State-run lotteries Summary

  • Last updated on November 10, 2022

In early American history, lotteries were responsible for funding some of the major institutions of higher learning, public buildings, roads, canals, and bridges. Modern state-run lotteries produce revenue that results in lower levies being imposed on businesses and individual taxpayers.

Common in colonial America, lotteries were abolished throughout the United States by the end of the nineteenth century, primarily because of scandals. In 1963, voters in New Hampshire revived the practice by approving a state-run lottery in a referendum. The lottery began operation the following year, and other states soon followed suit. In the United States, as of 2008, forty-two states and the District of Columbia had state-run lotteries.Lotteries, state-run

Lotteries have had to overcome strong religious opposition to their operation. Biblical mention of lotteries clearly designates them as suitable only for the resolution of profoundly important matters, because in theological terms, they are seen as a blasphemous intrusion into God’s decision-making domain. Ultimately, financial necessity overcame religious reservations, and a colonial lottery was authorized in 1612 for the Virginia Company of London, the first of numerous programs heralded with great fanfare. Franchises were sometimes granted to private promoters who paid a licensing fee, and proceeds typically were earmarked for benevolent purposes. Lotteries began to disappear from the American scene after notorious scandals regarding their operation came to light, and the excessive profits appropriated by the promoting businesses fueled public indignation and legislative bans.

In 1830, a total of 420 state lotteries were in operation, producing earnings five times the total of the federal budget. However, following the U.S. Civil War, only Louisiana continued to permit lotteries and soon ended the practice. In 1890, Congress prohibited the use of the mail service for lottery sales.

Numbers

Between the late nineteenth century and 1964, when the New Hampshire lottery began operation, lotteries were replaced by the numbers business, an illegal form of gambling that became particularly prominent in the slums of large cities. Playing the numbers, also called “policy,” “bolita,” “the figures,” and “the digits,” involved as many as half a million daily bettors in New York City during the 1970’s and provided employment for more than 100,000 workers in the city’s five boroughs. The employees fell into a strict hierarchy of positions, from those responsible for laying off bets at the top, down to pickup men, and below them runners who took bets directly from customers.

The odds normally were 600 to 1 against a person selecting a winning three-digit number, although the eventual earnings were on the order of 540 to 1 because the winner was expected to pay the runner 10 percent of the take. In Chicago, the numbers business was believed essential to the economic well-being of the minority and low-income communities because of the jobs that it created in these areas. Publications, so-called “dream books,” were sold openly, each claiming to offer clues to winning numbers.

Competition in the numbers business was eliminated either by mergers or by police action against potential entrants into the field. Police were paid off on a sliding scale, with patrolmen receiving the least money, plainclothesmen a middle amount, and headquarters’ officers the most. Honest police officers often found themselves transferred to out-of-the-way beats, such as the cemetery area.

Lotteries Reappear

Gradually, the religious opposition to lotteries began to fade. Moral objections to lotteries were undercut by the Roman Catholic Church’s widespread sponsorship of bingo contests, a form of gambling. Most important, chronically starved state and municipal governments turned to lotteries to increase state revenues. Lotteries offered governments the opportunity to obtain money without raising taxes, a move that was likely to offend voters and lessen the popularity of the officials behind the tax increase.

Lotteries have become the most popular form of gambling. About 66 percent of the U.S. population plays at least once during the year, and 13 percent participate weekly, even though the odds of winning a Mega Millions jackpot have been calculated at 1 in 175.7 million. Lottery tickets typically are sold at businesses such as convenience stores, gas stations, and supermarkets. The wait between the purchase of a lottery ticket and the announcement of the results of the drawing are believed to avoid creating the intense emotional state that characterizes compulsive gambling. Research indicates that a lottery outperforms voluntary giving as a means to finance public projects and that lotteries that offer the highest payoffs are particularly successful in raising funds for beneficial purposes.

New York, which was the next state after New Hampshire to legalize lotteries, at first restricted lottery ticket sales to banks (though this was later declared to be unconstitutional), hotels, motels, and local government offices. Lottery participants had to provide their name and address, and drawings took place once a month. These conservative measures were largely abandoned when earnings fell far short of estimates. New Jersey, the next state to legalize a lottery, learned a lesson from its neighbor. It held weekly drawings and decorated each of the tickets, which were sold in strips, with a four-leaf clover. New York followed suit and its lottery program has become one of the best run in the country.

Like most of the states in which lotteries are held, New Jersey employs high-powered advertising agencies to create marketing strategies to draw lottery customers. In Tennessee, for example, the chief promoter of the lottery was filmed on television during halftime at a University of Tennessee football game waving a huge symbolic check made out for a billion dollars, the amount at stake in the state’s lottery. The Tennessee impresario, in the words of a New York Times feature story, “reshaped state-sponsored gambling into highly sophisticated commercial enterprises peddling products that are as ubiquitous as Cokes or Snickers.” The promoter had introduced twenty-nine instant-ticket and two online games and paid out $227.5 million in prizes. In just four months, state education programs in Tennessee were allocated an additional $123 million, and an additional $2 million went to afterschool programs.

Some states permitted lotteries because they were viewed as less likely to foster problem gambling than casinos, but by the early years of the twenty-first century, lottery-only states were losing revenue as their citizens crossed their borders to indulge in blackjack, roulette, and other gambling opportunities at well-appointed casinos. In addition, apparent boredom with picking numbers and anticipating results was significantly reducing the amount of money states were generating from lotteries. Even so, lotteries continue to earn about $60 billion annually.

Multistate Lotteries and VLTs

In 1985, three New England states joined together to create an interstate lottery. Three years later, Oregon, Iowa, Kansas, Rhode Island, West Virginia, Missouri, and the District of Columbia formed the Multi-State Lottery Association and offered the Powerball, a lottery featuring a large payout. In 1996, another group of states joined together to offer the Big Game (later Mega Millions) lottery.

To pump up their lottery business, some states began introducing Video lottery terminalsvideo lottery terminals (VLT), basically slot machines. VLTs account for about 70 percent of the income from legal gambling in the United States. Their primary appeal is that there is no waiting for the result of a bet. Ten states have approved these terminals in conjunction with their lotteries.

In Rhode Island, the VLTs that were installed at the Lincoln Park greyhound racetrack in 1992 reversed the decline in the track’s income. VLTs also have been installed at an old jai alai arena in Newport, Rhode Island, and have boosted the state’s gambling take to more than $1,500 per citizen, the highest ratio in the nation. Rhode Island’s VLTs account for 80 percent of the state’s lottery income, an income that makes up slightly more than 10 percent of the state’s operating budget.

The Privatization Movement

During the first decade of the twenty-first century, Privatization;lotteriesprivatization became the next development in the world of lotteries. During 2006 and 2007, three state legislatures–Illinois, Indiana, and Texas–rejected bids from private investors for their lottery programs. In September, 2007, the brokerage firm of Lehman Brothers offered the state of California $37 billion to purchase its lottery program, money that the governor wanted to use to finance health care innovations. The bid failed, but the issue remained very much in play.

Privatization could take the form of investors buying a lottery franchise outright and operating it as a monopoly, or negotiating a lease arrangement under which the state would continue to receive a share of the profits. Private investors believe that with more aggressive marketing tactics and innovative technology, they could significantly increase profits. For example, some states do not sell lottery tickets near welfare offices or adult bookstores, restrictions that private companies might abandon. If lotteries were to go private, this would represent the largest privatization of a government enterprise in American history, but a national survey by Independent Lottery Research found that more than half of the respondents opposed privatization, primarily because they believed that fewer funds would be available to finance public needs.

State-run lotteries and video lottery terminals have come under criticism for several reasons. One concern is that these gambling venues, particularly VLTs, may result in compulsive gambling. Some lottery operations seek to compensate for the risk of addiction that they may induce by making contributions to facilities that rehabilitate compulsive gamblers. Operators of gambling facilities argue that compulsive gambling may reflect basic personality problems that could result in more serious, disabling behavior if lotteries and slots were not available. Another objection to state-sponsored gambling, especially lotteries, is that they rely primarily on low-income people who cannot readily afford the wagers. Therefore, the lottery acts like a regressive tax. Lottery operators, for their part, emphasize that lotteries offer hope, however statistically unreasonable, to those who often are living a drab and dreary existence.

Further Reading
  • Bobbitt, William R. Lottery Wars: Case Studies in Bible Belt Politics, 1985-2005. Lanham, Md.: Lexington Books, 2007. Basing his conclusions on a review of thousands of media reports, government documents, and interviews with religious and political leaders, Bobbitt outlines the debates and communication strategies relied on in determining if and how lotteries will be permitted.
  • Clotfelter, Charles T., and Philip J. Cook. Selling Hope: State Lotteries in America. Cambridge, Mass.: Harvard University Press, 1989. A sophisticated and even-handed consideration of all aspects of the lottery that can provide ammunition both for those who favor lotteries and those who oppose them.
  • Kearney, Melissa. State Lotteries and Consumer Behavior. Cambridge, Mass.: National Bureau of Economic Research, 2002. The author notes that spending on lotteries does not detract from other forms of gambling and that it accounts for $38 per month per family, or about 2 percent of household consumption. She concludes that lottery participants are making fully informed economic decisions.
  • Nibert, David A. Hitting the Lottery Jackpot: Government and the Taxing of Dreams. New York: Monthly Review Press, 2000. Emphasizes the economic and social costs involved in the generating of state revenue by means of lotteries and maintains that lotteries represent a pernicious tax on the poor and primarily benefit advertising agencies, television stations, and ticket vendors.
  • Pierce, Patrick A., and Donald E. Miller. Gambling Politics: State Government and the Business of Betting. Boulder, Colo.: Lynne Rienner, 2004. The authors focus on the political maneuvering associated with gambling endeavors and explore the relationship between state-run gambling and its possible consequences, including crime, job creation, and economic development. They note that participation in lotteries is correlated with involvement in illegal gambling.

Gambling industry

Organized crime

Privatization

Taxation

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