Dear Mark: I love your column in the Biloxi Sun Herald. It is the number one reason I get the paper. Keep up the great work. Anyway, I was curious, when you hit a mega-jackpot, are you paid the full amount all at once, or does it come in yearly installments. Not that I think I am one day going to hit a super-sized jackpot, but I do like to plan ahead. Steve P.
Okay, Steve, you hit a Big Kahuna, say $25,000,000, so what happens next?
Today, most slot manufacturers offer winners two ways of receiving their newfound wealth. You definitely want to seek accounting and/or legal advice as to your tax implications, because how you receive your payout will determine exactly how much you will net and how much will go to the government. On the positive side, winners typically have between 60 to 90 days to decide whether to take a lifetime payment or all of it, up front, in one-lump sum.
So, Steve, you’re young, and you don’t want to appear on Dr. Phil two years from now telling 4PM viewers how you pissed away your $25 million bonanza. Let’s say to avoid that humiliation, you decide to take a set annual payout for a specific number of years. From IGT (just recently gobbled up by GTECH for 4.7 billion), maker of the Megabucks machine, you are looking at a payout over 25 years.
On a $25 million jackpot, that means an annual payout of $1,000,000 and an annual tax bill of around $400,000, which equates to about 10 million in taxes over the duration of the payout.
Let’s say instead you decide to take it all up front. Going the lump sum route initially nets you approximately 60 percent of your jackpot from the casino. In addition, you still owe Uncle Sam. From the 60% of your $25 million jackpot ($15 million), the IRS will demand another 40 percent, a cool $6 million, leaving you with about $9 million in walk around loot.
So, with the annual payout approach you net $15 million over 25 years and with the lump sum approach you net $9 million immediately. What you do with that $9 million, spending and/or investing it, will determine its value over 25 years. At this point in my answer, I have moved above my pay grade, so, Steve, I would strongly recommend that you consult your CPA or legal advisor as to your overall tax consequences if Fortuna (Tyche), the Greek goddess of fortune, shines her light on you.
Dear Mark: Who determines the hold of a slot machine, the casino or the maker of the machine? Nicolas R.
Each slot manufacturer has a book that contains all the available hold percentages for the specific models and denominations of their slot machines, so, Nicolas, the casino simply selects the make, model and the return they want.
Say for instance, the casino wants to order a quarter machine with a 93% payout, giving the house a 7% hold.
What the hold means is that over a “period of time,” the quarter machine ordered is going to pay back to the gamblers 93% of the amounts wagered. And what do I mean by a “period of time?” Typically, it is about 10 million handle pulls.
The reasoning for 10 million yanks of the handle is because it is the number the manufacturer has determined it would take a particular machine to achieve that overall 7% hold calculation.
Before that many whirls of the reels, the machine is going to go through countless hot and cold cycles. When the machine first hits the floor, it could easily run negative for the house, spitting out coins making for a hot machine. But as the slot closes in on that 10 million mark, the machine will tighten up, and
at the end of that cycle, it is going to hold at 7%. This is not to say that a new machine is any more likely than an older one to hit jackpots. Unfortunately, Nicolas, only Nostradamus can predict hot and cold runs.
Gambling Wisdom of the Week: “Losing as much money as I can get hold of is an instant solution to my economic problems.” – Lucian Freud (1922-2011)