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No Inflation Here: The Economics of Lottery Tickets – May 16, 2012

Inflation is both the rise in the prices of commodities and the fall in the purchasing power of currency over a period of time. However, unlike peanut butter, cars, or coffee, which all rose about 3-5% in price from 2011 to 2012, the lottery is somewhat immune to inflation. Why? Because while ticket prices stay constant, jackpot records continue to rise. Because lottery jackpots paid in annuity take inflation into account. Because investing in lottery tickets investment whose return promises to far exceed the cost of playing.

Inflation is measured by calculating the rate of increase of a price index. The Consumer Price Index (CPI) tracks prices of goods and services regularly purchased by the average consumer. To find the rate of inflation, calculate the percentage of change in the price over a set period of time.

 Inflation = (CPIthis year – CPIlast year/CPIlast year) × 100

The power of a currency has a direct influence on the formula. While $1 can no longer buy a dozen eggs, it can still fund a lottery ticket!  Even more, with lottery jackpots constantly working to break their own records, lottery tickets are always a smart investment.

To calculate the expected return per line or ticket entered, divide the jackpot prize amount by the odds of winning the jackpot.

 Expected Return per Lottery Ticket = Jackpot Value/Winning Odds

Using Australia Saturday Lotto as an example, we would estimate the expected return per line using the AU$ 20,000,000 jackpot for the May 12 draw, the 1 in 8,145,000 odds of winning the first prize and the $1.75 ticket price per line. Dividing $20,000,000 by 8,145,000, the expected return per ticket comes out to $2.45, which is $.70 more than the original investment!

While the odds of winning lottery jackpots look slim on the surface, lottery participants should remember that these numbers are only the odds for a single line with one number combination. Most lotto winners purchase multiple lines on each ticket, increasing their odds of winning significantly. For example, if the odds of winning an Oz Lotto Australia jackpot are 1 in 45,379,619 for 1 line, they increase to 1 in 3,781,635 for 12 lines and become just over 1 in a million for 36 lines!

theLotter takes the guess work and calculation out of the process of selecting the most economical lottery to play by presenting the lotteries with the best cost-benefit ratio, like Australia Saturday Lotto or Oz Lotto, in theLotter’s theSmart list. theLotter developed an algorithm that measures lotteries’ winning odds, jackpot sizes, taxes, and ticket prices to find the smartest lotteries to enter all week long. This way, lottery fans can maximize the purchasing power of their money and side step the effects of inflation!  

One might claim that the Powerball Lotto experienced inflation in January, 2012, when the ticket price was doubled from $1 to $2. However, this claim is flawed because the minimum jackpot amount also doubled to $40 million and the second prize increased from $250,000 to $1 million. The lottery reduced the Powerball guess range by 4 numbers, giving players better winning odds to collect the lottery’s bigger prizes. In fact, with the lottery restructuring, the so-called inflation gave lottery players bigger expected returns on their ticket purchases!

While the lottery world is greatly impacted by industry competition and economic climate, lotteries are largely immune to the effects of inflation. A lottery ticket’s worth is only dictated by its jackpot winning potential in the lottery results draw, and luckily for lottery players today, that jackpot winning potential just keeps rising!