The Long Odds of Lotto

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When the signers of the Declaration of Independence asserted that we all had certain unalienable rights, including the right to pursue happiness, I'm sure they meant that we should use our industriousness to chase down our dreams. Sadly, today many people seek happiness simply by plunking down a dollar bill.

I'm referring to the many state lotteries that far too many people play on a daily basis, in hopes of hitting it rich. Whether the sales pitch is "Hey, you never know" or "This could be your ticket out," lotteries spend big bucks on marketing to convince you that playing could change their life.

The cold facts
Unfortunately, reality is a lot different than those marketing messages. Forty-two states and the District of Columbia have lotteries. According to a 2004 Tax Foundation study on state lotteries, total consumer spending on them was nearly $45 billion -- a figure that equates to $155.33 per person. Lotteries place second only to casinos in terms of "takeout" -- the difference between what players spend versus what they get back in prizes. Lotteries are very profitable businesses for government -- and losing propositions for you.

That's because the odds are stacked against you. The odds against picking six of 42 numbers correctly are worse than 5 million to 1. What's that mean to you? Brigham Young University has determined that if you have to drive 10 miles to go buy your lottery ticket, you're just about as likely to get killed in a car accident on the way as you are to win.

You'd think no one would play a game in which the losses are virtually guaranteed. Yet every day, people go to casinos and play slot machines, where the take can be as high as 35% for the house. In a game in which you start with $100 but end up with $65, you don't need to be a math genius to figure out how long it will take to go broke.

Worst of the worst
Yet the odds in lotteries are even worse. According to the New York State Lottery, games range from a payout of 40% on Lotto to 65% in instant games. On average, lotto games return only $57 to players for every $100 they bet. In total, lotteries raised more than $56 billion last year for the states that have them, and they returned $17 billion for their respective governments.

Of course, you have to pity lottery player Timothy Elliott, who had the odds really stacked against him. This Massachusetts player bought the winning $10 ticket for the state's $800 million Spectacular game -- but as a convicted bank robber, he wasn't allowed to gamble. He may lose his prize, and his court date next month will determine whether he violated the terms of his probation.

Bet on the house
A better bet for him and you would have been to invest that $10 in the companies that make lotteries, games of chance, and casino games possible. Slot maker International Gaming Technology (NYSE: IGT), online gambling software provider Cryptologic (Nasdaq: CRYP), and deck-shuffling machine producer Shuffle Master (Nasdaq: SHFL) are all companies involved in helping separate gamblers from their money. Or consider an investment in Harrah's (NYSE: HET) or MGM Mirage (NYSE: MGM) if you want to bet on the house directly.

However you look at it, the lottery itself is a losing proposition for players. The lotteries may say, "Hey, you never know." But you do know that the more you play, the more you lose ... and that's the quickest route to poverty.