Friday, May 17, 2013

Powerball ... The Odds and the Payoff

The lucky winner of the Powerball jackpot will receive  a check for ~$600 million, which will be reduced to approximately $226 million in "take home" pay.

Of course, that assumes only one person will have the wining ticket. If two win, the $226 million becomes $113 million and so forth.

In any event, it would be a nice chunk of change, no matter how many ways it's split. If you're playing, I hope you win, even if it isn't a good bet.

Here's the story in Is Powerball a Good Bet? Keep Dreaming:

"Another record lottery jackpot has thousands of Americans dreaming of Powerball riches. But the numbers say that even with a nine-figure potential payout, a ticket still isn't a good bet.

Lottery officials on Friday estimated the potential jackpot in Saturday's Powerball drawing at $600 million. . . . If no one wins the jackpot Saturday, the money will roll over to Wednesday's drawing.

A $600 million jackpot would top the prior Powerball record of $587.5 million, set just last November. If big payouts seem to be becoming more common, they are: The Multi-State Lottery Association, which runs the Powerball game, last year doubled the price of a ticket to $2. That means the pots grow more quickly.

The odds of hitting the jackpot are about 1 in 175 million, according to the association. At first blush, that might make a ticket look like a good bet: A 1-in-175 million chance to win $600 million should be worth $3.43—substantially more than the ticket's upfront cost.
A hopeful customer purchased Powerball lottery tickets at a store in Decatur, Ga., on Friday.

But Saturday's winner, if there is one, won't get a check for $600 million. The lottery offers the choice between taking the full amount over 29 years, or a significantly smaller lump sum of about $377 million. Then there are taxes: Assuming a 40% tax rate, the jackpot shrinks to $226 million.

Those payouts assume there is just one winner. Computer scientist Jeremy Elson notes that as jackpots grow, more people play, increasing the odds of multiple winners splitting the pot. In his estimation, the value of the jackpot actually peaks at about $493 million, the point that best balances a big jackpot against the odds of a tie. But even then, the theoretical value of a ticket is just 85 cents, less than half its cost.

Of course, whoever wins the eventual pot will probably consider the gamble well worth it."

Summing Up

If you're playing, I hope you win.

Thanks. Bob.

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