>But if you take the lump sum you can begin earning interest on the whole amount right away. That's the reason for the discrepancy in total payout. A million dollars today is worth more than an income stream of a million dollars paid out over a period of time (barring the possibility of deflation).


Whether it's better to take the lump sum or the payouts depends on the interest rate imputed in the payouts. If you think you can do better, take the money. I've never done the math (unfortunately never needed to) but my guess is that the state will calculated the payments based upon a much lower interest rate than you could get in the real world.
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>>True, but you get more winnings in the longrun if you take the payments. The total prize is larger. If you take the lump sum, I think it is only somewhere from 40-60% of the advertised jackpot. If you take the payments, then you get the full amount over time. You pay taxes on the total amount you receive though like you stated. Now there are companies that will 'buy' your winnings. You take the payments (to receive the full advertised winning amount) and sign over your rights to a company who then gives you a check for some amount between the cash prize and payments prize. For example, if the jackpot is 5 million over 40 years and the cash prize is 2.5 million up front, the company will pay you 3.5 million and then they get the difference but have to take it overtime for 40 years as you would.
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I don't think it works exactly that way. These companies will only purchase the annunity from you. If you (mistakenly????) chose the series of payments and then decide you want all the money they will probably offer you 2.0 (instead of the 2.5 you would have gotten originally). Otherwise, I have no idea how they can make any money at it.