Quick Study: A Look at the Lottery

If your recession-survival plan includes buying scratch-off lottery tickets, you've got company.

[via rd] America's fascination with the game of chance is as old as the nation itself. Lotteries were a common way to raise money for public works in Colonial America, but they fell out of favor in the 19th century, perceived as contrary to the culture of hard work, rectitude, and saving. Federal anti-lottery legislation in the 1890s closed the door on them for three quarters of a century. And when New Hampshire launched the first modern state lottery, in 1964, it made sure to hire a former FBI agent to run it.

Today, lotteries are a fixture in 42 states and the District of Columbia and are likely only to grow in popularity in the months ahead as governments around the nation struggle with budget shortfalls. The games have, understandably, become a favorite crutch for legislatures looking to raise money without hiking taxes. Ordinary Americans seem to love them too—even though the odds of hitting a life-changing payday remain minuscule. The chance of winning an extra ticket or a couple of bucks runs to about 1 in 4, but the odds of hitting the 30-state Powerball jackpot are roughly 1 in 146 million. (Your odds of making two holes in one in the same round of golf: as slim as 1 in 67 million.)
Lotto Card
Today, lotteries are a fixture in 42 states.
States raised $17.4 billion for their budgets in 2007. Most spend a portion of that income on education, but many have found other creative outlets. In Kansas and Iowa, lottery money pays for compulsive-gambling programs; Montana and Wisconsin have used it for property tax relief. Over the years, Washington State has spent $49.9 million of its lottery revenues on a baseball stadium and put $76.5 million toward a football arena and convention center.

The smaller instant prizes, surprisingly, are the engines of growth. Ten- and twenty-dollar tickets are now routine, and scratch-off games now make up about half of lottery sales. Their steady stream of $100 prizes means that regular players can win every few weeks. They tell their friends, who buy, win—and tell theirs.

Do You Feel Lucky?
A few random facts about random-chance lotteries and the money trail.

$58.4 billion: How much we spent on thelottery in 2007.
30%: Amount states kept as profits.

$1.1 billion: California's total lottery profits.
1.5%: Portion of California's education budget that comes from the lottery.

$8.50: Amount a college-educated player spends on the lottery each month in Texas.
$16: Amount spent each month by the typical player without a high school degree.

49: West Virginia's rank in median household income.
1: West Virginia's rank in state lottery profits per capita.

$315 million: Biggest lottery jackpot claimed by a single winner.
$51.7 million: Biggest unclaimed jackpot.

Flash Points
Folks with gambling problems make up a minority of players, but they buy more tickets: Just 5 percent of lottery players buy a full 54 percent of the tickets. The National Council on Problem Gambling (a group funded partly by the gaming industry, not exactly a lottery foe) says low-income players are more likely to expect they'll come out ahead.

Six state lotteries have introduced video lottery machines that are closer in spirit to casino slot machines than traditional lottery games. Not coincidentally, these states typically rake in more profits. Critics call them “video crack.”

Critics also claim that too much of the lottery's take goes back out as prizes-about 53 percent nationwide in 2007. But some of the states that pay out the best prizes also raise the most money. Massachusetts pays out about 72 percent of its $4.7 billion in ticket sales but still earns $913 million in profits, among the highest of any state.

Opposition to the games has allied some religious groups (who oppose gambling on principle) with antipoverty advocates (who say lotteries take advantage of less educated, lower-income players, who are among the most faithful customers).

Forward Thinking
  • More and bigger games—With tax revenues plummeting in the recession, look for some states to try to hike their lottery income or to channel more of it into the general fund to offset shortfalls. Seventeen states currently devote all lottery funds to education; at least 17 others funnel all or part of their lottery money into the general fund.
  • Privately run state lotteries—Legislators in several states—including Texas and Illinois—have introduced bills to "lease" to private companies the right to run the lottery. A lease of 30 years or more would likely raise as much as $10 billion for bigger states. Opponents worry that private operators will introduce more addictive games. And it's not even clear such a gambit would be legal: In October, the U.S. Justice Department warned that private leasing deals under consideration in Indiana and New Jersey would likely violate federal laws.
  • A world lottery—Players in many parts of the world can already buy lottery tickets online. One possibility: a game available simultaneously in many countries. That's the goal of Chuck Strutt, the longtime director of the multistate Powerball game, who hopes to roll out a global game by 2011.
Continental Congress funds a lottery
1770s: The Continental Congress approves a lottery to help fund its revolutionary army.
The Back-and-Forth
"Many people [have] terrible ideas about the odds. Our brains are just not wired to understand the difference between 500,000 to 1 and 50 million to 1."
--Keith Whyte, executive director, National Council on Problem Gambling

"People who play regularly know whether they win regularly. If you buy a $5 ticket once a week and haven't won for three months, you're going to drop the habit."
--Mark Cavanaugh, executive director, Massachusetts Lottery

"Lotteries are being billed as a way to get wealth without saving and investing. It creates compulsive gamblers."
--Bill Brooks, president, North Carolina Family Policy Council

"We don't want to see anybody overspend their means. We have a 'play responsibly' campaign that says 'You only need one ticket to win.'"
--Bobby Heith, spokesman, Texas Lottery

The Time Line

Queen Elizabeth establishes the first English government lottery, which sells 400,000 tickets.

The Continental Congress approves a lottery to help fund its revolutionary army.

Spain starts its national lottery, El Gordo. It's still running.

Early 1800s
Lotteries are used to finance U.S. churches and colleges (including Harvard), along with other civic improvements across the nation.

Thomas Jefferson writes his "Thoughts on Lotteries," arguing that "far from being immoral, games of chance are indispensable to the existence of man." He calls them a "tax on the willing." His personal motive: He thought he'd get more money by raffling a house than by selling it outright.

Mid- to late-1800s
Stung by corruption scandals surrounding privately run lotteries, almost all states ban the games. In the 1890s, anti-lottery legislation shuts down the last one, the Louisiana Lottery.

The New Hampshire Sweepstakes is launched as the first state lottery of modern times.

Massachusetts offers the first scratch-off lottery ticket in the United States.

Six states and the District of Columbia join to introduce a multistate lottery game called Lotto America. In 1992 the name is changed to Powerball.

The Big Game (the multistate lottery now called Mega Millions) pays out a $363 million jackpot, split between two winners-the biggest lottery prize up to this point.

West Virginia contractor Jack Whittaker wins the biggest single-winner jackpot ever, $315 million, in the Powerball game. His win is followed by a run of bad luck, including arrests, lawsuits, and other tribulations.

Bills in Texas and other state legislatures propose selling long-term leases for the state lotteries to private buyers. None pass, and the U.S. Justice Department warns that some of the plans might violate federal law. But backers see a multibillion-dollar windfall in tough times, and they will likely try again.

Found this Post interesting? Receive new posts via RSS (What is RSS?) or subscribe via email at the top of this page...

More Post From The Web