Game Show prizes misrepresented

[getreal]

NBC promotes their generosity by awarding $1m prize to winners (http://www.realitytvworld.com/news/terry-fator-crowned-america-got-talent-second-season-winner-5668.php), but the 42-year old winner would be 82 years old before he actually receives the full amount in the year 2047 for his win in 2007. And how much would $25,000/yr. be worth in 2047 dollars? Imagine winning the $10,000 Pyramid (http://www.curtalliaume.com/pyramid.html) in 1973, and they paid it off over 40 years in increments of $250/yr. You'd finally be getting your last check for $250 in six years -- in the year 2013! How much more could you have done with that $250 cash back in '73 compared to today in 2007 or in 2013?

As America's Got Talent 2's winner, Fator ... received a $1,000,000 prize and the show's "Best New Act In America" title. However unfortunately for Fator, unlike the winners of most other reality shows, he won't actually be receiving his full cash prize anytime soon.

Instead, similar to what NBC (which appears to have established a lock on the "America's Cheapest Reality TV Broadcast Network" title) did with For Love Or Money's $1,000,000 prize and Treasure Hunters' $3,000,000 prize, Fator's $1,000,000 prize will be paid over via a lottery prize-like 40-year period. Fator can (and probably will) opt to pass on the $25,000 annual payments and instead receive a lump sum, however should he do so, the present cash value of the prize will be no more than several hundred thousand dollars.

After revealing Fator's victory, Springer also revealed that Fator would also be receiving one more "surprise" prize. "We've got one more surprise for you," Springer told Fator. "We know your dream is to play Las Vegas, (so) we're going to make that dream come true. You're going to be playing the Jubilee Theater at Bally's Resort." Springer didn't reveal whether, based on NBC's "fine print" prize practices, Fator might actually have to pay for the privilege.http://www.realitytvworld.com/news/terry-fator-crowned-america-got-talent-second-season-winner-5668.php

[Amnesia]

"Misrepresented"? In what way?

The guy's getting $1M. That's what was promised. Did they say that they'd get a single check for $1M?

Didn't the contestants get to read the rules on payouts before they signed up?

[anom]

If I lose, I get my Turtle Wax and Rice-a-Roni up front, right?

[IndyJones1023]

If I lose, I get my Turtle Wax and Rice-a-Roni up front, right?
You get one grain of rice a day for the next 40 years.

[getreal]

"Misrepresented"? In what way?

The guy's getting $1M. That's what was promised. Did they say that they'd get a single check for $1M?

Well, I just watched the last 10 minutes of the show, but Springer clearly said that "the winner will wake up tomorrow with $1m and the title of America's Got Talent champ." So that implies that the winner would receive $1m that night before he goes to sleep. If it's clarified in the contestant's fine print contract when they sign on to do the show (and it should be), that's okay for the contestants, but it's certainly misrepresented to the viewing audience, IMHO.

[doom1701]

That's how most million dollar contests work. Heck, the lottery has been doing that for ages. I'm sure it's well represented in the paperwork you sign when you want to be on one of those shows.



Fator can (and probably will) opt to pass on the $25,000 annual payments and instead receive a lump sum, however should he do so, the present cash value of the prize will be no more than several hundred thousand dollars.


Man, only several hundred thousand dollars? How will he eat?

[TAsunder]

I don't think that's how most of them work. The lottery does, but not game shows.

[getreal]

Well, in Canada, when you win $10m in the lottery, you get a check (cheque) for $10m. Tax free.

[Jebberwocky!]

And how much would $25,000/yr. be worth in 2047 dollars?


Using 8% discount rate, the value of $25,000 a year for 40 years in 2047 dollars is approximately $7 million ;)

Using 8% discount rate, the value of $25,000 a year for 40 years in 2007 dollars is approximately $325 thousand :D

[doom1701]

I don't think that's how most of them work. The lottery does, but not game shows.

There's, what, 3 or 4 "Million Dollar" shows? I'm asking--I don't watch much TV.

But every million dollar giveaway run by something like McDonalds, or Doritos, or any other company that would do a contest like that is done as either a 20 or a 40 year payout (well, maybe there's some 30's as well).

[dswallow]

Wow, I never expected that. In this day of production costs for an episode of a TV series being in the $2 million to $4 million range, I would never have expected these prizes to be paid as annuities. That's extraordinarily cheap of the producers.

[Jebberwocky!]

Wow, I never expected that. In this day of production costs for an episode of a TV series being in the $2 million to $4 million range, I would never have expected these prizes to be paid as annuities. That's extraordinarily cheap of the producers.


cheap or really smart?

[marksman]

Yeah it is very common for almost all sweepstakes to pay out in annuities.

I agree with Dswallow though, the networks are cheap. It is ridiculous that the prize for 13 weeks of Survivor is 1 million dollars or for close to 50 shows for Big Brother is $500,000.

That is why I think anyone who goes on these shows are foolish. They are seriously being taken advantage of...

A nobody on a sitcom who is in every episode is going to make as much as someone who wins a show like Big Brother.

The biggest stars will make more than the winners every episode.

All that being said, I don't know that paying out a million dollars in an annuity is misleading. It is cheap, but not really misleading.

[Amnesia]

The difference is that you need talent (or at least a good agent) to get a job on a sitcom. You don't need anything to be on a reality show...

[brnscofrnld]

I'd take the 25k per year, but then again, I'm only 24.

Great supplement for your current salary no matter what your current income is.

[That Don Guy]

NBC promotes their generosity by awarding $1m prize to winners, but the 42-year old winner would be 82 years old before he actually receives the full amount in the year 2047 for his win in 2007. And how much would $25,000/yr. be worth in 2047 dollars? Imagine winning the $10,000 Pyramid in 1973, and they paid it off over 40 years in increments of $250/yr. You'd finally be getting your last check for $250 in six years -- in the year 2013! How much more could you have done with that $250 cash back in '73 compared to today in 2007 or in 2013?
Actually, every AGT episode this season has mentioned that the prize was "paid from an annuity over 40 years" in the closing credits, and that the winner has the option of taking the current value of the annuity instead. (At least they mentioned it this year; no one has said if Bianca Ryan's prize from last year was handled the same way or not.)

Nothing new about paying large game show prizes over time; back in 1976, the top prize on $100,000 Name That Tune was $10,000 a year (they mentioned this every time someone had a chance to win it), and a few years later, the prize on $1,000,000 Chance of a Lifetime was also paid out over time (I think it was 25 payments of $40,000, but I'm not sure). (On the other hand, the two grand prize winners on The $128,000 Question in the mid-1970s were paid all at once.)

For the record, the closing credits on Power of 10 say that "some prizes are paid out over time."

(And speaking of Terry Fator's "bonus" prize on AGT, while they said he would be playing the Jubilee Room at Bally's, they didn't say if he would be headlining his own show or just be part of the existing "Jubilee" seven-act cabaret show...)

-- Don

[martinp13]

cheap or really smart?smartly cheap!

[ping]

Doesn't bother me much (I stopped watching a few episodes ago. I might watch the finale if I'm bored), but somebody should probably put a spoiler warning in the title or tag the spoilers.

[MikeMar]

isn't this the EXACT same as the lottery?

even if you get hit with like 50% tax or whatever, it's better to take the lump sum and invest it then the 40 year thing.

do not see at ALL what the big deal is.

Take the lump sum $1 million, uncle sam hits you for a lot of.

Do you want NBC to pay $1 million PLUS taxes?? :D

[dagap]

So where's the line? It'd be much cheaper to stretch it out 50 years or more. Why not 100 years?

"And here's America's Newest Millionaire!!! ****"

(**** paid in 1,200 monthly installments of $833.33)

[MikeMar]

So where's the line? It'd be much cheaper to stretch it out 50 years or more. Why not 100 years?

"And here's America's Newest Millionaire!!! ****"

(**** paid in 1,200 monthly installments of $833.33)

they can offer you 40 to 1000 years, as long as you can take the lump sum (which in this case you can) you'd be stupid not to!

[Jebberwocky!]

even if you get hit with like 50% tax or whatever, it's better to take the lump sum and invest it then the 40 year thing.

Maybe for you but not for everyone.

[MikeMar]

Maybe for you but not for everyone.

did you not see above how little it's worth in even 20 years?

if you invest it in like a 5% bond or something you make out WAY better.

every big lottery/powerball winner in the past 10 years has taken the lump sum.

[Ruth]

Well, I just watched the last 10 minutes of the show, but Springer clearly said that "the winner will wake up tomorrow with $1m and the title of America's Got Talent champ." So that implies that the winner would receive $1m that night before he goes to sleep. If it's clarified in the contestant's fine print contract when they sign on to do the show (and it should be), that's okay for the contestants, but it's certainly misrepresented to the viewing audience, IMHO.

Really? It doesn't imply that to me, at all. It merely implies the winner will wake up knowing that they have an entitlement to recover the show's prize according to the terms and conditions of the contestant contract they signed with the network. A contract that, I am certain, spells out the payment terms for the winner. I really don't see any misrepresentations here.

[DevdogAZ]

did you not see above how little it's worth in even 20 years?

if you invest it in like a 5% bond or something you make out WAY better.

every big lottery/powerball winner in the past 10 years has taken the lump sum.
The numbers are exactly the same. If the discount rate used to determine the present value is the same as the interest rate earned on the invested amount, the payout will be the same over time. That's exactly how the time value of money calculations work.

And depending on the winners other income, taking the current lump sum may cause a much bigger one-time tax payment than the sum of the annual tax liability if taken over time.

Having said that, I'd take the lump sum just so I'd have control over the money myself.

[Jebberwocky!]

did you not see above how little it's worth in even 20 years?

if you invest it in like a 5% bond or something you make out WAY better.

every big lottery/powerball winner in the past 10 years has taken the lump sum.

What if you're a crack addict.

Sometimes people like to spend money and then there is nothing left.

What you meant to say is that is is best for you ;)

[MikeMar]

What if you're a crack addict.

Sometimes people like to spend money and then there is nothing left.

What you meant to say is that is is best for you ;)

ok, 99.9% of people SHOULD take the lump sum and invest it in low risk stuff.

what people want to do is their own thing.

-If a crack addict wins americas got talent, the that show has more problems than bad press. And I don't think many crack addicts are playing the lotto either :D

[aindik]

We're not entirely sure what the lump sum is in AGT, so we can't evaluate what's the smarter play.

Looking at the current Powerball jackpot, your choice is $140,300,000 in a lump sum or 40 annual payments of $7,500,000 each (totaling $300 million). Whether the lump sum or the annual payments are the better bet depends on rates of return on investments, and on tax rates.

For as long as capital gains and dividend taxes are at 15%, the lump sum is better (assuming a 7% annual return, all of which is taxed at 15% every year, and a 35% tax rate on the actual prize payments). But if the rates are jacked up to 35% (which, without getting into politics, is something certain politicians are currently proposing), then the annuity actually wins in net worth as of the 38th year, so long as you commit to spend less than $4,875,000 a year. At the end of the 40th year, the annuity beats the lump sum by almost $11 million in net worth.

The annuity may be even better with a smaller prize, because tax rates on annual payments of $25k can be (depending on your other income) much lower than the tax hit on the $1 million all at the same time.

Of course, you still take the lump sum if the annuity isn't guaranteed (i.e., if it stops on your death).

[Jebberwocky!]

Not to beat a dead horse but it doesn't always come down to the numbers game. You guys are assuming the winner is logical. There are many things to consider.

What happens if your investments goes south? There are a lot of former millionaires running around.

You also have to consider what your net worth and annual income is currently - there are people making more annually than the million discounted amount.

[busyba]

(And speaking of Terry Fator's "bonus" prize on AGT, while they said he would be playing the Jubilee Room at Bally's, they didn't say if he would be headlining his own show or just be part of the existing "Jubilee" seven-act cabaret show...)
...or if they'll just let him do his schtick on stage while the maintenance crew is cleaning up the theater. :D

[anom]

Really? It doesn't imply that to me, at all. It merely implies the winner will wake up knowing that they have an entitlement to recover the show's prize according to the terms and conditions of the contestant contract they signed with the network. A contract that, I am certain, spells out the payment terms for the winner. I really don't see any misrepresentations here.

Really? That's what's going through your head when Jerry Springer says "the winner will wake up tomorrow with $1 million"?

It does seem kind of misleading to me. Not so much for the contestants, who I'm sure have this stuff explained to them before they go on the show, but to the TV audience. The producers have obviously decided there's some promotional value to having a million dollar prize. Making it an annuity, especially an annuity over so many years that half the contestants will be dead before it finishes paying out, seems kind of disingenuous. In reality it's a several thousand dollar prize, because anyone with a brain in their head is going to take the lump sum.

[Ruth]

Really? That's what's going through your head when Jerry Springer says "the winner will wake up tomorrow with $1 million"?


Yep, that's exactly what I hear. But I'm a lawyer, so that can really warp your sense of reality sometimes. :D

I think the TV audience is pretty naive if they really think $1M is direct deposited into the winner's account the exact same day that they are announced the winner of a TV show. Personally I'd assume there probably was some sort of annuity payout scheme -- and even if not that, I'd certainly expect 7-10 day paperwork on the processing of the payout, whatever form it takes.

And the annuity's not always the wrong choice. If you are a terrible money manager and you know it, for example, the annuity is probably much more benefit to you long-term than a lump sum that you're going to blow on booze and hookers right away. But I'm not sure how many reality TV winners (or anyone else, for that matter) have that kind of restraint and self-awareness . . . .

Sometimes, BTW, annuities don't terminate on the primary beneficiary's death and instead will go to heirs/estate. So you aren't necessarily losing the benefit, just passing it on to your kids if you predecease the payouts. You'd need to look at the fine print to tell, though.

[trainman]

I think the TV audience is pretty naive if they really think $1M is direct deposited into the winner's account the exact same day that they are announced the winner of a TV show.

"Jeopardy!", I happen to know (but not from personal experience), doesn't use direct deposit -- they send a check, as much as 120 days after the show airs. Actually, I believe Ken Jennings got two checks for his original appearances, since his reign as champion extended over the summer.

[DevdogAZ]

"Jeopardy!", I happen to know (but not from personal experience), doesn't use direct deposit -- they send a check, as much as 120 days after the show airs. Actually, I believe Ken Jennings got two checks for his original appearances, since his reign as champion extended over the summer.
My grandparents and aunts were on Family Feud about 15 years ago and won a little over $20k total. They each received 1/5 of that in a check but it wasn't until about 90 days after the episode aired.

[Turtleboy]

A 20 year annuity wouldn't surprise me, as that's how it is done on Who Wants to Be a Millionaire.

But a 40 year annuity for only $1 mil seems a bit chintzy to me.

[smallwonder]

Sometimes, BTW, annuities don't terminate on the primary beneficiary's death and instead will go to heirs/estate. So you aren't necessarily losing the benefit, just passing it on to your kids if you predecease the payouts. You'd need to look at the fine print to tell, though.

LOL!, Look at the fine print indeed and scrutinize it with a fine-tooth comb! If NBC is cheap/smart enough to pay out in an annuity, then they probably inserted a standard clause preventing the prize $$ from being transferable, including upon death. So the contestants are going to have to be totally on top of their game by not only understanding the tax and retirement consequences but think about executing a living will before claiming the prize. :eek:

[BluesFools]

"Cash Cab" is also pretty deceptive. The host actually says "I have the cash here - you can take it and spend it now", then hands the winners a wad of cash and they're seen counting it and walking away from the cab. After the cameras stop rolling, the production crew take away the "prop" money and sends them a check (and a 1099) later on.

Maybe they should call the show Check(er) Cab.

[jsmeeker]

I'm pretty sure Richard Hatch got his $1 Million in a lump sum of $1 Million. So, not all shows do an extended annuity. And Doug is right. $1 Million is nothing for a big network TV series. Spreading it out over 40 years is exactly was Turtleboy describes.

[Bob_Newhart]

And. And, the winner of the PGA's Fedex Cup has to wait TWENTY years before they can receive their 10 Million dollars. It ain't fair, I tell ya. :(

[DevdogAZ]

And. And, the winner of the PGA's Fedex Cup has to wait TWENTY years before they can receive their 10 Million dollars. It ain't fair, I tell ya. :(
That's the way the whole payout of the FedEx Cup is structured. All 144 players who made the field will earn something, but it goes into their Deferred Retirement Compensation plan, which they can start drawing on when they turn 45 and retire from the Tour.

[pkscout]

I think for $1 million or less it would be reasonable to expect that to be the cash payout. Even a 20 year annuity on that "small" a sum is pretty crappy.

[dmaneyapanda]

did you not see above how little it's worth in even 20 years?

if you invest it in like a 5% bond or something you make out WAY better.

every big lottery/powerball winner in the past 10 years has taken the lump sum.
Not only do you lose out on the annuity discount rate if you take the lump sum, but you also have to pay taxes on the disbursement immediately. for powerball, at least, if you take the annuity, they do not pay taxes on it up front, you pay them as the annuity is disbursed. Much like a 401k, there is a value to this tax-deferred payment structure.

Having said that, with wise investment (probably far exceeding a 5% bond though), most people can probably do better by taking the lump sum.

[Amnesia]

[(...) you also have to pay taxes on the disbursement immediately. for powerball, at least, if you take the annuity, they do not pay taxes on it up front, you pay them as the annuity is disbursed. It's the same in either case. You pay taxes when you receive the money.

[ping]

It's the same in either case. You pay taxes when you receive the money.

Not even close. Tax on a lump sum million would be over $300k. Tax on 40-years' worth of $25k payments would be, well, we don't know for sure what tax law will look like in 40 years, but probably less than 1/3 that figure.

[Mikeyis4dcats]

plus the other dirty secret of his "show" at Bally's is they effectively blocked any other venue from signing him on while his name is hot.

[aindik]

Not even close. Tax on a lump sum million would be over $300k. Tax on 40-years' worth of $25k payments would be, well, we don't know for sure what tax law will look like in 40 years, but probably less than 1/3 that figure.

On numbers that low ($25k a year), the tax would depend on the person's other income in a given year. If the person only earns $40k total family income and is married and has 2 kids, the marginal rate on the $25k each year could be as low as 10%. Deferred and taxed at 10% or even 15% or 25% is much better than taxing at least 2/3 of the million today at 35% (and the rest at lower rates depending on other income this year).

But for something like the powerball, where even the annuity is in the multi-millions per year, that consideration isn't there as much.

[dmaneyapanda]

It's the same in either case. You pay taxes when you receive the money.
The same principle, maybe, but far from the same results. Though my math is not coming out the way I expect, so maybe I am doing something wrong.

Assume a $1 M payout, an 8% discount/interest rate, and a 20 year annuity.

If you take the lump sum, the annuity would be worth $214,548. If you got to keep all that and just invest it tax free at 8%, it would be worth...ta da!...$1 million again at the end of 20 years.

But you don't get to keep it all. First, you get to pay taxes on the $214k. Let's assume you're already rich and in the top bracket, so you're paying 35% on it. So you're actually going to take home $139,456.

Then you invest it at 8%. Unfortunately, you get to pay taxes on all those earnings as well. Your 8% return is actually an effective 5.2% return, after taxes. When all is said and done, if you do nothing but invest your money, after 20 years you'd have a total of... $384,373.

Now assume you take the annuity payment. $1M over 20 years is $50,000 per year. After your 35% taxes, that's actually $32,500 per year. At the same 5.2% after tax return rate, you'd have $34,190 after 1 year. Then you get another $32,500 the next day, for a total of $66,690. At the end of 2 years, the $66,690 has grown to $70,158. And so on.

After 20 such years, your total would be... $1,154,718. A clear improvement over $384,373.

--

OK, as I said, my numbers don't seem to be right. The difference is WAY bigger than I was expecting. In fact, at a 35% tax rate, the lump sum doesn't become more attractive unless you could earn more than... 46.5% before taxes, or 30% after taxes. That just seems too high to me.

I've put my spreadsheet here (http://home.comcast.net/~dmaneyapanda/hob/Lottery.xls) should anyone be as bored as I am and care to double check it.

[Amnesia]

The numbers seem off to me, too. But also don't forget inflation.

[dmaneyapanda]

well, at a 4% discount rate (which is probably closer to what lotteries and the like use these days), you'd only need a return of about 16% to make the lump sum preferable, assuming the top tax bracket. I guess it's just very sensitive to that rate.

NB that if you're not in the top tax bracket, it leans even more heavily towards taking the annuity, though, especially for smaller amounts.

[That Don Guy]

plus the other dirty secret of his "show" at Bally's is they effectively blocked any other venue from signing him on while his name is hot.
Every contestant has to sign a release which says, among other things, that if they get past a certain point in the competition - I think it's if they make it to Vegas - then they have to accept a recording and/or representation deal if the producers offer them one. (Simon Cowell said on Larry King's show not too long ago that the ability to sign people to his recording label (Sony BMG - and no bonus points for guessing which label Bianca Ryan is on) is the main reason he is involved in shows like this in the first place).

When The Glamazons were eliminated, one of them said that they were about to go on tour; I wouldn't be surprised if it's being handled by the AGT producers.

-- Don