A competition in which numbered tickets are sold and prizes are given to those whose numbers are drawn at random, often sponsored by a government as a means of raising money.
When a lottery jackpot balloons into hundreds of millions or even billions of dollars, it creates a fever that sweeps the country. Millions of people spend money buying tickets and dreaming about winning the prize, but most will never get anywhere near that amount. That’s why it’s important to understand how the odds work in a lottery, and why they’re so bad for the majority of ticket-holders.
The first modern state lotteries started in the Northeast, where states had larger social safety nets and needed to find new revenue sources that weren’t especially onerous for the middle class and working classes. They saw the lottery as a way to fund education, veteran’s health care, and other things without additional taxes. They also saw it as a way to cut into the popular, though illegal, gambling games offered by the mob.
State lotteries are a large part of American life, and people across the country spend more than $100 billion per year on them. The profits generated from these sales go to a variety of state purposes, but the most common is education. In fact, over the years, states have given out a total of $234.1 billion in lottery profits to different beneficiaries (see Table 7.2).
When people buy a ticket for the lottery, they know they’re taking a risk, and they usually expect to lose money. But what many don’t realize is that they’re also paying a hidden tax to the state, even though it may not come out of their pocket in the form of a single dollar. That’s because unlike a traditional tax, lottery profits aren’t as transparent to consumers.
The biggest reason lottery profits are hidden is that the majority of money goes to pay out prizes, not to cover operating costs. The result is that the average lottery winner ends up with about half of what they spent on tickets in the form of a lump-sum payout or annual installments, depending on whether the state they play in has an annuity option.
Lottery promotions usually emphasize the fact that the state’s share of the proceeds helps with education, but they don’t put the percentage of total state revenue in context. Instead, they rely on a message that says, “Even if you win, it’s okay to play because you’re helping the kids.” This misstates the facts about how much of the money is actually going to state coffers and what people really get out of their purchases. It’s a similar problem with sports betting, which promoters claim is good because it raises money for the community. In reality, it’s not.
