Here’s the latest in my “what is gambling” series of posts. This post explains what the lottery is.

You might think you understand the lottery and all its ramifications, but I suspect there’s a good chance you don’t—at least not fully.

This post explains what the lottery is at its essence and how to play. It also even offers a few tips about how to lose less money and lose money more slowly when you’re playing.

That last sentence might sound weird.

Don’t most gambling blog posts offer you the secret to winning at these games?

Yeah, they do. But the odds of winning the lottery are so low that I might as well keep your expectations low. In fact, mathematically, the lottery is probably one of the worst ways imaginable to gamble your money.

## The Lottery Is a Game of Numbers

Let’s suppose you want to start a small-time gambling business, so you start taking bets on 3-digit numbers. You charge someone \$1 to pick 3 numbers, and the next day, you check the last 3 digits of the DJIA (Dow Jones Industrial Average) to see if your customer’s numbers match.

Let’s also say you pick up 100 customers, each of whom spends an average of \$1 per day on buying tickets.

With a 3-digit number, the probability of winning is 1/1000. As long as you offer a prize of less than \$1000, you stand to make a profit. The lower the payout, the better your expectation is.

And since you have NO way of knowing what the DJIA will close at tomorrow, there’s no way to rig this particular game.

The money you bring in pays off the winners, and the rest represents your profit. Some days you won’t even have any winners at all. On those days, you might even roll some of the prize money into the next “drawing.”

Let’s assume you pay out \$500 for the winner of this contest, and if there’s a tie, the 2 player must split the prize.

Can you see how that would be a profitable business?

In mathematical terms, that would be called having a 50% payback percentage.

This business model that I’ve described is as old as the hills, and it’s no secret. When you read about or watch movies about gangsters who are “running numbers,” this is the kind of business they’re engaged in.

This is also a privately-run lottery. In the United States, it’s illegal for an individual to run his own private lottery. That’s why running numbers falls under the purview or organized crime.

Now, though, almost every state in the USA has a legal, state-run lottery. Most of them offer a pick
3 game, but that’s not the only game they offer.

In some games, you pick or draw more than just 3 numbers. And in many of them, those numbers range from 1 to 50 or 1 to 60.

How proud we should be of our state governments, by the way. We can only hope that the government decides to get into some of the other businesses that were formerly run by organized crime—you know, stuff like bootlegging liquor and selling illegal drugs.

## Where the Word Lottery Comes From and How Big Lotteries Work

You’ve heard the expression “casting lots?”

If you’re familiar with the expression, you probably think of casting lots as a fortune-telling method. And that is indeed what it refers to.
But that wasn’t always the case. In the past, casting lots was also a means of gambling. And that’s where the word “lottery” comes from.

Even though I turn my nose up at the concept and think the government shouldn’t be involved in such activities, lotteries are as American as apple pie. Much of the Revolutionary War was, in fact, paid for by the sale of lottery tickets.

The lotteries in the United States are run by the state governments, and some of the lotteries are organized in partnership between multiple states.

The biggest lottery games in the USA are Mega Millions and the Powerball. These games are usually separate from the state lotto, but they all have the same (or similar) game-play.

You choose, either consciously or at random, 5, 6, or 7 numbers from between 1 and 60, or 1 and 50, or 1 and 75, or something like that.

The state then holds a drawing where they use a random number generator of their own to pick the same numbers from the same possible numbers.

If your numbers match a certain number of those numbers, you wind up winning money.

If they don’t, you’re out the price of a lottery ticket.

I’ll continue with some specific examples of this kind of lottery game:

## What Is Mega Millions and How Does It Work?

Mega Millions is one of the biggest lottery games in the United States; it’s available in 44 states, as well as in Puerto Rico and Washington DC. The Mega Millions drawings are held on Tuesday and Friday nights.

The minimum prize for Mega Millions is \$40 million, but it grows after every drawing when people haven’t won. Their ticket sales fuel part of the prize.

It costs \$2 to buy a Mega Millions ticket. To play, you choose 5 numbers of between 1 and 70 each.

You also choose a number for the Mega Ball, which is a number between 1 and 25. In most states, you also have the option to buy the “Megaplier,” which acts as a multiplier of your prize amount if you win.

The best way to play Mega Millions is to just use a “quick pick.” That’s a number chosen by a computer with a random number generator.

There’s no benefit to picking individual numbers based on what you think is lucky for you. In fact, you’re more likely to have to share your prize with someone else, because most people’s lucky numbers are similar.

The odds of winning Mega Millions are about 1 in 302 million.

## What Is the Powerball and How Does It Work?

Powerball is similar to Mega Millions, but it’s a separate game. Like Mega Millions, it’s available in 44 states, Puerto Rico, and Washington DC.

Also like Mega Millions, the jackpot starts at \$40 million. Powerball drawings are held on Wednesdays and Fridays.

Powerball tickets cost \$2 each. You can also choose the Power Play option, which costs an additional \$1.

In the Powerball game, you’re going to choose 5 numbers from between 1 and 69, and you’ll choose a 5th number between 1 and 26. (That last number is the Powerball. It’s red.)

The same advice I gave you for playing Mega Millions applies to the Powerball. Just use a quick pick to get your numbers. A lot of people use birthdays, which means you’re more likely—if those numbers hit—to have to split your prize money with someone else.

The odds of winning the Powerball are 1 in 292 million. (You can see why the odds are better, right?)

## State Lotto Games

Most states, even if they offer Mega Millions and/or Powerball, also have a state lotto game. I’ll use Texas as an example.

Lotto Texas holds its drawings on Wednesdays and Saturdays.

Tickets are \$1, and the prize amount starts at \$5 million and rises from there.

To play, you choose 6 numbers of between 1 and 54.

The odds of winning are 1 in 26 million, making this state lotto game far more likely to be won than Powerball or Mega Millions. But my friend Michael Bluejay likes to point out that once you get into events that are unlikely enough, numbers like payback percentage and odds of winning become less meaningful.

1 in 26 million is 10X better than 1 in 292 million, yes.

But let’s talk about how unlikely that really is.

The odds of being struck by lightning, which most people know is unlikely as all get-out, are 1 in 700,000.

How many people do you know who’ve been struck by lightning?

With odds like that, most cities have a full population that’s never been struck by lightning in the previous year.

Winning Lotto Texas is 30 times less likely than being struck by lightning.
Those are long odds indeed, right there.

## Smaller Lottery Games

Most states also offer smaller games with smaller prizes. These prizes are often of a fixed amount rather than in the form of a jackpot that changes size based on number of tickets sold and whether the previous jackpot was hit.

These games include games like Pick 3 and Pick 4. They bear more similarity to that numbers-running scheme I mentioned in the introduction to this post than anything else.

The Pick 3 game in Texas is a good example, and they hold 4 drawings per day for this game. To play, you buy a ticket and pick 3 numbers between 0 and 9. You can play for 50 cents or for a dollar.

You can choose to play these in exact order, any order, or in a combo. As the names indicate, this determines whether the digits have to be drawn in order for you to win.

The odds of winning for this game are easily calculated.
The odds of winning an exact order Pick 3 ticket are 1 in 1000. If you bet 50 cents, your prize is \$250. If you bet \$1, your prize is \$500. As you can see, the payback percentage for this game is 50%.

The odds of winning an any order Pick 3 ticket are 1 in 333. The payouts are \$80 for the 50 cent tickets or \$160 for the \$1 tickets. The payback percentage for this game is roughly the same.

Is 50% a good payback percentage?

I’m going to compare that with some of the other payback percentages you’ll face in a casino game situation in a section later on down the road.

Right now, I want to give some examples of some other lottery games.

## Scratch Off Tickets and How to Play

If you’re terribly impatient, you might need to play a lottery game where you know what your results are instantly. (This is similar to playing a slot machine, in a sense.) Scratch off tickets cater to these types of players.

The lottery sells these games for between \$1 each and \$50 each. In some states during certain times, you might even be able to get higher-denomination tickets than that.

The lottery officials print the tickets with the prizes on them, so they know exactly how many prizes and for which amounts are in the tickets that have been printed. It’s easy to maintain a specific profit margin when doing that.

Imagine if you were running a scratch off lottery game in your neighborhood bar.
You might have 100 tickets printed that you would sell for \$1 each.
You might make 50 of them worth \$1 each, which would basically win the prize fee back. You could also include a top prize of \$20.

You’d still make a \$30 profit from those tickets, as long as you sold them.

Multiply those numbers by hundreds or thousands, and you get an idea of how profitable scratch off lottery tickets are worth to the state-run lottery.

As it turns out, the payback percentage for these games is better than the payback percentage for the other kinds of games. It’s usually not as high as the 70% figure I quoted, but it’s probably close to between 55% and 65%.

This makes scratch off tickets a worse bet than most slot machines, but not THAT much worse. In some jurisdictions and locations, slot machines probably don’t pay off more than 75%, so they’re roughly comparable.

## Should You Gamble on the Lottery?

I’ve seen people offering to sell winning strategies and systems for the lottery, but I’ve never seen any credible evidence that these people had any idea what they’re doing.

One salesperson had an interesting pitch page where he points out how much money he’s won playing the lottery, but he never bothers to compare those winnings to the amount he’s spent on tickets.

If you wanted to bet that he spent less than he won, I’d take the other side of that bet in a heartbeat.

I can’t answer whether you should buy lottery tickets or not. This blog is obviously read by gamblers, and I don’t discourage gamblers from betting on anything.

I do encourage gamblers to educate themselves about the numbers behind these games, though.

Don’t buy a lottery ticket of any kind until you understand the following:

• The payback percentage is the statistical amount you’ll win back on average when buying a lottery ticket.
• For example, if you bought all the Pick 3 tickets one day, you’d spend \$1000 and win \$500. You’d lose 50% of each purchase, which would make the payback percentage also 50%.

You can use the payback percentage to calculate the house edge, too. You just subtract it from 100%.
In a game where the payback percentage is 65%, the house edge is 35%.

Some gambling writers use the house edge or the payback percentage as their only measure for how “good” a gambling game is.

They tend to get it wrong, for multiple reasons.

The first reason is that if the house has an edge mathematically, it doesn’t really matter much how high or low that edge is. If you play long enough, you’ll eventually lose all your money. The second reason is that the house edge is only one of 3 factors that determine how much you’re going to lose over a period of time. The other factors are how many bets you’re placing during that period of time and how much you’re betting.

When you account for those, you might find that the lottery is the cheapest form of gambling entertainment ever.

Let’s look at some specific numbers.

## The House Edge for the Lottery Compared with Other Gambling Games

Let’s start with the casino game with the lowest house edge—blackjack played with perfect basic strategy has a house edge of 0.5%. This makes the payback percentage 99.5%.

This means that for every \$100 you bet at the blackjack table, you’ll lose 50 cents.
Compare that with the average lottery game with its 50% house edge. On average, you’ll lose 50 cents every time you bet \$1 on the lottery game.

But how long does it take to get \$100 into action at the blackjack table?
If you’re playing for \$10 or \$20 per hand, it doesn’t take long at all. You might be able to lose 50 cents at the blackjack table in 20 or 30 minutes.

If you’re the type of lottery player who only plays once a week, you might have a 50 cent per week gambling habit.

But how many blackjack players only spend 20 minutes at the blackjack table once a week?

## How the Lottery Compares to Slot Machines and Even More Casino Games

Maybe blackjack is the wrong game to compare the lottery to. After all, everyone knows that to get the house edge down to 0.5%, you have to play with perfect basic strategy.

Maybe we should compare the lottery with a slot machine. Even in the worst of casinos, a slot machine usually has a house edge of less than 35%.

But let’s be more generous than that. Let’s assume that a slot machine has a house edge of 20%.

This means that for every \$100 you put into the machine, you’ll average \$80 back in winnings, and you’ll lose 20%.

This still sounds better than the lottery—until you take into account how many bets per hour most people make playing slot machines.

The average slots player makes 600 bets per hour. At \$1 per spin, that’s \$600 per hour in action. With a 20% house edge, that’s an expected loss of \$120 per hour. That’s \$2 PER MINUTE.

Most people aren’t going to buy 600 lottery tickets for \$1 each. My friends can scratch their gambling itch by buying a ticket or 2.

I went all out not long ago buying lottery tickets and spent \$50 at one time. That was all the lottery action I could handle. I didn’t do well, because I only won \$2 back.

But my expected return was about \$25.

If I played long enough, I’d eventually catch. The Law of Large Numbers suggests that the closer you get to an infinite number of trials, the closer you’ll get to seeing the mathematically predicted average appear in your actual results.

Yeah, the lottery is a lousy bet, but it’s not THAT much worse than most casino bets.

## Conclusion

The lottery might or might not be for you, but try not to judge the people who do play if you hate the game. Chances are, you’ve made some poor decisions in the past, too—possibly even decisions related to gambling.

I don’t support the lottery because I don’t think it’s a business that the government should be involved in. This doesn’t mean that the government is going to pay any attention to me.

Heck, the government has been running lotteries since before I was born. I’m sure they’ll be doing so long after I’m dead, too.

Do you play the lottery now? If not, do you think you might ever start?
Why or why not?

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