Metro Pulse/Cover/Tennessee Lottery

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What are the Odds, Really?

In a page entitled “Lottery Odds,” the National Association of State and Provincial Lotteries website holds forth against the notion that the odds of winning the lottery are worse than those of being struck by lightning:

“In 1996, 1,136 people won $1,000,000 or more playing North American lotteries. An additional 4,520 won $100,000 or more. By contrast, 91 people were killed by lightning.

“In addition, there’s no second prize in a lightning strike. In a lottery, you win lesser amounts of money by coming close to the winning numbers. On many games, odds of one in five or one in four are not uncommon. Lotteries award over $50 million in prizes in North America every day. Lightning isn’t nearly that productive.”

But according to Seema Nanda, a Ph.D. in Applied Probability who is currently a visiting post-doctoral candidate at the University of Tennessee, the true measure of a lottery’s “productivity” is its return per dollar invested.

“You look at the money that goes in, then see how much comes back, and calculate the average pay-off for a dollar bet,” she says. “That number is going to be extremely small. If you look at it on average, you see that you get back maybe a few cents for every dollar you spend.”

Most of the Tennessee lottery’s scratch ‘n’ win ticket games boast that odds of winning are about one in four. What they don’t say is that those odds are vastly inflated by the fact that most of the “prizes” come in the form of more tickets or very small sums of cash. And retailers say that small money prizes are often redeemed in tickets instead of green, meaning that the lottery profits further by paying back significantly less cash than is actually won.

More truthful are the odds given for the lottery’s new Cash 3 numbers game, which is more expensive than its scratch-off counterparts, but affords odds as high as one in 333 for winning cash prizes of up to $500.

For an accurate depiction of high-stakes lottery odds, consider that Nanda was once asked to calculate the chance of winning a multi-million-dollar pick-a-number Powerball game in the California lottery. Her conclusion: the likelihood of choosing the correct numerical sequence and winning the grand prize was about one in 41,000,000, or .000002 percent.

“Rationally, you have to say to yourself that the odds of winning are essentially the same as they would be if you didn’t even play,” she says. “Some people think they have strategies for winning, but it’s not possible to have a real strategy. The only strategy that would work would be to buy 41,000,000 tickets.”

—M.G.

Lottery fever heats up in Tennessee

by Mike Gibson

My heart isn’t racing, exactly, but I do feel a twinge, an unanticipated little rush of excitement resulting from the simple act of scraping a waxy green substance off the glossy laminate surface of a paper ticket with a penny. And while my fingers aren’t visibly shaking, I do note an uncharacteristic tremor as I scratch the last of the wax off the last box in a series of eight.

I am crossing the final threshold of vice, the only sin of indulgence that has yet to rend a hole in the frail pith of my moral fiber. I am gambling—in Tennessee’s very own state lottery, no less—and I am at long last beginning to comprehend the potent seductions of playing the odds.

On the second of several purchased tickets, each of them ranging in price from $1 to $5, I am a Winner. Not a Big Winner, mind you; all I’ve won is another ticket. Still, that one more ticket represents more than just another paper square glossed with colorful wax. It represents promise itself, the alluring possibility that in the next instance, I may become a Big Winner.

Before I know it, my intention of playing a couple of $1 tickets merely for the sake of journalistic verite has resulted in my playing nine tickets, only the last of which yields my first cash prize of $2.

“With prizes of less than $20, most people redeem them in the form of more tickets,” suggests the lady behind the counter at the retail outlet where I’m playing the game. “Even if they win a larger cash prize, most people reinvest at least some of it.”

I weigh my options, whether to trade in my winning number for $2, cut my losses and go, or else redeem it for yet another two tickets, and promise untold. The choice is clear. I take the tickets.

Lottery Fever

No one knows whether the Tennessee lottery’s booming start bodes staying power; whether the windfall will balance out any long-term societal ills that might result from the advent of government-sponsored gaming; or even whether, in the long haul, the lottery will adequately fund the college scholarship program that is its reason-to-be. Those are questions best left for the keen hindsight of another year.

What is clear is that after slightly more than two months of traffic and a fat fortune in sales, the lottery is the biggest news to come out of Tennessee in a long time, among the biggest since a roughneck mid-state territorial prosecutor named Andrew Jackson took over the U.S. presidency.

With more than $35 million in net sales in its first five days of operation, the lottery exceeded by a substantial margin the expectations of most observers. And though those lofty sales figures have leveled off since the lucrative early weeks, the games have still managed net sales of about $180 million between their Jan. 20 inception and the business week ending March 13.

“The lottery started out gangbusters, much stronger than we thought,” says Dan Fleming, a spokesman for Pilot Corp. With tickets available in 69 of its convenience marts across the state, Pilot is one of the largest lottery retailers in Tennessee and boasted three of the 25 best-selling outlets during the initial week of sales.

“There’s been a decline in overall sales since then, but not out of line with what we would expect,” Fleming says. “We’ve been very satisfied so far.”

Since applications began in fall of 2003, more than 6,000 outlets have asked to become lottery retailers; about 4,000 of those are currently selling tickets, and another 2,000 are still on a waiting list to receive the necessary computer terminal and satellite connection from the state.

“We prepared for as many as 7,500, but we’ll certainly amend that, if need be,” says Tennessee Lottery Communications Director Kym Gerlock. “That may well be what happens, because demand so far is higher than we anticipated.”

Roughly 85 percent of the outlets in operation are convenience stores, Gerlock says; the Mapco chain is currently the largest single vendor. But other types of retailers are also eligible; the only vendors legally excluded from the game are pawnshops, cash-advance outlets, and business interests founded solely for the purpose of selling lottery tickets.

The Games

As of March 13, the lottery comprised a dozen $1, $2, and $5 scratch ‘n’ win ticket games, plus the Cash 3 drawings, the first of what will eventually be several traditional ping pong ball number-picking lottos in Tennessee. To date, the $1 scratch ‘n’ win games have been the most popular, accounting for more than half of net sales in six of eight weeks; the favorite of those so far is Lucky 7s, which carries the possibility of a maximum $7,000 pay-off for a $1 play, and has accounted for roughly a quarter of all ticket sales to date.

The scratch-off games mostly offer variations on the same theme—uncovering numbers that match, especially like numbers in each of three consecutive boxes, a la tic tac toe. With names redolent of high-stakes possibility—Gold Fever, Tennessee Treasures and Volunteer Millionaire, et al.—the contests promise a chance at maximum instant-winner prizes of up to $100,000. (Two games—Tennessee Millionaire and Volunteer Millionaire—offer a further chance at $1 million jackpots to players who mail in tickets that show a chance at the million.)

For the retailers who vend lottery tickets, the financial inducements of participation are less staggeringly potent but come with far better odds. Retailers pay (at most) a nominal weekly service fee to carry the lottery, and they retain a 6.5 percent commission on all sales. Each outlet can choose to redeem winning tickets themselves, or instead route winners to regional lottery offices to collect; their pay-outs are reimbursed by the state lottery corporation within a few days.

But just as enticing is the prospect of increased customer traffic. At Pilot stores, Fleming says the lottery has brought in markedly heavier customer volumes (through mid-March, the chain had sold $6 million combined in tickets and Cash 3 games), as well as a roughly 2 percent increase in non-lottery counter purchases.

“It’s definitely created traffic, and it’s increased our other business,” Fleming says. “We’ve sold more coffee, cokes, candy bars, the natural stuff people pick up when they stop through. A 2 percent increase may not sound like a lot. But in our business, it’s significant.”

An upscale gift shop located in a corner of the downtown Walnut Building, the Back Room Gallery is anomalous among lottery retailers in that it is neither a gas station nor a convenience mart. But proprietor Sandra Inman nonetheless gambled that lottery sales would increase stop-in foot traffic at her less than two-year-old store.

Having come online two days after the lottery started (demand for lottery satellite installations was so heavy that a few applicants weren’t serviced until after Jan. 20), she now believes her instincts were correct.

“Almost 80 percent of the people who come in to the store to buy lottery tickets wouldn’t have come in here otherwise,” says Inman, who added shelves of snacks, drinks, and gum to further entice lottery customers. She says ticket commissions alone will probably pay her rent for the month of March.

“I hear people saying, ‘Wow, I’ve never been in here before,’ and then most of them end up buying something. You can definitely put me down as a lottery fan.”

I confess that I’ve always doubted the wisdom of state-sponsored gambling, partly for reasons I’m not even sure I can articulate, and partly based on the old argument that lotteries constitute de facto taxation of the poor and the easily duped.

Lottery proponents such as the National Association of State and Provincial Lotteries (NASPL), an organization that represents all 38 extant state lotteries including Tennessee, maintain that lottery participants hail from all walks of life, and that the bulk of lottery purchases are made by people who can afford them.

Statistically speaking, that’s a natural conclusion, but I’m not sure it ameliorates the fact that lotteries appeal at least in some measure to people who would be better served spending their shekels on something else.

As I traverse the city buying tickets to satisfy my own newfound gambling jones, I canvass fellow players, curious as to who they are and why they play the games. Admittedly, the answers I get don’t resoundingly affirm my beliefs about the ethics of the lottery, but they don’t dissuade me from them, either.

“Chuck” is an unemployed local maintenance and custodial worker, and he admits to spending about $15 per day on scratch-off tickets and Pick 3 entries. A good financial advisor would doubtless tell Chuck to invest that money elsewhere; he’s obviously down on his luck, and he confesses that he’s “a little drunk” when I speak to him in the middle of the afternoon.

“I always go against the odds,” Chuck says. Despite that questionable dictum, he claims to have won more than he has spent, chiefly by virtue of having won large prizes ($100 to $300) on three occasions so far.

Darell is in the same line of work as Chuck, but he’s in better straits in that he’s currently employed. A friendly fellow with long shaggy hair and slightly crooked teeth, he can probably afford the indulgence of a few lottery tickets, given that he only plays twice a week, spending about $5 at a crack. The lottery is the only form of gambling he patronizes: “I just play because I want to see what’s going on.”

Yet another gentleman I meet could conceivably serve as the poster boy for the lottery’s alleged socio-economic diversity. A downtown dweller who buys tickets once a week at Sandra Inman’s gift shop, he chooses one of the higher-stakes games the day I meet him, in hopes of winning the down payment on a pricey new condominium.

“I’ve got my sights set on the one I’m gonna get, and I’d like to get a head start,” he tells me with a broad and smiling northeastern accent. “This one has a $50,000 pay-off, so that would probably get me off the ground.”

Early Returns

Weekly lottery sales dropped by nearly half between Jan. 20 and March 13, but retailers and lottery officials say the decrease was expected; after a precipitous plummet the first three weeks, sales have seemingly stabilized, fluctuating between $17 million and $22 million since early February.

Games have been added steadily throughout the first two months of the lottery, creating occasional spikes when a new option proves popular. “Most lotteries drop and add games as needed; that’s pretty standard stuff,” says Fleming, noting that a few states offer as many as 30 different games.

Interest will doubtless spike again this summer, when Tennessee begins participating in a multi-state power-ball lotto, an ultra-high-stakes pick-a-number game, the kind that promises multi-million dollar payouts and riches untold.

Lotteries and Problem Gambling

But one question still largely unanswered in the heat of lottery fever is that of problem gambling. Unlike alcoholism or chemical dependency, problem gambling is a behavioral addiction rather than a chemical one. But it’s an addiction nonetheless, with a similar psychological and even physiological profile.

Like most state-sponsored lottery pages, the tnlottery.com website offers a brief list of problem gambling resources, including the National Council on Problem Gambling. According to NCPG Executive Director Keith Whyte, most states experience roughly the same incidence of problem gambling (two to three percent), regardless of lottery affiliation. “It’s tough to make a specific correlation between lotteries and problem gambling, especially since there are so many different forms of gambling available now,” he says.

“But I’ve seen people who spent thousands of dollars on the lottery in a single day. I think the danger lies in the fact that since the state is running it, it must be safe. Some people would argue that the lottery is a ‘softer’ form of gambling. We would take issue with that belief.”

I’m sitting at my desk back at the office, bemusedly thumbing the last of the scratch-off tickets I had purchased on my quest for lotto-fluency. My plan had been to acquire only a couple of $1 tickets— for research purposes, of course—but I exceeded that quota several-fold.

It strikes me that, the requirements of this story aside, I could have spent those dollars on something that gave me more for my money than a few moments of giddy anticipation—a tastier lunch, for instance, or maybe a new paperback book I wouldn’t have picked up otherwise. But my lottery purchases were hardly the first instances where I’ve paid cold cash for something that offered a lukewarm return-on-investment, and they surely won’t be the last.

It also struck me that there are a few people—folks like my new friend Chuck, for instance—who would for the most part be better off without the costly, counterfeit brand of hope lottery gambling seems to provide. But that assumes that I know what’s best for folks like Chuck better than folks like Chuck do, and that’s a patently ridiculous notion.

The truth is, the only thing about the lottery that has taken on any more clarity in my mind is the reason why people find it so compelling. I never understood nor liked gambling very much, but now I see more clearly the specter of promise that hovers over each additional ticket, the hope in perpetuity of Just One More Try.

And now I’m left with this last ticket to play, a $1 “Lady Luck” scratch ‘n’ win I picked up at a local convenience mart. Slowly, with penny in hand, I scratch off enough of the waxy coating to show that I am once again a Winner, this time of a $5 cash prize.

I’m confronted again with the question of whether to redeem it for real money, or to continue on by picking up five more tickets, any one of which might yield an even more substantial prize.

My decision is made. I stick the ticket in my wallet. The next day, I take it to a nearby lottery retailer and exchange it for a crisp new $5 bill.