let me illustrate by comparing an ordinary lottery to an rv lottery in terms of how each allocates money from ticket sales , and how that money is distributed over time . to keep the math simple , from among the millions of lottery players , let &# 39 ; s pretend that we can find 10 , 000 players who are all the same age — 22 years old — and that they all start playing the lottery on the same day , bet the same amount ($ 5 per week ) for the same period of time ( 45 years ). the total spent on lotteries over the course of each person &# 39 ; s playing life would be $ 11 , 700 , which , multiplied by 10 , 000 identical players , yields total group purchases of $ 117 , 000 , 000 . in a traditional lottery , the $ 117 , 000 , 000 would be divided between prize pool , money for education or other social good , and administrative costs . let &# 39 ; s say $ 50 million goes into the pool , $ 55 million goes for education , and $ 12 , 000 , 000 covers costs . the $ 50 million prize pool is itself comprised of $ 30 million in grand prizes and $ 20 million in small prizes . again , for simplicity &# 39 ; s sake , let &# 39 ; s assume that the grand prizes are all $ 3 million , and the small prizes are all $ 200 . given these assumptions , we can figure out what happens to the 10 , 000 players . 10 of them hit the jackpot ( unless some super - lucky guy wins more than once ). the other 9 , 990 people lose on average $ 11 , 500 each ( depending upon the number of $ 200 prizes they win ), over the course of 45 years . now consider the same group playing an rv lottery in which the residual value is set to 30 %. this means that 30 cents out of every dollar in ticket sales is set aside into a special account for the benefit of the player and never put at risk in the game . let &# 39 ; s assume that this money is placed into a long - term investment account with an average rate of return of 10 % per year . the remaining 70 cents is divided as usual amongst the prize pool , money raised for education or other socially useful purpose , and administrative costs . of the $ 117 million , about $ 35 million would go into the special residual value accounts of the players , leaving a prize pool of $ 30 million ($ 18 million in grand prizes and $ 12 million in small prizes ), $ 40 million for education , and $ 12 million for administrative costs . now let &# 39 ; s look at the impact of this rv lottery on the financial outcomes of the group of players . ten of the 10 , 000 would win somewhat smaller $ 1 . 8 million dollar grand prizes ( unless the odds were adjusted so that , for example , 6 players win $ 3 million grand prizes ). but the major impact is on the 9 , 990 players , who instead of losing an average of $ 11 , 500 each , have residual value accounts worth about $ 70 , 000 each ! the $ 35 million residual value accounts would be expected to grow to close to $ 700 , 000 , 000 at the end of 45 years ! two questions arise at this point . first , isn &# 39 ; t the lottery losing money in this example ( raising only $ 40 million instead of $ 55 million )? also , if prizes are smaller or scarcer , will players still play as much ? these are natural concerns . first , it stands to reason that a lottery with no losers would sell a lot more tickets . i believe that ticket sales could double or even triple as players begin to realize that they &# 39 ; re saving or investing every time they play . this would translate to greater revenues and bigger prizes pools than existing lotteries . second , scores ™, a patent - pending financial instrument ( see u . s . patent application ser . no . 10 / 043 , 071 ) could be sold to investors who would guarantee a larger prize pool in exchange for a reasonable return . institutional investors ( such as corporations and financial institutions ) would have an incentive to purchase scores for their unique ability to diversify portfolios . super grand prizes backed by scores would allow lotteries to sell many more tickets . imagine how many tickets might be sold if the potential prize were extremely large - a billion dollar jackpot could be offered . finally , even without scores , it is possible to customize an rv lottery to generate greater revenues and bigger prize pools , even assuming no increase in ticket sales ! the key to doing this is altering the payout from the residual value account . instead of mandating that 100 % of the rv goes to the players , expand the purpose of the residual value accounts so that only a portion is kept by the players , while a second portion is transferred to the prize pool , and a third portion is transferred to the educational or other beneficiaries of the lottery . transfers could be done according to a schedule , or they could be conditional on factors such as realized return of the residual accounts , number of tickets sold , or the size of the prize pool . residual values could also be held in special accounts for use in future prize pools and / or for future social needs . this would make it possible to use the funds in these accounts as collateral , instead of simply transferring them to the prize pool or beneficiary . let &# 39 ; s call this type of lottery a multiple residual value lottery (“ mrvl ”). mrvls relax the restriction that residual values are owned by ( or held in trust for ) the players ( or their heirs or assignees ): a mrvl countenances multiple uses of residual value accounts , including standard rv accounts , prize pool augmentation accounts , education ( or other social purpose ) accounts , and special purpose accounts which may be created by the lottery operator . continuing with the example , the $ 15 million dollar shortfall for the state over 45 years could be partially or completely offset by allocating to the state a portion of the $ 700 million expected value at the end of 45 years . implementation of multiple residual value accounts to allow for other uses is not limited to lottery games , but may be applied to any game in which a financial consideration is involved . slot machine and other casino - type games may employ residual value accounts to enhance the expected return of one or more players . said games may employ multiple residual value accounts that include standard rv accounts , prize pool augmentation accounts , education ( or other social purpose ) accounts , and special purpose accounts which may be created by the game operator . online and offline games and / or contests in which a financial consideration is involved may employ residual value accounts to enhance the expected return of one or more players . said games may employ multiple residual value accounts that include standard rv accounts , prize pool augmentation accounts , education ( or other social purpose ) accounts , and special purpose accounts which may be created by the game operator . recreational and / or educational activities ( including sports , exercise , and other forms of physical education ) in which a financial consideration is involved for one or more participants in said activities , may employ residual value accounts to enhance the expected return of said one or more participants . said activities ( which from the standpoint of game theory , are considered games of one or more players ), may employ multiple residual value accounts that include standard rv accounts , prize pool augmentation accounts , education ( or other social purpose ) accounts , and special purpose accounts which may be created by the organizer of said activities . for example , exercise equipment ( such as stationary bicycles , treadmills , etc .) that tracks individual performance may be electronically linked to one or more secure electronic databases that enable one or more system operators to track the performance of one or more participants . residual value accounts may be employed to enhance the expected return of said one or more participants . said activities ( which from the standpoint of game theory , are considered games of one or more players ), may employ multiple residual value accounts that include standard rv accounts , prize pool augmentation accounts , education ( or other social purpose ) accounts , and special purpose accounts which may be created by the organizer of said activities . in a preferred embodiment , a bicycle equipment manufacturer or distributor may conduct a billion dollar bike race ™ by operating a residual value game ( as defined below ) that would preferably be used to fund investment accounts owned by or held in trust for participants and offer a large prize based on one or more factors including chance , level of performance on the equipment as gauged by the data gathering devices of the game operator , or other factors . in an alternative preferred embodiment , operators of online multiplayer games would , by offering a massive multiplayer residual value game , be able to fund investment accounts owned by or held in trust for participants and offer a large prize based on one or more factors including chance , level of performance at the game as gauged by the data gathering devices of the game operator , or other factors . i shall refer to the aforementioned games and / or activities as residual value games ( rvgs ). where multiple residual value accounts are employed , said games and / or activities shall be referred to as multiple residual value games ( mrvgs ). having reviewed the features and benefits of rv lotteries , i now would like to consider some possible means of implementation that do not add undue burdens to lottery ticket retailers or to the operators of the lottery itself . for the sake of concreteness , i will limit my discussion to instant games , though many of the same solutions are easily adaptable to the online game segment . consider the simplicity of an instant game ticket . paid for by cash , it is a bearer instrument that has a definite value that the holder can ascertain for herself by making a few scratches with a coin . how can we preserve the simplicity of this transaction , if we need to keep track of a series of such transactions over a long period of time ? actually , there are many different ways to do this , none of them perfect , but most of them easily adapted with only minor modifications to the existing lottery infrastructure . following are seven ideas for making rv lottery administration simple , three of which could be done today . the last four probably are a couple of years away from practical use . first , let &# 39 ; s consider something as simple as a barcode printed on a membership card or mini keychain card . this is just like the kind all the supermarkets hand out to track purchases , using selected discounts as an incentive . the software for recording lottery ticket purchases would be essentially the same as already existing software that tracks grocery items . players would need to register their membership id in order to be eligible to receive the deferred payout of residual values accumulating in their accounts . accounts would best be administered by a financial institution , such as a bank , brokerage , or mutual fund complex . second , debit cards . financial institutions that already issue debit cards might prefer to use them instead of a special purchase membership card with a bar code . the advantage would be that the payment processing and database infrastructure already exists . of course , the same is true for credit cards , though the expense of credit card processing probably precludes their use for now . third , stored value cards . stored value cards , like cellular phone cards , fall somewhere in between barcodes and debit cards . selling a rechargeable stored value card , used to purchase lottery tickets , would simplify the administration problem by greatly reducing the number of transactions for which residual value processing is required . instead of taking 25 cents out of each and every ticket sold , the lottery administrator could take $ 5 out of a $ 20 stored value card , which would in effect prepay the residual value portion of a combination of $ 1 , $ 2 , and $ 5 games that would be played within a prescribed time period , for example , one year . now i will mention the four ideas that , while not in my estimation currently feasible , could become so within the next couple of years . the first of these takes the stored value / debit card ideas a step further . lotteries could use smart cards , which are like ordinary debit , credit , or stored value cards with the addition of some built in computer processing capability . while smart cards have not been widely adopted in the united states , they are in widespread use in europe and elsewhere . if they catch on here , such cards could do more than record a transaction . they could be used to store all of the information currently residing on a ticket , making it possible for lottery operators to offer paperless lottery tickets . the second of these ideas begins by recognizing that it is entirely possible that smart cards will never catch on in the u . s . as more and more capabilities are being packed into cell phones , one idea that is literally “ gaining currency ” is the use of cell phones as wallets . if cell phones become wallets , they can be used to pay for and keep track of lottery tickets . better yet , they can function as lottery tickets , storing all the information currently stored on a printed card ( including images ) and also keeping track of past purchases , residual values contributed , current account value , redemption dates , and other things . incidentally , by making a cell phone into a combination lottery ticket / lottery terminal , new ways of playing including video and multi - player games would become possible . beyond smart cards and cell phones , the increasing use of biometric sensors like retinal , fingerprint , and handprint scanners to identify and to authenticate people and transactions could be applied to lottery ticket sales . this would be especially useful to rv lotteries that need to keep track of ticket purchases over a prolonged period of time . payment could still be in cash , with the biometric only used for identification . or biometrics could be used for both identification and payment authorization , ( for example ) from paypal ™ or a checking account . combining rv lotteries and scores in one game would enable a lottery to offer a remarkable double incentive : rv lotteries to bring in non - traditional lottery players by enhancing the average player &# 39 ; s financial outcome ( and perhaps to guarantee his principal ), scores to sell more tickets to existing players by creating much larger super grand prizes . example of a guaranteed “ no loss ” lottery . an rv lottery could set aside 50 % of each lottery ticket . this is the residual value . the remaining 50 % would be allocated as usual amongst the prize pool , state revenues , and overhead . the 50 % residual value would be used to purchase a 10 year zero coupon state bond ( or fractional interests in a state bond ). these would belong to ( or be held in trust for ) the player . assuming that you had an effective interest rate of 7 . 2 %, such lottery players would get their ticket &# 39 ; s face value back when the bonds mature . the average holding period could be shortened by dynamic hedging , a risk management technique used by banks that would act as guarantors of the principal . a similar technique could be used to lower the required residual value . while the invention has been described in conjunction with specific embodiments , it is evident that numerous alternatives , modifications , and variations will be apparent to those skilled in the art in light of the foregoing description .
a method and system is disclosed for creating and operating residual value games . the method and system address the problem of low expected returns on games such as state - run lotteries , casino - style games , online games , and recreational and / or educational activities that may be modeled in game - theoretic terms as games of one or more players . many of these games and / or activities have a negative expected return : on average , players lose money . by creating one or more residual value accounts , and linking these accounts to the playing of games , the expected return may significantly increase .