Wednesday, November 24, 2004

How the Million bucks on Reality shows actually works out

From its first publicity release regarding For Love Or Money, NBC has played up the angle that the winning bachelorette will collect a Survivor-sized $1 million prize if she chooses money instead of love. However, astute viewers on the Reality TV World message boards have discovered that NBC's claim, like bachelor Rob Campos' claim that there was "absolutely nothing irregular" about his service in the Marines, is seriously misleading.

NBC will indeed pay the selected bachelorette $1 million ... but only at the state-lottery-like rate of $25,000 per year over 40 years (if, indeed, she's still alive 40 years from now). NBC is offering a lump-sum option to the lucky lady, if she prefers to get the present value of her winnings now, but it has not revealed the anticipated future interest rate at which NBC would discount the winnings to determine the lump sum.

If the rate was similar to the current level of interest rates -- say, 5% -- then the winner would still be able to abandon Rob on the altar and make off with about $450,000 -- less than half of the reported million, but still comparable to other reality shows. However, if NBC not unreasonably figures that future interest rates would bounce back to historic levels and used a higher rate -- say, 8% -- the winner would come out with less than $325,000 -- less than a third of the million. And, if NBC is really chintzy, it might pick an even-higher discount rate -- say, 10% or 11%.

In other words, the winner won't get a million dollars, regardless of NBC's claims to the contrary. She won't even get a half-million. She may be lucky to get a quarter-million. On the other hand, if she chooses the cash, however little it is, she won't get stuck with Rob. Therefore, we think the "hard choice" is still an easy call, even if the cash prize were only a U.S. savings bond.

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