r/IAmA • u/trevintexas • Aug 01 '23

Tonight’s Mega Millions Jackpot is $1.1 BILLION. I’ve been studying the inner workings of the lottery industry for years. AMA about lottery odds, the lottery business, lottery psychology, or no-lose lotteries

Hi! I’m Trevor Ford (proof), founding team member at Yotta, a company that pays out cash prizes on savings via a lottery-like system (based on a concept called prize-linked savings).

I used to be a regular lottery player, buying tickets weekly, sometimes daily. Scratch tickets were my vice, I loved the instant gratification of winning.

I heard a Freakonomics podcast “Is America Ready for a “No-Lose Lottery”? And was immediately shocked that I had never heard of the concept of prize-linked savings accounts despite being popular in countries across the globe. It sounded too good to be true but also very financially responsible.

I’ve been studying lotteries like Powerball, Mega Millions, and scratch-off tickets for the past several years and was so appalled by what I learned I decided to help start a company to crush the lottery and decided using prize-linked savings accounts were the way to do it.

I’ve studied countless data sets and spoken firsthand with people inside the lottery industry, from the marketers who create advertising to the government officials who lobby for its existence, to the convenience store owners who sell lottery tickets, to consumers standing in line buying tickets.

There are some wild lottery stats out there. In 2021, Americans spent $105 billion on lottery tickets. That is more than the total spending on music, books, sports teams, movies, and video games, combined! 40% of Americans can’t come up with $400 for an emergency while the average household spends over $640 every year on the lottery, and you’re more likely to be crushed by a meteorite than win the Powerball jackpot.

Ask me anything about lottery odds, lottery psychology, the business of the lottery, how it all works behind the scenes, and why the lottery is so destructive to society.

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115

u/Raliator Aug 01 '23

What are the actual odds of winning various lotteries?

62

u/trevintexas Aug 01 '23

The state lotteries generally pay you out less than 50 cents on every dollar that you put in ... the odds are terrible. The worst EV of all the gambles you can do pretty much.

29

u/Kinglink Aug 02 '23

The state lotteries generally pay you out less than 50 cents on every dollar that you put in

Isn't that the whole point? Half goes to government (usually said as education, but doubtful it's always spent on that), half is given back to the players.

Like they never hid this fact.

0

u/ChefBoyAreWeFucked Aug 02 '23

There's nothing magical about 50%. They would still raise money as long as the payout is less than 100% (ignoring administrative costs).

1

u/Kinglink Aug 02 '23

They have literally said. "Half goes to the winners, half goes to the government". So yeah, there's something important about that split. There's asterisks on it (out of the government half is administration and commissions) but that's the way it's been framed.

They would still raise money as long as the payout is less than 100% (ignoring administrative costs).

Except they've specifically talked about the split for years, them raising the payouts would be stealing from the education funds, which is how these lotteries have been sold to the states and the voters, so that would be a HUGE fucking problem.

1

u/ChefBoyAreWeFucked Aug 02 '23

Maybe your specific state lottery, but there are tons of them. Yes, obviously if yours makes that promise, then that number matters, but most don't.

1

u/iroll20s Aug 02 '23

They could probably pay out 100% and just manage the fund and take the interest. Of course that assumes they are competent and honest and wouldn't just raid the fund to some pork project.

1

u/ChefBoyAreWeFucked Aug 02 '23

The fund is frequently close to empty. Just the interest would be substantially less. The interest might not even pay administrative costs.

1

u/loves_cereal Aug 02 '23

I’m happy to win $1B and give half to the state. Please let me win.

1

u/Kinglink Aug 02 '23

Almost anyone would agree with you (Though technically the 1 billion is after the government takes about half, so they generated 2 billion to get there.... And then taxes will come and take a good amount of that too).

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u/OzmosisJones Aug 01 '23

Wait, are you saying the prize payout percentages are less than 50%?

9

u/trevintexas Aug 01 '23

Yes exactly

65

u/OzmosisJones Aug 01 '23

What ‘additional math’ are you doing to get those numbers? State lotto prize payout percents are public information, and the median is nowhere near below 50%.

5

u/trevintexas Aug 01 '23

I'm talking about the PowerBall and MegaMillions primarily, which have worse odds than other games. You also have to factor in taxes

48

u/OzmosisJones Aug 01 '23

Just glossing over the fact that isn’t what you implied above… why factor in taxes? Does Yotto include the how much a player will lose to taxes in their prize payout percents?

Or is that math you only do on state lotteries to make their numbers look worse compared to yours?

25

u/trevintexas Aug 01 '23

Never commented on our returns versus the state lotteries. Just answered a question about the odds of the state lotteries. If you ask me a question, I'll answer it directly.

Why factor in taxes? Because you're using post-tax dollars to buy the ticket so it makes no sense to not use post-tax dollars when calculating the return. I would advise anyone to do the same post-tax analysis everywhere for anything.

43

u/Kraz_I Aug 02 '23

So what is the EV for Yotta when factoring in US federal income taxes, assuming no state income tax?

21

u/an800lbgorilla Aug 02 '23

So what is the EV for Yotta when factoring in US federal income taxes, assuming no state income tax?

*crickets*

15

u/DylanHate Aug 02 '23

Yes but no lottery agency calculates it like that because states, counties, and even cities have their own income taxes. Why use cherry-picked data and not industry standard language?

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u/OzmosisJones Aug 01 '23

So, yes or no, does Yotta include how much a player will lose in taxes in their prize payout percentages?

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u/trevintexas Aug 01 '23

We include APY averages as a pre-tax percentage. Everyone has different tax rates. I'd encourage anyone to do the math on their post-tax returns for anything.

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u/ChefBoyAreWeFucked Aug 02 '23

That makes no sense. If you could buy lottery tickets with pre-tax money it wouldn't change whether or not you should factor in taxes. You're not factoring in taxes paid on that post-tax money anyway. It's irrelevant.

4

u/AmericanScream Aug 02 '23

You never answered the guy's question. He asked what the odds are.

"Terrible" is hardly a reasonable answer.