You and your family are standing on stage, weeping with joy. A man in a dark suit hands you a giant check of $100 million. You begin answering questions from the press about your good fortune, when suddenly the alarm clock goes off. The pleasant dream is replaced by the sting of reality. Oh well, there's always another lottery to play, right?
Lottery managers certainly want you to think so, and they keep the pot boiling by offering 4 of the 10 biggest jackpots in American history in 2016. If you happen to win, you're in for the thrill of a lifetime. But the numbers reveal that, for the multitudes who buy government-sponsored lottery ticket, it's a sucker bet.
Statistical engineers plan for the lotteries to generate huge payoffs, and to reach astronomical amounts very quickly. The giant jackpot creates giant demand, and causes players to increase purchases. In 2016, we've seen four payoffs ranging from $429 million to $1.6 billion, according to an independent statistician who's a former director of research and analytics for the federal Pension Benefit Guaranty Corporation and the the Treasury's Troubled Asset Relief Program.
Two big government-sponsored lotteries, Powerball and Mega Millions, were redesigned in recent years to create attention-grabbing jackpots and offer a greater number of smaller secondary prizes. These changes were made to boost ticket sales and vacuum in higher states revenues. The results were, of course, a success. Sales increased from $70.1 billion to $73.9 billion last year, and are rising again this year.
The secret sauce was to make the miniscule odds of winning the big jackpot even tougher. If you play Mega Million, your chances are one in 259 million. As bad as those odds are, the one in 292 million odds for Powerball are even worse. The jackpots swell every time a big winner isn't drawn.
Many folks who like to dream will buy a few tickets just for the fun of it. This kind of behavior helps create a rush in lottery sales when the payoffs reach the hundreds of millions mark while new players start buying tickets. As the payoff amount snowballs, more new buyers are drawn in, creating an expanding spiral of sales.
The billion-dollar level seems to accelerate sales even faster. But perhaps this wouldn't be the case if ticket-buyers better understood the math behind the jackpots.
In general, state-run lotteries take 40 percent of all sales for themselves and pay out the other 60 percent. This means that, on mass, lottery players lose 40 percent of the money they put into the games.
The July 30 Powerball lottery jackpot shelled out $487 million to the grand winner, but only 4 percent of all Powerball lottery hopefuls won anything at all. Among the winning tickets, 78 percent paid a measly $4, equal to the purchase price of two tickets. The bottom line is that 96 percent of tickets were losers. You'd get better odds playing blackjack at a casino, really.
Estimates put the losses for as many as 50 million players at an annual average of $1,000. For low-income individuals, this is a sizeable chunk of money, and over the years could put a significant dent in their retirement savings.