Today’s New York Times has a story of how a cabal from Europe managed to win the Texas lottery. -=Link=-
In 2023 Colossus Bets from Europe, aided an American firm bought 26 million one-dollar tickets covering most or perhaps all combinations. They won $95 million, The Texas lottery people knew what they were doing and even helped them by providing a number of lottery terminals that spat out the tickets for the three days before the next drawing.
(II would like to imagine all of this was done by a team of grifters led by Paul Newman and Robert Redford all in costumes from 1936.)
Why was this cheating? The lottery people want to sell tickets. Statistically they make more money when they sell more tickets. In this case, they sold all the tickets.
The trick is that the cabal struck after a long dry spell. The jackpot had not been won in a while and was up to about $70 million. So a $26 million bet was sure make a profit. Had they started with an empty jackpot $26 million would have only won about $13 million (I guess).
So their huge bet was a sure winner. The only potential problem would have been if the winning numbers had also been bought by conventional bettors who lucked out and split the jackpot.
But still, so what? The draw was honest. All the tickets were paid for. Texas made a bucket of money. Conventional bettors were not cheated.
Some lotteries have had rules against bulk ticket purchases because of past incidents of people buying every possible combination, but if the Texas organizers literally helped them do it it sounds like that was not the case here.
How does the jackpot work and get funded?
I assume the prize pool is fixed ahead of each draw, and if there is no winner the prize next round includes the previous prize.
So the lottery commission has a predetermined fixed outgoing commitment each draw, with only the weekly pool varying about. So it is clearly in their interests to sell as many tickets as possible. There must be a minimum number sold to cover the prize pool and operating costs, after which every ticket is profit.
An international cartel coming in to purchase a sure thing is a huge number of otherwise unsold tickets. It doesn’t matter to the commission who wins or when it is won. The prize money is effectively already gone. But $26 million in ticket sales is $26 million they would otherwise never have seen.
The only questions that might be raised is money leaving the state or country. Change out of $100 million exiting the local economy isn’t great. The $26 million in sales plus any taxes due on winnings (which might not be payable by international winners) offsets this a bit. But it still isn’t good.
It perhaps makes for somewhat bad press. People might feel slightly cheated, even if irrationally so. But a big win engenders excitement, so people might buy ever more tickets. Then again one assumes a lot more tickets get sold when the pool is large and drops off when the pool is small. But there is probably a maximum number of sales no matter what the prize, and a base number of sales. So there is probably a point where the $26 million in unexpected sales is still a really good outcome.
I disagree that it doesn’t harm the lottery. Rollover prizes generate a lot of interest and excitement in the lottery, and once someone has bought a ticket once, they may end up playing the lottery for the rest of their life.
Allowing this kind of bulk ticket buying can harm the excitement of a big prize, because, for one thing, you’ll know your maximum winning is 50% of whatever the prize fund is.
And that there is no possibility of yet another rollover. And the interest of potentially hearing about who won the prize is likely to be: yeah those rich guys who bought all the tickets.
Whether we call it cheating or not, I don’t think it’s in the interest of the lottery to allow it. It’s a quick buck now to potentially collapse all interest over time.
What I find most incredible about this is that the articles that I have seen state that the syndicate bought “most” of the 25 million combinations. It seems like an enormous bet to place without any guarantee that you are going to get your money back. If they didn’t buy every combination there was a non-zero chance that they would lose most of their $25 million. Sure, if you can get every combination that’s one thing but how could you take the risk?
Are there some combinations that can’t win? I don’t even know how the Indiana lottery works, let alone the Texas, but if there are any combinations disallowed as winners for whatever reason, like all zeros, or the previous week’s numbers, that information is surely known, and the syndicate wouldn’t buy those.
As far as whether it is cheating, is there some rule that there must remain some element of chance for the lottery to be legal? In other words, by buying every combination, and eliminating chance, maybe that makes the lottery illegal, so the syndicate left one number unbought. Yes, that is reaching, but it’s the only thing I can come up with that might make this “cheating.”
The “rigging” is that Texas law required in-person purchases, but the Texas Lottery Commission allowed one or more “couriers” (companies that help remote players buy tickets). And also that the lottery commission expedited delivering new terminals.
It’s a long article and it gets confusing to follow the whole scheme but these are the relevant parts about why it wasn’t legit.
But they could only do so because lottery officials looked the other way when it came to potential violations of lottery rules and expedited the delivery of dozens of new lottery terminals to print out tens of millions of paper tickets.
Crucially, state regulators, looking to increase sales, had become permissive of companies that helped remote players buy tickets, known as “lottery couriers.”
Still, executives at Lottery.com — an internet start-up founded to help players get access to lottery tickets around the world — were leery when European bettors came with their proposal to buy nearly all the tickets. They asked the state for permission before agreeing to take part.
“We were very surprised when the answer was yes,” Greg Potts, a Lottery.com executive, would later say at a State Senate hearing.
For years, the commission had welcomed couriers as an efficient way to boost revenue, even though state law had been crafted to require in-person purchases. A state audit observed that Mr. Grief “seemed quite comfortable operating in the gray areas.”
It would have been 100% legal if some group of people had managed to buy up all the combinations in-person at actual stores that sold lottery tickets without breaking any rules. But that never happens, pesumably because not enough tickets can be purchased that way. Even “Jerry and Marge” in Massachusetts broke rules - ticket purchasers were operating the machines themselves outside of the regular store hours which was not allowed.
I totally agree. If the lottery officials allow this, and worse, if they facilitate this, then they have effectively set up a system where no individual buyer can ever win a large jackpot again. Because a large conglomerate will buy up all the possible combinations if the jackpot ever gets too big.
So a potential winner has to split it with them, and crucially, they know this in advance.
Lotteries sell tickets based on dreams. They are killing the dream.
Thirded. The lottery commission just sold their future for $26M one time.
Another way to decide if this is cheating or rigging, or whatever other word you want to use, is to imagine the reaction if the lottery commission had announced in advance their intent to do this. Something like
Followed a couple days later by this:
A moment’s thought about the public reaction to this tells you all you need to know.
And of course, the instant the lottery commission is working with a single wealthy buyer, the corruption opportunities and more importantly corruption likelihood skyrocket. That buyer will quickly “capture” the commission just like major players in any industry “capture” their regulators.
IIRC taxes are taken at time of payment. In other words, the winner does not get all the money and then later write a check back to the state. The state just takes it right off the top of the winnings and hands you what’s left over. Maybe you could file a tax return and get a refund later but I am dubious that would work.
Also, remember that the winnings decrease if the winner takes a lump sum payment instead of the annuity. That also comes right off the top.
My loose rule of thumb has been, for lump-sum payments, take 35% off whatever winnings are advertised and that is roughly what you will walk home with. Still a lot but certainly something these investors have to calculate to see if it is worth it.
Also, I would imagine running ticket machines for three days straight comes with its own costs. The machines, repair, paper for the tickets, people to run them, people to sort the tickets and find the ones that won and so on (presumably they have some system to organize the tickets so the winning one can be easily found).
In Illinois, at least, you can buy tickets electronically but there would still need to be people managing it all and that is a cost.
I’m not expressing an opinion on whether this should be allowed or not, but it should be noted that the cash payout option from this was something like $57 million before taxes. Once taxes are taken out, you’re probably looking at only $30-$35 million net. So yes, they more than made their money back, but if even one other person also picked the winning number, the split winning would have cost them a significant amount, not to mention the risk of them NOT picking the winning number.
I can see the reasoning that by cooperating with the cartel, the lottery was selecting a winner. This could lead to further collusion and perhaps bribery.