Players watching the jackpots on our homepage last week may
have noticed a difference between Mega Millions and Powerball. Both had similar jackpot amounts, but the
advertised cash prizes were different by $15 million. Observant players asked the question – why
the difference between advertised cash values?
It turns out, there's not an easy answer to that question,
but only because it deals with differences in procedure.
The biggest difference between the two games is the length
of the annuity option which determines jackpot amounts. Mega Millions pays out jackpots in 26 annual
payments during 25 years, while Powerball uses 30 annual payments during 29
years. Mega Millions uses fixed payment
amounts, which requires more cash on hand to purchase the long-term bonds. Powerball uses graduated payments – payments
that increase over time – and thus can fund their advertised jackpots with less
cash on hand. In both situations, all of
the cash on hand in the jackpot fund will go to a winner selecting the lump-sum
payment.
The difference really showed last week. The Powerball jackpot was $139 million, with
a cash value of more than $67 million, while the Mega Millions jackpot was $133
million, with a cash value of more than $82 million. The Powerball jackpot was generated by eight
drawings, while the Mega Millions jackpot grew to that size in 10. It should be noted that the jackpots start at different amounts as well.
As a general rule, the cash value of a jackpot game is about
half of the advertised jackpot. It is
the actual cash on hand to pay the jackpot prize. The jackpots are determined by projecting the
payment during a period of 25 or 29 years by investing the cash on hand. Regardless of the difference in years, the
player is getting all of the cash available in the game's jackpot fund.