Jackpot

By
rjonesx
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What is ‘Jackpot’

A jackpot is the top prize in a game of chance; jackpots can be anything, including money, cars and houses. In terms of investing, a jackpot also occurs when an investor reaps a sudden windfall from a previous investment. Two commons ways an investor gets a jackpot is when a company’s stock soars through an initial public offering (IPO) or when a stock price rises due to an undervaluation.

Explaining ‘Jackpot’

Regardless of where the jackpot comes from, people who make money from sudden windfalls also pay a portion of the proceeds to the IRS. When winnings are high, as in the case of most jackpots, a taxpayer might have to pay the estimated tax liability throughout the year as quarterly payments. Sometimes the entity that awards the jackpot may withhold the taxes and send them to the IRS on the winner’s behalf.

Largest American Lottery Jackpots

On Jan. 13, 2016, three winning tickets split the $1.586 billion Powerball lottery jackpot. This huge sum was the largest lottery jackpot on record in the United States. Each winner received slightly more than $500 million before taxes. The previous high was $656 million from a Mega Millions drawing on March 30, 2012.

IPO Jackpots

Investors who spend money propping up successful companies may earn jackpots once a business starts selling stock though public exchanges. Yahoo earned between $8.3 and $9.5 billion when Chinese e-commerce giant Alibaba had its IPO in September 2014. Alibaba raised $25 billion with its IPO, and Yahoo owned a 16% stake in the company at the time. The 140 million shares of Alibaba stock owned at the time of the IPO were worth $36 billion to $38 billion after the IPO.

Further Reading

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