Lottery money mainly comes from the people who buy lottery tickets. As people participate in a lottery, the prize money gets larger. Other countries and organizations that start lotteries have other means and sources of lottery money.
A secondary source of lottery money is bond interests. When a winner opted for annual payments for his or her prize, a huge chunk of the supposed prize money will be used to buy bonds and a small percentage will be given as initial payment. As the bonds mature, the accumulated interest will be used to complete the remaining amount the winner will receive.
At this time, the biggest lottery prize ever recorded is $1.586 billion. It was the United States’ Powerball lottery, which was held on January 13, 2016.
The prize advertised in a lottery is often an estimate. Once a winner is drawn, he or she may receive less or more than what was stated. This is particularly the case for lotteries with high-value payouts.
Mode of Payouts
Lottery prize money is not always rewarded as a lump sum. Winners are given options on how they will receive the payout. In some lotteries, people are required to choose at the moment they participate.
In general, there are two modes: one-time payment and an annual payment. Some lottery organizations only offer an annual payout.
With one-time payment, the prize money will be much smaller than the announced amount. The amount or percentage that will be received is determined how the money was invested. Depending on which country the lotto was hosted, the prize money can be subject to tax deductions.
The rest of the supposed prize or generated revenue from participants goes to wherever the lottery organization allocated it. A small percentage of it goes to the organization’s payroll and the game’s administrative costs. A bigger part of it might go to charity and/or the government’s education funds.
With annual payment, the winner of the lottery can receive the full amount advertised. However, it is common that it will take two to three decades before the winner is fully paid. Lotteries often refer to prize subjected to annual payment as a “lifetime prize.”
The amount of every annual payment may vary. Some organizations tend to add a small percentage to the payment as the bonds bought with the prize mature. On the other hand, some prizes offer fixed payment amounts and pay the remainder in the last year. For example, if the winner won $750,000 and he opted for a 20-year annual payment, the lottery might send him $25,000 for 19 years and then send him $275,000 as the last annual payment.
More than half of lottery winners tend to opt for the one-time payment. The usual reason given by the winners is that they believe that they can invest the money elsewhere and generate more money (through forex for example).