Who pays for the lottery?

Of course you’re not going to win the lottery. And yet.

The “what I’d do if I won the lottery” game is a fun one. You get to make up a little dreamland where you are suddenly awash in unimaginable riches. Your biggest problems become figuring out where to buy your second mansion, picking out your yacht, and finally cutting off that one family member who’s a real leech. It’s a fantasy so good it might even make you buy a ticket.

The exercise can also be a trippy one. You know you’re not going to win. Really. Except maybe there’s a small sliver of hope that you will. I mean, somebody has to win, right? The ugly underbelly here is that sneaking feeling that the lottery, however improbable, may be your only way up. What does it mean when the longest of shots is the only one people feel they’ve got?

The lottery is a fixture in American society. People in the US spent upward of $100 billion on lottery tickets in 2021, rendering it the most popular form of gambling in the country. States promote lottery games as ways to raise revenue — that ticket bought at the gas station isn’t a giant waste of money, it’s actually a way to save the children. But just how meaningful that revenue is in broader state budgets, and whether it’s worth the trade-offs to people losing money, is debatable. I’m not saying the lottery is evil, but its costs merit scrutiny.

America’s lottery bonanza is the subject of For a Dollar and a Dream: State Lotteries in Modern America, by Jonathan D. Cohen. I recently spoke with Cohen, a historian and program director of American Institutions, Society, and the Public Good at the American Academy of Arts and Sciences, about the proliferation of lotteries in the US in the late 20th century and what makes states and players tick. Our conversation, edited for length and clarity, is below.

So what’s the “that’s how they get you” on lottery tickets? How does it get us?

A lot of people plain old like to gamble, and it’s sort of as simple as that. There is, to some degree, this inextricable human impulse to play. But then there’s a lot more going on that lotteries are doing, the big one being that they are dangling the promise of instant riches in an age of inequality and limited social mobility. They know exactly what they’re doing with billboards on the side of the highway with the Mega Millions jackpot and the Powerball jackpot. All it has to say is the size of the prize, and they know they have folks.

There are other things they do around the edges to keep people hooked, but the big one is dangling the promise of wealth for all players of all backgrounds.

So, the size of the prize matters more than the fact that I know deep down I’m not going to win the lottery? I guess the Powerball jackpot gets to a certain level and I think, well, might as well buy a ticket.

There’s a classic study of people’s overestimation of the odds of good things that can happen to them and an underestimation of the bad things. That’s combined with the fact that it’s really easy to tell the difference between a $4 million jackpot, a $40 million jackpot, and a $400 million jackpot, but it’s basically impossible for the brain to fathom the difference between the odds of one in 4 million and one in 40 million or one in 400 million. A one-in-4-million prize already seems so impossible and fantastical that it might as well be one in 400. The actual odds do make a huge difference, but it just doesn’t feel that way because the initial odds are already so fantastic. That couples with this meritocratic belief that we’re all going to be rich someday.

People think winning the lottery is meritocratic? Wouldn’t it be the opposite?

A lot of lottery winners will say, “Oh, I just got lucky and I hit the jackpot.” But a lot of people want it to signify something about them and in the process are willing to take the lottery, which is the quintessential vehicle of chance, and say, “Oh, it’s God. Oh, I deserved it.”

There was a recent news story about a woman who basically bankrupted herself to pay for her daughter’s cancer treatment and then she won the lottery. There’s an implication that someone like that “deserves” to win and that her win is a reward for the way she was living. It’s chance, of course, but we want to believe that people get their due. That’s also why we have this myth of the miserable lottery winner, which is total BS.

Wait, what’s the miserable lottery winner myth?

It’s that myth that all lottery winners end up broke and that they don’t know how to handle their money and they’re miserable and they’re all dead within five years, and it’s just not true. Lottery winners just in general are objectively happier than the rest of us. There are a handful of outstanding cases — like five, and I know their names — of winners who lost all their money.

To shift a little bit, why is the lottery in modern-day America allowed? How did we wind up with this?

There is a historical story of circumstances in the mid-20th century that created states’ need for revenue that compelled them to enact lotteries, that’s one side of the story. And the second side is this belief that gambling is inevitable, that people are always going to play, and therefore the state might as well offer it to make money. But by offering the games, you are just creating more gamblers and enticing more people to play, you are not just capturing this inevitable gambling. You’re creating new generations of gamblers.

Why did states need money, and why was this the decision that this is the way for states to make money?

The immediate post-World War II period was one where states could expand their array of services without especially onerous taxes on the middle class and the working class. By the 1960s, that arrangement began to crumble to a halt because of inflation, because of the cost of the Vietnam War. Lotteries started in the Northeast, states with larger social safety nets that maybe needed extra revenue. They saw the lottery not as a nice little drop in the bucket of state government but as a revenue source that would help get rid of taxation for the rest of history because it would make so much money. It was a belief inspired by all the illegal gambling that was happening at the time. It was gambling that was happening anyway, so let it fund the government. That’s the first wave.

Then, there were just continued budget crises at the state level going into the ’80s and ’90s, especially when it came to education funding in states like California. States have very, very few ways to raise extra revenue without taxation. The lottery, now sports betting, too, and gambling in general is one of those few ways. Once a neighboring state enacts a lottery, it’s like alright, we might as well do one, too. All of a sudden, in the span of five-plus decades, we have 45 lottery states.

Is lottery revenue really significant revenue for states?

No, it’s not. It’s very inefficiently collected — of every lottery dollar, no more than 40 percent is going to the state. It also ends up being a drop in the bucket overall for actual state governments, by some estimates, as little as 1 to 2 percent of total state revenue.

Between 1964 and 2019, lotteries raised a total of $502 billion. On its face, that sounds like a lot of money, but put in the perspective of total state revenue and income and expenditure in that period, it’s very small.

And who plays the lottery? Are there certain groups who get caught up more?

The short answer is everybody plays the lottery; 50 percent of Americans buy a lottery ticket at least once a year. But, of course, the actual distribution of playing is a lot more uneven. A lot of those players are buying one ticket when the Powerball gets big, and that’s all they’ll spend for the year.

The real moneymaker is a player base that is disproportionately lower-income, less educated, nonwhite, and male. One in eight Americans buy a lottery ticket once a week, and those groups are disproportionately represented in that group. As much as 70 to 80 percent of total national lottery sales comes from the top 20 to 30 percent of lottery players.

The very poor, the bottom quintile of the income distribution, don’t have enough discretionary money to be able to spend that much on lottery tickets. It is regressive, they do spend a larger share of their income, but it’s just not a lot of money overall. A lot of the lottery playing comes from the 21st through the 60th percentile of income distribution, who are people with a couple dollars in their pocket for discretionary spending but maybe not with opportunities for the American dream, for entrepreneurship, for innovation, to get out, to get up, other than through luck of the draw.

So basically the dream of winning the lottery resonates. That’s why we’re buying the scratch-off ticket? What’s the appeal?

You’re scratching real close to the human nature question. Lotteries, in some form, have been around forever. There’s a uniquely American design in the way they’re constituted now, but we’re talking about something that’s sort of fundamental.

I think a lot of it has to do with a lack of alternative avenues to social mobility, a lack of upward mobility. A lot of it has to do with feeling chosen, blessed if you want to take the religious framing. You might not have been born at the mansion on the hill, but you deserve that life, so to speak, and this is the way to get it.

In this age of inequality, there’s a lot of acceptance of the very rich, until relatively recently, the veneration of the celebrity CEO. When society, when the economy wasn’t providing a lot of other opportunities, there was always a lottery as a last-ditch chance to get some of that wealth for people. I’m not saying if it weren’t for the lottery, we’d have class warfare. But I do think it acquiesces to an acceptance of inequality and the promise that people will be able to have a chance, however remote, to get that life for themselves, too.

So one thing you mention in the book is that lottery sales increase in times of economic decline. Why is that? Because you’d think when people don’t have money, they’d gamble less, but that’s not what goes on.

It is what goes on with other types of games, just not with lotteries. This is the lynchpin of my contention that lotteries are unlike other types of gambling, which are primarily forms of entertainment. I’m talking about casino betting, horse betting. Lottery does offer entertainment, but more so than the others, it offers the promise of mobility, and there’s the jackpot structure of the games.

With casino games, if you want to win a lot of money, you have to have a lot of money. With sports betting, the amount you can win is dependent on how much money you have to bet. With the lottery, you need $2 and you have a chance at a $1.3 billion Powerball jackpot, and no other type of gambling works that way.

Is there a difference between, say, how scratch-off tickets suck us in versus the Mega Millions or Powerball?

Scratch-off is the bread and butter for lottery commissions. Sixty to 65 percent of total lottery sales are scratch tickets, and they are overall pretty regressive, it’s poorer players who are playing them. Lotto games — Powerball, Mega Millions — they are the least regressive lottery game because all these upper-middle-class people play them once in a while when the jackpot gets big. But overall, they’re still no more than 15 percent of total annual lottery sales nationwide. The third category, to be comprehensive, are daily numbers games, which are also very regressive and are especially popular in Black communities.

So how do they trick you?

Scratch-off tickets do have this unique design fixture, they have tickets called “heart stoppers.” Say your ticket has a two and a 12 and you have to match those numbers. When you scratch the ticket, you might get a three, which is meant to give you the appearance of being only one number away, or you might get a five, which for a second will look kind of like a two. The goal there with the scratch tickets is that even if you do win small prizes, you’re going to invest it back into more tickets.

On the prize curve, there are a lot of prizes at the very, very low increments level — $2, $5, $10 — and then at the end a bunch of prizes that are $20,000, $50,000 plus. The idea is that anything less than $20 you’ll just put back into more tickets. You’re at the convenience store, and the games work instantly, so that’s by design.

Nowadays, there are all these different types of scratch tickets. Back in the day, it used to be only a $1 price point. Now, there are all these different price points and you can feel like you’re gaming the system by picking and choosing the games you like to play. And, of course, you have this illusion of control by scratching the ticket, removing the foil.

And the number three being supposedly close to the two you needed is completely arbitrary.

It’s arbitrary except for the lottery commission knows that people don’t know that it’s arbitrary, so they purposefully put it there to get people to think that they were only one number away. But it might as well be the letter Z.

And what about the lotto games? How do they trick you?

A lot of the tricking that happens on those games people just do to themselves, believing that oh, I had a 54 on my ticket and a 55 came out, I was only one number away. The ping pong balls don’t care about being one number off from one another.

There’s not as much active deception on the part of lottery commissioners on those. They don’t exactly tell you how long the odds are, but the game designs themselves don’t entail deceptions. It’s really all happening in players’ heads. We’re really good at deluding ourselves into thinking we’re going to win a lot of money. We don’t need any help in doing that.

How does lottery advertising work? What’s the messaging?

If you look at the ’80s and ’90s, there was an implicit promise that you’re going to win. You’re going to hit the jackpot, a life of wealth is just around the corner.

Lottery commissions have moved away from that message and they now rely on two messages primarily.

One is that playing the lottery is fun, the experience of scratching a ticket is fun. Coded in this is an idea that oh the lottery is so wacky and weird and making it into a game, which obscures the regressivity, obscures how much people play. It’s meant for people to take it lightly when of course they know they have lots of committed gamblers who do not take it lightly and who spend a large share of their incomes on tickets.

The other major message is about the specific benefit of the money they raise for states, but I’ve never seen that put in context of overall state revenue. The message lotteries are relying on is even if you lose, you should feel good because you did a civic duty to help the state, to help the children or whatever in buying a ticket.

So it’s similar to what’s going on now with sports betting, it’s supposed to be good because it raises money for the state.

Yeah, and the percentage the money that states make in sports betting is even lower than it is for lotteries.

The lottery commission itself has every incentive to tell players and voters all the good that it is doing by raising money for the state, notwithstanding the fact that voters get mad at politicians who need to raise taxes because the lottery isn’t actually raising that much money. That’s not the lottery commission’s problem, they don’t have to deal with that.

The lottery is very intentionally run as a business by states. State lotteries are not subject to oversight from any agency or legislature or official who does not have a direct stake in the lottery making more money.

The question is, is this serving the common good? The states would say yes because we’re raising money. But they are not only raising that money inefficiently but overall doing more harm than good in the ways that they have decided to raise that money.

What is the fix here? In a world where, let’s be honest here, lotteries are not going away, what would at least be better?

There are a couple fixes that I think would make lotteries less pernicious, less harmful, and more in line with other arms of government that are intended to serve the common good. A lot of these have precedent.

You could see restrictions on the percentage of a lottery budget that can go to advertising or subject matter restrictions on the lottery advertising itself. If we think lottery advertising is a problem, then we need to do something about it. Another option would be setting a limit on the cost of scratch tickets. Texas has introduced a $100 scratch-off ticket, which I think is just unnecessary. Maybe we stop at $20.

Similarly, and this was very common during the 1980s, is a limit on the size of jackpots. Now, we have all these interstate games whose whole appeal is they have no cap and they just grow and grow and grow. Take Powerball, the one that you mentioned that maybe you bought tickets for — I don’t judge you, because I did, too. For a lot of people, that’s a gateway drug. It gets people in the door, it gets them dreaming, it creates this desire for wealth that they’re never going to have. If there were a cap on jackpots, they wouldn’t generate as much organic news, and it would be less likely that people would buy that first ticket that might get them in the door and keep them hooked. This was the story of a woman in the conclusion of my book, who bought a ticket on a lark with some friends during a big jackpot. Then, all of a sudden, here she is, 15 years later, spending thousands of dollars a year on lottery tickets.

You’ve talked to a lot of lottery players, people who really have been at it for years, spending $50, $100 a week. What are those conversations like? What surprises you?

These people defy the expectations that you might have going into this conversation, which is that these people are irrational, and they’ve been duped, and they don’t know that the odds are bad and that, implicitly, you’re smarter than them because you don’t buy a lottery ticket.

These people go in clear-eyed about the odds and how the games work. Yes, lots of them have these quote-unquote systems that are totally not borne out by statistical reasoning, about lucky numbers and lucky stores and times of day to buy tickets and what types of tickets to buy. They have all sorts of irrational gambling behavior when they play. But they know that for the big games, their odds are long. They’ve just come to this logical conclusion that, for better or worse, lotteries are their last, best, or only chance at a new life.

What people do not understand is the value that people get even from losing tickets. When you buy a lottery ticket, you have a couple of minutes, a couple of hours, a couple of days to dream, to imagine the win. These lottery players, especially those who don’t see a lot of prospects for themselves in the economy, they get a lot of value for those tickets.

The hope that they provide, as irrational and mathematically impossible as they may know it to be, is what lottery playing is really all about.

We live in a world that’s constantly trying to sucker us and trick us, where we’re always surrounded by scams big and small. It can feel impossible to navigate. Every two weeks, join Emily Stewart to look at all the little ways our economic systems control and manipulate the average person. Welcome to The Big Squeeze.

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Have ideas for a future column or thoughts on this one? Email [email protected].

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By: Emily Stewart
Title: What the lottery sells — and who pays
Sourced From: www.vox.com/money/23697885/lottery-mega-millions-powerball-state-history-scratch-off
Published Date: Thu, 04 May 2023 12:50:00 +0000

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