Friday, August 22, 2014
Inquirer Daily News

Mega Millions jackpot: Artificially sweetened?

The cash jackpot was a lot closer to half the annuity in the Mega Millions jackpot for Dec. 17, 2013, than in the March 30, 2102, record-setter. A change in annuity rules explains most of the proportional difference.
The cash jackpot was a lot closer to half the annuity in the Mega Millions jackpot for Dec. 17, 2013, than in the March 30, 2102, record-setter. A change in annuity rules explains most of the proportional difference.

Which of these two Mega Millions jackpots is bigger:

(a) the revised current jackpot of $586 million, or (b) a $500 million jackpot announced for the March 30, 2012, drawing (before it rose to set the all-time record)?

No-brainer? Not if you plan to take the cash, as almost all winners do.

Cash-wise, the difference isn’t $86 million in favor of the new jackpot. Last year’s had $73 million more cash, $389 million, compared to the current $316 million, despite having a significantly smaller annuity.

At this point, you might be thinking: “What the hell is going on here? Did Mega Millions convert to Euros or Canadian dollars or something?”

No, it revamped its annuity setup to be more like Powerball’s.

In October, Mega Millions didn’t just change its odds (1 chance in 259 million instead of 1 in 175 million), hike its minimum jackpot ($15 million), add a minimum jackpot increase ($5 million), and boost the secondary prizes (at least $1 million, as much as $5 million).

Those changes have been well-publicized, with the change in odds getting the most credit for resulting in roll-overs that kept increasing the jackpots.

But little noted was how Mega Millions adjusted how it determines the annuity values  -- the jackpots that get the most hype, like the current $586 million. (It initially was set at $550 million Friday night, when nobody matched all the numbers: 19, 24, 26, 27 and 70, with a Mega Ball of 12.)

Instead of 26 equal annual payments, now the annuity has 29 graduated payments, each one 5 percent more than the next.

The result is a huge difference in the advertised jackpot.

Last Tuesday’s jackpot was $344 million under the new rules. Under the old rules, it would have been “the $275 million range,” said Paula Otto, executive director of the Virginia State Lottery and head official of the Mega Millions Consortium.

At that rate, the current annuity would be about $470 million -- over $110 million less.

It’s possible this got some players prematurely excited.

Flip it around and apply the new formula to the final jackpot from that March 30, 2012, drawing, which broke all existing U.S. records. With that drawing’s record $471 million in cash, the annuity today would work out to be about $880 million!

Instead, $656 million is in the history books.

See: "Biggest jackpots in U.S. lottery history"

So it’s going to take a lot less actual money to break the annuity record this time around. About $360 million might do it.

A $1 billion jackpot is becoming a lot more likely.

Some might see the annuity change as a blatant marketing ploy. After all, with almost everybody taking the cash, the biggest real-world difference would seem to be in magnifying perceptions.

Lottery officials have another explanation: It’s what players wanted.

Otto said all sorts of market research was done before the game was overhauled on Oct. 22, and players said they preferred that annuities be graduated, to counteract erosion by inflation.

This more favorable setup might, in turn, induce more players to opt for yearly installments, she said.

The new higher annuity jackpot, after all, is the actual total of what winners would eventually get paid.

Powerball’s had a similar setup since 2005. That’s when it instituted graduated payments, according to Chuck Strutt, head of the Multi-State Lottery Association.

Payment rise 4 percent a year, compared to 5 percent for Mega Millions.

“My personal view is that it is unwise to offer the same jackpot payment each year, Strutt said. “You can imagine how the price of luxury cars and yachts increases each year.  Imagine, ten years into your win, having to buy a smaller jet.”

“We know that both these games are jackpot driven,” Otto said. “Bigger jackpots mean bigger sales. It appears our changes are helping the Mega Millions game get bigger jackpots.”

Indeed.

Before the October changes, Mega Millions hadn’t topped $200 million in 20 months, while Powerball kept landing new entries in the Top 5 all-time U.S. jackpots.

“I don’t think of the two games competing with each other, but rather complementing each other,” Otto said. “It allows state lotteries to offer players big jackpot games four days a week.  Whether the jackpot dollars come from Powerball or Mega Millions, states find that offering both games has increased sales overall.”

For more on lotteries, go to Philly.com's lottery page, or the websites for Mega Millions or Powerball.

Peter Mucha Philly.com
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