How to Play the Lottery Effectively and for the Right Reasons
By: Carbon Radio
Tags: Fundraising, Business, Society, Education, Nonprofit

“Purpose spurs passion, which fans the sparks that light the fires that fuel change.” — Sir Richard Branson, Founder of The Virgin Group

Imagine for a moment you are standing in the cafeteria at your child’s elementary school. The PTA treasurer walks up to the microphone and announces that at the end of the night, after parent-teacher conferences, the PTA is going to hold a raffle, and if you buy a ticket you will have a chance at winning a $100 gift card to Starbucks! Tickets cost $2 or you can get 3 tickets for $5. The treasurer explains that the money raised will help pay for new books, computers, science kits, and art supplies at the school. You reach into your wallet or purse, and your decision-making begins. You might ask yourself a number of questions. How much am I willing to donate to this cause? How likely am I to win? How much do I really like Starbucks? How much longer is my kid going to be in this school? Is this tax deductible? How much are the other parents giving? There are at least a hundred parents there that night. How much could they actually raise? Does the school really need those things?

The mechanics of state lotteries in the United States are not so different from a PTA raffle. The difference is really just the scale of the operation. In the PTA raffle, the treasurer has done some calculations and knows that he or she needs to convince at least 50 parents to buy at least one ticket to pay for the gift card she picked up at Starbucks before the meeting. In advance of the meeting, he or she assesses the likelihood of people contributing, and decides that one prize worth $100 is enough to entice people to donate to their child’s school. In state lotteries, scratch-off games are designed in a similar way, and for similar causes. Before we talk about how to play the lottery effectively, it is imperative that we talk about why to play the lottery.

First of all, if you are looking for a gambling opportunity, don’t play the lottery. The purpose of the lottery is not gambling. The true purpose of the lottery in most states is to raise money for public education. If you are dealing with a gambling addiction, there are resources available at this link.

Simon Sinek | TEDxPugetSound | September 2009

As Simon Sinek says in his highly viewed TED Talk, “People don’t buy what you do, they buy why you do it.” We need to focus on why state lotteries exist and continue to improve them for public benefit. Lotteries have been around in America since the Colonial Era. Early on, they were used to finance public works projects. They were also used to pay for the construction of some of the first buildings at Harvard and Yale. Today, 45 state lotteries raise billions of dollars for education across the country. It is currently the largest non-tax source of funds for public education in the United States, far exceeding the aggregate funds from large philanthropic foundations and local community foundations. It is time for state lotteries to be viewed as social enterprises.

What is a social enterprise? The British Columbia Centre for Social Enterprise provides this definition — “Social enterprises are revenue-generating businesses with a twist. Whether operated by a nonprofit organization or by a for-profit company, a social enterprise has two goals: to achieve social, cultural, community economic, and/or environmental outcomes; and, to earn revenue.” If we frame the lottery as a social enterprise designed to benefit the public, then the reasons individuals play will shift to focus on their community and their state rather than themselves. We need to develop the lottery’s identity as a mechanism for improving educational outcomes. To do that, lottery players need to rethink and reframe why they are playing. This will also inform how individuals play.

Just like the PTA raffle, when you are considering playing a lottery game you should consider things like the mechanics of the game, the impact, the odds, and your budget. Playing the lottery effectively is entirely about understanding the game you are playing. For the purposes of this article, we’ll consider typical scratch-off lottery games as they are the most common. At the end of the article, we’ll talk more about how lottery players can challenge their state lotteries to be better social enterprises and do more for the benefit of their state and the communities in their state.

Understanding Scratch-off Lottery Games

The best place to start to understand a scratch-off lottery game is to think about a deck of cards. In a typical 52-card deck you have four suits — clubs, spades, diamonds, and hearts, and you have 13 cards of each suit, which are numbered 2 through 10 and then jack, queen, king, and ace. So, if you were to count all of the high cards (jack, queen, king, and ace), there would be 16 out of 52. This is the equivalent of 30.77% of the 52-card deck. Another way to think about it is to say that 1 out of every 3.25 cards will be a high card. It is important to understand a deck of cards, because scratch-off games are designed around the predictability of a deck of cards.

When you buy a scratch off lottery ticket, you will see some identifiers on the ticket in the form of number sequences and number-letter sequences. These are used to make sure no one can create counterfeit tickets. One of the number sequences will be on the bottom of the ticket and refer to the game you are playing and the pack your ticket came from. This number helps the lottery with traceability. Scratch-off tickets come in packs that have a set number of tickets in each pack. For example, in Virginia, $10 scratch-off tickets come in packs of 40. So, when you look on the bottom of your ticket you will see a number between 0 and 39 (not 1 to 40). This is useful information for a lot of reasons.

Example of typical scratch-off ticket with the ticket number in bottom left corner.

Within each pack of scratch-off tickets there are a predictable number of winning tickets. All state lotteries are required to publish the odds of getting a winning ticket for every game they produce. This information is usually available on the ticket, on the lottery ticket dispensing machine, and/or on the state lottery website. For example, the ticket might say your odds of winning a prize are 1 in 3.25 (30.77%). So, you can calculate exactly how many winning tickets are in each pack. If you have 40 tickets in a pack and the odds of winning a prize are 30.77%, then you can expect 12.3 tickets to be winners. If you have discretionary income and want to test this, go right ahead. The packs are remarkably consistent, which is a good sign, because that means the state lottery knows what they are doing.

The next thing that lottery players need to understand is the economics of scratch-off games. Many state lotteries publish the percent of ticket revenue that goes to scratch-off lottery players by game. For example, there might be a game that has a 60% payout. What that means is that if there are $100 million worth of tickets in the game, then $60 million will go to the people playing the game. The other $40 million will mostly go to education with a small amount going to the lottery retailers, which are the gas stations, grocery stores, and the like that sell lottery tickets. It is important to note that if a game has a published payout of 60%, that does not mean that every pack will have a 60% payout. There are usually a handful of very high value prizes, which are the hook for playing that drive the payout percentage up. Most packs will have payouts on the order of 10% lower than the whole game, which makes sense.

The next step to understanding scratch-off lottery games is to understand the phrase “the house always wins”. “The house always wins” is a phrase used in Las Vegas to describe how casinos will always make sure they are profitable. Unfortunately, this phrase has a negative connotation. This sentiment is that if the game is rigged for “the house”, then I, as the player, will never win. In the context of state lotteries, “the house” is the state government, and we want the state government to “win” in the context of the lottery games. This means that each lottery game must always be profitable, or the aggregate of all of the lottery games must be profitable. For good reason, the lottery game designers cannot leave this up to chance. Lottery games have to make more than they pay out to lottery winners, otherwise it would not make sense for the lottery to exist as it would not be raising money for education.

There are assumptions that we can make about scratch-off lottery game design based on the understanding that “the house always wins”. These assumptions can help inform lottery players’ decisions on which games to play and when. The most important assumption is that from the start of the game to the end of the game, the state must be profiting. In other words, if ticket sales stagnate at any time for any particular game, the state lottery has to be able to close the game with a net profit. What this tells us is that the large prizes are probably intentionally spread throughout the game so that payouts never exceed revenue from ticket sales. When we say “spread throughout the game”, we mean that if all of the millions of tickets were in a stack, the top prizes would be intentionally spread through the stack so that some are bought later after enough losing tickets have been sold to cover the cost of the payouts. The worst case scenario for a state lottery scratch-off game would be for all the large prizes to be claimed before 10% of tickets are sold. That would indicate a massive loss and ticket sales would likely stagnate for that game shortly after leaving about 90% of the tickets unsold.

If we are assuming that large prizes are spread throughout the game, then we can make secondary assumptions about what games are best to play and when. It is important to note that most states are required to disclose how many winning tickets have been claimed. Using that information that is usually on the state lottery website, players can determine when they are more likely to win large prizes. For example, if only 25% of all tickets in a scratch-off game are available, and there are 3 of 4 top prizes still unclaimed, then players have a higher than normal chance of winning a top prize. If there are 25% of all tickets remaining, then a safe assumption is that 1 of 4 top prizes should still be available. So, if there are more than 1 of 4 top prizes available when only 25% of tickets are available, a player has a higher chance. When scratch-off lottery games have fewer than 10% of all tickets remaining, but they have multiple top prizes still available, that is a good time for lottery players to take note, and simply check lottery retailers from time to time for those rare tickets.

This is a table from an example scratch-off ticket on the Virginia Lottery website. You can see the overall odds of the game at the top, as well as, the odds of winning a top prize. In the table, you can see the number of prizes at each level that are available. For this example, lottery players can assume there are roughly 7.6% of the total number of tickets remaining by dividing the lowest prize’s remaining number by the lowest prize’s total number (25,993/342,025). And given that there are 2 out of 4 top prizes remaining, this particular game currently has better than normal odds to get one of the top prizes.

Another assumption that can be made is that the number of top prizes must be spread throughout the state. You can imagine that if one part of the state were to get a disproportionate amount of top prizes, then lottery players in other parts of the state would be less and less likely to play over time. Many states publish the locations of top prize winners as they are claimed. This is useful information as a lottery player can then make secondary assumptions about what areas of the state are “due” for a top prize winner. Particularly in scratch-off games that have higher quantities of top prizes, it is useful to check state lottery websites to see where prizes have already been claimed. This is not to say that lottery players should drive all over the state to try to find a winner, but the information is useful when deciding what game to play at your local lottery retailer.

It is also useful to know the number of lottery retailers in your state. The state of Virginia has about 5,000 lottery retailers. This information is particularly useful for games with smaller numbers of total tickets and higher numbers of top prizes. Sometimes promotional games are “Loaded with $1,000 Prizes”, and they might have a third or a quarter of the number of tickets compared to a typical game. Knowing the number of lottery retailers in your state can help you calculate the average number of winning tickets per retailer for a given game.

Using all of these understandings and assumptions can help a lottery player triangulate better odds. Perhaps the most important exercise for a lottery player though is budgeting. If our purpose is to raise money for education, then each lottery player has to make a decision specific to their own personal finances that determines what they are willing and able to give to the cause of education. Based on that budgeting, individuals will also be able to determine what games make the most sense for them to play, and what to expect in terms of prizes.

Let’s say an individual is willing to put $200 a month toward playing the lottery to help raise money for education. Most $10 scratch-off games will consistently return at least 50% in the form of prizes. So, the individual putting $200 a month toward playing the lottery can expect to win about $100 in prizes per month. At the end of the year, that individual will have put $2,400 in and won $1,200. So, the individual will have raised about $1,200 for education (less the small percentage for the lottery retailers in their community). This is the functional equivalent of giving about $1,200 to a school in your community and a little bit of extra business to a local grocery store or gas station. If you are not interested in the small chance at winning a large sum of money, then perhaps it makes more sense just to donate directly to the school of your choice.

The appeal of the lottery versus a simple and direct donation is obviously the gamification and the small possibility of a large prize. On the other hand, the appeal of the simple and direct donation is seeing your impact closer to real time. As state lotteries continue to evolve, they will benefit from highlighting the impact of their games. Here are some ideas for what the future of state lotteries might look like.

1. Games directly associated with the type of education they are supporting. Imagine getting to decide between playing a lottery game that supports arts supplies or science labs or literacy programs. State lotteries could also design tickets to be creatively associated with those subjects.

2. More environmentally sustainable scratch-off tickets and more online games. Current scratch-off tickets use a ton of paper and latex or latex-like material, which is obviously not good for the environment. Shifting to more recycled paper and lower-waste games (smaller tickets) will help state lotteries develop their identities as social enterprises. Encouraging players to shift to online lottery games, and developing trust that they will have similar chances to win, will also help reduce the environmental impacts of lottery games.

3. Higher payouts. As more people play the lottery, and as state lotteries mature, the revenue will become more and more reliable which will enable higher payouts to lottery players which will then encourage more play. This would be a virtuous cycle for many states.

4. More transparency. There is of course a balance between making sure lottery tickets cannot be counterfeited and making sure there is reasonable and high levels of transparency in the game. As technology improves and games mature, state lotteries should be able to increase the amount of transparency associated with their operations.

To date, lottery players have really not shown any kind of value signaling associated with why they are playing the lottery. The assumption state governments and lottery game designers are likely making is that it is entirely about lottery players simply trying to get lucky. If even a small portion of lottery players were to signal that they are playing the lottery at least partly to support education in their state, then perhaps the state lotteries would take on more of a social enterprise identity. If you are a lottery player reading this article, consider reaching out to your state lottery or elected officials to encourage them to think about the lottery as a social enterprise. If you are a state lottery employee or an elected official reading this article, then perhaps consider deploying your creativity in a way that could increase the impact of your state’s lottery. Public education budgets will undoubtedly be strained for years to come, and it will become increasingly important to diversify education funding sources. State lotteries can help with the heavy lift of funding a high quality education for every child in America.