How Rigged are Lotteries?

01 february 2021

This article appeared, with the title “Hoe betrouwbaar zijn loterijen?”, as a column in the September 2020 issue of STaTOR, a quarterly magazine published by VVSOR, the Dutch Society for Statistics and Operations Research STaTOR and all authors have granted permission to translate the original Dutch texts and to use them for SECTOR.

In a column I wrote for the STAtOR, I addressed the lottery scandal ‘Triple Six Fix’, which happened in 1980 in Pennsylvania. For this lottery, during a TV show, three containers which contained ten balls numbered 0 to 9 each were shuffled with an air blower. This continued until a ball was drawn from every container by a vacuum tube into a display. The winning three-number combination was determined by the order in which the balls entered the display. The group of fraudsters was led by Nick Perry, the presenter of said TV show. Perry had injected latex paint into each of the balls, except for the balls numbered 4 and 6. This meant that only the balls with one of these two numbers could reach the vacuum tube. Subsequently, the group bought a lot of lottery tickets with the eight combinations 666, 664, 646, 644, 466, 464, 446 and 444. The winning combination of the lottery draw in question was 666, hence the name ‘Triple Six Fix’. The fraudster syndicate could not enjoy the prize of roughly 1.8 million dollars for very long. They would be exposed as a result of not taking proper caution while making internal phone calls. Nick Perry was sentenced to seven years in prison. A movie was based around the Triple Six Fix lottery scandal. Similarly, a movie based around the political scandal and hypocrisy around the Winfall lottery in the American state Massachusetts will come out soon. Those responsible for leading this lottery deliberately let a small group of investors fool regular lottery participants. The movie is based on the interesting longread Jerry and Marge go Large by Jason Fagone in the Huffington Post of March 1st 2018.

Tipton had placed self-destructing rootkit malware in his employer’s computer system to produce manipulated winning numbers for drawings on three specific dates.

The largest lottery scandal in the United States came to light in 2017 after Eddie Tipton, the former head of security of a lottery that was active in multiple US states, admitted he had manipulated the outcomes of multiple lottery drawings. The lottery utilized the computer to produce the winning numbers using a random number generator. This worked as follows: the computer reads off a measurement from a device that measures radiation in its environment, a Geiger counter. This measurement leads to a number that is actually random. This number is the starting number (seed) for the Mersenne Twister random number generator that was used by the lottery. The random number generator then generated the winning numbers for the lottery drawing. Tipton had placed self-destructing rootkit malware in his employer’s computer system to produce manipulated winning numbers for drawings on three specific dates. Tipton’s malware was programmed to give predictable results on three dates of the year – May 27, November 22, and December 29 – under the condition that these dates were either a Wednesday or a Saturday and that the drawing was after 8 pm. When these criteria were met, the random number generator would follow a different procedure.

Tipton succeeded in winning over 24 million dollars in prize money – the biggest lottery scam in the history of the United States.

Instead of a seed from the Geiger counter, the random number generator used a predetermined starting number such that only around two hundred predictable winning combinations would remain. Eddie was not allowed to participate in the lottery himself, as he was an employee. Thus, he sent the possible winning combinations to his brother and a businessman from Texas, who won the lottery and shared the prize money with him. This way, Tipton succeeded in winning over 24 million dollars in prize money – the biggest lottery scam in the history of the United States. How exactly did this case of fraud come to light? The answer is simple: like many criminals, Tipton could not bring himself to stop his criminal activities. Just like that, it is almost inevitable that carelessness would become fatal at some point. A thing or two on this case of fraud has been described in great detail by Reid Forgrave in the longread The man who cracked the lottery in the New York Times Magazine of May 3rd, 2018. Eddie Tipton was sentenced to 25 years in prison. This lottery scandal, as well as the Triple Six Fix case, raise the question how fraud robust lotteries are in general and specifically, how Dutch lotteries prevent internal misuse.

The initiator of Stichting Loterijverlies (Foundation for Lottery Loss) dealt with it much better than Nick Perry and Eddie Tipton, at least at first. This foundation was set up in 2008 after it was made public that between 2000 and 2008, the larger prizes of the Dutch Staatsloterij (50 thousand euros and 100 thousand euros) were not drawn from the set of sold lottery tickets, but from the set of all tickets that could have been sold. The total amount of lottery tickets had increased from 7.5 to 21 million between 2001 and 2008, while only approximately three million tickets were sold per drawing. The Foundation for Lottery Loss proposed to stand up against the Staatsloterij collectively. You could make a one-off payment of 35 euros to participate in this mission, which was aimed at getting a large sum from the Staatsloterij as compensation. This was a particularly smart idea. Why wouldn’t you place a bet for just 35 euros? The Foundation for Lottery Loss really got the wind behind them on January 30th 2015, when the Dutch Supreme Court decided that the Staatsloterij had misled the customer by suggesting unrealistic winning odds and by setting a large number of prizes per drawing.

Yet, the soap opera of Lottery Loss continues with severe fights between the foundation and De Telegraaf...

The defence of the Staatsloterij was that the miniscule difference between the publicly projected chance of winning (0,00000667%) and the actual chance (0,000000953%) could not have significantly influenced the consumer’s decision whether to buy a ticket. This defence was rejected by the Supreme Court. The verdict resulted in the number of members of Lottery Loss shooting up to around 194 thousand. Lottery Loss’ founder cashed in roughly seven million euros. This amount was spent partly on legal costs, but the compensation Lottery Loss got out of it for its participants was quite small. The Staatsloterij granted 40 euros of compensation per person in addition to free participation in an extra drawing. The founder of Lottery Loss seemed to be a lot better off financially than its members, at least at first. However, Dutch newspaper De Telegraaf published several articles in early 2016 in which serious concerns were voiced about whether the founder of Lottery Loss had spent the millions lawfully. This led to the FIOD, the Fiscal Information and Investigation Service, confiscating the founder’s bank accounts. After new trials, the Supreme Court determined that the confiscation would be maintained. Yet, the soap opera of Lottery Loss continues with severe fights between the foundation and De Telegraaf, which was being referred to as ‘the mouthpiece of the state’ in the foundation’s news bulletin. Moreover, since April of 2020, another party named the Foundation for Lottery Debt Collection has joined this prolonged legal battle to claim compensation from the Staatsloterij on grounds of misleading participants. We will just have to wait for the film adaptation of this typically Dutch story around the Staatsloterij.