Fribble My Very Own Lottery Company

By Mike Lewantowicz (mlewantowicz@PROCESSEQ.COM)
May 19, 2000

One of the things that has impressed me most about the minds that collaborate at The Motley Fool is the consensus on lotteries. It is truly refreshing to see the truth of the lottery exposed at a time when the news media continues to make a headline out of the "Super-Mega-Giant Lotto Jackpot" every night for a week.

While much has been written here about the foolishness involved in buying a ticket, I've thought about starting my own lottery company.

For starters, I've found a way that I can reduce overhead -- don't print tickets, and don't have a drawing. We'll decide our winner on the spot.

In fact, I'll make everyone a winner -- and give awards at the point of sale. I figure the lottery is paying out approximately 40% of what it takes in. (I might be off here, but work with me, OK?) With the reduction in overhead, we can justify paying out, say, 50% of our income (this is 25% more than the lottery pays out).

How will it work?

Well, Joe Wise comes to my licensed kiosk. He decides he wants to play $10. He slides his $10 bill into the machine. Within seconds, sirens sound, lights flash, and music blares as the kiosk declares Joe a winner, automatically dispensing his crisp $5 bill. Joe is happy because he's a winner. I'm happy because I'm left with a 50% gross margin. No matter how much Joe puts in, the machine is going to spit out 50% on the spot.

As for marketing and distribution, I would probably need the media's help in convincing people that this is the best thing going. I realize that without a big jackpot, there is no great headline. However, if I franchised this kiosk out to every convenience store in America, they could fit it in with all of the other lottery-ticket dispensers.

We could even secretly deposit 10% of the income into a segregated account investing in the Vanguard S&P 500 Index fund, and in 10 years show them how much more they've won! (We wouldn't want to mislead them and call this an investment, but I think there's an opportunity here.)

I see wins for everyone involved:

1. Every player is a short-term winner (50%).
2. Convenience store owners get a commission on every sale (10%).
3. Every player is a long-term winner, with the return of an equity investment down the road (10% invested with a 10% rate of return).
4. The company that keeps the winnings is a winner (30% of every transaction).

Now, I know that this doesn't satisfy the federal and state regulations that govern lotteries, but hey, we can dream!