Sunday, January 28, 2007

Edward Ugel in NYT: The Lottery’s Next Big Loser: Illinois

I think this is free view. A friend emailed the column to me this AM.

In essence, Illinois wants what virtually every lottery winner wants: the money up front. Although now some lottery winners can take a large lump sum right away (of course, much less than the supposed value of the winning ticket), for years they were paid their jackpots in annuities over 20 or 25 years. There’s a major difference between getting a million dollars right away and getting 20 annual checks for $100,000 or so. Yes, both amounts are considered fair, but the lump sum is much preferable: you don’t have to wait to buy your mansion, or (more prudently) you can invest it, earn interest on it, and be protected against inflation.

I worked for a company that searched out winners who didn’t have the option to receive their winnings in a lump sum or had chosen not to, and who then had spent themselves into short-term debt and needed money before the next annual payment. We were happy to buy their future payments in exchange for quick cash, at a handsome profit to ourselves.
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At the core, all these people acted as if they had received the money up front rather than over time. You may scoff, but do you think you could win the lottery and wait patiently for 20 years while your ship comes in? Good luck.

And now the Illinois officials are acting just like any spendthrift winner who’s being paid over time. Like many of my former clients, Illinois is selling its future in order to fortify its present. But an individual who burns through his lump sum in a few years will bear the consequences of his actions. That’s not the case for Illinois: the officials who would enjoy the $10 billion windfall will be out of office decades before the 75 years is up. And instead of giving up annuities of ever shrinking value, as a lump sum winner does, Illinois is giving up an ever growing stream of revenue — the state’s lottery revenue increased 15 percent from 2003 to 2005.
I hate it when we midwesterners look like bumpkins but with the Gov we've got now, I'm afraid that's what we are.

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