Published November 28, 2012
The $550 million Powerball jackpot sure sounds tempting. And you may be even more tempted to participate in Powerball madness when I tell you that inspired to learn that there is a 63 percent chance at 10:59 ET on Wednesday night that one or more people will be screaming with delight or fainting.
It seems like such a great deal, too. For a very small investment, with a $550 million jackpot, and odds of 1 in 175 million, it looks like a $2 ticket will on average pay $2.84. Even if you don't win the Powerball jackpot, you might win a consolation prize. That adds another 35 cents to the value of each ticket, for a total of $3.19. Not a bad return for a $2 investment. How can you go wrong?
You might be wondering how state governments can afford to pay out so much money even when they keep 50 percent off the top of the prize. That's because the unclaimed winnings from 15 previous Powerball drawings are kept in the pot.
Still you might want to think again before you go rush out to spend your retirement money on buying those tickets.
First, you really don't get handed a check right away for $550 million. Your payout could be spread out over 30 years, and let's face it, that last payment of $16.7 million -- a mere 30 years from now -- isn't quite the same as getting it today. Your choice is really $550 million spread out over three decades or what a bank would give you today for that money, about $327 million. So that cuts off a third right there.
Another problem is that you aren't the only person who can win this gamble.
Multiple people can pick the winning combination. You might have to share the winnings with one or more other people. Taking that into account knocks down your expected win to $1.53.
And then there are the taxes.
If you win the Powerball jackpot, you'll get to see what it's like to be in the 1 percent that President Obama is always talking about. When you add in state taxes, you will probably face at least a 40 percent tax altogether (federal and state income tax). That will knock your expected earnings down to about 92 cents for your $2 ticket.
What looked like a sure thing is actually a pretty lousy bet. And, guess what, if those 15 previous drawings with no winner hadn't already been put in the pot, it would be much, much worse.
One thing is for sure though, if Obama gets his way and raises taxes, there will be another incentive for you to take a lump sum payout. Just be thankful, if you win, that you won the Powerball jackpot on Wednesday night and not a little over a month from now!
But enough about you, let's look at the bigger picture: with the federal government awash in deficit spending, four years from now our country will have accumulated deficits of well over $1 trillion dollars each year.
It is surprising that a national lottery hasn't already been talked about. Getting all the Americans who voluntarily buy Powerball tickets to purchase them would surely be a lot less controversial than just taking more of people's income through higher taxes.
Unfortunately, no matter how much gamblers try to rationalize buying a lottery ticket, there is no evidence that having the money go to schools or health care for the poor gets them to gamble more. Ticket sales come down to one factor: how much money has been put in from previous pots without a winner.
But the people who buy lottery tickets do have one thing in common with the governments like those in Greece or here in the United States. They seem to think that some magic fairy is going to leave them a lot of money. If only it were true.