One Chance on Mega Millions
With more than a half-billion dollars on the line in Friday’s Mega Millions lottery drawing, one dollar never looked so expendable.
“Why wouldn’t you play?” asked Dominick Flora, a Wall Street recruiter, as he left a midtown Manhattan convenience store on Thursday. “Someone’s going to win.”
Mr. Flora is a lottery regular, though he admits he picked up a few extra tickets for this week’s drawing of the biggest multistate lottery. But the unprecedented jackpot has even the most determined of skeptics asking whether this just might be the rare occasion when the lottery might be worth a gamble.
In a blog post on Wednesday, economist Stephen Bronars ran the numbers and concluded that, for once, a Mega Millions ticket is “a good bet” this week.
Others who have looked at the numbers, though, reach a different conclusion: Don’t bet on it.
First, the basics: Mega Millions has what’s called a “progressive jackpot.” Every Tuesday and Friday, the lottery draws six numbers. Pick all six correctly, and you win the jackpot. If no one wins, the jackpot rolls over to the next week’s drawing. That’s what has happened every week since Jan. 24, leading to a record $540 million jackpot.
The odds of a single ticket scoring a jackpot are about one in 176 million. Since tickets cost $1 apiece, it’s tempting to think that anytime the jackpot gets above $176 million, it’s worth taking a shot. After all, according to basic economics, the value of a 1-in-176 million shot at $176 million is…exactly $1.
Of course, it isn’t quite that simple. Winners don’t actually get a check for the advertised jackpot. They can choose between taking the full amount as an annuity, paid annually for 26 years, or a smaller cash payment. The estimated cash option is $389 million.
Then there are taxes, which take another 40% or so of the total, depending on which state the winner lives in. That brings this week’s cold, hard, after-tax jackpot down to about $230 million—still plenty high enough to make a $1 ticket look like a good bet.