Couple wins millions using lottery loophole

https://www.msn.com/en-xl/northamerica/top-stories/couple-wins-millions-using-lottery-loophole/ar-AACEewY

362 183 7 years ago

treydey2• 7 years ago

Can anyone explain the strategy like I'm 5? I'm confused by his answer.

bsaul• 7 years ago

Even weirder is the statement that the State that organized the lottery made more money thanks to them buying massive amount of tickets ( or maybe it was the publicity around the first newspaper article that triggered more interest, and so more participant in general ?)

Piskvorrr6• 7 years ago

I understand the opposite: the State didn't lose any money, (but didn't make any money from these people winning, either); it made money from lottery as usual, but not from these people. (There's an implication that more people in general bought tickets, didn't win, and so the organizer made money from those - but it's not entirely clear.)

jarfil2• 7 years ago

That is correct: since these were not usual players who abstained from playing, but rather casual players who bought extra tickets just on rolldown, while the State got a cut from every ticket sale, they were effectively pouring extra money into the lottery, increasing the State's income.

Even if they re-invested their previous winnings, that would be twice (or more) that the State would get its cut from the same money, still increasing its income.

Double_a_92• 7 years ago

The money was "stolen" from the person that would have won the jackpot. The maximum jackpot was just smaller, it didn't make a difference to the lottery who actually won that money. They could say that the jackpot will be split among everyone that has exactly one number right in the next round, and still make profit.

Piskvorrr6• 7 years ago

If nobody wins the big jackpot ("guess all the numbers") for some time, parts of it are given to the smaller winners ("guess a few of the numbers"). In this case, which happened once in a while, it became more likely that you'll win more than you have bet. Usually this means you'll win some $50; they have bet many, many times, and won $50 times many.

Doesn't work any more, rules have changed so this way of winning was removed.

tylerhou2• 7 years ago

But which set of tickets do you buy?

emerongi• 7 years ago

The jackpot grows off of people losing money. Once people have lost enough money ($5M), the chances of winning the money with a single ticket are raised, however you can no longer win the whole $5M with a single ticket - the money is now distributed over a larger pool of tickets.

After that it becomes a good bet, because you can bet smaller amounts, but still win more than you put in initially - you're profiting off of people who lost money before you.

chrismcb5• 7 years ago

Someone can always win the whole 5M. It is just that if the prize for large enough and no one win, then the amount of the small prizes increased. It was a way to keep the total payout low.

martin_b• 7 years ago

There is a great lecture about it from The Royal Institution https://www.youtube.com/watch?v=kZTKuMBJP7Y

kickopotomus• 7 years ago

It might make a little more sense with the numbers. WinFall was a typical lottery game where you choose 6 of 46 numbers[1]. As with most lottery games, there is a jackpot payout but there are also payouts for matching 3, 4, and 5 of the numbers. The odds breakdown goes like this[2]:

  Result | Odds
  -------------
  6 of 6 | 1 in 9,366,819
  5 of 6 | 1 in 39028.41
  4 of 6 | 1 in 800.58
  3 of 6 | 1 in 47.40
  2 of 6 | 1 in 6.83

The issue with WinFall is that when the jackpot increased past $5MM, the expected value of the non-jackpot winnings becomes favorable to the player. I.e. a 5-of-6 matching ticket might normally yield $4,000 but may yield >$20,000 for a "Roll-down" game. So if you go out and buy 200,000 tickets for the roll-down game (assuming all tickets are different and numbers are selected at random), you should expect to have 5 5-of-6 tickets, 250 4-of-6 tickets, 4,219 3-of-6 tickets, and 29,283 2-of-6 tickets. The combined winnings of all of those tickets makes it profitable.

[1] https://www.mass.gov/files/documents/2016/08/vv/lottery-cash...

[2] https://en.wikipedia.org/wiki/Lottery_mathematics

em-bee• 7 years ago

so in each game the money that is not won is collected in the pool until the pool is bigger than the overall cost for all tickets?

and in other games this doesn't work because they are 'winner-takes-all'?

treydey2• 7 years ago

This is what I was looking for! Thanks.

losvedir• 7 years ago

* Expected value of the lottery tickets is normally negative. (You pay $1, you expect on average to get back less than $1).

* At a certain point, if the jackpot grows too large, the game switches to a new "windfall" mode where the expected value is actually _positive_ to bleed off the jackpot. (You pay $1, you expect on average to get back more than $1).

* The couple and the MIT students only played during the positive expected value times.

Overall the game still makes money for the state, it's just it has two distinct regimes, and the people playing during negative-EV essentially bankroll both the state and the positive-EV players.

onetimemanytime2• 7 years ago

$80 BILLION a year in lottery spending, that was shocking to me. Only 30 some countries have bigger yearly budgets. https://en.wikipedia.org/wiki/List_of_countries_by_governmen...

smcl• 7 years ago

Remember that you can look at a lot of data on the US like this and come up with seemingly shocking figures, simply because of the huge population of the USA and their higher than average disposable income. I bet if you looked at other things like total amount spent on other optional/nonessential items - chewing gum or fabric softener, for example - you'd end up with a dollar value in excess of what many governments spend :-)

onetimemanytime2• 7 years ago

Oh, I know. Our GDP does it. If US can spend $80 Billion on lottery tickets imagine what we can spend to win a war. Makes you think more than twice before poking the bear.

rzzzt• 7 years ago

The chewing gum market is a bit smaller (but impressive nonetheless), 110-ish countries have revenues comparable to sales in North America:

https://www.foodbusinessnews.net/articles/13098-chewing-gum-...

https://www.statista.com/topics/1841/chewing-gum/

onion2k• 7 years ago

It's very common for people who win small prizes to 'reinvest' their winnings though. Someone who spends $5 and wins $25 might then just buy $25 of tickets with that win. If they're playing online that money never really exists - it's just an account balance in a database going up and down.

chrshawkes• 7 years ago

Slightly more than spent on Food Stamps I believe? Is there a correlation?

danielecook• 7 years ago

Love hearing stories like this where people gained because of some loophole. Does anyone know if there is a compilation somewhere of these?

yomly• 7 years ago

Look up Joan Ginther - ex-Stanford statistician and she won scratchcard lotteries multiple times (I seem to recall by arbing non-uniform geographical distribution of winning cards). Unfortunately I can't find a technically satisfying article and don't have ability to find one right now...

mrspuratic• 7 years ago

Irish Lottery, 1992, brute force - you could purchase all ~2M combinations for < IR£1M . The company played dirty when they realised what was happening, then later changed the game when they'd finished the forehead slapping: https://en.wikipedia.org/wiki/National_Lottery_%28Ireland%29...

js22• 7 years ago

“A nationwide reporting adventure tracks improbably frequent lottery winners”:

https://www.cjr.org/united_states_project/lottery-winners-fo...

Discussion:

https://news.ycombinator.com/item?id=15262440

giarc2• 7 years ago

There is a story similar to the dollar coin gig to earn reward miles. A long time ago when plastic gift cards were first a thing, stores didn't have a way to update the balance. The scheme would be to buy a $100 gift card from Walmart using your credit card (getting the miles). You would then use the gift card to buy a $0.35 pack of gum. Since the store couldn't update the balance, they would give you cash as change. You could then just deposit the change to your bank and pay off the credit card. Rinse, repeat.

So for $0.35, you could get $100 in equivalent reward miles. Now stores have changed, they can now update balances on the card and therefore won't issue cash as change.

dawnerd2• 7 years ago

To expand, this still goes on, it's just a lot more convoluted and has become quite the cat and mouse game. It's been very interesting watching how manufactured spending has evolved.

bena3• 7 years ago

I think because the original gift cards just effectively said "I'm a $100 card" in the magstripe.

Now, gift cards operate more like limited credit cards.

MeteorMarc• 7 years ago

I just wonder, do you have to think very high about yourself to play such a game and enjoy it? Or very low? I just can not imagine myself feeling good about this.

Of course, the feeling dumbs a bit: compare the feelings you had after using your first illegally copied floppy disk or mp3 track and the later ones, but still.

barking• 7 years ago

I'd enjoy it very much and not feel bad at all.

chrismcb5• 7 years ago

Why would you feel bad? What woukd you have down that was wrong? You aren't taking money from anyone else.

tantalor3• 7 years ago

You are taking money from the prize pool, i.e. payouts for future winners.

Slartie• 7 years ago

When I read this kind of stories about US lotteries (and there seem to be several of this kind of stories going around), I always wonder how on earth it is possible for so many cases of failed lottery rule design to exist in the first place, and for those clear failures to persist for so long.

Did no one notice that the lottery always lost huge sums of money during the Rolldown draws, while it gained money on normal draws (as it should always be the case)? No one noticed that certain convenience stores suddenly sold hundreds of thousands worth of tickets in these draws, while most other stores sold a normal amount?

caf• 7 years ago

Long before that point, lotteries that decide to innovate in game design don't have a professional actuary on the staff to run the ruler over the designs?

soneil5• 7 years ago

That's the weird part for me. Surely inventing a whole new game mechanic, must be their industry's version of rolling your own encryption?

ilamont• 7 years ago

These lotteries are usually run by state commissions, staffed by career bureaucrats and sometimes led by appointees. I don't think there's a deep well of talent that is familiar with how to implement robust monitoring, security, and optimization systems.

kd5bjo2• 7 years ago

The lottery’s and retailers’ profits are each a fixed amount of the ticket price, and the rest goes into the prize pool. They don’t lose any money unless they commit to paying more prize money than they allocated to the pool. Jackpots are explicitly a (large) fraction of the unallocated award funds and so cannot make the lottery operation insolvent— only an excess of fixed-value awards can do that. In fact, the increased sales on rolldown draws just mean more profit for the operators and reduce their biggest risk, which is something happening to the stored funds used to pay out prizes.

gniv• 7 years ago

I suspect the designers were aware of this shortcoming, but were not concerned. As explained by others in this thread, the state still made money.

soneil5• 7 years ago

I think the irony is that from the organizer's point of view, it's essentially working as intended. The "windfall" mechanic was supposed to make rollovers more enticing by increasing the payout amounts for everyone. The only reason to make a lottery more enticing is to sell more tickets.

So they sold more tickets, and made more payouts on lesser tickets. Exactly as they planned. The lottery doesn't actually lose out - it's just emptying the pot (which was filled in previous games) in return for increased sales.

It's the old adage "the house never loses" - if 50% goes in the pot and 50% goes in their pockets, it doesn't matter who wins the pot - their 50% doesn't change. If a mechanic creates an incentive for more sales, their take increases. Fantastic. But if popular perception becomes that the game is rigged, less people buy tickets - and their take decreases.

(We had an office draw that'd run for months at a time, until someone eventually won. But we wouldn't take new players until the pot had been emptied, as someone joining for the last 2 rounds and winning everything, lost us more players than we gained. That is essentially the long-term risk here too. 10 people paying in until one of them wins, feels fair. 10 people paying in until the 11th wins, doesn't. And when the game stops feeling fair, you start to lose the feeders that fill the pot in the first place.)

staticautomatic• 7 years ago

I don't understand why this is an issue since each drawing's odds are independent. Perhaps I don't understand how these pools work.

5555624• 7 years ago

Did no one notice that the lottery always lost huge sums of money during the Rolldown draws, while it gained money on normal draws (as it should always be the case)?

The state never "loses." In this case, for example, the MIT group "17 and $18 million ... over a seven-year period, earning at least $3.5 million in profits," yet the state made $120 million. Even if the state noticed, why would they care? Pay out $3.5 million to make $120 million? Why not. The problem is that it :"sounds" rigged.

No one noticed that certain convenience stores suddenly sold hundreds of thousands worth of tickets in these draws, while most other stores sold a normal amount?

Someone noticed, because they tipped off the Boston Globe that "in certain Massachussetts locations, Cash Winfall tickets were being sold at an extraordinary volume." Again, it "sounds" rigged.

The average person is not going to think that a lottery has a "loophole" in it. The average person thinks something like that can't happen.

Spooky23• 7 years ago

Lotteries are run by a couple of companies, and the multi-state systems are run by fairly secretive organizations that have their share of issues.

End of the day, the providers don’t have much interest in finding problems, and the states have limited ability to detect them. Protecting the integrity of the system can be largely addressed with PR.

astura• 7 years ago

The house always wins, the lottery didn't lose money during the rolldown, nor any other time. Quite the opposite.

They also did notice.

https://www.inc.com/bill-murphy-jr/this-couple-found-a-math-...

And, there was also the fact that lottery officials in Massachusetts had started to figure out that the Selbees and the MIT students had identified an advantage, but had done very little to combat it.
"How do I become a member of the [Selbees'] club when I retire?" one lottery official joked in an email that later became public.

sureaboutthis• 7 years ago

I first read about these people a year or so ago so CBS "news" has finally caught up.

ocfnash• 7 years ago

A wonderful account of this is given in Ellenberg's "How Not to Be Wrong": https://en.wikipedia.org/wiki/How_Not_to_Be_Wrong

I highly recommend the book; it is a popular mathematics book, written by a real mathematician, discussing some real mathematics, with an engaging style.

gauravjain13• 7 years ago

Video: https://youtu.be/kZTKuMBJP7Y

RickJWagner• 7 years ago

Good for them! Thinking is rewarded.

Xunxi• 7 years ago

They were featured on 60 minutes twice, including last night. The rendering on Microsoft News is off!

You can see the entire video here.

https://www.cbsnews.com/news/jerry-and-marge-selbee-how-a-re...

js22• 7 years ago

Previous discussion a year ago:

https://news.ycombinator.com/item?id=16494280

On this submission:

http://highline.huffingtonpost.com/articles/en/lotto-winners...

joshstrange• 7 years ago

This is a MUCH better writeup than this recently submitted link. I remember reading it at the time, very well done.

fragmede• 7 years ago

The original Mass gaming commission report is floating around out there, if anyone is looking for additional reading on this subject, though it is of limited interest, outside of a select few MIT students and a couple from Michigan.

coldcode• 7 years ago

I wish lotteries handed out many $1M prizes instead of giving $250M to one person. People understand what to do with $1M (I think) but most people are ruined by $250M.

wvenable• 7 years ago

The reason they don't do that is marketing; more people play for big jackpot. I think even saying there might 250 $1 million winners this week isn't as big of an enticement.

indigodaddy• 7 years ago

Exactly, they would never sell anywhere close to the amount of tickets as they do for the single-winner lump sums that swell to ridiculous amounts. So they wouldn't have the necessary incoming ticket sales to be able to do the 250 $1 million winners.

vonzeppelin• 7 years ago

When the jackpot reached a certain amount, say 500 million, they could switch from a winner takes all to essentially a raffle with 500 winners. I think it would greatly increase the number of tickets purchased when the threshold was met.

esaym• 7 years ago

That actually sounds like a good idea. Though there is the old saying "the lottery is just a tax on the poor".

My aunt actually won 2 million back in 2007. She had just divorced my uncle (so I guess she is my ex-aunt) and bought a ticket and used the birthdays of me and a few others as the numbers. She was smart in that she chose to set up a trust fund with yearly pay outs instead of a lump sum. She told her sister that she was going to give her a million, but then after realizing that the tax was going to be around a million, she then changed her mind.

She then bought a not too fancy house on the beach for probably too much money (this was in 2007 after all). Then bought a non running yacht for $40k and a new car. Her first pay out check for the year was spent in a matter of weeks and she still had monthly payments on the new toys so she couldn't quit work either. Then she realized that the house payments were for 30 years, yet her pay out plan was only for 25 years and it would not be easy to make payments those last 5 years without more refinancing (she is still trying to figure that one out).

She got scammed many times on house repairs. When she first moved in, for what ever reason she said she needed to get the windows replaced. She paid a local contractor $9k to replace the windows. He showed up with a trailer full of windows and unloaded them all (and I guess that is when she paid him). He said he'd be back later in the week to do the install. Months went by with no contact so she found another local laborer to install them. But he quickly realized that all the windows were the wrong size and basically just junk left over from other jobs.

The $40k yacht never ran. Spent several years paying people to work on it, no telling how much. Then she finally sold it for $20k.

Then a couple of years ago, a hurricane hit the coast. Her house stood, but windows were blown out and the house got completely soaked inside. It was gutted and rebuilt for $80k. Right before this happened, she had actually fallen in a parking lot of a pet supply store after tripping over a piece of rebar that was left over from a curb demolition. She caught herself with both hands but it tore both shoulder cuffs. I don't think lawyers even got involved. The store cut her a check for $80k. It was that $80k that she used to repair the house with. The insurance still hasn't paid her back yet. Something about they wanted every contractor preapproved or something and they reject every receipt or invoice that she sends in (still an ongoing issue).

Been a wild ride...

larrydag2• 7 years ago

I personally like the saying "the lottery is a tax on the innumerate"

JMTQp8lwXL2• 7 years ago

How do you know such detailed financial numbers? It sounds like she gave her financial bookkeeping records.

wolco• 7 years ago

Why take out a mortgage and lockup money at the same time?

ptaipale• 7 years ago

Everywhere, people say they prefer lotteries where there are more prizes with smaller wins, instead of one winner with huge jackpot. But also everywhere, their actual bahaviour is that when there is one big jackpot, they bet more.

And those who arrange lotteries do know their business.

bena3• 7 years ago

Exactly. Don't listen to what people say they will do, watch what they actually do.

izzydata• 7 years ago

That's probably true. They should try to educate people that if there are 250 times as many winners that your chances of winning a significant amount of money is much higher.

maxxxxx2• 7 years ago

When I play (I don't know why but somehow I find it fun) I actually play SuperLotto which has a chance of 1 in 41,416,353 vs 1 in 292,201,338 with PowerBall. Better to make a few million with better odds than a few hundred million with worse odds. Never mind that it's much more likely that I will get struck by lightning :-(

c0nfused• 7 years ago

Both the major us lotteries already do this. Matching all but the last ball wins you a million.

jedberg2• 7 years ago

I understand how numbers work, so I don't usually play the lottery. But I do play when the jackpot cracks $1B. Not because I expect to win, but for the thrill of playing.

That thrill is only there when the jackpot is at $1B.

bayareanative• 7 years ago

Fiscal Refeeding Syndrome (FRS).

droidist2• 7 years ago

I actually watched a video on CNBC's YouTube recently about the lottery and one thing they mentioned is that they've made the odds of winning worse to let bigger jackpots build up, so they're actually going in the opposite direction of what you'd like.

https://www.youtube.com/watch?v=wYxYSgg6JEI&t=4m30s

OscarCunningham2• 7 years ago

Taking this logic to its conclusion, the best kind of lottery would be one which paid out $1 to everyone who bought a ticket.

twic• 7 years ago

The paper's reporting revealed that two groups were dominating Cash Winfall: the Selbee gang from Evart, Michigan, and their competition, a syndicate led by math majors from MIT, the Massachusetts Institute of Technology. These were kids young enough to be the Selbees' grandchildren.

Incredibly, the MIT group bet between $17 and $18 million on Cash Winfall over a seven-year period, earning at least $3.5 million in profits. Almost the exact same rate of return as the Selbees.

A nice illustration of the fact that there is only one mathematics, and it's equally available to everyone!

bhl• 7 years ago

Based on the numbers alone, that's about a 20% return for the MIT group, for an annualized return (not considering compound interest) of less than 3% per year. Does this suggest that those trying to game the lottery should just turn to investing in the market? It's amusing to see that the market, which is less structured in probability and more volatile, outperforms the lottery in this aspect.

mNovak• 7 years ago

The money is only tied up for a few days of the year while they hold tickets though, the rest of the time it could be sitting in a suitably liquid investment. In that sense it far outperforms the market.

bcbrown• 7 years ago

That doesn't mean they had that amount of capital under investment.

If you bet $10 every week, and every week you win $11, at the end of the year you've bet $520 and made a profit of $52. But you never had more than $10 "invested".

If that $18 million was evenly spread out over 7 years, it would be close to $50k/week, or $215k/month. Those are probably more accurate amounts of working capital for calculating ROI.

SilasX• 7 years ago

Um, needing millions to risk on this means it isn't "available to everyone".

And yes, it is a risk, even if your mask is solid. There's always the risk that the lottery commission could say "oh, come on, the terms and conditions prohibit this kind of thing", leading to a protracted legal battle.

kazinator2• 7 years ago

If you have a 60% rate of return from a single play, it only takes some 15 rounds of compounding to pass your first million, starting with $1000.

dsfyu404ed• 7 years ago

There's always the risk that the lottery commission could say "oh, come on, the terms and conditions prohibit this kind of thing", leading to a protracted legal battle.

Not sure why this is down-voted. It's spot on.

Hydraulix989• 7 years ago

On the other hand, in arbitrage, it’s winner takes all.

unixhero• 7 years ago

Great story.. but extremely shitty interviewer in my view.

jedberg2• 7 years ago

To all the folks saying, "how did the State not know the odds?", a lot of gambling games come out without anyone running the odds. A great example is blackjack switch [0]. The game was invented by an ex-gambler and he never really knew the odds of the game. He just convinced some casinos to try it and would advertise what their average take was. Because most people are bad at math and wouldn't play well, it was always bigger than the actual house advantage anyway.

It was only years later that someone finally ran the numbers and figured out the actual house advantage of the game [1], but no one cared because everyone who had a table was making money on it. Even with regular blackjack, the casinos always make way more than the statistical house advantage because people play poorly.

It was probably the same deal here. The State didn't care what they actual odds were, they just cared that they were making money on it.

[0] https://en.wikipedia.org/wiki/Blackjack_Switch

[1] https://wizardofodds.com/games/blackjack/switch/

qtplatypus• 7 years ago

I work in the gambling industry and live in au. From my perspective this is super strange. By law vendors have to publish the odd (and on some games the EV).

rwc• 7 years ago

Publishing the odds is common. Doing the math on those odds apparently is not.

hnick• 7 years ago

Casinos can refuse service to someone who wins too much anyway (e.g. counting cards), so that's not such a big problem for them.

gexla2• 7 years ago

I think these people just didn't read the article. Given the state made money, it knew what the odds were. It seemed the only reason there was an investigation was to see the real world outcome of how the game was setup. What may be more remarkable is that the state didn't have the analytics to notice this trend before-hand.

The title is misleading. There was no loop-hole. There was simply a structure of the game and the people in the article were able to exploit that structure. They were playing the same rules as everyone else. Buy tickets. They just figured out the right time and the right volume for buying tickets.

I don't know how the lottery works, but I imagine he also got a bit lucky. Apparently there wasn't enough people who caught on to the trick to significantly put a dent in his game. He was also lucky that the game wasn't popular enough to prevent triggering the roll-downs. Playing just 7 times a year even over the course of 7 years isn't a great sample size to account for long term variance. I wonder if there was a chance he could have lost money on some plays.

notfed• 7 years ago

The title of an article I would never have clicked on if it were not referenced via Hacker News...

mattdeboard• 7 years ago

"That was satisfactory."

I love that this guy, who is probably, what, 80? 81? pulled off this huge math heist after probably a lifetime spent doing math running a convenience store.

I bet it feels great to have that sense of, like, ease with himself in old age, having made a mark on the world in a way that hurt no one and helped a lot of people.

He stuck the landing

gowld3• 7 years ago

He hurt all the lottery players he beat.

zaroth3• 7 years ago

In fact not. Their winnings did not take a $1 of winnings from anyone else.

TallGuyShort• 7 years ago

They bet money on a game that somebody else played better.

fewrx• 7 years ago

Every decade or so some "lottery loophole" like this is discovered, exploited, publicized, and rules are updated to close it. I'm curious to see if another loophole resulting in a massive rework of the lottery system will ever present itself, or if the laws and rules have finally prevented that after the last few.

elamje• 7 years ago

I really enjoyed this story! The best part is people like to think this loop hole is easy “profit”. No one pointed out the fact that they would go on 10 day benders buying/sorting/etc. to get the profit! Even this loop hole for easy profit was incredibly arduous in manual labor.

seventhtiger• 7 years ago

I was wondering how both these syndicates and the state we winning. I think I understand now.

Lotteries are zero sum games so no extra money is being created. All ticket purchases either go to the state or the winners. So if the players have a positive return how can the state also be winning?

The players have a positive return only for the rollover round. The players have a negative return for all other rounds, where the state makes its money, and the syndicates don't play.

So the people who lost are all the suckers who played in non-rollover rounds.

bamurphymac1• 7 years ago

Great story. Now they should go make another million or two selling the movie rights!

Couple wins millions using lottery loophole

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