Lottery Revenue and State Budgets

People in the United States spent upward of $100 billion on lottery tickets in 2021, making it the country’s most popular form of gambling. But how meaningful that revenue is in broader state budgets, and whether it’s worth the trade-offs to people who lose money, remains debatable.

Lottery is a game in which numbers or symbols are drawn at random to determine winners. A bettor may write his name on a ticket that is deposited with the lottery organization for subsequent shuffling and selection in the drawing, or he might purchase a numbered receipt that is automatically entered into the pool of tickets for the purpose of winning a prize. The winning numbers or symbols are then determined by the drawing (or by some other mechanism such as shaking or tossing). In modern lotteries, computers are used to select and announce winners.

Most state governments regulate their own lotteries. Lottery divisions collect and administer lottery ticket sales, distribute winning prizes to players, train retailers in using ticket terminals, market and promote lottery games, and oversee the sale of tickets. These departments also oversee retail locations and stores, verify the identity of retailers and players, and enforce lottery laws.

Those with low incomes make up a large proportion of lottery players. Many of them are convinced that they can improve their lives by buying a few tickets for the next drawing. But studies show that the odds of winning are abysmal.

In the immediate post-World War II period, many states saw lotteries as a way to expand social services without raising taxes on middle-class and working class people. But by the early 1960s, that arrangement was crumbling. It was becoming increasingly clear that the lottery was just another form of taxation on the poor, and one that disadvantaged some more than others.

Some states resorted to other forms of taxation to keep their lotteries running, and many started to limit the number of games that could be offered. This was done to cut costs, but it also had the effect of making those games less lucrative for the players, especially those with lower incomes.

A surprisingly large percentage of ticket revenue goes toward administrative and vendor costs, rather than the prize pools. The remainder is divvied up among the winning ticket holders and designated for specific projects in each state. Some states have chosen to dedicate all or most of their lottery revenues to education, while others have set aside a portion for medical research, arts funding, and other priorities.

Typically, lottery winners can choose to receive their prize in two ways: a lump sum or in installments over time. A lump sum is attractive to those who need the funds immediately for investments, debt clearance, or significant purchases. But this option requires disciplined financial management, and winners who are not experienced with handling substantial windfalls can quickly spend their entire winnings. In these cases, it can be wise to consult a financial expert to help them maintain their wealth.