How a Group of MIT Students Outplayed the Massachusetts Lottery for $8 million

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If there is one dream most gamblers share it is conjuring up a system that guarantees wins. It’s a pipe dream, though, right? Surely operators have armies of quants and lawyers closing every possible loophole to prevent punters from gaining an edge. After you have read this article, you might just change your mind, because a group of MIT students proved it was possible to generate a huge amount of profit from systematic betting.

It started in 2005 when the leaders of the group came across a Massachusetts lottery called Cash WinFall as part of a class project. While most students were focusing on grades, this group turned their prodigious math talent to the pressing issue of squeezing profits out of the lottery. Unlike most people who buy one ticket and hope for the best, the group used probability and huge numbers of tickets to earn millions.

The curious anomaly about Cash WinFall is that, unlike most lotteries, its maximum jackpot was capped at $2 million. If no one won the top prize, then the money was rolled down and distributed amongst the lower tier winners, making them 5-10 times larger than they would normally be. So a 5 number win (out of 6) would be worth $40,000 rather than the usual $4,000 during a normal week. This situation provided the opportunity for large scale bettors to make far more money than they spent.

The human calculators figured out that if they snapped up at least $600,000 worth of tickets, they were likely to bank a 15%-20% return. Therefore, whenever the jackpot neared the $2 million mark, they would head to lottery shops and pile up as many tickets as they possibly could. When a small test run of $1,000 worth of tickets turned into a $3,000 return, the game was on.

The group’s success led to the establishment of more MIT betting pools, and the original gang formed a company called Random Strategies Investments to ramp up the scale. Members of Random Strategies would spend hours filling in betting forms and purchasing tickets from several selected lottery outlets.

The other interesting part of the story is that lottery officials did get wind of what was going on, but did nothing to stop the scheme, for a while. In fact, what they did was quite the opposite. The lottery actually aided the group’s activities by approving extra sales from outlets where the group bought their tickets. The lottery appeared to be happy with the arrangement since it brought in a huge amount of additional revenue. Officials concluded no illegal activity took place, but the game was eventually stopped from fear of a negative public reaction.

So how much money did the scheme generate? It is estimated that over a seven-year period, syndicates poured $40 million into buying tickets while collecting $48 million in winnings. However, the groups involved have never officially released their figure so the amount could be higher. Whatever the true amount is, this story is sure to motivate bettors searching for their own magical formula to beat the system.

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