly opposed any moves to prohibit the model."

"I don't know how he could have any customers coming in to buy because he doesn't have a lottery sign, who knows if he's selling lottery products?" Nettles said.

Since the store that sells the winning ticket gets 5%, Nettles says the operators of Hooked on MT received $548,000 from the drawing.

That's money long time lottery retailers like Star Mart in Garland may have a hard time competing to get in the future with out of state app operators cleaning up.

Weekly lottery players like Mohammad Stanley wonder if it's worth buying Texas Lotto tickets knowing what he's up against.

"That's not right, that's not fair, it's taking the money from people," Stanley said.

A bill in the Texas Legislature would outlaw the courier services and has passed the Texas Senate.

But the app-based lottery companies are lobbying hard to keep their thriving business going.