The Dynamics of Lottery Revenue Generation


A lottery is a form of gambling in which numbers are drawn for prizes. The prizes are often large cash amounts, and the games are organized so that a percentage of the proceeds is donated to good causes. Many states and the District of Columbia have lotteries. The word “lottery” probably derives from the Dutch noun lot, meaning “fate.”

Lotteries were first introduced in Europe in the 17th century and were hailed as a “painless tax.” State-owned Staatsloterij is the oldest running lottery (1726). Lottery ads often present a happy family, a smiling child, or a handsome young man holding a check or trophy. These are meant to be symbolic of the joy and happiness that will result from winning. They are also meant to obscure the fact that a substantial portion of lottery revenues are paid by low-income people. In addition, lotteries tend to be regressive in terms of gender and socio-economic status. Men play more than women; blacks and Hispanics play more than whites; and the elderly and the young play less than those in the middle age range.

While the regressive nature of lotteries is not well understood, one factor seems to be that many people are attracted to the idea of winning. There is also an inextricable human impulse to gamble and to dream of wealth and good fortune. State officials who establish lotteries are aware of this, and they strive to promote the games by generating high levels of public excitement and displaying huge jackpots.

When a new lottery is introduced, its revenues typically expand dramatically at first, then level off and even begin to decline. To maintain these revenues, new games must be added periodically. The introduction of a new game can be as simple as changing the prize amounts or adding more numbers to the set, but it can also involve the use of different types of tickets. Some states have even introduced “instant games,” which are scratch-off tickets with lower prize amounts than traditional drawing games.

It is important to understand the dynamics of a lottery’s revenue-generating structure in order to assess its value as a source of state funding. Most public lotteries are established as a state monopoly, with the legislature and executive branch creating a state agency or public corporation to run it (as opposed to licensing a private firm in return for a percentage of the profits). The authority and pressures on state officials are fragmented and often conflated, making it difficult to establish a coherent state policy.

In the past, state lotteries were little more than traditional raffles. People would buy tickets for a future drawing with a fixed prize amount. In the early 1970s, however, innovations were made that altered the way lottery games are played. For example, some states began selling instant games with smaller prizes and more frequent payouts than traditional drawing games. In addition, some lotteries allowed players to choose their own numbers. This change in the game’s mechanics significantly increased the odds of winning.