How is the Powerball jackpot estimated? Here is a guide to how the jackpot grows to reach record heights like the current $600 million jackpot.
Where does it start?
The Powerball jackpot starts at $40 million. If no one claims the jackpot, the prize rolls over and grows for the next drawing. Each jackpot increases by a minimum of $10 million. The advertised estimated jackpot is usually 32.5% of the revenue for each ticket sold.
Powerball offers the largest jackpot increases and there is not a limit to what the jackpots can reach. The current estimated Powerball jackpot is the highest in history at $600 million. The advertised jackpot is amount that will be paid to the winner if they choose the 29-year installment option, before taxes.
How is the jackpot estimated?
The jackpot is calculated by estimating ticket sales. After each unclaimed Powerball jackpot, the jackpot rises. The advertised Powerball jackpot reflects a percentage of expected ticket sales based on past sales, as well as market interest rates for funding the annuity. Powerball officials take the unclaimed jackpot, and add 32.5% of estimated ticket sales. The amount also takes interest rates into account so they can properly award the annuity to the winner in full. The annuity payment increases by 4% each year.
How is the annuity different from the lump sum option?
There are two ways to receive a Powerball jackpot: in a one-time lump sum or in annual payments spread out over 30 installments.
The annuity option is the total advertised jackpot. It is paid in yearly payments. Each payment increases by 4% each year to adjust for inflation. The advertised jackpot includes the total cash amount as well as estimated interest rates. The market interest rates are based on current rates, and are added to the cash amount to generate the income required for payment over 30 years.
The lump sum option accounts for the estimated cash value of the jackpot. The cash value is lower than the advertised jackpot because it does not include interest rates for the annuity payment. If a winner chooses the lump sum option, they are rewarded the full cash amount of the jackpot when they claim their prize.
What if sales are low?
If sales are below the estimated amount, it does not change the current jackpot. The lottery game members contribute funds to the jackpot pool to help cover the sales shortage. This is a rare situation and is most likely to happen when the jackpot is claimed in consecutive drawings.
To get more information on Powerball jackpot, and how it works, and more, visit the witty Powerball FAQ page.