The odds of winning a Lottery jackpot are much lower than you might think. It’s not a big mystery why. All it takes is some simple math.
The most important thing to remember about Lottery jackpots is that each dollar of the prize fund is funded by other players’ losing tickets. So, as the jackpot gets bigger and bigger, there are more and more of those losers out there. That’s why we see such a wide range in the prizes for each drawing.
If the lottery is run on a Pari-Mutuel basis, as EuroMillions and US Powerball are, the jackpot amount is calculated relative to ticket sales, with the total prize pool adjusted by interest rates. This system can produce more volatility in both the prize amounts and the number of winners, but it also keeps people playing.
Often, Lottery players pick numbers and combinations that have an association with dates, such as family birthdays or a memorable event. Such choices decrease the chance of a single winner and increase the likelihood that the winnings will be split, as shown in the chart below.
In addition to these factors, there are state and local taxes that can further cut the payoff from a large lottery prize. Those taxation rates can make the expected payoff of a $2 million win down to about 88 cents. It’s a good idea for any potential jackpot winners to put together a team of professionals, including an attorney, accountant and financial planner, to help them weigh their options.