Is winning the lottery a blessing or curse?

Sascha: [00:00:02] From Equity Mates media. This is the dive. I'm your host, Sascha Kelly. We've all asked ourselves the question, what would you do if you won millions in the lottery? And I asked myself this question again recently when reading that the Mega millions lottery prise soared past $1 billion, $1.34 billion, to be precise. And over the weekend, someone won the full amount. 

Audio clip: [00:00:27] This morning, someone is very, very rich. 

Sascha: [00:00:31] Yes. Forget about being a millionaire. The lottery is now making billionaires, but it's not all private jets and mansions when you strike it that rich. In our research, we found some strange and fascinating statistics. For example, you're 120 times more likely to be murdered by a family member or 99% of British lottery winners. They keep playing after they win. You'd think that would be enough to walk away. It's Monday, the 1st of August, and today we're looking at the business of these huge sweepstake. Essentially, I want to know what's the go with the lottery to do this? I'm joined by my colleague here at Equity Mates. Now, he did draw numbers for this one. I'm joined today by Darcy Cordell. Darcy, welcome. 

Darcy: [00:01:12] Thanks. 

Sascha: [00:01:14] What's the first thing you do with your million dollars if you win the lotto? 

Darcy: [00:01:17] Well, I'm not telling anyone, that's for sure. But I think maybe a super yacht.. 

Sascha: [00:01:23] Your Instagram feed might get a little bit of an upgrade.

Darcy: [00:01:26] Oh, I'm private. 

Sascha: [00:01:28] So, Darcy, as I said, the reason we're talking about this today is because the Mega millions lottery in the U.S., it crossed the billion dollar mark. This is just the fourth time in history a lottery has done this. And on Friday night, one ticket that was sold in Des Plaines, Illinois, which is near Chicago, they won the whole amount. 

Audio clip: [00:01:46] Winning ticket in the nationwide Mega millions lottery was sold here in Illinois last night. 

Darcy: [00:01:51] That's right, Sascha, $1.34 billion. It is the third largest jackpot of any American lottery game. And the fourth time it's actually crossed that $1 billion mark. But it's not the biggest lottery draw in the world. Can you guess where that might be? [00:02:05][13.5]

Sascha: [00:02:05] Is it Monaco? That's the only place I can think why people are that wealthy. [00:02:08][2.7]

Darcy: [00:02:08] Not a bad guess. It's the Spanish Christmas lottery and that's two and a half billion euros last year. [00:02:13][5.0]

Sascha: [00:02:14] That would be a very nice way to see in Christmas, Darcy That's all I can say. [00:02:17][3.7]

Darcy: [00:02:18] But back to the news of the week so the winner can choose that $1.34 billion prise spread over 30 payments one per year, or one time payment of $780 million. [00:02:28][10.1]

Audio clip: [00:02:29] The life changing numbers 1336, 45, 57 and 67 with a mega ball of 14. [00:02:37][7.4]

Darcy: [00:02:38] If you're wondering how that figure works, when a winner chooses the full amount, it's always reduced. The big headline number is always the annuity payout. [00:02:44][6.9]

Audio clip: [00:02:45] Okay, curious what you could buy with the billion? Well, if you're hungry at $3.99, you could buy 250 million Big Macs. [00:02:53][8.0]

Darcy: [00:02:54] Now, the ticket holder hasn't come forward and claimed their ticket yet, but they do have a year to claim the prise. I want to ask you again, Sascha, when it's claimed they've got a choice, would you take $45 million per year for three years or $780 million at once? [00:03:09][15.6]

Sascha: [00:03:10] I'd take that 30 years, spread it out, have something to look forward to. I mean, my life's already. [00:03:15][5.0]

Darcy: [00:03:16] To. [00:03:16][0.0]

Sascha: [00:03:16] Make my life sound really sad, which it's not. But, you know, it would just be a nice little reminder every year of how lucky you are. [00:03:22][5.8]

Darcy: [00:03:22] That was my initial thoughts, too. But after a bit of research, people say to take the lump sum at once and just invest that you're actually going to be better off than $45 million a year. [00:03:31][8.8]

Sascha: [00:03:31] Interesting. Not financial advice, but good to know. [00:03:34][3.2]

Darcy: [00:03:35] Someone else said it, not me. [00:03:36][0.9]

Sascha: [00:03:37] So this news, it's pretty fair to say, got us falling down a bit of a rabbit hole last week and we just learnt so much about the lottery. So where do you want to start here? [00:03:47][10.2]

Audio clip: [00:03:47] I think the one thing I can recommend to these guys is you need to learn your percentages fast. Well, like somebody say quote, some 3% fee to handle their £33 million doesn't sound much. Is it million quids? Yes. [00:03:59][11.8]

Darcy: [00:04:00] I think it's important to reframe how you think about the lottery. It is a tax. It's a way for government to raise revenue without raising taxes on all of us. [00:04:08][8.2]

Sascha: [00:04:08] That's such an interesting thought. So essentially the next time I'm buying a lottery ticket, I'm voluntarily paying more taxes. [00:04:15][6.7]

Darcy: [00:04:16] That's right. And it's not a new model. Throughout history, governments have used lotteries to raise revenue for all sorts of big projects. [00:04:22][6.3]

Audio clip: [00:04:23] But you have to to get a lottery ticket. I just like participating in something that's made the expansion in multiple civilisations possible for thousands of years. [00:04:30][6.6]

Darcy: [00:04:30] Historians believe that the Horn dynasty in China actually used lotteries to fund the Great Wall of China. In 1612, King James of England had created a lottery to raise money for the new settlement in Jamestown, the first English settlement in the United States. Harvard, Yale and Princeton University were all, at least in part, funded by lotteries. [00:04:49][19.0]

Sascha: [00:04:50] So, Darcy, turning to the lottery today, how much of the money goes to the jackpot? Because I always assumed it was mostly to the jackpot. But you're telling me that's not. And how much is then the revenue? [00:05:01][11.4]

Darcy: [00:05:02] The average payout. So the average jackpot is actually around 50%. But it can get as high as 70%. In the Spanish lottery, it was as high as 70%. But the UK lottery last year there payout ratio was 57%. [00:05:15][12.6]

Sascha: [00:05:16] One ticket holder has scooped a jackpot of nearly £200 million that they described as the biggest UK lottery win of all time. [00:05:25][8.9]

Darcy: [00:05:25] So there's still a lot of money going to the people, but a lot going to governments and the lottery makers too. [00:05:31][5.3]

Sascha: [00:05:31] That's a really significant amount. I had no idea that it was that high and it's so significant because from the data we found, for example, Americans, they spend $70 billion on lottery tickets every year. So when you're talking about those percentages, you know, it's not small sums that we're splitting here. That's a lot of money. [00:05:50][18.9]

Darcy: [00:05:51] It's a lot of money. A poll from Gallup in 2016 found that about half of Americans said they'd bought a lottery ticket in the past year. That's over 150 million people and it's billions of dollars flowing into the pockets of government. The U.K. National Lottery that had £8.1 billion in ticket sales last year. In Ireland, ticket sales exceeded €1 billion. And the Spanish Christmas lottery, which we've spoken about, it sells over €3 billion in tickets every year. Estimates are that over 75% of Spanish citizens buy a ticket. But this is the start of blows my mind, Sascha. Over 115 billion USD is spent every year on lottery tickets around the world. Now, if we were to put that into context as the size of a country, if global lottery revenue was a country, it would be about the 50th largest in the world based on GDP, similar to Kazakhstan or Morocco. [00:06:46][55.2]

Sascha: [00:06:46] Wow. So where does this revenue go? Obviously, the jackpot gets paid out, but what about the rest of this money? [00:06:54][7.2]

Darcy: [00:06:54] It depends on the jurisdiction. So some governments have the money just going into their general treasury. It's not for any specific purpose, but others define exactly what the lottery revenue must be used for. So in the UK, the national lottery says about 15% of the money go back to the government in lottery duty. Then another 25% is allocated for national lottery projects. [00:07:16][21.6]

Audio clip: [00:07:16] I'm working in a role that would not have existed if it hadn't been for the national accounts. The ripple effect into the community is very, very positive, you know, and it's life changing to some people. [00:07:27][11.0]

Darcy: [00:07:28] Which can be anything from repairing scout holes to funding British athletes to go to the Olympics. In many American states, though, the revenue from lotteries must go to a specific purpose. In the state of Washington, for example, the lottery revenue must go to funding education and paying off the new baseball stadium in Wisconsin. Lottery funds are used to make owning a home more affordable. The money is split amongst qualifying residences and used as a reduction on property taxes. In Pennsylvania. It's used to fund programmes for the elderly, including free transportation, rent rebates and care services. And in Georgia, lottery revenue fund scholarship programmes for college students. [00:08:06][38.6]

Sascha: [00:08:07] A lot to feel good about there when you're buying a ticket. So that's the business of lotteries and those who run them. But let's take a break, because I want to take a moment to Google the next jackpot I'm eligible for. And when we get back, I want to find out what's going to happen to me or maybe some other lucky person when they win. [00:08:27][19.5]

Audio clip: [00:08:31] We are back on a Saturday morning with today's Talker. And it's really all anyone can talk about all week, that billion dollar Mega millions jackpot and what you would do if you want it. [00:08:41][9.3]

Sascha: [00:08:41] Welcome back to the dive. I'm your host, Sascha Kelley. I'm joined by Darcy Cogdell. And today we're talking about the clutter. Before the break, we spoke about the business of lotteries for the governments that run them or hold them. Now, Darcy, let's talk about the exciting bit. Let's talk about the individuals who win the lottery. And let's start with the fact that it's actually a very tough business to win. [00:09:03][21.5]

Darcy: [00:09:03] It is. The odds are not in your favour. [00:09:05][1.7]

Sascha: [00:09:05] I didn't want to hear that. Very. [00:09:07][1.4]

Darcy: [00:09:07] You got to be honest, too. [00:09:08][1.2]

Sascha: [00:09:09] I was hoping that you'd contradict me, but. Okay, come on. Tell me what the odds are exactly. [00:09:12][3.6]

Darcy: [00:09:13] Okay, so we'll put it in some context. You have one in 700,000 chance of being struck by lightning, but you've got one in 14 million chance to win a standard six ball lottery game. But Mega millions, the one we're talking about today, that's one in 303 million chance. [00:09:30][17.3]

Sascha: [00:09:31] It's a bit hard to understand the likelihood of those stats when you just rattled them off. Do you have something I can compare it to? [00:09:36][4.9]

Darcy: [00:09:36] Well, if you think you're likely to get eaten by a shark when you go for a swim, you've got a one in 3 million chance of that happening. So much more likely than you winning the lotto says. [00:09:46][9.4]

Sascha: [00:09:47] Okay, that took a little bit of a turn. [00:09:48][1.3]

Darcy: [00:09:50] A little bit more of that. But I've got a quiz question again for you, SASSA. There's actually only one game in the world harder to win than the Mega millions jackpot. Can you guess what that is? [00:10:00][10.2]

Sascha: [00:10:01] Ninja Warrior. [00:10:01][0.4]

Darcy: [00:10:02] No, you may have competed in it. [00:10:04][2.2]

Sascha: [00:10:04] Oh, wow, I haven't competed in this, but Australia has got talent. [00:10:08][3.8]

Darcy: [00:10:09] You should definitely be in after saying your karaoke skills, Sascha. But no, it's actually McDonald's Monopoly game winning the $1 million jackpot. You have a one in 451 million chance of a happiness one. [00:10:22][13.6]

Sascha: [00:10:24] Oh, I love the McDonald's Monopoly Game. [00:10:26][2.0]

Darcy: [00:10:26] Eight, but it's not you're not going to win there. [00:10:28][1.6]

Sascha: [00:10:28] And it is important that we stress these odds because some survey data does suggest that way too many people think and I've got to say, I'm one of these people that the lottery can be won. In 2006, the Consumer Federation of America survey found that one fifth of Americans believe that winning the lottery is the most practical way for them to accumulate large savings. In 2019, a survey by the Investment App Stash found that 40% of respondents, including 59% of millennials, believed that winning the lottery could be a good way to fund retirement. Now, I'm not arguing it's not a good way to fund retirement, but those stats do seem a little worrying. [00:11:06][37.7]

Darcy: [00:11:07] I don't think there's any doubt that it would fund your retirement if you did win. But there's plenty of data to suggest that winning the lottery isn't all it's cracked up to be. [00:11:15][7.9]

Sascha: [00:11:15] What are some things you should keep in mind if you happen to come into an enormous sum of money like this? [00:11:20][4.9]

Darcy: [00:11:20] A team of economists tracked the fortunes of financial distress people who won the lottery in Florida, and they found that within 3 to 5 years, the winners of big prises were equally likely to have filed for bankruptcy as the winners of small prises. And each group had similarly low levels of savings and high levels of debt. According to the National Endowment for Financial Education, about 70% of people who win a lottery or receive a large windfall go bankrupt within a few years. [00:11:48][28.1]

Sascha: [00:11:49] 70%. That's really sad. Maybe, Darcy, we need to make a financial literacy podcast for lottery winners. It's a small but important niche. A podcast? Listen, it. [00:11:59][10.2]

Darcy: [00:11:59] Sounds like Get Started Investing feed. [00:12:00][1.2]

Sascha: [00:12:03] But, Darcy, it's not just that the money goes quicker than people expect, is it? [00:12:07][4.6]

Darcy: [00:12:08] Your life actually becomes a lot riskier as a lottery winner is something like 20 times more likely to be the victim of homicide and 120 times more likely to be the victim of homicide at the hands of a family member. So the odds increase in double digit multiples that you'll also be the victim of a drug overdose, kidnapping or declare bankruptcy, as we talked about. And it gets worse. The odds increase in triple digit multiples that you'll be convicted of drunk driving or be a defendant in a civil lawsuit or felony criminal proceedings. [00:12:39][31.0]

Sascha: [00:12:40] I guess it's not surprising if your name is published as a lottery winner, suddenly you be in the spotlight. So that's why when I when I will certainly be anonymous, no one's going to know. Now, Darcy, we did come across so many stories that really illustrate these statistics. So to wrap up this episode, let's share a few. [00:12:56][16.4]

Audio clip: [00:12:56] You know what this feels like? You actually woke up one morning as a winner. So what are they likely feeling? What are those emotions? [00:13:02][6.1]

Darcy: [00:13:03] Okay, meet Denise Rossi. After 25 years of being married to her husband, Thomas, she handed him her divorce papers. But what she didn't tell him or the court in the divorce proceedings is that she actually won the lottery. But in divorce proceedings, you have to disclose all of your assets. And because she didn't, the court gave all of her winnings to her now ex-husband, Thomas. [00:13:25][21.6]

Sascha: [00:13:25] All of her winnings. That's going to be part audacy make Kelly Rodgers. In Britain, Kelly won £1.9 million when she was just 16. She gave away half of the money to friends and family, then spent a further £300,000 on clothes and plastic surgery. But now, 19 years later, she's completely broke and relying on government assistance. [00:13:47][21.4]

Darcy: [00:13:48] It's a sad story. And one man actually lost his life over his lottery when Sacha Abraham Shakespeare was 40 years old and he won 30 million USD in 2006 in the lottery. He was then befriended by a woman named Deedee Moore. Not long later, she was convicted of shooting and killing Shakespeare and hiding his body under a concrete slab in her backyard. 

Sascha: [00:14:09] And Darcy, to close it out. Meet Adrian and Gillian Bamford based in the UK. They may have finally answered the question Can money buy happiness? The couple, married for nine years, won £148 million in a jackpot in 2012, 15 months after winning the lottery. Their marriage came to an end and both parties blamed the stress of their newfound wealth. 

Darcy: [00:14:32] Some pretty sad stories there to wrap up, Sascha. So I'm not sure if I really want to win the lottery anymore. 

Sascha: [00:14:38] See, Darcy, that's the difference between you and me. I think I'd be. I'd be the exception, not the rule. 

Darcy: [00:14:43] You never know when that much money is in front of you. I hate either chicken restaurant yourself. 

Sascha: [00:14:48] Well, we'd love to know what you think. Com. And let us know on Instagram. Our handle is at the dived up business news. And if you've enjoyed this episode tell a friend. Word of mouth is the best way for our podcast to grow and we'd love to welcome more listeners to the fold. A reminder, if you're in the UK we're testing referrer matic. Head to the link in the show notes to find out more. You could find yourself on a plane to Australia. You don't even need to win the lotto to buy the ticket. Thanks so much for joining me today, Darcy. 

Darcy: [00:15:15] Thanks.