This is part of an e-mail regarding Illinois selling the lottery, it covers several things that are constantly discussed here, read on (bolding, colored text, mine)
THE other day I saw a headline indicating that Illinois was about to get out of the lottery business. Having made my living for the past decade exploiting lottery winners — and recently having repented my ways — I hoped the state had simply grown tired of profiting from its citizens’ weaknesses.
But as I read the article, it turned out that Illinois isn’t acting on moral principle, but in fact succumbing to the lure of easy money that has brought so many lottery winners to ruin.
The state’s plan is to turn over the running of the lottery for the next 75 years to private investors in exchange for a huge sum up front — perhaps $10 billion. Indiana is considering following suit. The states seem to think they can do more with the money if they get a big balance all at once, albeit less money than the lottery would earn them over time. I understand that line of thinking.
In essence, Illinois wants what virtually every lottery winner wants: the money up front. Although now some lottery winners can take a large lump sum right away (of course, much less than the supposed value of the winning ticket), for years they were paid their jackpots in annuities over 20 or 25 years. There’s a major difference between getting a million dollars right away and getting 20 annual checks for $100,000 or so. Yes, both amounts are considered fair, but the lump sum is much preferable: you don’t have to wait to buy your mansion, or (more prudently) you can invest it, earn interest on it, and be protected against inflation.
I worked for a company that searched out winners who didn’t have the option to receive their winnings in a lump sum or had chosen not to, and who then had spent themselves into short-term debt and needed money before the next annual payment. We were happy to buy their future payments in exchange for quick cash, at a handsome profit to ourselves.
Believe me, these financially lost winners were the rule, not the exception. There are databases overflowing with the identities of winner after winner who won seemingly huge amounts of money only to find themselves destitute (and sometimes dead).
At the core, all these people acted as if they had received the money up front rather than over time. You may scoff, but do you think you could win the lottery and wait patiently for 20 years while your ship comes in? Good luck.
And now the Illinois officials are acting just like any spendthrift winner who’s being paid over time. Like many of my former clients, Illinois is selling its future in order to fortify its present. But an individual who burns through his lump sum in a few years will bear the consequences of his actions. That’s not the case for Illinois: the officials who would enjoy the $10 billion windfall will be out of office decades before the 75 years is up. And instead of giving up annuities of ever shrinking value, as a lump sum winner does, Illinois is giving up an ever growing stream of revenue — the state’s lottery revenue increased 15 percent from 2003 to 2005.
State officials seem to think they can make smart decisions with the $10 billion. But I worry that these politicians are making a decision that will allow them to spend freely and leave nothing behind for the next folks. And because (in theory at least) a goodly portion of lottery revenues usually goes to the schools, we should all be concerned about states looking for the quick payoff.
Trust me: I spent many years doing nothing but singing the praises of the lump sum option. I could sell it because I truly believed that the lump sum was the correct choice for any and all lottery winners, and I still do.
I got out of the lottery industry because it and I had had enough of each other. It’s a legitimate business, but it is an unseemly one — no one who spends any real time in it comes out smelling like a rose, myself included. So the state of Illinois isn’t the only party here that should take warning: the private equity funds that are sniffing around the deal should also think twice — nobody is immune to lottery fever.
Edward Ugel is the author of the forthcoming “Money for Nothing: One Man’s Journey
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