You’ve probably heard about the huge Mega Millions jackpot. Right now it’s sitting at about $500 million. If you want the immediate cash payout you can get $359 million. That’s a nice chunk of change.
I don’t play the lottery because I have a degree in Mathematics. I understand how absurd the odds are and if I’m going to waste my money I want to do it on delicious food or video games or something else that gives me some kind of guaranteed return on my investment.
But wait. What if the lottery had a guaranteed return on investment? Let’s look at the numbers:
What If You Bought Every Ticket?
I’d rather not gamble, but what about a sure thing? What if you bought every single combination of lottery tickets, thus guaranteeing you would win the jackpot?
There are only 175,711,536 Mega Millions combinations. That means you could spend $175,711,536 to buy every single ticket, and obviously you can’t lose if you have every ticket.
Not only will you hit the jackpot, but you’ll also win all the smaller prizes, which will get you about $32 million.
Add $32 million to $359 million and you get $391 million. Sure, it cost you $175 million, and you’d have to pay taxes on the winnings of $216 million ($391M – $175M). You’d pay 39.6% in taxes on those winnings (plus state income tax if you have it), meaning you would end up with about $130 million in profit.
That’s right, it’s $130 million in profit. You can’t lose!*
*Well, You MIGHT Lose
There’s no question you’d hit the jackpot and win every other prize if you bought every ticket. The real question is how much the jackpot will be worth.
Remember that if two people hit the jackpot then it is split 50/50 for each winner. If three people have winning tickets, each person gets 1/3rd. The more winners you have, the less the jackpot is worth for each winner.
If only one other person hit the jackpot and you only got half of $359 million, you’d still come out ahead by about $24 million after tax. But if more than one other person hit the big one, you’d be in trouble.
With 3 jackpot winners you lose $19 million. With 4 jackpot winners you lose $49 million. It gets worse from there.
But let’s pretend you’re willing to take that risk. I mean, you’re betting on people NOT winning the lottery, which seems like a good bet. Let’s buy the tickets.
It’d Be Hard to Buy 175 Million Lottery Tickets
Buying every single lottery ticket would be pretty hard. First of all, you’d need exactly $175,711,536 dollars in cash. Good luck with that.
And even if you did have the money, you only have about three days to buy all the tickets (after the drawing on Tuesday and before the drawing on Friday). If you wanted to buy 175,711,536 lottery tickets in 3 days you’d have to buy:
- 58,570,512 tickets per day, or
- 2,440,438 tickets per hour, or
- 40,674 tickets per minute, or
- 688 tickets per second, or
- 1 ticket every 0.00148 seconds
Oh my.
The Real Odds of Winning the Mega Millions
Unfortunately our tiny human brains aren’t very good at understanding really big numbers. We understand what it means to have a 10% chance of winning, or a 1% chance of winning. However, we can’t easily grasp what it means to have a 1 in 175 million chance of winning. Let me put it in terms that are easier to understand.
If you want a 1% chance of hitting the jackpot on the Mega Millions, you would have to buy 500 tickets every single day for about 9.62 years.
Remember, that’s 500 tickets a day for almost a decade and you only have a 1% chance of hitting the jackpot. This is what they mean when they say you have a better chance of being struck by lightning.
Please Don’t Play the Lottery
I understand that a $359 million jackpot sounds exciting. To be perfectly honest, Tag and I each bought one Mega Millions ticket only because she had never played the lottery before and we thought it would be fun to talk about what we’d do with all that money. Basically we spent $2 to have a fun conversation (which is way overpriced considering you can do that for free anytime you want).
Some people think that if they just keep playing they are bound to win sometime. It’s not true. I’m okay with playing a few bucks once in a blue moon, but for the love of Peter Frampton please don’t play the lottery regularly.
Readers: I’ll spare you the $2. What would you do with $359 million dollars?
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
For a while, my wife actually had legitimate and good reason to participate in the office lottery pool. Namely, as a form of insurance.
You see, if a really large percentage of your office is buying into a lottery pool, that means two things:
1) They are basically unhappy enough with their jobs that they are willing to sign on for tiny odds.
2) In the (unlikely) case that the office pool does hit a truly big prize, enough of the people working for your office will leave, which may be a large enough blow to the company to wipe it out.
So, she bought in every week at $1, as insurance. Insurance is trading a small, known loss to protect against a low-probability, but potentially large loss. She did not expect to win anything. She was simply protecting herself from the possibility that her income might be threatened by the sudden demise of her company.
She still overpaid for that policy by an incredibly large amount. I would gladly accept a $1 a year bet that your wife will never win the lottery. An actuary would take a look at those numbers and laugh at your purchase.
It’s definitely a fun conversation with people to talk about what you would do with all of that money. Luckily, I don’t usually waste my money on lottery tickets, but $1 for the largest jackpot ever seems pretty good to me! Oh crap, I still have to get my ticket! Go-Go gadgetcopter!
Heck yeah I’m getting a ticket! Chances of winning are slim to none, but someone has to eventually. Chances of winning if I don’t play are totally none. Can I spare the cash for a ticket and the excitement of watching the drawing? Yup.
The Jackpot is now 640 million.Now imagine this scenario: You are the manager of a Hedge Fund with over a billion dollars to invest. You set aside $175,711,536 to buy every single lottery ticket combination.If you can not buy them electronically and have to buy them in cash, here is what you do. Assuming it takes an average of 5 minutes to fill out a lottery form, it will take 14.6 million MAN HOURS to buy all the tickets.You have 3 days to buy the tickets. 7-11 Stores are open 16 hours a day. If you hire people to spend 16 hours for three days buying lottery tickets, each worker will provide 72 man hours. With 14.6 million man hours, you will need to hire about 204,000 workers to buy tickets under your Hedge Fund’s name.The minimum wage in my state is $7.25, BUT this is a task that has a slim margin of error for mistakes. It would not be advisable to assign this task to minimum wage labor. Instead, you could hire 204,000 college students and pay them $15 per hour (A decent salary for a college intern). For 14.6 million manhours, that would cost: $220 million. Add to that the cost of the tickets: $176 million. The result is: $396 million. Now, suppose the payout is: $640 million. With 30% tax, that results in you taking home: $441 million. The NET PROFIT is: $ 45 million. Considering you investment of $396 million, that is 11% return over a period of 3 days. That is very hard to achieve for a sum of money that large. The profits can be different if you play with the numbers because I made a lot of loose assumptions over and underestimating some components.
It’s not a guarantee that the hedge fund won’t have to split the winnings. There are convenience stores open 24 hours a day and multiple people can work in each store. Each person would be assigned a range of numbers like 15-2-16-x-x-x and they’d buy all the combinations in that range. It would be easy to fill out the forms consecutively and won’t take 5 minutes per combination, more like 5 seconds (since each form has 5 combinations). The clerk would exclusively have to serve the lottery purchasers, but the store will get so much revenue from the lottery sales that they can afford to have one clerk work overtime for 3 days. I could see a hedge fund willing to take on the risk if the jackpot rolled over twice from Friday’s drawing and the payout was in the 1.5B-2B range, because then the risk of losing due to a split jackpot is much lower since they could profit even if split 5 ways, which is very rare. It would require a large number of employees who would need to be hired and trained on the spot. There wouldn’t even be time for a background check, which would be important if you’re trusting them with a lot of cash. As more states offer online lottery ticket sales, in the future a bot could be programmed to buy all the possible combinations. That would suck for the 99%, because it would take away the magic that any person can have a fair chance at buying the winning ticket. I wouldn’t want to see a 500 million jackpot going to someone already in the 1%. There should be a limit on online lottery sales and a delay between each transaction, or positive expectation jackpots shouldn’t be sold online. It’s fun to go to the store and buy a lottery ticket in person.
I wouldn’t bet on lottery. I saw a documentary once about a lottery winner who eventually went poor anyway because of poor business management. He was living in his big house, most of the furniture sold and with no electricity because he can no longer afford it. So much for having won the lottery. I think it would have been different if he got rich because of hard work. If you work hard for your money, you’ll have tons of learning opportunities so you get better and better as you get richer and richer. But if you strike it rich all of a sudden, you wouldn’t know what to do with all that money and mishandle it because of a lack of experience.
I have never bought a lotto ticket, but my husband does every week. We are not poor. He is not an addict. You could compare it to the latte factor and yes we would save $1/week which would save us $52/year and that would amount to huge money in 30 years (LOL). BUT, it provides a lot of entertainment. We spend hours talking about what we would do if we won. How would we stay anonymous? Would we keep our jobs? Would we stay living where we are? What we invest in? How do we make sure out money doesn’t run? Who would we hire to help protect us (attorney, financial planner, etc.)? What we blow the money on that we weren’t investing? We can spend hours talking and planning and researching. Maybe we should invest that $52 a year and it would end up being $100 in 30 years, but I see nothing wrong with playing the lotto.
This is exactly how I feel about the lottery. Worst case scenario is that I lose an amount of money that is meaningless to me, while the best case scenario is that I have $150M in the bank. Worth it every time.