Investing in Lottery Payments
Investing in secondary market lottery payments involves much the same factors as investing in secondary market structured settlements. And you will get the same high returns.
In the case of secondary market structured settlements, the principal parties involved are the person who won the lottery, the firm who is obligated to pay the winnings (usually state lotteries), the factoring firm and the investor, that is you. If the winner opts for an annuity (usually the case with state lottery), the lottery payments are made out over a long period of twenty to twenty five years.
The winner may at some point decide that he does not want to wait that long and hence would want to sell the lottery payments out to factoring firms. The factoring firms, in place of the annuity, pay the winner a discounted lump sum amount in the present. The lottery winner usually is in immediate need of the money and hence agrees to the deal. The annuity is then offered to the investor as secondary market annuity. Since the lump sum amount is discounted, the investor ends up getting high returns, usually on the order of 5-7%.
The major risk to the investor in this case is the liquidity risk. You will have to settle for the periodic payments and cannot cash out the investment. This means that if tomorrow you are in any kind of emergency which require immediate cash in huge amounts, you won't be able to sell your secondary market lottery payments and gain the cash. There isn't much of a market (tertiary market, if you will) for these types of annuities. Even the factoring firm who is involved may not buy it back. Still, the count for making the investments is that provided such an emergency does not arise, you are assured of good returns. Other investments such as treasury bonds offer only 2-4% returns.
Another risk is that the winner or the agency that is making the payment may default. There is very low risk of this happening. The reason of course is that almost all lotteries involved in these kinds of transactions are state lotteries; the investments made by the state (so as to pay the winnings) are in US treasury approved trust funds. This means there is next to no chance of your lottery company defaulting.
The chances of winner reselling or creating problems are also less likely. Usually, the factoring firm does a thorough back ground check about previous sales as well as any liens such as child liens or tax liens which the winner may have to pay, provided the factoring firm is trust worthy of course. Also, the sale of lottery payments would need court approval which does make the transaction (and your investment) safe.
Provided you do your investing with trustworthy factoring firms, you are assured of good returns and periodic monthly payments which you can count on for the next twenty to thirty years.
The safety as well as the high returns makes investing in secondary market lottery payments a very good plan.
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