Play the Lottery? Don’t Bet On It

Time magazine has some financial advice for you. The only problem is, if you follow their advice, you are nearly 100% certain to lose money. Maybe it’s just me, but I don’t think this is the sort of advice Time (or anyone) should be doling out.

Specifically, an article by Bill Saporito asks and answers: Play the Lottery? You Bet. You read correctly. The column argues that buying lottery tickets on a regular basis, something that even Time magazine itself (in a previous article) asserted you should never do, is actually money well spent.

This has to be one of the most inane and potentially harmful columns ever to appear in Time. The author should be embarrassed by the column. Time should be ashamed for publishing it.

By what torturous and irrational reasoning did Mr. Saporito come to this fallacious conclusion? Let’s take a closer look.

What are the odds?

The author admits that the odds of one ticket winning the Powerball Lottery are incredibly low ā€” as in 1 in 195,249,054. In his attempt to convey just how low these odds are, Saporito warns: “You have a better chance of being struck by lightning.”

True. But not nearly true enough. If you buy one lottery ticket a week for a year, the odds that you will win the lottery are 1 in 195,249,054/52 which works out to 1 in 3,754,790. In contrast, the National Weather Service reports that the odds of being struck by lightning in a given year is 1 in 1,000,000. In other words, the odds that you will win the lottery are more close to the odds of being struck by lightning 4 times in one year!

The odds go up or down depending on how many lottery tickets you buy in a year. If you only buy one ticket a year, you would have to get struck by lightning 195 times during that year to match the lottery winning odds. On the other hand, if you buy 4 tickets a week for a year (as Mr. Saporito does), the odds of winning are indeed close to the odds of being struck by lightning. Of course, even this is not anything that should get your hopes up.

Let’s look at this one other way. Suppose you buy one ticket a week in a lottery where your odds of winning are 52 to 1. This would mean that you could expect to win the lottery on an average of once a year. With the Powerball’s odds of 195,249,054 to 1, you could expect to win on average once every 3.75 million years! In other words, the odds of winning the Powerball are close to the odds of winning if you never play at all. They are both about zero.

And yet, $58.8 billion dollars was spent on state-supported lotteries last year.

A regressive tax?

Mr. Saporito points out a second criticism against lotteries: They amount to a regressive tax. That is, the lower your annual income, the greater percentage of that income is used up when you buy lottery tickets. Buying $1000 worth of lottery tickets a year is 5% of your income if you make $20,000 a year. But it is only 0.5% of your income if you earn $200,000 a year. Given that those in the lower income brackets tend to buy lottery tickets with greater frequency than those in the upper brackets, this is a double whammy: lottery ticket purchases most hurt those that can least afford it. Indeed, a study cited by Saporito showed lotteries eating up as much a 3.1% of income that would otherwise go to food, rent and clothing.

How does this make sense?

At this point, you might expect Saporito to strongly advocate against lottery ticket purchases. That’s certainly what the data he presents would suggest. But no, he instead recommends the opposite. Huh? How can this be? Mr. Saporito attempts three answers:

First, Mr. Saporito advocates for the entertainment value of the lottery. The enjoyment you get imagining what you would do if you won makes it worth buying a ticket. In some sense, it’s the same enjoyment you might get from playing a slot machine in Las Vegas and hoping for the jackpot. I concede this point ā€” up to a point. It only makes sense if you truly enjoy the process (to me, buying a lottery ticket and waiting to see if I won is no fun at all), you don’t buy more tickets than you can afford (which may be close to zero for low income individuals), and you truly understand how badly the odds are stacked against you. I would suggest that very few people meet these combined criteria.

Saporito’s second argument boils down to this quote: “And there are many other even more foolish places to waste money (than the lottery). Why does Wall Street keep coming to mind?” By this, Mr. Saporito appears to be implying you are better off playing the lottery than investing your money in stock.

Here is where Saporito’s logic truly comes off the rails. As cited in the article, if you had invested money in the stock market for the past ten years (which happen to be among the worst ten years in the history of the stock market), you would have lost 1.54% of your investment. In other words, a $1000 investment would now be worth a bit over $984. Had you invested the same money in the lottery, you would almost certainly have $0 left. By what screwy reasoning does this make the lottery a better deal than the stock market? Never mind that throughout most of the last 60 years, you would have actually made money in the stock market during any ten year period.

Anyway, it’s not as if the stock market is the only alternative place for your lottery money. If you just put the money in a bank, even at the current low interest rates, you’d be better off. Heck, if you spent it on a flat-panel television, you’d probably have more enjoyment than from lottery tickets.

Finally, Mr. Saporito concludes: “So I’ll continue to buy my $4 worth of lotto tickets each week.” This is the final bit of illogic. If all you want is to enjoy an “imaginary jackpot”, why spend $4 a week? Couldn’t you get the same enjoyment from $1 a week, and save the extra $3? If not, if spending more money somehow increases your enjoyment, where does this progression stop? What makes $4 the stopping point? Why not $40 or $400 dollars a week? Saporito offers no advice here.

Take my advice instead. Ignore Mr. Saporito. Stay away from the lottery. Unless the near certainty of losing money appeals to you.

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3 Responses to Play the Lottery? Don’t Bet On It

  1. mlanger says:

    When I was in college, a friend of mine had skipped the college route and was working in a linen store while living at home with his parents. He had a two-part approach to making his fortune:

    Part 1: Pay a 10% tithe to the Catholic Church.
    Part 2: Buy lottery tickets.

    The way he saw it, god would appreciate his dedication to the church and reward him with a big Lotto win.

    You can probably guess why our friendship didn’t last very long.

    Playing the lottery is a form of gambling. The only good thing about it is that in some states, a part of lottery ticket purchase proceeds go toward education. Kind of ironic, but there it is. On the rare occasions I buy a lottery ticket, I justify it as a donation to the state’s education fund.

    Yet I know there are thousands — if not millions — of stupid and desperate people out there, buying a handful of scratch-offs with every 12-pack of beer. I see them at the supermarket; they wait in long lines at the courtesy counter. Yeah, occasionally one strikes it rich. But of the millions of people who don’t?

    Thanks, Ted, for tackling this topic so logically. I just wish people would read it and learn.

    And shame on Time for publishing such bullshit. My respect for that publication has just come down a few notches.

  2. Pingback: Interesting Links, December 1, 2011 | An Eclectic Mind

  3. paul baker says:

    THE ODDS OF WINNING ARE LUDICROUS TO BEGGAR BELIEF
    I WOULD NOT WAST THE INK OUT OF MY PEN
    PAUL BAKER WINSFORD UK

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