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

Question

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

Answer 1

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.