## Poll

 Yes, ties matter 6 votes (54.54%) No, you're rich either way 5 votes (45.45%)

11 members have voted

rdw4potus
• Posts: 7237
Joined: Mar 11, 2010
August 10th, 2010 at 7:49:04 PM permalink
My company does a number of bonding activities to try to promote staff unity. In addition to the usual happy hour and sports fantasy league participation, we also have a lottery pool that I administer. My criteria for selecting the drawings to participate in has always been pretty simple. I calculate the Expected Value of the Mega Millions and Powerball drawings, and we participate any time the tax-adjusted EV of the drawing with the jackpot's cash option exceeds .5. That has been my method with the Powerball for years, and I've done it with the Mega Millions since MN got that game in February.

My company recently hired a new finance guy, and he's been criticizing my method (over beers at happy hour, so nothing serious). He swears up and down that I must include a correction for the probability of a tied win. His point to me is that the chance of ties decreases the EV, and we are not meeting the .5 EV criterion as often as I claim. My counter argument to him is that the effect of the tie is only realized if we win and tie. To the extent that we have to win the freaking lottery in order for the tie to matter, I'm happy to have "incorrectly" played and then WON THE LOTTERY.

If you ran my office lottery pool, would you factor in the possibility of a split jackpot?
"So as the clock ticked and the day passed, opportunity met preparation, and luck happened." - Maurice Clarett
Nareed
• Posts: 11413
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August 10th, 2010 at 8:47:15 PM permalink
Let's begin with a possibly unwarranted assumption: Your EV criterion is reached when there are large jackpots. If so, then ties do matter. More people play any kind of lottery when the jackpot is large. More players mean larger odds of a tie.
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Wizard
• Posts: 26626
Joined: Oct 14, 2009
August 10th, 2010 at 10:57:27 PM permalink
I agree with the finance guy. Large jackpots induce more play, which increases the probability of a tie, and lowers the share of the jackpot you can expect to get if you win. I'd like to do a study on this, if I had the data, but I speculate that at some point the value of lottery ticket purchases starts to go down as the jackpot goes up at some point, due to increased competition. In my opinion that already happens with cash ball jackpots in bingo. I think the best opportunities are just before the jackpot is so large that it induces people that otherwise don't play to play.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
miplet
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August 10th, 2010 at 11:30:50 PM permalink
“Man Babes” #AxelFabulous
Nareed
• Posts: 11413
Joined: Nov 11, 2009
August 11th, 2010 at 7:21:01 AM permalink
BTW, can I interest you in my Rapid Lotto game?

https://wizardofvegas.com/forum/off-topic/gripes/2145-a-good-lotto-bet-really/2/

Just scroll down tot he second post on the page. Everyone's a guaranteed winner! In fact, in exchange for a pledge to buy 100 tickets, I'll throw in three, count'em three, jackpots at no extra cost!
Donald Trump is a fucking criminal
Wizard
• Posts: 26626
Joined: Oct 14, 2009
August 11th, 2010 at 7:47:46 AM permalink
I just did some searching and came up empty. What I'm looking for is a table that shows the jackpot amount and number of tickets sold for each drawing of any lottery. I would prefer Powerball or Mega Millions, but their web sites didn't seem to have this information. As I wrote in my last post, my hypothesis is that if the jackpot gets too big, the expected value starts to decrease, due to induced competition. It wouldn't surprise me if the optimal jackpot for Powerball and Mega Millions is \$99,999,999, because lots of people won't play until the jackpots gets to 100M. If anyone can point me to such data I would be quite grateful.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
Doc
• Posts: 7287
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August 11th, 2010 at 8:01:51 AM permalink
I doubt you will find a published history table anywhere. My initial post in the April thread linked by miplet outlined my suggestion for how to come up with a good figure for the number of tickets the lottery people estimate will be sold for an individual drawing. I don't see a better way an individual could come up with an estimate.
Nareed
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Joined: Nov 11, 2009
August 11th, 2010 at 8:03:41 AM permalink
Is this any help?

http://lottoreport.com/lottosales.htm
Donald Trump is a fucking criminal
Doc
• Posts: 7287
Joined: Feb 27, 2010
August 11th, 2010 at 8:14:33 AM permalink
Well, dang! Nareed did indeed find a table.

I still think the method I suggested is the best one for getting a figure for sales for the upcoming drawing.
Nareed
• Posts: 11413
Joined: Nov 11, 2009
August 11th, 2010 at 8:20:21 AM permalink
Quote: Doc

Well, dang! Nareed did indeed find a table.

I got lucky. All I did was copy what the Wizard said he was looking for and paste it on Google.
Donald Trump is a fucking criminal
Wizard
• Posts: 26626
Joined: Oct 14, 2009
August 11th, 2010 at 8:48:39 AM permalink
Quote: Nareed

Is this any help?

http://lottoreport.com/lottosales.htm

Hot dang! That looks like just what I needed. Thanks! This will keep me busy for a few days. Stay tuned for my analysis.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
konceptum
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Joined: Mar 25, 2010
August 11th, 2010 at 8:50:04 AM permalink
Even though this has nothing to do with the original question, the OP should still have this kind of information, if he/she doesn't already. Basically, if you are participating in some type of lottery pool, you should know that only one legal entity can win the lottery. Usually, that's one person. In other words, if you have 10 people in your lottery pool, and the lottery jackpot is \$100 million, one person is going to get a payment of \$100 million, and have to pay taxes on that \$100 million. If he has \$50 million left over, and then decides to give the other 9 people \$5 million each, they are each going to have to pay income tax on the \$5 million they receive. Most people in lottery pools don't realize this cumbersome fact.

Naturally, if you win the lottery for a large amount, you should immediately hire an attorney and an accountant to handle all the tax implications. This will help you avoid this problem. However, it's also easy to know that a simple contract, written out and signed by all parties PRIOR to the drawing will result in the GROUP being the legal entity, and thus each person would receive \$10 million, and have to pay tax on the \$10 million.

Legally, it would be improper to have such a document prepared and signed after the drawing, and dated as if it had been done before the drawing, but that's not to say that it hasn't been done before....

Also, I guess you could make sure that the lottery in your area really will pay out separate checks to each member in the group. It used to be that some states wouldn't do this, but I haven't kept up on lottery practices, so I don't know if this is still true or not.
Nareed
• Posts: 11413
Joined: Nov 11, 2009
August 11th, 2010 at 9:03:11 AM permalink
Quote: Wizard

Hot dang! That looks like just what I needed. Thanks! This will keep me busy for a few days. Stay tuned for my analysis.

You're welcome. Maybe I am gifted at extracting useful info from the web...

I think I'll go look up "next drawing's winning number" now ;)
Donald Trump is a fucking criminal
miplet
• Posts: 2116
Joined: Dec 1, 2009
August 11th, 2010 at 9:10:37 AM permalink
Quote: Nareed

You're welcome. Maybe I am gifted at extracting useful info from the web...

I think I'll go look up "next drawing's winning number" now ;)

4 8 15 16 23 Megeball 42
“Man Babes” #AxelFabulous
Doc
• Posts: 7287
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August 11th, 2010 at 9:24:00 AM permalink
Quote: konceptum

Basically, if you are participating in some type of lottery pool, you should know that only one legal entity can win the lottery. Usually, that's one person. In other words, if you have 10 people in your lottery pool, and the lottery jackpot is \$100 million, one person is going to get a payment of \$100 million, and have to pay taxes on that \$100 million.

Don't think that's the case at all. I think all of the major lotteries will split up a jackpot if you provide a statement signed by all of the pool members showing the share for each.

Here is a quote from www.powerball.com/pb_contact.asp:
Quote:

CAN INDIVIDUALS IN A GROUP CHOOSE CASH AND ANNUITY?
CAN INDIVIDUALS IN A GROUP DIVIDE THEIR SHARE UNEQUALLY?

An individual lottery may have rules about how they will pay a winner (how many checks; how many winners to process, etc.) but we can handle any request to divide the prize payments. We can divide the prize however the individuals in a group wish, including requests for cash or annuity. But again, an individual lottery's rules will apply and most lotteries have not had to consider this question.

Nareed
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August 11th, 2010 at 10:27:18 AM permalink
Quote: miplet

4 8 15 16 23 Megeball 42

I'll play it. If I win anything I won't let you know ;)
Donald Trump is a fucking criminal
rdw4potus
• Posts: 7237
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August 11th, 2010 at 10:50:39 AM permalink
Quote:

Quote:
CAN INDIVIDUALS IN A GROUP CHOOSE CASH AND ANNUITY?
CAN INDIVIDUALS IN A GROUP DIVIDE THEIR SHARE UNEQUALLY?

An individual lottery may have rules about how they will pay a winner (how many checks; how many winners to process, etc.) but we can handle any request to divide the prize payments. We can divide the prize however the individuals in a group wish, including requests for cash or annuity. But again, an individual lottery's rules will apply and most lotteries have not had to consider this question.

These questions came up in our group a couple years ago. I lowered the share price from \$5 to \$2, and a couple members asked about buying multiple (perhaps fractional) shares. While we were researching that answer, we also got into a discussion about whether to take the cash option or the annuity. I'm a strong proponent of the annuity option, especially in a fractured win like in this scenario. I think the tax savings make up for the lost time value when the prize amount falls into a certain range (large enough to be mostly in the highest bracket for the cash option, but small enough to be mostly in other brackets if annuitized).
"So as the clock ticked and the day passed, opportunity met preparation, and luck happened." - Maurice Clarett
Doc
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August 11th, 2010 at 11:47:27 AM permalink
Quote: Nareed

Quote: miplet

4 8 15 16 23 Megeball 42

I'll play it. If I win anything I won't let you know ;)

I'd be careful, Nareed. Here is what miplet posted back in the April thread on the lottery.

Quote: miplet

That's why I always choose 4 8 15 16 23 42.

I can just see the fur flying if he ever won and had to share the jackpot with you! You really have to watch out for someone who plays the "Megeball" lottery -- I feel certain that he could figure out who the scoundrel was who stole his numbers, even if you don't let him know.
Nareed
• Posts: 11413
Joined: Nov 11, 2009
August 11th, 2010 at 12:05:08 PM permalink
Quote: Doc

I'd be careful, Nareed. Here is what miplet posted back in the April thread on the lottery.

Yeah, well, I can't play Megeball, or Powerball, or Megaball, or any kind of ball lotto anyway.

When I played weekly, I always played the same numbers also. It's common sense.
Donald Trump is a fucking criminal
konceptum
• Posts: 790
Joined: Mar 25, 2010
August 11th, 2010 at 2:13:52 PM permalink
Quote: Doc

Don't think that's the case at all. I think all of the major lotteries will split up a jackpot if you provide a statement signed by all of the pool members showing the share for each.

You're right Doc. Things have changed since I was ever involved in a lottery pool. But it's also important to note that your quote does state that some lotteries may not split up a jackpot. Probably a good idea to make sure an individual lottery will do a split before you enter into a pool.
Doc
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August 11th, 2010 at 2:39:58 PM permalink
Quote: konceptum

You're right Doc. Things have changed since I was ever involved in a lottery pool. But it's also important to note that your quote does state that some lotteries may not split up a jackpot. Probably a good idea to make sure an individual lottery will do a split before you enter into a pool.

I don't think the quote from powerball.com actually says that some lotteries may not split up a jackpot. It indicates that the individual lottery's rules apply and that there may be some restrictions. I suspect those restrictions are to prohibit the unreasonable requests; eg., suppose AARP purchased a lottery ticket that won and asked a state lottery to divide and distribute the (very small) checks to each of the members on an annual basis. I doubt they would agree to do that. I think if you are dealing with a moderate size pool, perhaps 20 or 30, there would be no problem at all. If you have a pool of 100, I don't know how receptive they would be.
Wizard
• Posts: 26626
Joined: Oct 14, 2009
August 11th, 2010 at 5:00:13 PM permalink
Based on some initial analysis, it is looking like my hypothesis was wrong, at least for the Powerball. It seems even when the jackpot grows exceptionally high, the probability of winning is so small that it is unlikely that more than one person will win. Here are some facts:

Since 2008 the average Powerball jackpot has been \$73.6 million.
The highest it has been since 2008 is 275M, on 3/15/08.
Ticket sales that week were \$72,525,664 , not counting the Powerplay add-on.
Tickets are \$1 each.
The probability of winning is 1 in 195,249,054.
Expected winners that week were 0.371452.
The probability of two or more winners was 0.0540655.
Estimated loss in expected value (overall) due to jackpot sharing, before facting in annuity or taxes: 4.01%.

So, even with the record high jackpot (since 2008), there was only a 5.4% chance of it being split.

Source of sales and jackpot amounts: lottoreport.com/powerballsales.htm.

Quote: konceptum

Basically, if you are participating in some type of lottery pool, you should know that only one legal entity can win the lottery.

I don't think that is the case. Have a look at the history of Powerball winners. You see such entires as "22 Postal Workers" on October 4, 2008.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
Ayecarumba
• Posts: 6763
Joined: Nov 17, 2009
August 11th, 2010 at 6:31:15 PM permalink
Quote: Wizard

So, even with the record high jackpot (since 2008), there was only a 5.4% chance of it being split.

Doing some quick figuring, from the Powerball chart, there have been 91 draws that produced at least one jackpot winner. Of the 91, 7 were split between two (and in one case three) winning tickets. 7/91 = 7.7% This is in line with a binomial distribution assuming a 5.4% chance of success. However, I think the 7.7% may actually be closer to the true value, given that many ticket buyers choose from the same subset of numbers (1-31, the calendar dates). This behavior increases the likelihood of a split should the numbers draw that way.
Simplicity is the ultimate sophistication - Leonardo da Vinci
teddys
• Posts: 5529
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August 12th, 2010 at 6:08:16 AM permalink
Quote: Wizard

I don't think that is the case. Have a look at the history of Powerball winners. You see such entires as "22 Postal Workers" on October 4, 2008.

But the "22 Postal Workers" could be the name of the legal entity they created to receive the funds. You see other groups like "the FEMA team" and "The End of the Rainbow Trust." I think konceptum is one to something. By the way, that is a very interesting link. I especially like the groups of government bureaucrats winning those payouts -- freed from the white-collar prison!
"Dice, verily, are armed with goads and driving-hooks, deceiving and tormenting, causing grievous woe." -Rig Veda 10.34.4
Wizard
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August 12th, 2010 at 8:16:52 AM permalink
Quote: teddys

But the "22 Postal Workers" could be the name of the legal entity they created to receive the funds. You see other groups like "the FEMA team" and "The End of the Rainbow Trust." I think konceptum is one to something. By the way, that is a very interesting link. I especially like the groups of government bureaucrats winning those payouts -- freed from the white-collar prison!

I suppose, but what if the 22 postal workers could not agree on how the trust should be set up? If multiple people owned the winning ticket I don't see the downside to paying them individually. Forbidding that doesn't pass the logic test to me. There would be no upside to the winners or the lottery to enforce such a limitation.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
Doc
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August 12th, 2010 at 9:14:57 AM permalink
Earlier, I posted the quote from powerball.com, indicating they will split the prize between individuals. Now I just add some issues that I think I have heard but don't have an official citation for.

I think that the lottery will not award the money to a "legal entity" other than individual people. I think that you cannot have a corporation receive the award and potentially pay lower taxes. I know nothing about family trusts, so I don't know how one goes about using a trust to protect the funds, such as reducing/delaying estate taxes in the event of a winner's death prior to the full annuity being paid.

Perhaps there is someone on this forum who knows the facts about such issues. Surely we don't need a lot of speculation with no more foundation than my comments in this post.
konceptum
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August 12th, 2010 at 9:58:52 AM permalink
It would be interesting to find out more about this. I think the ability to have a trust purchase the lottery tickets and receiving the winnings would add significant differences in the way people would buy lottery tickets, if they knew this was available. Especially older people, who already have established trusts for their children, and are already playing the lottery.

However, my guess is that it is correct to state that the lotteries will only make payments to individuals. If nothing else, the IRS would be eager for this to remain the correct and only way for the payouts to be made. As for splitting the payout, I agree that there is probably no reason why a lottery would want to antagonize people by not allowing splitting, but at the same time, it still remains a possibility that some lottery may have in their regulations that splitting isn't allowed.

The only reason I could see for not allowing splitting comes from the point of view of the IRS. Obviously, splitting a large lottery payout would have relatively no effect on reducing taxes, but I could see potential situations in which, if the payout is low enough, and the number of winners high enough, that the overall effect for the IRS is receiving less money. Of course, anything that gives the IRS less money is probably a good thing.
konceptum
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August 12th, 2010 at 10:05:16 AM permalink
Sorry, just found this website: http://www.professorbeyer.com/Articles/Lottery.htm. Of course, I have no idea of the accuracy, completeness, and whether or not it only applies to Texas lotteries, but the author does say:
Quote: http://www.professorbeyer.com/Articles/Lottery.htm

The best entity to form for an individual winner is a revocable trust. See Kimberly Adams Colgate, Win, Lose or Draw: The Tax Ramifications of Winning a Major Lottery, 10 Cooley L. Rev. 275, 293 (1993) (providing extensive discussion of this technique which forms the basis of the discussion in this section). The lottery winner should create a revocable trust and apply for an employer identification number. The winner should then transfer the ticket into the trust and the trustee should redeem it for the benefit of the trust.

The winner receives a variety of benefits by creating a revocable trust. (1) Probate of the lottery proceeds will be avoided. Instead, the remaining payments are distributed to the beneficiaries according to the terms of the trust instrument. (2) No transfer occurs for gift tax purposes when the winner places the ticket in the revocable trust. (3) The transfer of the ticket prior to redemption is unlikely to trigger compliance with the special procedures needed to assign lottery winnings. (4) The settlor-winner may amend the trust without the approval of the lottery commission. With this freedom to amend, the settlor may later decide to relinquish his or her power to revoke a certain percent interest of the trust, thereby reducing the settlor’s taxable estate by that percentage. For example, the settlor could relinquish his/her power to revoke a two percent interest in both the trust income and principal, making someone else the irrevocable beneficiary of that two percent interest. The two percent interest would then be distributed and taxable to that irrevocable beneficiary. By making the complete transfer of a two percent interest in trust property, a taxable gift is triggered, however, as long as the settlor lives three years after relinquishing the right to revoke the two percent interest, his/her estate would include only ninety-eight percent of the value of the future lottery payments.

The interesting thing of note, at least for me, in this entire page is that it appears nothing really needs to be worried about until AFTER you find out you're a huge winner. In other words, my original advice of hiring an attorney and an accountant upon finding out you won, but BEFORE you redeem the ticket is probably still the best sequence of events.
konceptum
• Posts: 790
Joined: Mar 25, 2010
August 12th, 2010 at 10:15:06 AM permalink
Another website I read stated various things, such as:
Quote:

The winner is the AB Revocable Living Trust. Texas law allows one and only entity to claim a winning lottery ticket, but allows an individual, trust, partnership or corporation to claim the ticket.
So if multiple people win, as probably happened here, they pretty much *have* to use a trust or similar entity to avoid being screwed.
Probably if you do win the lottery regardless of which state it is, even if your an individual winner, it'd be best to set up a trust and have the trust claim the prize.

Quote:

Someone (or some group of people) won \$265 million in the Mega Millions lottery in Ohio recently and used a trust to claim the prize without revealing the identities of anyone involved.

That website was more concerned with keeping your identity anonymous when claiming a lottery prize. But it does appear that trusts have been able to collect on lottery winnings in the past. Do all lotteries have to keep a history of prize winners? If so, it wouldn't be hard to find out if a trust has ever been the winner of a particular lottery, which would show that it has be done, and thus that it could be done.

Further, I almost think that a trust would be a better option for pooled lottery groups, rather than splitting up the money. A blind trust could be established, with all the pooled members as beneficiaries, and an attorney as the executor of the estate. For a small fee, the executor would ensure fair and even payments to each of the beneficiaries. Of course, you'd still have to get all the people in the pool to agree to a blind trust, agree to the choice of executor, and agree to the payments and how they would be made so that it is fair to everyone in the pool.

Again, I'm not an attorney, so I don't know if this is really the best way to go, but I do know that this is the general way in which blind trusts operate. Also, there's still no telling if a particular lottery allows payouts to trusts.

Ibeatyouraces
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August 13th, 2010 at 7:34:50 AM permalink
deleted
DUHHIIIIIIIII HEARD THAT!
teddys
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August 13th, 2010 at 7:58:45 AM permalink
Thanks for that info, konceptum. I think a trust is definitely the best way to go if you are a lottery winner. Most people don't know how powerful trusts are for large amounts of money -- the tax benefits can be extraordinary. Plus, you could limit your withdrawals if you made someone else a trustee and yourself a beneficiary -- would keep things under control, and save things for posterity. It would also work for a large group of people because you could have a legal entity disbursing the funds in an equal manner. I bet a lot of wrangling goes into setting up those trusts by figuring out who's in/who's out, etc. But I think a group of rational people would prefer the trust over individual payments once the benefits were explained to them.
-----------------------------------------
What happened to dlevinelaw and JumboShrimps? We need their legal advice. I am only taking one tax course this year!
"Dice, verily, are armed with goads and driving-hooks, deceiving and tormenting, causing grievous woe." -Rig Veda 10.34.4
Doc
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August 13th, 2010 at 9:54:54 AM permalink
Quote: Ibeatyouraces

I wont play unless it gets to 500 million. That being said, I have NEVER played the lottery. And yes, I do factor in other possible winners too.

Well, I do play the lottery. And I do realize that it is an even worse deal than casino keno.

If I bought a ticket for every Powerball drawing and every MegaMillions drawing for an entire year and won nothing at all, I would have lost \$208. I can lose that much getting my entertainment from one session of craps lasting perhaps a couple of hours -- I wouldn't like that, but it has happened many a time, and I still get some entertainment in those losing sessions. On the other hand, \$208 of lottery tickets would give me the entertainment of the "fantasy" for an entire year. I don't play the little lottery games like Ca\$h3, because they don't provide an adequately entertaining fantasy.

It's not just the calculated expected value of the money; it's also the pleasure you can derive from the process. I have never won a cent by attending a Cirque du Soleil show, but I don't regret the money I have "lost" in the process of those shows. (Of course, I have never paid to see "Believe.")
Wizard
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August 13th, 2010 at 10:32:28 AM permalink
Here is a preview to a future "ask the wizard" question where I pose the split jackpot question. I welcome all comments.

"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
Ayecarumba
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August 13th, 2010 at 11:21:00 AM permalink
Is it possible to compute, and if so, what is the effect of each additional sale (or perhaps 100k sales) to the split probability? Assuming almost infinite sales, it will, at some point, become more likely that the jackpot will be shared than not.
Simplicity is the ultimate sophistication - Leonardo da Vinci
Doc
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August 13th, 2010 at 11:27:18 AM permalink
Quote: Wizard

Here is a preview to a future "ask the wizard" question where I pose the split jackpot question. I welcome all comments.

The questions should draw a bit of interest. As for comments, I'm not sure what you mean by "...I assumed 50% is lost due to the annuity, and 30% of the rest is lost in taxes...." I don't really see how the annuity is a loss. If you mean that is the reduction you get by taking the present value in cash instead of spread out as an annuity, I think there would be a better way to describe it than "loss". Taking the present value as cash is likely to increase the tax burden. Of course, the forum has already discussed trusts and such, and I don't think you would want to go into that.
Wizard
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August 13th, 2010 at 11:45:49 AM permalink
Quote: Ayecarumba

Is it possible to compute, and if so, what is the effect of each additional sale (or perhaps 100k sales) to the split probability? Assuming almost infinite sales, it will, at some point, become more likely that the jackpot will be shared than not.

That would be possible. I graphed sales by jackpot, and the relationship is that sales go up exponentially by jackpot size. So the math would get rather involved, and I don't think many people would care.

Quote: Doc

The questions should draw a bit of interest. As for comments, I'm not sure what you mean by "...I assumed 50% is lost due to the annuity, and 30% of the rest is lost in taxes...." I don't really see how the annuity is a loss. If you mean that is the reduction you get by taking the present value in cash instead of spread out as an annuity, I think there would be a better way to describe it than "loss". Taking the present value as cash is likely to increase the tax burden. Of course, the forum has already discussed trusts and such, and I don't think you would want to go into that.

I reworded that a bit. However the advertised jackpots are the total you would get from the annuity. If you take the lump sum option, then the lottery will about cut it in half. The annuity payments are not adjusted for inflation, so given the time value of money, you would get about half that way as well.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
Doc
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August 13th, 2010 at 12:00:47 PM permalink
Quote: Wizard

I reworded that a bit. However the advertised jackpots are the total you would get from the annuity. If you take the lump sum option, then the lottery will about cut it in half. The annuity payments are not adjusted for inflation, so given the time value of money, you would get about half that way as well.

I think your revised wording is better. Taking the lump sum or considering the time value of the money from the annuity is exactly the same thing, if you use the annuity's interest rate as your discount rate. I just didn't feel that either of these should be described as a loss.

Earlier, I made a comment about the fantasy aspect of these giant lottery jackpots. When I think about such a fantasy, I can only see the annuity option as viable, even though I have no delusions about living long enough to collect every future payment. Winning a jackpot should be a positive life-changing experience. Having a gigantic cash payment dropped on me would, of course, have the positive aspects, but it would also present an enormous burden of managing the funds without experience on that scale. And if you ask for help, you might find the equivalent of Bernie Madoff. In my fantasy, I take the annuity, and if I blow the money or get ripped off, I just wait until the next year's payment and try not to make the same mistake again.
rdw4potus
• Posts: 7237
Joined: Mar 11, 2010
August 13th, 2010 at 12:09:19 PM permalink
Quote: Wizard

The annuity payments are not adjusted for inflation, so given the time value of money, you would get about half that way as well.

You'd adjust the annuity for inflation, interest earned (after distribution), and the tax shielding effect relative to taking the cash option. I think the effect of the tax shield is quite powerful. This is especially true in a situation where the majority of the cash option would be in the highest bracket, but the annuity payments are not.
"So as the clock ticked and the day passed, opportunity met preparation, and luck happened." - Maurice Clarett
Wizard
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August 13th, 2010 at 12:21:36 PM permalink
Quote: rdw4potus

You'd adjust the annuity for inflation, interest earned (after distribution), and the tax shielding effect relative to taking the cash option. I think the effect of the tax shield is quite powerful. This is especially true in a situation where the majority of the cash option would be in the highest bracket, but the annuity payments are not.

I don't disagree with any of that. However, I had to assume something. You can see from the Powerball list of winners that almost everybody chooses the lump sum, and they get about half the amount. I'm sure the taxes could be lowered by putting it into a trust, but that is getting beyond the purpose of the split jackpot question. It wouldn't surprise me if the type of person who plays the lottery would want to get his hand on as much as possible, as soon as possible, which would result in the full heavy tax hit.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
Doc
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August 13th, 2010 at 1:01:59 PM permalink
Quote: Wizard

It wouldn't surprise me if the type of person who plays the lottery would want to get his hand on as much as possible, as soon as possible, which would result in the full heavy tax hit.

Perhaps I am not typical of lottery players, but see my post above. I wouldn't want the heavy tax hit, and I wouldn't want the lump sum of cash.

My exception would be in the case of a very small lottery winning, perhaps a "1st week" jackpot that got split many ways. If the lump sum payout is something that I really have a legitimate use for right away and if the annuity payments are so small that they would just get lost in the noise of my other finances, then I might take the lump sum and go on with my life. I doubt that would ever actually be the case, and it's not part of my fantasy.
Wizard
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August 13th, 2010 at 10:12:36 PM permalink
Quote: Doc

Perhaps I am not typical of lottery players...

I've met you, and trust me, you're not. To make a generalization, the smarter you are, the less likely you are to buy lottery tickets. When I worked at the Social Security headquarters there was a store in the building that sold tickets (first floor Operations building). 90% of the people in line were janitors (you could tell by the uniforms). You almost never saw anybody wearing a tie in line. It was a sad commentary.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
NicksGamingStuff
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August 13th, 2010 at 10:33:00 PM permalink
Well you have to remember is the people with ties are lucky enough to have good jobs and probably make a living wage thus they don't need the lottery tickets as much as the poor people desperate enough for work who are grateful to have their janitor job and are hoping for a miracle by winning the lottery. Now I don't want people to give me the old "if they went to college they could have a better job" because I went to college got my BA, and I am making less money now (with my job at the bagel shop) than I did when I was in college (starbucks). I know I need to go to grad school to make better use of my BA in psychology but its a sad world if I can't even make a living wage with a BA in anything!
Doc
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August 14th, 2010 at 8:12:52 AM permalink
Quote: Wizard

Quote: Doc

Perhaps I am not typical of lottery players...

I've met you, and trust me, you're not. To make a generalization, the smarter you are, the less likely you are to buy lottery tickets.

Err, uh, ... thanks, I think.

Nick, if it's true that misery loves company, then maybe here's some solace for the fact your BA is not providing a financially rewarding career: I personally know two people in their late 30's who both have PhDs, both have developed outstanding academic and work records, both have very good personal-interaction skills, and who are both completely unemployed.

It's just not a good time. My profile lists my occupation as "delightfully unemployed", which is true, and I have often used the quip that "unemployment is great, so long as you can afford it." But for roughly 10% of the people in this country, unemployment is a fact of life and is not so great at all, and for a vast number more like you, under-employment isn't dramatically better, but it is some better. Good "luck" along whatever path you choose to try to change your situation.
Wizard
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August 14th, 2010 at 9:53:28 AM permalink
Quote: NicksGamingStuff

...I know I need to go to grad school to make better use of my BA in psychology but its a sad world if I can't even make a living wage with a BA in anything!

Sorry to hear about your dilemma. I can feel your pain. After I graduated with a BA in math/economics in 1988 I didn't accomplish a damn thing for a solid year. It seemed nobody cared about the degree and just wanted to see job experience. The classic catch 22 -- you can't get a job without experience, and can't get experience without a job.

After that year I wasted another year pursuing a teaching credential, with the intent to teach high school math, but never completed the student teaching. I worked as a substitute teacher while going for the credential, but those savages in the Garden Grove school district scared me off of the idea of teaching.

What eventually happened is I took the federal government employment exam for college graduates in the summer of 1990 at a government office building in Long Beach. I drove all the way from San Diego go take the test. If I may say so, I'm pretty good at taking tests, and scored quite high. That led me to work as a claims representative with Social Security, which isn't the greatest job, but something one can easily live on. That led to a transfer 18 months later to the headquarters in Baltimore doing actuarial calculations. After 8 years of that I struck out on my own doing my gambling thing, which I've been at now for 13 years.

If there is just one thing you take from this, I would encourage you to consider working in government. It isn't the most glamorous work, and it is hard to impress women with it, but better than working at Starbucks. After several years of it you should have some kind of job skill that is valuable in the private sector. However, don't be surprised if you become complacent, and stay with Uncle Sam the rest of your working life.

Here is a link for you: usajobs.gov/.
Last edited by: Wizard on Apr 25, 2018
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
NicksGamingStuff
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August 14th, 2010 at 6:39:13 PM permalink
Thanks for the advice, I have applied to literally hundreds of jobs at usajobs.gov. The good thing about them is I always get a response, however the majority of them are "you have been qualified, but are not among the top candidates". The last time I was evaluated with a score of 92! But that still wasn't good enough. My dad works for the government and he told me that he had to apply through the delegated examining unit. I don't think they do that anymore because I could not find a general test to take. I have applied to GS 3,4,5 levels, sometimes trying for the GS7 but that usually requires some grad school, which I am not opposed to doing but with the student debt I am swamped in now, the low income I have, and the fact my parents are sick of paying for my schooling (I don't blame them) getting a start on a career is hard. I recently had an interview at Bank of America to be a teller, it pays a big \$11 an hour. I hope I get it, at least with that job I can move up into management.
Wizard
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August 14th, 2010 at 9:24:28 PM permalink
Quote: NicksGamingStuff

"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
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