The Powerball is at $700M: How inflation is leading to bigger jackpots

LITTLE ROCK, Ark. (KARK) – As people rush out to get a Powerball ticket for Wednesday’s $700 million jackpot, the same force increasing the price of almost everything is also making these lottery prizes bigger.

By Tuesday, the estimated jackpot for the Wednesday night drawing had already jumped from $680 million to $700 million, and a rush of ticket sales could drive the jackpot to even greater heights.

That advertised amount is for winners choosing the annuity prize, which awards the winner with increasing annual payouts over a 30-year span. Winners can also choose to take a cash value prize, which as of Tuesday afternoon was $335.7 million.

Ashley McNatt with the Arkansas Scholarship Lottery explained that the cash value prize is the amount of money required to be in the jackpot prize pool on the day of the drawing in order to fund the annuity prize.

While a more than $300 million payday would be welcomed by almost anyone, that amount is less than 48% of the jackpot. Previous lump sum payouts have been a much bigger percentage of the jackpot, with a recent $473 million jackpot won in Florida offering a $283.3 million, or 59.9%, cash option.

So why do the cash payouts appear to be shrinking? The answer is that they aren’t – inflation is just making it look that way.

The Multi-State Lottery Association, the group that works with state lotteries to run the Powerball contest, notes on its website that securities are purchased to fund prize payouts for jackpots and that increases in interest rates can mean higher advertised grand prizes.

The U.S. Federal Reserve has been systematically raising interest rates in an effort to lower inflation around the country, and as interest rates climb, McNatt said, so does the annuity factor. This means bigger jackpots can be paid for with smaller amounts of cash on hand.

Tickets for Wednesday’s drawing can be purchased until 9:59 p.m. ET. The drawing itself is held at 10:59 p.m. ET.