There’s nothing pressingly Wallingford on our radar at the moment, so instead you’re going to have to put up with our anti-lottery screed, sorry.
We understand that some sort of mega lottery (MegaMillions) has reached $325 million and some of you likely saying “hey, I’m a smart puppy, I know my maths: a $325 million pay-off when the odds of winning are 175 million to one? That’s a good bet!”
It’s not, and if you’ll stick with us, we’ll explain why. After that, we’ll explain why the lottery is the anti-Robin Hood, stealing from the poor.
See, if you were to somehow win, they’re not just going to hand you one of those oversized checks written for $325 million. Instead, they break it up into 26 annual payments. What that effectively means is that you’re giving the lottery people an interest free loan that they have 26 years to pay back. They’re saying to you “if we win, you give us your money now, but if you win, you’ll get your pay-off 26 years from now.”
Another way to look at it is that they’re not really allocating $325 million for you. Instead, they’re allocating a smaller amount, investing it, then paying you with the interest the investment earns. Calculating it all would be difficult, but fortunately, they do it for you: the “lump sum cash option” is explicitly equal to “all the cash in the Jackpot prize pool” and it’s set at $204 million, according to their web site.
“OK,” you’re saying, “I still like those odds: $204 million payout on 175 million to one odds.” Not so fast.
You forgot taxes.
You’ve already paid taxes on the dollar you’re spending to buy the ticket, but you’ll have to pay taxes again on the money you win, and let us tell you: if you win the lottery, you’re in the top tax bracket. Let’s call it 34%. So now that $204 million just became $135 million.
But, we’re not done yet.
You only get the whole jackpot if you’re the only winner, and as more people play, the odds of you being the only winner decrease. It’s difficult to calculate the impact of this, but suffice to say there has never been a single winner of a $325 million jackpot, according to Wikipedia’s lottery jackpot records. Instead, those large prizes are typically split between anywhere from 3 to 14 winners.
Now, a $45 million payout at 175 million to one odds? That’s like saying we flip a coin, and if we win, we get your dollar, and if you win, you get 25 cents.
If you’re up for it, we’ve got the coin.
Seriously, you’re much better off going to Las Vegas and pulling the one-armed bandit. There, they’ll give you anywhere from 80 to 90 cents on the dollar, compared to the lottery’s 25. Blackjack is better yet: you can get close to 98 cents on the dollar, and they’re bringing you free drinks!
But our main beef with the lottery isn’t that it’s a lousy investment. Rather, it’s that the lottery is effectively a regressive tax. The lottery is played predominantly by those who can least afford to lose: you don’t think Gates and Buffet are playing Scratch and Win, do you?
No, it’s people who are living close to the edge who are lured into taking money that ought to go to food, clothes or credit card bills and spending it on “a dream”. What happens when they lose? A cascade of impacts, many of which come back and impact not just the loser, but all of us: foreclosures, welfare, food stamps, and medicare all come back around, increasing the burden that everyone has to shoulder.
To round out the obscenity of it all, the MegaMillions web site’s home page has a huge picture of a piggy bank with the words “Save for retirement” written over it.