The lottery's mathematical incentive is now higher — thanks to Trump

A sign advertising tickets for the $1-billion Mega Millions lottery drawing is seen in Brooklyn, New York, U.S., October 19, 2018. REUTERS/Shannon Stapleton
A sign advertising tickets for the $1-billion Mega Millions lottery drawing is seen in Brooklyn, New York, U.S., October 19, 2018. REUTERS/Shannon Stapleton

Friday’s Mega Millions jackpot has crossed the $1 billion mark, and the math nerds are getting excited.

If a lottery jackpot is high enough, it is theoretically possible that it’s mathematically advantageous to buy a ticket. For the next 10 years, however, until President Trump’s tax bill expires, that magical jackpot number required is smaller.

(A caveat before we get into this: at low numbers, this is merely a thought experiment. You would need a ton of tickets for this to apply meaningfully.)

The math behind the lottery

To start with, a simple definition of the value of a lottery ticket is the jackpot multiplied by the probability of winning. In an ultra-simple lottery with a $6 jackpot, where the winner is drawn from the roll of one die, a ticket would be worth $1 because it would cost six tickets to guarantee a $6 win. (6 x [1/6] = 1.)

If this theoretical lottery had a ticket price of 75 cents, you would do well to play this game. And, if possible, buy every number combination. You would spend $4.50 and be guaranteed $6.

This is the thinking behind the math. If the potential payout per ticket — the “expected value” — is greater than the sticker price, it’s mathematically advantageous to play.

But when the jackpot gets enormous, something special happens: the expected value rises significantly – because the odds stay the same. That’s what makes this Mega Millions interesting. It’s important to remember that while the pot grows like a raffle, the odds never go down as more tickets are sold.

The Trump tax cuts factor

Imagine a simplified example with only the Mega Millions jackpot, whose odds are 1 in 302,575,350, and whose tickets cost $2.

In this case, for the expected value of each ticket to be worth the ticket price, you would need to have a $605 million jackpot. (You can check this by theoretically imagining how much you’d need to buy every ball combination, and divide by the jackpot.)

But it’s not that simple, even when you ignore other prize amounts, which raise the value of each ticket and lower the required break-even jackpot.

That’s because taxes will claim a hefty chunk of the winnings, which means the jackpot would actually have to be much higher to make the math work.

How high? According to this in-depth analysis I did a few years ago for Powerball — which is much the same for Mega Millions — the magic jackpot number for a $2 expected value is probably around $2.3 billion. Or more, given the fact that the odds are now worse than they used to be.

This year, however, is better than last year for those who hit it big. That’s because it’s the first year Trump’s tax plan has been implemented – so now the top-tier tax bracket is 37%, not 39.6%