|Posted: January 16, 2012, 10:17 am - IP Logged|
From the Powerball website FAQ page:
WHY IS THERE A DIFFERENCE BETWEEN THE CASH PAYOUTS IN THE POWERBALL AND MEGA MILLIONS GAMES?
A fixed percentage of every Mega Millions and Powerball ticket sold goes into its CASH jackpot. The cash jackpot is all the money that the lottery has on hand from the sale of tickets in the game. If a player chooses the cash option, then the lottery will pay the entire cash amount to the winner (less income tax withholding amounts required by federal and state laws).
The lottery also offers an ANNUITY jackpot option that can help reduce taxes and offers the winner a 100% guaranteed income stream over time. The two games offer different types of annual income streams, giving the players more options. If a winner elects the annuity option, then the lottery will invest the entire cash amount before taxes are deducted. The difference between the CASH jackpot and the ANNUITY jackpot is the interest earnings that build over time. The Powerball annuity jackpot earns more interest for two reasons.
1. The Powerball Annuity Jackpot invests more money for a longer period of time. The Powerball annuity is paid out in graduated amounts (rising by 4% per year to keep up with inflation) over 29 years (30 payments). The annual payments grow larger to keep pace with the winner’s expected cost of living. The Mega Millions annuity is paid out over 25 years (26 payments) with equal payments each year. In both cases, the first payment is an immediate cash payment.
2. The Powerball Annuity Jackpot is invested in a wider variety of securities than the Mega Millions Jackpot, allowing more interest to be earned. All of the securities used to support both games’ jackpots offer significant levels of U.S. Government backing. It is important to understand that the lottery is invested in these securities; not the winner. The winner has a contract with the states to pay the annual prize payment, no matter what happens to the securities.
Since the two games' jackpots are invested differently, if the CASH jackpots are the same, the Powerball jackpot will pay a larger ANNUITY over time than Mega Millions. If the ANNUITY value of the jackpots are the same, then Mega Millions' CASH jackpot will be larger than Powerball's CASH jackpot. The CASH jackpot amounts present the true present-day values of the jackpots. A winner who wishes to take the CASH jackpot should compare only the CASH jackpot amounts. The ANNUITY jackpot amounts will be important for those winners who plan to select a long-term, fully guaranteed income stream.
Those who run the lotteries love it when players look for consistency in something that's designed not to have any.
There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.