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Ehrlich Aide Warns of Severe Cuts If Slots Fail

Here's something I don't understand about state governments and gambling:

Why is it OK for states to run a lottery, but slot machine and casino gambling is generally frowned upon?

True, lotteries help fund schools, but so can revenues from other gambling sources. And generally, other gambling sources are seen as a source of poverty or immorality, breaking apart hard-working families by getting them to bet away all their money.

Which can be true; gambling addictions can really hurt you if you don't know when to stop. But if you're going to claim that slots are evil, then it's hypocritical to have a state-run lottery, which is always much, much worse.

Why? Because the payouts-versus-odds in lotteries are unfairly balanced toward the house... er, state... to a ridiculous extreme.

Take a look at these links. These are payout charts for two games available in the Maryland Lottery: Mega Millions, a multi-state multi-millions lottery, and Pick 3, a smaller, Maryland-run game.

Notice that to collect the grand prize in Mega Millions, you have to hit on a 1-in-135,145,920 bet. It costs you $1 to play. The current annuity jackpot (paid out over several years, probably 30) is only $12 million. Let's say you bought a ticket with every possible combination, spending $135,145,920. You would hit the jackpot once for $12 million, and collect about $24.7 million in side prizes (e.g. tickets that only hit 3 to 5 numbers). That's about a $36.7 million payout (before taxes) for your $135 million, or 27 percent. And that's assuming that nobody else hits a jackpot. This would be a better play if the jackpot were astronomical, say $200 million, but when it gets that high, so many people are playing that it's more likely the big pot will be split among several winning tickets.

It's easier to see the huge state-edge in Pick 3. If you pick 3 numbers, you obviously have a 1-in-1,000 chance of hitting the right combination (think of it as picking any 3-digit number between 000 and 999). However, the payout is only $500 on a straight $1 winning ticket; that's a 50 percent payout. You could buy a $1 ticket for every combination for $1,000, and you would walk away $500 poorer.

Let's compare that to a Vegas-style roulette wheel. It's definitely not the best game in the casino; unlike Eurpoean single-zero roulette wheels, most Vegas wheels have a single-zero and a double-zero, without improving the payouts if you bet on a single number. There are 38 possible numbers to bet on (1-36, 0 and 00). If you hit on one straight up, it's a 36-1 payout. So, going by my bet-on-everything test above, if you put $1 on each possible number, you would spend $38 and walk away with $36. That's a payout of 94.7 percent; not great by casino standards (certain blackjack tables and craps bets offer higher than 98 percent payouts), but still hugely better than anything the Maryland state lottery has to offer.

How do slot machines compare? It varies depending on the machine and cost-per-pull (the $1-per-play machines are "looser" than the nickel slots due to the maintenance costs being constant), but generally between 92 and 98 percent. Granted, you could potentially lose a lot of money if you sit in front of a slot machine for hours feeding it $20 bills. But your expected rate of return is higher than lotteries, which mean you stand to win more often.

Put another way: if you buy five $1 Pick 3 tickets every day for a year, you'll probably finish the year down about $912.50. If you walk up to a slot machine once per day and spend $5, you'll probably finish the year down about $100.

Which one is evil? Which one has a worse effect on the poor, problem gamblers, and families? Forget it, Jake... it's Lottery-town. Or something.