What is a Lottery Pool?
Most of us have heard of or participated in a lottery pool. Here’s how lottery pools work:
Named as part of this group, you contribute money towards buying a certain number of lotto tickets with the understanding that if someone in the group wins, then the pool will share the winnings.
Although these agreements are often informal, there is no legal reason why such an agreement cannot be binding, with contractual rights and obligations.
In other words, a group can enter a contract that says that they will pay X number of tickets and that if it wins, then each participant will receive their fair share of the winnings. However, it is important for all parties to read the agreement carefully to understand their commitment. A contract can include such things as who is contributing and how much, how long the agreement lasts, how the winning amount is calculated, and more.
A contract for a lottery pool is helpful for a few reasons. First, it ensures that everyone is on the same page about how the pool works. This way, if one person wins the pool, they won’t try to short change others.
Second, it protects everyone in the pool. If a pool member fails to pay or tries to cheat , having a written contract can help the group fight against the person. Such a document can also help establish how much the pool was able to win if there’s a dispute between pool members about that information.
Luckily, getting a pool contract is not difficult at all. You can find various templates online which you can modify to fit your needs. That said, if there are many people in the pool, then it may be worth having a lawyer create a formal, written contract.
Generally, there are a few different types of lottery pool contracts:
Simple pool
A typical pool contract includes a clause stating that the pool agrees to buy a group of tickets with the intent of sharing the winnings with the group. This is the most common type of agreement.
Small-group pool
In this case, several individual buy tickets and each person is responsible if one of the tickets is a winner. It’s a small agreement, but still worth having in writing.
Large-group pool
In this case, many people join together to buy tickets with the understanding that they will split the winnings. These are generally much larger groups.
Why You Should Have a Lottery Pool Contract
Having a contract is essential to ensure the potential winnings are shared and distributed accordingly. Without a contract, disputes will inevitably arise over who contributed what amount and who has a rightful claim on their share of the winnings. In the event a claim moves forward in court, the costs of litigation will no doubt eat away at the prize money, leaving little for the lottery participants. In addition to covering the distribution of winnings, a contract can also outline the rules for deciding disputes. A contract should include a process for selecting a representative from the group to be the contact person for the lottery office (this is key in deciding who gets the money). An official representative will have the proper identification to claim the prize and taxes. The representative will then be responsible for collecting the money and paying other participants that correctly verify what they contributed. It is important to create a contract especially when working with a large informal group and when the pool amount is expected to be significantly high. Careful consideration of how the group will agree on, account for, and later distribute the funds will limit dispute or misunderstandings.
Lottery Pool Contract Basics
The participants’ names: Who is going to be included in the pool? If your group of friends has a weekly pool, it might be that you all know each other well enough that a simple first name is all that is needed. However, for larger lottery groups, it may be best to include full names, addresses, and method of payment – a list like the ones used for a mortgage loan.
How tickets will be purchased: Your contract should outline how the tickets will be purchased and how that information will be recorded. For example, some may want to go online with the group’s login information and others may go into the local convenience store to purchase tickets. Tickets purchased under the group’s name should be printed and kept on file – whether attached to a physical copy of the contract at a designated person’s house or kept digitally.
What the contribution amount will be and when it is due: Again, for small groups of friends, this may be as simple as a dollar each, but groups can be as large as thousands of people. For larger groups, the merits of a dollar a week versus $5 or even $10 a week may be a significant point of contention – especially when you’re discussing millions of dollars.
Potential contributions per week could be as little as a dollar or as much as $100 or more, with the potential for a discount if the group can purchase in bulk.
How winning tickets will be split: What happens if you’re in a group of 500 and you win $500 million with a Quick Pick ticket? In this situation, you’ve won $1 million. However, it’s not that simple. That $1 million is likely before taxes. Then, of your share, the state the tickets are purchased in will take its cut when you claim them. Your group should determine whether its split should be before or after taxes. Should you win multiple smaller prizes that are taxable, will you also have to pay the group back any of those winnings as well? Each group is going to be different.
Who will get the grand prize ticket: It’s worthy of discussion how to handle a situation where one person buys the winning ticket and everyone else in the pool forgot to buy or bring theirs. One option here is to still split the jackpot (as a token of goodwill to avoid an ugly court battle) but exclude that person from the other smaller prizes since it was their fault everyone missed the deadline to purchase more tickets. It is best to come up with your group’s plan before this type of scenario could happen.
How to Write a Basic Lottery Pool Contract
If you’re ready to face the prospect of signing a lottery pool contract, it’s best to keep things simple. You don’t need 20 pages of legalese to protect your lottery pool from the few bad apples that could do everyone in! Just keep in mind a short list of guidelines and you should be fine.
- Be as clear as possible about how much each member is contributing to the pool and how exactly it will be collectively spent (for example, how many lottery tickets in any given drawing will be purchased with pool money). If everyone in the pool is contributing different amounts of money, you may want to outline in advance how your group will split any potential winnings if those tickets turn out to be winners.
- Double check that everybody’s contact information is correct, both work and home.
- Go over a list with your members to list the individual pools made by each member and the dates on which each member will pick up the tickets to make sure that each person has a specific duty to ensure fairness and trustworthiness.
- If your group pulls more than once a week, it’s clear that the pool needs to cover more than just one drawing.
- You may need an additional section to cover details such as when the pool is suspended on holidays or weekends, or what happens if a member misses making his or her payments consecutively for a few weeks or unexcused absences from lottery ticket purchasing duties. However, if the pool is successful often enough that you have to cover these situations, it might be worth spending the money to visit an attorney to put together a contract that is fair and legal.
- Make photocopies so that each pool member has a record of the contract they signed.
For those who have the time and the skills to draft a lottery pool contract (or who are willing to pay someone to draft one), here’s a simple basic format to use:
Start with the names and contact information of all of the pool members. What other information do you need?
It might be good to include the specific name of your lottery game in your contract. You don’t want disputes over which lottery tickets get purchased and which do not. Identify the specific tickets that will be purchased.
A simple Form LPT can be found here: Form LPT.
How to Manage and Update Your Lottery Pool Contract
Smart lottery players will be able to manage and update their lottery pool contract over time. A good contract will identify the person in charge of updating the contract as well as how future changes or amendments can be made and ratified. For that reason, we recommend designating a group of independent directors to oversee any updates and amendments to a pool contract.
Any change to the contract should be initialed by all lottery pool participants. Participants should keep a printed or written copy of the contract and each amendment or update either at their homes or in a secure online space.
Modifications to the agreement may include price changes, team size changes, the addition of pool members, or the removal of pool members . All changes should be discussed by the lottery pool or its independent directors before being implemented so that all participants understand the changes and consent to them.
Basic upkeep is important when it comes to maintaining a good contract. The agreement needs to be easily accessible so that any lottery pool member can amend and save the contract. The pool contract should be amended and printed or saved at least monthly so that all pool participants and witnesses have a copy of the latest contract. A physical copy of the pool contract should also be located in the jurisdiction in which the winning ticket is expected to be claimed. This is especially true when a pool participant is in a different state, out-of-state visitor, foreign national, or in the event that the pool ticket is destroyed, or otherwise lost by one of its participants.
Lottery Pool Contracts and State Law
While contract law can differ by jurisdiction, the enforceability of an agreement to share potential lottery winnings will almost always be a question of state law. This is even true when the parties enter the contract in one state while living in different states, have a ticket purchased in yet another state, or an active pool includes members in several different states. The reason for this is that lottery operators (e.g., Powerball, Mega Millions, California Lottery) maintain strict and precise rules to determine who is a valid prize claimant, and require each claimant to provide the correct identification in a specific manner. The intent behind these rules is to protect against fraudulent claims and, therefore, tax fraud. Even when a winning ticket is in the custody of one member of a pool, a court in his or her home state probably is not going to have any influence over the location of the drawing, may not prevent any pool identified by its rules from being deemed a gambling entity, or may not be able to stop the lottery operator from asserting jurisdiction over those claiming the prize.
What does this mean for lottery pool participants? They cannot control the outcome of winning a prize, but they do have some control over the outcome of potential litigation.
How to Handle Disputes in a Lottery Pool
Because the odds are high that at least one person in your lottery pool will be a sore loser, you need to include a dispute resolution procedure in your Lottery Pool Contract to handle all of the inevitable misunderstandings and inevitable disputes that can arise. Disputed winnings, broken promises, unfulfilled obligations – the scenarios are endless.
We’ve all heard horror stories about lottery pools that have ended in litigation (a very unfortunate result) and even murder (a factor that never appears in our gambling or crime statistics, but does appear in countless lottery pool stories).
Most people just don’t understand or appreciate the importance of specific language and well-defined terms in a contract until they are faced with a breach of contract, or worse, the loss of millions of dollars. The role of the contract cannot be overemphasized; it is what can eliminate potential dispute interpretations. And while no contract is bullet-proof, legally enforceable language can deter many potential lottery pool arguments.
A large number of lottery pool arguments are based on what people think they’re entitled to, or their expectations of how the lottery pool will go down. Best practices for avoiding these losses is two-fold: be clear about what winning means, and be clear about what it doesn’t mean. Consider adding some examples of winning scenarios to your contract language, like the following:
1.1. Legal Definition of Winning Lottery Game. For purposes of this Agreement, "Winning Lottery Game" shall mean a particular game (or games) which bears a specific number, to be determined jointly by the Pool Members in any given Lottery Pool, in which the total value of winnings shall equal $5,000,000 or more . A Winning Lottery Game includes, but is not limited to, Powerball, Mega Millions, or Lotto 6/55, in which the Pool Ticket(s) purchased by the Pool Members shall bear the specific Winning Lottery Game number(s).
The dreaded "disputed winning ticket" scenario occurs when one person buys a ticket on behalf of the group, but also buys a ticket for himself or herself. That person then holds onto their individual ticket until the drawing, at which point there is a win, and a dispute. In this case, the contract language should be check and balances on both sides:
1.2. Group Pools Tickets. The purchase of Lottery Pool tickets on behalf of the Pool Members shall be governed by the following: A. The purchase of all Lottery Pool tickets shall be done on the day of the drawings, with a maximum limit of funds used as agreed by all Pool Members. B. If the purchases are made electronically, such as through a lottery web site, all of the Lottery Pool tickets purchased shall equal the maximum limit of funds used, and shall be verified through a mutually accessible account. If the purchase of the pool ticket(s) is made in person (i.e., at a lottery provider), two (2) tickets shall be purchased, on behalf of the entire pool:
A. One (1) ticket shall be given to the Pool Administrator or Power of Attorney designated under this Agreement. This ticket shall immediately be placed (and retained) in an opaque, sealed envelope(s) which contains the Lotto game#, and shall be stored in a secure place, accessible only by Pool Administrator or Power of Attorney.
B. The second ticket shall be kept in a separate envelope by the buyer of the tickets, which shall bear the names and corresponding signatures of every Pool Member. The second ticket shall immediately be sent to the Pool Administrator, and shall be stored separately from the first ticket.
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