The odds are astounding, really. Someone won the big Megamillions lottery jackpot of over $600 million last week. Millions of tickets were bought — No, make that hundreds of millions. Did you buy one?
Why? Why would you, or any other rational person, buy a lottery ticket? The odds of winning are incomprehensibly small. And that’s really the key, isn’t it? One in a thousand, one in a billion, what difference does it make? In fact, the perpetrators of the Megamillions lottery changed the odds recently. Previously, you had to pick the correct numbers from 1 to 56. Then they changed it to 1 to 75. How did that affect the odds?
- Before, your odds were 1 in 176 million.
- Now, your odds are 1 in 259 million.
Did you notice? Did anybody notice? Probably not. And that’s what they were counting on. What drives the sale of lottery tickets is not the odds, but the payout — or, to be more precise, the drama of the big payout.
Imagine if you owned a major league sports team. What would the reaction be if you doubled the price of admission and traded away all the stars, thereby shrinking the odds of your fans seeing their home team win? Think your fans would love that? Of course not. And fans aren’t even rational. But here you find the lottery operators doing exactly the same thing, reducing the odds of winning, and… their sales go up.
Now, if you think this whole lottery business is just irrational, you’d be wrong. The folks running these lotteries are extremely rational. They are, before our very eyes, figuring out what sells and what makes them the most money.
This may come as a surprise to some, but the lotteries do what they do to make money. They love to say things like the money goes to education or to some worthy cause, but really, their goal is to make more money.
How do they make money? Simple, really. If they rake in $100 million, they will pay out, say $40, million to the winner(s). Their costs are about $10 million, and they’ll give the charity of record (education, whatever) $30 million, keeping the remainder ($20 million) for themselves. So 20 percent of all ticket sales go into their own pockets. The exact numbers are not published quite as widely as the pictures of the winners, but you get the picture.
What’s better than $20 million? $30 million, of course. So, to get more millions, they have to sell more lottery tickets. How do they do that? They get gigantic billboards along more major freeways to hit customers at their point of pain (the traffic jam, the daily traffic jam). Then, while prospective ticket buyers fume in traffic, they entice them with “the dream.” They don’t say it out loud, but they know what you’re thinking: What’ll I do with all those millions? Getting out of this traffic jam will be the very first thing I’ll do! And hey, it’s only a dollar. Come on, what can it hurt?
It works. We buy billions of lottery tickets every year. But, this being America and all, that’s not enough. If you sold $2 billion last year, you want $3 billion this year. After you’ve put up all the billboards and other advertising materials, you run out of ideas. “Come on, guys, what can we do to increase our sales?”
Then some geek speaks up. “Take a look at this: We sell more in a single week for a $600 million jackpot than in 10 weeks for $60 million jackpots. Several times more.” Lottery operators, unlike their customers, are extremely rational. If fewer, but bigger, jackpots sell better, then that’s what they’ll do.
And that’s why they shrank the odds… and sold more tickets. Nobody talks about $60 million jackpots anymore. But, from USA Today to Jay Leno, everyone will be mentioning the lottery when it hits $600 million. Which, of course, increases sales even further.
Spending the Money
Lottery operators make money exploiting a quirk in the human brain. What’s this quirk? Human beings are notoriously bad odds processors and the human brain has a very hard time dealing with the future.
There’s another quirk in our makeup, one much scarier: We are what we are because of who we are. Did you ever see the docudrama “Queen of Versailles”? It’s about David Siegel, a timeshare operator, who made mega millions and started building the most expensive house in America (30 garages and 19 kitchens, and that’s only the start). Although the movie is mainly about his wife, Jackie, what struck me is this guy became a millionaire because of who he is. He lost it all in the Great Recession (debt, of course). But — and this is the point — he’s back to becoming a millionaire… because of who he is (whatever we might think of that).
The same is true for lottery winners, only in reverse. This is not a popular message, but each of us is who we are because of what we are. And lottery winners, despite the dream, usually end up where they were before they got their millions. If you don’t know how to manage a $35, 000 a year income, you’re not going to know how to manage $300 million. There are hundreds of bankrupt ex-millionaire ex-athletes who will attest to that. You can read the lottery winners’ stories, the internet is full of them.
After twenty years, we all end up where we do because of who we are, regardless of fortune or misfortune along the way. Scary thought, that.
What About You?
Want to be a winner? Who’s the real winner in every lottery? The folks selling those tickets, not the buyers. Why not be a buyer and seller of your own lottery tickets?
How do you do that? Only buy lottery tickets that you sell yourself. This will give you a guaranteed payout. Sure, it may not be $600 million, but it will be more than you have today. To get that payout, you need to “buy your ticket” on a regular basis.
Some people call that saving, some call it investing, but why quibble over details?
The good news is it really works. My neighbor became a millionaire from an ordinary job, and without buying lottery tickets from other people. He did it by living frugally and investing conservatively.
Where are you? Where will you be twenty years from now? How will you get there?