aTypical Joe: a gay New Yorker living in the rural South

Friday, March 09, 2007

The lottery: You’re rich! Wait - got a calculator?

Georgia’s truck-driving lottery winner continues to make news today. He skipped work. The media loves this story.

Unfortunately, they’re telling the wrong story:

Most jackpot winners wish the lottery, and the news media, would tell the truth about those millions. The huge prizes that make the headlines, and create the national buying frenzy the news media call Lottomania, are usually doled out over 20 years (25 in Colorado): The annual check for a million-dollar winner is $50,000. That’s before taxes. It may also be before you repay anything else you owe the state, including delinquent taxes. Ditto if you owe child support or haven’t paid back your student loans.

Michael Ondrish, a “millionaire” winner who thought he’d won a real, lump-sum million in 1982, tried suing the Arizona lottery for breach of contract, charging fraud and deception, because they never mentioned the drawn-out payment scheme. Ondrish lost his case; the court agreed with the lottery that if he didn’t like the deal, he should have returned his ticket and asked for his dollar back.

In fact, a million paid out over years is an annuity, which, like any million-dollar annuity, actually costs about $450,000 to buy, whether by the state or anybody else: Depending on interest rates, taxes and inflation, the value of the yearly check dwindles over time. It’s what financial experts call the time-value of money. Investors willing to buy those annuities from winners who need cash typically offer about 40 cents on the dollar. They know what they’re buying is not a liquid asset, something winners often aren’t aware of. And most states won’t let them sell lottery jackpots anyway.

But the public - and many publicists - prefer to ignore the arithmetic. It’s like reciting divorce, adultery and spousal-abuse numbers while toasting the bride. Happily ever after, which once followed true love, now follows Lotto. We believe - 100 million of us in 36 states and the District of Columbia bought $30 billion worth of tickets in total sales last year to prove it.

That’s from an April 23, 1995 New York Times Magazine cover story on the lottery, TICKET TO TROUBLE: Congratulations! You’ve won one million dollars. Your troubles have just begun, by Lois Gould. It’s available nowhere that I can find on the web, including in the NYTimes archive. I went to the library and found it on microfiche.

That story shaped my views on the lottery when I read it then. It’s badly in need of updating (I’m guessing things are even worse, not better), a story that needs telling. It’s not the story we’re likely to hear. I’ll post more excerpts throughout the weekend.