
Couple wins millions using lottery loophole - onetimemanytime
https://www.msn.com/en-xl/northamerica/top-stories/couple-wins-millions-using-lottery-loophole/ar-AACEewY
======
twic
_The paper 's reporting revealed that two groups were dominating Cash Winfall:
the Selbee gang from Evart, Michigan, and their competition, a syndicate led
by math majors from MIT, the Massachusetts Institute of Technology. These were
kids young enough to be the Selbees' grandchildren._

 _Incredibly, the MIT group bet between $17 and $18 million on Cash Winfall
over a seven-year period, earning at least $3.5 million in profits. Almost the
exact same rate of return as the Selbees._

A nice illustration of the fact that there is only one mathematics, and it's
equally available to everyone!

~~~
bhl
Based on the numbers alone, that's about a 20% return for the MIT group, for
an annualized return (not considering compound interest) of less than 3% per
year. Does this suggest that those trying to game the lottery should just turn
to investing in the market? It's amusing to see that the market, which is less
structured in probability and more volatile, outperforms the lottery in this
aspect.

~~~
bcbrown
That doesn't mean they had that amount of capital under investment.

If you bet $10 every week, and every week you win $11, at the end of the year
you've bet $520 and made a profit of $52. But you never had more than $10
"invested".

If that $18 million was evenly spread out over 7 years, it would be close to
$50k/week, or $215k/month. Those are probably more accurate amounts of working
capital for calculating ROI.

~~~
adrianmonk
Yeah, the way the article phrased it, I have a feeling this is a useless
statistic like the sum total of all the money spent on tickets.

------
jedberg
To all the folks saying, "how did the State not know the odds?", a lot of
gambling games come out without anyone running the odds. A great example is
blackjack switch [0]. The game was invented by an ex-gambler and he never
really knew the odds of the game. He just convinced some casinos to try it and
would advertise what their average take was. Because most people are bad at
math and wouldn't play well, it was always bigger than the actual house
advantage anyway.

It was only years later that someone finally ran the numbers and figured out
the actual house advantage of the game [1], but no one cared because everyone
who had a table was making money on it. Even with regular blackjack, the
casinos always make way more than the statistical house advantage because
people play poorly.

It was probably the same deal here. The State didn't care what they actual
odds were, they just cared that they were making money on it.

[0]
[https://en.wikipedia.org/wiki/Blackjack_Switch](https://en.wikipedia.org/wiki/Blackjack_Switch)

[1]
[https://wizardofodds.com/games/blackjack/switch/](https://wizardofodds.com/games/blackjack/switch/)

~~~
qtplatypus
I work in the gambling industry and live in au. From my perspective this is
super strange. By law vendors have to publish the odd (and on some games the
EV).

~~~
rwc
Publishing the odds is common. Doing the math on those odds apparently is not.

~~~
MegaButts
But in order to publish the odds, you have to know the odds. And the only way
to know the odds is to do the math, correct?

Unless you're making a distinction for determining the odds during optimal
play (which makes a lot more sense to me).

~~~
kijin
Lotteries are required to publish the odds of matching x out of y numbers.
Once the design is fixed, this figure does not change.

The expected dollar value of a winning ticket, on the other hand, changes
every week depending on the number of tickets sold that week as well as the
amount of any unclaimed jackpot(s) rolled over from previous weeks. I won't be
surprised if state lotteries are not legally required to publish these figures
every week. Nobody wants to be held responsible for a precise amount published
on Tuesday when a snowstorm on Friday causes ticket sales to plummet.

Many states do publish estimates of the jackpot, of course, for advertising
purposes. But they're only estimates, and I've never seen estimates of
anything other than the jackpot. The Selbees took advantage of smaller
winnings that usually go unnoticed.

------
js2
Previous discussion a year ago:

[https://news.ycombinator.com/item?id=16494280](https://news.ycombinator.com/item?id=16494280)

On this submission:

[http://highline.huffingtonpost.com/articles/en/lotto-
winners...](http://highline.huffingtonpost.com/articles/en/lotto-winners/)

~~~
joshstrange
This is a MUCH better writeup than this recently submitted link. I remember
reading it at the time, very well done.

------
coldcode
I wish lotteries handed out many $1M prizes instead of giving $250M to one
person. People understand what to do with $1M (I think) but most people are
ruined by $250M.

~~~
ptaipale
Everywhere, people _say_ they prefer lotteries where there are more prizes
with smaller wins, instead of one winner with huge jackpot. But also
everywhere, their actual _bahaviour_ is that when there is one big jackpot,
they bet more.

And those who arrange lotteries do know their business.

~~~
izzydata
That's probably true. They should try to educate people that if there are 250
times as many winners that your chances of winning a significant amount of
money is much higher.

~~~
Johnny555
I think if you could educate people on their expected return from a lottery
ticket purchase, they wouldn't play at all.

Telling people that they have a 95% chance of winning nothing at all is not a
good way of selling lottery tickets.

~~~
p1necone
I think it's naive to value a lottery based solely on your monetary expected
value. The value of money doesn't increase linearly, and isn't the same for
everyone. $20 could have an inconsequential effect on my quality of life,
while winning say $2 million could be a total life changer.

Likewise, the difference in impact between winning $0 and winning $2 million
is likely a _lot_ larger than the difference between winning $2 million and
winning $4 million. So a straight EV calculation doesn't really tell the whole
story.

There's also the entertainment value of participating in the lottery to
consider, even when you win nothing.

~~~
p1necone
Personally I like to think of lotteries as a binary thing - either I win
enough money to retire now, or I don't.

~~~
taneq
I think there's more nuance than that. Winning enough to pay most of your
house off wouldn't necessarily let you retire but it'd make you a lot more
comfortable, for instance.

------
Slartie
When I read this kind of stories about US lotteries (and there seem to be
several of this kind of stories going around), I always wonder how on earth it
is possible for so many cases of failed lottery rule design to exist in the
first place, and for those clear failures to persist for so long.

Did no one notice that the lottery always lost huge sums of money during the
Rolldown draws, while it gained money on normal draws (as it should always be
the case)? No one noticed that certain convenience stores suddenly sold
hundreds of thousands worth of tickets in these draws, while most other stores
sold a normal amount?

~~~
soneil
I think the irony is that from the organizer's point of view, it's essentially
working as intended. The "windfall" mechanic was supposed to make rollovers
more enticing by increasing the payout amounts for everyone. The only reason
to make a lottery more enticing is to sell more tickets.

So they sold more tickets, and made more payouts on lesser tickets. Exactly as
they planned. The lottery doesn't actually lose out - it's just emptying the
pot (which was filled in previous games) in return for increased sales.

It's the old adage "the house never loses" \- if 50% goes in the pot and 50%
goes in their pockets, it doesn't matter who wins the pot - their 50% doesn't
change. If a mechanic creates an incentive for more sales, their take
increases. Fantastic. But if popular perception becomes that the game is
rigged, less people buy tickets - and their take decreases.

(We had an office draw that'd run for months at a time, until someone
eventually won. But we wouldn't take new players until the pot had been
emptied, as someone joining for the last 2 rounds and winning everything, lost
us more players than we gained. That is essentially the long-term risk here
too. 10 people paying in until one of them wins, feels fair. 10 people paying
in until the 11th wins, doesn't. And when the game stops feeling fair, you
start to lose the feeders that fill the pot in the first place.)

~~~
staticautomatic
I don't understand why this is an issue since each drawing's odds are
independent. Perhaps I don't understand how these pools work.

~~~
soneil
That's the disconnect. Each draw's odds are independent, but each draw's
winnings aren't.

So there's a collectivism that goes into a growing pot. This is the only thing
that really makes a "rollover" enticing to players. If each draw was an
isolated incident, the "windfall" mechanic the article describes would be in
place for every draw. So a collective pitches in, and the pot is distributed
amongst the collective's members (the players) according to how successful
each ticket is. So if there's no 6-number winners, there's more left in the
pot for the 5-number winners. If there's 5-number winners, there's more left
in the pot for the 4-number winners, etc.

(Either that, or the house makes out like bandits. State lotteries are usually
regulated to keep a distinction between the pot and the profit, hence such
pot-emptying mechanisms.)

But if the pot rolls over - it's not distributed, but added to the pot for the
next draw - you now have more than one collective. One collective that's
contributed to the pot (over n draws), and one collective that participates in
the winning game (over 1 draw). And if there's a significant disconnect
between the two, then yes - as one commenter put it, sour grapes. It's the
difference between feeling like you've lost a fair game, and feeling like
you've been hustled.

Technically it makes zero difference. But if it makes people less inclined to
play in future, then it's bad for the long-term health of the game.

------
Xunxi
They were featured on 60 minutes twice, including last night. The rendering on
Microsoft News is off!

You can see the entire video here.

[https://www.cbsnews.com/news/jerry-and-marge-selbee-how-a-
re...](https://www.cbsnews.com/news/jerry-and-marge-selbee-how-a-retired-
couple-won-millions-using-a-lottery-loophole-60-minutes-2019-06-09/)

------
danielecook
Love hearing stories like this where people gained because of some loophole.
Does anyone know if there is a compilation somewhere of these?

See also:

[https://www.businessinsider.com/us-mint-ends-the-dollar-
coin...](https://www.businessinsider.com/us-mint-ends-the-dollar-coin-scam-
for-airline-miles-2011-7?r=US&IR=T)

~~~
giarc
There is a story similar to the dollar coin gig to earn reward miles. A long
time ago when plastic gift cards were first a thing, stores didn't have a way
to update the balance. The scheme would be to buy a $100 gift card from
Walmart using your credit card (getting the miles). You would then use the
gift card to buy a $0.35 pack of gum. Since the store couldn't update the
balance, they would give you cash as change. You could then just deposit the
change to your bank and pay off the credit card. Rinse, repeat.

So for $0.35, you could get $100 in equivalent reward miles. Now stores have
changed, they can now update balances on the card and therefore won't issue
cash as change.

~~~
dawnerd
To expand, this still goes on, it's just a lot more convoluted and has become
quite the cat and mouse game. It's been very interesting watching how
manufactured spending has evolved.

~~~
lozaning
I know people used to do this by buying the $1 coins from the US treasury, and
then just take the coins to the bank and depositing them in order to
manufacture spending.

------
onetimemanytime
$80 BILLION a year in lottery spending, that was shocking to me. Only 30 some
countries have bigger _yearly_ budgets.
[https://en.wikipedia.org/wiki/List_of_countries_by_governmen...](https://en.wikipedia.org/wiki/List_of_countries_by_government_budget)

~~~
smcl
Remember that you can look at a lot of data on the US like this and come up
with seemingly shocking figures, simply because of the huge population of the
USA and their higher than average disposable income. I bet if you looked at
other things like total amount spent on other optional/nonessential items -
chewing gum or fabric softener, for example - you'd end up with a dollar value
in excess of what many governments spend :-)

~~~
rzzzt
The chewing gum market is a bit smaller (but impressive nonetheless), 110-ish
countries have revenues comparable to sales in North America:

[https://www.foodbusinessnews.net/articles/13098-chewing-
gum-...](https://www.foodbusinessnews.net/articles/13098-chewing-gum-sales-
estimated-to-hit-4-billion-in-2018)

[https://www.statista.com/topics/1841/chewing-
gum/](https://www.statista.com/topics/1841/chewing-gum/)

------
ocfnash
A wonderful account of this is given in Ellenberg's "How Not to Be Wrong":
[https://en.wikipedia.org/wiki/How_Not_to_Be_Wrong](https://en.wikipedia.org/wiki/How_Not_to_Be_Wrong)

I highly recommend the book; it is a popular mathematics book, written by a
real mathematician, discussing some real mathematics, with an engaging style.

~~~
gauravjain13
Video: [https://youtu.be/kZTKuMBJP7Y](https://youtu.be/kZTKuMBJP7Y)

------
notfed
The title of an article I would _never_ have clicked on if it were not
referenced via Hacker News...

------
mattdeboard
"That was satisfactory."

I love that this guy, who is probably, what, 80? 81? pulled off this huge math
heist after probably a lifetime spent doing math running a convenience store.

I bet it feels great to have that sense of, like, ease with himself in old
age, having made a mark on the world in a way that hurt no one and helped a
lot of people.

He stuck the landing

~~~
gowld
He hurt all the lottery players he beat.

~~~
TallGuyShort
They bet money on a game that somebody else played better.

------
treydey
Can anyone explain the strategy like I'm 5? I'm confused by his answer.

~~~
bsaul
Even weirder is the statement that the State that organized the lottery made
more money thanks to them buying massive amount of tickets ( or maybe it was
the publicity around the first newspaper article that triggered more interest,
and so more participant in general ?)

~~~
Piskvorrr
I understand the opposite: the State didn't _lose_ any money, (but didn't make
any money from these people winning, either); it made money from lottery as
usual, but not from these people. (There's an implication that more people _in
general_ bought tickets, didn't win, and so the organizer made money from
_those_ \- but it's not entirely clear.)

~~~
thaumasiotes
The state makes money from every ticket purchased. The lottery simply pays out
a fixed percentage of ticket revenue. More ticket sales means more money to
the state, regardless of whether those tickets, when purchased, had an
expected positive or negative return.

~~~
pliny
If the ticket has an expected positive return for the buyer, then the state
must be losing money.

~~~
zawerf
I feel like mathematically, you must be right. One of the sides must be
calculating their expected value wrong.

For example I can offer to pay a $3 jackpot (split across winners) for a $1
game for guessing heads or tails. If more than 3 people play the game, I make
money. For each player, the naive way to calculate expected return is $3 * 0.5
+ $0 * 0.5 - $1 = $0.5. So the players also think they are making money. But
once you account for jackpot splitting, that "expected value" isn't positive
anymore. To calculate this correctly, the player (who has less information)
need some way to model the distribution of the number of other players.

~~~
thaumasiotes
> mathematically, you must be right. One of the sides must be calculating
> their expected value wrong.

He isn't right. The state doesn't work with expected values in any way. Money
comes in via ticket sales, some of it goes into the state budget, the rest
goes out as lottery payouts. There is no element of chance in any of that.

As you point out here and I point out elsewhere, the expected value of a
ticket for the purchaser depends on the total number of tickets sold, which
has been mostly elided from the discussion. In fact, it's mostly irrelevant as
to this past event; at the actual ticket volumes, returns really were positive
on the days in question.

~~~
zawerf
It's a zero sum game. If one side is positive, the other side must be
negative.

If jackpot isn't paid out, state gets (ticket_sales), players in total gets
(-ticket_sales).

If jackpot is paid out, state gets (ticket_sales - jackpot), players gets
(jackpot - ticket_sales). The winning players get ((jackpot -
winning_ticket_sales) / num_winners) each, the rest gets
(losing_ticket_sales).

Either way the expected value for an individual player is always the opposite
sign of the expected value of the state.

The interpretation that people might be using is that: when the tickets sold
is low, it's positive expected value for the players. When sales cross the
jackpot, it's positive expected value for the state. But then it becomes
negative value for the player! There's no point in time where both sides are
winning.

(And of course that interpretation is pretty meaningless because you don't
want to calculate the expected return based on the _current_ number of tickets
sold. You want the _forecast_ of the eventual number of tickets sold. The
state never really loses, even at the start because they have a pretty good
idea of what this number will be in the end)

~~~
kd5bjo
It’s a zero-sum game, but there are 3 parties: the state general fund, the
prize pool, and the players. By regulation, a fixed percentage of each ticket
sale goes to the state general fund and the rest goes to the prize pool. Also
by regulation, all the money that goes into the prize pool must eventually be
paid out to players.

The unpaid prize pool getting too big can cause problems for the operator:
there may be accusations by the regulator that it’ll never be paid out, or it
could be stolen or mismanaged leaving the operator insolvent because they no
longer have the funds they are required to give to players.

A rolldown event is the operator choosing to increase the payout schedule to
an expected win for the purpose of reducing their liability of unpaid prizes;
tickets having a positive expected value is the entire point.

~~~
zaroth
Swarming the rolldown day would just have the effect of diminishing the prize
pool faster, and therefore a longer delay before the next rolldown day.

------
seventhtiger
I was wondering how both these syndicates and the state we winning. I think I
understand now.

Lotteries are zero sum games so no extra money is being created. All ticket
purchases either go to the state or the winners. So if the players have a
positive return how can the state also be winning?

The players have a positive return only for the rollover round. The players
have a negative return for all other rounds, where the state makes its money,
and the syndicates don't play.

So the people who lost are all the suckers who played in non-rollover rounds.

------
fewrx
Every decade or so some "lottery loophole" like this is discovered, exploited,
publicized, and rules are updated to close it. I'm curious to see if another
loophole resulting in a massive rework of the lottery system will ever present
itself, or if the laws and rules have finally prevented that after the last
few.

------
elamje
I really enjoyed this story! The best part is people like to think this loop
hole is easy “profit”. No one pointed out the fact that they would go on 10
day benders buying/sorting/etc. to get the profit! Even this loop hole for
easy profit was incredibly arduous in manual labor.

------
unixhero
Great story.. but extremely shitty interviewer in my view.

------
bamurphymac1
Great story. Now they should go make another million or two selling the movie
rights!

------
RickJWagner
Good for them! Thinking is rewarded.

------
MeteorMarc
I just wonder, do you have to think very high about yourself to play such a
game and enjoy it? Or very low? I just can not imagine myself feeling good
about this.

Of course, the feeling dumbs a bit: compare the feelings you had after using
your first illegally copied floppy disk or mp3 track and the later ones, but
still.

~~~
chrismcb
Why would you feel bad? What woukd you have down that was wrong? You aren't
taking money from anyone else.

~~~
tantalor
You are taking money from the prize pool, i.e. payouts for future winners.

~~~
chrismcb
You, and everyone else. That is the rule of the game. You aren't doing
anything wrong. By that logic, any money winner is taking payours from future
winners.

~~~
tantalor
> You aren't doing anything wrong.

That's debatable. Lotteries are supposed to be completely up to chance. If by
your own ingenuity you exploit a weakness then you are tipping the scales in
your favor, which is unfair to less clever players.

It's basically the tragedy of the commons; everyone has the same chance of
winning, but only you know you can safely risk more and win more, lessening
the winning of others.

~~~
giarc
He didn't have insider knowledge though. He used the games own rules to play
an advantage. Those rules were available to everyone, everyone could have done
the same.

~~~
directional
The rules are available to everyone, but having enough cash to purchase that
many lottery tickets certainly isn't. Unfortunately this is yet another system
that enables the already rich to get richer on the backs of the poor.

~~~
briandear
Perhaps if the poor didn’t spend so much on lottery tickets their station
might improve? If they know they are playing a losing bet, why keep doing it?
And these folks that were winning were hardly hedge-fund managers. If the
“poor” wanted to play to win, perhaps they could get everyone on their block
to chip in to buy shares just like the old couple did? They could get all of
their friends to save what they would have spent in the lottery over the
course of the year, put that fund into the “pot” and then win, reinvesting it
and repeating the process.

It’s hard to be sympathetic to people that make bad decisions as a habit. For
example, if it’s a 1/5,000,000 chance of winning and they still keep playing,
that’s on them. The have very little sympathy for losing lottery players. If
people choose to spend their money like that, that’s their business, but that
doesn’t invite sympathy when it doesn’t work out. It isn’t like they are being
defrauded or even cheated. They have access to the same rules of the game and
they have access to math just like everyone else.

~~~
directional
> _Perhaps if the poor didn’t spend so much on lottery tickets their station
> might improve?_

I agree, and indeed this is a good argument for prohibiting lotteries. They're
a form of predatory gambling that relies largely upon irrationality,
addiction, and desperation.

------
sureaboutthis
I first read about these people a year or so ago so CBS "news" has finally
caught up.

