How a group of MIT students gamed the Massachusetts Lottery

Feb 23, 2016, 1:11 pm (14 comments)

Massachusetts Lottery

Even within a university as famously offbeat as the Massachusetts Institute of Technology, Random Hall has a reputation for being a little quirky. According to campus legend, the students who first lived there in 1968 wanted to call the dorm "Random House" until the publishing house with that same name sent them a letter to object. The individual floors have names, too. One is called Destiny, a result of its cash-strapped inhabitants selling the naming rights on eBay; the winning bid was $36 from a man who wanted to name it after his daughter.

In 2005, another plan started to take shape in the corridors of Random Hall. James Harvey was nearing the completion of his mathematics degree and needed a project for his final semester. While searching for a topic, he became interested in lotteries.

He began analyzing well-known lottery games such as Powerball and Mega Millions, but soon became intrigued by Cash WinFall, a game that was introduced in 2004 and was unique to the state of Massachusetts. The rules were simple. Players would choose six numbers for each two-dollar ticket. If they matched all six in the draw, they won a jackpot of at least half a million dollars. If they matched some but not all the numbers, they won a smaller sum. The lottery designed the game so that $1.20 of every $2.00 would be paid out in prizes, with the rest being spent on local good causes.
 
In many ways, WinFall was like all the other lottery games. However, it had one important difference: Usually, when nobody wins the jackpot in a lottery, the prize rolls over to the next draw. If there's no winning ticket next time, it rolls over again and continues to do so until somebody eventually matches all the numbers. The problem with rollovers is that winners — who are good publicity for a lottery — can be rare. And if no smiling faces and giant checks appear in the newspapers for a while, people might stop playing.

Massachusetts Lottery faced precisely that challenge in 2003, when its Mass Millions game went without a winner for an entire year. They decided that WinFall would avoid this awkward situation by limiting the jackpot. If the prize money rose to $2 million without a winner, the jackpot would "roll-down" and instead be split among the players who had matched three, four, or five numbers.

Before each draw, the lottery published its estimate for the jackpot, which was based on ticket sales from previous draws. When the estimated jackpot reached $2 million, players knew that the money would roll-down if nobody matched six numbers. People soon spotted that the odds of winning money were far better in a roll-down week than at other times, which meant ticket sales always surged before these draws.

As he studied the game, Harvey realized that it was easier to make money on WinFall than on other lotteries. In fact, the expected payoff was sometimes positive: When a roll-down happened, there was at least $2.30 waiting in prize money for every $2.00 ticket sold.

In February 2005, Harvey formed a betting group with some of his fellow MIT students. About 50 people chipped in for the first batch of tickets — raising $1,000 in total — and tripled their money when their numbers came up. Over the next few years, playing the lottery became a full-time job for Harvey. By 2010, he and a fellow team member incorporated the business. They named it Random Strategies Investments, LLC, after their old MIT accommodations.
 
Other syndicates got in on the action, too. One team consisted of biomedical researchers from Boston University. Another group was led by Gerald Selbee, a retired shop owner and former math student who had previously had success with a similar game elsewhere. In 2003, Selbee had noticed a loophole in a Michigan lottery game that also included roll-downs. Gathering a 32-person-strong betting group, Selbee spent two years bulk-buying tickets — and winning jackpots — before that lottery was discontinued in 2005. When Selbee's syndicate heard about WinFall, they turned their attention to Massachusetts. There was a good reason for the influx of such betting teams: Cash WinFall had become the most profitable lottery in the United States.

During the summer of 2010, the WinFall jackpot again approached the roll-down limit. After a prize of $1.59 million went unclaimed on August 12, the lottery estimated that the jackpot for the next draw would be around $1.68 million. With a roll-down surely only two or three draws away, betting syndicates started to prepare. By the end of the month, they planned to have thousands more dollars in winnings.

But the roll-down didn't arrive two draws, or even three draws, later. It came the following week, on August 16. For some reason, there had been a huge increase in ticket sales, enough to drive the total prize money past $2 million. This flood of sales triggered a premature roll-down.

The lottery officials were as surprised as anyone: They had never sold that many tickets when the estimated jackpot was so low. When WinFall was introduced, lottery officials had looked into the possibility of somebody deliberately nudging the draw into a roll-down by buying up a large number of tickets. Aware that ticket sales depended on the estimated jackpot — and potential roll-downs — the lottery didn't want to get caught underestimating the prize money.

They calculated that a player who used stores' automated lottery machines, which churned out tickets with arbitrary numbers, would be able to place 100 bets per minute. If the jackpot stood at less than $1.7 million, the player would need to buy over 500,000 tickets to push it above the $2 million limit. Because this would take well over 80 hours, the lottery didn't think anyone would be able to tip the total over $2 million unless the jackpot was already above $1.7 million.
 
The MIT group thought otherwise. When James Harvey first started looking at the lottery in 2005, he'd made a trip to the town of Braintree, where the lottery offices were based. He wanted to get hold of a copy of the guidelines for the game, which would outline precisely how the prize money was distributed. At the time, nobody could help him. But in 2008, the lottery finally sent him the guidelines. The information was a boost for the MIT group, which until then had been relying on their own calculations.

Looking at past draws, the group found that if the jackpot failed to top $1.6 million, the estimate for the next prize was almost always below the crucial value of $2 million. Pushing the draw over the limit on August 16 had been the result of extensive planning. As well as waiting for an appropriate jackpot size — one close to but below $1.6 million — the MIT group had to fill out around 700,000 betting slips, all by hand. "It took us about a year to ramp up to it," Harvey later said. The effort paid off: It's been estimated that they made around $700,000 that week.

Unfortunately, the profits did not continue for much longer. Within a year, The Boston Globe had published a story about the loophole in WinFall and the betting syndicates that had profited from it. In the summer of 2011, Gregory Sullivan, Massachusetts's Inspector General, compiled a detailed report on the matter. Sullivan pointed out that the actions of the MIT group and others were entirely legal, and he concluded that "no one's odds of having a winning ticket were affected by high-volume betting." Still, it was clear that some people were making a lot of money from WinFall, and the game was gradually phased out.

(See Mass. Lottery ends game that was exploited by high-rollers, Lottery Post, Jan. 27, 2012.)

Even if WinFall hadn't been canceled, the Boston University syndicate told the inspector general that the game wouldn't have remained profitable for betting teams. More people were buying tickets in roll-down weeks, so the prizes were split into smaller and smaller chunks. As the risk of losing money increased, the potential rewards were shrinking. In such a competitive environment, it was crucial to obtain an edge over other teams. The MIT group did this by understanding the game better than many of their competitors: They knew the probabilities and the payoffs and exactly how much advantage they held.
 
Betting success is not just limited by competition, however. There is also the not-so-small matter of logistics. Gerald Selbee pointed out that if a group wanted to maximize their profits during a roll-down week, they needed to buy 312,000 betting slips, but the process of buying so many tickets was not always straightforward. The ticket machines would jam in humid weather and run slowly when low on ink. On one occasion, a power outage got in the way of the MIT group's preparations. And some stores would refuse to serve teams altogether.

There was also the question of how to store and organize all the tickets they bought. Syndicates had to keep millions of losing tickets in boxes to show to tax auditors. Moreover, it was a headache to find the winning slips. Selbee claims to have won around $8 million since he started tackling lotteries in 2003. But after a draw, he and his wife would have to work for 10 hours a day examining their collection of tickets to identify the profitable ones.

Syndicates have long used the tactic of buying up large combinations of numbers — a method known as a "brute force attack" — to beat lotteries. Simple brute force approaches do not require many calculations to pull off. The only real obstacle is buying enough tickets. It's more a question of manpower than mathematics, and this reduces the exclusivity of the methods. Whereas clever roulette players have only to outwit the casino, lottery syndicates often have to compete with other teams attempting to win the same jackpot.

Despite the ongoing competition, some betting syndicates have managed to repeatedly — and legally — turn a profit. Some of them have become so dependably successful, in fact, that they even have investors and file tax returns. What were once sporadic efforts to beat the system have grown into an entire industry.

The Atlantic

Comments

Raven62's avatarRaven62

Who said Winning the Lottery wasn't Hard Work?

Groppo's avatarGroppo

Quote: Originally posted by Raven62 on Feb 23, 2016

Who said Winning the Lottery wasn't Hard Work?

Could you, or anyone, please tell me what the gist of the story was?

I can't read the whole article. It truly is too long for me.

I had read about half, and couldn't read anymore.

What I got out of it was that there was this lotto game in Mass. and it turned out to be quite profitable. Then, one day, a few students from MIT pooled their money together for a total of a grand, in this pool. The Winfall game actually became a profitable lottery game to play, because of the distribution, when no body hits the 6 numbers. OK? Please explain the rest.

Thanks

dallascowboyfan's avatardallascowboyfan

"But after a draw, he and his wife would have to work for 10 hours a day examining their collection of tickets to identify the profitable ones" Wow that's crazy Crazy Eek that would give me a headache Big Grin

RJOh's avatarRJOh

Quote: Originally posted by Groppo on Feb 23, 2016

Could you, or anyone, please tell me what the gist of the story was?

I can't read the whole article. It truly is too long for me.

I had read about half, and couldn't read anymore.

What I got out of it was that there was this lotto game in Mass. and it turned out to be quite profitable. Then, one day, a few students from MIT pooled their money together for a total of a grand, in this pool. The Winfall game actually became a profitable lottery game to play, because of the distribution, when no body hits the 6 numbers. OK? Please explain the rest.

Thanks

If you can't spend the time to read the story then it would be a waste of time trying to explain it to you.

This game was well covered in earlier news threads and as I understood it, it was a syndicate ran by a couple from Michigan that took over a couple of retail stores and spent over $300K on tickets each roll down that actually caused the state to end the game.

winoneday

Quote: Originally posted by Groppo on Feb 23, 2016

Could you, or anyone, please tell me what the gist of the story was?

I can't read the whole article. It truly is too long for me.

I had read about half, and couldn't read anymore.

What I got out of it was that there was this lotto game in Mass. and it turned out to be quite profitable. Then, one day, a few students from MIT pooled their money together for a total of a grand, in this pool. The Winfall game actually became a profitable lottery game to play, because of the distribution, when no body hits the 6 numbers. OK? Please explain the rest.

Thanks

I wondered what Groppo means, so I looked it up in the dictionary. I was not surprised to see it means "lazy".

realtorjim

Quote: Originally posted by Groppo on Feb 23, 2016

Could you, or anyone, please tell me what the gist of the story was?

I can't read the whole article. It truly is too long for me.

I had read about half, and couldn't read anymore.

What I got out of it was that there was this lotto game in Mass. and it turned out to be quite profitable. Then, one day, a few students from MIT pooled their money together for a total of a grand, in this pool. The Winfall game actually became a profitable lottery game to play, because of the distribution, when no body hits the 6 numbers. OK? Please explain the rest.

Thanks

Groppo,

The story was about how MIT students legally manipulated the Mass. lottery to repeatedly win.  However, about three fourths of the way down the story they provided a link for readers to click on.   If you were one of the first 100 people to click on the link they provided you with their newest BETA MIT formula to beat and win the Powerball lottery!  I clicked and was #100!!! I can't wait to receive this material since they constantly won in the Mass. lottery.  It's a sure bet I'll clean up with their Powerball formula.

Igamble's avatarIgamble

they calculated the odds but not sure their time spent vs profit was profitable for an MIT person. 

I would have labeled  tickets by special filters in sep. automatic boxes "amazon" warehouse  style +all done in excell...maybe robots would take less then an hour to find all 3,4,5 tiks winners. This guys they payed  themselves 2 work basically.

myturn's avatarmyturn

I don't have a mathematics degree, but a $100 a year isn't going to make me or break me. I play the Massachusetts Lottery's Megabucks Doubler game, which is only $100 a year, two draws a week. It is the only game available across the country by subscription, you don't have to reside in Massachusetts.

I haven't won any big prizes yet, but several little ones. It raises additional revenue for communities across Massachusetts, which is the reason for lotteries. We all benefit from the revenue raised, even if we don't participate - so we all win.

OneTrickpony's avatarOneTrickpony

Ya know, lotteries are mainly played by blue-collar, lower and lower-middle class people who spend their hard earned dollars to buy a $2 dream of a better life for themselves and their families.  To have a privileged, college-educated (and not just a community college, but MIT), profit-mongering, soul-less entity swoop in and take what is rightfully 'for the people' is just wrong. 

Is it legal?  Yes.  Is it ethical?  I don't think so.  Do they even care what we think?  Absolutely couldn't give two flips (unless it was to bet on coming up heads or tails).

TheGameGrl's avatarTheGameGrl

Quote: Originally posted by OneTrickpony on Feb 27, 2016

Ya know, lotteries are mainly played by blue-collar, lower and lower-middle class people who spend their hard earned dollars to buy a $2 dream of a better life for themselves and their families.  To have a privileged, college-educated (and not just a community college, but MIT), profit-mongering, soul-less entity swoop in and take what is rightfully 'for the people' is just wrong. 

Is it legal?  Yes.  Is it ethical?  I don't think so.  Do they even care what we think?  Absolutely couldn't give two flips (unless it was to bet on coming up heads or tails).

What ever definition you have of ethical is inaccurate in this opinion expressed.

Fact:Adults played the lottery . Unethical for them to play? Nope!

Fact:Educated in math, unethical to play? Nope again.

They had financial resource . again unethical to play when you have money? Nope! Pretty sure so long as you can buy a ticket and are of gaming age, you are not doing anything unethical. 

Please tell me you aren't basing this that low Iq or only minimum wage persons are the only ones that can play or much less be allowed to win, because that would be discriminatory. And discrimination is well .. unamerican.

SWMcCaig's avatarSWMcCaig

Quote: Originally posted by TheGameGrl on Mar 4, 2016

What ever definition you have of ethical is inaccurate in this opinion expressed.

Fact:Adults played the lottery . Unethical for them to play? Nope!

Fact:Educated in math, unethical to play? Nope again.

They had financial resource . again unethical to play when you have money? Nope! Pretty sure so long as you can buy a ticket and are of gaming age, you are not doing anything unethical. 

Please tell me you aren't basing this that low Iq or only minimum wage persons are the only ones that can play or much less be allowed to win, because that would be discriminatory. And discrimination is well .. unamerican.

I Agree!

DELotteryPlyr's avatarDELotteryPlyr

yea that sounds about right but then it make me think of the phrase - Luv what you do and you are never working! 

sully16's avatarsully16

Quote: Originally posted by Raven62 on Feb 23, 2016

Who said Winning the Lottery wasn't Hard Work?

That's for sure.

LiveInGreenBay's avatarLiveInGreenBay

Am I missing something here?  If its a random drawing, how can they design a game to pay-out $1.20 of every $2.00 played?

End of comments
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