How the Powerball rules were tweaked to make the game an even bigger ripoff
Dream on. (Gene J. Puskar / Associated Press)
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Powerball fever has gripped the country, as one might expect with a jackpot of nearly $1.4 billion at stake in Wednesday's drawing.
Newspapers, online sites, and TV broadcasts are brimming with reports of massive sales and hopeful players -- The Times website, latimes.com, has run 18 posts about the lottery just since Jan. 10, when the last drawing failed to produce a winner and drove the jackpot to this record level. Powerball officials in the 44 states that participate in the game are quoted expressing astonishment at the size of the jackpot and the nationwide frenzy it has induced.
The rules change is intended to increase the odds of winning any prize, while making it more difficult to win the jackpot prize.- New York Gaming Commission, explaining how they produced a billion-dollar Powerball jackpot
That last bit is the cynical one. Powerball officials can't be surprised; they changed the rules last July precisely to produce this outcome -- a huge pot, and a stampede of buyers.
The tweak was simple, but deliberate. For each $2 entry, players select five "white" numbers and a single "red" number. At each drawing, five numbered white balls and a red ball are picked. Match all the whites and the red, and you've won the jackpot. Match only the whites, and you've won the second prize of $1 million; only the red, and you've won $4, which you're likely to convert into another pair of tickets.
The rules change increased the white numbers to 69 from 59 and decreased the red number to 26 from 35. The effect was to decrease the chance of winning the jackpot from 1 in 175.2 million to 1 in 292.2 million. The chance of winning that $4 in chump change was reduced to 1 in 92 from 1 in 111.
All the ways you can lose in Powerball, in one simple chart. (New York state Gaming Commission)
On the surface, the purpose was no secret: "The rules change is intended to increase the odds of winning any prize, while making it more difficult to win the jackpot prize," the New York Gaming Commission, which ran the game last year, said at the time.
But it was a little more reticent about the real goal, which was to reduce the probability of any jackpot winner at the twice-weekly drawings, and thus increase the probability of a massive, potentially billion-dollar jackpot. (The jackpots increase whenever there's no jackpot winner.) As Walt Hickey of fivethirtyeight.com calculated, the chance of a billion-dollar jackpot in any five-year period rose more than seven-fold, from 8.5% to 63.4%.
The change was spurred by signs that Powerball was becoming an endangered species of lottery. Sales had fallen 19% nationwide in 2014 because of the lack of a major jackpot. In New York, sales had declined 44%, and state officials were talking about the possibility they would "remove the Powerball game" from their portfolio of offerings.
In California, which started offering Powerball in 2013, the game's sales slumped by more than 21% to 2014-2015 from 2013-2014--to $372 million from $473 million, because of the lack of a big jackpot. "You can look at the financial data from year to year and easily point to the years with a big jackpot," Alex Traverso, a spokesman for the California lottery, told me.
But they had a precedent to work with. In 2013, organizers of the Mega Millions multi-state game had boosted its flagging sales by changing the odds of a big win to 1 in 259 million from 1 in 176 million, with the same idea of increasing successive jackpots.
They took their lesson from the big jackpot year of 2011-2012 California's biggest Mega Millions haul was $720 million in sales in 2011-2012, the year of a $656-million jackpot--the largest ever until the current Powerball game. The following year, sales slumped 48%.
The lottery organizers base their work on a well-understood facet of human nature: people don't understand odds. They pay less attention to the probability of a given event than the consequences if it takes place. The odds of a terrorist incident on a plane come to 1 per 16.6 million departures, statistics guru Nate Silver calculated in 2009, but people tend to focus on the outcome -- hundreds of passengers perishing at once -- than on the probabilities.
The same phenomenon is at work with Powerball: Customers focus their attention less on that incomprehensibly tiny 1-in-292-million probability, and more on what they'll do with the billion-dollar prize when they win it.
It's also well-understood that in economic terms, the people who are exploited by this mismatch of expectations tend to be disproportionately low-income and less educated.
Yes, lotteries are effectively a tax on the poor. In 1999, researchers at Duke University reported that American households spent an average of $162 per year on lottery tickets, but low-income households spent $289 and those with less than $10,000 in income spent $597. Higher lottery purchases also were associated with lower educational attainment and ethnic minorities.
Experts aren't entirely sure why "those who can least afford it play the most," as German sociologists asked in a 2013 paper. The pessimistic, and perhaps condescending, view is that the poor and less-educated don't have the intellectual gifts to appraise the odds, but middle-class and rich people play the lottery too.
The sociological answer is that lower-income people have a greater need to relieve tension in their daily lives, gambling is a socially acceptable way to do so, and only the lottery offers the lure of a potentially life-changing payoff. Another attraction, the German researchers conjectured, is that lotteries are egalitarian -- every buyer of a ticket has the same chance of success. That may be more appealing to those in lower socioeconomic strata, for whom equal opportunity may seem like a rare break, than to the more affluent, who may look at an equal-opportunity situation as one working to their disadvantage.
As for the idea that lottery revenues are used to fund education, it's little more than window-dressing. In California, $1.39 billion in lottery funds went to education last year, but that's less than 2% of a state education budget of more than $76 billion. If the schools and higher education systems were properly funded by taxes, there'd be no need to provide the dribble of funding out of the paychecks of working-class Californians. (Richard Auxier of the Urban Institute provided some nationwide perspective on this feature of the scam in 2014.)
What's the lesson? As with game of chance, keep your eye on the ball. And despite the incessant haranguing coming from lottery officials and the media, don't expect to win.