Wednesday, 09 September 2009

• Mega Millions/Powerball Lotteries: Games For The Mentally Challenged...Or Are They?

  
  

  
  Last Friday, the Mega Millions Lottery jackpot was at $333 million big ones. Two tickets won that lottery. Sadly, neither of them belonged to me. 
  
  It got me to thinking about lottery odds and whether playing the lottery is a good or foolish investment. The answer is, it depends on how much the lottery jackpot is.
  
  Let's talk about the Mega Millions Lottery.
  In California, the winnings besides the jackpot can vary because the winnings are parimutuel (Prize amounts will vary depending on sales levels and number of winners), but lets' discuss the standard odds and prizes. The odds/prizes for this lottery: 
  
  

  
  

  
  Since the jackpot varies, let's discuss the fixed prizes first.
  
  If you look at the odds, and the non-jackpot prizes offered, this is clearly a BAD bet.
  
  The top non jackpot prize is $250k , but the odds of winning that are about 1 in 3.9 million. For beating those odds, the prize should be much much bigger. If the odds hold true, for every $3.9 million spent on lottery tickets, they are only risking $250k. Wouldn't you love to be the "House" with those odds?
  
  For the lowest prize offered, $2, you have to beat 1 in 75 odds. The House is getting $75 for a cost of just $2.
  
  To be clear, these are HORRIBLE odds and the minuscule prize payout makes it a sucker's bet.
  
  I did enter the last lottery however. Now why would I do that if I just trashed the odds? Ah, we haven't discussed the jackpot yet......
  
  The odds for winning the jackpot is about 1 in 176 million. Those are high odds indeed. Now if you manage to beat the odds and win, you should be rewarded with a prize that reflects the odds. This means the best time to play is when the jackpot grows to an amount close to or exceeding $176 million.
  
  Since the jackpot last Friday was $333 million- the prize exceeded the odds, making it one of the best times to play.
  
  Now how much should you spend? Well, since the odds are so high, I think $1 - $5 is more than enough. I see a big mistake of people spending much more on tickets, as the odds won't change much unless you are buying millions of tickets.
  
  Example:
  
  Spending $2 on tickets- odds of winning jackpot = 2 / 175,711,536 = 0.0000000113823 = pretty darn close to zero.
  
  Spending $200 on tickets - odds of winning jackpot = 200 / 175,711,536 = 0.00000113823 = pretty darn close to zero.
  
  Since the odds are so high, it makes no sense to spend more than small change.
  
  This is classified as a extremely high risk investment, but the risk in capital can be kept extremely low to just $1.
  
  Risking $1 to win $333 million isn't that bad of a deal.
  
  Now for "real" investing, stick to more traditional investments like stocks or real estate, where the odds are much better.
  
  Do you play the lottery? Do you follow any strategies to decide when to play?
  
  
  
  

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