How a retired couple found lottery odds in their favor

It was completely legal and it won them millions. Jon Wertheim reports on how Jerry Selbee and his wife Marge used "basic arithmetic" to crack the code on certain lottery games

Couple wins millions using lottery loophole

Last year, Americans spent more than $80 billion playing state lotteries, that's around $250 for each citizen, more than what was spent on concerts, sporting events and movie tickets combined. Over 25 states took in more from their lottery proceeds than from corporate income tax. Because of these stakes, it's essential that, in both perception and reality, lotteries are truly games of chance, everyone entering with an equal opportunity to win. Which is why investigators took note when a retired couple from Michigan, Jerry and Marge Selbee, made $26 million winning various state lottery games dozens of times. This is not a story, though, of a con, or a scam, or an inside job. No, this is a ballad of a couple from small-town America who did something that most people only dream of. They didn't so much as beat the lottery odds as they figured them out.

For years, high school sweethearts Jerry and Marge Selbee lived a quiet life in Evart, Michigan, population 1900. A single-stoplight factory-town that collapses in the folds of a map.

Together they raised six kids and ran a local convenience store on Main Street.  Jerry handled the liquor and cigarettes and Marge kept the books and made the sandwiches.

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Marge and Jerry Selbee

Jon Wertheim: How long did you have the store?

Jerry Selbee: 17 years.

Jon Wertheim: 17 years?

Jerry Selbee: Uh-huh.

Jon Wertheim: Every day?

Jerry Selbee: Uh-huh.

Marge Selbee: Every day.

Jon Wertheim: Why'd you decide to sell it?

Jerry Selbee: I was 62. Marge was 63. And I thought it was a nice time to sell and see what we could do after that.

Jon Wertheim: You're in your early 60s, you decide to retire.

Both: Uh-huh.

Jon Wertheim: You're gonna put your feet up. What was the plan?

Jerry Selbee: Yeah (chuckle) that was basically it.

Marge Selbee: I don't think we had one per se.

Jerry Selbee: That was basically it.  We were gonna enjoy life a little bit.

Jerry and Marge bet big. Now Hollywood is calling

But one morning in 2003, Jerry happened to walk back into the corner store and spotted a brochure for a brand new lottery game called Winfall.  Jerry always possessed what he calls, "a head for math." He has a bachelor's degree in the subject from nearby Western Michigan University. And in only a matter of minutes, he realized that this was a unique game.

Jerry Selbee: I read it and by the time I was out here I knew what the potential might be.  

Jon Wertheim: It did not take you weeks to suss this out?

Jerry Selbee: No, no, not at all. Three minutes.  

Jon Wertheim: Three minutes and you found the loophole in the state lottery?

Jerry Selbee: Three minutes. I found-- I found a special feature. (laughs)

That feature was called a "Rolldown", and the lottery announced when it was coming. Unlike the Mega Millions games you've probably heard of where the jackpot keeps building until someone hits all six numbers and wins the big prize, in Winfall, if the jackpot reached $5 million, and no one matched all six numbers, all the money 'rolled down'  to the lower-tier prize winners, dramatically boosting the payouts of those who matched five, four or three numbers.

Sound complicated?  Well, it wasn't to Jerry.  See if you can stick with him here.

Jerry Selbee: Here's what I said. I said if I played $1,100 mathematically I'd have one 4-number winner, that's 1,000 bucks.  I divided 1,100 by six instead of 57 because I did a mental quick dirty and I come up with 18. So I knew I'd have either 18 or 19 3-number winners and that's 50 bucks each. At 18 I got $1,000 for a 4-number winner, and I got 18 3-number winners worth $50 each, so that's 900 bucks. So I got $1,100 invested and I've got a $1,900 return.

Jon Wertheim: Sounds like good math

Jerry Selbee: That's-- yeah (laugh)  a little over 80 percent isn't it?

Jon Wertheim: You're talking about this as if it's the most obvious set of figures in the world

Jerry Selbee: it is. (Chuckle)

Jon Wertheim: This is not taxing the outer limits of your math skills.

Jerry Selbee: No, it is actually it's just basic arithmetic.

Jon Wertheim: Are you thinking, "I bet there are a million people that have also caught onto this?"

Jerry Selbee: Exactly, is what I thought.  

When a rolldown was announced, Jerry sprang into action. He bought $3,600 in Winfall tickets and won $6,300. Then he bet $8,000 and nearly doubled it. 

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The Selbees with correspondent Jon Wertheim

Jerry Selbee: At that point, I told Marge what I was doing. (Laugh)

Jon Wertheim: I was gonna say, you're putting thousands of dollars in action on the state lottery game, at what point do you share this with your wife?

Jerry Selbee: Right at that point

Jon Wertheim: Jerry says, "I think I've cracked the Michigan State Lottery." What do you say to that?

Marge Selbee: He just, you know (chuckle) it didn't surprise me.

Jon Wertheim: You weren't surprised?

Marge Selbee: No, I wasn't surprised. Because as long as nobody wins and you win money, you could see the numbers.

Jon Wertheim: So when you realized there aren't a million people that have discovered this, it's pretty much just you, what's that feeling like?

Jerry Selbee: Amazed. (Laugh)

Marge Selbee: Yeah.

Jerry Selbee: Amazed.

Marge Selbee: Pretty happy.

Jerry Selbee: I just couldn't, I just couldn't fathom it.

Soon Jerry and Marge Selbee started playing for hundreds of thousands of dollars. Jerry set up a corporation, G.S. Investment Strategies. He showed us stacks of record books that detailed their winnings.

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Jerry Selbee: Here's one that was pretty successful. We played $515,000 and we got back $853,000

Jon Wertheim: It's about a 60 percent return?

Jerry Selbee: That was a good return. (Laugh)

They invited family and friends to share in their, well, windfall, selling shares in the corporation for $500 apiece. You might say this was a different kind of hedge fund. We met some of the local investors at the evart hangout spot, Sugar Rae's Café.   

Jon Wertheim: All four of you guys are members of an exclusive club.

All: Yeah. (laugh)

James White is a local attorney, Dave Huff operated a machine and tool shop and brothers Loren and Ray Gerber are retired farmers.

James White: And when you looked at the mathematics of it, it made sense.

Jon Wertheim: You guys followed the math when he broke it down?

Dave Huff: Pretty much.

Loren Gerber: Yeah, yeah, but he's really good at math

Jon Wertheim: So he explained this?

Loren Gerber: You ask him questions…

James White: Yeah, he's a math whiz

Jon Wertheim: Do you guys remember how much you gave him to invest?

Loren Gerber: I had about $8,000 and then I put another six in for the grandkids.

Jon Wertheim: For the grandkids?

Loren Gerber: Yeah

Jon Wertheim: But overall you guys came out way ahead on this?

All: Oh yeah, oh yeah,

Loren Gerber: It was a good game.

Dave Huff: It helped me put three kids through school and one through law school. So it was quite beneficial to me.

Jon Wertheim: Used it for education?

Dave Huff: Pretty much.

James White: There's a lot of people around town that knew what it was about and talk about it and that it occurred.  

Dave Huff: But a lot of people were really leery.  

Loren Gerber: You bet!

Dave Huff: They were thinking, "You guys are nuts."

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Shareholders of the Selbees' company

By the spring of 2005, Jerry's club stood at 25 members. Those willing to press their luck included three state troopers, a factory plant manager, and a bank vice president. They had played Winfall 12 times, winning millions. When Michigan suddenly shut down the game, citing, ironically, lack of sales.

Jon Wertheim: Michigan game gets closed down. How long before you realize there was a game in Massachusetts that also presented some favorable odds?

Jerry Selbee: One of our players emailed me and he said "Massachusetts has a game called Cash Winfall. Do you think we could play that?"

Jon Wertheim: I've heard that..

Jerry Selbee: And so I got on the computer. I looked at the game and once I researched it, I got back with him and I said, we can play that game.

Jon Wertheim: We got another winner. How long did it take you this time to figure out that you could get a positive return here?

Jerry Selbee: Ten minutes.

That's when Jerry and Marge Selbee developed a routine they continued for the next six years, driving 900 miles to Massachusetts every time there was a rolldown and buying hundreds of thousands of tickets at two local convenience stores. Then they holed up, not in some fancy suite at the high rollers hotel, but in a room at the Red Roof Inn, sorting the tickets by hand for 10 hours a day, 10 days straight, not so much playing the lottery, as working it.

Jon Wertheim: So once there was a rolldown, on average, how much were you putting in play?  

Jerry Selbee: Over $600,000 per play. Seven plays a year.

Jon Wertheim: $4.2 million once this rolldown was coming?

Jerry Selbee: Per year.

Jon Wertheim: Did you ever get nervous?

Marge Selbee: Oh yeah. (laugh)

Jon Wertheim: What'd you do with all the losing tickets?

Jerry Selbee: Saved them.

Jon Wertheim: You saved all the losing tickets?

Marge Selbee: Saved them in big totes.

Jerry Selbee: Big plastic totes.

Jon Wertheim: There must have been millions.

Jerry Selbee: 18.

Jon Wertheim: $18 million worth of losing tickets. And you have those?

Jerry Selbee: Uh-huh just in case we had a physical federal audit.

Marge Selbee: We had the upstairs of the barn. I stored them in one end and in the other end. And then I thought, "Oh no, this floor is gonna fall through." So then we stored them down in the pole barn. And we had probably 60, 65 tubs of tickets.

Jon Wertheim: Did you guys ever say, "We're supposed to be retired here. We're making 14-hour drives to Massachusetts."

Jerry Selbee: We're having fun.

Jon Wertheim: It's fun for you guys?

Marge Selbee: It's fun.

Jerry Selbee: It's fun doing it.

Marge Selbee: You get a high on it

Jerry Selbee: And it gave you the satisfaction of being successful at something that was worthwhile to not only us personally but to our friends and our family.

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Scott Allen of the Boston Globe

But in 2011, the Boston Globe got a tip and discovered that in certain Massachussetts locations, Cash Winfall tickets were being sold at an extraordinary volume.   

Scott Allen: Smart people had figured out if I buy enough of these tickets, I'll always be a winner. I'll get back more than I spent.   

Scott allen oversees the Globe's investigative reporters, known as the Spotlight team. The paper's reporting revealed that two groups were dominating Cash Winfall: the Selbee gang from Evart, Michigan, and their competition, a syndicate led by math majors from MIT, the Massachusetts Institute of Technology. These were kids young enough to be the Selbees' grandchildren.    

Scott Allen: The guy who started it, he was doing an independent study project as an undergraduate at MIT and he figured out that he could win this game. So he got a bunch of his friends to pool in their money so they became, as time went on, professional Cash Winfall players, recruiting their friends and raising money from backers until they too were spending hundreds of thousands of dollars.

Incredibly, the MIT group bet between $17 and $18 million on Cash Winfall over a seven-year period, earning at least $3.5 million in profits. Almost the exact same rate of return as the Selbees.

Jon Wertheim: You've got a syndicate from Northwest Michigan, you've got a group of MIT students. Did your story meter start beeping?

Scott Allen: It was-- oh it's a great story.   

The Boston Globe articles caused a sensation, raising suspicion that the game was rigged.  

The Massachusetts state treasurer shut down the Cash Winfall game and called for an investigation. It was led by then-state inspector general, Greg Sullivan.

Greg Sullivan: When we got involved, the public perception was there must be some kind of organized crime or public corruption to explain how millions of dollars are being bet by syndicates on state lottery tickets. We really looked at this, looking for corruption. We used subpoenas, we looked at documents, we interviewed dozens of people to look at this in detail with a hypothesis that something illegal had happened.

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Greg Sullivan, the Massachusetts state inspector general who investigated the Cash Winfall game

Jon Wertheim: You went into this looking for organized crime. As the story unfolded, were you surprised by what you found?

Greg Sullivan: I wasn't surprised. I was dumbfoundely amazed that these math-nerd geniuses had found a way legally to win a state lottery and make millions from it

Jon Wertheim: And the state's getting rich in the process.

Greg Sullivan: And the state got very rich. The state made $120 million.

The investigation found no one's odds of winning was affected by high-volume betting. When the jackpot hit the rolldown threshold, Cash Winfall became a good bet for everyone, not just the big time bettors like the Selbees. By then though, Massachusetts State Lottery had moved on to a different game without a statistical twist.

And with that, Jerry and Marge Selbee's excellent adventure drew to an end.  

In total, their unlikely homegrown company grossed more than $26 million from nine years of playing the lottery.  

Jon Wertheim: Your corporation, $26 million. You smile when you recounted that figure.

Jerry Selbee: Uh-huh. That was satisfactory.

Jon Wertheim: Satisfactory?

Jerry Selbee: Yeah.  

They made nearly $8 million in profit before taxes. Back in Evart, not exactly the land of extravagance, the Selbees put their winnings to practical use, renovating their home and helping their six kids, 14 grandkids and 10 great-grandchildren pay for their education. They still get together with members of their lottery group. But millions of dollars in Winfall tickets have been replaced by nickel and dime poker night, and Marge makes everyone chicken pot pie.   

Jon Wertheim: I'm struck by how measured you are, telling this story. Do you find anything remarkable about this?

Jerry Selbee: The only thing I found really remarkable is nobody else really seemed to grasp it.

Jon Wertheim: What I'm hearing you say is that this part of the country is really good at keeping a secret

Jerry Selbee: (Laugh)

Produced by Katherine Davis and Jennifer Marz