Lotteries are one of the world’s oldest pastimes. They date back to the Old Testament, where Moses was told to count people and divide them by lot; they were popular in the Roman Empire – Nero liked his lotteries a lot; and they were a staple of colonial America. They have been used to raise money for public works, education, and charitable endeavors.
In the early nineteen-sixties, however, a growing awareness of the money to be made in the gambling business coincided with a crisis in state funding. The growth in population and inflation and the cost of the Vietnam War combined to make it difficult for many states, particularly those that provided generous social safety nets, to balance their budgets without raising taxes or cutting services – options that were extremely unpopular with voters. In response, a number of states began running lotteries.
Supporters of lotteries argue that the money they generate allows states to expand their social safety nets while avoiding burdening middle and working class families with higher taxes. But this argument misrepresents the way that lotteries work. First, most lottery money does not go to state coffers, but rather to prize winners’ pockets. And second, lotteries only generate about 2 percent of state revenue – not enough to offset a reduction in taxes or significantly bolster government expenditures.
The fact is that, despite the rosy advertising, lotteries are very much like any other commercial product. They respond to economic fluctuations, and sales rise when incomes decline, unemployment increases, and poverty rates increase. They also respond to exposure to advertising, and a great deal of lottery promotion takes place in neighborhoods that are disproportionately low-income, Black, or Latino.
Unlike most other commercial products, however, the majority of lottery money does not go to consumers. In most cases, the money that is paid for tickets is passed up through a chain of agents until it is banked. This money is then used to purchase prizes, including cash and goods. A small portion of the money goes to the commissions that sales agents earn for selling tickets. The rest is used for prizes and marketing.
This is true whether the lottery is a traditional draw-the-numbers game or an online numbers game, which does not require drawing numbers from a physical pool but instead uses software to randomly select winners. The percentage of the prize that is returned to bettors varies with the type of game and the lottery. For example, in a traditional draw-the-numbers lottery, the winner receives about 50 percent of the pot. Online number games, on the other hand, usually return between 40 and 60 percent to players.
The best way to determine how much of the prize money is actually distributed among bettors is to look at a lottery’s history. Many, but not all, lotteries provide historical results after each drawing, and they can be found on lottery websites. The data are useful because they show how each prize category has performed, the amount of winnings in each, and the distribution of tickets purchased for the different categories.