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DJTeddyBear
DJTeddyBear
Joined: Nov 2, 2009
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October 12th, 2010 at 7:16:33 PM permalink
MKL -
Great questions. I have two comments about the Wiz' answer for one of them.

Quote: Wizard

Quote: mkl654321

1. A Megabucks or lottery winner is often given the choice of receiving the face amount of his winnings as an annuity, or a much smaller lump sum. How fair are the usual lump sum offers, given the calculation of present value?

They give about half for the lump sum, before taxes. That is about actuarially fair. However, almost all of it will be in the top tax bracket. After tax considerations, I think you would make out better with the annuity.

Add: ...you should talk to your accountant before making that decision.

On that note, you should be aware of WHEN or IF you even get the option to decide.

I have a buddy that works for the NJ Lottery. One of his jobs is to track down people who are collecting a yearly check and have moved without telling the lottery commission the new address. Yep, there are a LOT of people that do that!

It became such a bad problem that they trained all of the lottery dealers to not ask, and to automatically hit the 'Lump Sum' button if the person buying tickets doesn't specify. If you win and selected annuity, you get another chance to change your mind, but not if the ticket says Lump Sum.
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ 覧覧覧覧覧覧覧覧覧覧覧覧覧覧覧覧覧覧 Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
odiousgambit
odiousgambit
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October 13th, 2010 at 3:08:54 AM permalink
Quote: DJTeddyBear

I have a buddy that works for the NJ Lottery. One of his jobs is to track down people who are collecting a yearly check and have moved without telling the lottery commission the new address. Yep, there are a LOT of people that do that!

It became such a bad problem that they trained all of the lottery dealers to not ask, and to automatically hit the 'Lump Sum' button if the person buying tickets doesn't specify. If you win and selected annuity, you get another chance to change your mind, but not if the ticket says Lump Sum.



This reminds me of all the unclaimed safe deposit boxes & bank accounts, unclaimed beneficiaries of the various this and that; it is a monumental amount of money each year in the world. No wonder states run lotteries too! States have written laws that they get the money, generally, now I think.

BTW for these reasons never agree to paperless statements from banks etc.
The Dice, the cards, they not only have no sense of justice but are actually endowed with a sense of cruel irony. This devolves from the 'nature of random'. Ironically so, don't you see. 
JerryLogan
JerryLogan
Joined: Jun 28, 2010
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October 13th, 2010 at 4:43:57 AM permalink
Wizard, did you see the question about vp machine card shuffle/deals I posted (but should have posted here?) in a different thread? Have you any knowledge on exactly how they operate?
Wizard
Administrator
Wizard
Joined: Oct 14, 2009
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October 13th, 2010 at 6:59:55 AM permalink
Quote: JerryLogan

Wizard, did you see the question about vp machine card shuffle/deals I posted (but should have posted here?) in a different thread? Have you any knowledge on exactly how they operate?



I just put in a reply in that thread. I've answered that question before in the column.
It's not whether you win or lose; it's whether or not you had a good bet.
thecesspit
thecesspit
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October 13th, 2010 at 10:08:28 AM permalink
Quote: mkl654321

1. A Megabucks or lottery winner is often given the choice of receiving the face amount of his winnings as an annuity, or a much smaller lump sum. How fair are the usual lump sum offers, given the calculation of present value?



I'm actually interested in the whole mechanics of the Megabucks and other lump sum prizes... can you 'follow the money' and see where the jackpot comes from, and who gains from each of the pay out potions, and if the companys actually have the money in question on hand?

(E.g. if you offer a $1 million dollar jackpot that actually comes as 20 year, 50k annunity or a lump sum of $500,000, was there really $1 million in the pool originally, who pays the annunity, and who gets the interest on that $1 million? Is money "lost" from the jackpot, lost to the players and gained by another third party? etc).
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
Doc
Doc
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October 13th, 2010 at 11:01:52 AM permalink
I am fairly sure that the announced "lump sum" amount is what is actually available to pay as a jackpot. That amount (if not paid in a lump) is used to purchase an annuity with a pre-determined payout structure, including the interest earned. The manager of the annuity funds (a bank, insurance company, etc.) naturally tries to invest the funds at an even greater earning rate so that they derive some profit from it, but regardless of how their investments go, they have an obligation to pay the annuity at its original terms. I think that the lottery corporation also retains a liability for paying the full value of the jackpot, even if the manager of the annuity were to default. I think the actual annuity is paid to the lottery corporation, which in turn makes the payments in the same amount to the winner. The only third-party benefit that I know of (from the jackpot funds) other than taxes is the potential additional profit from investments by the manager of the annuity funds.

I believe the fund manager normally invests the funds in long-term government bonds, but I don't know whether that is required for 100% of the funds.
soulhunt79
soulhunt79
Joined: Oct 8, 2010
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October 13th, 2010 at 11:13:55 AM permalink
From a powerball FAQ

"The advertised POWERBALL jackpot is set by MUSL for each drawing. Jackpots are calculated based on anticipated sales for that draw, funds rolled over from previous draws and current interest rates for long-term investments. For every $1 ticket sold, 32.5% is allocated to the top-prize pool. The starting jackpot prize will be a guaranteed $20 million and will roll over by $5 million until it becomes self-funding. The MUSL reserve accounts will be used to supplement the guaranteed jackpots, if needed."


This leads me to believe that the entire annuity is funded when the jackpot is hit.
Doc
Doc
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October 13th, 2010 at 11:30:24 AM permalink
Quote: soulhunt79

...This leads me to believe that the entire annuity is funded when the jackpot is hit.

Yes, I agree. It is just that the amount required to "fully fund" the annuity is far less than the payments that will be made over the term of the annuity. The full-funding amount is what is offered as an optional lump sum payment.
superrick
superrick
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October 13th, 2010 at 12:31:34 PM permalink
When playing craps and the PL with odds is it a miss understanding that after the point has been established that your odds are still 1.47%. Wouldn稚 the odds now reflect the odds on the point that was established?

So if the point was a 10 you would be looking at the 6.67% for making the point and the PL bet now has nothing to do with the bet other then the fact that you are going to get paid even money for that part of your bet?
Note, all my post start with this is just my opinion...! You do good brada ..! superrick Winning comes from knowledge and skill when your betting and not reading fiction http://procraps4u2.myfanforum.org/index.php ...
soulhunt79
soulhunt79
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October 13th, 2010 at 12:58:00 PM permalink
Quote: Doc

Yes, I agree. It is just that the amount required to "fully fund" the annuity is far less than the payments that will be made over the term of the annuity. The full-funding amount is what is offered as an optional lump sum payment.



Isn't the annuity just whatever the jackpot is? Say, 200 million. I thought that was just split up according to the terms of the annuity.

If the lottery is indeed putting the 32.5 cents away for every ticket, the 200 million jackpot is in a bank account somewhere at the time the jackpot is won. The lottery pays people their money monthly and the lottery gets all the interest for that money sitting there in a bank.

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