Why the Lotto is a really bad bet

Anyone with a fair mathematical or financial understanding knows that gambling is not a sound investment. The more you play, the more certain you are to lose.

Robert de Niro summed it up well as the character Sam “Ace” Rothstein in the movie Casino: “In the casino the cardinal rule is to keep them playing and keep them coming back. The longer they play, the more they lose. In the end, we get it all”.

This rule is also true for the Lotto, which in many cases provides even worse odds than casino games.

The South African lottery’s total prize pool is calculated at 45% of total sales. This simply means that for every R1 which people spend on Lotto tickets, 45c is given back to the players.

These are bad odds – really bad.

Consider the odds when playing a popular casino game like roullette. The house (casino) has an edge of 2.70%, which means that, in the long run, players get back 97c for every R1 they bet – far better than the 45c for the Lotto.

In fact, there is not a single casino game which provides worse odds than the Lotto.

South African casino games like roulette, blackjack and poker typically give the house an edge of lower than 10% – a small advantage when compared to the Lotto’s fixed ‘edge’ of 55%.

Winning the Lotto jackpot

The Lotto jackpot is often advertised as a way to increase ticket sales. Jackpots of up to R20 million are not uncommon, but when looking at your odds of winning this jackpot, even these relatively high prizes are not even close to justifying the odds.

Your chance of winning the Lotto jackpot is 1 in 13,983,816. This means that you have to buy 13,983,816 tickets to be sure that you will win this prize – that’s at a cost to you of R48,943,356.

Even though your investment will also win you a range of smaller prizes, you should take into account that you may not even win a full R20 million, as the jackpot may be shared by multiple winners.

The sad truth

Considering these poor odds of showing a return on investment through the Lotto, it is hardly surprising that educated people seldom play the Lotto with the aim of making money.

It is somewhat ironic that the Lotto, which is partly aimed at programs to assist the poor section of society, is disproportionately supported by poor people. This means that poor people often sacrifice their money, through the Lotto, to support various charities.

The Lotto continues to be a seen as a quick way to escape poverty, and some lotteries unashamedly punt that viewpoint in their marketing campaigns.

However, this is not only a South African problem, and Romel Mostafa, a professor at the Ivey School of Business, recently told CNN that the poor in the US tend to spend more as a share of their income, “and that is sad. These are the people who are cash-strapped,” he said.

The age-old truth

While Lotteries are a relatively new way for governments to generate additional revenue for the state, the nature of lotteries is nothing new.

Adam Smith summed up the nature of a lottery in his 1776 book called ‘An Inquiry into the Nature and Causes of the Wealth of Nations’.

The world neither ever saw, nor ever will see, a perfectly fair lottery; or one in which the whole gain compensated the whole loss; because the undertaker could make nothing by it.

In the state lotteries the tickets are really not worth the price which is paid by the original subscribers, and yet commonly sell in the market for twenty, thirty, and sometimes forty per cent.

The vain hope of gaining some of the great prizes is the sole cause of this demand. The soberest people scarce look upon it as a folly to pay a small sum for the chance of gaining ten or twenty thousand pounds; though they know that even that small sum is perhaps twenty or thirty per cent more than the chance is worth.

In order to have a better chance for some of the great prizes, some people purchase several tickets, and others, small shares in a still greater number.

There is not, however, a more certain proposition in mathematics, than that the more tickets you adventure upon, the more likely you are to be a loser. Adventure upon all the tickets in the lottery, and you lose for certain; and the greater the number of your tickets the nearer you approach to this certainty.

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Why the Lotto is a really bad bet