If you like to gamble, you’ve probably heard that the odds of winning the lottery are astronomically low. But just how low are they? And what’s the best way to understand the underlying math?
Lottery jackpot is a statistic that shows how much money you’d get if all the funds in the prize pool were invested in an annuity for 30 years. This amount is calculated based on the current value of the prize pool (including all previous rollovers), ticket sales and expected interest rates. It also takes into account the chance that a winner will choose to receive the prize as an instant cash payment or an annuity with 29 annual payments. The lump sum payout for a Powerball jackpot is about half of the advertised prize value.
The big problem with a big jackpot is that there’s a good chance that you’ll have to share. For example, there were enough tickets sold for Tuesday’s drawing that there was a 36% chance that the jackpot winner would have to split with someone else. This trimmed the jackpot’s expected payoff to 88 cents per ticket.
Even if you’re not planning to split your prize, you have to factor in taxes. The IRS treats lottery winnings as income and taxes them at a rate of around 24 percent. And if you win the lottery multiple times, you’ll have to pay even more in federal and state taxes. These taxes are a bummer, but they help fund the government’s budget and programs.