We’ve talked about the lottery and gambling a ton of times on Don’t Quit Your Day Job, but with a topic as wide and varied as games of chance you can’t be surprised that we keep coming back to it. Today’s entry? A story about something you’ve always wanted to do – beat the lottery. Let’s call it: Massachusetts Oddsmakers Meet High Volume Betting and Lose.
Lottery Tickets as a Form of Gambling… or Investing?
Have you ever walked into a gas station or a convenience store and, on a whim, purchased a few scratch tickets? Do you play scratch tickets during the holidays? Do you have a weekly, monthly, or perhaps even daily ‘numbers’ habit? Odds are you’re just tossing money away, hopefully for a few minutes of entertainment… not thinking you can beat the lottery after figuring out a flaw in the game.
Truth is, for the vast majority of ticket purchasers, scratch and lottery tickets are just that – a few dollars risked for a shot at a faraway dream, perhaps a form of escapism before getting back inside a recently topped off car (with $4 gas!). But, what if you had an edge? What if a dollar of lottery tickets was worth more than a dollar in expected returns? What if you could, dare I saw it… actually beat the lottery with an exploitable edge?
Well, in that case, the lottery goes from a few dollars of entertainment or, at worst, a painful addiction to a legitimate investment.
Beating the Scratch Ticket System
Over the last few years, especially as more and more background information on games has been posted online, there have been more and more examples of people, literally, beating the lottery system. The first person to come to prominence was probably Mohan Srivastava, a Canadian statistician and the subject of an awesome Wired article. Mr. Srivastava recognized that a false constraint made lottery tickets beatable – in his case, the fact that in his tic-tac-toe game numbers which were revealed on the board would give clues to the numbers underneath. Even though he realized the game was beatable, Srivastava made a calculation that more than a few PF bloggers could learn from – he realized it wasn’t worth his time, so he got in touch with the Lottery Commission’s Security Team. Once they realized he was the real deal, they pulled the game from shelves almost immediately.
Srivastava cracked a type of game with a so-called “baited hook”. Games of that type reveal some information, and a combination of that information and secret information combine to determine whether a given ticket is a winner. These baited hook games were first designed to extend the entertainment value of a scratch ticket – matching numbers and looking up information in tables is more interesting to a lottery player than simple boolean win/loss games. The problem? Many of those baited hook games suffered from a fatal flaw – just like card counting in blackjack, the public information was enough to nudge to odds of winning into the player’s side.
Beat the Lottery and Gain The Key to a Larger Kingdom!
At the point the Wired article was written, very few lone wolves had gone public with their lottery ‘prowess’. Srivastava was one of them, Joan Ginther (also mentioned in the article) another. Ginther was later revealed (or at least rumored) to have a Math PhD. Still, if two players are known, how big is the iceberg?
And, what if the majority of the iceberg isn’t made up of lone wolves but, perhaps a seedier mix with everything from organized crime to betting syndicates? The Wired article was published in January of 2011 – and at that point in time, although there was some evidence that the scratch ticket lotteries in some states may have been gamed there wasn’t any audited evidence available (although the Whitey Bulger reference was a nice touch).
Now, there are a few potential flaws in game design where a lone wolf might have a harder time competing. One – when flaws are only evident on a large scale, perhaps across a store’s ticket sales, or even a state’s complete ticket sales. Consider the fact that lottery commissions often guarantee a certain prize amount per issuance. If you had access to sale and prize information, you could estimate when prizes were running above and below predicted returns – and act accordingly. Or, as we’ll see later, you might discover a small but definite edge – and only with a large bankroll and a number of players could you exploit the edge.
Massachusetts and WinFall’s Not-Surprise Windfalls
WinFall was a game in Massachusetts which started in 2004 and had an interesting structure – it was a single state lottery system where a player would pick 6 numbers between 1 and 46 for twice a week shots at a prize. This particular lottery was designed to pay out 60 cents of every incoming dollar in prizes, but it also had an innovative twist – it had a memory, and therein lied the problem.
There was one feature which made WinFall stand out from a normal lottery. The odds of matching 6/6 numbers 1-46 is 1 in 9,366,819. However, WinFall had a prize cap, which kicked in at $2,000,000. When it hit that amount and there was no winner, the lottery would “roll down” the prize amongst the lower tier winners – 26% to those holding 5/6 numbers, 47% for those holding 4/6 numbers and so on (in addition to the standard prizes).
So, what’s the issue with memory? Well, nothing, at least not for the lottery commission. For smaller prizes, the lottery would pay out its standard amounts for lesser wins, and continue to build the pot for an eventual rolldown. However, when a rolldown happened there would be $1.15 in the pot for every $1.00 in tickets bought – so even after Massachusetts took their pound of flesh, there was an opportunity to play the lottery with Other People’s Money (the best kind of money).
Of course, chaos ensued. The official Inspector General’s report is an unintentionally hilarious report of the cat and mouse game between gambling groups and lottery officials, and the (mostly useless) maneuvers officials tried to take to dissuade high volume purchasers from buying bulk tickets when rolldowns occured. How many groups were in the field? At least three major ones, including a MIT group (yes, [amazon-product text=”Bringing Down the House” type=”text”]0743249992[/amazon-product] MIT), a BU group, and a Michigan (traveling) group, along with probably a few other college-centralized groups. I’ve got a bridge (The Zakim!) to sell you if you think those are the only ones.
Anyway, amongst the shenanigans they pulled? The Massachusetts lottery IT department would forecast ticket sales and predict when rolldowns would occur. Of course, the groups were watching the site – and if a group could force a rolldown by, say, buying a few hundred thousand more in tickets than the IT Department predicted, they could effectively have more tickets in play than their competitors. That almost certainly happened, at least once. Computerizing entries to buy more tickets? Yep. Getting stores involved in the action? It certainly appears so.
Bottom line: by leaving previous tickets in the pot and through its determination of prizes, WinFall was (my word) a ‘flawed’ game. Unlike games like Powerball or Megamillions (we made an Expected Value Calculator for Mega Millions, if you’re interested), there was an actual positive EV for the game – an absurd statement about a lottery.
This Isn’t Your Aunt’s Scratch Ticket Habit, Nor Your Uncle’s Keno…
That said, just because we just shined a light on the real life Ocean’s Eleven (Twelve & Thirteen) doesn’t justify your weekly ticket purchase. It’s not that this is hard math – with a little creativity, some entry level statistics, and the luck to look in the right place you too can find a hitch in the system. However, I doubt that most of the people who buy scratch and lottery tickets have ever calculated an expected value. So, like I love to do, I offer you a caveat:
If you are buying a lottery ticket, there are exactly three options:
- It’s entertainment
- You’ve done some math
- You’re a sucker
Now, I love you readers (and my family, and myself!), but most of the people we know who buy tickets fall right in the middle of #3 and don’t have the edge necessary to beat the lottery.
When is the movie coming out?
Think you can beat the lottery?