"In 2005, Dr. Zhang was having an ongoing discussion with friends about the Lottery, with Dr. Zhang taking the view that it offered poor odds and was a tax mainly on poor people. To bolster his argument, he began analyzing the Massachusetts Lottery’s various games. But when he got to Cash WinFall, he was shocked to find that during roll-down drawings the odds were in the bettor’s favor."
The people who lost money were those who bought tickets under normal circumstances; there were only certain points in time when the expected value of a bet exceeded the cost of a bet.
Retracted; Tristan's explanation is better
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"In 2005, Dr. Zhang was having an ongoing discussion with friends about the Lottery, with Dr. Zhang taking the view that it offered poor odds and was a tax mainly on poor people. To bolster his argument, he began analyzing the Massachusetts Lottery’s various games. But when he got to Cash WinFall, he was shocked to find that during roll-down drawings the odds were in the bettor’s favor."
Full story here - it's rather engrossing.
http://www.mass.gov/ig/publications/reports-and-recommendations/2012/lottery-cash-winfall-letter-july-2012.pdf