The Truth About the Lottery

Across the country, people are spending billions on lottery tickets. Many play the game just for fun, and others believe they have a shot at winning big and changing their lives for the better. But it’s not all fun and games—lottery opponents argue that the prizes are a disguised tax that hits those with the lowest incomes the hardest.

The United States is one of only a few countries in the world with a state-run lottery, and it’s become a huge business. In the first decade after its introduction, New Hampshire’s lottery grew rapidly, and by the end of the 1960s, 12 other states had followed suit, mostly in the Northeast. Their success was based on three factors: the appeal of a big payout to one lucky winner, the need for money for public projects without raising taxes, and the region’s large Catholic population, which was tolerant of gambling activities.

In the decades since, lotteries have expanded worldwide and now operate in most countries. The profits, after expenses, go to the state government, which distributes them to a wide range of programs. In the United States, the state-run lottery is a national monopoly; there are no competing commercial lotteries. Adults living in the country can buy tickets at state-approved retailers, which include gas stations, convenience stores, supermarkets, department stores, restaurants and bars, service stations, and religious and fraternal organizations. In all, there were nearly 186,000 retail outlets selling lottery tickets in 2003.

For most, the draw of a big jackpot is hard to resist. But the odds are long, and winning a jackpot means splitting the prize with anyone who also selected those numbers. So, a wiser strategy is to stick with random or Quick Picks, rather than picking the birthdays of children or significant dates (like 9/11). Harvard statistics professor Mark Glickman recommends choosing odd-even combinations like 1-3-2-5, which have the best chance of matching the winning numbers and will allow players to keep their share of the prize even if their numbers are not drawn.

Lottery advertising also emphasizes the idea that a win is not only a financial windfall, but an instant ego boost. It’s a marketing dream, and it’s a major reason why lottery revenues have skyrocketed in recent years.

But what happens to the money once it’s won? The lion’s share of the prize is often paid out in cash, but some states use it to fund government programs. This reduces the percentage that’s available to raise overall state revenues—which is what lotteries were designed to do in the first place. And because the funds are not being used for a specific purpose, they don’t come with the same transparency as a regular tax. And that’s a problem.