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Why an Annuity?

Topic closed. 19 replies. Last post 11 years ago by ryanm.

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New Member
San Diego
United States
Member #38600
May 1, 2006
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Posted: May 3, 2006, 4:08 pm - IP Logged

State lotteries jackpots started out as annuities. Cash options were offered later after some winners (especially the older ones) were selling their prizes for an amount of cash much less than their real value which was an issue.  Now that winners have a choice of taking the cash value of their prize from the get go, it's no longer an issue.  You seem to be arguing that now because the cash option is offered to the winners the jackpot should be advertised differently, would it be more honest to stop offering the cash options again?

My question (challenge) is why make the Jackpot an annuity prize in the first place?  I'm not saying that because the cash value option was added that now they should advertise more clearly what they mean by "jackpot."  Just the opposite. 

 

If "jackpot" means an annuity value, and that has become the convention, then by all means, I think it's perfectly justifiable to keep referring to the annuity as "the jackpot" without having to clarify it or change it to the cash value.  That's been my argument. 

My question is why is that the historical meaning in the first place?  What drove the decision to issue prizes as annuities rather than lump sum payouts?  Back then, I can't say that people traditionally understood that the millions of dollars quoted was actually an annuity.  People had to be educated on that fact, and many who played probably did react with surprise when they found that the prize would be paid out over time...and that's why many sought to sell their claim in exchange for some present value amount.  Yes, the lotteries responded by offering the cash value payment as an alternative, and that's fine.  But it doesn't answer the question why that wasn't always the primary method of payment, particularly since that's what most people seem to prefer? 

 Is the annuity nothing more than a clever way to make the advertised number bigger to entice more people to play?  I mean, if you're playing a game that has, say 1 in 40,000,000 odds of winning, but you're pot is only at $4,000,000, that's not as enticing as taking that same $4,000,000 and putting it into a 20 year annuity at 8.9% year that will eventually pay out $8,000,000 and so labeling that the jackpot, even though it's in future dollars.  Is deception (at worst) or marketing (at best) the only rationale behind the whole annuity scheme in the first place? 

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    Morrison, IL
    United States
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    May 13, 2004
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    Posted: May 3, 2006, 7:32 pm - IP Logged

    The whole point of annuities was to increase the jackpot amount so it pays out more than the lotteries can rack up in actual present day cash.


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      June 5, 2002
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      Posted: May 4, 2006, 1:10 pm - IP Logged

      The whole point of annuities was to increase the jackpot amount so it pays out more than the lotteries can rack up in actual present day cash.

      Companies that sell annuities had an opportunity to make money off of the players' winnings. Unfortunately, this scenario still exists since some games STILL are annuity-only.

        savagegoose's avatar - ProfilePho
        adelaide sa
        Australia
        Member #37136
        April 11, 2006
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        Posted: May 6, 2006, 12:46 am - IP Logged

        i always thought cash pots where the original prize, and that kidnaps and such caused lottery comissions to change th payout to annuities!

         

        on the topic of $2.99c prices, i thought that ws to force the clerk to get change out the till and not jus pocket the $3 paid by a customer?

         

        o well differnt views on things i spose.

         

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          Morrison, IL
          United States
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          May 13, 2004
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          Posted: May 6, 2006, 1:34 am - IP Logged

          Yes, $0.99 pricing as opposed to $1.00 pricing is a form of internal control as well as a psychological device.