Thursday, September 24, 2009

9-24-09: Lottery Winners

I was talking to some friends at lunch the other day about lottery winners. One of them had seen a program on TV that profiled recent lottery winners who had squandered their fortunes in a variety of foolish ways.

I was thinking of the difference was between a lottery winner squandering millions of dollars and a self-made millionaire losing their fortune. The difference is, of course, how they go about doing it. What decisions would a self-made person make versus someone who was simply lucky?

I thought maybe there had to be something in how they came across the money. Let’s take a more specific example of the self-made millionaire: Youtube. The guys who sold Youtube to Google were practically instant millionaires. Sure, they had worked hard to develop their product, but until Google signed the checks, they weren’t really all that wealthy (or had virtually any value at all). Suddenly, BAM, millionaires many times over.

So in one corner you have the founders of Youtube (who happened to be Chad Hurley, Steve Chen, and Jawed Karim). In the other corner you have John Q. Public, who suddenly finds himself the lucky winner of a $100 million Powerball jackpot. I’m not sure, but let’s assume the Youtube guys put a lot of time and effort into developing the website, but limited their risk (they didn’t bet everything on the site’s success), and they weren’t sure it was going to be nearly as big a hit as it was. I’d call that a “medium risk, moderately high return” going in. Whereas John Q. Public has a “low risk, very high return” plan.

Once each of the respective parties receive their “winnings,” how do they view the money? Luck? The end result of hard work? Does it actually matter?

I think it might, but I do think, in general, a person who worked for the money won’t spend it nearly as recklessly as a lottery winner. Now, what if the lottery winner had “invested” thousands of dollars over the course of many years into the lottery before winning? Could that play a role in how they spend the money? They’d have to see the purchase of a lottery ticket in a more business manner than the typical lottery player, who might buy one or two tickets a month (or year).

When you take the odds of success into account, the two parties are remarkably similar. How many Youtube stories are out there? Three guys, building a website, come across $1.65 billion from Internet giant Google. If you split it three ways (let’s say they did), that’s $500 million each. Even half that amount is more than any lottery jackpot I’ve heard of. There can only be a relative handful of such “winners” out there. Not quite as rare as the mega jackpot winner, but still quite rare.

I just think it’s an interesting relationship.

1 comment:

. said...

Great post, i enjoyed very much reading it :) i have for you some lottery winners stories that will make you even more confused.