Hot Lotto Changes on March 12, 2013 - Not so Hot!

Beginning with the March 15, 2013 drawing, the MUSL Hot Lotto game format will change.

While we normally welcome improvements to the various lottery games, we do not believe that the new 2013 Hot Lotto changes will assist in attracting more players. Overall, the odds of winning any prize increase from 1 in 16.09 to 1 in 17.22, while the amount of money returned to the players decreases from 32.9% to 27.4%. This means it will be harder to win less money!

Hot Lotto used to be a small niche game offering a chance to win a minimum of $1 million at odds less than a Pick 6 game. Now, a player can win a little more than a million dollars at twice the odds of Pick 6.

Thus, we think the new 2013 Hot Lotto game is not as hot as advertised!

Not So

The Changes
First, the number of white balls will increase from 39 to 47 numbers. This means that the chance of winning the jackpot prize will increase from approximately 1 in 11 million to 1 in 29 million. Thus, it will be almost 3 times more difficult to win the top prize.

To offset this increased risk of losing, the guaranteed jackpot minimum will be increased by 1.4 to 1.5 times, depending in which state which the jackpot winners lives.  This is achieved because the federal and state taxes on the jackpot prize will be paid directly by the lottery association. This means the minimum jackpot increase is only a quarter of the increase in the odds. So, when the jackpot value is low, we are not very keen on this new game format.

No longer will the jackpot winner have the choice to taking a single discounted cash prize, or a 25 payment annuity. Instead, all prizes will be paid straight out, as cash.

In the game, players must still choose a Hot Ball number in the range of 1 to 19. This has not changed.

To help make the game more attractive to players, payouts for several prizes will be increased. But, as shown below, only 2 prize levels have increase more than the odds have increased.

Lastly, players will still have the option to purchase the Sizzler option at a cost of $1 more per ticket. The prize payouts to winners with this option will have their prize value multiplied by 3. This does not apply to jackpot winners however.

The tables below summarize and compare 4 aspects of the new Hot Lotto game format to that of the existing game.

Chances of Winning 2013 Hot Lotto
First we will examine the odds of winning and the the number of winning combinations in the new Hot Lotto Game.

Table HL-1 Hot Lotto Balls Matched Odds (Chances) of Winning White HB Old Format 2013 Format  Change 5 1 10,939,383.00 29,144,841.00 166.4% 5 0 607,743.50 1,619,157.83 166.4% 4 1 64,349.31 138,784.96 115.7% 4 0 3,574.96 7,710.28 115.7% 3 1 1,949.98 3,385.00 73.6% 3 0 108.33 188.06 73.6% 2 1 182.81 253.87 38.9% 2 0 10.16 14.10 38.8% 1 1 47.18 52.08 10.4% 1 0 2.62 2.89 10.3% 0 1 39.31 34.26 -12.8% 0 0 2.18 1.90 -12.8% - - - - - Table HL-1 above compares the chances of winning the 2013 Hot Lotto Game with the existing game format. As we can see, the odds of matching 5 white balls increased by 166.4%. In fact, the odds of matching 1 or more of the balls selected all increased. The only odds that decreased are those that do not match any white balls.

Table HL-2 Hot Lotto Balls Matched Number of Winners White HB Old Format 2013 Format  Change 5 1 1 1 0.0% 5 0 18 18 0.0% 4 1 170 210 23.5% 4 0 3,060 3,780 23.5% 3 1 5,610 8.610 53.5% 3 0 100,980 154,980 53.5% 2 1 59,840 114,800 91.8% 2 0 1,077,120 2,066,400 91.8% 1 1 231,880 559,650 141.4% 1 0 4,173,840 10,073,700 141.4% 0 1 278,256 850,668 205.7% 0 0 5,008,608 15,312,024 205.7% 10,939,383 29,144,841 166.4% Table HL-2 shows the number of possible combinations that will occur assuming that all the tickets are sold. Note that the number of winners that match the 5 white balls with or without the Hot Ball, do not change.

From the above two tables, we can make two observations:

1. Although the odds of winning either the jackpot or second tier prize increased substantially, the absolute possible of winners in those categories did not change at all. 
2. The chance of holding a losing ticket combination has increased proportionately more than the increase in total overall odds (205.7% increase in losers verses 166.4% increase in odds).

Thus, from an odds viewpoint, we see that the new format only benefits the MUSL, and not the Hot Lotto players.

New Payouts
Now let's examine the change to the payout structure.

Table HL-3 Hot Lotto Balls Matched Winning Prize Payouts White HB Old Format 2013 Format  Change 5 1 $1,000,000 $1,400,000 40.0% 5 0 $10,000 $30,000 200.0% 4 1 $500 $3,000 500.0% 4 0 $50 $100 100.0% 3 1 $50 $50 0.0% 3 0 $4 $6 50.0% 2 1 $4 $6 50.0% 2 0 1 1 $3 $3 0.0% 1 0 0 1 $2 $2 0.0% 0 0 Table HL-3 above illustrates the changes to the prize payouts for a straight $1 ticket. As we can see, several of the payouts have been increased. However, the amounts for those matching 3 white + HB, 1 white + HB, and HB only remain the same. Note that we have entered a minimum of $1.4 million for the jackpot. We chose this value because it includes an approximate taxes paid value. This value will change as the jackpot increases.

Table HL-4 Hot Lotto Balls Matched Sizzler Payouts White HB Old Format 2013 Format  Change 5 1 $1,000,000 $1,400,000 40.0% 5 0 $30,000 $90,000 200.0% 4 1 $1,500 $9,000 500.0% 4 0 $150 $300 100.0% 3 1 $150 $150 0.0% 3 0 $12 $18 50.0% 2 1 $12 $18 50.0% 2 0 1 1 $9 $9 0.0% 1 0 0 1 $6 $6 0.0% 0 0 Table HL-4 above illustrates the changes to the prize payouts for the Sizzler option. As we see, all of the payouts (except the jackpot) have been multiplied by 3. Note that we have entered a minimum of $1.4 million for the jackpot. We chose this value because it includes an approximate taxes paid value. This value will change as the jackpot increases.

Here we see that the prizes that increased the most in value are for those who: match 5 white balls and not the Hot Ball; and match 4 white balls and the Hot Ball.

Wow, these to prizes go from $10,000 to $30,000 and $500 to $3,000 respectively!

But, remember, that there are very few people who will win these prizes. There will still be only 18 possible winners of the $30,000 prize, and only 210 of the $3,000 prize.

What this means is that the MUSL is relying on a players dream to win a larger amount, and hoping that they do not understand that the dream is fruitless.

Think of it this way. The odds of winning the $3,000 Hot Lotto prize is 1 in 138,784.96. But, a person who  plays the Pick 4 game has a 1 in 10,000 chance to win between $2,500 to $3,000. Meaning it is 13 time easier to win the same amount of money.

Conclusion
We find it difficult to rationalize the changes made to the 2013 Hot Lotto Game. We do not believe the minimum jackpot level of $1 million will attract more players. Instead, we find that there will be less winners, 5.81% compared to 6.21%, and there will be many more losers.

Players hoping to win equivalent prize payouts will have better opportunities playing their state's Pick 4 and Pick 6 games.


To learn more, visit our full game analysis at:

• US Hot Lotto Complete Odds and Returns to Players - Analysis of May 2013 Changes

New Lotto Texas 2013 - Review of the Game Changes

Revised: Friday, April 26, 2012
 
For the 4th time since the game began in 1992, the Texas Lottery Commission (TLC) will be making changes to Lotto Texas.

These changes will become effective beginning with the April 17 2013 drawing.

This is our summary of the changes and our evaluation of them.

The basic Lotto Texas format will remain the same. 
Players will still be required to pick 6 numbers from a set of 54. If the full 6 number combination matches the one drawn that evening, the player will win the jackpot prize. Each single ticket will continue to cost $1 each, and the lower tier prizes will remain the same (i.e. those matching 3, 4, and 5 of the white balls). Should a player be lucky enough to win the jackpot, he will still have the option to receive either the lump sum cash payout, or the full advertised annuity amount paid over a number of years.

What Changes
However, there will be 4 differences in the new Lotto Texas 2013 game.

• First, a "Extra!" option is added to the game. Players can choose to pay $1 more for the chance to win higher cash amounts for the lower tier prizes. This means that those holding the Extra! option will earn higher prizes if they match 3, 4, or 5 balls. Plus, a new $2 prize payout will be added for those matching only 2 of the 6 balls. (This is in effect a "multiplier" option).
• Second, the minimum annuity jackpot prize will be increased to $5.0 million.
• Third, the annuity payout period will increase from 25 to 30 payments.
• Forth, the annuity jackpot will increase in increments of $250,000 rather than the current $1 million.

While we rarely like the idea of raising lottery ticket prices, we have found that those games with a "multiplier" option usually offer better returns to the lottery players. Since players have the option (or choice) to pay more for a ticket, they have more control over the amount of money they spend. Thus, we believe this is fairer to them because they can control their own spending.

To help players understand how these changes will affect them, we discuss each of these 4 changes below.

Summary of Lotto Texas 2013 Changes and Payout Structure
To begin, we have prepared the summary Table 1 below illustrating the prize payouts for a single $1 ticket and the new $2 Extra! ticket.

Table 1: New Lotto Texas 2013 Payout Structure
Match	Chances	Occurs	Probability	Single $1   Ticket	New $2 Extra!
6	25,827,165.00	1	0.000004%	Jackpot	Jackpot
5	89,677.66	288	0.001115%	$2,000	$12,000
4	1,526.43	16,920	0.065512%	$50	$150
3	74.66	345,920	1.339365%	$3	$13
2	8.85	2,918,700	11.300892%	-	$2
1	2.51	10,273,824	39.779140%	-	-
0	2.10	12,271,512	47.513972%	-	-
	Total	25,827,165	100.000000%	-	-

Here we can see that there is no change to the single $1 ticket set of prizes. However, the Extra! ticket offers increased prizes for those matching 3, 4, and 5 balls. The match 5 prize moves from $2,000 to $10,000; the Match 4 prize moves from $50 to $100; and the Match 3 prize moves from $3 to $10.

And, we can also see the new $2 prize for those matching 2 of the balls. The addition of this new prize is what makes the Extra! ticket attractive. Assuming all possible combinations were purchased, there will be nearly 3 million new winning tickets, an increase of 11.3% over those who did not buy Extra!. Further, those matching: 5 balls have a 5 times multiplier; 4 balls have a 2 times multiplier; and 5 balls have a 3.33 times multiplier.

On a $ return basis, we look to see what will be returned to the players if the jackpot prize is not won. In the case of the single $1 ticket, we find that 9.52% is returned. Whereas, the Extra! ticket returns 31.61% of the money back to the players. This is an increase of 3.32 times, and it exceeds the 2 times cost in Extra! ticket. Thus, we believe that the Extra! option is attractive and should be played.

The Breakeven: When to buy Extra! - Like all other multiplier games, the new Lotto Texas Extra! option has an implied breakeven value. This is the jackpot amount where the returns of a single ticket equals that of the Extra! ticket. For Lotto Texas, we calculate this value to be: $11.4 million. Thus:

Buy Extra! when the jackpot is less than or equal $11.4 million;

Do not buy Extra! when the jackpot is more than $11.4 million.

Minimum Jackpot Increases to $5 Million
There are two components to increasing the minimum jackpot. First, people tend to buy more lottery tickets when the jackpot increases. This means that increasing the minimum jackpot from $4 to $5 million will result in higher ticket sales.  Second, the addition of the new Extra! option will most likely increase the Texas Lottery Commission profits since many players will be willing to pay $2 for their ticket rather than $1 because of the improved prize payouts.

Thus, it is noteworthy that the Texas Lottey Commission recognized the potential for increased profits and raised the minimum Jackpot accordingly.

Annuity Payout Period increases to 30 payments.
However, changing the annuity payout period from 25 to 30 payments only benefits the Texas Lottery Commission, not the players.

On the surface, players may be indifferent to this change because most jackpot winners opt for the cash value payment. But, the value of the cash prize offering is directly proportional to the length of time established by the annuity. This means that for any given annuity value, the longer the annuity term to maturity (years of payments), the lower the cash value will become.

Thus, even though we have a higher annuity value, the corresponding cash value payout will be proportionately lower than what currently exists.

In theory, the Texas Lottery Commission (TLC) should not care whether a player chooses to take the cash option or the annuity payment. The reason is that the cash value should be valued at the amount the TLC must invest in order to achieve the annuity payments.

But since the discounted cash value will be lower after the 2013 changes are implemented, the TLC will profit more from the difference it is saving.

Further, some players who would have previously opted for a 25 payment annuity may shy away from a 30 period annuity: First because it is 5 years longer (which increases the uncertainty period); and Second because the yearly annuity payment will be lower.

Lets assume the annuity value is set at $5 million and the investment yield is 2.80%. Under the current rules of 25 payments, the cash value will be $3.66 million and each of the annuity payments will be $200,000.

However, under the new 2013 rules of 30 payments, the cash value will be lowered to $3.45 million and each annuity payment will be reduced to $167,000.

Under this scenario, the TLC will profit by $210,000 simply by the difference in the cash values. And, the players yearly payment will decrease by $33,000.

Table 2: Annuity to Cash and Yearly Payouts Scenarios
Jackpot	Yield	Old  Cash	New  Cash	Cash   Diff	Old Yearly Payout	New Yearly Payout
$4M	2.8%	$2.93	$2.76	-$0.17	Old Yrly	- na -
$5M	2.8%	$3.66	$3.45	-$0.21	$0.200	$0.167
$5M	4.0%	$3.25	$3.00	-$0.25	$0.200	$0.167
$5M	6.0%	$2.71	$2.43	-$0.28	$0.200	$0.167
$10M	2.8%	$7.32	$6.89	-$0.43	$0.400	$0.333
$10M	4.0%	$6.50	$5.99	-$0.51	$0.400	$0.333
$10M	6.0%	$5.42	$4.86	-$0.58	$0.400	$0.333

Table 2 above illustrates various annuity to cash values for 3 different yield values: 2.8% (current value); 4.0%; and 6.0%. As we can see, the new jackpot cash value for 30 payments is always less than the current 25 payout structure. Additionally, we can see that the annuity payout in the new 2013 game will be less than what winners receive now.

Jackpot Increases by $0.250 million
The last major change with the new 2013 Lotto Texas will be the increments by which the annuity jackpot will grow.

Under the new rules, the jackpot will grow in increments of $0.250 compared to the existing $1.0 million increment. This does not mean that the jackpot will only grow by 1/4 million dollars between consecutive non-winning drawings. Instead, it means that the annuity will be set to the closest 1/4 million.

While this may appear to be a detriment, we believe it is a good improvement to the game because it will be fairer to both the Lotto Texas players and the TLC as well.

The reason is that the annuity can be adjusted more proportionately to actual ticket sales.

For example, when the jackpot is set to the minimum, ticket sales are low. But, as the jackpot increases, the ticket sales increase as well.  Thus, when the jackpot is set at $5.0 million, the next drawing jackpot may only be $5.25 or $5.50 million. But, when the jackpot grows to $10 million, the subsequent jackpot might be set at $10.750 or $11.250 million.

In the past, the TLC would have to adjust jackpot growth more randomly because increments would be rounded to the nearest $1.0 million. This would have the effect of the TLC offering a lower annuity jackpot than what its profits would permit.

Setting the Lotto Texas jackpot increment to $0.250 will now be the same as that of Texas Two Step. A review of that game's jackpot history shows that growth appears to be exponential, rather than linear. We believe this same pattern will be repeated by the Lotto Texas game as well.

Summary
In summary, four new rules to Lotto Texas will go into effect beginning with the April 17, 2013 drawing.

These changes include: offering a new Extra! option that will increase the non-jackpot prize payouts; increase the minimum annuity jackpot to $5 million; lengthening the annuity payout period from 25 to 30 payments; and, lowering the minimum annuity jackpot growth to $0.250 million.

Overall, we believe these changes will be beneficial to lottery players in Texas, and to the Texas Lottery Commission as well. The Extra! option increases payout returns to the players and will increase the potential number of winners by 3 million. Increasing the minimum jackpot amount will help to attract more players when the annuity is at its minimum. And, changing the jackpot growth will help to increase the annuity offerings because it eliminates precautionary rounding.  The only detriment to the new rules is the lengthening of the jackpot payout period. This may influence more players to choose the cash value payment. But, we believe the annuity is still better because the cash value will be lower than what it is today.

Please not that at the time of this writing, the official rules have not been published on the Texas Lottery website. When they become available, we will add the link to this post and make any modifications necessary.

Sources:

• Lotto Texas Change Announcement
• The Lotto Report review of changes
• Lotto Texas 2013 Complete Odds and Return to Players
• When to buy Lotto Texas Extra - Recommendation Analysis
• Texas Two Step Jackpot Growth History

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Whittaker's Luck - Explains why two unrelated men won their country's large lottery jackpots!

If you want to win the lottery, perhaps you should change your name to Whittaker.

Within the strange coincidence of luck, we read that two unrelated men with the same last name have both won a large jackpot in different countries. This article explains why they won.

Most recently, James Whittaker of Edmonton Alberta won $15.7 million playing Canada's Lotto 649. James's winning was in the January 16, 2013 drawing.  His numbers were: 14 21 27 34 37 38 (he did not need the Bonus ball 10). James bought his ticket at a 7-Eleven store.

A little more than 10 years ago, Andrew Jackson “Jack” Whittaker won $314.9 million playing the U.S. Powerball lottery. Jack's winning occurred in the December 25 2002 drawing.  His lucky numbers were: 5, 14, 16, 29, 53, and Powerball 7. Jack purchased his ticket at the C&L Super Serve convenience store.

James Whittaker

The lives of these two men are quite a bit different. James is a young and unmarried Canadian. He always wanted to win the lottery, and now that he did, he plans to invest his winnings and do some traveling. Because Canada does not tax lottery winnings, James will get to keep his full $15.7 million.

"Jack" Whittaker

Jack, on the other hand, was a 55 year old United States citizen living in Jumping Branch, WV. He was married and owned a construction company. Although the official lottery picture shows Jack with a check for $314.9 million, Jack chose to take the cash option. After taxes were withheld, Jack received only $93 million (still quite a nice sum).

After winning, Jack had many personal and family problems. Hopefully, young James will learn from Jack's experiences and manage both his money and his life differently so that he avoids the pitfalls that Jack and other lottery winners encountered.

If you're wondering, the name Whittaker is a variation of the common name Whitaker (only 1 "T"). It's origin is from Old English and means "white acre" or "white field" depending on which source is used.

Uniquely though, both Jack and James spell their last name the exact same way (with two "T"s).

So, why did they both win the lottery? The only logical explanation is: Whittaker's Luck!

Now that we know of Whittaker's Luck, maybe we should all rush out: change our last name to Whittaker; and then buy some lottery tickets at a local convenience store. Note that it doesn't matter: if you are married or not, which country you live in; or how old you are. Only your last name and where you buy the ticket are important! But, make sure that your name has 2 "T"s in it.

Gotta go now. I'm rushing off to the courthouse to change my name!

Sources

• James Whittaker Wins Edmonton Lottery Of $15.6 Million Lotto 6/49
• Edmonton man wins $15.7M in Lotto 649
• Jack Whittaker (lottery winner)
• Lottery Winner Jack Whittaker's Losing Ticket
• 5 Worst Cases Of Lottery Disasters
• What does the name Whitaker mean?
• Whitaker

Should you buy all 175.2 million Powerball combinations?

Update 1: The Powerball annuity jackpot has been increased to $500 million, and the cash value is now $327 million. (Tuesday, Nov 27 3:31 PM)
 
With the Powerball jackpot now at $425 million, it is logical for players to wonder if they should buy tickets for all the possible combinations. At first glance, one might think this would be a winning strategy for picking up an easy $74.6 million. 

However, before one recklessly spends this much money, there are several factors that that must be considered.

1. In the 2012 Powerball game, each ticket costs $2. Since there are approximately 175.2 million combinations, one would have to spend $350.4 million to accomplish this.
2. The $425 million jackpot is the annuity value which is paid in 30 varying installments (29 years). This implies that the breakeven 0 profit financing rate is 1.144%. So, if one borrowed the $350.4 million, the borrowing rate must be less than this interest rate in order to make a profit. If the borrowing rate is more than 1.144%, you will lose money.
3. The cash value being offered today is $278.3 million. If you take the cash, you will immediately lose $72.1 million.
4. In order to guarantee yourself a winning ticket, you must buy all the 175.2 unique combinations. If you are lazy and buy 175.2 quick picks, then there is a 36.8% chance that you will not have the winning combination.
5. When the jackpot is this high, we can expect that approximately 120 million other tickets will be sold. Of these, there will be a 50% chance that one of these will be a winning ticket. This means that there is a 50% chance that you will have to share the jackpot prize with at least 1 other winner. If this happens, you might win only $212.5 million annuity or $139.2 million cash or less. Again, you will take a loss.

As you can quickly see, there is a very high probability that even if you buy all the unique combinations, you will end up losing millions of dollars if you purchase all the combinations. Thus, our advice is:

No, You should NOT but all the Powerball combinations.

But, what if no one wins the jackpot in the next drawing and the Powerball grows to $600 million. Should you buy the combinations then?
To help you answer this, we present the two graphs below. The first shows the chances of there being a losing Powerball as ticket sales grow to 500 million. As you can see, the chances decrease as sales increase. When 200 million tickets are sold. there is a 30% chance that nobody will win. When ticket sales hit 500 million, there is less than a 6% chance that there will be no winner.

The second graph shows the probabilities of having more than one winner. At sales of 200 million, there is a 40% chance of multiple winners. When sales reach 500 million, there is a 67% chance that there will be more than one winning ticket.

So, even as the temptation to purchase all combinations increases as the jackpot value grows, the likelihood that the prize will be shared by more than one winner also increases. So, even if the annuity jackpot reached $1 trillion, it would most likely be shared by 2 or more winners, which means that each winner would only receive a jackpot prize equal to or less than the $425 million currently offered.

Thus, we continue to recommend that you should:

NEVER buy all the Powerball combinations!