Jackpot

DEFINITION of '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.

BREAKING DOWN '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.

Winners of lottery jackpots should spend their money wisely to help ease any financial burdens later in life. Jackpot winners should write a plan of financial goals; note any future needs such as college funds, expanding a family and retirement; and then invest wisely and conservatively for long-term gains. Investing in particular companies and the stock market might earn some more jackpots along the way.

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.

Facebook's IPO in the spring of 2012 earned CEO and founder Mark Zuckerberg up to $18.7 billion for 533.8 million shares of stock in his company. Equity group Accel invested $12.7 million in Facebook in 2005, and the company earned $7.1 billion in Facebook stock during the IPO seven years later.

When Angie's List has its IPO in November 2011, investors gained more than quadruple the average initial investment before the public offering. Before the stock, investors paid $2.76 per share of Angie's List. After the company went public, the lowest IPO target was $13 per share. The final IPO was around $16 per share as the company raised more than $890 million in capital.

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