Another record-breaking lottery jackpot is up for grabs Friday. Here's why the jackpots have grown so large.
13th January 2023

An estimated $1.35 billion Mega Millions jackpot is up for grabs on Friday – marking the latest in a chain of record-breaking lottery prizes that the U.S. has seen in recent years.

If someone beats the 1 in 302.6 million odds and wins Friday's jackpot, it would be the second-largest prize that Mega Millions has ever seen and fourth-highest across U.S. lottery history.

Maybe you're thinking that you heard about another recording breaking jackpot in the not-so-far past, and you're not wrong. In late July, a $1.337 billion Mega Millions jackpot was won in Illinois – and, just last November, a $2.04 billion Powerball prize was won in California, marking the largest lottery jackpot ever seen in the U.S.

And if someone wins the estimated $1.35 billion on Friday, six of the top 10 U.S. lottery prizes will have been won since 2021 alone.

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Can economics explain the boost in these extraordinarily large jackpots? Is it a result of more people buying lottery tickets? Or changes to the rules of lottery games? Here's what experts have to say:

Why are lottery prizes getting bigger?

One reason we're seeing bigger lottery prizes today is because of changes in how games like Mega Millions are played made a few years ago, experts say.

"These larger jackpots are by design," Jadrian Wooten, collegiate associate professor of economics at Virginia Tech, said in an email to USA TODAY.

Mega Millions was notably redesigned in 2017. Ticket prices were raised from $1 to $2 and the chances of winning the jackpot were decreased with more numbers drawn – resulting in bigger jackpots, Wooten explains.

With higher ticket prices, "some people may have played less, but others may have jumped in since the introduction of more 'smaller' prizes as well," Wooten said, pointing to the jackpot-probability change.

"Before 2017, the first five numbers were drawn from 1 through 75 and the Mega Ball was 1 through 15," Wooten said.

"After the change, they reduced the first five numbers to 1 through 70, but increased the number of Mega Balls to 25," he said, noting that this lowered the chances of winning the Mega Millions jackpot from 1 in 258.9 million to 1 in 302.6 million.

"As the odds of winning the jackpot decrease, weekly ticket revenue increases, resulting in a larger jackpot."

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Mega Millions' shift followed Powerball, which previously saw similar changes implemented in 2015. As of today, all of the top 10 U.S. lottery prizes have been won in the years that followed, between 2016 and 2022.

Increases in the federal funds rate, inflation

Wooten and others also point to the Federal Reserve's increases in the federal funds rate – which impact the annuity option for each jackpot.

The annuity option is what we see as the top estimated jackpot. In Friday's Mega Millions drawing, for example, the estimated $1.35 billion jackpot would only be distributed to a winner who chooses an annuity paid over 29 years.

Most winners in the past have opted to take a cash payout, which is estimated at $707.9 million for Friday.

"When you hear that lottery number, that's actually not the amount of money people usually get … People cash out," David Just, a Susan Eckert Lynch Professor in science and business at Cornell University, told USA TODAY.

But, if someone opts for the annuity option and interest rates are high when the jackpot is drawn, "those annuities are going to pay out a larger amount over time," Just said.

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"The annuity option is paid for by buying government bonds. When the interest rate is high, it takes less money today to provide a large payment in the future," said Matthew Kovach, an assistant professor of economics at Virginia Tech.

Inflation "doesn't directly" raise a jackpot's value, Kovach said, "but it might impact it." In addition to interest rates increasing to fight inflation, Kovach points to prices for other products that have risen. Meanwhile, the cost of Mega Millions lottery tickets has remained the same since 2017.

"It may seem like a 'cheap' way to have fun. This increases sales and therefore increases the jackpot," he said.

Why do people buy lottery tickets?

Not everyone enters the lottery for the same reasons, experts note.

"Many (buy lottery tickets) purely for the thrill of playing and the fun of imagining what they might do with the winnings," Kovach said. "Others may do it because they are struggling or desire hope."

Just also points to socioeconomic factors and trends.

People with lower incomes or those with recent financial challenges who enter the lottery, "tend to play at a higher rate. They're not necessarily spending more dollars on tickets, but they're spending a higher percentage of their dollars on tickets," Just said. "In that group, there's evidence that they're not playing as a form of entertainment, they're playing this because they really hope to win… (in hopes) of having some sort of astronomical wealth, or even reasonable wealth."

Other experts have criticized lotteries for being regressive. Researchers have pointed to how poorer communities, as well as people of color, are particularly targeted.

In 2022, for example, the Howard Center for Investigative Journalism found that stores selling lottery tickets are "disproportionately clustered in lower-income communities in nearly every state." CNN reported that these communities are mostly made up of Black and brown people.

What causes a surge in lottery ticket sales?

Kovach notes that there's "mixed evidence" about economic conditions' impact on lottery sales. In the 2008, for example, sales dropped during the Great Recession. Meanwhile, some studies have shown a "slight increase" in sales as unemployment rises, he said.

"When we have economic downturns when we have people losing jobs, there tends to be an influx of people playing the lottery," Just said, noting that that's not the only factor.

High lottery jackpots, like the estimated $1.35 billion Mega Millions jackpot for Friday, also attract lots of players.

"People definitely buy more tickets more often as jackpots get larger, which is in line with basic economics," Wooten said.

He explains that, since the chances of winning are so low, the potential lottery prize "needs to be really large" to outweigh the cost. Others also find excitement in playing for fun and the possibility of "what if."

Richard Wheeler, president of lottery app Mido Lotto who previously oversaw lottery operations across multiple states, notes that participation becomes "genuinely exponential" as jackpots grow as giant as Friday's. "Sales tend to double every few days at this point," Wheeler told USA TODAY.

Although the odds of winning the jackpot remain at the extremely slim chance of 1 to 302.6 million, Wheeler predicts that we could see a big winner as soon as Friday or Tuesday's drawings – because "so many more people play."

Is a $2 ticket worth the risk?

Obviously, there's a debate on whether buying a $2 Mega Millions or Powerball ticket is "worth" it – especially since the chances of taking home a jackpot are nearly impossible.

"Imagine you write the letters to 'Mega Millions' on individual pieces of paper, mix them up, and let your cat randomly select letters. Your cat is five times more likely to correctly spell 'Mega Millions' than you are to win," Kovach said, adding that you are also more likely to be struck by lightning twice in your lifetime than win the lottery.

Kovach notes entering the lottery "definitely not a good investment." Still, he says that buying a $2 lottery ticket can be "cheap way to have some fun," as long as you stay in your budget.

"It's important to recognize that these things make us happy, and happiness is worth a few dollars if we can afford it. It's all about moderation," Wooten added.

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Meanwhile, Just encourages people to seek other alternatives for investing the money that they would have used on the lottery – even if it's in small amounts.

"Essentially, people marketing the lottery are tricking you in a way. They're short circuiting the way you make decisions about risk in order to get you to purchase their tickets," Just said.

"If you can spare that $2 repeatedly, you can save and invest – and invest in things that are actually going to be useful for that rainy day that you face in the future," he added, suggesting options to put money in savings or accounts that will return interest over time.

This article originally appeared on USA TODAY: Mega Millions record-breaking jackpots: Why lottery jackpots are huge

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