Lotto

Thank you to all of you who have read my blogs and my book, “Homey’s Adventures”.

For my book, I recently researched the lotteries in the USA and I thought I would share some of this research with you.

When I wrote this, the Mega Millions was up to \$319 million and had a cash value of \$219 million dollars in Missouri. After federal and state taxes, the take home amount was \$126 million.  I investigated why the government kept 200 million dollars which is around 65 percent of the total prize. The most common answer I found was that governments wastes large sums of money, and they need to keep as much as they can.

I could only get the entire \$319 million if I was willing to receive annual payments of around \$10 million for 30 years. I don’t know about you, but I don’t I have 30 years to wait around for the annual payout. I have read that the remainder of any annual payouts is paid to your estate after you die. I am sorry, but I don’t trust the government and a bunch of lawyers in the future. I don’t think taxes will be any less in the future and the government is overwhelmed in debt. So, really the cash prize is 219 million and the \$319 million is a mirage.

The effective tax rate including federal and state income taxes in Missouri is around 43% (1-126/219=.425) of the cash value.

Before prizes are given out, the government keeps around 40% of the money spent on the lottery and then takes another 43% in taxes of the lottery winnings. This is a total rate of around 65% [40% + (100% – 40%) x 43%=65%] This varies by state. Only the government can get away with this type of robbery. For every ticket sold to the winners, the lottery players on average only receive about 35% (100% – 65%) of the money spent on the lotteries. The government gets the rest.

This is one of the highest regressive taxes ever devised. A regressive tax is where people with low income pay the same taxes as people with higher income. A survey by Bankrate found 28 percent of Americans who earn less than \$30,000 a year play the lottery at least once a week. They spent an average of \$412 a year on tickets.

Households with incomes of \$75,000 and above spent \$105 a year on lottery tickets, a quarter of what low-income homes spent.

Winning the lottery doesn’t necessarily bring happiness. A West Virginia man won nearly \$315 million Powerball Jackpot in 2002. Before winning the lottery, he was already the president of a successful contracting firm. Upon winning the lottery, he donated millions to charities. He even created his own foundation with \$14 million.

He had a complete family and had done good deeds but eventually this all changed. One by one, bad event came up after the other. He was arrested and sued, \$545,000 was stolen after he visited a strip club, and a year later, another \$200,000 was stolen.

Later, his wife divorced him, and his 17-year-old granddaughter died of drug overdose.

In an interview, he stated, “I wish I’d torn that ticket up.”

I play the lottery for only one reason. I believe in divine destiny.  I buy only one ticket per drawing. You can’t buy enough tickets to make the odds of winning reasonable. If it is my destiny to win the lottery, I don’t need more than one ticket.

I also buy the ticket which gives me the largest expected value. Expected value is a statistical concept. It is the probability of winning times the amount of the jackpot. For example, for the Missouri lotto, the probability of winning with one ticket is one in 3.5 million. So, if the winning amount is \$3.5 million, then the expected value is one dollar (1/35 x 35=1). Using this concept, the higher the jackpot, the more each ticket is worth.

For all the reasons I stated above, the lottery is not a good investment. The chance of winning is very low, and it is one of the highest taxed transactions in the history of mankind. However, you can’t win unless you play. This reminds me of a joke I heard:

A man devoted to God prays every night to win the lottery. He dies and meets God.
He asks God: “God, I prayed every night to win the lottery and you never let me win. Why?”

God sighed: “You should have bought a ticket.”

If I win, I pray God will give me the wisdom of not being like the West Virginia man and guides me to become the giving and loving person that Jesus commands me to be.