Andrew Crossthwaite, 23, bagged the whopping payout in a National Lottery game but failed to inform the authorities of his change of luck.
Preston magistrates heard how he confessed to wrongly claiming ?4,614 in employment and support allowance (ESA).
But the court was told he had been left penniless after blowing his windfall on CARS and DRUGS.
He walked free from court with only a one-year supervision order after being told to pay ?100 costs.
He gave some of the huge sum away to friends, including one pal who got half for buying the winning ticket on his behalf in the first place.
Stephen Scott, prosecuting on behalf of the Department for Work and Pensions (DWP), said: "The defendant was claiming employment and support allowance for him, his partner and child until January 20 this year on the basis he was unemployed and was incapable of work due to a problem with alcohol abuse.
"He was paid ESA but won ?250,000 on a scratchcard on June 25, 2010 - a significant amount of money which should have been disclosed to the DWP and would have impacted on the right to benefits.
"That was not disclosed and proceedings were brought."
Crossthwaite, of Longridge, near Preston, pleaded guilty to failing to notify the authorities of a change in his circumstances.
James Ball, defending, said the win had now ruined his client's life, saying he couldn't cope and had now split up with his partner.
Mr Ball said: "It is fair to say he has wasted it.
"He purchased a few cars but nothing special and these cars have gone.
"He wasted a lot of it on a drug habit, though for the last six months, he has not taken any substances at all."
Two other charges of wrongfully claiming council tax benefit and housing benefit following the win were withdrawn.
James Park, chairman of the magistrates' bench, told Crossthwaite: "You have a poor record and we are not impressed."
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