From Jonathan Cohen, an expert on lotteries:
Lotteries are run by state agencies, and they’re exempt from truth in advertising laws.
Huh. This is why, for some reason, state lotteries are allowed to advertise jackpots as the sum of 30 years of payments, rather than the amount they'll actually give you tomorrow if you win.
Which is pretty strange if you think about it. “No one would let you state it in that form if it were a financial product,” says Charles Clotfelter. But we're all so used to it that we barely even notice it anymore.
How is that different from Comcast? There are quite a few entities, not all of them governments or even most of them, who are allowed to advertise deceptive rates.
I don't think there's anything strange about it. It's just the American Way.
It's not the headline number, but you'll usually hear reports on the "lump sum" payment.
Of course that's before taxes, close to 50%?--and you can only give away half (if I recall correctly) to non-profits.
Tonight's MEGA millions is listed as $20 million, and just below it states, "Estimated cash value: $9,500,000." That seems pretty clear to me. I don't know anyone who is unaware that the cash value is different than taking the payout over 29 years. A perfect reason for a 74 year old like me to take the cash.
At that amount ($20 million) taking the cash is probbaly the way to go. But I'd argue that, for even quite old people, the annuity is the way to go if you score a truly gigantic lottery win (say, sole winner of $600 million). The net first year annuity payment would still be an utterly life-changing amount (approaching $20 million, I think). And doing it that way saves a lot of estate and wealth planning headaches; if you screw up in year one, you've got an even larger check coming in next year. And the year after. And the year after...
Only tangentially related, but one of the few topics I can be mistaken for moralistic about is state-run gambling. I think it should be banned.
Gambling and corruption go hand-in-hand - gambling operations are begging to be manipulated by their structural nature. I don't think banning it makes sense, but heavily regulated private enterprise seemed to be able to keep it in check. That's been changing recently.
Incentives and structure really matter in institutions. Giving government even more bad incentives is a terrible idea.
100% agree.
Adding to it jamesepowell's response: "They function as a tax on math illiterates and desperate people."
The best alternative to prohibition (which seldom works well) is a mix of: (1) taxation, (2) regulation, (3) education. When it comes to gambling, it seems we've mostly forgotten about (2) and (3).
Twas ever thus.
State run lotteries were all advertised as solutions to budget shortfalls - schools were always mentioned - when everyone knew they would not make that much money. They function as a tax on math illiterates and desperate people.
That said, I used to buy them back when the change from two packs of Marlboros was a dollar and change. But I quit smoking years ago. Sometimes when the nominal total gets up to a billion I feel like buying one, but I usually forget.
Aren’t federal savings bonds like that? You pay an amount and it indicates the amount when it matures.
If the advertised delayed payout is $30 million and you get $1 million a year, the yearly payment in 30 years will be worth a lot less at that time because of inflation. Over the 30 years the sum will be much less than $30 million in today's dollars. Isn't that also deceptive? If you get the lump sum, you get the full (lower) current value and you can invest it to keep up with inflation (if you don't blow it all immediately). Taxes are another complication but even a million a year puts you in the highest federal bracket.
Kevin should rework this problem correcting for inflation. Or find out how the lump-sum payment is actually calculated (or the other way around - which amount is actually budgeted?).
That’s assuming inflation continues upward forever. That’s a big assumption.
The Annuity number is significantly affected by interest rates.
When rates are high, the annuity amount is many times higher than the cash amount.
Theoretically, if rates were 0% then the two numbers would be the same.
All gambling enterprises are apparently exempt from truth in advertising laws. I've seen plenty of TV, billboards and internet ads and heard plenty of ads on sports radio for gambling opportunities and every single one of them extols the money you could win. Not a single one says you are probably going to lose.
Didn’t it used to be over only twenty years?