Powerball? Think again.

Here’s a great summary of the expected return on a Powerball ticket *even when a big jackpot is in play*. I have not checked the math but assume he’s done his homework to note that it’s not a good idea to buy tickets even when, as is the case at this moment, a huge jackpot is in play (unless the lottery has proportionate entertainment value for you).

Note that the before tax returns might actually be positive in extraordinary cases (as I think exist right now), but after Uncle Sam nabs his chunk of huge winnings you’ll be down on this “investment”.

12 thoughts on “Powerball? Think again.

  1. Gambling winnings are income, no matter where you get them. The cash payout is around $140 million pre-tax. The odds are something like 146 million to 1. It’s a decent bet.

  2. Lotteries are a tax on the mathematically challenged.

    Decent bet? How do you measure ‘decency’ of a bet? By house advantage? At a casino Roulette is a 5.25 percent house edge. The PassLine bet at craps is 1.414 percent house edge.

    Decent bet? Measured by disclosure? Well, some slot machines advertise a certain payoff but gloss over or omit the fact that its not a lump payoff but is only paid as a structured payoff over time.

    Decent bet? Measured by advertising incentives? Lottery kiosks are usually found in areas where the poor give into a hope inspiring inducement. Marketing of lotteries constitutes the state inducing poor people to engage in bad and illogical behavior.

  3. Sorry Jeremy – link is up and is this:

    FoolsGold by “decent bet” I guess I’m thinking a bet where the odds are in your favor. I’ve been assuming, something like Jack Bog’s comment above, that as the payout approaches the odds you are looking at an increasingly good bet. This is true but taxes are so high that the payout would need to approach 40% more than the odds and this appears not to happen even when the pot gets huge. Also of course more people buy tickets as the pot increases, decreasing your chances.

    A good example of a “good bet” would be blackjack where you could vary the bet size as much as you liked. You could then play for a very long time with modest level of card counting and when the deck was “super rich” in tens you’d bet huge. Otherwise you’d just bet a penny per hand, waiting for the rich deck. In a case like this even a modestly good counter could make a fortune because with the rich deck the odds are in their favor. Of course in real life you 1) have minimum bet, usually of at least $5 per hand in Las Vegas, and 2) won’t be allowed to use this strategy at a casino since card counting is “cheating” (!)

  4. Well, there are obviously various definitions of ‘decent bet’. I would not consider an odds calculation that includes the trivial prizes as a payout. It is similar to considering those “dribs and drabs” of a slot machine as a “payout”. Its not. Every casino manager knows that the ‘dribs and drabs’ go right back into the slot machine. Even on CashCab you can decide what to do with your payout, but not at a slot machine that has just dispensed two quarters. Its the same with a lottery payout of three dollars: its not a “win”. Don’t try to tell people that it is.

    Odds in the player’s favor? Well, its rarer than hen’s teeth. Counting cards? Most casinos love players who THINK they can count cards. Most real card counters work in teams and have the counter merely give a signal while keeping his betting amount similar in all respects. Certain video poker payout tables are slightly over 100 percent but if you really want the bet to be in the player’s advantage you have to go to the blackjack tables. Count a six deck shoe? Not I. I can’t count down one deck. And certainly can’t count down even one deck in the requisite amount of time to be good at it. Card counting is legal as long as you use no artificial device, but counters can be asked to leave the casino. Many casinos adverise ‘single deck blackjack’ so as to lure people who think they are good at counting cards.

    Most players know the games are going to be in the casino’s favor: the trick is to make sure its only SLIGHTLY in their favor. Or the odds bet at craps: totally even. No house edge at all. No player edge either ofcourse. Obviously no casino could pay for all those free drinks and free shrimp and free rooms if most players confined themselves to Line and Odds bets at 100x craps (0.09percent house edge).

    Decent can be viewed from chance of win or atleast being congruent with the player’s belief in the chance of its being a win. You can add a ‘wrinkle’ in to that with ‘a fair and reasonably informed player’s belief’. The basic premise of a casino is easy: if you lose they take all your bet; if you win, they take some of your winnings. Over the long run: they wind up with all your chips.

  5. FoolsGold, “tax on the mathematically challenged.”

    I prefer to call the Lottery a “Dream Tax”. You pay your dollar, you get to dream about your new house on the Golf course, your Sailboat or Yacht, your high end car, your trophy wife or pool boy, or whatever your own little dream may be.

    Then after the drawing … you pays your dollar again so as to keep on dreaming.

    As an entertainment value, its hard to find a cheaper alternative than the Lottery.

    Who knows, I myself may be the next Lottery winner to blow it all in a year and end up on public aid … I’ll be sure to blog about it though!

  6. PoliTech I like the idea that lottery is a “dream tax” and to the extent the profits go to good stuff less harm is probably done than if the profits flow into rich pockets. Also agree that at $1 this is good entertainment value though I’m not a big lottery guy myself.

    FG I was just reading something about that craps even money bet – I didnt’ realize there was such a thing. It’s perhaps a strategy I may use in Las Vegas in December to just hang out and get free drinks. Thanks to the entertainment value of people watching and drinks if my total take is approx *zero* I’d consider it worth it.

    Hey, and speaking of wins I just hit the raffle pot for the Children’s Theater of Oregon last night for a cool $47 (and $47 went to that great cause).

  7. The “odds bet”, more properly known as the “free odds bet” is indeed totally without any edge to either the casino or the player. You have to have a line bet (which does have a house edge of 1.414 percent) in order to make your odds bet however. At 100x such as at Casino Royale or the Horseshoe a five dollar line at 1.414 edge and a 500 dollar bet without any edge works out to 0.09 percent edge. Even with low odds such as 20x or the oft-encountered 3x4x5x, its still a good bet to make.

    Alot of players make “grinder” bets that simply eke out comps: Some retirees stand there all day making a PassLine bet and simultaneously making an equal DontPass bet. Often there is a chorus of groans when 12 shows. These are the people who are really playing for their free rooms and free meals and the liklihood of ekeing out some money but never really winning big.

    Lotteries as ‘dream tax’? Yes, probably. Its harmless entertainment. Its not “wrong” to dangle a dream in front of someone and its surely not wrong to run a raffle for a Children’s Theater. Its fun. Its a charity donation.
    The main thing is that you know you are donating your money to a charity. Alot of the people buying lottery tickets don’t know what is happening with their money. Perhaps for a lousy dollar they don’t really care. If lotteries were privately run we would all demand honest advertising. If the state is running the lottery, we don’t. Strange. Yet, it is only a dollar and it is fun to dream. As Bloody Mary said in South Pacific: If you don’t have a dream, how are you ever going to have a dream come true?

  8. FG,

    True enough about lottery and it’s mysterious role in state funding, but how much do most folks really know about the distribution of any tax money, let alone lottery funds?

    Three Card Monty on a grand scale!

  9. Well, the distribution of tax funds is a separate matter. After all, once legislators know that lottery money goes to education they can lower the statutory funding for education. Only at a New England Town Meeting where the budget gets studied line by line do voters really have the slightest inkling.

    The state takes half for education and then another bite for lottery administration expenses … right there you have a “game” that has a higher house edge than ANY casino ever takes in any game anywhere. Even KENO which is similar to a lottery drawing doesn’t take a fifty percent house edge. (Though KENO does take a high enough edge for people to joke about if an earthquake strikes in Vegas go to the Keno Lounge…nothing ever hits there).

  10. FG thanks for the craps lesson! I tend to be intimidated by table games because it’s easy to look “uncool” if you don’t know the rules. Ironically though the “cool” people are the ones who tend to lose enough that the Casinos can stay flush with cash and free drinks.

  11. Most casinos offer a “free class” and actually pay you anywhere from five to twenty dollars for having attended it by giving you some non-negotiable free chips that alert the dealers to the fact that you have just come from the class and might need things slowed down a bit and explained to you.

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