The Mega Millions jackpot is over $500 million — we did the math to see if it’s worth buying a ticket

The Mega Millions jackpot for Friday’s 11:00 pm ET drawing is up to $521 million as of 2:00 pm ET Friday.

That’s the fourth-biggest Mega Millions prize ever, according to the lottery’s website.. However, taking a closer look at the underlying math of the lottery shows that it’s probably a bad idea to buy a ticket.

### Consider the expected value

When trying to evaluate the outcome of a risky, probabilistic event like the lottery, one of the first things to look at is expected value.

Expected value is helpful for assessing gambling outcomes. If my expected value for playing the game, based on the cost of playing and the probabilities of winning different prizes, is positive, then, in the long run, the game will make me money. If the expected value is negative, then this game is a net loser for me.

Lotteries are a great example of this kind of probabilistic process. In Mega Millions, for each $2 ticket you buy, you choose five numbers from 1 to 70 and one from 1 to 25. Prizes are based on how many of the player’s chosen numbers match those drawn.

Match all six numbers, and you win the jackpot. After that, smaller prizes are given out for matching some subset of the numbers.

The Mega Millions website helpfully provides a list of the odds and prizes for the game’s possible outcomes. We can use those probabilities and prize sizes to evaluate the expected value of a $2 ticket.

The expected value of a randomly decided process is found by taking all the possible outcomes of the process, multiplying each outcome by its probability, and adding all those numbers. This gives us a long-run average value for our random process.

Take each prize, subtract the price of our ticket, multiply the net return by the probability of winning, and add all those values to get our expected value.

We end up with an expected value just below our breakeven point at -$0.03. That already suggests it doesn’t make sense to buy a ticket, but considering other aspects of the lottery makes things even worse.

### Annuity versus lump sum

Looking at just the headline prize is a vast oversimplification.

First, the $521 million jackpot is paid out as an annuity, meaning that rather than getting the whole amount all at once, it’s spread out in smaller — but still multimillion-dollar — annual payments over 30 years.

If you choose instead to take the entire cash prize at one time, you get much less money up front: The cash payout value at the time of writing is $317 million.

If we take the lump sum, then, we end up seeing that the expected value of a ticket drops further below zero, to -$0.71, suggesting that a ticket for the lump sum is also a bad deal.

The question of whether to take the annuity or the cash is somewhat nuanced. The Mega Millions website says the annuity option’s payments increase by 5% each year, presumably keeping up with or exceeding inflation.

On the other hand, the state is investing the cash somewhat conservatively, in a mix of US government and agency securities. It’s quite possible, though risky, to get a larger return on the cash sum if it’s invested wisely.

Further, having more money today is frequently better than taking in money over a long period, since a larger investment today will accumulate compound interest more quickly than smaller investments made over time. This is referred to as the time value of money.

### Taxes make things much worse

In addition to comparing the annuity with the lump sum, there’s also the big caveat of taxes. While state income taxes vary, it’s possible that combined state, federal, and — in some jurisdictions — local taxes could take as much as half of the money.

Factoring this in, if we’re taking home only half of our potential prizes, our expected-value calculations move deeper into negative territory, making our Mega Millions investment an increasingly bad idea.

Here’s what we get from taking the annuity, after factoring in our back-of-the-envelope estimated 50% in taxes. The expected value drops to -$0.89.

The tax hit to the lump-sum prize is just as damaging.

### Even if you win, you might split the prize

Another problem is the possibility of multiple jackpot winners.

Bigger pots, especially those that draw significant media coverage, tend to bring in more lottery-ticket customers. And more people buying tickets means a greater chance that two or more will choose the magic numbers, leading to the prize being split equally among all winners.

It should be clear that this would be devastating to the expected value of a ticket. Calculating expected values factoring in the possibility of multiple winners is tricky, since this depends on the number of tickets sold, which we won’t know until after the drawing.

However, we saw the effect of cutting the jackpot in half when considering the effect of taxes. Considering the possibility of needing to do that again, buying a ticket is almost certainly a losing proposition if there’s a good chance we’d need to split the pot.

One thing we can calculate fairly easily is the probability of multiple winners based on the number of tickets sold.

The number of jackpot winners in a lottery is a textbook example of a binomial distribution, a formula from basic probability theory. If we repeat some probabilistic process some number of times, and each repetition has some fixed probability of “success” as opposed to “failure,” the binomial distribution tells us how likely we are to have a particular number of successes.

In our case, the process is filling out a lottery ticket, the number of repetitions is the number of tickets sold, and the probability of success is the 1-in-302,575,350 chance of getting a jackpot-winning ticket. Using the binomial distribution, we can find the probability of splitting the jackpot based on the number of tickets sold.

It’s worth noting that the binomial model for the number of winners has an extra assumption: that lottery players are choosing their numbers at random. Of course, not every player will do this, and it’s possible some numbers are chosen more frequently than others. If one of these more popular numbers is drawn on Saturday night, the odds of splitting the jackpot will be slightly higher. Still, the above graph gives us at least a good idea of the chances of a split jackpot.

Most Mega Millions drawings don’t have much risk of multiple winners — the average drawing in 2018 so far sold about 18.9 million tickets, according to our analysis of records from LottoReport.com, leaving only about a 0.2% chance of a split pot.

The risk of splitting prizes leads to a conundrum: Ever bigger jackpots, which should lead to a better expected value of a ticket, could have the unintended consequence of bringing in too many new players, increasing the odds of a split jackpot and damaging the value of a ticket.

To anyone still playing the lottery despite all this, good luck!

Buying a Mega Millions ticket may not be the best use of your money.## We did the math to see if it’s worth buying a ticket for the $393 million Mega Millions jackpot

The Mega Millions drawing for Friday evening has, as of noon ET, an estimated jackpot of about $393 million.

While that’s a huge amount of money, buying a ticket is still probably a losing proposition.

### Consider the expected value

When trying to evaluate the outcome of a risky, probabilistic event like the lottery, one of the first things to look at is expected value.

The expected value of a randomly decided process is found by taking all of the possible outcomes of the process, multiplying each outcome by its probability, and adding all of these numbers up. This gives us a long-run average value for our random process.

Expected value is helpful for assessing gambling outcomes. If my expected value for playing the game, based on the cost of playing and the probabilities of winning different prizes, is positive, then, in the long run, the game will make me money. If expected value is negative, then this game is a net loser for me.

Lotteries are a great example of this kind of probabilistic process. In Mega Millions, for each $1 ticket you buy, you pick five numbers between 1 and 75, and then an extra number between 1 and 15. Prizes are then given out based on how many of the player’s numbers match the numbers chosen in the drawing.

Match all five of the numbers between 1 and 75, and the extra number between 1 and 15, and you win the jackpot. After that, smaller prizes are given out for matching some subset of those numbers.

The Mega Millions website helpfully provides a list of the odds and prizes for each of the possible outcomes. We can use those probabilities and prize sizes to evaluate the expected value of a $1 ticket. Take each prize, subtract the price of our ticket, multiply the net return by the probability of winning, and add all those values up to get our expected value:

Looking at the basic case, we end up with a positive expected value of 69 cents, making it look like a Mega Millions ticket might be a good investment.

But there are a few catches.

### Annuity versus lump sum

Looking at just the headline prize is a vast oversimplification.

First, the headline $393 million grand prize is paid out as an annuity, meaning that rather than getting the whole amount all at once, you get the $393 million spread out in smaller — but still multimillion-dollar — annual payments over 30 years. If you choose instead to take the entire cash prize at one time, you get much less money up front: The cash payout value at the time of writing is $246 million.

Looking at the lump sum, we get a pretty big cut into our expected value, which falls to 13 cents:

The question of whether to take the annuity or the cash is somewhat nuanced. The Mega Millions website says the annuity option’s payments increase by 5% each year, presumably keeping up with and somewhat exceeding inflation.

On the other hand, the state is investing the cash somewhat conservatively, in a mix of various US government and agency securities. It’s quite possible, although risky, to get a larger return on the cash sum if it’s invested wisely.

Further, having more money today is frequently better than taking in money over a long period of time, since a larger investment today will accumulate compound interest more quickly than smaller investments made over time. This is referred to as the time value of money.

### Taxes make things much worse

In addition to comparing the annuity with the lump sum, there’s also the big caveat of taxes. While state income taxes vary, it’s possible that combined state, federal, and, in some jurisdictions, local taxes could take as much as half of the money.

Factoring this in, if we’re taking home only half of our potential prizes, our expected-value calculations move into negative territory, making our Mega Millions “investment” a bad idea. Here’s what we get from taking the annuity, after factoring in our estimated 50% in taxes. The new expected value is now underwater, at -7 cents:

The hit to taking the one-time lump sum prize is just as devastating:

After factoring in taxes, then, our “investment” in a Mega Millions ticket doesn’t necessarily seem like a great idea.

Should you buy a ticket for the $393 million Mega Millions jackpot? It's all about expected value. ]]>