COMMENT
Why The Lottery Is Strictly For Mugs

By Cliff D'Arcy
October 7, 2005

Since the National Lottery was launched almost eleven years ago, it's grown to become something of a national obsession.

Of the 47 million people in the UK aged over sixteen, around seven out of ten play the Lotto regularly, and practically every workplace in the UK has a lottery syndicate. Indeed, in the financial year to 31 March 2005, lottery operator Camelot collected £4.8 billion from the sale of draw tickets and scratchcards.

However, the main problem with the lottery is that prizes account for only half of the money collected. Here's a breakdown of where your money goes:

Where your £1 goes....
Prize fund	50p
Good causes	28p
Government duty	12p
Retailers	5p
Operating costs	4.5p
Camelot's shareholders	0.5p
Total	£1

As the prize fund accounts for half of ticket sales, you should expect to receive back about 50% of the money you stake on the Lotto, right? Wrong, because more than half of the entire prize pot (52%) is paid to the Jackpot winner(s), leaving less than half to be distributed among other prize-winners. Here's how the prize fund is carved up, plus the odds on winning each prize:

Win	% of pot	Odds
Jackpot (all six balls)	52%	1 in 13,983,816
Five plus bonus ball	16%	1 in 2,330,636
Five balls	10%	1 in 55,492
Four balls	22%	1 in 1,033
Three balls	£10 each	1 in 57
Winning any prize		1 in 54

I think the fact that about 981 out of a thousand tickets end up in the bin tells you everything that you need to know about the Lotto. Indeed, even with average luck, you should expect to lose roughly four-fifths (80%) of your stake money in the long run. Ouch!

People use various arguments to explain their participation in the lottery, but these don't really stack up. If you like giving to charity, do it through Gift Aid, where every pound donated by taxpayers turns into at least £1.28, thanks to tax relief from HM Revenue & Customers. What's more, critics of the lottery argue that much of the money going to the good causes should come from central or local government. Hence, lottery players are picking up the tab for cutbacks in civic amenities.

Also, the argument that "it's only a dream/a bit of fun" doesn't stand up to rational analysis, either. If you pin your hopes for a better future on the Lotto, you are going to be bitterly disappointed in the years to come. After handing over roughly £50 billion in the last eleven years, winners have received only £25 billion, which means that players have lost £25 billion. The even more annoying bit is that £6 billion of this sum went to the Treasury in tax!

I gave up playing the lottery many years ago, once I'd realised that I got a much better return from saving and investing. Here's what you could expect to make over a year by putting, say, £5 a week into the Lotto, a tax-free savings account paying 5%, and a stock-market investment with a long-term annual return of 10% a year. Remember, your total spend over the year is £260.

Lottery: with average luck, expect to get back about £60, producing a loss of £200, or about 77%. Eek!

Savings account: at the end of the year, your money has grown to £267 (£207 more than the Lotto).

Stock market fund: your pot is worth £274 (£214 more than the Lotto).

Thus, these figures neatly explain why I prefer stock-market investing to the Lotto these days! I'll leave you with a final quote that I came across about lotteries:

"For every hundred people dreaming of winning a million, there is one individual working hard to earn his/her first million."

Finally, for practical advice on becoming a millionaire, read Make A Million. Good luck!

More: Check out these super savings accounts and terrific tax-free investments!