Lottery Question ($220 Mil Georgia Lotto) (1 Viewer)

[Paul_Fisher]

I live in Alabama and we don't even have a lottery...

 

[Brian Perry]

I was reading an article on CNN about the $325 million jackpot and the writer said the winnings would be subject to 27% federal income tax. How is this possible, considering the fact that 39.6% is the top federal tax rate? If anything, lottery winnings should be taxed at a higher rate than money earned by hard work!

 

[Jay H]

..and with my luck, I'd probably be just finishing filling out the paperwork for the 76 millionith ticket when I would realize that I filled out the same numbers on every ticket... D'oh!!!!

Jay

 

[Frederick]

I'm not sure, but there's also State tax, which in Illinois I believe is 3% on lottery winnings. So if you take the cash, not only is it cut pretty much in half, but then they take 30%-31% away for taxes ...
Hmm ... that still leaves about $120 mill, give or take a few. I don't think I'd miss the other $200 mill too much ...
Freddy C.

 

[SteveA]

I was reading an article on CNN about the $325 million jackpot and the writer said the winnings would be subject to 27% federal income tax.

I think the article meant they will withhold 27%. When the winner files a return at the end of the year, they will most likely pay millions more in taxes, since most of the winnings will be subject to the 39.6% top rate (income over 250k for individuals, I think).

 

[Vince Maskeeper]

Certainly you guys raised the issue of logistics- however I think my original point was the oddity of a payoff bigger than the odds.

For example, in strict gambling- the payout would be EXACTLY equal to the odds (granted Vegas skews this a little to make a profit, but lets assume for a second that wasn't the case).

So you walk into a casino and approach a roulette table. There are equal black spots on the wheel as red- so the odds of hitting either are 2:1. So the payout on such a gamble would be 2:1.

Now, assume for a moment that they would increase the payout to 4:1 on such a bet. Well, now the payout is bigger than to odds, so you could bet $1 on black and $1 on red and even though you'd lose one of the two bets, the other would pay you $4- meaning you'd make a profit no matter what. $2 in = $4 out.

This is what is going on here- a 78:1 shot with a 300:1 payout.

Anyway- certainly the logistics of betting every one of 78 million number combinations is eyond normal reach- I just thought it was an interesting prospect since rarely do you see a gamble where they payoff is so much larger than the actual odds.

-Vince

 

[Brian Perry]

Yeah, but Vince, at a roulette table they don't split your winnings with the other winners at the table.

 

[BrianB]

Yup, like Brian Perry said - in going for the main jackpot, you're not just betting against the game, you're betting against the other players. That's the gamble.

 

[Vince Maskeeper]

I guess, but I think you've missed the point. Is has nothing to do with the game or the other players: it has to do with the odds versus the reward.
"Here's the deal I have 78:1 odds with a 300:1 potential payoff. If you decide to buy the pot by playing all 78 possibilities, the best case you win the 300:1 payoff. Worse case is you end up with a 30:1 payoff, so you cannot lose all of your initial investment."
Again- just in a raw statistics POV, even the chances of splitting it are a very appealing chance. I can imagine that some mafia type has actually already gone over all the odds on buying the pot- because I find it impossible to believe that any experienced gambler wouldn't at least LOOK at a 78:1 shot with a triple payout! It's simply unheard of. The whole point of gambling is that the payout is equal to or less than the odds- making it impossible statistically to buy the pot.
What's the chances you'll share? Well, essentially very slim (The whole reason it exists is that no one has hit it in 3 months). Even if you split it 3 ways, you still make money.
I guess if you assume you could buy all the tickets- the only "odds" in the situation are the odds of sharing. And basically you find yourself facing a bet with a 100% guarantee that you won't LOSE all your money (better than any other bet I know)- with a 3:1 payout. So if the odds of splitting are less than 3:1 (odds of anyone else winning), then it's a strong bet. I'd guess the chances of anyone else winning are like 1000:1 or more- so you have a 999:1000 chance of paying off 3:1 (1.001:1 chance of winning for a 3:1 payout!).
Again from pure statistics- imagine someone offered you a game where you'd win 999 times out of 1000 at something with a 3:1 payout, with a 100% guarantee that the worst you could do would be lose half your initial investment, meaning it's actually a 6:1 payout (since all you really risk losing is 1/2 of the initial bet)!
You give me $1, and then pick a card from a deck of 999 red and one Black. If you get a red card, I'll give you $3. If you get a black card, I'll give you $.50.
That one of the best bets I've ever heard of.
-Vince

 

[DaveF]

Here's the deal I have 78:1 odds with a 300:1 potential payoff

The problem is that the odds you're stating don't reflect the actual wager. You've got 78:1 of winning. But the 300:1 is actually 150:1 because of taxes. And it could be less based on total number winners. So the actual wager is

78:1 odds

300:1 payout (you're the sole winner, and evade all taxes)

150:1 payout (you're the sole winner, and pay taxes)

75:1 payout (one additional winner)

50:1 payout (two additional winners)

Also, the payments are over time, so there is opportunity cost and inflation to adjust for.

To accurately assess the wager, we need the actual tax levels, the payment schedule, and the total number of wagers made, to compute the odds.

 

[BrianB]

DaveF summed up my point exactly. Yes, the game odds are 78:1, but that's not your only opponent in this case.

 

[Ryan Wright]

I read a news article today that said you are 16 times more likely to get into an auto accident and die on your way to purchase that ticket than you are to win the jackpot.

Food for thought...

 

[Danny R]

What's the chances you'll share? Well, essentially very slim (The whole reason it exists is that no one has hit it in 3 months). Even if you split it 3 ways, you still make money.

But remember that a LOT more people play the game at the higher levels than at the lower levels, so higher jackpots usually don't last very long as many more combinations are covered... After all, the cash payout prize (which should represent ~45% of the total lottery tickets purchased) increased from 157 to 174 million over a period of just 4 days. Thats ~38 million tickets sold. Many of these will duplicate each other, but I would guess that a quarter of the total combinations were covered.

And it turns out that 3 people did win this one.

 

[Mike Lenthol]

Well, 3 people won it.
Showed one on CNN, their first plan of actions called for a 25,000 sq. ft. trailer with a circular drive way, as always

 

[DaveF]

One of the winner is taking the up-front payment of $50M (pre-taxes, I think). Alas, Vince would have lost $25M - $50M this time. Better luck next time
Does anyone know how many tickets were purchased for the lottery?
As suggested Danny, ticket purchases signficantly increase when the jackpot breaks about $100M (or so). To "buy" a lottery, it might be more lucrative to play the sub-$100M lotteries, since there should be less risk of splitting the winnings.

 

[brentl]

What's sad is the one chick that won her part cashed in right away. That's the dumbest move ever.

Get some financial advice, move...quickly!, get an unlisted #, and just think about what happened.

Brent

 

[Larry Schneider]

That's what I like about the lottery - the lightning-strikes effect. Here we have an ordinary kid (20), chomping away at her gum, collecting her $50+ million in cash. She deserves it just as much as someone who inherits a fortune, and will probably have a lot more fun with it.

 

[Frederick]

Hopefully someone will grab that 20 yr. old and help her decide what to do with that money. With that kind of cash, a financial advisor is a really smart move. And we're not talking about mommy and daddy. Fees, taxes, there could be all kinds of hidden traps that they may know nothing about. Does the lottery suggest a financial class to the newly-rich? They need to. Or maybe I'm just being bitter `cause I didn't win ...
Freddy C.

 

[BrianB]

Does the lottery suggest a financial class to the newly-rich? They need to.

I believe most lotteries provide financial advisors to big winners.

 

[Lary Larson]

My ex-boss won a $6,000,000 jackpot. He said he was immediately swarmed with hard-luck pleas for cash. Long hand-written tear-stained letters begging for help. He told me it hit him hard and really affected his outlook on his luck. There's a sad underbelly to the whole lotto system.