Lotto tickets are typically 2 dollars jackpots are often over 500 million. How are these funds generated?

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I don’t understand because not that many people actually buy these. I don’t understand where they get such large sums of money so often.

In: Economics

When you say not that many people buy these, I’m assuming you’re referring to the $72 Billion dollars spent by Americans buying these tickets each year.

The winnings come from a portion of sales. The rest goes into public programs depending on location. People don’t hit the jackpot every cycle either.

Many, many people buy tickets. The money given out it typically half of the money that comes in. The other half goes to schools or whatever.

You don’t instantly get $500 million if you win it. And people don’t win it every time, either.

Either they push the annuity on you (paid out over X period of time) in which case they hold onto the majority of the funds which they can invest for nice returns and then pay you out over a long time

Or you take the cash deal which means the $500 million is significantly discounted.

When they’re holding the funds, they can pool a ton of money into investment and use that to fund winner payouts

>I don’t understand because not that many people actually buy these.

…Quite a few people buy these, and many buy multiple tickets. Further, the prize compounds after each round without a winner.

More people buy than you think… typically 1/2 the money raised on ticket sales go to the prize, and 1/2 goes to the government/government agency who benefits from the lottery sales. Prizes get large when nobody wins a drawing and the pot rolls over multiple times. As the pot gets bigger, more people buy tickets and it begins to snowball.

Also, note that the actual amount collected to get to the prize amount is less than the advertised amount because it’s generated through an annuity that pays out over 20 years. So $300m annuity bought that pays out annually might total $500m that’s advertised as the prize amount — that’s why the lump sum is lower, they basically give you the amount that they’d spend on the annuity.