In 1984, a Michigan man named Donald Magett won the big one — the Michigan Lottery’s $1,000 Cash for Life scratch off game. He was 41 or 42 years old at the time, and while the monthly prize (paid in $12,000 annual chunks) wasn’t quite “quit your job” money, it certainly sounded like he was on his way to financial security. Alas, that was not the case. In 2005, the U.S. Department of Labor sued Magett, claiming his company, under his lead, misused more than half a million dollars of other people’s retirement plan assets. Magett was convicted and served some jail time and costing him just about everything. In 2005, he declared bankruptcy.
As a result, the world got to gamble on how long he’d stay alive.
Bankruptcy gives a new financial start to someone with a lot of debt. Creditors wanted to get paid, but the debtor simply doesn’t have much left. A trustee is put in charge of the debtor’s assets, liquidates most of them, and then distributes the cash among the creditors as the law allows. Creditors typically don’t get anywhere near 100% of what they’re owed, but they get something. And while the debtor is typically left with not a lot in the way of assets, his or her debts get wiped away (and therefore gets to keep all of his or her future earnings without fear of further debt collection actions).
Magett’s bankruptcy, though, posed a problem. Unlike most people who were running short on assets, Magett was due another $12,000 this year, next year, and every year after for the rest of his life. His creditors probably did not want that entitlement to be treated like normal income (like the income you’d receive from working a job), which makes sense, as the proceeds of the lottery winning were more akin to interest on savings than wages earned.
The trustee off Magett’s assets, a Michigan lawyer named Thomas C. Richardson, had to figure out a way to get cash now, even though the Cash for Life payouts would happen every year — and, to make matters more complicated, for an unknown number of years. The solution: an auction. The listing, available here, noted that the winner of the auction receives “$1,000 a month for life as long as the debtor [Magett] lives.” The auction makes it clear that Magett was 73 years old at the time but makes no promise that he was in good health (“No Warranty as to Debtors Health or Otherwise”).
The auction was held about a week ago. Bidding opened for the morbid auction at $30,000 and the winning bid came in at $40,026. That means that the winning bidder believed there’s a pretty good chance Magett will live for at least another four years — had the bidder invested the same amount of money in something which would give an annual return of about 4.65%, he or she would be break-even.
The winner — whose name was not released — may have made a very good bet (although time will tell). The Social Security Administration, the Associated Press notes, “predicts that the life expectancy of a 73-year-old man is another 13 years.” For those interested in the math, if that happens, it’ll be an 11% annual return on investment, which is good news for the buyer. And Magett probably likes the idea of being around for thirteen more year or so, too.