Friday, June 04, 2021

Accounting for the value of lotto free tickets

At this time the Lotto Max jackpot is at the max $70 million. It was at 70 for the Tuesday draw earlier this week but it didn't go.

I had a ticket in the Tuesday draw. I had some free play money on ALC from a $50 for $25 deposit reload bonus. I bought a $5 ticket.

In the Tuesday draw, as sometimes happens, I won a free ticket into tonight's draw. That's okay with me, a second shot at the big jackpot, or one of 29 $1 million secondary maxmillions prizes, off one ticket purchase.

It did get me thinking, what's the value of winning a free ticket? Either for the player, or the house. (of course mathematically they must be the same) The free lotto ticket could be worth something, or improbably quite a lot. it could also roll over again into another free ticket. mostly of course they turn out to be worthless since most lotto tickets just lose.

From the house perspective, how to calculate the profit or loss on each individual draw when free tickets into future draws are awarded. How would especially winnings off free tickets that the player was given be accounted for.

I realized if you set it up and think about it properly it's not that hard. The way to think about and calculate the value of winning a free lotto ticket is like this. 

In the first draw, your ticket actually won a $5 prize which was paid out. The $5 win was then "intercepted" by ALC, and the house used the $5 to purchase a $5 ticket into the next draw. ALC then gave the ticket it just bought to the player who becomes the legal owner of the lotto ticket.

To the house, everything is clean. On the first draw your ticket won $5, which is accounted as a $5 winning payout in the profit and loss on that draw. ALC can close the books on the first draw and know exactly how much came in from ticket sales and how much was paid out to winning tickets. The accountant for the first draw does not care or have any interest in how the free tickets fared in the later draws.

On the second draw the same $5 is accounted as income as a regular $5 ticket purchase, the same as buying a ticket at a corner store or on alc.ca  To the accountant on the second draw, they received a $5 payment and issued a ticket. Everything is in order and they don't care if the ticket was then gifted to some customer as a free ticket.

To the player, it's a ticket into the second draw which would have cost $5 to buy at a gas station or online. So basically you won $5 on the first draw, but the house on your behalf used your $5 win to buy you a ticket into the next draw.

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