Tuesday, November 11, 2014

How odds

I just finished watching a video from Last Week Tonight with John Oliver about state lotteries in the US. He points out how little money actually goes to 'the public good' as claimed by the ads. It turns out, not much. This got me wondering about the equivalent NZ lotteries and other 'beneficial' gambling outfits, most importantly the NZ Lotteries Commission. Not just how likely it is to win, but how much good they actually do.

The NZ Lotteries Commission 2014 annual report says that people spent $988,766,000 on Lotto, Big Wednesday, Instant Kiwi and Keno; nearly a billion dollars. Of that money, people were awarded a total of  $486,411,000 in prizes. That's less than half. If my maths are correct, that means that if everyone who buys a Lotto ticket decided instead to burn half the cost of that ticket and keep the rest, on average people would come away with more money. But that's not the point is it. There's the dream of the big win; becoming an instant millionaire. We all know the odds, but we can beat them. Well, the odds of winning Powerball on a $12 ticket are 1 in 3.8 million. Those are huge odds to overcome, but not impossible. People do it all the time. To put it in some perspective though, the odds of contracting motor neuron disease (MND) are about 1 in 15,000. So you are roughly 250 times more likely to contract MND than win the millions. If winning Lotto is considered achievable, then developing MND must be considered a near certainty. To be perfectly honest, I'm one of the people who buys Lotto tickets thinking they can overcome the odds, so that terrifies me.

We all know the odds are insurmountable, and deep down we all know we're never going to win the big one. But we don't just do it for us, we do it for the community and all the good that the NZ Lottery Grants Board does. There's still $502 million left after awarding prizes; that's got to do plenty of good for the community, right? Well, first we have to consider all the running costs of this government-led numbers racket. Firstly, there's GST, that about $60 million. Then there is the lotteries levy ($54 million) and the problem gambling levy ($1.3 million; that's it?!). Other sales-related costs, such as ticket costs and transaction fees, which equate to a further $74 million. After that there are various costs for marketing, personnel, building, IT etc. What's left for the NZ Lottery Grants Board to hand out to community organisations? $45,485,443. Less than one tenth of the revenue, after prizes have been paid out, goes to the community. Still, $45 million is quite a bit, and the people who receive it wouldn't get that money without Lotto, so it's not all bad. Here's a graph to showing ticket sales, prizes awarded and community giving, mostly for the sake of graphs.

However, remember how burning half the cost of a ticket was more beneficial for everyone? Well if we instead took that money we would otherwise be burning, literally or hypothetically, and sent it directly to the NZ Lotteries Commission, not only would all us 'players' be better off financially, but they would still be getting $494 million dollars in revenue. They still have to pay the personnel, building, and IT costs, and maybe even marketing to get you to donate, but there's no ticket sales or gambling involved. That means no GST, no levies and no sales costs. That's an extra $211 million or so that can go directly to the NZ Lottery Grants Board to be distributed to the community; nearly five times as much as they currently get. The Dargaville Community Cinema Charitable Trust could be getting $94k instead of their current $20k. The citizens of Dargaville might finally be able to see that space battle movie everyone's been talking about.

It's a nice idea, but of course that's not going to happen. People don't want to think about odds and economics when all the ads are telling us we could be flying personal jets with ungrateful dogs (don't get me started on that bloody dog). The charity angle is a nice way of justifying our soft-core gambling addictions, but the real reason we're buying that ticket is because we think that this week we'll beat the odds and contract a degenerative neurological disorder 250 times over, I mean win Powerball.

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