Lottery Revenues – Is it the Best Use of State Resources?
Lottery is a form of gambling in which numbers are drawn at random to determine the winners of a prize. It is distinguished from games of chance such as roulette and poker, where the outcome depends on the decisions and skill of individual players. Although the practice of lottery is illegal in some countries, it is common in many others and generates substantial revenues for states and other organizations that run it. Lottery advertising is frequently criticized for being deceptive, with messages suggesting that winning is easy and prizes large, or for inflating the value of jackpots (since these are usually paid in annual installments over several years, inflation and taxes rapidly reduce their current value).
Despite criticism of the promotion of gambling and its negative consequences for poor people and problem gamblers, there is no question that lottery revenues are a significant source of state revenue. The question is whether that revenue is the best use of a state’s resources, especially in light of the growing number of people who are addicted to gambling and who cannot control their spending. The regressivity of lottery revenues is also an issue, as those from low-income neighborhoods are far more likely to play the lottery than those from wealthier areas.
A basic requirement for lottery operation is some method of recording the identities of bettors, the amounts staked by each, and the number or other symbols on which each bet was placed. This can be done by marking a ticket with the bettor’s name, depositing it for shuffling and selection in a drawing, or by purchasing a numbered receipt which is then scanned by a computer to record each bet. The resulting pool of numbers is then compared with the winners’ list to determine which bettors won what prize.
Most lotteries have a fixed percentage of the total prize pool returned to winners. A portion of this money is used to pay the costs of running and promoting the lottery, and a larger amount is normally allocated as profits or revenues to the organizers. The remaining money can be divided into a few large prizes, or many smaller ones. The former has the advantage of creating excitement, generating high sales and ticket turnover, and increasing the odds of winning a major prize, but it may lead to higher costs and lower overall returns.
In addition to the obvious issues related to the regressivity of lottery revenues, critics of the practice point out that state governments do not always have a clear sense of what their goals should be in running the lottery. Studies have shown that lottery proponents are able to win support by convincing voters that proceeds will be used for a specific public good, such as education. But these studies have also shown that the popularity of a lottery is not related to a state’s actual fiscal condition: once established, it seems that lotteries retain broad popular approval regardless of the objective fiscal situation of the state.