Before turning into a national frenzy, Powerball was moribund.
According to Los Angeles Times, Powerball officials changed the rules last July to make it more difficult to win the jackpot prize and convince people to buy more tickets and boost their chances. In short, for every US$2 entry, players have to select five ‘white’ numbers and a single ‘red’ number. If all the whites and the red are matched, you’ve won the jackpot. If only the whites were matched, you’ve won the second prize. If you only matched the red, you’ve won US$4. The newspaper estimated that many people who match only the red are likely to convert the money into another pair of tickets.
After the rules changed, the white numbers were increased to 69 from 59 and the red number was decreased to 26 from 35, thus reducing the chance of winning the jackpot from 1 in 175.2 million to 1 in 292.2 million. However, the chance of winning US$4 was increased to 1 in 92 from a previous ratio of 1 in 111.
Although the New York Gaming Commission stated that the rules were changed “to increase the odds of winning any prize, while making it more difficult to win the jackpot prize,” The Los Angeles Times suspected that the real goal was to increase the probability of a potentially billion-dollar jackpot. According to calculations by fivethirtyeight.com, the chance of a billion-dollar jackpot in any five-year period increased more than seven-fold.
The newspaper judged that the change was influenced by the fact that people were starting to lose interest in Powerball. Sales dropped 19 per cent nationwide two years ago due to the lack of a major jackpot and state officials in New York were considering removing the Powerball game from their portfolio of offerings.
Low-income and less educated customers ignore the odds and choose to focus on what they will do with the prize when they win it. Researchers at Duke University reported in 1999 that American households spent an average of US$162 per year on lottery tickets, but the lower the income, the more people spent on lottery tickets.
The moral of this study is that “lotteries are effectively a tax on the poor,” The Los Angeles Times reported. The more financially-challenged people are, the more they tend to spend on lottery tickets hoping to win the jackpot prize.
Winners of the Powerball lottery should immediately consult with a financial adviser, attorney and tax professional to make sure they don’t end up owing money to the U.S. Internal Revenue Service.
NBC News cited Brian Benham, president at Benham Advisory Group in Greenwood, Indiana, as saying that “the first thing someone should do if they’ve won the big jackpot is take a breath and start assembling a team of professionals they can trust.” Deciding how you want to accept the prize will influence the way you are taxed, but either way you pay taxes.