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HOW TO SELECT A STATE LOTTERY FUNDING SOURCE
Having written numerous articles for various trade publications
regarding the business of voluntarily assigning future state
lottery payments to third parties for lump-sum cash now, it has
become clear to me there are many aspects to be considered when
selecting a funding source (investor) for these transactions.
The most obvious consideration is going with the best price quote.
Let's examine some other aspects which may prove to be even more
important, whether you are the lottery winner or a winner's representative.
The funder should insist the winner be represented by counsel.
Winner's counsel, working with the funder's counsel, should
be involved in the creation of the assignment agreement and be
advising the winner prior to the winner signing anything.
The winner should pay his own legal bill for this representation
and the funder should have no involvement in the selection of
this attorney.
The assignment agreement should state a specified time
period for the funder to complete the transaction after which
the winner can withdraw. This is important because the funder
can many times make increasing profits the longer it takes to
close and at the expense of the winner and the referral source.
We've seen numerous firms conduct business with no such dates
in their agreements and thus are able to tie up winners much
longer than necessary.
Most firms include a "right of first refusal"
clause in their assignment agreements. This means if the winner,
at a future time, decides to sell more lottery payments, the
original firm will be given the opportunity to match or pass
on an acceptable offer the winner receives from another firm.
One should not want to do business with a funder who convinces
the winner to ignore this clause included in a prior agreement
because the chance is great the original funder will learn about
this new sale and file suit against the winner because of this
contract breach. Ignoring this clause is not a problem for the
funder, but could be a serious and expensive problem for the
winner.
Be tuned in to a funder's quote that appears out-of-line
on the high side of other quotes obtained. It may be a number
not achievable and disclosed as not do-able just before closing,
when the winner is so hungry for his money that he might agree
to almost any revised figure. An example of an excuse the funder
could use for a last minute price adjustment is "our cost
of money turned out to be higher than anticipated." If the
winner had proper legal representation from the beginning, the
chance of this happening is quite slim.
Winner representatives and winners themselves should roughly
know the annual discount rate or loan interest assumed in computing
the numbers and representatives should not just turn over
the winner to the funder and wait for a referral fee check. A
referral source should want the winner to be treated fairly.
Though one may not be familiar with what the going rates are
at any given time, learning of a 20% interest rate and/or the
need to have the winner travel to a different state to sign the
closing papers should raise the proverbial red flag. Keep in
mind the possibility always exists the winner could initiate
litigation sometime in the future over this transaction for usury
and other reasons and the referral source could easily become
a defendant. Though probably an innocent defendant, it could
cost thousands to prove this.
Winner representatives should deal with funders who will
protect their interest. This means, if you approach a funder
with a lottery prospect for quotes, this prospect is yours. The
funder will not give quotes to other referral sources who might
also approach the funder with the same prospect. The funder should
instead inform these other referral sources that it is already
working on the transaction.
Be concerned if a funder suggests an "in-house"
investment for the winner's lump-sum instead of giving them a
check for it. Examples could be, offering to pay above market
interest rates on cash or agreeing to make the original annual
payment to the winner, but for a much longer time period than
the original prize called for. The referral source could be sued
by the winner if the investment doesn't work out and sanctioned
by the SEC for possible security law violations.
Now it's very clear, there are a multitude of issues to consider
when selecting a funding source for state lottery winners. Do
you select the firm offering you the most money? Yes… as
long as they measure up to all the above suggested standards.
It's worth the time investment to find a reliable company that
deserves the trust needed in this type of transaction. |
