The Great American Scratch-Off

A Tax On Hope

Quite a few years ago, I bought a lottery ticket in Massachusetts from the same store as the winner - I recognized her from the news coverage. I had been next in line behind her. That’s the closest I have ever come to lottery glory. I rarely buy tickets.

Your odds of winning either of the big-money national lotteries in this country are minuscule, roughly 1 in 300 million. Here’s a chart showing you the odds of some other unlikely events.

Lottery Odds Comparison

Do you find it a little disturbing that your odds of dying in a car accident for your lifetime are 1 in 101? That’s more motivation for getting the self-driving car switch worked out ASAP!

When either the Mega Millions or the Powerball jackpots get up to around a billion dollars, I’ve been known to splurge on a ticket, even though after the lump sum discount and taxes, that is STILL a sucker’s bet. The jackpot would have to be over $2 billion for the math to work out. The jackpot has only been that big once in lottery history (Powerball hit $2.04 billion in November 2022).

Buying a lottery ticket is not an investment - the game is rigged in favor of the house, just like games in Las Vegas. That makes the story about the people who beat the Texas State Lottery so great. Understanding probability can be very profitable.

The chances of winning the Texas State Lottery are way better than the national lotteries, roughly 1 in 25.8 million. So buying a ticket makes mathematical sense when the jackpot gets somewhere between $60 million and $80 million. Back in 2023, when the Texas jackpot reached $95 million, some very clever and enterprising people went to work.

That April, an entity known as Rook TX (linked to British banker Bernard Marantelli and Australian gambler Zeljko “The Joker” Ranogajec) spent approximately $26 million to purchase nearly all possible combinations, about 25.6 million tickets, for the Lotto Texas drawing. By purchasing nearly all of the tickets, they improved their chances of winning to 92%, and win they did!

The group legally claimed the $95 million jackpot, opting for a lump sum of about $57.8 million before taxes, leaving an estimated $20 million in profit. Payments were made through a Delaware limited partnership (Rook TX), keeping individual identities private as permitted by Texas law.

How in the world did they manage to buy that many tickets, you ask? Well, that’s the best part of this story. They did that with the approval and help of the Texas State Lottery Commission! There wasn’t an “inside man” - just a Texas-sized botch job.

The commission approved and expedited the delivery of dozens of lottery terminals and paper rolls for printing tickets to just four retail locations operated by Rook TX. And the Rook people took it from there. They set up printing terminals in Texas warehouses, some reportedly in a former dentist’s office, churning out over 100 tickets per second during a 72-hour blitz to secure coverage of almost every number combo.

For a typical drawing, Texans buy roughly 2 million tickets. You would’ve thought that the printing of over 25 million tickets from just four locations would have triggered alarms at lottery HQ, wouldn’t you? It didn’t.

As you can imagine, once people in Texas figured out what happened, there was a lot of outrage, recriminations, investigations, and lawsuits. Lots of politicians expressed their anger - the usual finger-pointing and blame games took place. The people in charge of the lottery lost their jobs, and Texas took steps to change the rules to prevent someone from gaming the system in the future.

But the winners kept their money. Lottery winnings are backed by contract law - once a valid ticket is printed and matches the winning numbers, the holder is entitled to payment. Any attempt to withhold payment without proof of fraud or criminal activity would likely have triggered a major lawsuit Texas couldn’t win.

It’s too bad Texas didn’t just scrap the lottery entirely. Lotteries, after all, are one of the most regressive forms of taxation this country has ever innovated.

Who do you see at the convenience store buying scratch or lottery tickets? - people who could use that money for something real. They are being preyed on by their government.

Here’s some depressing data for you:

• Individuals in the bottom 20% of income show the highest lottery participation rate, with around 61% playing in a typical year

• A 2018 survey found that 28% of Americans earning under $30K/year play the lottery weekly, spending about $412/year (~13% of their income). Imagine spending 13% of your income on lottery tickets.

• Data from 2024 shows the poorest 1% of ZIP codes spend nearly 5% of their income on lottery tickets (~$600/year per adult)

State lotteries and scratch tickets came into being partly to replace illegal numbers rackets run by the mafia in urban cities. I guess the thought was, “if we can’t beat them, we’ll join them,” and eventually the state-run lotteries put the mafia’s version out of business.

So now it's the government running the hustle, complete with ad campaigns, legal immunity, and a cut of the take, from persuading the people who can least afford it to waste their money. Guess what neighborhoods have the most lottery and scratch ticket billboards as well as sales locations? (not in Beverley Hills)

Nationwide, states net tens of billions of dollars in profits every year. Lottery and scratch tickets are a public policy failure masquerading as entertainment, and no billion-dollar jackpot can make up for that. So why do we allow the states to do it? There just has to be a better way to fund the government.