When state run lotteries advertise huge jackpots, they should be honest about what exactly a potential winner is going to receive.
Let’s say the advertised prize is $10 million.
The lucky soul who wins the jackpot chooses the lump sum option. Which may be 60% or less. So now he has 6 million.
Then he has state and federal taxes to deal with. Let’s say that eats up 45% of his winnings. Now he has 3.3 million dollars left. A nice sum of money, to be sure, but the money that actually goes into his hands is a pitiful one third of the price advertised.
And don’t get me started on the annuity payments. In that case you do get the amount of money advertised (before taxes come in) but after two decades of inflation come in a $50,000 annual payment on a million dollar prize is worth only $27,500 (according to an online inflation calculator I consulted). So for all intents and purposes, you don’t.
The system needs to be changed.
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Abolish the “lump sum” concept and simply advertise what they’ll actually give you as being the Jackpot.
Either abolish taxation on lottery winnings, or have the “after tax” sum displayed prominently on all lottery advertisements.
The lottery should also point their big winners in the direction of a financial advisor. The average yokel who wins is at risk of blowing through all of his money in a few years because he’s not used to having large amounts of money (no offense to you average yokels out there). Once it’s gone, it’s gone. And someone who’s been sucking at the lottery tit for several years with reckless abandon and ends up broke will probably regret ever winning in the first place.**
Couldn’t agree more. Advertising an income stream with a net present value of $6m as being a $10m prize is deceptive, to put it kindly.
Not so easy. The amount of tax which the winner will pay depends on his personal circumstances; this is especially true if he takes the annuity option. And in that case, of course, it will also depend on future tax rates and allowances. Should an employer have to state the after-tax salary of a job he is offering? No? Then why should it be any different for a lottery operator?
I’d be surprised to find that lottery operators don’t already do that. Stories in the newspapers headed “I blew my $10m in six months, lost all my friends and family and ended up miserable” don’t actually reflect well on lotteries.
I’ve always viewed lotteries as a tax on people who don’t understand basic arithmetic, so I am pessimistic about the notion that more information would help.
Might as well give it a shot. They’re already honest about the chance of winning and the average annual payout (percentage that goes towards player prizes)
As long as we’re talking about truth in lottery advertising, Missouri sure has a way to go. All their radio ads are themed around “Lucky Town” and how great things are there. They never mention that the relative populations of Lucky Town and Unlucky City are about 1 to ten million.
If you got all the lottery jackpot winners together in a small area, would that even be big enough to be considered a town? It’d probably be more like a village.
I’m with the king on this one. I actually think we need less information not more. If we get rid of the state ( and multistate ) lotteries people will just start running numbers again. People want to gamble… fine. Let them gamble. But don’t go out and try to create more gamblers. We should keep the lotteries but not allow them to adverstise in any way. Those who want to play will buy tickets anyways. For everyone else, the state shouldn’t be in the business of trying to hook more suckers.
Florida is currently running a truly vile set of ads in which “comedians” make jokes about people who only play the lottery when the jackpot is more than $10 million. “What, six million isn’t good enough for you?,” the comedians ask derisively.
I’m sure I’m in a minority here, but there certainly is some sense in playing the lottery when the jackpot (less taxes, actual size of annuity, etc., odds there will be multiple winners, etc.) is higher than the odds. That very rarely happens, of course. If the odds of winning is one in sixty million, and the actual amount you would receive is $70 million, that’s good bet.
I wouldn’t say the lottery is a total rip off. Even if you never win you at least have bought the dream of a pile of easy money. I buy a ticket everyone once in a while so my wife and I can enjoy the fantasy. Of course, a mere six million isn’t enough for me. I’ll only play when the jackpot is near or over a hundred million. And I only spend $2.
That’s what I do. I also figure that unless the jackpot is an insanely large amount of money, the dream that I bought with the ticket would just be a nightmare. With all my friends and family naturally clamoring for money, I’d either have to give a large amount to them and go broke or alienate everyone with my apparent stinginess (a million dollars doesn’t go that far these days, especially if you attempt to make it last for the rest of your life)
My guess is that a 3 or 4 million after tax sum (10 million+ advertised jackpot) would be enough to satisfy my desire to help those I know and still live a comfortable life for myself. And I bet a lot of lottery players figure the same thing, which explains the need for the ad you described to drive up sales.
I live in Florida, which has one of the larger state lotteries and no state income tax, but I have never seen a billboard, TV ad or (heard) a radio spot that clearly defines the odds of winning the lottery. The lottery was sold to Florida voters as a means of funding education (there’s just something lovable about a state that views education as something to be paid for out of surplus income), but somehow the profits always exceed the state education budget. By a lot. Lotteries were started a couple of decades ago and became popular when they were proven to be a reliable source of cash at a time when states could not count on the federal government to supplement revenues necessary to provide promised services. But everybody should be allowed a dream, however misguided and deluded they may be. So here’s a modest proposal. Put a line on everyone’s income tax form allowing them to pay, say, $20.00 into the state’s education budget. Everyone who opts in is entered into a lottery, and may win a monthly lottery of a million dollars, and gets a cheap plaque attesting that they are a champion of public education. The state gets the money, education doesn’t get cheated, and the losses are limited, protecting the stupid. Everybody is happy except – guess who?
I don’t like it. It just doesn’t have the same drama… the same verve that you’d have with the traditional lottery system. A dull line on a tax form just doesn’t sound as exciting.
(In reponse to qts): Tax paid when you purchase the ticket is greater than tax paid on winnings. 30% of £1 times fifty million people is £15m. The prize fund, however, would only be £25m, which only nets tax of £7.5m. So long as the expected payout is less than the cost, you’re better off paying tax on the winnings.
Of course, this doesn’t necessarily hold true when you consider point 2…
Lottery’s a tax on those poor at arithmetic, huh? So’s insurance then. You expect to get out of insurance less than you put in. But for some reason every business in the land makes sure they have adequate coverages. All those stupid finance directors that can’t do maths, hey?
Actually, lotteries and insurance both work on the principle that the value of your first dollar is not the same as the value of your thousandth or millionth dollar. Your life might be sufficiently better from winning a million dollars to justify the likelihood of losing one dollar. If so, you would be advised to play the lottery. (Similarly, the misery of being wiped out by an unlucky event is sufficient to pay over the certain insurance premium to avoid such a scenario). This is called utility theory in economics.
In other words, there are plenty of people that would be perfectly advised to play the lottery. It’s their only chance for a distinctly different lifestyle.