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A lottery is a form of legalized government gambling that involves drawing lots for a prize. Lotteries are proscribed by some governments, while others endorse it to the point of organizing a national or state lottery. It is common to find some degree of regulation of the lottery by governments; The most common regulation is the prohibition of selling to minors. Although lotteries were common in the United States and in some other countries during the 19th century, at the beginning of the 20th century, most forms of gambling, including lotteries and sweepstakes, were illegal in the United States and most of Europe, as well as many other countries. This remained so until well after World War II. In the 1960s casinos and lotteries began to reappear around the world as a means for governments to increase their incomes without raising taxes.

Lotteries come in many formats. For example, the prize may be a fixed amount of cash or property. In this format there is risk for the organizer if enough tickets are sold. More commonly, the prize fund will be a fixed percentage of revenue. A popular form of this is the "50-50" draw where the organizers promise that the prize will be 50% of the income. Many recent lotteries allow buyers to select numbers on the lottery ticket, resulting in the possibility of several winners.

The purchase of lottery tickets can not be accounted for by decision models based on the maximization of expected value. The reason is that lottery tickets cost more than the expected profit, as demonstrated by lottery math, so someone who maximizes expected value should not buy lottery tickets. However, lottery purchases can be explained by decision models based on the maximization of expected utility, since the curvature of the utility function can be adjusted to capture risk-seeking behavior. More general models based on utility functions defined in things other than lottery results may also explain the purchase of the lottery. In addition to lottery prizes, the ticket can allow some buyers to experience an excitement and enjoy a fantasy of getting rich. If the entertainment value (or other non-monetary value) obtained by playing is high enough for a given individual, then buying a lottery ticket could represent a profit in total profit. In such a case, the dis-utility of a monetary loss could be offset by the expected combined profit of monetary and non-monetary gain, thus making the purchase a rational decision for that person.

Probability of winning

The chances of winning a lottery prize can vary widely depending on the design of the lottery, and are determined by several factors, including counting possible numbers, number of winning numbers drawn, if the order is significant or if the numbers drawn are Returned For the possibility of additional drawing. In a simple 6-of-49 lottery, a player chooses six numbers from 1 to 49 (no duplicates allowed). If the six player ticket numbers match those produced in the official draw (regardless of the order in which the numbers are drawn), then the player is a jackpot winner. For a lottery of this type, the probability of being a jackpot winner is 1 in 13,983,816. In bonus-ball lotteries where the bonus ball is mandatory, the odds are often even lower. In the Mega Millions multi-state lottery in the United States, 5 numbers are taken from a group of 75 and a number is drawn from a group of 15, and a player must match the 6 balls to win the jackpot. The probability of winning the pot is 1 in 258.890.850.
The odds of winning can also be reduced by increasing the group from which the numbers are drawn. In the SuperEnalotto of Italy, players must match 6 numbers of 90. The probability of winning the pot is 1 in 622.614.630.

Most lotteries give smaller prizes to match just a few of the winning numbers. The game Mega Millions gives a prize (US $ 1) if a player matches only the bonus ball. The weekly 6/49 lottery operated by the ILLF offers a two-ball cash prize, for which the odds are 1 in 6.63. In the UK National Lottery the smallest prize is £ 25 to match three balls. Recently, the organizers have changed the rules and offer GBP 2 to match 2 numbers. Comparing more numbers, the payment goes up. Although none of these additional prizes affect the odds of winning the pot, they improve the odds of winning something and therefore add a bit to the value of the jackpot. On the other hand, the smaller multiple prizes usually mean the smaller packages. It is common for the pot to split evenly if several players have innings with all winning numbers.

Payment of prizes

Profits (in the United States) are not necessarily paid in a lump sum, contrary to the expectation of many lottery participants. In some countries, mainly the United States, the winner can choose between an annuity payment and a single payment. The single payment (cash or lump sum) is a "lesser" amount than the advertised jackpot (annuity), even before applying any withholding to which the prize is subject. While with holdings vary by jurisdiction and how the winnings are invested, it is suggested that the winner who chooses a fixed sum expects to pocket 1/3 of the boat announced at the end of the fiscal year. Therefore, a winner of a $ 100,000,000 pot that chooses cash can expect $ 33,333,333.33 net after filing the income tax document for the year in which the pot was won.
Lottery annuities are often for a period of 20 to 30 years. Some lottery games in the United States, especially those that offer a "lifetime" prize, do not offer a lump sum option.

In some online lotteries, annual payments are only $ 25,000, with a balloon payment in the last year. This type of installment payment is often made through investing in government-backed securities. Online lotteries pay winners through their insurance backing. However, many winners choose a lump sum because they believe they can get a better rate of return on their investment elsewhere.

In some countries, lottery winnings are not subject to personal income tax, so there are no tax consequences to consider when choosing a payment option. In France, Canada, Australia, Germany, Ireland, Italy, New Zealand, Finland and UK, all prizes are immediately paid as a lump sum, tax free for the winner. In Liechtenstein, all winnings are tax-free and the winner may choose to receive a lump sum or annuity in respect of Jackpot prizes.
In the United States, federal courts have consistently held that lump sum payments received from third parties in exchange for lottery annuity rights are not capital goods for tax purposes. Rather, the overall amount is subject to the ordinary treatment of income tax.