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Not too long ago, Ed Ugel stalked lottery winners for a living. He would offer these lucky individuals a limited amount of cash up-front in exchange for their jackpot annuities, which spread payments over decades. According to Ugel, many of the winners would accept his offer because, despite their winnings, they were desperately broke. In his new memoir, Money For Nothing: One Man’s Journey Through the Dark Side of Lottery Millions, Ugel tells the true story of how sudden wealth overwhelms and ultimately destroys some of the luckiest people in the world. Speaking recently with Worth features editor Douglas McWhirter, the author talked about the psychology of sudden wealth and the intoxicating schadenfreude of watching lottery winners fall.

 Is there a typical lottery winner?

There is definitely a blueprint that lottery winners tend to follow. Look no further than the people who play the lottery to figure out who wins the lottery. If you take out the big Powerball jackpots that get so much national media attention that everybody and their dog play—the doctors, the lawyers, the brain surgeons, everybody—when we talk about your everyday, average players, they tend to be relatively blue-collar folks. They come from a lower- to lower-middle-class background and the lower end of the education spectrum.

You can imagine that, coming from this background, there’s a big chance for problems when they come into that kind of money. One of the reasons many lottery winners are so troubled is that they are grossly unprepared to make the type of decisions surrounding this instant wealth. Someone who earned it or inherited it would have people surrounding him who could help him—a lottery winner would have no clue what to do, short of opening up the Yellow Pages and looking under “money.” 

But are there lottery winners who take the money and live happily ever after?

Yes. There absolutely are. Unfortunately, they are more of a rarity than anyone would wish. If you wonder why there are so few of them, the answer is advisors. They get a good financial team and listen to that team right away. ?That may seem logical, but when your entire background—financial, cultural—is catch-as-catch-can, hustling your entire life to get by, working hard, but never enjoying the luxuries of life, you make different choices. If you look at the way the lottery presents winning, it’s, “Hey, you’re a millionaire, and now it’s easy street for you.” Lottery winners believe that hype; they listen to their friends and family rather than to solid financial advisors who will put them on a budget—not just saying yes to everything.

And the lottery bureaucracy does nothing to help winners manage their winnings.

I do not believe that lotteries have negative motivations. However, they run like businesses, and they answer to a bottom line. They need to keep revenue coming in, which means they get a lot of marketing juice out of winners by displaying them to the population. I strongly believe that if lotteries were more protective of winners’ privacy and made some kind of institutional and financial assistance available to them—rather than just wheeling them in front of the press with an oversize check—there would be significantly fewer instances of winners getting into the kinds of trouble that feed the tabloids. It starts with the lotteries themselves: They don’t protect their winners once they win.

You describe the impact that sudden, unearned wealth has on human beings.  Is there a psychological common ground that we all share in the face of windfalls?

The biggest problem that people who have a sudden windfall face—and it becomes especially acute among lottery winners—is that they have a bull’s-eye on their backs. Many people take aim at those with money, and many of those people are their closest friends and their most trusted family. It is very easy to circle the wagons and say, “Don’t let outsiders in,” but when you have people in your intimate circle eyeing your bank account, that’s when things really get tough. So many lottery winners learn that hard lesson a little too late and soon there is nothing left. It is a depressing truth when they learn that everyone—even their mothers and fathers, siblings and best friends—wants a free ride. Winners usually respond in one of two ways: They say, “To hell with it,” and share it all until it’s gone. Or they seal up and trust no one. Either way, it is not the “sitting on a yacht drinking martinis” life that the lottery advertising campaigns portray.

Don’t people who earn large sums of money experience the same thing?  For example, does Bill Gates’ distant cousin show up at Thanksgiving dinner with his hand out?

I can tell you that when someone has earned his own money, it is much more likely that, along the way, he would have surrounded himself with financial caretakers who provide the good, solid advice that will keep him out of harm’s way. That’s why you see so many fewer examples of the kind of pain that instant wealth brings. These are people who have earned it or even people who have inherited it. I would say that with people who have inherited large sums of money there is a level of sophistication with money that comes with having had money over time, and also a level of expectation from the family with regard to what will happen with the money.

You write about how lottery winnings can ruin lives.  Why do the rest of us take comfort in that notion?  Sour grapes, perhaps?

If you look at the tabloids, we are such a pop culture nation. We love to see which starlet got drunk and went into rehab. We seem to feed off of other people’s failures. In this celebrity environment, lottery winners become D-list celebrities, at least locally. We enjoy seeing their trials and tribulations because it is very easy for us to say, “Boy, I wouldn’t have let that happen to me,” in the same way we might say of a celebrity,? “I wouldn’t have had to go to rehab,” or, “I wouldn’t have had to declare bankruptcy.” It has more to do with our society.

A lottery winner’s experience is not that different from that of someone who was at the right dot-com in the late ’90s, and suddenly found himself with great wealth.

You’re absolutely right. We saw a few of those stories when an entry-level employee was at the right place at the right time and drove off into the sunset in a Maserati. But I still think that the same rules apply. Even the youngest person at the little dot-com probably had a higher education level than most lottery winners. The analogy is dead-on, though. New money is new money. It’s a question of how prepared you are to handle it.

You worked in the lump-sum industry for many years.  Are there other groups that target lottery winners?

They are the same groups that target any individual who has money. But lottery winners are, in some ways, the perfect target for all kinds of sales people—real estate, financial services, insurance. Whatever you are selling to someone who has access to a big pile of money, lottery winners are obviously a good choice. Sales people are savvy and understand how to close a deal. Closing a deal with someone to whom it is easy to sell a dream, that’s a good client. I’ve been in sales for a long time, and I can sell dreams. Dreams are easy to sell. Reality is a little harder. The difference between most groups that target lottery winners and the lump-sum industry is that if it weren’t for the lottery annuity, there would be no lump-sum industry. While other businesses market very heavily to lottery winners, I don’t think they hold a candle to the efforts of a business that actually eats lottery annuities themselves. It is the epicenter of the business surrounding lottery winners.

You write that on some level you relate to lottery winners.

I was a gambler, and I still am to some extent. Although I come from a well-educated background and a family of educated people, when I was 27 I started working in the lump-sum industry. Within a matter of months, I started making lottery-type money. ?I had access to the kind of cash that 27-year-olds don’t see. There was the kind of cash flow that allowed me to get away with making a lot of stupid decisions with money, and two weeks later there’s another paycheck, and two weeks beyond that and so on. One of the reasons that I feel I understand lottery winners now, and one of the reasons I was so successful in this industry, is because I felt like I was a lottery winner.

What do you do now?

I am a full-time writer. I’ve finished my first book and I am working on my second now, which is in the development stages. I have made an unbelievable career leap, having gone from the wild world of finance back to my roots, which is one of creativity and humor. I haven’t had any more fun or taken any greater pleasure in my life than in this past year and a half since I left the lump-sum industry. Writing full time has been a life-changing decision—and it’s the best thing I’ve ever done.

Sounds like you won the lottery.

You’re not the first person to say that. It’s more a life lottery than a financial lottery. I hope I’m a little wiser than the average player about what I do with this windfall. 

This American Life

Episode 329: Nice Work If You Can Get It 
   Listen to broadcast

"...one of the biggest things that helped me was my intimate understanding of the mind of a gambler...I knew just who this cat was, I'd been that guy and I would like to think that maybe I was a little bit better than scratch tickets in the airport, but I don't know that scratch tickets in the airport are that much classier than video poker machines in the strip clubs of Oregon...I think it was my secret weapon...I knew I was a lottery winner, I just never bought a ticket."

-This American Life 4/7/07

The Lottery’s Next Big Loser: Illinois

By EDWARD UGEL
Op-Ed Contributor
Published: January 28, 2007
(Image) Grady White


THE other day I saw a headline indicating that Illinois was about to get out of the lottery business. At first I was cheered; it seemed that Illinois and I had something in common. Having made my living for the past decade exploiting lottery winners — and recently having repented my ways — I hoped the state had simply grown tired of profiting from its citizens’ weaknesses.

But as I read the article, it turned out that Illinois isn’t acting on moral principle, but in fact succumbing to the lure of easy money that has brought so many lottery winners to ruin.

The state’s plan is to turn over the running of the lottery for the next 75 years to private investors in exchange for a huge sum up front — perhaps $10 billion. Indiana is considering following suit. The states seem to think they can do more with the money if they get a big balance all at once, albeit less money than the lottery would earn them over time. I understand that line of thinking.

In essence, Illinois wants what virtually every lottery winner wants: the money up front. Although now some lottery winners can take a large lump sum right away (of course, much less than the supposed value of the winning ticket), for years they were paid their jackpots in annuities over 20 or 25 years. There’s a major difference between getting a million dollars right away and getting 20 annual checks for $100,000 or so. Yes, both amounts are considered fair, but the lump sum is much preferable: you don’t have to wait to buy your mansion, or (more prudently) you can invest it, earn interest on it, and be protected against inflation.

I worked for a company that searched out winners who didn’t have the option to receive their winnings in a lump sum or had chosen not to, and who then had spent themselves into short-term debt and needed money before the next annual payment. We were happy to buy their future payments in exchange for quick cash, at a handsome profit to ourselves.

Believe me, these financially lost winners were the rule, not the exception. There are databases overflowing with the identities of winner after winner who won seemingly huge amounts of money only to find themselves destitute (and sometimes dead).

At the core, all these people acted as if they had received the money up front rather than over time. You may scoff, but do you think you could win the lottery and wait patiently for 20 years while your ship comes in? Good luck.

And now the Illinois officials are acting just like any spendthrift winner who’s being paid over time. Like many of my former clients, Illinois is selling its future in order to fortify its present. But an individual who burns through his lump sum in a few years will bear the consequences of his actions. That’s not the case for Illinois: the officials who would enjoy the $10 billion windfall will be out of office decades before the 75 years is up. And instead of giving up annuities of ever shrinking value, as a lump sum winner does, Illinois is giving up an ever growing stream of revenue — the state’s lottery revenue increased 15 percent from 2003 to 2005.

State officials seem to think they can make smart decisions with the $10 billion. But I worry that these politicians are making a decision that will allow them to spend freely and leave nothing behind for the next folks. And because (in theory at least) a goodly portion of lottery revenues usually goes to the schools, we should all be concerned about states looking for the quick payoff.

Trust me: I spent many years doing nothing but singing the praises of the lump sum option. I could sell it because I truly believed that the lump sum was the correct choice for any and all lottery winners, and I still do. But a $10 billion lump sum to officials who will be out of office decades before the deal runs its course raises all sorts of questions about unforeseen consequences.

I got out of the lottery industry because it and I had had enough of each other. It’s a legitimate business, but it is an unseemly one — no one who spends any real time in it comes out smelling like a rose, myself included. So the state of Illinois isn’t the only party here that should take warning: the private equity funds that are sniffing around the deal should also think twice — nobody is immune to lottery fever.

Edward Ugel is the author of the forthcoming "Money for Nothing: One Man’s Journey Through the Dark Side of Lottery Millions."