America's Got Ripped Off

Summer is in full swing, meaning another season of America's Got Talent. Once again talent scouts Piers Morgan, Sharon Osbourne, and David Hasselhoff scavenge the country searching out the nation's most entertaining acts (read acts filled with emotionally gratifying backstories). Grand Prize: 1 million dollars. Despite the hyper-dramatization of the show, some of the acts are quite good, and AGT has been a guilty pleasure of mine for the past few years. However, I found a couple of disclaimers at the end of the most recent episode a little disturbing. One, the "Chicago" audition was actually filmed in Los Angeles (How does that work?). And 2) The winning act will not get a million dollar check, but rather a 40 year million dollar annuity "or its present value".

What a rip off! That means that if you are one of five clogging sisters, who are all now married with kids and living in different states, winning the "million dollar contest" means getting annual five thousand dollar checks until 2049. And who knows what the value of the dollar will be at that time?

What if you are an unemployed farmer from Kentucky, with a gift for Country music, and you choose the annuity's present value when you win? How much would you take home?Well, assuming five percent interest, we can use our simple present value formula (right): if i=.05, n=40, and C=1,000,000 then our present value is $428,977.16. Deduct federal income tax (my unemployed friend, you are now a high earner and get to pay 35% like the rest of the fat cats) and state income tax (6% in Kentucky) and you are left with $253,096 a mear quarter of the purported prize.

I don't have a favorite yet, but I'm hoping some more high quality acts will be found in the next cities' auditions for the Las Vegas showdown (read hoping David Hasselhoff will say something insane to praise a mediocre act). Regardless, I hope whoever wins isn't too disappointed by the real value of their prize. Shame on NBC for being so stingy!