It’s not uncommon for lottery games to become +EV at some point in time when the jackpot is getting bigger and bigger, but it’s hard to make a profit: you still need to win the jackpot to realize your EV. The Massachusetts State Lottery’s Cash WinFall game on the other hand had an unique feature: when the jackpot reached a certain level and wasn’t hit, the money was distributed to lower tier prize winners. The Inspector General released a report on the subject today, and Kid Dynamite posted some tidbits.
Lottery arbitrage is for example not for lazy people:
“While Mr. Selbee’s use of Quic Pics saved some time, he did not have shortcuts when it came to collecting his group’s winnings. Mr. Selbee said he and his wife sorted the tickets by hand into winners and losers. This process – visually inspecting approximately 60,000 paper betting slips, each with five panels of six-number bets printed on them – took days. Mr. Selbee said he and his wife would cull the winning tickets while still in Massachusetts and then drive the losing tickets back to Michigan where they would sort through the losing tickets again because they invariably missed some winners. He said he and his wife spent 10 hours per day for 10 days examining the losing tickets a second time.”
But it can be quite profitable:
The August 16, 2010 drawing was a one-of-a-kind event in the history of Cash WinFall when a single high-volume betting syndicate, the MIT group, took the Lottery, the other syndicates and everyone else by surprise. They single-handedly bought enough tickets to push the jackpot to $2 million, triggering a roll-down that no one else was expecting and that was never announced to bettors on the Lottery website. As a result, the MIT group virtually monopolized the winnings from this drawing.
Lottery records show that the MIT group claimed 18 of the 21 match-five $30,282 prizes, or $545,076. Of the 1,002 tickets sold that matched four of the numbers, the MIT group cashed in 868 of them, or $1,003,408. Because match-threes and match-twos can be redeemed at any Lottery agent, it’s impossible to say how many the MIT group had. Based on its winning percentages in the higher tiers, it’s likely that the MIT group had at least 15,000 match-three winners, each worth $37, as well as 105,000 match-twos, worth about $210,000 in future free bets. In total, on its $1.4 million wager, the MIT group made a $700,000 cash profit.
Competitive dynamics are also at work in the lottery arbitrage ‘industry’. Multiple betting groups started to buy tickets at a large scale, reducing the profit margin. The profit is coming from people buying tickets in earlier rounds when the jackpot does not hit the threshold and smart money doesn’t participate. When more people play the final round you get a smaller piece of the dumb-money-pie, and when the final round becomes too popular the opportunity could disappear completely.
Interesting story, and shows that you can find value in some unconventional places!