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?