Mindy: Welcome to the BiggerPockets Money Podcast bonus episode edition where we interview Carolyn Becker and talk about the lottery. Hello, hello, hello. My name is Mindy Jensen and with me as always is my not using the lottery as part of his retirement plan co-host, Scott Trench.
Scott: That’s right Mindy, my winning tickets are real estate and stocks.
Mindy: Those are good winning tickets. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or figure out how to responsibly handle winning a lottery jackpot. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.
Mindy: Scott, I had a lot of fun speaking with our guest today, Carolyn Becker, who is the deputy director for Public Affairs at the California lottery. She had a lot of information about the concept of lottery, how to play the lottery in general, and I am super excited to talk to her today, but I want to say a little note to our listeners. This is a fun episode. It’s meant to educate you about the different aspects of the lottery, of playing the lottery, including some history about the concept of a lottery in general. And while we are looking at the lottery in an investigative light, we are not recommending the lottery as a way to generate wealth.
Scott: Yeah, agreed. I neither Mindy nor I plays the lottery in any meaningful extent other than maybe buying a handful of tickets when the jackpots are really big for fun. And that’s the absolutely extent that we would really recommend anyone uh participate in the lottery if at all. It’s not a way to build wealth in any um any statistical sense, but it’s a fun thing to explore. I learned a lot and it made me think a little bit today.
Mindy: I did. I learned, actually I learned a ton about all the different ways that I am playing the lottery, the wrong way and how to claim your ticket. First up, we’re going to hear a little bit about the history of the lottery from our producer Caitlin Bennett.
Speaker 1: Ever dreamed about becoming the next lottery millionaire? Who hasn’t thought of winning a big and hitting the jackpot? But how does it really work and what are your actual chances of winning? I think most of us have probably bought a lottery ticket at some point in their lives and just thought, what if? What if I got lucky? Whether it’s the Power ball or the Mega millions, you read about people winning huge amounts of cash all the time. So the rationale here is, people seem to win. Why not me? Before we dig into the odds of winning the lottery, let’s look at the history. We’ve seen different forms of the lottery across the globe with one of the earliest examples in ancient China between 205 and 187 BC. And that was with a number game called Keno, and that’s actually still played in casinos today. Another early example of the lottery was run in ancient Rome during the reign of Julius Caesar, who commissioned a state run lottery to help raise money for municipal repairs. And that’s traditionally the history of the lottery ever since. It was and often still is a way to raise money for a state without having to raise taxes. A state essentially turns a fundraiser into a game with a reward. The lottery still often funds charitable organizations or programs to assist the poor. And in fact, another early example of a lottery was in Bruges, Belgium in the 15th century, where the lottery was announced as a way to raise money to help the poor. So the beginnings of the lottery were actually very philanthropic or at least relating to public interest. We see a similar pattern of early lotteries in the United States. The first lottery in the US was actually established by King James I. And it was run to help colonial settlers in West Virginia. Lotteries were also run by several American presidents and a couple historical famous figures. In fact, Benjamin Franklin ran a lottery in order to fund the building of cannons. During the Revolutionary war, lotteries were run to support the colonial army. So there’s a long history of the lottery in the United States to raise money for good causes. Now, the beginning of the lottery as a form of gambling on the other hand, goes back to the 19th century, and it goes back to big cities, and one in particular, New York. Lotteries became a very different beast at that point when the city was really expanding and developing different communities. New York lotteries became a pastime for the working class people, especially in immigrant communities. For example, there was something known as the Italian lottery and the Cuban lottery. Gambling on winning numbers is something people did together, and lotteries operated out of something called policy shops. People would play something called number games, so you would pay a small sum of money as little as just one cent and pick a number that you thought was going to win. During this time, there was a lot of moral outrage about policy shops, playing and betting in general. Number games became associated with poverty and urban crime. So the 19th century is when we start seeing a lot of legislation against gambling and ultimately against lotteries. In fact, they were banned in the United States in the early 20th century, and they weren’t legalized again until 1934, which is when the first legal government sponsored lottery was established in Puerto Rico. And then New Hampshire followed suit in 1964 by establishing their own. So today, government run lotteries operate at a state level in the US with 45 out of 50 states running their own lotteries. With the two most popular lotteries being the Powerball and the Mega Millions. Powerball is one of the best known for its record-breaking jackpot of $1.59 billion back in 2016. So you’re probably thinking right now, what are my actual chances of winning the big jackpot? Is the lottery a good investment? Is it worth my time to be playing it? So let’s look at the Powerball first. Powerball tells you that the odds of winning if you buy a ticket are one in 24.9. Now that doesn’t sound so bad, right? But they actually don’t tell you is that that’s your chance of winning the lowest possible prize, which is only $4. Let’s put winning a bit more in perspective. The odds of winning the jackpot in the powerball are unfortunately one in 292 million. And the way the Powerball achieves these near impossible odds is by introducing a vast number of possible winning combinations. In fact, there are over 11 million possible winning number combinations in the Powerball. Now, what you need to know about the number is that nearly 10 million of those winning combinations will only give you the minimum payout, which is once again, $4. And that’s because all those winning combinations include the Powerball number, and either none of the white balls or the powerball number and just one of the white balls. This automatically disqualifies you from winning the jackpot. So the reality is that winning the jackpot in the Powerball is highly improbable. Another comparison that we like to look at is that if you’re swimming in a room filled with white pearls and the jackpot is a single black pearl hidden in that sea of white pearls, your probability of winning the jackpot in the lottery is about the same as finding the black pearl in a room full of white pearls, completely blindfolded. So if the math isn’t doing it for you, this visual example will help you see why winning the jackpot is highly unlikely. And unfortunately, there’s a similar story with the Mega Millions, which is the other biggest US lottery. Your chances of winning the jackpot in the Mega Millions are approximately one in 259 million. Now some people may think, well, you know, if I play a bit more, I have a higher chance of winning. I’ll just spend a bit more. The truth though is that you’re much more likely to spend money on the lottery, then you will see in returns. So if you spend $1,000 on the lottery, there’s a 50% chance that you make back $64. There’s a 90% chance that you make back less than $92, and a 99% chance that you’ll make back less than $550. So you will almost certainly lose money on the lottery. And the question remains, should you still play? Well, if it’s purely for the thrill of winning something, then sure. You do have a one in 24 chance of winning something. $4 to be precise.
Mindy: All right, huge thanks to Calyn Bennett. She is not only is she our producer, she’s an absolute rock star in everything she does. She has the Midas touch, everything she touches turns to gold. Before we bring in Carolyn, let’s take a quick break.
Speaker 1: DIYing your financial strategy can actually become a liability. I recently sat down with David Jackson at domain money to pressure test my own plan. What I loved was the objectivity and how comprehensive it was. Domain is strictly flat fee. They don’t sell products so the advice is unbiased and personalized to your situation. They integrated everything from my cash flow to my real estate strategy into one clear, actionable road map. If you’re ready to graduate from guessing to knowing, go to biggerpocketsmoney.com/cfp. Book a free strategy session and see what a real pro like David can do for you. This is a promotion for Domain money, a registered investment advisor with the SEC. bigger Pockets money may have received compensation if you choose to work with domain money as a client. I, Scott Trench, am a current client of Domain money and receive non-cash compensation related to this promotional activity. This is not personalized investment advice. For the full disclosures, visit biggerpocketsmoney.com/cfp. You know how the change in seasons hits and suddenly you just want to declutter the garage, clean out the closets and get everything all organized. That same feeling hits me with my finances every spring. I used to have accounts scattered everywhere, making it hard to stay on track with my money goals. Let Monarch do your financial spring cleaning for you. One dashboard that gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property and more all in one place. One thing that really surprised me was pulling up the cash flow view and seeing what percentage of my income was quietly going to lifestyle creep, dining out and subscriptions I barely noticed. It motivated me to make some quick adjustments. Get your first year of monarch for half off, just 50 bucks with the promo code Pockets. Use the code Pockets at monarch.com to get your first year half off at just $50. That’s 50% off your first year at monarch.com with the code p o c k e t s. I’m skeptical of a lot of financial products, but life insurance isn’t one of them, at least not term life. For the vast majority of you listening, term life is simply the right answer. And the smartest way to buy it isn’t one big policy, it’s a ladder. Your need for coverage isn’t flat. It declines over time. You’ve got a 30-year mortgage, a couple of young kids, maybe a spouse in mid career. In 15 years, the mortgage is going to be smaller and the kids are almost launched. So instead of buying one giant 30-year policy you’ll overpay for it, you stack a few, say a 10 year, a 20 year and a 30-year layer. So your total coverage steps down as your actual obligation steps down. You only pay for what you actually need when you need it. Ethos is a platform that helps you find life insurance 100% online. You can get a quote in seconds and apply in minutes. There’s no medical exam, you just answer a few health questions online. You can get up to 3 million in coverage. Some policies are as low as $30 a month. That makes building a ladder genuinely fast. Get your free quote at ethos.com/bpmoney. That’s ETHOS.com/bpmoney. Application times may vary and rates may vary.
Mindy: And we’re back. Our guest today is Carolyn Becker, deputy director for Public Affairs for the California lottery. Carolyn, welcome to the Bigger Pockets Money podcast. I’m super excited to talk to you today.
Guest: Thanks for having me. I’m excited too.
Mindy: Let’s jump right into this. How does the lottery work?
Guest: So just a reminder, you mentioned it already, but I represent the California lottery. So as you guys know, there are 50 states plus the district of Columbia, Puerto Rico, the US Virgin Islands. And I mention all those jurisdictions because some of those jurisdictions are in the multi-state lotteries, which I know we’ll talk about. But here in California, the lottery works in a couple different ways. We have two categories, if you will, draw games, which are the ones that fuel those jackpots, those giant jackpots we’ve all been watching so much lately. And then we have instant scratch off tickets, which we call here in California scratchers, and I think most people are familiar with those too. You buy them at a gas station, you scratch the special little stuff right off, see the results, and then you know if you’re a winner or not. And those all have different rules, you kind of have to read the fine print to know what you’re looking for when you scratch. But those are the two main categories of games. For the draw games, Mega Millions, Powerball, here in California, we run our ownn draw game called Super Lotto Plus. We actually have eight draw games total. Um, that’s essentially like a giant statewide lottery or in the case of Mega Millions or Powerball national. Everybody is buying tickets, most of the money goes into a big pot. The numbers come out of a a draw machine and and theoretically, eventually somebody wins the pot. I’ve really simplified it. There are different prize tears, Mega Millions has eight or nine prize tears. So you don’t have to get the jackpot to be a winner, but I hope that makes sense and answers your question.
Mindy: It does. and I have a follow-up question. I don’t play the lottery frequently because frankly, I don’t know how to play. I mean, I know that I go into the gas station, I give them $2. I say, pick the numbers for me because I don’t want to be bothered and they hand me, what is it? Like a quick pick and they hand it to me. But in the past, it used to be a dollar and then one of the the two big lotteries, the Mega Millions and the Powerball, one of them raised their prices to $2 and then the other one followed suit shortly thereafter. So now it’s $2 to play, but then you can do a multiplier and you can do like, there’s so many different rules. And for the casual player, you could miss out on a super super jackpot if you don’t play it right, if you don’t do the multiple. Is there a place that you can go to find out all of this like inside jargon as a casual player that you would just wouldn’t know?
Guest: It’s interesting you talk about casual players because I think those are the players who play sort of infrequently, may maybe when the jackpot hits a certain threshold, but they’re not every week, you know, religious so to speak players. And so those are the folks, casual players who I think don’t necessarily know the jargon and the ins and outs of the rules and the multipliers and all of that. Whereas I think our core players who who are appointment players, if you will, let’s say Mega Millions, they buy tickets every Tuesday and Friday, they may know more about it. Um, and so just using Mega Millions as an example, that’s the one that just uh was hit this past Friday night. The jackpot up over a billion dollars and I know we’ll talk about that. Um, um, megapliers exist in states outside of California for that game. So I actually can’t tell you exactly how that works for Mega Millions. Um, but there’s a website. It’s not hard to remember, megamillions.com and I imagine on various links on that page, there are different, um, places players can look for the rules, the ins and outs. But going back to casual players, it’s actually quite simple, uh, if you want it to be, right? If you don’t really care to pay attention to those options and those details, you mentioned, we call that a quick pick where you want the computer to pick the numbers. You hand over your $2 or maybe you’re buying 10 tickets for $20, all quick picks. You get this little piece of paper that kind of looks like a receipt. We call it a playslip, and it has your series of six numbers on each line. If it’s just one ticket, it’s just one line of numbers. And then that night, there’s a draw that that quite literally um involves balls rolling around in a machine and the machine randomly draw uh drops a series of six numbers. That sixth number is the mega number. So the first five numbers and then the mega number. And in theory, all you have to do is compare your playslip or your ticket to what numbers came out of the machine and and figure out if you’re a winner. I equate that sort of, um, you know, I I don’t know how many of your listeners might play craps in Vegas, let’s say. You can walk up to a craps table and be super overwhelmed because there’s so many games all with one roll of the dice. So kind of to your point, it can be overwhelming, but if you say, hey, I just want to play the odds, and the dealer might help you understand how to just play one game with the roll of the dice. You can keep it really simple if you want to.
Mindy: Oh, I didn’t even know that there were more than one game on the craps table.
Guest: It’s overwhelming.
Scott: I will admit that I I, you know, host this podcast on personal financial responsibility and yet I’m also a sucker for craps and have been known to lose 100, 200, $300 at a craps table from time to time on there. So, yes, I I can totally relate.
Guest: And there’s different odds with every game, right? And that’s kind of like the lottery too. Again, using Mega Millions as an example, of course everybody dreams about winning the jackpot, especially when it’s up over a billion, which is just a really hard number to wrap your brain around, but who doesn’t sit around and think, what would I do with a billion dollars? You know, the odds of winning the jackpot are quite honestly, not in your favor. They’re about one in 300 million or so, but the odds of winning any prize, um on that game, of which like I said, there’s eight or nine different tiers, are about 1 in 24, one in 25. So you might get your $2 back as the lowest prize tier, maybe maybe you hit a few numbers and win a couple hundred bucks, but there’s more than one way to win. And so while all the focus is on the jackpot, there are, there are quite literally in California with every mega millions draw, there are thousands, if not tens or hundreds of thousands of winners every time the game draw, just not always the jackpot.
Scott: I have a question. Can you increase those odds if you pick your own numbers versus get them randomly assigned by the computer or is there any is there any truth to that that there’s a way to kind of like predict a little bit and pick your own numbers or is that all
Guest: It’s a really, really, really good question and the answer might blow your mind a little bit. The odds stay the same, no matter whether it’s a quick pick, you pick your own numbers, no matter whether the jackpot is a dollar or a billion dollars, no matter whether 10 people play or 10 million people play. The odds are quite literally the number of combinations that those numbers can make when the balls fall out of the machine. So when I say a the odds are one in 302 million or so, it’s because that’s how many possible combinations of numbers there are. So, while more people play with big jackpots, there are more people vying for those odd, or if you buy, you know, like I said earlier, if you buy 10 tickets, you’re taking 10 chances on the odds. You’re increasing your chances at the odds, but the odds never change. The odds of the game are the odds of the game no matter what. And to your point about quick pick versus custom numbers, no. The the balls are dropped randomly. The the security by the way that goes into this and the integrity of the draw is really, really, um, a serious subject. The balls are carefully weighted. Here in California, the draw games that we run, we have independent auditors in the room as witnesses. We have video and audio on our draws. We want everyone to know that we take the integrity of the game, meaning the fairness really, really seriously, and I know I can speak for the other jurisdictions that do that as well. You guys might recall just a few months ago that 10-hour delay for Powerball because one of the states happened to be Minnesota and they wrote a beautiful blog about it by the way on their website. Um there was a a computer failure, essentially, a software failure and they had to manually reconcile all of their ticket sales to make sure everybody that bought a ticket for that draw got in on it. And that’s how serious we take the integrity of the game and the fairness. If you buy a ticket, you think you have a chance at the jackpot, and you do because of all those protocols that take place. So when there’s a delay, I know it creates kind of an anxiety across players, but it’s also it’s a good thing because it means we’re going over every step, um with essentially a microscope if that makes sense.
Scott: So the story about the guy who’s like, yeah, the ink on the balls changes the weight such and such and allows it to be more probability. That guy, either that that’s been changed and dealt with or that was never true to begin with.
Guest: I I haven’t heard that specific claim, but it doesn’t surprise me. People always think they have theories about why it’s not fair or what have you, but I promise, promise, promise with a capital P, not just here in California, that all of that is rigorously checked, thoroughly vetted, like I said, in some cases, maybe all cases, audited. Um it’s very serious. We’re talking, I mean, we’re talking about billions of dollars, right?
Mindy: I do need to make a clarification. I said that I have never won the lottery, and you said that there are multiple hundreds of people that win every time it’s drawn, I did win $5 in the lottery once. So I recend my blatant, bald-faced lie of earlier. I have actually won the lottery.
Guest: But you’ve never won the jackpot. And I think that’s what most people said.
Mindy: I’ve never won the great big jackpot. However, in my mind, I have convinced myself as soon as I buy that ticket, I can convince myself that this is the winning lottery and I am shocked when those numbers don’t match up to the ones on the TV screen.
Guest: Well, I think it’s funny you say that Mindy because, um, me and and my colleagues in the public affairs team in California, we get to talk to big winners all the time, and the number one by far, number one emotion that they express is disbelief. Uh and so it’s funny you say you’re in disbelief that you didn’t win. They’re in disbelief that they did. In fact, I’ve heard stories about winners taking their ticket to like six different uh stores to scan them just to make sure they’re getting the same valid win at every store. Um, just because they’re they’re in disbelief. They’re literally having the ticket checked over and over and over to make sure their eyes aren’t deceiving them.
Scott: Awesome. You know, uh, Calyn informed us in our intro, um, that, you know, the the first lotteries were were really uh philanthropic efforts, right? We’re going to raise a pool of money from folks. Somebody will win, but the rest of the proceeds will go to a good cause. Is that still true with today’s lottery system to any extent?
Guest: Different in every state, although I’m sure that they that most states would tell you it’s a good cause. Um but I can’t I can’t speak for other states. I know there are states, I think there are some states where lottery revenues support the general fund, which depending on your point of view, may or may not be a good cause. Uh I think some states might have um beneficiaries like veterans programs. But here in California, and this is common in other states as well, our sole mission, the reason the lottery was created in the 80s was to support public education. But I want to be very clear and this is written into the language, it’s to generate supplemental funding for public education. And I mean kindergarten all the way through the university level and I think it would be no surprise to anybody to hear that it takes a lot of money to run a school district, a lot. So the lottery raises supplemental funding, which I sometimes just refer to as bonus money. It’s a great cause. It might pay for, here in California, our revenues might pay for two computers in the library at a school that doesn’t have them or perhaps um the band, the school band gets has a dozen clarinets for their students to learn music. Uh these are just some of the the ways schools here in California spend lottery money, but it is the sole reason we exist. It’s it’s the reason we come to work every day and the reason we um make decisions, business decisions that save on operating expenses. If we think that there’s a solution for whatever business uh challenge we’re facing that will actually save us money, that drives our decision making because any savings goes right back into the pot of money for our beneficiary, which here in California is public schools. So to the extent that schools can use every penny, it’s absolutely a good cause. But by no means do we replace a school budget because those are massive.
Scott: If I spend $10 on Mega Millions or Powerball tickets, how does that money get allocated to the pot to profits if any for these massive corporations into the school districts in California?
Guest: So, um, so let’s take Powerball as an example because that’s the one that set the record a few months ago with a 2.04 billion dollar jackpot. Um, um, California so most of that money, $2 a ticket. About most of that money fuels the prize. That’s how we pay the winners, is is most of that ticket money. But here in California, 80 cents of that $2 or 40 cents on every dollar for any draw game goes into the fund for our beneficiary, public schools. So those are the big two pots of money that come out of your two bucks. Obviously, a little bit of money is needed to run the game, overhead, if you will. Um, but there’s another decent-sized bucket, which is that we incentivize um our retail partners to sell our tickets. Here in California, we have over 23,000 locations where somebody can buy a lottery ticket. So for a multi-state game like that, um, the the sales here in in California benefit schools no matter what. In fact, I know we did have the jackpot winning ticket in Southern California for that giant powerball jackpot. But even if we hadn’t, we raised in that sequence of jackpots when it kept growing and growing and growing and rolled 40 times, um, we would have raised record amounts of public schools even if somebody in another state won.
Scott: What is that kind of ballpark of that number that we raised for schools in the 40 rollovers of this?
Guest: Yeah, it was a historic run for us, and I uh I don’t have the exact figure, but it’s 156.3 million or something like that. So it was up it was up over 150 million. And when I say it’s historic, that’s by no, nowhere by no stretch of the imagination, the total we raised for schools. That’s just Powerball, just from that sequence of draws. So it was historic in that one, we call it a jackpot sequence when it starts at 20 and keeps growing and growing and growing and growing. And I think in that case it was growing for over three months. That’s one jackpot sequence. So when I say we raised record amount, 150-something million for schools, that’s just sales related to that game. Not scratchers, not um Mega Millions, um, not any of any other game. We and we have dozens of scratchers games. So it’s an impressive number, but we raised a whole lot more money than that.
Scott: Awesome. An and would you say that, you know, I I know you cannot speak for other states, but you would you say that your understanding is that it’s generally true that something’s to a similar effect is going on in many other states or perhaps most other states?
Guest: Yes, and I would even take it a a step further and say a lot of them are education, public education. So that’s a very common theme. I just I know it’s not all of them.
Scott: Got it, thank you.
Guest: And we want our players to feel good about that, right? Even if you don’t win like Mindy, you’re still supporting a good cause and maybe that’s not your incentive to buy the ticket. The incentive is the hopes and dreams of being a millionaire, but hopefully you don’t feel too bad if you don’t win because 80 cents of those two bucks went right back to the public uh education I mentioned.
Scott: You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job noticed on other job sites. Indeed’s sponsored jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking, and it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part, no monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I’ve been talking to you, 23 people just got hired through Indeed worldwide. There’s no need to wait any longer, speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at indeed.com/biggerpockets. Just go to indeed.com/biggerpockets right now and support our show by saying you heard about Indeed on this podcast. indeed.com/biggerpockets. Terms and conditions apply. Hiring Indeed is all you need.
Mindy: When you’re ready to start your business, Northwest registered agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one, a business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest registered agent at northwestregisteredagent.com/moneyfree.
Mindy: So, you mentioned a giant lottery recently, there was the 2 billion dollar lottery in California that was uh won by a ticket purchased in California, a single ticket, by the way, which is insane. Um, and in 2022, and then just barely into 2023, we had yet another billion dollar lottery that was just won on Friday the 13th. Um, I didn’t even know it was up to a billion. I might have played. Uh, so we’ve seen huge increases in these billion dollar pots. Can you explain why we’re seeing so many large lotteries? I mean, it’s in addition to the billion dollars, there’s a lot of like multiple hundred thousand lotteries.
Guest: Yeah, and don’t sleep on Powerball right now. It’s creeping up to half a billion dollars as we speak. So it seems like billion is almost the new million. Um, you mentioned the historic Powerball, $2.04 billion. By the way, 0.04 seems like a small decimal. In that case, that’s $40 million. So, and then just this last one, the Friday the 13th where the ticket was hit in Maine. But you might remember in July of 2022, Mega Millions was up over a billion and a ticket in in Illinois hit that. So we’ve had three billion dollar plus jackpots that all started in 2022. This most recent one wasn’t hit, of course until January 23. Um, but yeah, so there’s a couple factors. The most recent factor, believe it or not, is related to the economy and inflation. As we all know, the Federal Reserve, the Federal Reserve Bank has raised interest rates several times to combat inflation recently and try to slow the economy, um, and that allows that gives us as the state lottery more purchasing power for the bonds, the US Treasury bonds that we buy on behalf of the jackpot winner if they choose the annual payments. So let’s back up to that for just a second. Any big draw game lottery winner, as most people know, has a choice. They can take the lump sum, also sometimes called the cash value, or they can take the annual payments. Most of them take the lump sum because I think the thinking is that you can invest that in a riskier way and the yield will give you more money in the end than the investments we’re going to make on your behalf. We make really, really, really safe investments, which are US Treasury bonds. So most people do choose the lump sum. The lump sum is what is supported by the sales. That’s the only money that exists is that lump sum, one point whatever billion doesn’t exist. That’s what will exist over 30 annual payments. So the interest rates, having been raised several times lately, gives us more purchasing power, the value of a dollar over 30 years time goes up. I’m not an economist, so I’m hoping I’m explaining this in a tangible way, but it gives us better purchasing power when interest rates are higher. So, the advertised jackpot, which is that one plus billion, is what the winner would get if they take the annual payments, not the cash value. So inflation does not affect the cash value. Does that make sense?
Scott: Yeah, I think another way of saying what you said there is it just makes the tickets relatively more affordable or, you know, so so folks buy more of them to a certain extent, right?
Guest: I mean, kind of, we’re not, we’re not advertising jackpots, we’re not making these numbers up. We have financial experts across a lot of states looking at this stuff, um, quite literally, um, analyzing the numbers, and they are economists, so to speak, they’re financial experts. And so, what this most recent jackpot that we just talked about for Friday the 13th was 1.3 billion, I think. Um, that’s what was advertised to try to get you to buy tickets. And and that will that will hold. uh, if the winner, whoever it may be comes forward and says, yes, I want the annual payments, then in 30 years time, that’ll add up to about 1.3 billion. So the cash value is only what is supported by the transactions happening in every state that participates. Um, and that’s not at all affected by interest rates because that’s just a payout in a lump sum. But we’re able to advertise higher jackpots when the interest rates are high because over 30 years, uh our purchasing power goes up when the interest rate is high. The other factor and this is, um, very valid but not quite the most recent phenomenon, um, in the 2000 teens, do we say that 2000 teens?
Scott: 2010s. 20 20s. Yeah, yes.
Guest: Yeah, the 2020 teens. That’s my term for that decade. Um, a both games, both multi-state games, uh, changed what’s called the matrix, um, and that’s lottery jargon, Mindy, to your question earlier. But what that means is the number of numbers you can choose from on a ticket, um, that was tinkered with. They they changed the matrixes, the matrixes, uh, for each game. By the way, these games are run by two different um, in two different ways. So it’s not the same organization running both games, but a lot of states participate in both games. California certainly is one of them. Um, but by coincidence, both in the same decade, they tinkered with what we called the matrix, which is the number of numbers you can choose from. And what and they did that by design to try to fuel higher jackpots, and it did make the odds harder to win the jackpot for for Mega Millions for example, it made the odds of winning the jackpot uh longer for anyone player, but it actually helped the odds of winning the second prize. So kind of overall, it was a bit of a wash on the odds, but it was designed to fuel excitement and to increase these jackpots. So those are the two biggest reasons, the most recent phenomenon being the economy and the interest rates that um, that we can point to for saying, yeah, look at this. In about six months, we had three billion dollar jackpots. That’s never happened before.
Mindy: So going back to the lump sum versus the 30 years.
Guest: Yes.
Mindy: Is there any chance that my money that I win and I choose to take the 30-year payout, is there any chance that you would run out of money or that the money wouldn’t be there in 30 years, barring like a catastrophe.
Guest: So like I said, the the US Treasury bonds that we buy on your behalf, if you take that option, the 30 installments, are really safe investments. Again, I’m not a financial expert or or I’m not even a numbers whz. You you’d think I’ve slowly become one working for the lottery. Um, and I am, but by no means am I a financial expert, but those investments are really safe and that’s why most people take the lump sum is because they they probably can hire a financial advisor who will figure out a way a way to yield more money at the end of the day. Um, but our investments are really safe. So I think the short answer Mindy is yes. Um, but it is an investment. So I I don’t know if it’s ever happened and and so few players take that option that the safe answer, the short answer is yes.
Mindy: Okay. Um, and if I win the lottery and pass on
Guest: When you win,
Mindy: When I win, and pass on, is that and I’ve taken the 30-year lump sum, or 30-year payments, that is that willable? Can I write that into my will to give to Scott?
Guest: Uh I don’t know if it’s your will or your trust or what mechanism it is. But we have a lot of language in our regulations and again, I’m speaking exclusively for California, so your your listeners may need to look into this in other states, but there’s a language in our regulations here in California that explains all of that. Um, I believe you have to have, you know, you you would have needed to do you would have needed to memorialize him into some paperwork like a trust. Um, and it ultimately a judge does have to get involved, but if you if you do your job right as a new lottery millionaire, let’s say, then you’ve got you’ve thought through all that with the financial experts you’ve inevitably hired because most of us lay people don’t know what we would do if we won a billion dollars. It’s life. I mean, it’s life-changing. That’s not meant to scare anybody, but certainly you have now you have the means to hire people who know better than you do or even than we do how to navigate your wealth like that. But yes, if you uh, you know, unfortunately, if you win the lottery and pass on, it doesn’t it doesn’t mean we cut you off.
Scott: Awesome. So if you become a winner, what is the best way to protect your ticket and your anonymity if you can? what what are all the what what are the steps that you would recommend for someone who does win?
Guest: And and I assume Scott, your question is about like these giant numbers, right? Not not Mindy’s $5 that she won a few years back.
Scott: I’m gonna make a news, I I’m winning a newsworthy amount of of money. Yes, let’s call it in excess of a million dollars.
Guest: We have what we call a big winner’s handbook on our website. I imagine some other states have similar tools that offers all kinds of advice, but it is just that, it’s advice, it’s not law. We highly recommend you arm yourself with your new found riches with a financial advisor, maybe depending on how sizable your jackpot win is, maybe somebody who can help you set up a a family foundation, um, certainly an attorney, um, depending on a person’s uh circumstances, maybe even a therapist. I’m not kidding, you know, this is like I said, it’s life changing. So we highly recommend for those really large winners that they hire the right experts to navigate what it means to come into wealth like that. And and frankly, I know the money is not in their bank account before they come forward, but ideally they have some of those people already um in place when they come forward to claim the prize.
Scott: You wonder what’s going through the therapist’s head in those sessions.
Guest: Well, you know, you just hear so many stories about long lost high school friends that come out of the woodwork. You know, you maybe you lose your ability to trust. I I’ll never know this because I’m not allowed to play. Um, but I even your own family, depending on how far out on the family tree you’re talking about, you might start really suspecting why Uncle Larry is calling you, you know, I don’t know.
Mindy: I wouldn’t suspect why Uncle Larry’s calling me if I want a $200 million lottery. I think I’d know exactly.
Guest: Right, right. And so that must feel, I again, I cannot speak with first-person knowledge here, but that must feel like a kind of a I mean it’s great you won the money, but what a what a sort of negative way to live when you’re always being so skeptical of everyone who gives you a call, you know, and so if you can have these experts, whether it’s a therapist, a financial advisor, attorney, etc. um we highly recommend it.
Mindy: Did anybody claim that two million $2 billion jackpot in California? I can’t even say billion. It just feels like million.
Guest: Well, billion, as I said, billion is the new million, it seems like. So get used to it. So here in California, we don’t publicly acknowledge or announce when someone claims and I’ll tell you why. We actually call that person a claimant, which is not a very friendly uh word. It’s kind of a wonky word. But when a big winner comes forward or a claimant in California to claim the prize, um there’s a packet they have to fill out with Mega Millions and and Powerball, uh, really with all the games, you really should have your original ticket, but for Powerball specifically and Mega Millions, you have to have that original ticket or or too bad. Um, we spend quite a bit of time, um, vetting this person because or this group if it’s a group claim, because we want to make sure the rightful winner is indeed the actual winner, meaning, we actually have a security and law enforcement team, sworn peace officers in California who work for the lottery, who say, so, Scott, you say you’re the winner. Tell us what what day did you buy that ticket? Okay, did you buy one ticket or 10 tickets? Was it a quick pick or did you choose your own numbers? Because our computer systems know all of that, right? It’s a computer. So we already have the answers and we want to make sure you’re corroborating them. Um we might ask, you know, a lot of our retail partners have security footage, so we’ll probably take a look at that to say, oh yeah, that looks like Scott. Um, our team goes through a diligent process uh that we tell people can take weeks or sometimes even months depending on the circumstance to make sure the winner is the winner. Does that otherwise, we’re either going to be scammed or the process would be or the claim would be invalidated for some reason. And I can talk about some of the things that do go awry. But we don’t want to announce, hey, Joe Smith came forward for that 2 billion dollar prize, all the media that you saw that day at the gas station, you know, would report it. Only to find out, oh shoot, that’s not the actual winner. We would have to walk that back. The the media would have to walk it back. So we wait until our security team says, yep, this is the rightful winner. So I won’t answer your question about whether that person has come forward or not because it would be dangerous practice to acknowledge whether there’s somebody in the process of being vetted. Now, keep in mind though with Powerball and Mega Millions, a winner has a year to come forward. So we’re only talking a couple months since that jackpot was hit.
Mindy: Okay. So, let’s I would imagine that a a historic jackpot like that, you would do even more due diligence. So it’s entirely possible theoretically, you are not confirming this, but it’s entirely possible that somebody has said, hey, I’ve got the ticket and you’re in the process of verifying before uh announcing. Now, is California one of the states where the the claimant can claim anonymously or are you required to announce that there was that Scott Trench won the $2 billion lottery?
Guest: Yeah, no, in California, the short answer is no, you cannot stay anonymous and I’ll tell you why. Um, we balance transparency with privacy. So we recognize that somebody that comes into that kind of money is going to have, um, you know, extra attention. That’s a that’s like a mild way of saying it, right? So we want to make sure we’re not exposing them in a way that uh is irresponsible when it comes to public safety and things like that. But your name and only your name, only your name is part of public record in California. Um, reporters and journalists in California are familiar with something called the public record Act. At the federal level, it’s called a foya, Freedom of Information Act. But in California, part of our law that created the lottery is that your name is subject to public record. So not your age, not your address, not even whether you’re a Californian. Maybe you came in from another state or another country. We don’t have to disclose that. Um, not your religion, not your race, not your favorite ice cream or how many family members you have, right? Nothing nothing personal except for your name. Um, now, do we have to announce it? No. But in the case of a world record historic jackpot, happened two months ago as you know, a little more than now. Every day, we still, almost every day, we still get a question or two from a journalist or three saying, hey, has so and so come forward yet? And I we always answer the question in the same way I’ve shared with you guys that we don’t acknowledge it until the vetting process is over. But the interest in this particular winner is already massive. So, um, it’s already, uh, being submitted if you will, as a public record request. And so there will be no getting around it. And no, um, the eventual winner can’t set up a trust that’s vague. I mean, they can set up a trust, that’s certainly, uh allowed and and maybe even recommended by a lot of financial advisors, but their name is very much still a part of public record, but just their name. So we always really want to make that clear. A lot of states, I a handful, I think it’s I don’t think it’s even a dozen. Don’t, you know, I I don’t have that memorized, but a handful of states you can stay anonymous. I do know Illinois is one of them because that first billion dollar jackpot in 2022 that happened in the summer. You know, somebody won and and stayed anonymous. So, you know, the public doesn’t, I think we like to put a name to it to to prove that real people win every day. In fact, in 2022, California made well over 100 millionaires in 2022. So we have millionaires that are made every day. We’re obviously the most popular state. Um, but I know there’s other states where there’s more information that’s made public. So we’re kind of in the middle with just your name. Can’t stay anonymous, but we don’t give up anything else besides your your your legal name.
Mindy: Okay, so I have two questions following up all of that and thank you so much because that was really, really helpful. If I, and I assume that this $2 billion was one of the the multi-state, the Powerball or the Mega mill.
Guest: It was Powerball, yep.
Mindy: Okay. so since that’s played in multiple states, if I bought the ticket in California, do I have to claim it in California or can I claim it in any state?
Guest: That’s a great question. Um the answer is yes, you have to claim it in California. But let’s say you were visiting from the East Coast, you do have one option that I don’t think many people would exercise, but I’ll share it with you anyway. You can put it in the mail.
Mindy: Oh my God, no.
Guest: Right? That’s why I say, I don’t think. You should don’t ever put your lottery ticket in the mail. Sorry, US Postal Service, but no.
Mindy: They could do that. It is an option. If they don’t want to, you know, get on a plane and head west. Um, but no, you have to claim it in California. And here in the Golden State, we have um offices all up and down California. We’re not a small state. So we try to make it convenient for people. Obviously, we have a bunch of offices in Southern California where our greatest numbers of people are, but we have offices all over the state, and so theoretically someone will walk into one of our regional district offices and and claim that way. But technically, they don’t have to, they could mail it. I doubt they will, but we’ll see.
Mindy: I read a story about somebody who had won the lottery and they had 365 days to claim it and they mailed it on like day 364 or something and it arrived afterwards, but it still counted because of the postmark and I’m like, have you ever got a letter where the postmark is smeared and you can’t read? Why would you chance that? It was it was like, it was enough to make a difference. I mean, a dollar is enough to make a difference, but holy cow.
Guest: I don’t know if we have any postmark smudge stories. I don’t know, but I don’t I speaking just personally now, I can’t imagine somebody putting it in the mail. Even like tracking it. But yes, the postmark, at least here, the postmark does count. Um, but that just seems like a really risky way to claim a giant prize.
Mindy: Yes, it does. Okay, well, my follow-up was, hey, can’t you just buy a house in a different state and claim it there? So you if your state requires you to disclose your name, could you just collect it in a different. Okay, so then whereabouts I buy my lottery ticket matters more than my residence.
Guest: And by the way, it also matters two things to just chase what you said. Um it also matters for tax implications. In California, if you’re a California resident, um we don’t take state taxes on your lottery win. The federal government does, so you still have to pay Uncle Sam, but it’s pretty unique here in California. I think again, we’re only one of a handful of states where we don’t tax at the state or local level. So you’ll win more in California in that sense. But if you are, let’s say you cross the border in from Arizona and buy a ticket in California for whatever reason because they play these games too, then you’re paying Arizona state tax because it’s part of your income picture, if that makes sense. Um, so you’re paying, even though you bought your ticket in California, you’re paying the tax based on on where you live. But the second thing I was going to say about this whole notion of moving out of state is remember what I said a few minutes ago about how thorough our vetting proces is. So just because you, let’s say you claim your prize on a Monday, well, maybe our vetting process takes four weeks. You can move during that time. We’re still going to release your name, but any journalist or internet sluth looking to find you using property records, because those are a lot easier to find on the internet these days too, those may be moot. So four weeks is a decent enough time to to move to another state or to another country if you really want to lay low.
Mindy: You have given us a lot to think about and I have learned a lot, including not to buy a ticket in California if I have to disclose my name now.
Scott: No, no, you buy a ticket in California because it’s for the kids and it supports the school system. That’s why you buy the ticket in California.
Mindy: Well, yes, I mean, you buy a lottery ticket because it supports the school. I think it supports the school in every state.
Scott: And if you win the major jackpot, somebody’s going to figure out who you are, even if you’re in one of these anonymous states, probably, right?
Guest: I mean, with the internet and social media now, I I think Scott’s got something there, you know?
Mindy: Yes. I mean, it depends on, can you keep your mouth shut? Can you
Guest: Totally.
Mindy: Can you prevent that?
Guest: It’s also like know where you play. You know, the rules in California are and I don’t mean the rules of the game. The rules of the game are of course the same in every state that plays any one game like mega or power, but the rules about what happens if you win, uh including by the way, let’s just talk about that second prize for a minute. Uh five, you match five numbers but missed the mega number or the power number. In California, that’s not a fixed million dollars, like it is for uh all the other Mega millions states. That’s a fixed prize in most, every mega million state. In California, we have this funky, um, setup. It’s called para we pay prizes paramutually. Again, kind of a wonky word, but what that means is that second prize essentially acts like a jackpot. It’s entirely fueled by sales. So you can the the July Mega Millions um where the ticket in Illinois won over a billion dollars. We had a second prize winner in California who won 4 million. And at first she thought it was just a million because that’s what megamillions.com will tell you, but if you look at their fine print, they basically say except California. And so she was like, oh my gosh, I was eled to win a million only to find out it was 4 million. Now, sometimes it’s not even a million because it kind of rolls over. So when someone hits five numbers, it kind of rolls over like the jackpot. So our second prize fluctuates. Point being though, that’s a really long example, long-winded example of if you’re playing in a certain state, you might want to do a little homework about the rules if you win.
Mindy: Absolutely. This has been so much fun and so educational. I’ve actually learned a lot about this uh about playing the lottery and now that I know that there’s a 500 million uh jackpot creeping up, I might go figure out first which one it is and second how to play and drop a couple of dollars, maybe even three whole dollars on a ticket and see if I win.
Scott: It has to be either two or four, Mindy.
Guest: It’s Powerball.
Mindy: Oh, does it have to be two or four? Okay, Ooh, it’s Powerball. Great. One question answered. Now I got to go research all of that. Uh probably powerball.com.
Guest: Uh you know, I don’t remember the URL. Powerball is run by an organization called the Multi-state Lottery Association. So you could Google that, but if you Google Powerball rules, you know, you’d probably find it. Um, megamillions.com is obviously very easy to remember and it might be powerball.com. I don’t know.
Scott: It’s powerball.com.
Guest: Okay, thank you Scott for looking that up while we talk. Uh I don’t know why the the mega mega millions is more fresh because of the jackpot that just happened Friday night.
Mindy: Perfect. Well, I am going to go check out all of this information and hopefully become a new multi multi multi-millionaire uh next week when they pull my numbers. Fingers crossed. Everybody cross your fingers for me. Mindy wins, we’re going to rebrand as the mega pockets money podcast.
Mindy: No, power pockets.
Scott: Power pockets. Great. Yes. Carolyn, thank you so much for coming on the show today. This was fascinating and uh we really appreciate the inside look at the lottery.
Guest: My pleasure. It was fun chatting with you both and hopefully everybody learns a little something.
Scott: Awesome. Well, thank you very much and have a good one.
Mindy: All right, that was Carolyn Becker from the California lottery. Scott, I learned a ton from this episode including all the things that I’m doing wrong when I play the lottery. No wonder I haven’t won anything more than five bucks.
Scott: Yeah. No, I yeah, I thought it was really interesting. and to me, what one of the biggest takeaways was just the the the percentage of the profits of the lottery, right? A big when you buy a ticket, a lot of it obviously goes in a jackpot, but a huge percentage goes in in many states to a good cause, like the public school systems. So that was really interesting to me. Um, I know that there are controversies associated with that, right? Like what what types of people, for example, are essentially paying that tax to fund our school system, um or or supply the supplemental stuff, for example, um that we did not touch on today and what definitely want to acknowledge those. But I still think it’s it’s a really fun and interesting topic to learn about the lottery systems and and uh how they’re set up and how they work, what to do if you win and uh how the proceeds, at least some of them can go to some good causes.
Mindy: Yeah, I learned quite a bit today and I’m really glad we had her on. I thought this was a super fun episode.
Scott: Absolutely. Mindy, what would you do if you won the lottery?
Mindy: I would buy a beach house, I would buy a mountain ski in ski out house. Probably my own airplane. No I’m kidding, I wouldn’t buy my own airplane. I can’t I have such bad eyesight that I am not allowed to even take flying lessons. I would never be able to get my pilot’s license, which is probably good. I don’t want to crash land. Uh, what would you do Scott?
Scott: I probably buy a couple of businesses and some real estate and then uh figure out a way to to upgrade the lifestyle. So I I I find it really hard to imagine like what I really, I would probably sell my Corolla finally and buy a Tesla. Um, that that would happen there. So, but yeah, I need to get more imaginative and figure out more in depth what I’d do with a billion dollars or hundreds of millions of dollars. Um, that’s a fun, a fun thought exercise that I haven’t really uh worked all the way through. So, um, you know, you always say, Mindy, have a plan. I think this is one of those exceptions where if you happen to win the Powerball by playing, uh, you know, 10 or $20, it’s okay not to have a plan. Uh uh because it’s so unlikely. But it’s fun to think about.
Mindy: Yes, it’s okay to not have a plan right now, but before you collect it, before you spend any of it, talk to a financial advisor, talk to a tax professional, talk to somebody who works with high net worth individuals, and talk to a an attorney, talk to the like Carolyn said, the lottery gives you a winner’s guide book, uh go through there and talk to everybody in a therapist, talk to people and get guidance for how to handle these this new found wealth because it’s going to be overwhelming and life-changing and you want to do it right.
Scott: Yeah, and if you’ve won the lottery and listen to the Bigger Pockets Money Show podcast, please reach out to us. We’d love to to hear about your experience.
Mindy: Send me a million dollars. I’ll say thanks. I’ll shout you out on the show. All right, that wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, bye-bye Butterfly.
Scott: If you enjoyed today’s episode, please give us a five-star review on Spotify or Apple and if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.
Mindy: Bigger Pockets Money was created by Mindy Jensen and Scott Trench. It is produced by Calen Bennett, research and writing by Anna Kora, additional research and writing by Calen Bennett, editing by Exodus Media, copywriting by Nate Winejobb. Lastly, a big thank you to the Bigger Pockets team for making this show possible.
