Prizes appreciating in value

[Joe Mello]

Is there a "correct" answer as to which payout option to take

It is almost always contextual, but my inclination would be to prioritize no longer needing to work and paying off debts. If I neither option does the former, I'd see if one or more options could do the latter. If that's not viable, then it's economic theory time.

[clemon79]

Is there a "correct" answer as to which payout option to take, or is it dependent on each person's financial attitude?

Well, ask the New York Mets that question. They thought they could invest Bobby Bonilla's contract buyout with that nice Bernie Madoff fellow. Didn't work out so well for them.

[CeleTheRef]

In Italy that would be any cash prize, as they are paid in gold.

In 2006 a then-new €665,000 list price Ferrari Enzo was offered on a gameshow.  Someone won it but opted to take its price in gold, so the car was put back at stake.  The second winner kept the car, now valued over four millions.   (after taxes, that gold would be €2,800,000 today)

[SuperMatch93]

In Italy that would be any cash prize, as they are paid in gold.

Is that a recent practice, or has that been the case for a while now? I'm imagining Isabella Lama and some of the other TeleMike champions getting treasure chests full if that was the case. 

[Jeremy Nelson]

My position was that I'd rather have the assurance of $20,000 a year coming my way for more than two decades, which would give me flexibility in my career and a sizable rainy-day fund if I found myself suddenly unemployed long-term or hit with a medical emergency. His position was that he could do better investing $250,000 now to make up the $250,000 he didn't receive from the show. (In fairness, I don't have the drive to meticulously invest and watch over that kind of money in a way that would wring every last penny out of it.)

Is there a "correct" answer as to which payout option to take, or is it dependent on each person's financial attitude? For context, this debate was between two single people residing in Los Angeles, a city where it's impossible to live on $20,000 a year and where $250,000 is nowhere near the price of a house.

You are absolutely correct. Age, location, health and current financial situation all play a part in that, so everyone's answer will be driven by different motivations.

My short answer is that if you have smart, specific ways to allocate that money, take the lump sum. If you find yourself hemming and hawing or immediately start envisioning yourself spending summers on a jet ski in the Hamptons, take the annuity.

We had a lump sum vs. annuity conversation at a barbecue years ago when one of the lottery jackpots was incredibly high, and while everyone had their reasoning, one that I'd never considered came up when a family member who's notoriously bad with money mentioned always taking the lump sum. Almost immediately afterwards, someone else said "Maybe you should take the annuity, because even if you mess that money up, you still have 19 more chances to get it right!"

[CeleTheRef]

In Italy that would be any cash prize, as they are paid in gold.

Is that a recent practice, or has that been the case for a while now? I'm imagining Isabella Lama and some of the other TeleMike champions getting treasure chests full if that was the case. 

That's since television became a thing, in 1954.   Many years ago a Big Brother winner told the story of when one day some delivery men showed up at his home with boxes of shiny tokens ("like €0.10 coins"), then he kept some as a memento, sent the others back and finally the money was wired to the bank.

A recent court ruling allows for actual money prizes up to €5,000 on the condition that contestants selection is done with "clear and impartial criteria".  This means that networks will give gold forever 

[Kevin Prather]

We had a lump sum vs. annuity conversation at a barbecue years ago when one of the lottery jackpots was incredibly high, and while everyone had their reasoning, one that I'd never considered came up when a family member who's notoriously bad with money mentioned always taking the lump sum. Almost immediately afterwards, someone else said "Maybe you should take the annuity, because even if you mess that money up, you still have 19 more chances to get it right!"

This is why I'd be inclined to take the annuity as well.

[BrandonFG]

We had a lump sum vs. annuity conversation at a barbecue years ago when one of the lottery jackpots was incredibly high, and while everyone had their reasoning, one that I'd never considered came up when a family member who's notoriously bad with money mentioned always taking the lump sum. Almost immediately afterwards, someone else said "Maybe you should take the annuity, because even if you mess that money up, you still have 19 more chances to get it right!"

This is why I'd be inclined to take the annuity as well.

I'm a morbid person so I always say take the upfront money because you never know what could happen tomorrow, but Jeremy's relative makes an interesting point. Add on the fact that being a freelancer who can have a great week followed by a terrible one, I love the idea of having guaranteed (supplemental?) income for the next 20 or so years. Mo Money, Mo Problems and all but I don't think I'm making purchases bigger than what PYL contestants would play for in the Bonanza round.

Also the idea of being super rich terrifies me. Granted I'm not turning down a seven- or eight-figure payday; I'd just be a little paranoid.

[Matt Ottinger]

I've always wondered how secure annuities are.  I mean, lotteries are essentially run through the government, so I'd feel pretty safe with an annuity there.  But what about a private organization, such as a game show production company.  Not Fremantle necessarily, but a lesser one with fewer assets.  If I decide to produce The $1,000,000 Words Have Meanings, and it's a huge flop but seven people won the jackpot, can I declare bankruptcy and just not pay them the last 19 years of their winnings?

The obvious real-life example is Chance of a Lifetime, and from all indications all those folks did get paid.  I'm still interested in the hypothetical.

[TLEberle]

I don’t think so—if you purchase/set up the financial instrument then it is set in motion and out of your hands. More likely you would cancel the show/not air and not pay.

Pepsi’s billion dollar prize was insured by Berkshire Hathaway and had a year 40 balloon payment of $710 million, with payout s escalating as time went on. The cash out was $250 million.

[Joe Mello]

The few minutes of web searching implies that it's an insurance product, so you would be paying an outside company to underwrite a policy that pays out in the event of the jackpot being won, presumably at a lower rate per annum than even the "cash option" value of the annuity. Once the conditions of the policy are met, it's up to the insurance company.

/OT but related: both big lottery jackpots are 30 payments with +5% per payment
//As of now, the first payment for the base Powerball jackpot ($20M) is like $301k; for Mega Millions (now $50M) it's $752k
///The $2.04 billion Powerball first payment would have been $30.7M, so like hitting the Powerball every year for 30 years