Although NBC’s web site promises that “one act will walk away with a million dollar prize” on America’s Got Talent, the prize is actually worth less than half a million in today’s dollars.
The fine print dictates how the money will be distributed.
During the end credits, the following disclaimer flashes on the screen for a couple of seconds:
The prize, which totals $1,000,000, is payable in a financial annuity over forty years, or the contestant may choose to receive the present cash value of such annuity.
In other words, the prize is like many lotteries: take a smaller amount of cash now, which over time will earn enough interest to make it worth the big amount, or wait for the full amount to trickle in over time as inflation makes each payment less and less valuable.
Doing the math on America’s Got Talent’s prize
reality blurred‘s math consultant Jeff Hamrick, a principal at Bulwark Capital Management, explained that if we assume the annuity pays a fixed 5 percent interest rate, that would make the one-time payment worth $450,426.
That, of course, would be subject to income taxes, so maybe the prize is worth $375,000, about a third of the advertised $1 million.
Otherwise, $1 million over 40 years would yield $25,000 per year, assuming that whoever’s paying it out is still around after 40 years.
The season’s eventual winner, Terry Fator, for example, is 42; if he decided to take the payments, he’d be 82 when his last check of $25,000 arrived, which in 2047 will probably be enough to fill up a gas tank.
There is an upside to the other option: Taking the lump sum and investing it wisely could make far more than $1 million over 40 years.
Advertising a big prize and screwing the recipient in the fine print isn’t exactly new.
And The Amazing Race once offered free gas for life, which turned out to be limited to $1,200 a year for 50 years.