When Winning The Lottery Isn’t Really Winning

September 04, 2015

I heard about a story from a friend and I didn’t believe it.So I went to a more reliable source than my friend’s text message, and I found this article about Illinois lottery winners receiving IOU’s rather than money. The lottery agency is a state run entity and the state has not passed a budget so winners of $25,000 or more are not getting paid right now.  

For the record, I rarely play lotteries because I’ve taken too many probability and statistics classes and know that the state usually takes in $2-3 for each dollar it pays out. It’s like casinos. Owners don’t build lavish casinos with fountains and gold and beautiful chandeliers because they are generous. They are doing it because they are making money on the deal.  They take in far more than they pay out.

How irritated would you be if you were holding a $1,000,000 winning ticket and the lottery agency gave you an IOU and not a check??? One thing is certain. I wouldn’t be the happiest guy ever if I were in that situation.   When you enter into an agreement, and buying a lottery ticket is an agreement, you expect the other party to hold up their end of the bargain.

I remember one time when I was much younger, I had a car that died and needed to replace it. A “friend” from my part-time job (I was a student at the time) was getting ready to move and he had a car he was looking to get rid of (for reasons that weren’t ever made clear) and he offered to sell it to me for a bargain price. Needing a car, and thinking that he was looking out for a friend, I handed over some cash and he signed over the title. I was going to take possession of the car when he moved since he needed it to run some errands and I lived within walking distance of school.

Fast forward a week and he is packing up and hands me the keys. I took it to an inspection station and they discovered that the car was stolen. So I was out some cash and the “friend” had moved. The title was a bogus document too.

Lesson learned! Fortunately, it was a pretty lousy car and I paid very little for it, but it was a valuable lesson.  Trust – but verify

For anyone entering into an agreement – whether it’s to rent an apartment, buy a house, buy a car, prepare a prenuptial agreement, etc. – make sure that you don’t just blindly trust that the other party to the agreement will act in good faith. 99.9% of the time, there won’t be an issue. But that 0.1% of the time that they don’t, you will be far less likely to suffer a life-altering financial loss if you’ve taken the time to protect yourself. Here are some ways to do that: (add others in the comments section below!)

  • When buying a house: a home inspection can help save you from catastrophe
  • When renting: read the fine print on the lease
  • When buying a car: run a Carfax report or buy from a reputable dealer & NEVER pay in cash!  (Where was this wiser version of me when I needed this advice?)
  • When in a “family law” situation (divorce, custody, pre-nup, etc): draft agreements while you’re happy that contemplate a day when you aren’t. When things are written down and in a legal form, emotion can be taken out of the situation (in large part) later on if things don’t turn out as planned.
  • When you buy a lottery ticket: keep your IOU or get a check but talk with a financial professional prior to taking receipt of the funds (if there is a large jackpot) to see if there are any ways to minimize the tax hit and/or what priorities should be with the funds. I’ve met far too many lottery millionaires who are broke just a matter of years after they win because they had no plan on Day 1.

When you are in a situation of either hoping the other party in a financial transaction will do the right thing or taking a few easy steps to ensure that they do, I’ll suggest that you err on the side of trusting AND verifying.