Class Action (Jerusalem) 42026-05-20 The Israeli Consumer Council v. Lotont Friends Club Ltd. - part 10

However, according to the rules of the "group purchase", this amount must be divided among 40 participants. So the expected win for each participant is 100 NIS.

In order to reach the same expectation of winning a direct purchase from the National Lottery, it is sufficient to purchase two lottery tickets, which cost NIS 12 (and not NIS 34.8 as charged by Respondent No. 7).

As for the profit expectation: in order to calculate it, the cost of the lottery tickets must be reduced. For the purchase through Respondent 7, it is NIS 34.80. In other words, the profit expectancy for participation in the group lottery through the Respondent's services is NIS 65.20.

If we compare it to a direct purchase from Mifal HaPais - the prices of two lottery tickets purchased directly from Mifal HaPais are 6 NIS, so the profit expectancy for a direct purchase is 94 NIS.

99. In other words, even though buying a lottery in a group has an advantage in increasing the chances of winning a certain amount, it does not improve the chance of winning. In fact, the same winning expectancy can be reached at a much lower cost by direct purchase. In other words, the profit expectancy of a group purchase is significantly lower than the expected profit of a direct purchase.
100. Moreover, some of the respondents even go so far as to note on their websites and in their engagement documents that participation in the lottery through their services is particularly economical. Thus, for example, respondent 7, who offered participation in 80 lottery tables in a group of 40 participants at a price of NIS 34.80 per participant, notes that this is a savings of 85% since the price is, prima facie, only NIS 0.42 per table. This is, of course, a partial representation that may be misleading. The customer pays NIS 0.42 per table, but he shares it together with 39 other participants, so that the amount that expresses the actual price of the entire table is NIS 16.40 (when the price in direct purchase of the lottery is NIS 6). Similarly, Respondent 2 offers a plan whose price is NIS 199 per month, which includes a mix of lotteries in a group of 200 people. Alongside the track, the Respondent notes that the cost of purchasing the package at the Mifal HaPais booth is NIS 2,770 per month. Here, too, this is a misleading representation, since in practice, for each participant invested, a much lower sum is also lower than the price charged to each participant – NIS 199.
101. It therefore appears that the figure regarding the scope of the amount invested in the lotteries and the rate of the commission may be material for the client, but it is not presented to him.
102. In this context, I accept the argument that there is prima facie an additional element that strengthens the potential for deception in not presenting the portion of the subscription fee used to purchase lottery tickets: from the material presented to me, it appears that respondents state on their websites or in their communication documents, including in telephone conversations with customers, that they are entitled to receive 10% of the prize in the event of a winning. In the absence of any other clarification, but it stands to reason that a customer can easily mistakenly think that this is the only component from which the respondents derive profits, and that his subscription fee is used only for the purchase of lottery tickets. Some of the respondents also convey this message explicitly (and in this regard see the transcript from the conversation that took place between the researcher and the representative of respondent 6, quoted above).
103. It emerges from the aggregate that despite the representation created by the Respondents that participation in the Lottery lotteries through the services they offer is preferable to direct participation through the Lottery, with respect to the essential characteristic of the lotteries, the situation is the opposite. The profit expectancy is significantly higher when one chooses to participate in the lotteries directly at the Lottery booths than by participating through the services of the Lottery. Accordingly, it is possible to reach the same expectation of winning, at a much lower cost when a direct purchase is made.
104. In view of all this, I have been persuaded, certainly to the extent required at this stage of the proceeding, that the fact that the Respondents do not clearly state on the websites and in their engagement documents the percentage of the subscription fee used to purchase lottery tickets, and at the same time boast about the worthiness of participating in the lottery lotteries within the framework of the services they offer, creates a representation – by act or omission – that is liable to mislead the customers with regard to a material interest in the transaction.
105. In the expert opinion on behalf of the respondents, Prof. Gadi Fibich, it was argued that alongside the profit expectancy parameter, there are other parameters that affect the question of whether participation in the lottery lotteries through the respondents' services worsens or improves the participant's situation compared to participation in direct lotteries at the Mifal HaPais booths. Prof. Fibich noted a number of such parameters: the average monthly loss, the maximum monthly loss, the chance of winning any amount, the chance of winning a "life changer", and more.
106. I accept the argument that profit expectancy is not necessarily the only criterion that guides customers in choosing whether to participate in lotteries directly or through the respondents' services, but at the very least it is a significant criterion in choosing the product. In order to make an informed decision, customers should be aware that only a small percentage of the subscription fee they pay is used to purchase lottery tickets. If this information is provided, each customer will be able to plan his steps according to his personal preferences and the criteria that guide him in choosing whether and in what way to participate in the lottery lotteries, and in the appropriate case, it is even possible to choose between the different respondents and the different tracks they offer.
107. Respondents 1, 2 and 5 claim in their defense that they present the customer with data from which it is possible to calculate and understand which of the subscription fees is used to purchase lottery tickets. In the framework of the communication documents with which the customer receives information about the number of tables, the number of forms sent, the number of group members and the number of lotteries included in the subscription. According to them, by weighing and calculating these data, it is possible to understand the percentage of the subscription fee used to purchase lottery tickets, and how much of the subscription fee constitutes a service fee. Therefore, when these parameters are exposed to the customer, it is not necessary to indicate the percentage of the subscription fee used to purchase tickets for the purpose of preventing deception.
108. From the engagement documents with respondents 1, 2 and 5, it is indeed possible to know the number of tables, the number of forms sent, the number of group members and the number of lotteries included in the subscription. However, in order to extract from these data the sum from the subscription fee used to purchase lottery tickets, the customer is required to perform a calculation with several stages, when not all of the data is presented to him in the publication (the price of the various lotteries is not specified). The respondents' argument that this is a simple calculation that any reasonable person can succeed and therefore the presentation of the raw data is sufficient to meet the disclosure obligation is not convincing. Admittedly, this is not high mathematics, but rather addition, subtraction, multiplication and division. However, in order to reach a result, it is first necessary to understand that these are the data relevant to the calculation, to understand how the data should be weighted and to create the equation in which the raw data will be placed. This effort, even if possible after a certain amount of diligence, is not intuitive or self-evident, especially since the consumer may not be even aware that a commission is being charged to him (but only 10% of the winnings, as presented in the documents), and in any case the calculation will not be done. Sometimes these are also large numbers, so that the execution of the invoice operations themselves requires the use of a calculator. To this, it should be added that some of the respondents include in the same subscription a mix of lotteries of different types and scopes, so that a customer who wishes to extract the sum from the subscription fee used to purchase lottery tickets is required to repeat the calculation several times until the final result is reached.
109. In practice, the material information regarding the amount of investment in the purchase of forms is not presented as it is, and I am of the opinion that there is a reasonable chance that it will be determined that this is deception by default, by failing to meet the obligation to actually present all the material information necessary for the customer, and not suffice with the fact that there is data before him from which he can extract that information. It appears that the presentation of the raw data alone is not sufficient for the purpose of meeting the duty of disclosure towards the customer.
110. This is all the more valid against the background of the Respondents' publications that speak in praise of their wares, while there are also those who boast of the financial savings of engaging with them, even though in practice the picture is much more complex, and with regard to the aspect of profit expectation, the lack of benefit of purchasing through the Respondents is conspicuous.
111. In their arguments, the Respondents refer to the judgment inthe Bar Ilan case, in which it was rejected, in the framework of a motion to certify a class action, a claim of deception against one of the companies that offer lottery form delivery services, as in our case (Respondent 3, against whom the claim of deception in question is not addressed in this proceeding). It was argued that in the Bar Ilan case, it emerged that Respondent 3 published the price of the subscription, the number of lotteries included in the subscription, the types of forms and the number of members of the group, and it was held that in view of the disclosure of these details, it was not proven that the Respondent misled its customers regarding the value of its services. Therefore, respondents 1, 2 and 5 argue, the claim of deception directed against them should be rejected.
112. However, there is a difference between the representation in question in the Bar Ilan case and the representations of other respondents. The respondent in the Bar Ilan case included a clause in its engagement agreement in which it was stated that out of the NIS 195 of the subscription fee, only NIS 42.51 is used for the purchase of lottery tickets. Respondents 1, 2 and 5, as well as respondents 6 and 7, do not include this information.
113. In summary, in view of the significant difference in the expected profit between a bet through the Respondents and a bet through the Lottery, a gap that is a material matter in relation to the purchase, and in view of the general impression that the Respondents instill in their representations that the use of their services is worthwhile and preferable to direct participation through the Lottery, it appears that there is a reasonable chance that in a main proceeding it will be determined that the failure to present the rate or the sum of the subscription fees used for the purchase of lottery tickets and the failure to present the commission rate constitutes a breach of the duty of disclosure and the provision of the information required under section 2 of the Consumer Protection Law for the Prevention of Deception. In this context, it would seem that the presentation of raw data alone is not sufficient for the purpose of meeting the duty of disclosure towards the customer. The respondents must explicitly and clearly provide the customer with the amount or amount of the subscription fee used to purchase the lottery tickets, and the fact that this information can be extracted by means of performing these and other calculations does not exempt them from this obligation.
114. Moreover, one should not accept the inference that the respondents propose to make from other businesses that sell tangible products without indicating to the customer what their cost to the manufacturer is (for example, selling a salad in a restaurant without specifying the cost of the vegetables, which is much lower than the price of the salad).

In the purchase of a tangible product such as a salad, the purchased product is visible and known to the consumer, and the data regarding the cost of raw materials is not material to the customer. It does not appear that the fact that the restaurateur is able to obtain goods that are particularly cheap or not, is a material figure for the customer. In contrast, when we are dealing with the acquisition of the right to participate in the lottery, this is a material figure, since it is necessary in order to understand the quality of the product and even to compare it with similar alternatives and to an alternative of direct purchase at a much lower cost with the same expectation of winning, or at the same cost, but against a much higher probability of winning. Hence the obligation to disclose the data regarding the rate of investment in the purchase of lotteries and the rate of commission out of the subscription fee. Failure to comply with this duty of disclosure ostensibly amounts to misleading omission.

115. It should be emphasized: It cannot be ruled out that despite the increased cost in terms of the expected winning, and inferiority in terms of profit expectation, there are those who will consciously choose to enter into an agreement with the respondents and not purchase directly from the National Lottery. This is due to his desire to increase the chances of winning – the chance of winning any amount.
116. Admittedly, as the respondents point out, the profit expectancy in lotteries is always negative. However, this does not turn the profit expectancy into an immaterial figure in the purchase of a lottery. If this were the case, then the price of a lottery ticket would not have been a figure that was taken into account by the customer at the time of its purchase. As emerges from the provision of section 2(a)(13) of the Consumer Protection Law, the legislature thought otherwise and determined that the price of a product is material information for a customer. This is also the case where the customer makes a transaction that mathematically is a loss-making transaction. Even when it comes to a loss-making transaction, the customer may prefer a transaction in which the economic loss is lower than the economic loss in the company. In addition, a material improvement in profit expectancy is an improvement in the product, and a reduction in profit expectancy is a deduction in its quality. Profit expectancy may be a material consideration when choosing between direct purchase from Mifal HaPais and purchase through "lottery clubs", and it may also be a material consideration when choosing an enrollment track from among the tracks offered by each respondent and even from the variety of tracks offered by all respondents. Given the discrepancies presented here between direct purchase and purchase through the clubs in question, there is a reasonable chance that in the main proceeding it will be determined that the scope of the investment in the purchase of forms and the rate of the "commission" are a figure that should be disclosed directly, and not leave the task of calculation, which is not a trivial matter, to the customer. Accordingly, there is a reasonable chance that the failure to present these financial data to customers amounts to misleading in default.
117. In summary: there is a reasonable chance that the claim of deception in relation to the rate of the commission taken from the subscription fee and the rate of the amount used to purchase lottery tickets will be decided in the main proceeding in favor of the group against respondents 1, 2, 5, 6 and 7. This is also the case with respect to respondent 8, even though it currently provides its customers with information about the rate of the subscription fee used to purchase lottery tickets. It is not clear when respondent 8 began providing this information to its customers, and the applicant presented a real indication that this respondent began providing the information in 2017 at the earliest.

The second cause of deception - representations regarding increasing the chances of winning and the use of statistical methods

118. The Applicant claims that the Respondents state that they possess statistical methods that enable them to increase the chances of winning, when this is a misrepresentation. We will now discuss the opinions given by the experts who were summoned to the proceeding and testified to the existing statistical possibilities. We will then examine the representations in relation to each of the Respondents, with the exception of Respondent 4, against whom this claim is not addressed in the proceeding here, and we will discuss the question of whether this is prima facie deception.

Reviews

119. As stated, the Applicant attached to the application for approval an opinion by the economist Dr. Tali Regev. The main points of the expert's opinion, which are relevant to our case, are as follows:

• There is no way to affect the winning odds of a column/lottery table. Each combination of numbers has the same chances of winning each prize.
• Subscription sharing, i.e. group participation in a lottery, increases the chance of winning a prize, but does not change the probability of winning. Sharing subscriptions improves the probability of winning, but at the same time reduces the amount of the prize so that the expectation of winning is the same.
• The expected win and profit expectancy in betting through the respondents' services is lower than when filling out columns randomly directly with the lottery. There are three reasons for this: first, for each winning, a 10% winning fee is charged by most of the respondents; second, the price of the subscription represents a price per column per person that is higher than the price charged by the lottery per column. According to the opinion, most clubs charge 1.5-4% of the price of the lottery; third, betting through the services of the respondents may create a higher tax liability. This is because the tax liability is calculated according to the total amount of winnings accumulated within the group, and not according to the individual share of each participant. Since the gambling clubs serve bets on behalf of a group of participants, they reach the tax exemption ceiling set by law more quickly. As a result, many winnings that exceed the exemption amount are subject to income tax, which effectively reduces the amount of rewards that each participant receives and reduces the profit expectancy accordingly.
• Choosing uncommon patterns - There is a theoretical possibility to increase the chance of winning and winning the first and second prizes by choosing combinations that are not common among lottery bettors. Since these prizes are distributed among everyone who chose the lucky combination, choosing uncommon combinations increases the chances that in the event of a win, the prize will be divided among fewer people and then the profit will be greater. This is not an increase in the chances of winning, but rather an increase in the amount of the prize in the event of a win, due to the reduction of the fear of the prize being distributed among several participants who choose the same combination. According to the expert, this increase in the expectation of winning and profit is very limited and negligible, and in any case is less than the decrease in the expectation of winning as a result of the higher cost of betting through the respondents' services.
• The "Reduction Method" - In the eighth prize, the lowest prize, which is given to anyone who guesses three of the numbers that came up in the lottery, a win can be guaranteed by filling out a number of forms and betting on all possible combinations of three numbers. It is possible to save costs by preventing repetition of combinations, thus ensuring that the lower prizes are won at a lower cost. This method is known as the "Reduction Method". However, this method also does not change the expectation of winning compared to sending the same number of columns at random. The reason for this is that the eighth prize, in the amount of 10 NIS, is given equally to each winner, regardless of the number of winners. Therefore, in this aspect, there is no difference between filling out columns according to the Tzimzum method and filling out columns at random. Using the reduction method, you get the lowest prize for sure, but you only win once for each winning combination. On the other hand, if you fill in the same number of columns randomly, there may be combinations that will repeat themselves and then the prize will be given for each of the correct combinations. The expectation of winning is the same. Using the reduction method, you do not change the chance of winning, but you increase the chance of winning a prize of 10 NIS. Without using this method, the chances of winning are reduced and at the same time the amount of the prize that can be received increases - more than 10 NIS for a combination that is selected more than once.

120. The respondents also attached the opinion of an expert on their behalf, the mathematician Prof. Gadi Fibich. The main thing that arises from the expert on behalf of the respondents, which is relevant to our case, is the following:

• There are no combinations of numbers that have a higher chance of winning the lottery.
• Assuming that the Respondents do not have a better ability to win the lottery than in a random bet, the profit expectancy in a bet through the Respondents is lower because of the fees they charge and that do not exist in a direct bet through the Lottery.
• The odds of winning can be improved by choosing uncommon patterns. The improvement stems from the fact that if an uncommon combination comes up in fate, it is divided among fewer people. Contrary to Dr. Regev's position, Prof. Fibich believes that it is impossible to determine that the increase in the odds of winning is negligible, but it is also impossible to determine otherwise, in the absence of additional data.
• It is incorrect to compare participation in the lottery lotteries through the services of the respondents with direct purchases at the lottery booths only by examining the profit expectation, since people who are interested in the profit expectancy will choose not to participate in the lottery lotteries in the first place, in any way or form.
• In order to examine the question of whether participation in the lottery deteriorates or improves the condition of the gambler, as opposed to direct purchase at the Mifal HaPais booths, additional criteria must be addressed, which were not taken into account in Dr. Regev's opinion. For example, the chance of any winning, the chance of winning "life-changing", the maximum monthly loss, the gambler's aversion to risk, and other considerations such as social influence, etc. Prof. Febich's conclusion is that in relation to some of the considerations, participation through the lottery is preferable, in relation to some of the considerations, participation through the lottery clubs is preferable, and in relation to some of the considerations, the preferred way depends on the characteristics and preferences of the bettor.

121. We will summarize what arises from the positions of both experts in relation to what is claimed by the Applicant:

It is agreed that there is no statistical way to increase the chances of winning by filling out a single column, and that each combination has the same probability of winning the lottery. Therefore, as a rule, the Respondents do not have a better chance of winning than in a regular random bet. On the other hand, due to the cost of subscriptions, which includes a significant commission component, participation in the Respondents' bet does yield a lower profit expectancy due to the costs involved in betting through them that do not exist in a direct bet through the Lottery.