Saturday’s $1.6 billion jackpot worth half in cash

Saturday’s $1.6 billion jackpot worth half in cash

Data: Powerball; Chart: Erin Davis/Axios Visuals

You will not leave with him $1.6 billion if you win the lottery today. In fact, the estimated prize pool—the amount you’d actually win, before taxes, assuming you didn’t have to share the jackpot with anyone else—is less than half that amount, at $782 million.

Why it matters: Billion dollar jackpots are good at building excitement — so the lottery has always exaggerated the amount of money winners can win.

  • Thanks to the bond market, the magnitude of the exaggeration is greater now than it has been in more than a decade.
  • Main Jackpot this week it is $1.6 billion. That figure includes $782 million in prize money, plus more than $800 million in future interest payments that the winner will almost certainly not choose to receive.

How does it work: In theory, lottery winners can choose an “annuity option” instead of just taking the amount of money in the prize pool.

  • The annuity option is an annual payment over 30 years, with the amount paid increasing by 5% each year. The size of the main jackpot is not the amount in the prize pool, but the size of all those 30 payments, combined.
  • No one has chosen the annuity option since 2014. And if it takes 30 years to accumulate your $1.6 billion, by the time you’re done, its purchasing power will be significantly less than $1.6 billion.

by numbers: The Jackpot Exaggeration Ratio – the amount by which the size of the main jackpot exaggerates the actual amount of money in the prize pool – has risen from 1.2 in April 2020 to more than 2 today.

  • That’s because to create an annuity, the money in the prize fund is divided among a series of Treasury bond investments. As the interest rate on Treasury bonds rises, the future value of those bonds rises.

Conclusion: By raising interest rates, Fed Chairman Jay Powell also increased the size of lottery jackpots – and therefore increased the amount of public participation in the lottery.

Go deeper: Powerball jackpot now largest lottery prize at $1.6 billion

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