BILL ANALYSIS SENATE COMMITTEE ON JUDICIARY Bill Lockyer, Chairman 1993-94 Regular Session SB 861 (Hughes) As amended April 19 Hearing date: April 20, 1993 Penal Code GWW/ep LOTTERIES -SPORTS CARD GRAB BAGS- HISTORY Source: Creative Card Congress Prior Legislation: None Support: Unknown Opposition: No known KEY ISSUE SHOULD THE SALE OF SPORTS CARD GRAB BAGS THROUGH WHICH THE šPURCHASER OBTAINS A CHANCE TO WIN A DESIGNATED PRIZE BE DEEMED AN šILLEGAL LOTTERY AND BE PUNISHABLE AS A MISDEMEANOR? PURPOSE Under Penal Code Section 319, any scheme for the disposal or šdistribution of property by chance, among persons who have paid švaluable consideration for the chance of obtaining that property, šupon any agreement or understanding that the property will be šdistributed by lot or chance, is deemed a lottery. Any person who šprepares or draws any lottery is guilty of a misdemeanor punishable šby a 6-month county jail term and/or a $1000 fine. This bill, in addition, would deem a lottery to include "a sports šcard grab bag game which is a scheme whereby, for the disposal or šdistribution of sports trading cards by chance, a person pays (More) SB 861 (Hughes) Page 2 valuable consideration to purchase a grab bag . . . to win a šdesignated prize listed by the seller as being contained in one or šmore, but not all, of the grab bags." "Grab bag" is defined as "a šsealed package which contains one or more repackaged sports trading šcards." The purpose of this bill is to prohibit "sports card grab bag" šschemes which defraud the public. COMMENT 1. Statement of the problem According to the sponsor, the Creative Card Congress, many sellers at sports card trading shows sell "grab bags" of repackaged trading cards for a price ranging from $.25 to $10. In these bags the buyers usually receive an assortment of sports trading cards, the value of which may or may not exceed the purchase price. Some grab bags also offer a chance to win a designated prize, typically a valuable trading card. However, the more elaborate and expensive schemes ($10 grab bags) offer the chance to win a VCR or large sums of cash. The problem, asserts the sponsor, is that many grab-bag schemes may be fraudulent--there is no way to ensure that the advertised prize is actually available or won by someone. A second problem is that the actual prize may be less valuable than that represented by the seller. Instead of a "mint" and "centered" card, the actual prize may be off-centered and damaged at the corners--a condition which sharply reduces its value. A third problem, contends the sponsor, is that the games often victimize young children who are often unaware of their legal rights or are incapable of enforcing them against a belligerent vendor. Complaints are most frequently voiced by consumers who felt cheated when they did not win a prize or receive sports cards of a value equal to the purchase price. Other complaints are voiced by competing sellers at trading card shows who view the grab-bag schemes as "unfair competition" which siphon off available consumer purchasing dollars. The Attorney General's Consumer Law Division has informally opined that grab-bag games which offer a prize are lotteries and are illegal under present law. The sponsor contends, though, that the Attorney General's opinion is not well known and is rarely enforced. The sponsor asserts that a specific statute would lead to greater enforcement and consumer protection. (More) SB 861 (Hughes) Page 3 2. No consensus amongst cognoscenti An informal poll of sports card dealers and collectors showed no consensus on whether grab-bag games should be illegal. From the standpoint of dealers, some argued that the games have been mischaracterized as lotteries when in fact they are value packages for the consumer. They acknowledged that there are some fraudulent grab-bag scams, but complain that the Attorney General's opinion (and proposed law) does not appear to distinguish between fair and fraudulent grab-bag games. From the consumers' view, some felt that the games were fun and relatively harmless as long as the buyer knew what he or she was buying. Others felt that the games should be limited to adults only, similar to other legalized gambling activities such as horseracing. And a few believed that grab-bag games were fraudulent schemes and should be thoroughly banned. 3. Prohibiting grab-bag games Present law appears to prohibit grab-bag games as an illegal lottery. A lottery has three essential elements: (1) a prize (broadly defined by case law as any property); (2) distribution by chance; and (3) payment of consideration (See California Gasoline Retailers v. Regal Petroleum Corporations (1958) 50 Cal.2d 844). All three elements can be found in grab-bag games. Yet, there are some marketing mechanisms which appear to be reasonable and fair to the consumer but which could be deemed an illegal lottery. For example, an odd-lot of 50 assorted cards may be repackaged in a clear plastic bag and offered for sale by a card dealer for $.50 or $1 per grab bag as a means of disposing of "bulk" cards. Not infrequently, wildly and rapidly fluctuating prices on the sports card market may make one or more of the cards in the grab bag worth more than the purchase price of the bag. The grab bags are sold with the understanding (promise) that the buyer may (and often does) receive a prize--a card or cards of value far exceeding the charge for the grab bag. Under the Attorney General's interpretation, this sales approach may be deemed a lottery. In a slight variation from the above, the seller will randomly insert selected "bonus" or "surprise" cards of significant value within the grab bags as an additional inducement to prospective purchasers. This sales approach can also be deemed an illegal lottery. Both of the games described above are generally viewed by card collectors as being "fun and relatively harmless." Collectors also view these types of grab bags as a potential source of bargains. Frequently, in the clear plastic grab bags the prospective buyer can identify one or two cards whose value alone exceeds the purchase price. (More) SB 861 (Hughes) Page 4 A third variation is not deemed harmless, however, and represents the most egregious form of sport card grab bags. This third variation consists of an assortment of sport cards repackaged in a sealed, brown paper bag which hides the contents from the prospective buyer and which is sold to the buyer with the promise that the buyer may win a designated card or prize of considerable worth. This particular scheme is clearly a lottery and is the subject of the most consumer and sports card dealer complaints. 4. Issues presented (a) Grab bags -- value-packaging or lottery? Critics of the Attorney General's informal opinion (that grab-bag games are lotteries) argue that the opinion fails to recognize a critical distinction between sports card grab-bag games and the typical lottery. In the typical lottery situation, a person buys a lottery ticket whose sole value is the chance to win a prize. In the grab bag situation, the buyer usually obtains an assortment of sports trading cards, often with a value exceeding the purchase price. While the buyer also may receive a randomly inserted specially selected card ("prize"), the purchase is made primarily for the assortment of sports cards. A deputy attorney general responds that the distinction makes no difference. As long as a prize is offered, which is distributed on a random basis, and consideration is paid (even where the purchaser has received full value), the game is a lottery under the present law. As an example, a magazine publisher's giving of drawing tickets to win a prize when a magazine subscription is purchased was found to be an illegal lottery. See Holmes v. Saunders 114 Cal.App.3d 389 (1952). (b) Specific misdemeanor penalty SB 861 would specifically make punishable as a misdemeanor the latter two types of grab-bag games which offer a bonus card or prize to a prospective buyer. (The other type of grab-bag games, the odd-lot assortment, would not be directly affected by the bill, but may still be illegal under a broad reading of the general lottery law.) ARE MISDEMEANOR PENALTIES APPROPRIATE FOR THE DESCRIBED CONDUCT? SHOULD A DISTINCTION BE DRAWN BETWEEN VALUE-PACKAGING GRAB-BAG GAMES WHICH PROVIDE FAIR VALUE AND THOSE GAMES THAT DO NOT? (More) SB 861 (Hughes) Page 5 A misdemeanor penalty carries a possible six-month jail sentence, a consequence which enables a defendant to request a jury trial. SHOULD CRIMINAL JUSTICE RESOURCES BE UTILIZED TO TARGET AND DETER GRAB-BAG GAMES, SOME OF WHICH ARE VIEWED AS BEING "RELATIVELY HARMLESS AND FUN"? (c) Power of legislature to define lotteries questioned The most popular solution among the polled collectors is to limit the bill's application to only the most egregious form of grab-bag games--the sealed grab bags offering a specific prize. However, pointing to Article IV, Section 19 of the Constitution which prohibits the Legislature from authorizing any lottery, Legislative Counsel's office has informally opined that the Legislature cannot expressly or implicitly permit an act which is now prohibited as a lottery. I.e., the Legislature cannot permit any form of sports card grab-bag games which offer a prize for consideration. This conclusion may be subject to some debate as it is usually within the legislative police power to establish the elements of crimes. Undebatable, however, is the power of the Legislature to establish the penalties for a lottery offense. For example, a violation could be punishable as an infraction rather than a misdemeanor, particularly in cases that are deemed relatively harmless. ******** (More)