And now a PSA - Page 4

schickel · 2012-04-01, 03:01

What all the above boils down to is that, yes, they do actually "cheat" when they announce the jackpot, because there was only (in this case) $462 million in the bank. The jackpot gets announced as $640 million^*. however.

To achieve the mega payouts, they purchase bonds to boost the "value" of the jackpot from what the actual cash value is to what the annuitized payout is. And yes, California and several others do not tax residents' winnings, so the tax rate would be just the maximum Federal rate.

I always have trouble trying to explain this to players who complain about "if you take the lump sum they take 50% out in taxes off the top".....no, they only have ~1/2 the money in the bank and buy bonds to fill the gap.

Ironically, the cash value lately is much higher than average, since they usually buy US Treasury Notes, and as we all know, lately they aren't paying very much (2.8% for 20-year bonds....)

----
^*Paid in 26 annual installments.

schickel · 2012-04-01, 03:03

Oh, BTW, there were 3 winning tickets in Maryland, Illinois, and Kansas, good for $213,333,333 each.

schickel · 2012-04-01, 03:10

PS. This could go in the "WTF news" thread, but since we have a lottery thread going here, here is a Michigan lottery winner ($1,000,000) who still collects $200/month in SNAP benefits (food stamps....)

She thinks she deserves it because she's paying for two houses and is currently unemployed....

LaurV · 2012-04-01, 03:12

Quote:

Originally Posted by bcp19

Now, I may have this backward, and there is only 359.5M cash available, which is not only misleading but means the lottery's annuity earns a whopping 4.86%, in which case, taking the cash and 180M is far worse than taking the annual annuity payments, but you'd still lose 1/2 of the annuity to taxes.

Where does the inflation goes in all this calculus? :D

edit: this is gorgeous: yahoo selection of the best reader comments about.

Christenson · 2012-04-06, 19:04

It's a matter of mathematical folklore that the expected value of a $1 lottery ticket is 50 cents.

Question:
Just before this round of "Mega Millions" mania got started, was the expected value of a "Mega Millions" lottery ticket actually above its purchase price?

Incidentally, the usual effect of winning a large lottery prize is a high ride for a few years, then bankrupt...

schickel · 2013-05-17, 08:33

Watch out, it's gonna happen again!

Ironically, just over a year later, here we are again. When PowerBall missed on Wednesday, the jackpot estimate was $360M; the initial Thrusday morning estimate was up to $475M; by Thursday afternoon it was up to..... well, see for yourself.

I've got a bet with myself that the final jackpot will be well over $600M and if it misses on Saturday, the lottery association may well get their wish:

Quote:

Originally Posted by WikiPedia

These changes were made to increase the frequency of nine-figure jackpots; a Powerball spokesperson believed a $500 million jackpot was feasible (it became a reality within the year), and that the first $1 billion jackpot in US history would occur by 2022. (Ironically, less than three months after the Powerball changes, Mega Millions' jackpot reached $656,000,000 despite remaining a $1-per-play game.)

On another note, I missed the story when it happened, but Amanda Clayton, the Michigan lottery winner who kept on collecting public benefits, was found dead of a presumed drug overdose back in October.

Mini-Geek · 2013-05-18, 13:18

Quote:

Originally Posted by schickel

Interesting psychology at play here: the odds are the same now as they are when the jackpot starts at $12M, in fact it would be better to play when the jackpot is smaller, since there will be (potentially) less winners, but people get into the crowd mentality.....

There's another factor at play, though: large jackpots (typically) come about because of many rollovers (i.e. drawings with no jackpot winner, where the jackpot pool becomes the starting pool for next drawing). So the question is, which effect is stronger? (for Powerball, since that's currently a large jackpot)

Based on http://www.powerball.us/info/jackpot-draws.php (recent jackpots with only 1 rollover), http://www.powerball.us/ ($231.7M rolled over, $376.9 current - using cash, not annuity throughout, since that's the "real" value), and http://www.powerball.com/real-letters.asp (suggests 30% of gross ticket sales is put toward the jackpot), I calculated the following:

$145.2M sold this time - 242M ticket
$376.9M, split (175+242)/175 ways (242 million tickets with a 1 in 175 million chance each of winning, means you can expect roughly 242/175 other winners, plus in this scenario you won), exp. jackpot winnings roughly $158.17M.

There's a minimum jackpot of $40M, and (what I'd guesstimate) 25M tickets sold for the first lottery after a jackpot, so ~0.14 other winners, for expected winnings of $35M. (even with the best-case small-lotto scenario of: "you are the only one to buy a ticket", the expected winnings from a jackpot is $40M) Better to expect $158.17M for a jackpot than $35M. If no winners occur for long enough, and there aren't too many tickets sold for the current drawing, you'll actually reach a point where you can expect (in a mathematical sense) more money than you put in. I don't know whether this could occur in real life, or if people would buy too many tickets and split the jackpot too much.

ewmayer · 2013-05-18, 19:29

Quote:

Originally Posted by schickel

Interesting psychology at play here: the odds are the same now as they are when the jackpot starts at $12M, in fact it would be better to play when the jackpot is smaller, since there will be (potentially) less winners, but people get into the crowd mentality.....

No, no, no - "piling in once the pot gets huge" makes good sense. Think about it - the odds of your numbers winning may be the same, but think risk vs reward. All that prize money is "contributions" from previous unlucky entrants.

schickel · 2013-05-19, 04:28

Interesting..... Either the news about California joining the PowerBall league was not heard by everyone, or they felt the $2 price was too high: for some reason the sales tonight were very much weaker than last year.

For the $656M MegaMillions jackpot last year, we sold just over $7K in MM tickets on the Friday of the drawing. With PowerBall at an announced $600M, we did just over $3K in PB tickets tonight....way weaker than I had anticipated.

We're still waiting on the results to see if we have to show up for work on Monday.....

schickel · 2013-05-19, 05:59

Quote:

Originally Posted by schickel

We're still waiting on the results to see if we have to show up for work on Monday.....

I have to go to work next week. Looks like there was 1 winning ticket in Florida for $590.5M, and the match 5 prizes in California were in San Jose and Taft (down south....)

retina · 2013-05-19, 06:07

Quote:

Originally Posted by ewmayer

No, no, no - "piling in once the pot gets huge" makes good sense.

Only as long as the influx of new purchases does not overwhelm the previous jackpot and push the EV back below 1.

If you only play the lottery when the EV is above 1 (i.e. one or more jackpots carried over) then perhaps it might make good sense to buy a ticket, but the bulk of the prize structure is extremely top heavy and only relatively few people make anything on the deal.

2012-04-01, 03:03	#35
schickel "Frank <^>" Dec 2004 CDP Janesville 2×1,061 Posts	Oh, BTW, there were 3 winning tickets in Maryland, Illinois, and Kansas, good for $213,333,333 each. Last fiddled with by schickel on 2012-04-01 at 03:04 Reason: Changed capitalization

2012-04-01, 03:01	#34
schickel "Frank <^>" Dec 2004 CDP Janesville 2·1,061 Posts	What all the above boils down to is that, yes, they do actually "cheat" when they announce the jackpot, because there was only (in this case) $462 million in the bank. The jackpot gets announced as $640 million^. however. To achieve the mega payouts, they purchase bonds to boost the "value" of the jackpot from what the actual cash value is to what the annuitized payout is. And yes, California and several others do not tax residents' winnings, so the tax rate would be just the maximum Federal rate. I always have trouble trying to explain this to players who complain about "if you take the lump sum they take 50% out in taxes off the top".....no, they only have ~1/2 the money in the bank and buy bonds to fill the gap. Ironically, the cash value lately is much higher than average, since they usually buy US Treasury Notes, and as we all know, lately they aren't paying very much (2.8% for 20-year bonds....) ---- ^Paid in 26 annual installments.

2012-04-01, 03:10	#36
schickel "Frank <^>" Dec 2004 CDP Janesville 2122₁₀ Posts	PS. This could go in the "WTF news" thread, but since we have a lottery thread going here, here is a Michigan lottery winner ($1,000,000) who still collects $200/month in SNAP benefits (food stamps....) She thinks she deserves it because she's paying for two houses and is currently unemployed....

2012-04-06, 19:04	#38
Christenson Dec 2010 Monticello 5×359 Posts	It's a matter of mathematical folklore that the expected value of a $1 lottery ticket is 50 cents. Question: Just before this round of "Mega Millions" mania got started, was the expected value of a "Mega Millions" lottery ticket actually above its purchase price? Incidentally, the usual effect of winning a large lottery prize is a high ride for a few years, then bankrupt...

2013-05-19, 04:28	#42
schickel "Frank <^>" Dec 2004 CDP Janesville 4112₈ Posts	Interesting..... Either the news about California joining the PowerBall league was not heard by everyone, or they felt the $2 price was too high: for some reason the sales tonight were very much weaker than last year. For the $656M MegaMillions jackpot last year, we sold just over $7K in MM tickets on the Friday of the drawing. With PowerBall at an announced $600M, we did just over $3K in PB tickets tonight....way weaker than I had anticipated. We're still waiting on the results to see if we have to show up for work on Monday.....