Upping the Ante for Lotto: a Strategy for Enhancing State Revenues

Abstract

Many state lottery agencies operate a numbers game in which a grand prize accumulates (i.e. "rolls over") until at least one player wins it. This type of game is usually called a "lotto. " This article investigates the possibility of enhancing net revenues from a lotto by artificially increasing the expected grand prize amount with funds not generated by the game itself. Using data from the Florida Lotto, a time series regression for weekly ticket sales is estimated. Also introduced is a limited dependent variable model to estimate the probability that the grand prize will roll over as afunction of ticket sales. This model is based on a variation of the binomial distribution. The findings are that net revenues can be increased by artificially increasing the grand prize, but the timing of the increase has a large impact on the expected rate of return.