Lotteries, like any form of gambling, entail a certain amount of risk. But many people have a hard time grasping this simple fact. In part, that’s because lottery advertising focuses on messages about the excitement of scratching a ticket and the chance to win big money. This approach obscures the reality that playing the lottery drains billions from state coffers that could be spent on retirement or college tuition. And it encourages compulsive gamblers to spend even more, resulting in a cycle of debt and resentment.
In recent years, the expansion of state-based lottery games has led to a second set of problems. While state governments enjoy the revenue growth, they’re also slashing spending on programs that help the poor and address substance abuse. This is generating a lot of hand-wringing by politicians and citizens, but no easy fixes.
As a result, many state-based lotteries are beginning to experience the same problems as commercial casinos have experienced for some time: They’re becoming increasingly reliant on low-margin games, such as keno and video poker, to offset declining ticket sales. As a result, they are pushing to increase the number of available games and are adopting more aggressive marketing strategies.
But is this appropriate for a government service? The argument that lotteries offer a “painless” source of revenue has been one of the most persistent arguments in favor of their existence. It is based on the premise that voters want their states to spend more and that politicians are eager to get tax money for free. But it’s a flawed logic. In fact, lotteries produce a different kind of revenue, which is regressive-it goes mostly to the richest players.
The first lotteries appear in records from the 15th century, when various towns held public draws to raise money for town fortifications and other needs. By the 18th century, the colonies had dozens of them. Even famous American leaders, such as Thomas Jefferson and Benjamin Franklin, used them to raise funds for their debts and for projects such as building the British Museum and a battery of cannons for Philadelphia.
Today, most states operate a multi-state national lottery and a series of local and regional lotteries. Across the country, these lotteries raise billions each year. Some go toward the prize pool, and the rest gets divvied up among administrative costs and vendor fees and toward whatever projects each state designates. Some states, such as New Jersey, run hotlines to support problem gamblers. Others have debated the merits of establishing state-sponsored treatment programs. But even with the rise of Internet gaming, state-run lotteries remain an important source of revenue for many states.