Archive for November, 2010

Payout Panic

Tuesday, November 23rd, 2010

A very common question that people new to this industry ask us is “can I change the payout?” (or the prize percentage). The answer is a definitive NO. Allow me to explain.

It is a common misconception that there is a “setting” or a “switch behind the counter” that can be moved up and down to determine how much people win. Back in the days of traveling carnivals and snake-oil salesmen there was frequently a “switch behind the counter” that allowed the operator to cheat his customers.

That was then, this is now. It is highly illegal to alter the payout in any way during the game. The game usually lasts about a year–depending on how many entries are in the game (or the pool size).

Furthermore, the sweepstakes software companies employ mathematicians (actuaries and statisticians) to develop the payout tables. These employees are usually people who have gone to school for years before several more years of professional experience all to do one thing–determine the best payout tables. They study trends to determine how much to pay out and when to pay it out to provide the most FUN for customers. This isn’t just about saying “customer should win $10″, but about saying “should the customer win one $10 bill, or two $5 bills, or ten $1 bills?” Sound tough? That’s because it is tough! Believe it or not, it is our professional opinion that “the math” of a sweepstakes game is every bit as critical to its success as having interesting games with good graphics.

Payout dynamics are extremely complex. We’ve seen several sweepstakes companies go out of business while trying to fine tune their payout tables.

So to answer the question “Can I change the payout?” I would respond: in the short run it would be highly illegal, and in the long run you don’t want to! Let the professionals do their job.

Now I’d like to discuss what I call Payout Panic. This is what happens to nearly all new sweepstakes business owners in their first few days of opening their store. It’s almost inevitable. We’ll get an urgent phone call during which the new business owner emphatically insists that the games are either paying out too much, or that they are paying out too little. Which is more common? It’s about 50/50. Go figure.

Although sweepstakes use a finite pool (or a closed system), there is still LOTS of fluctuation. Most good sweepstakes companies will pay out somewhere in the low 90 percent range. But it’s critical to understand that some days will be higher than that and some days will be lower than that. This is NORMAL and is all part of running a sweepstakes promotion. When a business owner calls us after being open for 2 days and says OUR STORE IS PAYING OUT TOO MUCH! We’re going to BANKRUPT! we sometimes want to put him directly on the phone with another new business owner, who called 5 minutes ago to say OUR STORE ISN’T PAYING OUT ENOUGH! after being open for two days. There are HIGHS and there are LOWS and they ALWAYS, ALWAYS balance out. This is because it’s a finite pool. If you pay out at 80% today (too low!) you’ll probably pay out at 100% or more tomorrow (too high!) – but in the end it all evens out. It has to–it’s a mathematic fact.

Generally during the first few days of just about every new store we spend a great deal of time on the phone with business owners explaining this point over and over again. People new to sweepstakes promotions almost always hyper-analyze payouts during the first few weeks and panic at every peak or valley. Finally after a few weeks of watching ups and downs, they begin to see the average and can sleep at night with the understanding that, much to their relief, the sky is NOT really falling.