Gamblers Make Millions From Lottery Loophole
Professional gamblers have discovered a loophole in a Massachusetts scratch-off lottery game that allowed them to make big bucks before getting found out.
The gambling pros, who included computer scientists from MIT and Northeastern University, figured out that they can reap large profits if they bought more than $100,000 worth of Cash WinFall tickets at certain times of the year when prizes are four to 10 times larger than normal, the Boston Globe reported.
Those high-profit times, called “rolldown weeks,’’ occur when the Cash WinFall jackpot grows to roughly $2 million and no ticket wins the jackpot by matching six randomly chosen numbers. They would monopolize lottery machines at about 12 stores in the days leading up to a rolldown, buy as many tickets as possible, and take advantage of the increased possibility of winning.
The top five groups and individuals playing Cash WinFall collectively won $1 million to $6 million in profits each year during rolldowns, according to Mohan Srivastava. Srivastava is a Canadian statistician who gained international recognition through a feature article in Wired Magazine this year for discovering a flaw in a Canadian scratch-off game that allowed him to know which ones were winners before buying them.
The professional gamblers did not break any laws, but they did cause the Massachusetts lottery officials to put a cap on the number of Cash WinFall tickets vendors can sell in a certain period of time. With the new laws, the gamblers would still be able to use their strategy, but they’d also have to go to many more vendors.
The Boston Globe also reported that regular players of the game felt cheated by the news of the loophole. The huge profits at certain times of year through large purchases of tickets means the winnings are built on the backs of losing tickets bought by those regular players. In other words, you do not really win unless you spend $100,000.
“I’ve suspected right along that this type of betting was occurring,’’ said Cash Winfall player Peter McPhail told The Globe. “Trust me, small-time players always need divine intervention!’’
Politicians hope that sentiment does not spread, since many cities and towns benefit from aid created by the lottery.
“The integrity of the games is hugely important,’’ Senate Ways and Means Committee chairman Stephen Brewer, Democrat of Barre, said. “It’s very, very important, especially with the potentiality of [casino] gaming to make sure whatever we do, we do no harm.’’
How to Win the Lottery
However, despite politicians’ fears, the average lottery player has very little chance to compete against professional gambling companies able to spend vast sums of money to compete in the same game.
One of the gambling companies involved in the lottery scheme was GS Investments Strategies, LLC, an investment firm run by Gerald and Marjorie Selbee, that is also involved in real estate and other ventures. The Selbees, 73, have been exploiting the loophole since 2004, when a friend alerted them of the potential money-maker.
Selbee said he performed a risk assessment for large-scale investments in the game and found that he could make a profit if the game was played properly, the Daily Hampshire Gazette reported.
Selbee said he is just good with numbers and knows which questions to ask when it comes to deciding if a lottery game is worth playing.
He also knows how to play the game. The Selbee’s went so far as getting part-time jobs at convenience stores in order to buy tickets more efficiently. Both stores have had their lottery vendor licenses suspended.
"That's extremely unfair to them," Selbee told the Daily Hampshire Gazette. "(The state) is trying to penalize them for doing something they didn't do. We do not wish to cause anyone any trouble."
Selbee might be right. According to the lottery ticket investor, Selbee said the Lottery Commission observed them on at least eight occasions and had determined that no law was broken.
The Selbees’ GS Investments Strategies was also audited by the IRS twice – again, no crime was committed.
Selbee said his firm documented every transaction and paid every applicable tax.
It is estimated that the Selbees have made as much as $5 million dollars profit “playing” the Cash WinFall game.