Basic Arithmetic Win the lottery and do whatever
you want. That’s the dream for almost anyone that plays the lottery. And for the vast majority of
lottery winners that win millions, they relied on chance to get their wins. But for one small
town Michigan couple, it was different. They used math to win a total of $26 million from playing
the lottery. Jerry and Marge Selbee figured out a loophole in the Michigan state lotteries.
According to Jerry, it only took quote, “good ol’ basic arithmetic” to crack the
code on certain lottery games. And they used it to their advantage to win the lottery
thousands of times for nine years! So what exactly WAS this “basic arithmetic”? Let’s find out!
Jerry Selbee Background Long before Jerry Selbee was
cracking the code on winning the lottery, he first broke the code of the breakfast industry. In 1966,
Jerry started work for Kellogg’s in Michigan as a materials analyst.
Jerry was always into science and math. So what does his job have to do with the lottery?
According to HuffPost, Jerry noticed a string of letters and numbers stamped on a General Mills
cereal box, which was one of the products of Kellog’s main competitor. He basically
figured out how to trace any General Mills box of cereal back to its exact plant, shift, date
and time of its creation. If it were a different industry other than the cereal business,
cracking a competitor’s trade secrets might have generated Jerry millions of dollars in profit.
He wasn’t all about the money, though. Jerry just really enjoyed puzzles ever since he was a child.
While Jerry grew up dyslexic and struggled through his reading assignments,
he actually possessed another academic gift. That gift was in Math. In fact, he took a standardized
test in eighth grade that showed he could solve math problems at the level of a college junior!
The Union But let’s quickly fast forward a few years.
Jerry married his high-school sweetheart, Marge and had six kids with her. Jerry
went and got an associate’s degree from Kellogg Community College, a bachelor’s in mathematics
and business from Western Michigan University and he even got an MBA. He
and Marge lived a quiet life in Michigan. However, his brain wouldn’t quit working.
He had actually mastered in Math, but he wasn’t able to finish it because of starting a family.
Jerry just couldn’t stop learning and thinking about
numbers. He worked a series of factory and corporate jobs. He held positions such as a
chemist at a sewage-treatment plant and a salesman at a pharmaceutical company.
Entrepreneurial Beginnings But in 1984, he decided to stop
working for Big Corporate. So he and Marge decided to run a convenience store.
It was during this time that Jerry’s puzzle solving really took off. He enjoyed solving
any sort of financial puzzles that involved their store. And one of those puzzles involved
the lottery machine they installed. Jerry became extremely familiar with
all the odds for any games that the lottery came out with over the years.
The lottery profits over the years helped to pay for the education of their six kids.
Jerry and Marge retired in 2000, Jerry’s morning routine still included visiting the store and
its new owners. It was then in 2003 that he saw the brochure for the new lottery game, WinFall.
Michigan’s WinFall One WinFall ticket cost a
dollar. Players picked six numbers from 1 through 49. A player would win the jackpot if they got all
six of the numbers correct, and the jackpot was guaranteed to be at the very least
$2 million. If no one won the jackpot, it would grow in size.
And there was a big catch that completely made Winfall THE lottery to play. If no one won the
jackpot when it reached $5 million dollars, the jackpot’s roll-down would be triggered.
This meant that if any players had tickets that had anywhere from two to five numbers,
they won some cash. And it was this exact roll-down in cash prizes that intrigued Jerry.
Because when the jackpot reached 5 million dollars and triggered a roll-down,
it could be timed. The roll-down would happen roughly every six weeks.
While the state lotteries had roll-downs, WinFall’s was structured differently.
“Basic Arithmetic” According to Jerry, it only took him three minutes
to figure out the game’s big potential. He figured out that for a regular week without a roll down,
players had a 1-in-54 chance to pick three out of six numbers to win $5 dollars.
It was a 1 in fifteen hundred chance to pick four numbers correctly, which would win $100 dollars.
When the jackpot roll down was triggered the prizes were different. Each winning
three-number combination would win $50 instead of $5. For tickets with winning
four-number combinations, the payout would be $1,000 instead of the usual $100 bucks.
Positive EV Jerry quickly realized that
the game had a positive EV. This meant that for every dollar he played, he would make more than
a dollar. The worst thing that could happen was if someone won the jackpot. That meant
no one else would win anything. But this still didn’t make the game a losing proposition.
Jerry couldn’t believe that the hundreds of employees at the state lottery had overlooked
a math loophole that was so obvious to him. He decided to test his theory. The
first time he played, he spent twenty two hundred dollars. He got back twenty-one
hundred fifty dollars. He lost $50 bucks, but Jerry knew he just had slightly bad luck.
Scaling Up He knew his math
was right and he didn’t give up. Jerry realized that he needed to keep playing on a bigger scale,
and that meant more tickets, and more tickets meant more money. So when the next rolldown
was announced, Jerry bought thirty-four hundred dollars worth of WinFall tickets.
Marge didn’t like risk. She was the pragmatic one in their relationship and she disliked the
uncertainty. And Jerry didn’t exactly explain his calculations to her. Fortunately for Jerry,
his math indeed was correct. The second time he played,
he won sixty-three hundred dollars, for a return of 46 percent.
The third time he played, he put 8 grand on the line. This time his prize money was up to fifteen
thousand seven hundred dollars, which was a 49 percent return on his money.
By this time Jerry was absolutely certain he had cracked the Michigan State Lottery. So he decided
to let Marge in on his big plan. He wanted to play for as much money as possible. He knew that
he found his money making machine! All he needed was to crank as much money into it as he could.
Jerry and Marge soon started playing for hundreds of thousands of dollars. But
with the sheer amount of money and legwork needed,
they started recruiting other people. They decided to start a betting group.
GS Investment Strategies LLC The Michigan Lottery allowed
large betting groups, so it wasn’t anything illegal. Jerry and Marge decided to get
their kids in on the secret. They created a corporation called G.S. Investment Strategies
LLC in order to legitimize all their winnings and losses and to properly account for taxes.
Jerry and Marge started selling shares at $500 dollars apiece to friends and family.
GS Investment eventually expanded to 25 members. His members included a state trooper,
a parole officer, a bank vice president, three lawyers and his personal accountant,
Steve Wood. By 2005, G.S. Investment Strategies LLC had played WinFall on 12
different roll-down weeks. Their bets increased anytime they had more access
to capital. With more tickets bought, this meant more winnings. The profits just kept rolling in!
Cash WinFall But the money making machine in Michigan
couldn’t last forever. In May 2005, the Michigan Lottery shut down WinFall. They claimed that the
sales of Winfall tickets had been decreasing, something that factored into their decision.
Luckily for Jerry and Marge the very next month, one of their members saw that Massachusetts was
promoting a brand-new lottery game. The game was named something slightly different. It
was called Cash WinFall. There were a few other differences, but the basics were still the same.
For example, one difference was how much Cash WinFall tickets cost. It was $2 dollars
instead of just one dollar. Players also had to pick numbers
from 1 to 46 instead of 1 to 49. And the jackpot rolled down when it got up to $2 million dollars,
not $5 million dollars. Jerry quickly made the calculations and he came to the conclusion that
this game wasn’t any different than WinFall. It was another profitable lottery game that
made sense to play. Jerry and Marge drove over to Massachusetts during August of 2005.
They spent $120,000 thousand dollars on 60,000 thousand Cash WinFall tickets the first time
they played. They stayed at the Red Roof Inn and basically had tickets all over their room. They
were so busy counting tickets that they never left their room except just to get food. And once they
claimed their winning tickets, they would drive back to Michigan with the thousands of losing
tickets. They would store them in plastic tubs in their barn in case any IRS auditors
wanted to see the paper trail when they claimed losing tickets against their winning tickets.
For over five years, Jerry and Marge would drive to Massachusetts
anywhere from six to nine times a year to repeat the process. They would go buy and
print the tickets, count them at the Red Roof Inn, redeem the winners for a giant check,
and then drive back to Michigan with the losing tickets in their trunk.
Student Players What Jerry and
Marge didn’t know was that they weren’t the only betting groups One student at the Massachusetts
Institute of Technology named James Harvey had also cracked the code to the lottery.
He had analyzed all the different state games in Massachusetts as part of his research to graduate.
Just like Jerry, he figured out that playing Cash Winfall was like printing money,
and he formed his own betting company. Find out more in this video here!
As the game went on, the MIT students played with more aggression by making an insanely large bet.
In 2010, they bought 700,000 lottery tickets, which cost about $1.4 million. Apparently,
it was more than enough to take the jackpot over $2 million before the
lottery officials knew what was happening. The MIT students won up to $700,000 cash profit.
Another player who had discovered the secret was a biomedical researcher at Boston University named
Ying Zhang. Zhang formed his own club, called the Doctor Zhang Lottery Club Limited Partnership,
and he got his friends to play. They played anywhere between $300,000 thousand and
$500,000 thousand dollars during roll-down weeks. The game was so profitable for Zhang,
he even quit his job as a biomedical researcher to focus on playing the lottery full time!
Irregularities But with all the
betting groups going on, the Massachusetts State Lottery became aware of several irregularities
in Cash WinFall. The unusual patterns they noticed indicated that something was up.
By 2011, the Boston Globe received a tip and found that in certain Massachusetts locations,
Cash Winfall tickets were being sold in huge volumes. The Boston Globe’s
investigative reporters revealed that the Selbees
and the MIT betting group were dominating Cash WinFall. And that was the beginning of
the end. The Boston Globe articles raised suspicions that the game was rigged.
The Massachusetts state treasurer eventually shut down Cash Winfall and started an official
investigation. There was also news that made it look like Jerry was a cheater. But
the investigation revealed that the two groups were actually winning completely
legally. And the state had made a lot of money because of them playing.
Jerry and Marge played Cash WinFall for the last time back in January 2012.
From their nine years of playing the lottery, they earned a total of
$26 million dollars and made about $8 million dollars in profit before taxes.
The Selbees Now According to the HuffPost,
Jerry still plays the lottery sometimes. He plays the multistate Powerball jackpot. Other times,
he would also go to a casino and play poker, just like any smart calculated gambler.
Jerry used the money to buy coins from the U.S. Mint as a hedge against inflation to
protect his family from future catastrophes. He was also able
to fill five different safe deposit boxes with gold and silver coins!
The Selbees also used their winnings to renovate their house and help pay for
their grandchildren and great-grandchildren’s education. They also developed a new business
venture in construction financing. Jerry now lends money to home builders in his local area
who provide housing for military veterans. Who knows, maybe a movie is in the future,
as they also gave the option for their life story to be turned into a movie.
Here’s what’s next!