MONEY Leisure

Why a Hyped New Lottery Game Went Bust in a Hurry

The "Monopoly Millionaire's Club" lottery launch at Times Square on October 20, 2014 in New York City.
The "Monopoly Millionaire's Club" lottery launch at Times Square on October 20, 2014 in New York City. Andrew H. Walker—Getty Images

A new Monopoly-themed lottery game was expected to be popular enough to warrant its own TV show. But the game has already been killed after flopping with lottery players, who often had no clue if they won or lost.

State lottery sales have largely gone flat at the same time that much of the country has come to rely more and more on the revenues sanctioned gambling provides. To boost sales, state lottery commissions are constantly trying to capture the imagination (and dollars) of players by rolling out exciting new games. As one economist explained to the St. Louis Post-Dispatch this past summer, a lottery game “follows a life cycle like any product… You get this increase in sales. It peaks. People get used to it, and then you get this slowdown.”

Hence the need to regularly create and market new lottery games, like the Monopoly Millionaires Club, introduced in 23 states in October as the first multi-state lottery game to hit the scene in 12 years. At the time, state lottery commission press releases (like one published for Arizona) and news outlets in participating states (such as New Jersey) had trouble explaining all of the game’s particulars. It was a “two-pronged game,” but with potentially multiple winners and “three different ways to win a million dollars,” and each ticket came with a series of numbers as well as a traditional Monopoly property, like Marvin Gardens or B&O Railroad. Anyone with a ticket matching all six numbers would win the jackpot (starting at $15 million), and when a jackpot was awarded, other randomly selected players would win $1 million apiece. But if nobody won the jackpot, nobody else was eligible to win $1 million either.

Oh, and players were supposed to enter an online sweepstakes to win a trip to Las Vegas to be on the associated TV show, to be hosted by Billy Gardell (Mike on “Mike & Molly”), where more millions could be awarded. And each ticket cost a pricey $5. “This $5 price point strengthens the game’s play value while differentiating it within lottery draw game portfolios,” the Arizona press release explained. Whatever that means.

From the get-go, people were puzzled. “Monopoly Millionaires’ Club is like a cross between Powerball, the Pennsylvania Lottery’s Millionaire Raffle, and McDonald’s Monopoly game, which makes people collect various game pieces,” one Philadelphia Inquirer writer summed up. “Plus, there’s a TV show,” and unlike popular scratch-off lottery tickets, “there’s nothing ‘instant’ about” about the Monopoly game. While it could possibly pay off big-time for players, the game was so confusing it might “set records for people who fail to realize they won, as well as people who mistakenly think they did.”

Turns out people don’t like confusing lottery games involving delayed gratification, and they certainly don’t like forking over $5 a pop to play such games. Citing “sales that have not met the lottery industry’s projections,” Texas announced last week that it was suspending the Monopoly game, and all other states followed suit recently. By December 26, the game will disappear nationally. To borrow from Monopoly lingo, this game is going indefinitely to jail. Do not pass Go; do not collect $200—or any amount.

MONEY Lottery

Here’s One Solution to America’s Destructive Lottery Addiction

Man in pile of cash excited holding up fistfuls of money
John Lund—Getty Images

This week John Oliver helped expose the dark side of U.S. state lotteries, which are a drain for low-income ticket buyers. Turns out, there's a better alternative.

Lotteries—and the damage they inflict on the finances of poor Americans—were the main topic of HBO’s satirical news show Last Week Tonight with John Oliver this past Sunday.

Host and comedian Oliver had several bones to pick with state lottery administrators, who already generate a staggering $68 billion in revenue each year and are expanding into even more addictive products like video lottery terminals.

Among the disturbing developments he noted is the fact that states like Illinois have begun rolling out smartphone lottery apps.

“If, starting right now, your mother could play the lottery as easily as she plays Candy Crush, in three weeks, she’d be preparing Thanksgiving dinner over a trashcan fire,” Oliver quips in the clip below.

Jokes aside, Oliver has hit upon some sad truths about lotteries.

For one, playing the lottery is a form of gambling that can be just as neurologically addictive as substance abuse.

Lotteries also tend to function as a regressive tax on the poor. Studies show that it’s the poorest Americans who spend the biggest portion of income on lotteries, with 61% of people in the lowest fifth of socioeconomic status (as measured by income and education) playing the lottery each year, compared to 42% in the top fifth. And while the richest Americans gamble on the lottery only 10 times each year, the poorest buy tickets 26 days annually.

“The hope of getting out of poverty encourages people to continue to buy tickets, even though their chances of stumbling upon a life-changing windfall are nearly impossibly slim,” writes Carnegie Mellon’s Emily Haisley, the lead author of a study on the psychology of lottery gambling. “Buying lottery tickets, in fact, exacerbates the very poverty that purchasers are hoping to escape.”

Given that lotteries are a big revenue source for state governments and aren’t going away anytime soon, however, some advocates for the poor are seeking ways to dissuade financially-vulnerable Americans from playing.

One promising answer that’s gained visibility in recent years is to combine the appeal of gambling with something that promotes responsible financial behavior—in this case, a savings account.

These “prize-linked savings accounts” work just like normal savings accounts, except that instead of getting interest for parking their cash, customers are entered into a drawing—a lottery, if you will—to win money or other prizes.

Though they are currently available through credit unions in certain states like Michigan, Nebraska, North Carolina and Washington, these accounts are prohibited by many other states’ governments—despite lots and lots of evidence that the accounts are effective at steering would-be gamblers toward building nest eggs they otherwise wouldn’t have.

In one study, for example, researchers found that people saved 38% more than the average when given the option of a prize-linked account. Plus, the money they put away tended to come out of their lottery ticket spending, not their normal savings account contributions (if they had any).

Of course, in an ideal world, everyone would stop chasing prizes and instead contribute to conventional savings, retirement, and investment accounts that actually earn interest or generate returns and don’t impose the stiff early withdrawal penalties that many prize-linked accounts do.

But here in the real world, where advertisements, news, and irrational hope combine to make us feel like our dream life is just a ticket away, it’s unrealistic to expect all Americans to stop playing the lottery.

A more realistic goal might simply be to apply its powerful appeal to smarter alternatives.

MONEY Odd Spending

Why People Aren’t Buying Lottery Tickets

Lottery forms on a gas station counter in Lutherville-Timonium, Maryland, Thursday, Dec. 12, 2013.
Patrick Semansky—AP

Lottery sales have gone flat in several states, but not necessarily as a result of gamblers waking up to the fact that the house always wins.

Are people who had been accustomed to dropping a few bucks here and there on state lottery games experiencing “jackpot fatigue”? It sure looks that way, according to Stephen Martino, director of the Maryland State Lottery and Gaming Control Agency, who at a recent meeting noted an astonishing 41% dropoff in Powerball sales in the state last month, compared with September 2013. Paraphrasing Martino, the Baltimore Sun reported that “players may be becoming numb to soaring prize numbers,” and so they’re not buying lottery tickets at the blazing pace set in the past.

Maryland is not the only state where lottery sales are falling, flat, or just not measuring up to the projections offered by local gaming commissions. Sales of core lottery games declined in Ohio during the first half of 2014, for instance, while lottery sales in Kentucky are failing to measure up to what was drawn up in the state budget last spring. Meanwhile, once-torrid lottery sales have plateaued in Missouri, with profits for the fiscal 2014 year that are $21 million lower than the year prior. One expert told the St. Louis Post-Dispatch that the falloff in lottery sales in Missouri (and elsewhere) comes partly as a result of players getting bored with the games:

“It follows a life cycle like any product,” said Thomas Garrett, a University of Mississippi economist who studies lotteries. “You get this increase in sales. It peaks. People get used to it, and then you get this slowdown.”

In light of this concept, it makes sense that money spent at newer, up-and-coming video lottery terminals in states such as Ohio is rising, while traditional lottery games like instant tickets and Pick 3 and Pick 4 are on the decline. To boost sales and attract a new generation of lottery players, states are spending more on advertising and rolling out games that are sold in new ways (lottery ticket sales at gas station pumps and ATMs) and that are sold with themes favored by locals (college football teams, “Duck Dynasty”).

In addition to simple fatigue and a lack of excitement for the same old games, lottery sales have also been hurt by the spread of casinos, according to some research. This past summer, the Washington Post noted that lottery sales in Maryland had increased for 16 years in a row before casinos came to the state. And the recent opening of another casino in Maryland seems to have played some role in the September slump of Powerball tickets. “Those two industries [lottery and casinos] tend to be substitutes for each other,” one economist hired by Maryland to conduct a study on lottery sales explained to the Post.

At the same time, gambling industry supporters point out that while lottery sales in states such as Ohio and Pennsylvania initially declined or went flat after casinos opened in the states, the drop was only a blip—and that sales are strong once again. The debate about how casinos impact lottery sales is raging in Massachusetts, where a Repeal the Casino campaign argues, among other things, “If the lottery takes the minimum expected hit of 10 percent from the introduction of casinos and slots, state lottery transferred as state aid to towns and cities will be reduced by about $90 million.” Casino supporters, on the other hand, say that such projections are based on outdated and flawed data, and that any effect of casinos on lottery sales is temporary.

TIME psychology

Would Winning the Lottery Solve All Your Problems?

Lottery balls
Getty Images

Eric Barker writes Barking Up the Wrong Tree.

Via the documentary Lucky:

Every year Americans spend $7 billion on movie tickets, $16 billion on sporting events, $24 billion on books… and $62 billion on lottery tickets. More than half of all American adults play the lottery making it, by far, the most popular form of paid entertainment in the country.

Odds you believe your best shot at getting rich is winning the lottery: 1 in 5.

Odds you will actually hit the jackpot in a Powerball lottery: 1 in 195,249,054.

People have a lot of irrational beliefs when it comes to the lottery. Many believe if they give a lottery ticket away it’s more likely to win.

What if you educate people about the statistics showing the odds are stacked against them when they gamble? Doesn’t change their behavior one bit.

And if you believe that winning the lottery will solve all your problems? You might be a little irrational too.

Are lottery winners happier than paralyzed accident victims?

Yes… but not by as much as you’d guess.

Some time after winning their money, lottery winners weren’t all that much happier than people who hadn’t won — and accident victims weren’t anywhere as unhappy as the researchers had assumed.

Shouldn’t lottery winners be ecstatic and paralyzed accident victims be miserable? No.

What the authors of the study found was that:

1) Much of happiness exists outside of objective life circumstances. Attitude and perspective mean a lot more than actual events.

2) We’re prone to a contrast effect. Events in our lives don’t have set values; they’re compared to other events. Winning the lottery is such a big deal it actually makes every other good thing in the winner’s life less enjoyable.

3) We’re also prone to habituation. Simply put, we can get accustomed to nearly anything, no matter how good or bad. After time, a wheelchair doesn’t seem so bad — and a million dollars doesn’t seem as good.

But you still want to be rich, right?

There’s no denying it: Yes, you would probably be happier if you were rich… but not by much. Past about 75K a year, money doesn’t bring very much extra happiness.

Think about this for a second:

Would you be happier of you were a billionaire or if you were Amish?

Correct answer: they’re both equally happy.

And this:

Do you think you’d be happier homeless in Fresno, California or homeless in Calcutta, India?

Correct answer: Calcutta, hands down.

Via Flourish: A Visionary New Understanding of Happiness and Well-being:

The downtrodden of Calcutta are far happier than you’d think, given their circumstances. How can these people possibly be happy?

The problem isn’t with them, it’s with us. We’re falling prey to what’s called a “focusing illusion.” All we’re thinking about is money and living standards and not the other factors that are often more responsible for happiness than we give them credit for: religion/meaning, family, marriage and friends.

Can you tell me the best way to play the lottery or not, Eric?

So back to the lottery. Can research give you any help on the best way to play the lottery? Actually, yes.

Buy your tickets as early as possible.

Because what you’re really buying is a chance to dream.

And the smartest thing to do is to prolong that enjoyment as much as possible.

This piece originally appeared on Barking Up the Wrong Tree.

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MONEY stocks

How Investors Are Like Powerball Players

Lottery winners
Many investors dare to dream, like these winners of the $448 million Powerball jackpot. Donna Svennevik—ABC via Getty Images

It's easy to be dazzled by stocks with hot streaks. Here's why you should ignore that noise.

Almost everyone knows that playing the lottery is a terrible idea as a matter of simple math, and yet state-run lottery ticket sales run close to $70 billion per year. Why do we waste our money this way? “All you need is a dollar and a dream,” is how the old New York lotto ads put it — and of course that’s what we’re really buying when we play: a dream.

Investors as a group are supposed to be more rational than lottery players. (For one thing, there’s a lot more than a dollar at stake.) But now along comes some new evidence — in case you needed it — that that isn’t always the case. A new research paper by business professors Turan Bali, Stephen Brown, Scott Murray, and Yi Tang finds that “lottery-like” stocks tend to be overpriced, delivering lower future returns.

What are lottery stocks? Ones with unusually high average returns for their five best days in a given month — regardless of how they perform during the other 25 or so days. The idea seems to be that a handful of high return days have the same effect as news stories about big lottery winners. Investors see them and dare to dream.

This effect, the researchers say, explains one of the long-standing puzzles in finance. There’s some evidence that stocks with a high “beta” — a kind of volatility, that is — do worse than you’d expect given their level of risk. And low volatility stocks do better than you’d expect.

As I’ve written about recently, a group at the hedge-fund firm AQR argues that Warren Buffett’s tilt to lower-volatility stocks is one reason he’s done so extraordinarily well. The AQR group says low-volatility stocks have an edge because investors who want to take on more risk don’t have easy access to additional borrowed money. So when they want to goose their returns, they instead tend to crowd into riskier stocks. That drives up the valuations on shares of those high­fliers, giving cheaper, low-beta stocks an edge.

Bali and company have a more behavioral explanation. Many high-volatility stocks are also lottery stocks. So perhaps what’s going on is that investors simply see hot returns — never mind they’re short-term gains — and then chase after them. Because, hey, you never know.

TIME Lottery

$425 Million Powerball Jackpot Winner Comes Forward

B. Raymond Buxton wound up claiming a lump sum of $242 million before taxes on a Powerball ticket he bought in February for just $2, a return of more than 12 billion percent

A California man came forward Tuesday to claim February’s $425 million Powerball jackpot, lottery officials said.

B. Raymond Buxton, the sole winner of the Feb. 19 jackpot, claimed the prize in Sacramento at the California Lottery headquarters, the Associated Press reports.

Buxton purchased the winning ticket for $2 at a Chevron station in the city of Milpitas, near San Jose.

The retiree opted to claim his winnings as a lump sum payment, which will be about $242 million before tax. Opting for a lump sum results in a slightly lesser payout.

The $425 million prize is one of the largest in the game’s history. The Powerball jackpot reached a record-setting $590.5 million last May.

[Associated Press]

TIME Lottery

Luckiest Couple Ever Wins Lottery 3 Times in a Month

What may just be the luckiest couple ever won the lottery three times in March— and one of their winnings was the result of the combination 6-6-6-6.

Calvin and Zatera Spencer of Portsmouth, Va. claimed their first $1 million prize on March 12 after winning a Powerball drawing. Next, Calvin’s lucky sixes resulted in a $50,000 prize from the Virginia Pick 4 lottery on March 26. One day later, the Spencers won $1 million from a Virginia Lottery Scratcher ticket.

The couple took home $681,000, before taxes, from that last win alone. “We’re not finished yet,” said the couple after redeeming their last prize, USA Today reports.

[USA Today]

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