# MegaMillions rolls to $1.6 Billion, $904 mil cash option

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**41**CF Senior Member

What part of what I wrote is it that you don't understand?

One BILLION dollars of Tuesday's jackpot are NOT coming from ticket sales for this upcoming drawing. They are coming from prior ticket sales, so if you have never bought a ticket before, and buy one for this drawing, previous players have donated ONE BILLION dollars to the payout you just took a chance on. How could this NOT increase the expected value of your ticket?

One BILLION dollars of Tuesday's jackpot are NOT coming from ticket sales for this upcoming drawing. They are coming from prior ticket sales, so if you have never bought a ticket before, and buy one for this drawing, previous players have donated ONE BILLION dollars to the payout you just took a chance on. How could this NOT increase the expected value of your ticket?

*Last edited by 05c6silververt; 10-21-2018 at 03:45 PM.*

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**45**CF Senior Member

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**47**CF Senior Member

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Location: I tell people I'm from Detroit...but nobody really lives IN Detroit

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St. Jude Donor '13

Actually, the larger the jackpot, the higher expected return on the purchase of one ticket. This is fact.

The difference between a "speculation" and an "investment" is that an investment has a positive expected return, where a speculation has a negative one.

When the jackpot starts out at about $40,000,000, the expected value of a ticket is about $0.29, so clearly a speculation. As the jackpot grows, your odds of winning it don't change, so the expected value of the ticket rises, basically on the backs of those other losers who bought tickets in previous drawings that didn't win. Once the expected value of the ticket exceeds the $2 you spend on it, it can properly be deemed an "investment".

The difference between a "speculation" and an "investment" is that an investment has a positive expected return, where a speculation has a negative one.

When the jackpot starts out at about $40,000,000, the expected value of a ticket is about $0.29, so clearly a speculation. As the jackpot grows, your odds of winning it don't change, so the expected value of the ticket rises, basically on the backs of those other losers who bought tickets in previous drawings that didn't win. Once the expected value of the ticket exceeds the $2 you spend on it, it can properly be deemed an "investment".

The odds of picking the correct numbers are 1 in 302,575,350.

So to risk $2 you need a potential return of $605,150,703 to be getting the right price on your money.

I plan on buying 1 ticket

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**48**CF Senior Member

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**49**CF Senior Member

If the ONLY win on a given ticket was the jackpot, and you were guaranteed to be the ONLY winner if you won, then yes, your analysis is correct. You would have to get greater than $605 million after the reduction for lump sum, AND the taxes you will pay on the win. So, if the ONLY payoff were the jackpot, and you were guaranteed to not share the pot, and our best estimate of the reduction for the lump sum and taxes on the lump sum would result in collecting about 1/3 of the gross sum (an OK estimate, but it varies a lot depending on where you buy the winning ticket), if the gross prize was more than about $1.9 billion, a ticket could be classified as an "investment".

But obviously, BOTH of the assumptions made above are untrue. It is actually statistically trivial to adjust for the chances of winning the smaller prizes on any given ticket. In fact, the lottery commission does most of the math for you if you aren't into playing with probabilities in a spreadsheet. Looking at the website, the expected return on a ticket for all prizes OTHER THAN the jackpot is about $0.25. I can provide the spreadsheet if someone actually needs to see the math, but like I said, it's pretty straight forward.

So, in order for the expected value of a ticket to be equal to the purchase price, we would have to have an expected value of the jackpot equal to $1.75. If we use the rough estimate of the correction for the jackpot from the annuity to the lump sum and a tax effected amount mentioned above as about one third of the gross jackpot, the math is straight forward from there as follows:

(Jackpot/3) / 302,575,350 = 1.75 (302,575,350 is the odds of winning the jackpot)

Some minimal algebra yields a Jackpot of $1.592 billion that would provide an expected value of a ticket of $2.

So, that sounds good. But we have to remember that we started with TWO assumptions above, and we have only relieved ourselves of one of them. The above ASSUMES that IF we win the jackpot, we will be the ONLY winner. With large drawings like this, that is a very bad assumption.

Years ago, when I worked in a finance shop at a major corporation, we played with this analysis quite a bit since we were all finance geeks and would do an office pool when the jackpot got really big. As it turns out , the adjustment for the probability of multiple winners is NOT trivial. Over the years, we came up with a few methods that we thought were as valid as the statistical methods we used to forecast all kinds of stuff (which is what we did for a living), but no consensus ever emerged on one particular methodology. Suffice it to say that when folks in the pool would ask what level the jackpot would have to get to for it to be an investment, our answer was generally "higher than it has ever been so far".

As shown above, that we are at investment level if and only if we don't share the jackpot, we still aren't there.

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**50**CF Senior Member

Member Since: Mar 2011

Location: Born: Mexico City Live:San Antonio, Texas

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Im buying a 18 Wheeler and will have it converted with 6 showers, Dressing Rooms and lots of clothes to go help the homeless all over the country.

Then Im moving to an island in the Caribbean so everyone leaves me along.

Then Im moving to an island in the Caribbean so everyone leaves me along.

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**51**CF Senior Member

If the ONLY win on a given ticket was the jackpot, and you were guaranteed to be the ONLY winner if you won, then yes, your analysis is correct. You would have to get greater than $605 million after the reduction for lump sum, AND the taxes you will pay on the win. So, if the ONLY payoff were the jackpot, and you were guaranteed to not share the pot, and our best estimate of the reduction for the lump sum and taxes on the lump sum would result in collecting about 1/3 of the gross sum (an OK estimate, but it varies a lot depending on where you buy the winning ticket), if the gross prize was more than about $1.9 billion, a ticket could be classified as an "investment".

But obviously, BOTH of the assumptions made above are untrue. It is actually statistically trivial to adjust for the chances of winning the smaller prizes on any given ticket. In fact, the lottery commission does most of the math for you if you aren't into playing with probabilities in a spreadsheet. Looking at the website, the expected return on a ticket for all prizes OTHER THAN the jackpot is about $0.25. I can provide the spreadsheet if someone actually needs to see the math, but like I said, it's pretty straight forward.

So, in order for the expected value of a ticket to be equal to the purchase price, we would have to have an expected value of the jackpot equal to $1.75. If we use the rough estimate of the correction for the jackpot from the annuity to the lump sum and a tax effected amount mentioned above as about one third of the gross jackpot, the math is straight forward from there as follows:

(Jackpot/3) / 302,575,350 = 1.75 (302,575,350 is the odds of winning the jackpot)

Some minimal algebra yields a Jackpot of $1.592 billion that would provide an expected value of a ticket of $2.

So, that sounds good. But we have to remember that we started with TWO assumptions above, and we have only relieved ourselves of one of them. The above ASSUMES that IF we win the jackpot, we will be the ONLY winner. With large drawings like this, that is a very bad assumption.

Years ago, when I worked in a finance shop at a major corporation, we played with this analysis quite a bit since we were all finance geeks and would do an office pool when the jackpot got really big. As it turns out , the adjustment for the probability of multiple winners is NOT trivial. Over the years, we came up with a few methods that we thought were as valid as the statistical methods we used to forecast all kinds of stuff (which is what we did for a living), but no consensus ever emerged on one particular methodology. Suffice it to say that when folks in the pool would ask what level the jackpot would have to get to for it to be an investment, our answer was generally "higher than it has ever been so far".

As shown above, that we are at investment level if and only if we don't share the jackpot, we still aren't there.

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**52**CF Senior Member

(In other words, I don't necessarily want to know how the hot dogs are made.)

*Last edited by 05c6silververt; 10-23-2018 at 07:25 PM.*

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**56**CF Senior Member

$24 spent. lets see what happens. I can't imagine the guilt people will give if a win. I would just give my close friends and family members $500k each. Help the animal rescues with building better conditions for the animals.

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**57**CF Senior Member

Not that any of us would ever win but.......

pay the extra buck for the multiplier or extra etc.

guy hit mega for 1 million at my local 7 11 and DIDN'T get the multiplier... his 1 million would have been FIVE MILLION.... ie the difference between never worrying about money again (5 after taxes being roughly 3 so living a decent life off the interest but not rich) and just paying off your house as maybe you end up with 650k. lol.

pay the extra buck for the multiplier or extra etc.

guy hit mega for 1 million at my local 7 11 and DIDN'T get the multiplier... his 1 million would have been FIVE MILLION.... ie the difference between never worrying about money again (5 after taxes being roughly 3 so living a decent life off the interest but not rich) and just paying off your house as maybe you end up with 650k. lol.

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**58**CF Senior Member

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**59**CF Senior Member

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https://www.yahoo.com/entertainment/...212138825.html

America will be holding its breath until Tuesday night’s Mega Millions drawing. If you hit the $1.6 billion jackpot, you’ll be able to buy 40 amazing apartments inside an NYC high-rise. That mind-blowing jackpot is a blessing, but it can also be a curse. Attorney Ann-Margaret Carrozza told Inside Edition of the risks when becoming an overnight billionaire. Rhoda Toth and her husband blew her entire $13 million Florida lottery jackpot she won in 1990. She also ended up in prison for tax fraud.

America will be holding its breath until Tuesday night’s Mega Millions drawing. If you hit the $1.6 billion jackpot, you’ll be able to buy 40 amazing apartments inside an NYC high-rise. That mind-blowing jackpot is a blessing, but it can also be a curse. Attorney Ann-Margaret Carrozza told Inside Edition of the risks when becoming an overnight billionaire. Rhoda Toth and her husband blew her entire $13 million Florida lottery jackpot she won in 1990. She also ended up in prison for tax fraud.

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**60**CF Senior Member

13M ?! Dang, that's almost 25M in today's money. And they blew it all? tsk tsk.....

With that much money you are set for generations to come if you smartly manage that sum but alas......

With that much money you are set for generations to come if you smartly manage that sum but alas......