the man who beat the state lottery

I encourage everyone to read the February 2011 issue of Wired magazine. Here's the short version:

Texas resident Jean Ginther is an unusually lucky woman. She has won $1 million lottery jackpots on 4 separate occasions. Three of her 4 wins were from scratch tickets. I'm assuming that Ginther is just very lucky, since everyone knows that it is impossible to predict which scratch tickets are winners and which scratch tickets are losers.

Toronto resident Mohan Srivastava says it's not impossible. In fact, in 2003 he was able to correctly predict which scratch tickets were winners with a 90 percent accuracy. When he alerted the officials at the Ontario lottery that their Tic Tac Toe scratch tickets were beatable, they ignored his phone calls. The lottery officials figured he was just another lunatic who thought he had beat the lottery. (They were unaware that Srivastava was a trained statistician with degrees from MIT and Stanford.) So Srivastava mailed 20 unscratched tickets to the lottery headquarters with some predictions. He correctly predicted 19 out of the 20 tickets. This got their attention. The next day, the Ontario lottery issued a recall and discontinued Tic Tac Toe.

The Tic Tac Toe game consisted of a set of exposed numbers, and players scratched off the latex to discover if any of these numbers formed a Tic Tac Toe. Srivastava's secret was to look for patterns in the set of exposed numbers. It didn't take long for him to crack the patterns. He's a professional statistician: it's his job to crack patterns. The tricky part is finding a gas station or convenience store which would let lottery players peruse their inventory and pick which tickets to purchase.

As shocking as it sounds, somewhere on this great planet there's a gas station employee willing to accept bribe money. And the state auditor of Massachusetts issued a report acknowledging that one lucky Massachusetts resident had cashed in 1,588 winning tickets between 2002 and 2004 for a grand total of $2.84 million. Another person had cashed in 149 tickets worth $237,000. And the top 10 multiple prize winners had won 842 times for a total of $1.8 million. Since only 6 out of every 100,000 tickets yield a prize between $1,000 and $5,000 these "fortunate" players would have needed to buy hundreds of thousands to millions of tickets. The suspicion is that the mafia is aware of the lottery's vulnerabilities, and that organized crime is using this information to launder money.

Which brings us back to Srivastava. Why did he alert the officials? Why not ca$h in? Perhaps because spending his days driving from convenience store to convenience store didn't particularly appeal to him. He makes more money at his day job. Incidentally, his day job as a statistician is to find patterns in soil samples to determine concentrations of gold in gold mines. In other words, the lottery is a man-made gold mine.

A fascinating story about how Jerry & Marge beat the Michigan lottery.

Quote: Huffington Post

This particular game was called Winfall. A ticket cost $1. You picked six numbers, 1 through 49, and the Michigan Lottery drew six numbers. Six correct guesses won you the jackpot, guaranteed to be at least $2 million and often higher. If you guessed five, four, three, or two of the six numbers, you won lesser amounts. What intrigued Jerry was the game’s unusual gimmick, known as a roll-down: If nobody won the jackpot for a while, and the jackpot climbed above $5 million, there was a roll-down, which meant that on the next drawing, as long as there was no six-number winner, the jackpot cash flowed to the lesser tiers of winners, like water spilling over from the highest basin in a fountain to lower basins. There were lottery games in other states that offered roll-downs, but none structured quite like Winfall’s. A roll-down happened every six weeks or so, and it was a big deal, announced by the Michigan Lottery ahead of time as a marketing hook, a way to bring bettors into the game, and sure enough, players increased their bets on roll-down weeks, hoping to snag a piece of the jackpot.

The brochure listed the odds of various correct guesses. Jerry saw that you had a 1-in-54 chance to pick three out of the six numbers in a drawing, winning $5, and a 1-in-1,500 chance to pick four numbers, winning $100. What he now realized, doing some mental arithmetic, was that a player who waited until the roll-down stood to win more than he lost, on average, as long as no player that week picked all six numbers. With the jackpot spilling over, each winning three-number combination would put $50 in the player’s pocket instead of $5, and the four-number winners would pay out $1,000 in prize money instead of $100, and all of a sudden, the odds were in your favor. If no one won the jackpot, Jerry realized, a $1 lottery ticket was worth more than $1 on a roll-down week—statistically speaking.

“I just multiplied it out,” Jerry recalled, “and then I said, ‘Hell, you got a positive return here.’”

The Texas lady winning scratch offs is reason 1 nobody should buy them since the method of distribution is cracked. No sense playing $20 to win $20 if the million is easy money for someone in the know.

I thought this was going to be about Nick Perry.

Over eight years, Jerry & Marge played the lottery 12 times in Michigan and 43 times in Massachusetts. They lost money in only three drawings. They netted $7.75 million before taxes.

There was a Lottery game called Cash Winfall where a group of people found a loophole or something like that on how to win the game. They together won like 8 million before the Lottery caught on that they figured out the loophole and immediately or very soon after pulled the Cash Winfall game permanently.