Everybody knows about lotteries. Almost everyone has had thoughts of, I wish I would win the lottery. The huge jackpots, the prizes and the millions attract many people. Tempted by the possibility of winning enormous amounts of money, people keep spending money on the lottery, but how do these lotteries actually work, and what's the chance of winning?
How do lotteries work?
Usually lotteries work as follows: an amount of tickets are sold to people. In advance the company that organizes the lottery tells these people what the prizes will be. The lottery earns money by selling the tickets. The more tickets are sold, the more money the lottery earns. When the deadline is passed, they give away the prizes. They pay the prizes and the advertisements for the lottery from the money they made, the rest of the money is for the lottery company.
I will now give some examples to show what lotteries are like. In these examples I leave the taxes out and I assume that all available tickets have been sold.
Example one: the Simple Lottery
As an example we will take a lottery that probably doesn't exist, but that works the same as all other lotteries that exist. This lottery has the following things:
Â· 100 tickets , they sell these for one euro/dollar
Â· The lottery has three prizes:
o 1st place: 30 euro/dollar
o 2nd place: 20 euro/dollar
o 3rd place: 10 euro/dollar
The lottery attracts many people because they might win thirty times what they paid for a ticket! Soon after starting the tickets sales, all tickets have been sold. Now the lottery can give away the prices.
The prices cost the lottery company 60 euros/ dollars ( 30+20+10). They earned 100 euros/dollars.
This means that the company earned 40 euros/dollars. Of course they need to pay for the production of the tickets and for some advertising, but that can be easily done using the 40 euros/dollars. Afterwards they would still have made much money.
Example two: five friends
In case you are not too fond of numbers, I will give an example without numbers. Imagine you are having a few drinks with four friends of yours. All of you got 2 euro/dollar to buy drinks from left. Now a stranger passes by with a suggestion: "If you all give me your 2 euros/dollars, I will make sure that one of you will get four euros, one three euros, and two of you will get one euro."
The fact they have a good chance of winning the four euros/dollars, attracts the friends and they all giver their coin. In this way the stranger gets ten euros/dollars but he only gives back 9 euros and therefore he earns a euro. Now four of the people still have some money, but one has got nothing. Two of the friends have more money than they initially had, the other three have less though.
This is a weird example, however, when reading it carefully some aspects of lotteries will be recognized.
Â· Lotteries always give less away than the money they get.
Â· Lotteries simply divide the amount of money in a different way.
Â· The money the winners get, comes from those who won't win a thing.
How do I know how many percent of the income of a lottery is refunded to those who participate?
When looking again to the first example, we will be able to find out how many percent of the income the lottery makes is refunded. The answer is 60 percent: (30+20+10)/100=0.6. 0.6=60%
The number 100 is the amount of money the lottery made before giving away the prizes, while 30+20+10 corresponds with the prizes.
The exact percentage the lottery pays back depends on the lottery. 60% is common, but 70% too. This simply means that a lottery turns an euro into 0.60 euro or 0.70 euro.
What are my chances of winning?
The chance to win, is the chance you will win a price with your ticket. You can find out the chance of winning by dividing the amount of prices by the many tickets that are sold. In case of our first example the chance of winning is 0.03% because we had 100 tickets and 3 prizes: 3/100=0.03.
Lotteries can increase the chance of winning without spending more money on prizes. All they need to do is dividing the prices in a different way. Imagine that our lottery decides to hand out more than prices than the three we have been using earlier. First price is 30 euro, 2nd price is 20 euro and then you have 5 prices of 2 euro ( instead of one price that's worth 10 euros).
The chance of winning is bigger now: 7/100=0.07%
Why shouldn't I buy a ticket for the lottery?
While reading this article you should have realized that those who pay money to the lottery always lose. The chance of winning is so small that you better spend all the money on something useful. Why spend so many dollars/euros and seeing no result, while you can also buy something you profit from? Don't get tempted by the amounts of money you see and don't forget that you are paying for the prize of another lucky person!