Lottery payouts are the way
lottery
A lottery (or lotto) is a form of gambling that involves the drawing of numbers at random for a prize. Some governments outlaw lotteries, while others endorse it to the extent of organizing a national or state lottery. It is common to find som ...
winnings are distributed. Typically, lotteries pay out around 50–70% of stakes (turnover) back to players. The remainder is then kept for administration costs and charitable donations or tax revenues. In gambling terminology lottery payouts are the equivalent of RTP (Returns To Players). A lottery operator's
gross margin
Gross margin, or gross profit margin, is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of go ...
is 100% minus RTP.
In the US, large lottery winnings generally are advertised as an
annuity
In investment, an annuity is a series of payments made at equal intervals based on a contract with a lump sum of money. Insurance companies are common annuity providers and are used by clients for things like retirement or death benefits. Examples ...
amount, paid in 20 or more installments; in most cases, a
cash option is available. The cash option in the US can be 40–60% of the advertised annuity amount.
Specific payouts for any single draw deviate from the
expected payout advertised before a draw, and depends especially on if the jackpot is hit. Typically jackpot amounts that are not hit or paid out are then rolled over to the next draw. In this sense, typical RTP or returns to player percentages will vary with the size of the jackpot. It can happen that after several rollovers, RTP exceeds 100%, so that if one were to buy every single ticket they would likely make a profit. (Actually achieving a net profit depends on: taxes; one's chances of sharing the jackpot with another player; and whether one takes the cash or
annuity
In investment, an annuity is a series of payments made at equal intervals based on a contract with a lump sum of money. Insurance companies are common annuity providers and are used by clients for things like retirement or death benefits. Examples ...
option.)
Legislation varies by US jurisdiction; many statutes specify a minimum payout percentage. To make lotteries competitive, some jurisdictions increase payout percentages versus those of a neighboring lottery. The percentage changes are likely due to competition from illegal numbers on daily numbers games.
See also
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Lottery
A lottery (or lotto) is a form of gambling that involves the drawing of numbers at random for a prize. Some governments outlaw lotteries, while others endorse it to the extent of organizing a national or state lottery. It is common to find som ...
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Lump sum
A lump sum is a single payment of money, as opposed to a series of payments made over time (such as an annuity).
The United States Department of Housing and Urban Development distinguishes between " price analysis" and " cost analysis" by whether ...
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Structured settlement
A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, r ...
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Annuity (finance theory)
In investment, an annuity is a series of payments made at equal intervals based on a contract with a lump sum of money. Insurance companies are common annuity providers and are used by clients for things like retirement or death benefits. Examples ...
References
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Lotteries