Sunday, August 10, 2014

Comparison of Large Lotteries (Net Payout)

We are comparing the payout to lottery players of six large lotteries.

EuroMillions (Europe): ticket price EUR 2.00, 50% of revenues are distributed to players, whereof 40.6% (20.3% of 100%) goes to the JP class, winnings are tax free (with the exception of Portugal, Spain and Switzerland)

Eurojackpot (Europe): ticket price EUR 2.00, 50% of revenues are distributed to players, whereof 48.0% (24% of 100%) goes to the JP class, winnings are tax free is some countries

Mega Millions (USA): ticket price USD 1.00, 50% of revenues are distributed to players, whereof 32.58% (32.58% of 100%) foes to the JP class, winnings are subject to 25% federal withholding tax and tax free in some states
(note that JP winnings are subject to the 35% highest marginal tax rate for ordinary income, but likely taxed at a lower rate for junior classes, for comparison sake we will assume 35% for the JP class and 15% for all other classes) 

Powerball (USA): ticket price USD 2.00, 50% of revenues are distributed to players, whereof 63.95% (31.98% of 100%) goes to the JP class, winnings are subject to 25% federal withholding tax and tax free in some states
(note that JP winnings are subject to the 35% highest marginal tax rate for ordinary income, but likely taxed at a lower rate for junior classes, for comparison sake we will assume 35% for the JP class and 15% for all other classes) 

Mega Sena (Brazil): ticket price BRL 2.50, 33.3% of revenues are distributed to players, whereof 62% (19.1% of 100%) goes to the JP class, tax is already incorporated as per below calculation
(note that the 33.3%  is a weighted average of 30.8% for the two senior classes and 44.0% for the junior class, 30.8% is the result obtained by calculating 32.2% divided by 104.5% and 44% is the result of the sum of 30.8% plus 13.8% divided by 104.5%, the 13.8% represents the imputed tax on the two senior classes) 

OZ Lotto (Australia): ticket price AUD 1.20, 55% of revenues are distributed to players, whereof 40.0% (24.75% of 100%) goes to the JP class, winnings are tax free
(60% represents the result of 5% multiplied with the ratio of 1.1 divided by 1.2 plus 55% multiplied with the ratio of 1.1 divided by 1.2, AUD 1.2 is the ticket price whereof  AUD 0.1 is the sales commission) 

This results in the following overview:










On an expected basis lotteries have obviously a negative value for the players, but apparently positive expected utilities. Having said this, Australian lotteries (here Oz) come in the first place followed by the European lotteries. The US and Brazilian lotteries offer poorer value, although the very high jackpots compared to other lotteries may improve the utility.

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