Lotto to Offer Lump Sum Prize but There’s a Catch

The quick gratification promised to winners of the California Lottery jackpot may be even quicker next spring, when players will for the first time be able to receive their prize money in a lump sum.

Responding to popular demand, the California Lottery Commission will allow winners of the SuperLotto to be paid the cash in the jackpot (about 50% of the stated prize) instead of the annual payments that now make the total winnings.

A winner of a $10-million jackpot, for instance, would get a onetime payment of about $5 million. That’s because SuperLotto prizes are now made up of cash raised by the lottery plus the interest earned on long-term U.S. Treasury bonds purchased by the lottery.

For example, for a $1-million prize today, about $500,000 in cash is in the jackpot. The California Lottery makes a small initial payment, perhaps $50,000, to the winner, and buys U.S. Treasury bonds to raise the difference. The winner receives an annual payment for 20 years, or a total of $1 million.

The commission also voted to change the installment payment system to a 26-year plan from the current 20-year cycle.

California Lottery spokeswoman Norma Minas said many winners had asked for the lump sum option, believing that they could invest the jackpot themselves and receive higher returns than the government bonds bought by the lottery.

“We go with U.S. Treasury bonds, which are a very conservative investment, but we will tell players [who choose the lump sum] to get financial advice” before investing their prize money, she said.

Lottery officials said they believe that the lump sum prize will boost annual sales by $150 million to $180 million. Total annual sales for the lottery were $2.06 billion in 1996.

California’s lump sum payment plan follows a system used by a few other states, including Texas, which began such awards in February.

The California Lottery Commission approved the lump sum payment at its regular meeting Dec. 19. The new payment system should take effect by April, Minas said.

Players will be required to choose a lump sum or the installment plan when they buy their tickets. The decision is irreversible, and those who do not pick an option will automatically be paid in installments.

The lump sum award will be available only to players of SuperLotto, the lottery’s flagship game.

SuperLotto players pick six numbers from 1 to 51, and must match six numbers drawn by the lottery on Wednesdays and Saturdays to win. The jackpot rolls over and grows whenever there is no winner, and prizes range from $3 million to more than $50 million.

In addition to the lump sum prize payment, the commission approved a public information program to discourage compulsive gambling. The program will include printing of a “play responsibly” message on tickets and promotional signs, along with a toll-free phone number for referrals to agencies assisting compulsive gamblers.

Some experts on problem gambling believe that lotteries can be a gateway to higher-stakes or illegal forms of gambling.

The California Lottery began in 1985, and now raises an average of 38% of the state’s total revenues for schools annually, according to lottery officials. Slightly more than half of lottery revenues are paid to players in prizes, and about a third goes to public education, with the remainder spent on administrative costs and commissions to retailers.

Lottery tickets and games are sold at 22,000 stores statewide.