How MIT students beat the lottery
August 8, 2012 5:28 AM Subscribe
Beating the system: The Boston Globe reports how a group of MIT students beat the Massachusetts state lottery by working out that you were almost guaranteed to get a return on the game Cash Win Fall at certain times, and only buying tickets at that point. It's reckoned that they made $48m on a $40m stake over several years, that other syndicates were also involved, and the state 'bent and broke' the rules by allowing them to buy tickets in bulk. The game was closed down after the Globe started to investigate.
Some publications are calling this a scam (NY Daily News, Time - headline updated but url still says 'scam'), but it's clearly the case that the game and its management was at fault.
Earlier on the Blue - a mathematician works out how to predict which scratch cards will win.
Some publications are calling this a scam (NY Daily News, Time - headline updated but url still says 'scam'), but it's clearly the case that the game and its management was at fault.
Earlier on the Blue - a mathematician works out how to predict which scratch cards will win.
(Or at least take a long look at the games they choose to play...)
posted by supercres at 5:35 AM on August 8, 2012
posted by supercres at 5:35 AM on August 8, 2012
On a related note, WHY DIDN'T I GO TO MIT!?
posted by oddman at 5:39 AM on August 8, 2012 [2 favorites]
posted by oddman at 5:39 AM on August 8, 2012 [2 favorites]
I'd rather the MA lottery subsidize MIT students over Whitey Bulger.
posted by These Premises Are Alarmed at 5:42 AM on August 8, 2012 [3 favorites]
posted by These Premises Are Alarmed at 5:42 AM on August 8, 2012 [3 favorites]
I'm not particularly concerned about the citizenry profitting at the expense of a system the state uses to enrich itself mostly on the backs of the poor or ignorant. That said, I love playing the lottery so I don't know what that says about me.
posted by gagglezoomer at 5:45 AM on August 8, 2012 [4 favorites]
posted by gagglezoomer at 5:45 AM on August 8, 2012 [4 favorites]
Wow, that's an impressive racket those kids put together. Gotta wonder if there aren't any similar scenarios currently underway in any of the other state lotteries.
posted by flapjax at midnite at 5:46 AM on August 8, 2012
posted by flapjax at midnite at 5:46 AM on August 8, 2012
If you're gifted enough to get into MIT maybe you could apply your raw IQ into something other than being a chode.
posted by norabarnacl3 at 5:49 AM on August 8, 2012 [1 favorite]
posted by norabarnacl3 at 5:49 AM on August 8, 2012 [1 favorite]
This isn't a scam any more than Michael Larson beating the game show "Press Your Luck" was a scam. They saw the rules and they played them perfectly because they were smart.
posted by inturnaround at 5:50 AM on August 8, 2012 [12 favorites]
posted by inturnaround at 5:50 AM on August 8, 2012 [12 favorites]
he game’s vulnerability became clear in 2010, Sullivan said, when the MIT group figured out a way to win nearly the entire jackpot for a single drawing, something lottery officials had erroneously concluded was impossible.
The MIT group figured out that, if it bought enough tickets, it could push the jackpot to $2 million and trigger the rolldown all by itself.
Duh.
posted by Ironmouth at 5:51 AM on August 8, 2012
The MIT group figured out that, if it bought enough tickets, it could push the jackpot to $2 million and trigger the rolldown all by itself.
Duh.
posted by Ironmouth at 5:51 AM on August 8, 2012
Oh large-scale data analysis, is there nothing you can't do?
posted by tommasz at 5:51 AM on August 8, 2012 [3 favorites]
posted by tommasz at 5:51 AM on August 8, 2012 [3 favorites]
Was the syndicate participation so bad that a simple "is our lottery unprofitable" query would have ended this?
posted by zippy at 5:55 AM on August 8, 2012
posted by zippy at 5:55 AM on August 8, 2012
Landing a rover on Mars and gaming the lottery. Nerds are having the Best Week EVER!
posted by Brandon Blatcher at 5:56 AM on August 8, 2012 [7 favorites]
posted by Brandon Blatcher at 5:56 AM on August 8, 2012 [7 favorites]
inturnaround: "This isn't a scam any more than Michael Larson beating the game show "Press Your Luck" was a scam."
Maybe scam is the wrong word, but when the lottery officials noticed something was up, they didn't do anything about it. And in fact:
posted by Plutor at 6:02 AM on August 8, 2012 [2 favorites]
Maybe scam is the wrong word, but when the lottery officials noticed something was up, they didn't do anything about it. And in fact:
And lottery officials were happy about the huge sales to these sophisticated gamblers, bending and breaking lottery rules to allow them to buy hundreds of thousands of the $2 tickets, Sullivan found. If anything, lottery officials were envious, with one supervisor asking in an e-mail: “How do I become part of the club when I retire?”And here's an article about the same lottery game (Cash WinFall) that appeared in the Globe last fall that mentions the MIT group, but also that they weren't the only ones:
But the Globe has found that lottery managers for years allowed and some say even encouraged the groups to manipulate the game, Cash WinFall. They provided extra ticket machines and printers to accommodate the biggest player, a retired store owner from Michigan, so he could buy more tickets faster. Gerry Selbee, whose gambling group spent millions of dollars on the game, said the regional director in Western Massachusetts personally thanked him for propping up flat lottery sales.Scam? Maybe not. Rules and maybe laws broken and quite sketchy? I'd say so.
posted by Plutor at 6:02 AM on August 8, 2012 [2 favorites]
The exploitable features of the Cash WinFall lottery game have been discussed here previously.
posted by mr_roboto at 6:02 AM on August 8, 2012 [1 favorite]
posted by mr_roboto at 6:02 AM on August 8, 2012 [1 favorite]
(As an aside, how is this in the news again? Has anything changed since last October?)
posted by Plutor at 6:03 AM on August 8, 2012
posted by Plutor at 6:03 AM on August 8, 2012
“I see this as a teachable moment, to send a message to our customers that the integrity of the lottery is of paramount importance,” said Grossman [State Treasurer, who oversees the lottery].
Firing those responsible for releasing statistically broken lottery games would also be a pretty good teachable moment. It's not rocket science to do due diligence. It's easy to see this case as "Ha ha, MIT kids game the government!" but that is not what happened. MIT kids gamed the other buyers of lottery tickets, and the state was complicit.
posted by qxntpqbbbqxl at 6:05 AM on August 8, 2012 [3 favorites]
Firing those responsible for releasing statistically broken lottery games would also be a pretty good teachable moment. It's not rocket science to do due diligence. It's easy to see this case as "Ha ha, MIT kids game the government!" but that is not what happened. MIT kids gamed the other buyers of lottery tickets, and the state was complicit.
posted by qxntpqbbbqxl at 6:05 AM on August 8, 2012 [3 favorites]
Full report here: http://www.mass.gov/ig/publications/reports-and-recommendations/2012/lottery-cash-winfall-letter-july-2012.pdf.
From reading this, the article seems to be a little too eager to run with the narrative of "smart kids beat the system". The system was explicitly designed so that when a roll-down occurred, the average $1 ticket would be worth at least an average $1.15 of prizes. The point of that feature was to ensure high levels of loyalty and interest in the game. The report finds the lottery system benefitted from increased profit due to the high-volume betters.
The game’s vulnerability became clear in 2010, Sullivan said, when the MIT group figured out a way to win nearly the entire jackpot for a single drawing, something lottery officials had erroneously concluded was impossible.
The officials did predict it could happen - but their risk analysis found that $1.7 million would be the point from which someone would try to force a roll-down, not the $1.6 million from where the MIT made, and succeeded in, their attempt. But, who wants to read a government report when you've got a narrative to push?
posted by kithrater at 6:05 AM on August 8, 2012 [7 favorites]
From reading this, the article seems to be a little too eager to run with the narrative of "smart kids beat the system". The system was explicitly designed so that when a roll-down occurred, the average $1 ticket would be worth at least an average $1.15 of prizes. The point of that feature was to ensure high levels of loyalty and interest in the game. The report finds the lottery system benefitted from increased profit due to the high-volume betters.
The game’s vulnerability became clear in 2010, Sullivan said, when the MIT group figured out a way to win nearly the entire jackpot for a single drawing, something lottery officials had erroneously concluded was impossible.
The officials did predict it could happen - but their risk analysis found that $1.7 million would be the point from which someone would try to force a roll-down, not the $1.6 million from where the MIT made, and succeeded in, their attempt. But, who wants to read a government report when you've got a narrative to push?
posted by kithrater at 6:05 AM on August 8, 2012 [7 favorites]
I dunno about all the cheering of the little guy here. $40m from "other syndicates" is starting to get out of little guy territory and starting to get into legal-but-unethical/immoral territory.
posted by DU at 6:08 AM on August 8, 2012 [1 favorite]
posted by DU at 6:08 AM on August 8, 2012 [1 favorite]
The report also says that, despite the problems, Cash Win Fall was still profitable.
posted by inturnaround at 6:08 AM on August 8, 2012 [1 favorite]
posted by inturnaround at 6:08 AM on August 8, 2012 [1 favorite]
Previously on the blue : Grifters, unite!
posted by suckerpunch at 6:09 AM on August 8, 2012 [1 favorite]
posted by suckerpunch at 6:09 AM on August 8, 2012 [1 favorite]
Was the syndicate participation so bad that a simple "is our lottery unprofitable" query would have ended this?
The game wasn't necessarily unprofitable for the lottery. Remember, in addition to the mathematically sophisticated syndicates, the general public was also playing. The lottery was still selling the first $1.6 million of tickets in each cycle to suckers.
posted by mr_roboto at 6:10 AM on August 8, 2012
The game wasn't necessarily unprofitable for the lottery. Remember, in addition to the mathematically sophisticated syndicates, the general public was also playing. The lottery was still selling the first $1.6 million of tickets in each cycle to suckers.
posted by mr_roboto at 6:10 AM on August 8, 2012
They saw the rules and they played them perfectly because they were smart.
Well, except for this part, which isn't playing by the rules at all:
“I feel it is important to essentially apologize to the public because a game was created that allowed syndicates to gain special opportunities that others did not have — using machines themselves, partnership with lottery agents, using them after hours. We’re sorry some gained unfair advantage.”
posted by mediareport at 6:17 AM on August 8, 2012 [3 favorites]
Well, except for this part, which isn't playing by the rules at all:
“I feel it is important to essentially apologize to the public because a game was created that allowed syndicates to gain special opportunities that others did not have — using machines themselves, partnership with lottery agents, using them after hours. We’re sorry some gained unfair advantage.”
posted by mediareport at 6:17 AM on August 8, 2012 [3 favorites]
They figured out that, for a few days every three months or so, Cash WinFall became the most reliably lucrative lottery game in the country.
Imagine that! Right in the same town where these MIT undergrads happened to be going to school.
What are the chances??!
Bullshit the lotto management wasn't in on it. No wonder the treasurer wants it called off.
posted by allkindsoftime at 6:18 AM on August 8, 2012 [2 favorites]
Imagine that! Right in the same town where these MIT undergrads happened to be going to school.
What are the chances??!
Bullshit the lotto management wasn't in on it. No wonder the treasurer wants it called off.
posted by allkindsoftime at 6:18 AM on August 8, 2012 [2 favorites]
So, I'm reading the report. Why on earth would there be an increase in betting for the last draw before a rolldown was anticipated? What did I read wrong? Or are people that stupid? Am I that stupid?
posted by hoyland at 6:21 AM on August 8, 2012
posted by hoyland at 6:21 AM on August 8, 2012
I did read it wrong (well, I contend it was unclear). The jackpot crossing $2 million and the roll down occur on the same drawing.
posted by hoyland at 6:23 AM on August 8, 2012
posted by hoyland at 6:23 AM on August 8, 2012
Hmm. Odds on hitting all six numbers (1-46) is over 1:9,000,000, for which you'd win, well, variable but less than that, starting at $500K and increasing, but roll down happens when it exceeded $2M and nobody won it the drawing where it did exceed $2M.
Odds on five of six are about 1:39,000. Hitting that normally wins you $4K, which is well less, but when the rolldown happens, if that prize hits $40K, you now have a advantage -- the payout covers the chance to play. Or, as the report that kithrater linked above puts it...
posted by eriko at 6:24 AM on August 8, 2012 [1 favorite]
Odds on five of six are about 1:39,000. Hitting that normally wins you $4K, which is well less, but when the rolldown happens, if that prize hits $40K, you now have a advantage -- the payout covers the chance to play. Or, as the report that kithrater linked above puts it...
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 an ideal world, you'd buy the whole set of 5NUM and 4NUM possibilities to ensure you won all the prized, but that's basically impossible. But, as the quote says, if you get enough of them, averages will make the payout happen.
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.
posted by eriko at 6:24 AM on August 8, 2012 [1 favorite]
The game wasn't necessarily unprofitable for the lottery.
There was never any chance the game would be unprofitable for the lottery. The prizes are only ever 60 per cent of the revenue raised, with the other 40 per cent for operating expenses and profits. The "trick" was that a roll-down draw raised the average worth of a ticket from less than $0.60 to more than $1.15. That's still drawing from the same 60 per cent share of the revenue, but the presence of unclaimed revenue from previous draws ups the payouts dramatically.
posted by kithrater at 6:27 AM on August 8, 2012
There was never any chance the game would be unprofitable for the lottery. The prizes are only ever 60 per cent of the revenue raised, with the other 40 per cent for operating expenses and profits. The "trick" was that a roll-down draw raised the average worth of a ticket from less than $0.60 to more than $1.15. That's still drawing from the same 60 per cent share of the revenue, but the presence of unclaimed revenue from previous draws ups the payouts dramatically.
posted by kithrater at 6:27 AM on August 8, 2012
So, it seems like the main difficulty in this is the actual running of the syndicate. Computing the expected value isn't that hard, unless I overlooked something. I can't tell if realising you should compute the expected value after a roll down is a seriously nontrivial observation.
posted by hoyland at 6:38 AM on August 8, 2012
posted by hoyland at 6:38 AM on August 8, 2012
So, it seems like the main difficulty in this is the actual running of the syndicate.
Yes - the report details the great difficulties these groups faced with placing upwards of 300,000 bets for a single draw (this seems to be about the amount of bets two groups settled on as being optimal to rake in the roll-down money), and then dealing with the sorting, redemption, storage, and taxation of their winnings.
I can't tell if realising you should compute the expected value after a roll down is a seriously nontrivial observation.
In a way. The other main difficulty was competition from other syndicates - the more 3, 4, and 5 number tickets during a roll-down, the less of the roll-down each ticket earns. One syndicate saw its earnings drop by two thirds from 2005 to 2007, and scaled down operations drastically in response.
If it were nontrivial to make the observation that the lottery pays out more than it costs, and people acted on that observation, it would quickly become a case that the lottery didn't pay out more than it cost. So long as few enough people were willing to do the calculations and put in the significant effort to handle the logistics, it would remain profitable.
posted by kithrater at 7:02 AM on August 8, 2012 [1 favorite]
Yes - the report details the great difficulties these groups faced with placing upwards of 300,000 bets for a single draw (this seems to be about the amount of bets two groups settled on as being optimal to rake in the roll-down money), and then dealing with the sorting, redemption, storage, and taxation of their winnings.
I can't tell if realising you should compute the expected value after a roll down is a seriously nontrivial observation.
In a way. The other main difficulty was competition from other syndicates - the more 3, 4, and 5 number tickets during a roll-down, the less of the roll-down each ticket earns. One syndicate saw its earnings drop by two thirds from 2005 to 2007, and scaled down operations drastically in response.
If it were nontrivial to make the observation that the lottery pays out more than it costs, and people acted on that observation, it would quickly become a case that the lottery didn't pay out more than it cost. So long as few enough people were willing to do the calculations and put in the significant effort to handle the logistics, it would remain profitable.
posted by kithrater at 7:02 AM on August 8, 2012 [1 favorite]
“How do I become part of the club when I retire?”
For me, I hear these stories and the teachable moment is how much the above sounds like something a senator/house rep would say.
posted by Reasonably Everything Happens at 7:06 AM on August 8, 2012
For me, I hear these stories and the teachable moment is how much the above sounds like something a senator/house rep would say.
posted by Reasonably Everything Happens at 7:06 AM on August 8, 2012
On a related note, WHY DIDN'T I GO TO MIT!?
posted by oddman
Perhaps you were the oddman out?
posted by Celsius1414 at 7:53 AM on August 8, 2012 [1 favorite]
posted by oddman
Perhaps you were the oddman out?
posted by Celsius1414 at 7:53 AM on August 8, 2012 [1 favorite]
I'm trying to figure out who was hurt here. The game as a whole is profitable; the syndicates just made sure on rolldown weeks they got most of the payout. So are the people who suffered the individual players who bought tickets on the bad weeks? Ie, this is really all about timing your bets? It feels a bit like card counting blackjack.
posted by Nelson at 9:14 AM on August 8, 2012
posted by Nelson at 9:14 AM on August 8, 2012
So, basically, if anyone else had done this there would be folks screaming for prosecution of some kind (whether or not rules were "technically" broken) because folks would contend criminal intent/activity...but this is adorable instead because it was done by rich kids?
I'm missing something.
posted by trackofalljades at 9:38 AM on August 8, 2012 [1 favorite]
I'm missing something.
posted by trackofalljades at 9:38 AM on August 8, 2012 [1 favorite]
It's not criminal to figure out how to beat the odds. Card counting, for example, is perfectly. The casino has the right to kick you out, but you get to keep your winnings (and, of course, are not subject to arrest or prosecution). It would be criminal if they were paying off the lottery commission to get more terminals or otherwise break the rules.
posted by MattD at 9:52 AM on August 8, 2012 [1 favorite]
posted by MattD at 9:52 AM on August 8, 2012 [1 favorite]
Not that there isn't some truth to the idea that smart nerds are getting a pass from Metafilter whereas politicians and mobsters likely would not, but 92% of incoming MIT students get some form of financial aid (OK, only 29% of MIT families make less than $75,000 a year, but really? You think their general wealth is what's getting them a mefite pass?).
posted by ChuraChura at 9:55 AM on August 8, 2012 [1 favorite]
posted by ChuraChura at 9:55 AM on August 8, 2012 [1 favorite]
The important question here is: Does this rolldown thing exist in other lotteries and does anyone have $100,000 I can borrow?
posted by orme at 10:07 AM on August 8, 2012 [1 favorite]
posted by orme at 10:07 AM on August 8, 2012 [1 favorite]
This being MeFi, wealth would earn the exact opposite of a free pass.
posted by oddman at 12:26 PM on August 8, 2012
posted by oddman at 12:26 PM on August 8, 2012
The lottery is a tax bonus for those who are bad awesome at math.
posted by Freon at 12:44 PM on August 8, 2012 [1 favorite]
posted by Freon at 12:44 PM on August 8, 2012 [1 favorite]
> and the state 'bent and broke' the rules by allowing them to buy tickets in bulk.
That's not quite the impression I get from reading the report by kithrater (which should really have been in the original post, as that's really the new bit that's come out since October.)
From the report: 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...
Also quoted up-thread:
> I feel it is important to essentially apologize to the public because a game was created that allowed syndicates to gain special opportunities that others did not have — using machines themselves, partnership with lottery agents, using them after hours. We’re sorry some gained unfair advantage.
It's important to note that the lottery agents being discussed here aren't some guys in suits at HQ taking a payoff for answers, but just the dude making minimum wage, slaving away at the mini-mart working long shifts by themselves into the night. He also sells the occasional lottery ticket. That guy probably made a bit extra during roll-down weeks in exchange for running the machines, but that's it.
posted by fragmede at 4:02 PM on August 8, 2012 [2 favorites]
That's not quite the impression I get from reading the report by kithrater (which should really have been in the original post, as that's really the new bit that's come out since October.)
From the report: 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...
Also quoted up-thread:
> I feel it is important to essentially apologize to the public because a game was created that allowed syndicates to gain special opportunities that others did not have — using machines themselves, partnership with lottery agents, using them after hours. We’re sorry some gained unfair advantage.
It's important to note that the lottery agents being discussed here aren't some guys in suits at HQ taking a payoff for answers, but just the dude making minimum wage, slaving away at the mini-mart working long shifts by themselves into the night. He also sells the occasional lottery ticket. That guy probably made a bit extra during roll-down weeks in exchange for running the machines, but that's it.
posted by fragmede at 4:02 PM on August 8, 2012 [2 favorites]
That guy probably made a bit extra during roll-down weeks in exchange for running the machines, but that's it.
Was the MIT syndicate paying off the shops where they were buying tickets? I didn't get the impression they were. The shops who sold tickets to the guy from Michigan were benefiting, or their owners were.
posted by hoyland at 4:48 PM on August 8, 2012
Was the MIT syndicate paying off the shops where they were buying tickets? I didn't get the impression they were. The shops who sold tickets to the guy from Michigan were benefiting, or their owners were.
posted by hoyland at 4:48 PM on August 8, 2012
The report states that retail stores make a 5 percent commission on Lottery sales. It then goes on to state that the MIT group wagered between $17 million and $18 million on Cash WinFall.
For reference, 5 percent of $17 million is $850k.
I might not categorize that as paying off the shops, but that's not exactly chump change either.
posted by fragmede at 6:08 PM on August 8, 2012
For reference, 5 percent of $17 million is $850k.
I might not categorize that as paying off the shops, but that's not exactly chump change either.
posted by fragmede at 6:08 PM on August 8, 2012
So are the people who suffered the individual players who bought tickets on the bad weeks? Ie, this is really all about timing your bets?
No. The people who bet on non-rolldown draws are suffering, but their suffering is unrelated to the presence of high-volume bettors. They suffer because they're spending $1.00 for something with an average value of less than $0.60, i.e. the bad-at-numbers-tax that is a normal lottery. The whole system is set up to screw those people who buy during non-rolldown draws, but the whole system also depends on there being a steady population of people who do buy during non-rolldown draws. The high-volume bettors have nothing to do with them getting screwed.
High-volume bettors hurt the "legitimate" bettors during the roll-down draws, because they reduce the value of individual 3, 4, and 5 number tickets. To simplify, if there were only two possible results, "jackpot ticket" and "normal ticket", and the rules were that should there be no jackpot ticket the money reserved for that ticket would be distributed equally across all the normal tickets, then the more normal tickets there are, the less money goes to any one normal ticket. Because "legitimate" bettors only buy the same amount of tickets each draw, the influx of high-volume bettor tickets drives down the value of that static amount of tickets bought by "legitimate" bettors.
Of course, who counts as a "legitimate" bettors is tricky, because the entire point of the roll-down lottery is to encourage everyone to buy more tickets for the roll-down draw. Massively increased betting volume during roll-down draws is the desired behaviour.
posted by kithrater at 2:17 AM on August 9, 2012 [1 favorite]
No. The people who bet on non-rolldown draws are suffering, but their suffering is unrelated to the presence of high-volume bettors. They suffer because they're spending $1.00 for something with an average value of less than $0.60, i.e. the bad-at-numbers-tax that is a normal lottery. The whole system is set up to screw those people who buy during non-rolldown draws, but the whole system also depends on there being a steady population of people who do buy during non-rolldown draws. The high-volume bettors have nothing to do with them getting screwed.
High-volume bettors hurt the "legitimate" bettors during the roll-down draws, because they reduce the value of individual 3, 4, and 5 number tickets. To simplify, if there were only two possible results, "jackpot ticket" and "normal ticket", and the rules were that should there be no jackpot ticket the money reserved for that ticket would be distributed equally across all the normal tickets, then the more normal tickets there are, the less money goes to any one normal ticket. Because "legitimate" bettors only buy the same amount of tickets each draw, the influx of high-volume bettor tickets drives down the value of that static amount of tickets bought by "legitimate" bettors.
Of course, who counts as a "legitimate" bettors is tricky, because the entire point of the roll-down lottery is to encourage everyone to buy more tickets for the roll-down draw. Massively increased betting volume during roll-down draws is the desired behaviour.
posted by kithrater at 2:17 AM on August 9, 2012 [1 favorite]
Reuters has a less axe-grindy take on the whole situation.
posted by fragmede at 7:36 PM on August 10, 2012
posted by fragmede at 7:36 PM on August 10, 2012
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posted by supercres at 5:31 AM on August 8, 2012 [13 favorites]