The UK Lottery: charity, investment, or scam?

20 April 2009

Someone's got to win... right?

The UK National Lottery operator Camelot have just renewed their license for another 10 years. With over two thirds of the UK (or ~70% of the UK adult population) now played the National Lottery regularly spending an average of £3 a week, that's a pretty nice contract for a business with a licence to print money.

Surveys have concluded that during an economic recession, sales of lottery tickets go up. But what they didn't anticipate, is that what goes up, must come down. Camelot released figures showing that lottery spending was up by £180 million in the six months following to the new year, only to decline in recently months. Charities who count on funds from the lottery are feeling squeezed. Perhaps this may have something to do with Camelot's 4 of 5 current shareholders looking to sell their bids to potential new owners, for whatever reason.

Tough economic times can be a boon for modern day fairy tale entertainment. See film Slumdog Millionaire. So what effect does an economic downturn have on people's tendencies to participate in games of chance like lottery games?

Theories

Every type of theory has been used to explain the 'roller coaster effect', ranging from natural disaster preventing people buying tickets to the recession making people hold onto cash for things like canned food and emergency flash lights. Of course, we all know the real reason is because the moon rising in the seventh house to Jupiter, and aligns with Mars, et cetera.

Here is another theory: a recent study concluded that the poorer people think they are, the more likely they are to purchase lottery tickets on a regular basis. This sets off a viscious downward spiral by exploiting poor people's desire to escape from poverty while also preventing them from improving their finances by saving. Perhaps this discretionary spending is a lagging indicator of the economic cycle.

But... of course, somebody has to win, right? Theoretically, of course. When the Euromillions rolled over for a cool £52m over the weekend, you might have even thought to yourself, "someone's got to win, right? It could have been me". Are thoughts like that rational or irrational? Here's a few thoughts on the psychology and economics of playing the lottery:

1. Making sense of things that don't: According to Nassim Nicholas Taleb, author of Fooled by Randomness: The Hidden Role of Chance in Life and the Markets, human beings have some sort of inner need to make sense of things that don't . Taleb calls these events that blindside us "Black Swans". In history, Black Swans are stock crashes, terrorist attacks, or unforseen technological innovations. When one of these events occurs, one of the first things people do is try to make sense of it. This can be a protective, or an opportunistic act. Mistaking Black Swans as controllable events has made some eBay sellers of lottery 'systems' very rich people. This continues even to this very day.

2. Hacking the game: Though the odds of winning the UK lottery are 14,000,000 to 1, people tend to examine the stories of the winners, hoping to "learn" how it was that they won. Was it a one-off thing, or had they been buying tickets for years? Did they push small winnings into "investing" in more lottery tickets, or did they only buy chances on big draws? Sometimes no winning ticket is sold, and so the money is shoveled into an ever-expanding jackpot which will eventually match numbers with one or more winning tickets, like the Euromillions. The problem with the "somebody has to win" philosophy is that it attempts to impose order on an amazingly random process (and also makes money for the increasing number of ebay hawkers on 'lottery systems'. And Nigerian scammers.)

3. Looking at the truth: With the lottery, unfortunately, the only real stories to be told are by the numbers, and not just the staggering odds. For example, simple arithmetic on data gathered from the UK Lottery web site and press releases indicates that 28% of lottery revenues go to charitable causes. And yet, the actual percentage for 2007-2008 was 27.2% , and for the six months leading up to this February, the percentage was 26.9%. Is this a big deal? Well, it represents a cool £66.3 million, more than the winning jackpot size of the recently rolled over Euromillions this weekend. The question is then whether over time the percentage really is 28% or not.

4. Strategizing through backward rationalisations: Take the example of a child who dies in a freak accident. Parents everywhere try to somehow "learn" from it, because they feel like if they can somehow logically trace the events leading up to it, they can keep the same from happening to their child. Likewise, if some ordinary person wins big in the lottery, people want to know that person's strategy, when in fact there can be so little strategy when playing the lottery that any effect would be negligible. Bottom line: we almost desperately want to know "what happened" any time a random or near-random event confounds our expectations.

5. But it's for charity: Well, if you want to look at it as 28 pence per pound of lottery revenue going to charitable organizations, then you are committing a charitable act (or perhaps 28% of a charitable act) by purchasing a £1 ticket. Another round of arithmetic on press releases and website figures shows that Camelot advertises £6.4 million to an average Match 6 game, while the averages calculated after the fact show an average of £5.0 million on average per jackpot. While not an out and out lie, this does tend to inflate perceived number of winners in any given draw. Charitable organizations are feeling squeezed lately, and every fraction of a percentage point shaved off their share of lottery money is felt acutely. Also, there is some question about the number of "winners" versus the number of "winning tickets" sold. For example, a husband-wife duo who hits a lottery jackpot will be described as "two winners," even though only one ticket was bought between the two of them.

So does this mean that syndicates are a scam, and is the UK Lottery itself a scam? No and no. While there is the question of percentages given to charitable organizations and average jackpot size, people do buy winning tickets (whether alone or in a syndicate), and they do occasionally win a lot of money. But it would be an enormous stretch to think of the lottery as an "investment." With 52 pence for every pound spent on lottery tickets going toward the Match 6 numbers, there are a whole lot of losers for every one winner. No serious investor would touch a lottery draw except as entertainment, and that is how everyone should look at it.

So is the average person completely helpless to better their odds of winning in the UK Lottery? It depends on how you define "better."

Take Lottery syndicates.
They will often guarantee that one of the six numbers will match with the winning number. They do this by pooling lottery players in groups playing numbers where five of them remain constant while the sixth ranges from 6 to 49. With 44 combinations, that means that the sixth number will match at some point. What that does is increase your odds from 14 million to 1 to 1.9 million to 1 of matching the six numbers. Of course, there are smaller prizes for matching three, four, or five numbers as well, and the syndicates increase those odds

Is the lottery an "investment"? If so, it's got pretty poor returns with massive entertainment value, funded largely by people whose money situations are bad to begin with, and there is just as much of a chance of an already well-off person matching six numbers as there is for someone who is poor. The ads all say that the lottery is for entertainment purposes, and yet the ads do everything they can to entice people into playing, so we need to all understand just how overwhelming the odds are against winning the Match 6 draw, or Euromillions.
Put simply, the probability of being dealt a royal flush in any five-card hand is roughly 1 in 650,000. Your probability of being struck by lightning is 1 in 500,000. Your probability of hitting it big on a three-reel slot  machine is roughly 1 in 262,000. Your probability of winning a standard 6/49 lottery ticket on all six numbers is 1 in 14,000,000, while your probability of matching five numbers is 1 in 1,900,000. But cheer up! Your probability of dying from a coconut falling on your head is only 1 in 250,000,000, so there's still a chance.

What are your thoughts on playing the lottery? Do you play/not play, and why?

27 comments

  • badmans
    I play, £2 a week ,wed + sat, same numbers, around £864 per year? (been a long day). And i buy 1 or 2 euromillions if its a roll over. Been doing this since August, not won a thing.
  • Rob
    A tax on the dumb,greedy and needy - never played, never will ...
  • chocky2002
    how much of ticket sales go towards paying Camelot's management?
  • Ian
    I play it very occasionally, and always use lucky dip to avoid being drawn into playing it regularly. Did you know you've only got a 1 in 57 chance of winning £10! Superb!
  • Stuart H.
    As far as I'm concerned Richard Branson should have got the lottery when it was first introduced as his was going to be completely non-profit.
  • Rash
    Exploitation of poor people - one of the reasons why gambling and interest are forbidden in Islam.
  • Steve
    My old man does about £10 a week and has done since it started its crazy I done it once for £1 about 15 years ago total waste of money he would be better off giving me the £10 then once every few years i will let him win a few grand
  • Andy
    I play every week, and have one line memorized so have to play every draw now,doh !! One thing that annoys me is the fact, that if no one wins on wedensday it rollsover to saturday. But, why should people who only play on a Saturday get a chance to win the money !! if no one wins on a Wedensday it should rollover to the next mid week draw, providing an incentive for people who don't normally play during the week. Be lucky, Andy !!!
  • Alan
    Only idiots play the lottery. You have more chance of getting pregnant after unprotected sex and taking the morning after pill than winning a tenner. You are more likely to be struck by lightening than win the jackpot. Add up how much you ever spent on the lottery, and take away the total amount you've won and you'll be left with a positive figure. The only way to make the lottery work for you is to have £14 million in the bank. Wait for the biggest roll over ever (£60 million jackpot) then buy every single possible combination. That way you're guaranteed at least a share of the jackpot. But hey, most people playing the lottery don't have that kind of money stashed away. That Branson bloke should have had a shot at the lottery IMO. Big shame this Camelot s**m have the monopoly on this. Plenty of knockbacks heading Mr Browns way me thinks.
  • Jack
    Id much rather put the money on a bet for a footie match, more likely to win..
  • Andy T.
    I work at a lottery kiosk and it is in no way a scam. Plus my sister helps out an old lady and she won the lottery so I do know winners. the odds are 1 in 52 of winning anything on the lottery so its all down to chance. 1st time I played I won £47, and I know that that's the max I will win so I dont play anymore. It isn't exploitation of poor people. They choose to play and it isn't in our business to know how much money they have. If they ruin their lives by it then that is their own fault in my opinion.
  • James R.
    The lottery does so much good for the country that would not have happened without Camelot and at the end of the day; if you don't agree with it OR don't like it then don't play - then you have no qualification to comment.
  • A s.
    As others have said - it's nothing more than the exploitation of the poor.
  • Rubisco
    @ James RW "if you don’t agree with it OR don’t like it then don’t play - then you have no qualification to comment" I don't go around murdering people with an axe, does that mean I'm not allowed to express an opinion on axe-murderers? What childhood trauma led you to such retarded logic?
  • John
    Alan, it's wrong saying only idiots play, 4 years ago my auntie won 2 million (She had 2 shares in a 6 million/6ticket syndicate), and last year my best mate won 1.4 million. They are both hardly idiots, and whilst most people won't have such a big win, the hope that they might, or more importantly that they can win a big one is enough of a draw. Both my auntie and my mate never really believed they would win big but it just goes to show, it could be you, (well not you cos you don't play! And buying 14 million tickets does not guarantee a profit!
  • Dave
    Hi, I play every now and again if I remember to buy the ticket on time, but only 1 pound a time, thats my limit, but I hope to win one day. What I cant understand is, there are people above who say its for poor people, waste of time, more chances to die than win, someone said he/she never played and never will lol, so what are these people doing searching such websites??? Anyone who searches on such a website plays the lottery, rich, poor, comfortable, everyone plays, and everyone has the same chance to win!
  • Leroy J.
    The Lottery is a business but i have not got the expertise to work it out but i have got the theory????????????????????????????
  • Flo
    Lottery is a dream game for lunatics; Rob described it in the best way possible "A tax on the dumb,greedy and needy" so right! The lottery jackpot consists of my brain, body and talents. Study is the biggest jackpot nobody can take away from you, lottery jackpot is a tossers dumb dream...
  • Flo
    Interesting how it happens the odds of having rollover on Wednesday are higher than the rollovers on Saturdays! Whose game is this, again?!
  • Flo
    It depends on how you define “better.” - Could mean: win back a part of the money spent on lottery ticket/s = out of pocket money; win an amount of money equal to the amount spent on the lottery ticket/s= no loss if you don't go and spend more on new lottery tickets; win an amount of money slightly over the amount spent on the lottery ticket/s = in this rare situation you have have actually WON (!) - it is the money consisting of the difference between the monies spent on the ticket and the actual amount of prize won (i.e. if ticket costs £5 and you have won £12 you actual winning is 12-5= £7)! From here, it depends on what you intend to do with the winning (or the £7), if you keep it and spend it on food, etc then this is a contribution towards your living costs BUT if you go to play your winning (the £7) on more lottery winnings (where the chances of winning are again 1 to 14,000,000) then as soon as you realize that you did not win anything (interestingly, this is the usual scenario for many players!), then you have thrown to the bin all of your money and the winning on the lottery (£7) - therefore you, in real terms DID NOT WIN anything on the LOTTERY, as your money spent on IMAGINED winning which is 1 in 14,000,000 are wasted in a try to get the chance of winning the jackpot! REALITY: The reality is that the chances of getting the jackpot on 6/49 is 1 to 14,000,000,000 and on Euromillions the chances to get the jackpot is 1 to 1,900,000! This is the harsh REALITY! Put your money in a piggy bank every week instead of playing the lottery - knowing that "one day you actually will win your own piggy bank lottery" and every few years break the bank - get happy and go on a "lottery winnings" spending spree, go on a posh holiday, for some it would pay a deposit of a NEW PROPERTY, which would be reality and not imagined jackpot winning, and as we know, most of us will die without winning the jackpot - for most of us the purpose of playing the lottery would be limited only to contributing to the charities funded by the lottery funds, and to the funds going for the next winner (1 in 14,000,000 each time we play a line on the lottery, each line gives you a chance of 1 in 14,000,000 of winning - that is in the very odds! Even if we have the chance to live 14,000,000 years, each line lottery line would still give us 1 to 14,000,000,000 of winning chances! Do not waste your money!
  • Flo
    MY FAVORITE: "Take Lottery syndicates. They will often guarantee that one of the six numbers will match with the winning number. They do this by pooling lottery players in groups playing numbers where five of them remain constant while the sixth ranges from 6 to 49. With 44 combinations, that means that the sixth number will match at some point. What that does is increase your odds from 14 million to 1 to 1.9 million to 1 of matching the six numbers. Of course, there are smaller prizes for matching three, four, or five numbers as well, and the syndicates increase those odds."
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  • mike
    I think it is a hope that you might just be lucky for once and have some cash to do things you have never had the chance and perhaps secure a future for you and your loved ones. The money i spend on the lottery would take many years of saving to do anything decent and by then I may well have shuffled my mortal clogs anyway so why not take chance.
  • Kevin
    Since the introduction of 59 numbers in the National Lottery Draw on the 10th October 2015 it is likely that Triple Rollovers and more will be common place. What we need to know is why Camelot have introduced a FREE draw for two numbers as I note that the total included in the Prize summary to 04/11/15 is £14,589,630, is this effectively reducing the prize fund shared or does it just increase your odds against winning of average 2,000,000 FREE draws each week. What is the driver behind this so called free draw when you match 2 numbers, there must be some benefit otherwise it would not happen. Are these free draws values off set on the balance sheet or should they be included as revenue for tax purposes.

What do you think?

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