Lottery syndicates
A syndicate, or lottery pool, is a group that puts its money together, buys more tickets than any one of them would, and splits whatever comes in. It gives each member more chances and a smaller share of every prize. The price of a chance stays exactly where it was.
What pooling does to the odds
Say 20 people at work put in $10 each for a Powerball drawing. That's $200, which buys 100 plays at $2. The jackpot odds on one play are 1 in 292,201,338 (the Powerball page shows where that comes from), so 100 different plays give the group 100 chances in 292,201,338, about 1 in 2.9 million.
Alone, your $10 buys five plays and five chances in the same 292 million. In the pool you own a twentieth of 100 plays, which is the same five plays' worth. The pool doesn't make a ticket any cheaper or any likelier to win. What it changes is the shape: the group is twenty times more likely to hit something, and when it does, you get a twentieth.
On the small prizes that shape is a nuisance. Split a $4 win twenty ways and nobody can be paid. On the jackpot it's the whole point, because a twentieth of a jackpot is still more money than most people will ever see, and twenty times the chance of it is a better story to tell yourself on the way home. I understand why people do it. Just don't let anyone tell you the pool has beaten the odds. It has bought more of them.
Run it like a book, on post-up
Anyone who has settled up with players on a Monday knows the arguments are never about the arithmetic. They were about who said what, and when. A lottery pool is a small book with the same problem: it's all friendly until there's money to split, and then people's memories start to differ about who was in that week.
So run it on post-up, not credit. Nobody's in a drawing until their money is in, and the person buying the tickets doesn't front for anyone. If someone's away and wants in, they pay before the tickets are bought, or they're out of that one.
Then write it down, before the first ticket. It doesn't need a lawyer for a $10-a-week office pool. It needs one page that every member signs, and it should answer these:
- who is in, and what share each person holds, for each drawing
- who collects the money and buys the tickets, and by when
- how everyone sees the tickets before the drawing (a photo or a copy sent to the group is enough)
- who holds the tickets until they're checked or cashed
- what happens to small prizes: split, or put back into the next drawing
- who claims a big prize for the group, and how the group decides between cash and the annuity
The last two are the ones most pools skip. Agree them while nobody's won anything, because once somebody has, every one of those questions has a price on it.
Claiming as a group
How a group claims depends on the state that sold the ticket, and on the size of the prize. The rules are set by each lottery, so I'd read your own state lottery's claim page before the drawing, not after.
To give you an idea of what one looks like, here is North Dakota's. One member signs the back of the ticket, and not everyone has to. Every member brings a government photo ID and fills in a shared-prize claim form. The group fills in one Prize Sharing Agreement whose shares add up to 100 percent of the prize, and any member who can't come in person has to have his forms notarized. The lottery doesn't pay anyone until it has the forms from everyone. Other states do it differently, and some handle a big prize differently from a small one.
Notice what that means for your agreement. If the shares on your own page add up and everyone signed it, filling in the lottery's version is a chore. If they don't, the lottery won't settle it for you.
Tax on a shared prize
The IRS has a form for exactly this. Under the W-2G instructions, Form 5754 is used when the person collecting a prize isn't the only winner, and it lists each member of the group and his share. The lottery uses it to issue a W-2G to each person for his part, so each person reports his own share rather than the one who walked in with the ticket being handed a form for all of it. The lottery checks whether the reporting and withholding thresholds are met on the whole prize before it splits it. The rest of how a prize is taxed is on the lottery taxes page.
This is where an agreement on paper pays for itself. The form asks for the shares, and you want to be copying them from a page everyone signed months ago.
Before you join one
If you're joining a pool at work or among friends, I'd ask to see the agreement, and if there isn't one, I'd offer to write it. I'd also put in only what I'd spend on tickets anyway, because a pool makes it easy to play every drawing without noticing what it adds up to over a year.
Some companies sell shares in syndicates online. Whether that's allowed depends on where you live, and before I sent money to one I'd want to know who holds the actual tickets, in what name, and how a prize would reach me. If any part of the pitch involves paying a fee to collect a win, read lottery scams first.
The odds of each game are on lottery odds, and if the weekly pool has become several pools, the responsible gambling page is worth a look. A pool is a good way to share a long shot with people you like. Keep it written down and paid up, and it stays that way.