Cash Prizes

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. 

Comments

[leslie wagner]

is mega millions just in missouri or a multi state game?

[Captain Lotto]

Mega Millions is a multi-lottery game, much like Powerball. Powerball was created by smaller states such as Missouri and Iowa, who wanted to generate big jackpots like Lotteries in states with big populations, like Illinois and Georgia. Powerball was a hit, and the larger states initially excluded from the Multi-State Lottery Association, formed a second group to compete with the huge jackpots generated by Powerball. They created Mega Millions, and the two groups remained separate until this year. Now, both games are sold in most states.