Building a Side Income through… The Lottery?

Conventional wisdom says that lotteries are a “tax for the stupid” — that it is ignorant to play the lottery because in the long-term you are certain to lose more than you win.

Again, conventional wisdom might be true for the masses, but not for us. As with credit cards, this is a spot where we can exploit the mistakes the masses make to our benefit.

Before we dive deeper into this, though, let’s discuss the concept of expected value (EV). Let’s say that you were offered the chance to flip a coin, and if it came up heads, you would win $10. In that scenario, the expected value of each flip is $5. Flip the coin 100 times and you would expect to win $500 (50 wins x $10 each). A profitable situation has a positive expected value (+EV). For example, if you could play the coin flip game for anything less than $5, it would be a +EV game. If the game cost more than $5, it would have a negative expected value (-EV).

When we examine the lottery (and in another post, when we look at various forms of skill gaming), we want to look at everything in terms of EV, and we want to exploit any +EV situations we can find.

One famous example of a +EV lottery game was the Cash Winfall game that ran in Massachusetts from 2004 to 2011. A group of students at MIT won millions of dollars by taking advantage of that +EV opportunity; an older couple from Michigan won millions from the game as well.

Certainly there aren’t any +EV lottery opportunities today, though… right?

Wrong.

In my home state of Michigan, the Michigan Lottery has an online component. You can play instant-win games directly on the site. Here’s an offer they currently have running there:

That offer above is +EV to the tune of $62.50. Put this $200 on a credit card with 2% cash back (or better yet, as part of a bonus churn) and your EV becomes $66.50 or more. Have a significant other who could join as well? Now your collective EV from just this one offer is $125 before any credit card bonuses.

Why is the EV $62.50? When you deposit $200 through this offer, you receive $300. You must play through the $300 one time before withdrawing. Your best bet is to play one-number Keno, which has an 87.5% rate of return. (Fuzzball Keno is the safest option on this site, since you get back half of your bet even on a losing one-number game.) 87.5% of $300 is $262.50. So on average, you will profit $62.50 from this deal.

If you live in Michigan, you’d be crazy not to take this free money. In addition to the welcome bonus, they have a daily spinner where you can win additional prizes, and they often give away free games hoping you’ll be induced to continue playing on your own dime. In all, last year my wife and I profited more than $2,000 from the Michigan Lottery. No luck was involved.

Over the past few months, I have told several dozen of my friends and family members about this opportunity. Just three have actually chosen to take the easy money.

Perhaps I’m just not a very persuasive guy, but I think the bigger issue is that it is hard to break through people’s prior misconceptions. They’ve been taught that the lottery is a sucker’s game, and no amount of data can change their mind. After all, only a select few people took advantage of the Cash Winfall game in Massachusetts despite it running for years.

The goal of this post is two-fold. First, if you happen to live in Michigan, take the free money as described above. If you live in another state with an online lottery, investigate any welcome offers and check for any +EV plays you can find. (Not sure if your state has an online lottery? States with online lotteries are colored green in the map below.)

For people who don’t live in states with an online lottery, keep alert for offline +EV lottery opportunities (many states, for example, post a list of unclaimed prizes for scratch-off tickets; these can become +EV if a disproportionate number of large prizes remain with few tickets yet to be sold).

The second goal is a mindset shift. There are two general lessons to take away from this post as we seek to live The Data-Driven Life:

  1. Challenge “common knowledge” to see if it aligns with actual data. “Lotteries are for losers” is not always true; the same goes for “Credit cards are dangerous.”
  2. Customer acquisition is often a profitable moment that we can exploit. Companies are often willing to give excessive value in exchange for what they hope will be future profit. We can use this to our advantage in a wide variety of situations (anyone up for a free year of cell service?).

If you liked this post, check out this related post about making money through various forms of skill gaming!