The October 19 2013 Mega Millions Lottery Changes

(from www.ctlottery.org)

Last Spring, Mega Millions announced that it was going to make major changes to its nationwide lottery game. This came in response to the Powerball price increase last year, and to the realization that the playing public is eager to frantically buy lottery tickets when the offered jackpots are absurdly high.

So to capitalize on the players desire to win gigantic jackpots and to derive larger revenue profits, the Mega Millions format was changed to make the probability of winning the jackpot even more difficult. By doing this, it is believed that the the average jackpot prize offerings will be in the $200 to $800 million range. And, by keeping the ticket cost at the same single dollar price, players will be more eager to purchase multiple tickets at once.

Truthfully, this logic is brilliant, and we believe that Mega Millions will accomplish its goals.

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The 2013 Mega Millions Changes

The table below shows a summary of the 2013 Mega Millions changes. Most notably, players will find that the cost of ticket prices will remain the same $1 cost, prize payouts will be substantially lower, and the chances of winning will be much harder.

Summary of 2013 Mega Millions Changes

Megaplier Prizes

White Balls increased to 1 to 75 (19 more) Megaball lowered 1 to 15 (down from 46) Starting jackpot at $15 million (up from $12 million) Jackpot will increase by $5 million minimum Match 5 prize fixed at $1 million (up from $250,000) Regular Ticket Costs $1 (no change) Chance of winning 258,890,850 (up 83M or 47.4%) Annuity payout moved to 30 years (up from 26) Annuity payments increase by 5% every year Overall chance of winning any prize 14.7

Megaplier Ticket still Costs $2 (no change) All prizes multiplied by 2, 3, 4 or 5 times (5 times is new) Average megaplier value is 3.87 times

Because the number of white balls increased to 75, the chances of winning the 2nd tier prize of 5+0 has grown to 1 in 18,492,204. Comparing this to the old 1 in 3,904,701 value for 1 in 56, we see that it is 5.975 times harder to win this prize. This means that the the 2nd tier 5+0 prize is undervalued in the new Mega Millions game.

However, since the number of Megaballs decreases to 15, the overall chance of winning any prize drops to in in 14.7 verses one in 40 in the old format.

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Start Date

The new Mega Millions will become effective on Saturday October 19, 2013, and the first drawing will be held on Tuesday October 22, 2013.

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Mega Millions's Reasons for Changes.

According to summaries, the main reason that the Mega Millions format is changing is that they want to make the game more exciting by offering larger jackpots. To do this, they increased the number of combinations to make the jackpot more difficult to win. However, they wanted to be competitive with Powerball. So, they kept ticket price at the same $1 cost. Thus:

1. to increase jackpots, they increased the odds of winning to 1 in 258.9 million;
2. by keeping the price at $1, a player who spends $2 on Powerball can get 2 Mega Million Tickets;
3. for the same Powerball price, the odds of winning are only 1 in 129.45 million (lower than Powerball);
4. by offering the match 5 prize of $1 million, they are consistant with Powerball;
5. by offering the Megaplier, a player matching 5 white balls only could win $2 to $5 million;
6. by changing the annuity payment to 30 years, they are consistant with all the other major lottery annuities.
7. and lastly, by lowering the Megaballs to only 15, the will be more overall winners.

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Game Variety

Now that the odds of winning have increased by 47%, it is easy to see that winning Mega Millions will be more difficult. Further, the value of individual prizes has been reduced substantially.

To help understand the impact of the Mega Millions changes, the table below lists the Mega Millions and Powerballs differences side by side. Powerball is shown in the light blue columns, and the new Mega Millions is shown in the pink columns.

Match	MM 5/75+1/15 Odds	PB 5/59+1/35 Odds	Winners MM	Winners PB	Prize $ MM	Prize $ PB	Prize $ Megaplier	Prize $ Power Play
5+1	258,890,850.00	175,223,510.00	1	1	$15,000,000	$40,000,000	$15,000,000	$40,000,000
5+0	18,492,203.57	5,153,632.65	14	34	$1,000,000	$1,000,000	$3,866,667	$2,000,000
4+1	739,688.14	648,975.96	350	270	$5,000	$10,000	$19,333	$40,000
4+0	52,834.87	19,087.53	4,900	9,180	$500	$100	$1,933	$200
3+1	10,720.12	12,244.83	24,150	14,310	$50	$100	$193	$200
3+0	765.72	360.14	338,100	486,540	$5	$7	$19	$14
2+1	472.95	706.43	547,400	248,040	$5	$7	$19	$14
2+0	33.78	20.78
1+1	56.47	110.81	4,584,475	1,581,255	$2	$4	$8	$12
1+0	4.03	3.26
0+1	21.39	55.41	12,103,014	3,162,510	$1	$4	$4	$12
0+0	1.53	1.63

Illustrated above are the odds (or chances), number of winners, prize payout for normal tickets, and prize payout for the multiplier (Megaplier and Power Play) tickets of both games.

Because the differences are rather large, we have decided not to illustrate these in graphic form.

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Summary
In summary, we believe that the increased odds of winning both the Mega Millions Match 5 and Jackpot will result in a far fewer number of players winning prizes of  $1 million or more. But, since few people win these now, most players will not realize the importance of this improbability.

Correspondingly, players will obtain a "false" sense of security thinking that they really have a chance to win the jackpot because it seems there are more winners. Compared to Powerball, there will be 3 times more players who match the Megaball than those matching the Powerball number. But, those who win at Mega Millions will only receive $1 verses those Powerball players who receive $4.

So just think, you will get 1/4th the amount of money but 3 times the number of winners. So, in reality, things are much worse on a dollar to dollar basis.

But, those who play the Megaplier option will fare much better. In this case, one should compare the Megaplier payouts to the normal $2 Powerball ticket. When this is done, it is easier to see that Mega Millions odds are lower than Powerball and the payouts are much better.

However, we believe the new Mega Millions game will be very successful. Indeed, jackpots will be typically be large and the frequency of winning will keep players hooked on the game.

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More Information:
The following links provide you with more information about the 2013 Mega Millions lottery.

• 2013 Mega Millions Complete Odds and Returns
• Megaplier Analysis for the 2013 Mega Millions 

A Review of the Lotto 649 September 2013 Game Changes

Canada's national Lotto 649 game will change beginning September 15, 2013.  Most notably, players of this lottery game will find four changes:

• Ticket prices will be $3 each (increased from $2),
• Minimum jackpots will begin at $5 million,
• A new match 2 prize (2 of 6 white balls) earns a free play,
• A separate second draw game with a guaranteed $1 million prize is included.

The rational behind raising the ticket price is that the increased minimum jackpot and the $1 million guaranteed prize draw will lure more players. Plus, to help make the players believe they are not wasting their money, the addition of the match 2 prize will increase the number of winners by approximately 12%.

Notes: 

• This post was revised on Monday September 16, 2013.
• This is Part I of a 2 part series which reviews the changes to the September 2013 Canadian Lotto 649 game.
• Our second post, Part II (next week),  will provide a "2013 Lotto 649 vs Lotto Max - When to Play Guide " 

Wow, more winners and higher prizes, all for a single buck more!

Is this a good deal for the Canadian Lottery player?

No, not really.

 
Why? Because the increased jackpot, $1 million prize, and match 2 prize payouts are all funded by the ticket price increase, and little goes back to the players.

Prize Payout Structure
Under the new Lotto 649 game rules, all Pool's Fund payouts (5/6+, 5/6, and 4/6) are approximately 10% lower under the $3 play:

• Match 6/6 = $5 million (vs $2 million)
• 5/6+ = $77,145.29 (vs 87,357.71) - down 11.7%
• 5/6 = $1,530.66 (vs 1,718.22) - down 10.9%
• 4/6 = $54.11 (vs $60.57) - down 10.7%
• 3/6 = $10 (same)
• 2/6+ = 5 (same)
• 2/6 = Free Ticket (new)
• (1) Guaranteed  Prize of $1 million to be paid on a raffle basis

Why are these down?
There are 6 reasons why these will be lower:

• Regardless of whether the Lotto 649 ticket cost $2 or $3, 47% of the ticket sales are dedicated to the Main Prize fund. This is the amount that will be paid out to players. The remaining 53% will be kept by the lottery organizers.
• Next, the payouts for the fixed 3/6, 2/6+, and 2/6 prizes are deducted from the Main Prize fund.
• The remainder is then called the Pool's Fund.
• According to a predefined percentage, the Pool's fund is allocated to the jackpot 6/6 prize, as well as the 5/6+, 5/6, and 4/6 prizes.
• Although the absolute amount of the Main Prize and Pool's Fund has increased, the individual allocation of prize percentages were revised: 6/6 jackpot = 79.50% (was 80.5%); 5/6+ = 6.0% (was 5.75%), 5/6 = 5.0% (was 4.75%), and 4/6 = 9.5% (was 9.0).
• This all means that: if we assume that all 13.98 million tickets are sold, then the amount in the Pool's Fund (amount to be used for paying the 6/6, 5/6+, 5/6, and 4/6 prizes) decreases by $1.401 million, which is a 15.37% decrease.
• However, allocation for the funding of the Guaranteed  $1 Million Prize, which is 7%, is deducted from the 47% proportioned for the Main Prize Fund (and not the organizers 53%).

If we consider that the Lotto 649 ticket price increased by 50%, then we realize that the Pool's Fund value decrease is quite substantial.


What about the $5 Million Minimum Jackpot Prize?
This is a good offering. The old $2 game listed a minimum prize of $2 million. However, this was rarely used. Instead, most starting jackpots were valued at either $3.0 or $3.5 million. Since the cost of a 649 ticket increases by 50%, the new $5 million minimum is in line with the ticket price increase.


And the new Free Ticket 2/6 match prize?
The $3 Lotto 649 game adds a new "free ticket" prize for those matching only 2 of the 6 white balls. This change means two things.

• First, the number of possible winners increases by 12.01%; bringing the overall percent of winners to 15.1% (as opposed to 3.1%),
• Second, the overall odds if winning is decreased from 32.31 to 6.62.

While this sounds good, we believe this is only a marketing ploy which guarantees future sales.

Why?
Remember, this is a "Free Ticket" prize, not a $3 cash prize. This means that the prize can only be used in the next (or subsequent) drawings. Thus, 12% of the winning players must redeem their prize for new tickets, which means that they will only have a 15% chance of winning once again. Even though some players may later win, most will have lost this value without having a choice of keeping the money.

But I can also win the Guaranteed $1 Million prize.

Yes, But will there be a Guaranteed $1 Million Winner?
Yes there will be a winner. At the original time of this writing, the documentation did not specifically indicate if there would be a winner. However, newly published game rules by the ALC and WCLC indicate that there will always be a single winner. For this to happen, then the additional ticket selection numbers must be sequential and known at the time of the drawing.

The BCLC documentation lists:

• Guaranteed Prize Draw prizes are not shared.
• Guaranteed Prize Draw prizes are not carried over to the next draw.
• Guaranteed Prize Draw winning selection is exact match only, in the order that they appear.

Thus, if the prize is not carried over, then it sounds like there remains a possibility that a winner will not be drawn.

Why Sequential Numbering is Important: because Winning may be Rare.
Based on the Guaranteed Prize Draw Selection number format, your chances of winning this prize are about 1 in 1 billion (yes, 1 billion). As stated in their documents, in order for a player to win this prize, they must match a 10 digit number (in the format of xxxxxxxx-xx). Since there are 10 digits that can range from 0 to 9, there is a total of 1 billion combinations. Using our Poisson Distribution Probability of Winning page, we can learn that ticket sales must be 10.04 million in order for there to be a 1% chance of someone winning the Guaranteed $1 Million prize. If all ticket combination are sold, there is only a 1.39% chance that there will be a winner (for 28 million sold, a 2.76% chance; and for 42 million tickets, only a 4.12% chance).

Perhaps No Guaranteed $1 Million Winners.
So you see that the chance that anyone winning this prize is extremely small if it is not limited to the total ticket sales. Therefore, we are discounting the value of this prize to zero. Note, however, that this prize will not be shared. Should there be more than 1 winner in a drawing, then all winners will receive $1 million.

Because the methodology of generating this extra prize number on your ticket is not defined, we are unsure if there could be multiple winners. If the number is assigned sequentially (or a sorted variation thereof), then there will not be multiple winners. If the number is randomly generated, then there is a possibility that there will be multiple winners.

However, the ALC Game Rules state that there will always be 1 winner and that there will be no duplicates.

Conclusion
Players were alerted to the Lotto 649 changes almost 6 months ago, but the details of the prize allocation and distribution was not made public until last week. After analyzing the impact of these changes, it becomes apparent that the lottery organizers did not want the public to understand that the changes do not benefit the players because:

• total allocation of lottery sales revenue to  winners prize payouts remains the same (47%)
• the Guaranteed $1 Million Prize consumes 7% of this revenue,
• the Lotto 649 portion of distribution is lowered to 40% of sales,
• the the 2/6 free ticket only assures future lottery sales and not cash to players,
• the values of the remaining prizes (except for the jackpot) do not increase in proportion to the 50% ticket price increase; instead, they decrease in value.

Therefore, we do NOT look favorably

on the 2013 

$3 - Lotto 649 game.

Fortunately, Canadian lottery players can play Lotto Max and the regional games at a relatively much cheaper cost.

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, 2013

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