Wednesday, August 1, 2012

Massachusetts WinFall lottery gambling associations

This month, the Massachusetts Office of the Inspector General has published its report on its investigation into the Massachusetts State Lottery's Cash WinFall game.

I know this sounds like an extremely dry subject.

Trust me, it's not.

You really should go click on the above link right now and read the report. It's not that long; it reads very quickly.

Cash WinFall, modeled on an earlier Michigan State Lottery game, has a very special feature, called the "roll-down":

Cash WinFall had a feature that distinguished it from other on-line games: the jackpot was capped at \$2 million. If the jackpot reached \$2 million and no one matched all six numbers, the money in the jackpot was distributed among the lower tier prizes for that drawing. The Lottery referred to this as a “roll-down” and it dramatically boosted payouts for lower tier prizes.

It turns out that, statistically, the roll-down feature introduced a certain unusual behavior in the probabilities of the game:

In every roll-down drawing in the game’s history, for every \$1 wagered, there was \$1.15 (or usually more) sitting in the Cash WinFall prize pool to be shared among that drawing’s ticket holders. In that sense, every ticket was worth more than it cost. A person could make \$1.15 for every \$1 he bet – a 15 percent profit – simply by getting what the statistical probabilities say should be the average share. The most practical way to do that is to buy a large number of tickets.

It turns out that a "large number of tickets" means a really large number of tickets: successful betting groups, or "high-volume bettors", found that they needed to buy approximately 300,000 tickets in a 72 hour period in order to make the numbers work.

Yes, you read that right: 300,000 tickets for a single lottery drawing!

It turns out that there are a number of challenges in purchasing 300,000 lottery tickets for a single lottery game:

One constraint was simply getting enough ticket slips filled out. ... Under Lottery rules, betting slips can’t be computer generated so the group had to fill out betting slips by hand – oval by oval – to match each set of numbers generated by Mr. Harvey’s computer program. Simply filling out the betting slips was time-consuming. However, the betting slips could be reused...

But the complications don't end there:

Another constraint was locating stores that would handle large volume purchases. Many retail outlets balked at processing tickets on the scale that the MIT group and other high-volume bettors were seeking. Handling 10,000 tickets, including scanning in the slip with the requested numbers, could easily take several hours.

It gets worse:

If the weather was humid, the ticket machines were more likely to jam. If a terminal was running low on ink, it could take several tries to redeem a winning ticket.

And, since it was all strictly legal, don't forget the tax paperwork:

Like Mr. Harvey and Mr. Selbee, Dr. Zhang said he has held onto his losing tickets, which number in the millions. He had first stored them in boxes in his attic. But when his ceiling started to crack under the weight of his growing ticket collection, he promptly moved the ticket boxes to the garage.

But the groups persevered, continuing their purchases, and making substantial profits, for six years. By this point, they were constituting almost all of the action in the game:

Just three gambling companies collected 1,105 of the 1,605 Cash WinFall prizes statewide after a May drawing, each following a strategy that involved buying hundreds of thousands of dollars worth of the \$2 tickets at selected stores over a few days.

Finally, in the summer of 2011, an series of articles in the Boston Globe resulted in substantial changes to lottery policy that eventually shut the entire thing down.

Anyway, the report is wonderful, filled with many, many more examples of the crazy, wacky world we live in, and the strange things that people do to pass their time in it.