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LuckyGuy's avatar

Can a Powerball ticket be called an investment when the payoff is above $600 Million?

Asked by LuckyGuy (43866points) January 9th, 2016

For the purpose of this discussion let’s round numbers and ignore taxes.
There is a 1 in 300 million chance of matching all the numbers. A ticket costs $2.
Statistically speaking, if the payout exceeds $600M, ($2×300M) doesn’t it become a positive rate of return? What am I missing?

Of course, we all know lotteries are winners for the organization putting them on and the payout is far below the money taken in.
But when there is no payout, the money is rolled into the payout for the next lottery (no doubt minus some huge fees for the administrators) . A typical payout is $100M so those are obvious losers with terrible rates of return but when the pot gets this high doesn’t the math show a positive rate of return?

I might even buy one.

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22 Answers

Cruiser's avatar

You can rationalize purchasing a lottery ticket in many ways and to characterize it as an “investment” would not be high on my list. I saw a guy who has won a lottery 6 times interviewed on TV this AM and he said to just run out and buy a ticket on these high stakes payoff lotteries is a fools mission. His bottom line advice was to simply buy as many tickets as you afford and to do so regularly and not just chasing rainbows like tonight. Still…I will buy my one ticket like I do on these mega jackpot lotto’s knowing if I did win I would have a blast giving away a large chunk of the winnings! ;)

Dutchess_III's avatar

No more than gambling is an “investment.” In my mind, an investment comes with a reasonable expectation of a return.

ARE_you_kidding_me's avatar

It has been successfully used as one in the past. Once the cost of buying all number combinations is much less than the jackpot take then it can be an investment.

LuckyGuy's avatar

@ARE_you_kidding_me It looks like we are at that point now. 292 Million combinations at $2 per ticket. = $584 million.
By tonight the payout will be way above that.

Oh. To make a fair comparison we need to use the cash payout value not the annuity number .

There has not been a winner since Nov 4. That is why this one is just about even payback.
This highlights just how poor the usual lottery return on investment is.

Dutchess_III's avatar

My cousin won in November of 2014. She had never bought a ticket before. The check out clerk said, “You want one?”
She said, “Why not!”
$90 million is hell of a return on a $2 “investment.”

Seek's avatar

You can’t win if you don’t play. Go for it.

Dutchess_III's avatar

I just PM’d my cousin. I threatened her if she actually bought any lottery tickets!

My husband gave me instructions to buy two tickets today. One for me, one for him. I gave him his. What he didn’t see was that I actually had THREE plays on my one ticket!

ibstubro's avatar

Being nearly math illiterate, I just put down $6 for 3 Powerball tickets.

Less fattening than a cup of pop and large fries at McDonald’s, and just as tasty!

johnpowell's avatar

Note that the pot is divided if there are multiple winners. So your 600 million might seem like a easy 300 million but if there are more than one winning ticket you are fucked.

jca's avatar

Sunday morning wake up : Power ball had no winner. Jackpot is up to 1.3 billion.

ibstubro's avatar

Now the only question is:
should I re-play the same numbers or just get new ones?

ARE_you_kidding_me's avatar

Odds are the same

LuckyGuy's avatar

If the numbers were marginally positive for this drawing the “return on investment” will be even higher for the next drawing.
I only considered the grand prize for the calculation. Not being a lottery person I did not know there were “9 ways to win” and payouts for other combinations. The payouts for the other 8 ways amount to about $100M.
On the other hand @johnpowell brought up a good point. If 2 people have the winning number the payout is shared. Statistically that reduces the theoretical rate of return a bit.

I will buy a ticket for the next one.

LuckyGuy's avatar

Lotteries like this are ripoffs for the consumer. There have been no winners for ~15 consecutive times allowing the pot to grow 10–25 times normal. Even with these fantastic numbers the calculations show it is still only a touch above marginal.

Lottery tickets are not an effective retirement strategy .

Dutchess_III's avatar

Nope, but it could happen @LuckyGuy.

I won $4.00 too! I also threatened my cousin if she played!

LuckyGuy's avatar

Because the pot is estimated to reach 1.3B on Wednesday, the engineer in me made me buy some tickets.
Any lottery with a pot below these astronomical levels will never include my money.

Dutchess_III's avatar

That’s what my cousin used to say. She never played the lottery. That was the first ticket she ever bought, and she only bought it because the clerk happened to ask her if she wanted one.

@LuckyGuy I don’t understand why the size of the pot would make any difference in whether or not you buy a ticket. The odds don’t change substantially, no matter what the size. In fact, I’d guess that the higher to pot the lower your odds because so many other people play then.

ibstubro's avatar

$1.5B and counting, Tuesday.

Cruiser's avatar

Just in case you were thinking of doing this….that if you were to buy all the lottery combinations at one ticket a second, it would take you NINE years to buy them all.

Dutchess_III's avatar

Well, I actually beat all of the odds already….by being born.

LuckyGuy's avatar

86% of all number combinations were sold. That means there is about a 1 in 7 chance nobody won. We will know by tomorrow.
I will go to the office tomorrow along with the other 99.99999% of the players.

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