Are lottery tickets worth it?
The Powerball Lottery mania has subsided for the time being. Apparently this was a near record although for people like me, I wouldn’t know. The reported $587.5 million bogles the mind, but the odds of winning at $2 per ticket must be mind boggling also. It’s been a long time since I took a statistics course, but if I remember correctly it would be around 100 to the 6th power. To me those are numbers like talking about light years.
The reports on line indicate the cash payment would be about $385 million. There were apparently two winning tickets, at this writing only one in Missouri has been cashed in. The winners were shown on television with a novelty check of $293,750,000. Apparently that was not correct but is one-half of $587.5 million. The Missouri family’s cash payout was reportedly $192.5 million before taxes. The same source reported they would receive $136.5 million after taxes. That means they would pay $56 million in taxes if that number is correct and it converts to a 29 percent tax rate.
These extravagant numbers seem appropriate as we hear about Washington battling over tax rates, fiscal cliffs and keeping our nation from going broke. It seems apparent that $2 doesn’t mean much if over 294 million tickets were purchased just to cover $587.5 million. We saw several big name television hosts saying they had bought tickets, but I doubt they are the norm. Buying $10 worth of tickets probably doesn’t mean much to someone earning several million dollars a year and who buys the tickets to display as part of their television appearance. However, It is hard not to wonder how many of those tickets were sold to welfare recipients or unemployed people who are drawn in by the $587.5 million promise. It is my opinion only, that we, through television and other means of advertising, have established an unrealistic “dream” of what wealth automatically produces. Whether inherited, earned or won through a lottery, there are obligations and responsibilities that come with wealth. The dreams of being rich that we have as young people fail to include the nightmares that can accompany the benefits for those unprepared for sud- den riches. They need not be millions, just more than we are prepared to deal with emotionally.
The lottery that really interests me is Arkansas’ Scholarship Lottery. Lest someone misunderstand, I don’t buy tickets for it either, but it would be my choice if the need to play should overwhelm me.
A recent Arkansas Democrat Gazette article noted that fewer people than anticipated are playing the lottery and there is a threat that the individual scholarships might have to be reduced. If you remember the projections for sales were impressive enough to get it approved and the fact that it would keep people from leaving the state to play would keep Arkansas money at home.
The idea of supporting college scholarships is very noble and may be justification for buying a lottery ticket if you know the probability of winning a very large lump sum is unlikely. But as we found out when the salaries and expenses of the original managers came to light, not all the money comes out in winnings and scholarships. The afore mentioned Arkansas Democrat Gazette article reported that a total of $473 million in ticket sales produced $97.5 million for scholarships. Operating expenses, return of winnings and sales expenses to sales outlets take a pretty deep cut when the object is to pay for scholarships. My calculation shows that 20.6 percent went to the 2012 scholarship program. And, they are predicting lower revenue in the future. The original projections of $116.4 million have not materialized and in 2011, the first full year, they were $94.2 (80.9 percent) of the estimated scholarship amount.
If it were my children seeking the scholarships, I would welcome the estimated yearly $3,300 four-year scholarship (one half that amount at two-year schools). However, that is quite a drop from the $5,000 per year (four-year schools) projection that built up everyone’s expectations. This sounds a lot like any governmental promise. (I know it’s not government, but look at who “sold” the idea.) Maybe a good idea to get it started but ... !