The Costs of Playing the Lottery

The big message that lottery advocates push is that it gives states a way to expand their social safety nets without imposing especially onerous taxes on the middle class and working class. But most lottery revenue is just a tiny drop in the bucket of state budgets. And even when it does help fund things, it may come with unintended costs.

Lotteries offer a chance to win money, usually in the form of a prize pool, which is calculated from ticket sales minus costs for promotion and taxes. Traditionally, organizers have promised a fixed amount of the prize pool to winners. But now, many states set their prize pools as a percentage of total receipts. The percentage can fluctuate based on ticket sales.

In this way, the prize pool can grow into seemingly newsworthy amounts – which attracts potential bettors and generates free publicity on websites and newscasts. The problem is that the larger prizes also make it harder for people to win. And when they do, they often find themselves in financial ruin.

Rich people do play the lottery, of course; three asset managers from Greenwich, Connecticut, won a quarter of a billion dollars in last year’s Powerball lottery. But the wealthy spend a much smaller proportion of their income on tickets than the poor. According to a study by the consumer finance company Bankrate, Americans making more than fifty thousand dollars a year buy one per cent of their income on tickets; those earning less than thirty thousand spend thirteen per cent.