Is Powerball a humbug?
Of course it is. We know this. The states use it as a revenue source. If they didn’t make money—and if we didn’t lose money, on average—they wouldn’t have state lotteries.
But people still line up to buy tickets, especially when the jackpot is ginourmous. $1.5 billion would change anyone’s life. Yes, I know the payoff would be cut by taxes, and would probably have to be shared with another winner, and I would get friend-requests from everyone I ever knew or didn’t know. But receiving tens of millions of dollars every year for the rest of my life would change it. A lot.
Every year, people in the US spend about $70 billion on lottery tickets. About two-thirds of that gets paid out in prizes and 5% goes to lottery administration. The rest goes into state budgets. For us, the expected return from every dollar spent on a lottery ticket is about 50 cents. Of course, your mileage may vary. But even if you were able to buy up every Powerball combination—using up a lot of time and pencils—you would still lose money, after taxes. And if you win, the money won’t necessarily make you happy.
But although the odds of winning are decidedly against us, and even though I’ve never bought a lottery ticket—nor am I likely to—I won’t scold anyone who does. The dream of winning a billion dollars is worth something—maybe it’s even worth $2. But if I could offer one piece of advice to the ultimate winner, it would be this: get a good tax lawyer.
Douglas R. Tengdin, CFA
Chief Investment Officer