If you have walked near a television, radio, or a general news site, you probably heard that the Mega Millions jackpot for Friday is up to over $500 million. Winning the lottery is always worth some serious coin, but $500 million means you can buy your own sports team right?
Well not exactly. The relatively poor performers of the Los Angeles Dodgers went for over 2 billion recently, but maybe you can set your sites on a team that isn’t so high profile? I wonder what the Kansas City Royals would go for?
The other reason why you won’t be buying a major sports franchise is that you won’t get all $500 million. The last time I wrote about a high lottery in nearly 5 years ago, the $390 winner ended up with around $65 million: Just won $390 Million in the Lottery? Maybe not so quick.
How much would you get with $500 million? If you choose to take it as a lump sum instead of a 20-year annuity you’d get about half that amount. Let’s call it $275 to err on the generous side of things. Then you’d pay taxes of about 35% on that money. This would leave with around $180 million left to spend. It wouldn’t buy you much of a sports franchise. That also assumes that you don’t have to split it with one or more other winners. The odds of winning Mega Millions is 1 in 176 million, but with all the attention this lottery is gathering the odds of multiple winners is growing every minute.
Let’s go into fantasy world for a minute or two here. What if you did win? What would you do? The very thing that people suggest is to hire an attorney and a darn good accountant. That’s sound advice. Hopefully they help navigate on of the bigger questions: Should you take the lump sum or the annuity? That website tells you how you can do the math for your own state’s circumstances, but it looks to me that in most cases you are better off with the annuity. Personally, I’d like the annuity option because it forces me to not spend it all on a sports team. The next thing I would do with the $16 million in my first year winnings (after taxes) is buy another annuity that pays out over a longer term, something that will ensure that I’ll be covered even after the 20 year lottery winnings. From there, I’d probably need some help in figuring out how to put that money to work for me, especially in making sure that I’m covered with FDIC insurance or something similar in the places I put it. You’d also see me start buying up real estate. There are a lot of foreclosures on the market and putting the cash to work on a few of them could be great investments in the future. This may even include perhaps buying a modest home in Silicon Valley (though it is much cheaper to rent here).
To answer my question in the title, I plan on buying 10 tickets for the lottery tomorrow. Is it a smart move? Nope. Playing the lottery is a tax on those who are mathematically challenged. If you don’t believe me, simulate playing Mega Millions here. I just simulated 1,000 tickets and won $79. However, tomorrow is my birthday, so for those who believe in such things, perhaps I’ll get a little birthday luck. So what about you? Are you buying a bunch of tickets?
Your numbers in the beginning are slightly off. If you take the cash option you’d get $389M, not $275. Then after taxes you’d be left with about $233M. Still not enough for a big sports franchise, but that extra 50 million could come in handy.
Lazy Man says
Thanks Jeremy, I looked everywhere for a calculation of what it would be worth if you take the lump-sum option. After I completed the article I saw that the estimated jackpot had grown to $540 from the $500 that I started with, but that’s still more than slightly off. Bad, Lazy, Bad.
I might buy one single ticket. The first ticket lets you dream and chat about what you would do if you won. Further tickets increase your odds of winning linearly (or at least, a linear function is a decent approximation), but don’t confer additional dreaming and chatting benefits. So one ticket is the sweet spot.
I have a brilliant sure fire no fail plan for winning the lottery: Buy 500 million $1 dollar tickets. Good luck, Lazy!
Lazy Man says
I only need to buy around 176 million to get every combination. I’m lacking the funding for that. Even if I had the funding, I would likely have to split it.
The lottery is, as we all know, akin to gambling.
Often misunderstood is that the real cost of gambling isn’t due to the ‘house’ take. It is due to the HOUSE take. Where ‘house’ is the casino, and HOUSE is the government.
I recently went to Vegas with a friend, and won $600. After I’m through paying taxes on that (35% federal + 11% state), I get to keep about half of it.
Likewise with the lottery. You don’t get to deduct lottery losses (except to the degree that they offset winnings), but you do have to pay taxes on winnings. Unlike investment losses, you can’t carry forward gambling losses to future returns.
Lazy Man says
You reminded me of another why I’m buying $10 in tickets. In the worst case, it is a donation to government-funded programs that benefit the community.
BuckTrak Budget Planner says
After the taxes, don’t forget that you’ll then have to deal with the “lottery curse”! From the gentleman in West Virginia who lost a granddaughter from drug use brought on by easy access to money, to several “winners” who died due to substance abuse or foul play. These folks probably wished they had never won.
Having said that, I bought one ticket. I’m sure I won’t be dealing with any curses myself, however.
I bought one ticket for myself and kicked $2 into an office pool. Definitely entertainment expense as oppose to an investment. Certainly no more of a waste than the $8.50 I paid to see a movie on Wednesday.
I figure that if I win, I can finally concentrate on writing my serial killer novel and a few other fiction projects.
I think most people are probably better off with an annuity, because you can’t blow it all at once (unless you sell the rights to the payments).
There’s a guy who won $20 million in the lottery and bought a NASCAR Nationwide series (2nd highest level) team. I’m not sure how long that money will last, unless the team does well and continues to attract and retain sponsors. He smartly bought an existing team rather than trying to build from the ground up.
The Dodgers are going to rake in a fortune from a regional sports contract, which is a big reason why they are so valuable. The Royals and Pirates could alternating winning the World Series for the next 5 years, and they still wouldn’t be worth anywhere near as much as the Dodgers.
If you really want to mess with the sales clerk, buy a half dozen tickets with the exact same numbers. Explain that if you have to split the jackpot, you’ll get a larger share (if someone else has the same numbers, you’d have 6 of the 7 winning tickets).
Lazy Man says
I think the sales clerk will just think you aren’t smart enough to understand the value of diversification. Plus if no one else wins it, you just wasted $5 whole dollars of your winnings to split it with yourself ;-).
You saw The Hunger Games on Wednesday too, I see ;-). Okay it wasn’t that bad, but it was disappointing for the hype it received. It didn’t get off to a good start when I asked my wife why she didn’t buy the 3-D version and she said, that it wasn’t available in 3-D. They put movies that have no reason to be in 3-D like Harold and Kumar’s 3D Christmas, and then leave out The Hunger Games? (Sorry, got a little off-topic, but The Hunger Games does have its roots in The Lottery by Shirley Jackson.)
I’d just like to see how upset the other winner would be when he sees what I did. As I said, entertainment value.
Nah, saw Act of Valor. It’s probably not a bad movie, but not really my type of movie.
I like the lottery simulator you mentioned. Just goes to show you how much you can lose by playing the lottery! I’d have better chances getting struck by lightning 5 times in a row than winning the lotto, and I don’t think that will happen! I won’t be playing. Thanks for an informative post!
I always wondered about that lightning vs. lottery comparison. How many people are out there getting struck by lightning? But I know the lottery does get won once in a while, otherwise the jackpot would keep building up indefinitely.
To partially answer my own question:
An estimated 400 people per year are struck by lightning. (NOAA website)
Powerball and MegaMillions are both draw twice a week, for a total of 208 drawings per year. (wikipedia)
I don’t know how often the lottery jackpots are won (less than 100% since it does build up) nor how often the prize ends up split amongst multiple winners. If we assume those two effects cancel each other out, a very rough estimate is that you are twice as likely to get hit by lightning as win the lottery.
I have also read that you are more likely to die in a car accident driving one mile to a convenience store to buy the ticket, than you are to win the jackpot with that ticket.
Lazy Man says
Thanks Steve, I was going to comment on the getting struck by lightning 5 times in a row comment, because I’m not sure if that’s ever happened. I presumed it was exaggeration.
It seems to me that that it also presumes that one doesn’t tip the odds of either one. For example, if I live in an area where lightning strikes are fairly common and pretend I’m a knight with a long metal lance (perhaps I just like joust in storms), my odds of getting struck by lightning rise. Similarly, the odds of winning the lottery are greatly effected by whether I buy tickets and how many I do.
There’s a thing on USA Today saying that you are 176 times more likely to get struck by lightning: http://www.usatoday.com/news/nation/story/2012-03-29/megamillions-jackpot/53872762/1
I think they are talking about the odds of being stuck by lottery during your lifetime (not in a year) vs. the odds of winning a specific drawing with one ticket (it’s actually the TICKET’s chance of winning, not yours). If you’re a regular player, your odds of winning a jackpot is substantially greater than 1:195 million (although still astronomical odds against you winning).
I’d guess that the number of winning Powerball/Megamillions tickets in a year is substantially less than 208. In the case of Mega Millions, it has been two months (~18 drawings) since there was a winner. Sometimes there are a lot of winners during a quick span, but just as often, there are a number of weeks between winners (yeah, too lazy to get the exact details).
Yes, it’s far too easy to quote statistics without noting the dependent variables.
For example, the odds of dying in a shark attack are very small, about 1 in 4,000,000. But *my* odds of dying in a shark attack are much less than that, since I virtually never go to the ocean. Meanwhile, the odds of a *surfer* dying in a shark attack are much higher.
I’d be interested to find out if it is, in fact, possible to increase one’s expected value from a lottery ticket through shrewd number picking.
One might think that using a completely random number would be the best approach, but that is clearly not the case. For the best payout, you want to avoid hitting numbers that other people have also picked. I often hear that people frequently pick birthdays or other important dates, so presumably you should limit your ‘random’ numbers to avoid numbers that look like dates. From a first approximation, you should therefore not pick numbers that are 31 or below.
You should also avoid patterns, so probably best not to pick
It would be interesting to see if, in fact, given an appropriate sized jackpot, you could actually come up with a set of numbers from which to pick that would have a >1 expected payout (even after taxes). I rather suspect that it is.
Of course even with a >1 expected payout, that still doesn’t mean it’s a good idea to play, unless you have an infinite bankroll.
“If you’re a regular player, your odds of winning a jackpot is substantially greater than 1:195 million (although still astronomical odds against you winning). ”
Before someone says “Yeah, your odds are 1:175 million” (the actual odds for Mega Millions), let me expand a bit.
Say that you’re rolling a die, and I’m holding a “ticket” with one of the possible “combinations” in it. The odds of rolling the die and having it match my ticket is 1 in 6.
If you roll the die six times, however, the odds of having a “winning ticket” for any of the “drawings” (rolls) is subtantially better than 1 in 6 (16.7%).
It’s 66.5% or (1-((5/6)^6))
Now pretend that the die has 175 million sides and that I hold a ticket with one of the possible combinations. Odds of having a winning ticket for any particular drawing is one chance in 175 million, but the odds of winning ANY drawing over a longer period of time is substantially better (although still absolutely horrible odds).
@xyz You can reduce your chances of sharing a jackpot by picking only numbers higher than 31; however that doesn’t increase your odds of winning, it decreases your odds of sharing the jackpot. But it depends on what fraction of players are using non-random dates, what fraction are playing quick picks, and what fraction are using your strategy.
In for $70 but that is within 2 different pools ($50 – with 12 people / $20 – with 7 or 8 people).
Screw the Odds! I am going for gold lol
“@xyz You can reduce your chances of sharing a jackpot by picking only numbers higher than 31; however that doesn’t increase your odds of winning, it decreases your odds of sharing the jackpot. But it depends on what fraction of players are using non-random dates, what fraction are playing quick picks, and what fraction are using your strategy.”
If there’s not a site somewhere that documents the frequency of each number being played (and there might be), you could probably back into it by looking at the historical winners of the second place prize (and even third place, if you wanted to add more data, but at the expense of it being muddier data).
You could look at every time that “1” was one of the correct numbers for second place and calculate the average number of 2nd place winners for those drawings (pretty sure this is public info, but I may be wrong). Do the same for 2, 3, 4, 5 …
This should give you a rough approximation of the frequency that each of these numbers is played (although you’d probably want to add in a factor for the size of the jackpot, since there are naturally more players at these times).
If drawings that have a 2 as one of the numbers have, on average, twice as many 2nd place winners as drawings that have a 1 as one of the numbers, it stands to reason that people as playing 2 twice as often.
@Steve, of course you’re right that you don’t increase your odds of winning, but by picking numbers less likely to be picked, you do increase your odds of a higher payout.
My point in that comment was that you often hear people refer to the possibility of a shared pot as one of the (several) reasons that playing the lottery is a bad idea, particularly as the jackpot increases.
But realizing that may people like patterns or are superstitious (particularly those who play the lottery..), you can steer your “random” pick away from numbers that others may be more likely to pick. In other words, my hypothesis is that the expected payout from the lottery is higher if you pick numbers that do not correspond to dates or easily recognizable patterns.
Of course that’s a hypothesis for which I presently have no evidence :)
Interesting discussion on odds, but if you are Lazy and don’t buy a ticket every day you have an extra $365 at the end of the year.
Or better yet don’t buy $10 worth a week and invest that $520 for the 20 years a lottery anuity (that you didn’t win) would pay and you would have $10,400 plus coumpound interest or growth.
Yes I bought 1 ticket also.
Lazy Man says
Good point Roy, that’s why I said playing the lottery was for those who were mathematically-challenged. That was the first lottery I’ve bought tickets for in 10, maybe 15 years.