The Mega Millions Lottery jackpot has now soared past $1.3. billion. This follows the Powerball lottery grand prize payout of $2 billion this past November. The chance of winning the Mega Millions grand prize is around one in 302 million, slightly worse than the one in 292 million for Powerball — both miniscule odds. However, when there are enough combinations of numbers picked, the likelihood that someone wins increases. The challenge is knowing who that person will be.
Winning the lottery provides images of a carefree life and providing funds to support family and friends. In the ideal, those are all possible outcomes that comes with winning, whether it be $1 billion, $100 million or even $10 million. These are viewed as sizeable prizes for most people who buy lottery tickets.
Yet, for every winner who uses the money wisely, there are winners who squander what is effectively an inheritance. The potential good that could be realized from their winnings end up being a liability that they could not have foreseen.
Lotteries are not entertainment. They are a business, and a highly regressive tax. The majority of people who purchase lottery tickets are low-income earners. These people can ill afford to squander their limited resources on the remote chance of winning a large prize that they believe will change their life for the better. The majority lose, which is how lotteries stay in business.
Payouts from lotteries typically run between 50 and 70 percent. With the excess or profit that remains, some is used to pay lottery expenses. The rest is kept by the state who runs the lottery or has a share in the lottery.
Some states advertise that the earnings from lotteries are used to support public schools. Illinois says that certain lottery earnings will go to the state’s Common School Fund. In reality, this is marketing, since they can say that the money can be used for anything. By directing lottery earnings to fund schools, it frees up general funds for other activities. States can play a shell gameto give the illusion that lottery earnings are used benevolently.
This implicitly suggests that lotteries will not show a deficit. Will school funds be required to cover such a shortfall? Of course not, since lotteries are designed to reap sizeable surpluses. Winnings paid out are set to not exceed what is collected.
For low-income earners who buy lottery tickets, dreams of a big win that will enable them to escape from their financial quagmire is an illusion. The majority of people who win a large lottery prize end up having little to show for it within just five years. In some cases, the winners are worse off than before their lottery win, as they make lifestyle changes, including quitting their job and purchasing expensive items, which they are often ill-equipped to manage.
Winners are also preyed upon by family and friends, seeking to cash in on the winner’s fortunes. Scammers are quick to outsmart such people and look for ways to take their share of the winnings.
Then there are tax management issues, which many lottery winners never had to deal with. Without the assistance of trustworthy tax and investment advisers, a simple life can quickly unravel.
So, who wins the lottery when a large payout occurs?
It is the lottery agency themselves. When payouts reach astronomical levels, like the upcoming Mega Millions payout, more people are willing to shell out a few dollars to win the chance for the grand prize. With more people buying tickets, the grand prize increases — and the agency profits soar.
The best strategy for those who spend their money on lotteries is simple: Don’t buy a ticket. If a person spends $20 every week on the lottery, the $1,000 they spend annually may give them some entertainment value. It will not however yield a positive return on investment.
Unfortunately, the very people who can ill afford to throw their money away are also the very people who are most prone to buy lottery tickets.
Those who do not buy lottery tickets also benefit from additional funds added to state coffers that they are not required to contribute to. It serves as a tax credit for them, paid for by those who buy lottery tickets. They, with the states and agencies who run the lotteries, are the big winners.
So, when the lottery jackpot reaches $1 billion dollars, the data say, avoid buying a ticket and thank those who do for contributing to your state’s general fund.
Sheldon H. Jacobson, Ph.D., is a professor in computer science at the University of Illinois Urbana-Champaign. A data scientist and operations researcher, he applies his expertise in data-driven risk-based decision-making to evaluate and inform public policy.