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Mass. Lottery knew about exploited game's flaws for years, IG says

Massachusetts LotteryMassachusetts Lottery: Mass. Lottery knew about exploited game's flaws for years, IG says
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Massachusetts State Lottery officials knew for years that a small group of gambling syndicates had virtually taken over a game called Cash WinFall — winning most of the prizes during high payoff periods — but did nothing about it until the local media began investigating, according to state Inspector General Gregory W. Sullivan.

Sullivan's report details the way a handful of math and science wizards, including Massachusetts Institute of Technology undergraduates looking for an interesting school project, turned Cash WinFall into a nearly fulltime business, spending $40 million on tickets over a seven-year period and winning an estimated $48 million.

And lottery officials were happy about the huge sales to these sophisticated gamblers, bending and breaking lottery rules to allow them to buy hundreds of thousands of the $2 tickets, Sullivan found. If anything, lottery officials were envious, with one supervisor asking in an e-mail: "How do I become part of the club when I retire?"

State Treasurer Steven Grossman, who oversees the lottery, finally stopped the game this year. On Monday, Grossman said the agency should have taken action sooner.

"I feel it is important to essentially apologize to the public because a game was created that allowed syndicates to gain special opportunities that others did not have — using machines themselves, partnership with lottery agents, using them after hours. We're sorry some gained unfair advantage," said Grossman, who had requested Sullivan's investigation.

"Revenues were tremendous and the lottery benefited, but there were practices that were not appropriate and things done that were not rignt," he said.

However, the inspector general recommended no further action, concluding that lottery officials got no personal benefit from the syndicates' manipulations. He also found that ordinary gamblers still had a fair chance at winning Cash WinFall, though the syndicates reported a much higher rate of profit than ordinary gamblers.

Sullivan found that the lottery failed to manage the game or enforce the rules, but concluded the game was "a financial success for the lottery."

Local media reported last summer that a few gamblers with an extraordinary knowledge of math and probability had found a quirk in Cash WinFall shortly after it was introduced in 2004, allowing them to make an almost guaranteed profit as long as they purchased enough tickets at the right time. They figured out that, for a few days every three months or so, Cash WinFall became the most reliably lucrative lottery game in the country.

Sullivan said that these high rollers made a livelihood from playing it, giving up their day jobs to devote nearly full-time to the game, often backed by hundreds of thousands of dollars put up by investors.

The leaders of the group of MIT students stumbled on Cash WinFall as part of a college research project. James M. Harvey told investigators he was looking for an interesting senior independent study subject for his final semester in 2005. He said it took only a few days to determine that during so-called "rolldown weeks," it was easy for large-scale bettors to win more than they lose.

Here's why: Unlike most lottery games, the biggest prize in Cash WinFall was capped at $2 million. If no one won the jackpot when it reached $2 million, the jackpot was then redistributed — or "rolled down" — into the smaller prizes, making them 5 to 10 times bigger than normal. Matching 5 of the 6 numbers drawn in Cash WinFall would normally produce a $4,000 prize, but during a rolldown week, the prize could top $40,000.

 

The groups figured out that if they bought at least $600,000 worth of tickets, the chances were excellent that they would win back 15 percent to 20 percent more than they spent. As a result, whenever the Cash WinFall jackpot got close to $2 million, the syndicates rushed to stores to buy as many tickets as possible.

Harvey said he initially tried the game on a small scale during the Feb. 7, 2005, rolldown, winning $3,000 from $1,000 worth of tickets. The group's winnings inspired other betting pools on the MIT campus, the report said, but Harvey made it large-scale, forming a company with fellow student Yuran Lu. They called it Random Strategies Investments, after the dorm, Random Hall, where their plan was hatched.

Random Strategies officials spent many hours filling out betting slips and buying tickets at a few hand-picked stores, the report said, betting between $17 and $18 million over a seven-year period on Cash WinFall. Sullivan estimated the group earned at least $3.5 million in profits from 2005 to 2012, though Harvey declined to disclose his group's earnings.

Leaders of another group, GS Investment Strategies of Michigan, told investigators they typically aimed to buy around 312,000 tickets to ensure profits. On July 14, 2011, the group placed its largest bet ever, spending $720,000 on 360,000 tickets.

A third group, made up of scientists at Boston University and Northeastern University, started betting in 2005 after analyzing Cash WinFall and realized the odds were in favor of large-scale bettors.

"I told everyone I met: 'You should put more money into this game'," said Dr. Ying Zhang, who formed the Doctor Zhang Lottery Club Limited Partnership.

He told investigators the group made steady profits from Cash WinFall from the beginning, just as his calculations had suggested. In 2006, he left his day job as a biomedical researcher to focus mainly on Cash WinFall.

The game's vulnerability became clear in 2010, Sullivan said, when the MIT group figured out a way to win nearly the entire jackpot for a single drawing, something lottery officials had erroneously concluded was impossible.

The MIT group figured out that, if it bought enough tickets, it could push the jackpot to $2 million and trigger the rolldown all by itself.

In August 2010, the group began quietly buying up enough tickets to force a rolldown. The lottery remained silent as the MIT group stockpiled 700,000 tickets and did not alert the public that a rolldown week was about to happen, as it normally does. The MIT group bought more than 80 percent of the tickets during the August 2010 rolldown, Sullivan found, and ultimately cashed in 860 of 983 winning tickets of $600 or more.

Lottery officials previously said that they had no way of knowing what the MIT group was up to, but Sullivan concluded that was untrue. He found that the lottery knew the MIT group was buying up hundreds of thousands of tickets, because the lottery had to approve extra ticket sales for the stores the MIT group frequented.

The lottery's finance department, which approved the extra sales, failed to notify other lottery employees whose job was to predict jackpots for the public.

The inspector general faulted the lottery for not notifying the public, noting that the agency had been caught off-guard by the MIT group — even though the group had been preparing for a forced rolldown for years before it carried one out.

Sullivan concluded the lottery was aware of the gamblers' activities as far back as 2005 and cracked down only after officials feared negative publicity.

For instance, in April 2010, compliance officer John Marino visited the two Western Massachusetts stores where the Michigan group routinely spent hundreds of thousands of dollars during rolldowns — and found no problems.

"Everything is very organized and runs smoothly," wrote Marino, who mentioned that the owners of both stores were part of the Michigan betting club. The lottery even placed a second Cash WinFall machine at both Billy's Beverage of Sunderland and Jerry's Place in South Deerfield, allowing the gamblers to process more bets faster.

After local media reported on the syndicates' takeover of Cash WinFall last July, Grossman disciplined the owners of the two stores that had allowed the Michigan group to run the ticket machines themselves, and restricted the number of tickets any store could sell in a day, essentially ending the groups' dominance. The game was phased out earlier this year.

"I see this as a teachable moment, to send a message to our customers that the integrity of the lottery is of paramount importance," said Grossman.

Boston Globe

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28 comments. Last comment 2 years ago by mcginnin56.
Page 1 of 2

United States
Member #111446
May 25, 2011
6323 Posts
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Posted: July 31, 2012, 8:54 am - IP Logged

Can't wait for the next Mass. exploitable game!!!  All the lottery officials care about, are keeping their weekly sales of tickets in the black.

 

It's like a game of musical chairs, just wait a little time until some new lottery official comes along, with less than honorable scruples. Then history will

repeat itself all over again.  Jester Laugh  The politics of greed and corruption will never change, just whoever happens to be in charge at the time.  Jester

    rdgrnr's avatar - walt
    -Ridge Runner- Oracle of the Appalachians
    Way back up in them dadgum hills, son!
    United States
    Member #73904
    April 28, 2009
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    Posted: July 31, 2012, 11:03 am - IP Logged

    It seems very doubtful to me that no lottery officials were in on the take on this one.

    Especially when they knew exactly what was going on for years and even seemed to cooperate on not informing the public when a rolldown was happening.

    Too coincidental, too convenient.


                                                 
                         
                                             

     

     

     

     

                                                                                                       

    "The only thing necessary for evil to triumph is for good men to do nothing"

                                                                                                --Edmund Burke

     

     

      Avatar
      Kentucky
      United States
      Member #32652
      February 14, 2006
      5402 Posts
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      Posted: July 31, 2012, 12:23 pm - IP Logged

      "Local media reported last summer that a few gamblers with an extraordinary knowledge of math and probability had found a quirk in Cash WinFall shortly after it was introduced in 2004, allowing them to make an almost guaranteed profit as long as they purchased enough tickets at the right time."

      There are hundreds of posters on LP that believe they found quirks in almost every lottery game including scratch-offs. All the lotteries are keeping at least a 40% of there total ticket sales so while it's possible there are profitable systems, it doesn't look like they are making much of dent on overall lottery profits.

      "The groups figured out that if they bought at least $600,000 worth of tickets, the chances were excellent that they would win back 15 percent to 20 percent more than they spent."

      Since their profit came from the "roll down" part of the jackpot, from the lottery's perception it was no different than one $2 ticket winning $40,000 instead of $4000. The lottery already knew the percentage of the total wagers that would be paid out to the winners and even if the syndicates were getting most of the winners, the lottery was still making a profit and had no effect on the odds against the $2 betters winning at least $20,000 on a bet that paid $4000 when the syndicate didn't play.

      The only real problem was if the syndicates using the lottery terminals were preventing the average player from making a bet.

        Avatar
        Kentucky
        United States
        Member #32652
        February 14, 2006
        5402 Posts
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        Posted: July 31, 2012, 1:21 pm - IP Logged

        It seems very doubtful to me that no lottery officials were in on the take on this one.

        Especially when they knew exactly what was going on for years and even seemed to cooperate on not informing the public when a rolldown was happening.

        Too coincidental, too convenient.

        It's obvious lottery agents were involved ("Everything is very organized and runs smoothly," wrote Marino, who mentioned that the owners of both stores were part of the Michigan betting club.) and the officials knew that something was going on when a store averaging $10,000 in sales had over $600,000 in sales when the "roll down" started.

        "Especially when they knew exactly what was going on for years and even seemed to cooperate on not informing the public when a rolldown was happening."

        That only happened one time when a syndicate decided to buy 700,000 tickets to force a roll down which was over 2 times higher than their usual bet when a roll down was immanent. The lottery should have known something was going on based on sales volume, but couldn't make the "roll down announcement" until sales reached the roll down amount. It would be worse if the lottery told the public there would be a roll down when there wasn't enough tickets sold to force one.

        I do agree there was more involvement by lottery officials than is known, maybe even criminally but for now on paper it looks like their involvement just generated more profits for the lottery. Whomever designed the game should have known the possibility of large bets getting an advantage, but probably though nobody would bet that much money.

          maringoman's avatar - kobold
          Massachusetts
          United States
          Member #37433
          April 14, 2006
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          Posted: July 31, 2012, 3:35 pm - IP Logged

          The only local lottery game worth playing for small time gamblers is Mass Cash (pick 5).  $100,000 for picking 5 of 35 numbers is good odds. My numbers though have never showed up. Loyalty to lotto numbers can be an expensive exercise.

          It's a futile effort.

            eddessaknight's avatar - nw paladin.jpg
            LAS VEGAS
            United States
            Member #47729
            November 22, 2006
            2910 Posts
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            Posted: July 31, 2012, 5:23 pm - IP Logged

            It seems very doubtful to me that no lottery officials were in on the take on this one.

            Especially when they knew exactly what was going on for years and even seemed to cooperate on not informing the public when a rolldown was happening.

            Too coincidental, too convenient.

            I Agree!

            10/4 Ridge

            All big money games of chance & speculation, including the stock exchange, attract the attention of manipulators from outside & inside with many who find the advantage edge - get away with it!!

            EddessaKnight

              Avatar
              NH
              United States
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              December 5, 2009
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              Posted: July 31, 2012, 6:02 pm - IP Logged

              This is where the FED's should step in and go through with a fine tooth comb what the lottery knew for years. Look at the bank accounts of all the employee's who worked for the lottery etc.  Instead, their too busy looking for steroids in baseball...


                United States
                Member #111446
                May 25, 2011
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                Posted: July 31, 2012, 6:05 pm - IP Logged

                The only local lottery game worth playing for small time gamblers is Mass Cash (pick 5).  $100,000 for picking 5 of 35 numbers is good odds. My numbers though have never showed up. Loyalty to lotto numbers can be an expensive exercise.

                I grab three Mass Cash & two Megabucks Doubler QP's every Friday when I cross into your state. I've had good luck on both, hit 4 out of 5 on Mass

                Cash once, tons of 3 out of 5. Same with Megabucks Doubler. And these tickets still only cost $1 to play. Thumbs Up

                  Astekblue's avatar - Tarlor
                  Kentucky
                  United States
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                  March 12, 2006
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                  Posted: July 31, 2012, 6:20 pm - IP Logged

                  This is where the FED's should step in and go through with a fine tooth comb what the lottery knew for years. Look at the bank accounts of all the employee's who worked for the lottery etc.  Instead, their too busy looking for steroids in baseball...

                  Amen   To     That      !!!!!!!!     Yes Nod

                    RJOh's avatar - chipmunk
                    mid-Ohio
                    United States
                    Member #9
                    March 24, 2001
                    17823 Posts
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                    Posted: July 31, 2012, 7:57 pm - IP Logged

                    It's hard for me to believe that the average lottery player who understood how the game worked wasn't aware  that someone willing to spend a large sum of money had a better chance of winning a second tier prize or was almost guaranteed to win one if they were willing to spend above a certain amount.

                    * you don't need more tickets, just the right ticket * 
                    * your best chance to win a lottery jackpot is to buy a ticket * 
                        Wink 

                      ttech10's avatar - blobdude
                      Texas
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                      June 5, 2010
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                      Posted: July 31, 2012, 8:16 pm - IP Logged

                      spending $40 million on tickets over a seven-year period and winning an estimated $48 million.

                       

                      It says they won $48 million, so does that mean they only profited $8 million? Does anyone know how many were in the group? I guess it would be worth it for the almost sure money they were getting, but it seems like they would be getting a lot more than they were, figuring all the illegal activities they and others were doing in order to win.

                      It would make more sense to me if they profited the $48 million (meaning they won $88 million).

                        Avatar
                        MA
                        United States
                        Member #11452
                        February 14, 2005
                        74 Posts
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                        Posted: July 31, 2012, 8:55 pm - IP Logged

                        I was one of the people who figured this system out.  I'm not as active on the LP forums as I once was, but I used to be a semi-regular.  I know there are other LP regulars who also figured it out.  If you read all of the forums all the time, you would have come across people discussing this strategy (though not in explicit detail) years ago.

                        First off, I'd like to address the comment, "all the illegal activities they and others were doing in order to win."  No one did anything illegal.  Read the original report for details: http://www.mass.gov/ig/publications/reports-and-recommendations/2012/lottery-cash-winfall-letter-july-2012.pdf

                        Second, these are statewide totals, so I don't know the exact details, but I'd bet the total profit was more like $8m than $48m.  20% profit is nothing to sneeze at.

                        Third, there was no corruption.  The "scandal" here is that the lottery designed a game that was actually possible for players to win once in a while, and they let people keep playing their system even after it was shown to work.  That's not much of a scandal.  A bunch of serious lottery players finally found a system.  That's not a scandal, that's what everyone on this whole web site tries to do every time they play.

                         

                        So, what's the secret to cracking the lottery?  Well, I can only speak to my system.  Which is math.  Lots and lots of math.  And legwork.  Analyze every game in the country you can find.  Are there any strange rules?  What happens when one game ends and another begins?  Taking all of the small prizes into account, what's the expected value of a dollar bet?  Is there any advantage to playing certain numbers, or combinations of numbers?  (Birthdays and betslip patterns actually matter more than you'd think.)  Balls vs RNG's seem to matter less than most people think, but there are definitely some RNG's out there that are broken.  I wouldn't count on a broken RNG to stay broken, though.  I'd just stay away from it entirely.  Balls aren't exactly infallable, either.  I remember seeing one state that moved the location of the drawing, and for weeks afterward, for every single drawing, there were more balls from the left-hand columns than from the rest of the machine.  I stayed away from that game, too, until they finally got the draw machine installed right.

                        It's hard to keep track of all these games as they come and go, and as jackpots rise and fall.  You know who can help you with that?  Todd.  Pay the man.  THIS SITE IS THE BEST LOTTERY RESOURCE THERE IS, END OF STORY, AND A PAID MEMBERSHIP CAN SAVE YOU HOURS OF HEADACHE EVERY MONTH.  If you see something promising on here, by all means, go to that state's lottery web site and read up on all the details, but without LP, I'd be totally lost.

                        Finally, if someone else has a system, pay attention to it.  Analyze it yourself.  Does it make sense, or does it rely on some strange assumption?  Most of the time, it's not going to go anywhere, but you gotta kiss a lot of frogs if you want to find a prince.

                          Avatar
                          MA
                          United States
                          Member #11452
                          February 14, 2005
                          74 Posts
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                          Posted: July 31, 2012, 9:04 pm - IP Logged

                          Also, stay the heck away from the Texas lottery.  Something's off about it.  Though, like anything else lottery related, if you read LP enough, you already knew that.

                            mediabrat's avatar - 18z0typ
                            upstate NY
                            United States
                            Member #108795
                            March 31, 2011
                            540 Posts
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                            Posted: July 31, 2012, 9:52 pm - IP Logged

                            I agree that it would not be a surprise if some lottery officials were on the take.  It sounds far too convenient that they were only in it for the profits of the game and not for personal gain.  At the very least, there were probably performance bonuses at stake that they were all too happy to let these players achieve for them.

                            One thing that bothers me about this -- other than the obvious flaws that have already been discussed -- is the per-store ticket limit that has been implemented.  I'm sure it's set at a level that will rarely be reached, but I would be not be a happy camper if I walked into a store to purchase tickets and was turned away becaue they hit their limit.

                            "I think if you think the Internet is a place where it's ok to be cruel to other humans, that's just so sad. You must really be suffering." -- Xeni Jardin