Beating the Lottery Odds - Part Two
The continued story of how a retired couple found a math error in a lottery game and capitalised on it.
Image source
In Part 1, we were introduced to Jerry and Marge Selbee who owned a convenience store in the small town of Evart, Michigan.
A retirement hobby
Jerry and Marge continued running The Corner Shop until 2000 when they decided to retire. One day Jerry stopped by his old store and picked up a brochure for a new lottery game called Winfall. It was a pretty standard game; you bought a ticket for $1, picked six number between 1 and 49 and hoped that the six numbers that were drawn would win you the jackpot. If you got all six numbers you were guaranteed a minimum of $2 million. You would get a lesser amount for five, four three and two numbers.
But here was the thing that intrigued Jerry: the game had an unusual gimmick, known as a roll-down. If the jackpot had not been won for a while and it 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. Those lower numbers would split at least the $5 million jackpot. This made it very popular and brought in more punters with higher bets—as intended by the lottery. There were roll-downs approximately once every six weeks.
Jerry analysed the puzzle and soon realised that playing the roll-down gave you a 10-fold increase in odds of winning than in normal play. And he also realised that in a roll-down week—if there was no six-number winner— statistically a $1 lottery ticket was worth more than $1. The odds would be in your favour.
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Testing the strategy
Secretly at first (Marge disapproved of gambling), Jerry started playing the Winfall game during roll-down week. Careful not to draw local attention to himself, he bought his Winfall lottery tickets in a neighbouring town. The first $2,200 he spent returned $2,150, a loss. Undaunted, Jerry put it down to plain bad luck and saw that by increasing the number of tickets he bought would reduce the impact of bad luck. So the next time he bet $3,400 and won $6,300—an impressive 46% margin. He increased that margin to 49% on the next roll-down, turning his $8,000 into $15,700.
It was time to tell Marge. He shouldn't have worried—Marge had faith in her husband's abilities to solve puzzles and besides, there was all the money to prove it. She gave her blessing and became an active participant.
It took a lot of work. First, lottery machines could only print out a maximum of 10 numbers on each slip—one slip for every $10 spent. And Jerry wanted to spend a lot. $100,000 worth of tickets would require the machine to print out 10,000 slips. This would take all day to do.
After the drawing, the Selbees had to sort through the thousands of slips—sometimes numbering into the hundreds of thousands—and place them in piles according to their value (5, 4, 3, 2, 1 or 0 correct). And they would do that all over again to check. The winning numbers were cashed and the losing numbers were stored away as a paper trail for the IRS.
Marge and Jerry Selbee and their entire family. Image source
All in the family
Jerry was right: the more tickets you bought the bigger the return. So he invited his family and friends to join their syndicate. The practice of large betting groups was welcomed—even encouraged—by the Michigan Lottery. After all, the more tickets sold, the more money went to the state.
It didn't start well. In the first attempt as a group of family members, the $18,000 bet was lost because someone had won the lottery outright. They believed Jerry when he said it was just bad luck. They were right to do so; within two more roll-down plays the recouped all their money.
In June 2003 Jerry created a company. GS Investment Strategies LLC. Its only asset was Jerry's betting strategy. He sold shares in this company to his family group, and to other friends and colleagues in Evart. It eventually had 25 members including a police officer, a banker and his personal accountant.
With the bigger bets, the profits increased on each drawing. By 2005, profits had increased from $40,000 to $160,000.
Marge and Jerry continued living as they always had: modestly and quietly. The money was spent on a couple of new vehicles, but mostly it was invested—Marge in savings accounts and Jerry in silver and gold coins.
A bitter blow
But then in May 2005, without warning, the Michigan Lottery shut down the Winfall game. They claimed Winfall tickets sales were decreasing. Marge and Jerry felt let down, and so did their lottery group.
But no more than a month later, Jerry received an email from his lottery group with details of a new lottery game called Cash WinFall—run by the Massachusetts Lottery.
This will be continued in Part Three, tomorrow
References:
Huffington Post: Jerry and Marge Go Large
Inc.: This Couple Found a Math Error in the Lottery and Made $27 Million (Playing Over and Over for 55 Weeks)
Don't Waste Your Money: This Couple Won $27 Million Using Math To Hack The Lottery
Also posted on Weku, @tim-beck, 2019-01-04