How Does the Gambling Industry Handle Annuities?

Bally’s Atlantic City has a Plinko promo that has a top prize of $1 million. The fine print in the monthly brochure states: "Paid as a 40-year annuity by a third party." How does a casino price an annuity? Is the price based on the age of the winner? And does the annuity cease when the player dies?

Good questions, all of them, and not easy to answer. We were steered by the good folks at Raving Consulting to SCA Promotions, a Nevada-based company that has been providing coverage options for many industries since 1985. SCA’s Bob Hamman kindly answered your queries.

“There’s a market for them,” he says of annuities. “Normally, they’d buy the annuity from an insurance company or they might fund it themselves, or simply take the risk and agree to pay it in installments. It can be any of those.”

As for how the payments are based, “Probably it’s just a period of time. It’s paid for that period or to their survivors, so that the annuity would be paid in full. It’s just money that they discount. Now there are life-plan annuities in the market, but that’s more the province of insurance companies. They sell annuities for a period of time or contingent on life.

“Quite often — and this is unique to the U.S. — lotteries are a good example. You’ll see that Powerball or Mega Millions will have a stated jackpot of, say, $300 million. They’ll give you a cash settlement of about 45 percent of that amount. Or they pay it out in an annuity over 30 years and they grade it somewhat. It’s very seldom that somebody actually takes the annuity. But it happens.”

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Lucky Aug-06-2025

Annuity

It's not quite that simple.  The higher the interest rate when they "buy" or fund the annuity, the less money it takes for the payee to buy it.  When the interest rates were down at 2%, the lottery full term annuity did not change in regards to the winner, they got the money over the 25 or 30 years.  If they take the cash value, when the rates were 2%, after taxes, the cash value was close to 37%.  Now the cash value after taxes is about 28%.  In this case, you win a million bucks, but only if it is paid over 40 years, which is $25K per year.  Take the cash value always!

Sean Lowery Aug-06-2025

Lump Sum vs Annuity

Yeah, agreed that most of us prefer the lump sum option.  One often overlooked aspect of the choice between the two options is the long term potential tax savings an individual may receive by taking the annuity.  I say “potential” because no one has a crystal ball regarding income taxes and their impact on each person over a long time period.  However, some reasonable guessing and planning may make a huge impact in reducing the tax bite by spreading the income received over time. There are currently seven federal tax brackets from 10% -37%.  Also, there are different state tax implications depending on where you live now vs the future.  That’s just a part of the analysis.  Other factors matter, too.

sunny78 Aug-06-2025

inflation

Federal taxes actually now are historically excellent to take advantage of a lump sum, if available.

One thing not mentioned but ultra critical, inflation. Want to see how crazy this is in 40 years? From 1985 - 2025, 40 years on, inflation on average was nothing major, 2.6% average per year.  So in 40 years, in reverse, $40k in 1985, one would need $119,911.15 in 2025(!) to equate to that $40k 40 year payment. That money value in 40 years has been chopped by 2/3 with inflation(!) Between 2005 - 2025, inflation was 2.9% on average. So in just 20 years, $40k in 2005, one would need $66,064.72 in 2025 to equate to that $40k back in 2005. And of course everything in between. Bottom line, I would ALWAYS take the lump sum if available, put that money to work investing and let it compound out for 40 years. Plus being in a most favorable federal tax rate period in history. For state taxes, too high? Move, lol. Now a 40 year annuity for the casino? Great deal for them vs lump sum, right?

Question of the Day - 06 August 2025

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