PORTLAND, Maine — Should a Maine resident ascend to the highly improbable throne of winning the Powerball lottery, that person would find taxes — and that one other thing — have still followed them.
For Maine, having the lone winner who takes the lump sum (as they would be well-advised to do) would bring a windfall of about $930 million of fresh income to tax.
That $930 million is the actual cash value of Wednesday’s jackpot.
Why not $1.5 billion as advertised?
The calculation is a bit complicated, but it assumes the winner takes a 30-year payout. In that case, the administrating Multi-State Lottery Association puts that money in conservative investments on the winner’s behalf, which should grow to $1.5 billion after 30 years.
At the cash value, Maine withholds $46.5 million right off the top, according to Tim Poulin, deputy director of Maine’s Bureau of Alcoholic Beverages and Lottery Operations.
That tax on the cash income, at 5 percent, would be a state’s largest single lottery take and represent a little over 1 percent of Maine’s annual budget.
“It’s uncharted territory for all of us,” Poulin said.
The federal government, similarly, takes 25 percent as a withholding tax. That amount would stay in the two governments’ possession until tax time, when it would be further sorted out who owes whom.
After federal and state withholding taxes, the jackpot would come to a payout of about $651 million to a Maine resident. The state takes that 5 percent withholding tax for any lottery winnings over $5,000, and it checks that against a variety of possible back bills to the state before handing over any claims.
Maine’s chances
Poulin said he hopes the state has a jackpot winner Wednesday but acknowledges the odds are long.
It’s hard to estimate the odds any given drawing will produce a winner. In Saturday night’s $948 million drawing, Poulin said lottery officials estimated about a 78 percent chance that the winning combination was on a ticket somewhere amid the more than 425 million tickets sold.
High sales volume in that drawing helped push the lottery total for Wednesday higher than expected, to $1.5 billion. Maine saw a surge in sales for Saturday’s jackpot, with about one ticket purchased for every person in the state.
To estimate the likelihood that a winner will emerge, Poulin said lottery officials don’t use actual number combinations that are issued, but base the estimate on total tickets sold. Using ticket sales, it’s impossible to know a state’s specific odds of winning, in part because number combinations might be duplicated.
For the drawing Wednesday, it stands to reason that sales will be higher even than Saturday, when Maine sold about 1.4 million tickets.
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But to put Maine’s chances in some context, assume a different number combination is purchased on behalf of all 1,328,535 people. The Powerball lottery has more than 292 million possible number combinations that could be drawn from the five drawing numbers and one Powerball number.
In that back-of-the-envelope calculation, Maine’s odds of a big tax windfall would be about 219-to-1. Still not great.
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For an individual, the chances on a $2 purchase are still 1 in 292 million. And buying a heap of tickets won’t help chances much. Spend $200 for 100 tickets and your chances are 1 in 2.9 million.
What happens without a winner
The higher ticket sales do yield some benefit to state coffers. But about a third of the weekly sales are shipped out of state to join the jackpot total that could, in a 1-in-292-million miracle, find its way back to Maine (and then some).
Poulin said Maine’s contribution to the jackpot fluctuates with every draw based on a formula used by the Multi-State Lottery Association, which has 44 member states.
On average, he said Maine’s jackpot contribution amounts to about 32 percent of the state’s sales for a drawing. A separate portion goes to the association in a fee for administering the game and about 5 percent goes to retailers. In Saturday’s drawing, the retailers’ take amounted to about $178,021.
And, on average, about 50 percent is set aside to fulfill lower-level prize winnings, which range from $4 to $2 million. In other words, the lottery pays out about 50 cents on the dollar to players.
Those lower-level prizes became more common after the recent rule change at Powerball, which increased the regular draw numbers from 59 to 69, while reducing the Powerball range from 35 to 26. A Powerball match alone carries a $4 return — a 1-in-26 chance — and there are slightly higher returns for matching a Powerball and another in the drawing.
Poulin said about 60,700 tickets sold in Maine for Saturday’s drawing had some winning combination.
“Even if you don’t win the jackpot, you still need to check the numbers to see if you won a lower prize,” he said.
Whatever is left over after — an average of 22 percent of Powerball over the past 10 years — may contribute to the general operations of the 25-employee state lottery, including marketing for its various games.
Poulin said it’s not clear how much the recent Powerball frenzy will ultimately deliver to state coffers, as all lottery proceeds help fund the lottery commission’s advertising and marketing during the year across all games, which average about 23 percent profit annually for the state.
“We don’t say that ‘Powerball pays this percentage of our overall costs’ because it’s just another game in our portfolio,” Poulin said.
The lottery returns about $50 million to the state’s General Fund and has come under scrutiny in the Legislature after a report and research by the Maine Center for Public Interest Reporting that showed some of Maine’s poorest communities spend the most on lottery games. The state has boosted its marketing budget for lottery games in recent years.
Poulin said Monday that he encourages people to “play within their means,” acknowledging that buying more tickets does little to improve already long odds.
“We want to stress that people need to play within their means,” Poulin said. “It’s nice to dream. You could buy yourself a small island with [Wednesday’s winnings], but it only takes one ticket to win.”