where does the money for the lottery come from

Where Does Lottery Money Go?

Are You Wasting Your Money When You Play the Lottery?

Every time Powerball jackpots soar, ticket sales skyrocket in response. That’s a lot of money flowing out of the pockets of everyday citizens. According to the North American Association of State and Provincial Lotteries (NASPL), Americans spent over $73 billion on lottery tickets in 2015.  

So where does all that money go? Does it go to a private company, government coffers, or to fund worthy causes? Who really benefits from lottery revenue?

How Lottery Revenue Is Distributed

In general, lottery revenue is distributed in three major categories: payouts to winners and commissions to the companies that sold them their tickets, overhead costs, and distribution to the states that sold the tickets. Here’s how that breaks down:

The majority of the funds that the lottery brings in — usually around 50 to 60% — is distributed to the winners. This includes big jackpots and the smaller prizes for matching fewer lottery numbers. Retailers also receive commissions for selling tickets and bonuses for selling jackpot-winning tickets, which accounts for another 5% of the lottery’s revenue.

About 10% of the lottery revenue goes toward paying administrative costs and overhead for running the game. Advertising, staff salaries, legal fees, the printing of the tickets, and other necessities are included in this category.

The rest of the lottery money goes to the states who participate. In the case of the Powerball lottery, for example, the funds are distributed based on ticket sales — states who sell more tickets receive a larger percentage of the revenue. Revenue from state lotteries goes entirely to the hosting state.

In 2015, the U.S. Census Board estimated that state-administered lotteries put over $21 million into state coffers,   and that’s not even considering the revenue from the larger multi-state lotteries like Powerball and Mega Millions.

So how do the states use that money?

What States Do With Lottery Revenue

Each participating state can decide how to use the money they raise through lottery funds.

Most states allocate a small amount of the money they receive from the lottery to addressing gambling addiction. Many also put a percentage of their lottery funding into a general fund that can be used to address budget shortfalls in important communal areas like roadwork, the police force, and other social services.

The rest is usually allocated to public works, most commonly the educational system. 14 states mandate that all of their lottery revenue go toward education, either through public school funding or through college scholarship programs.

For more details, NAASPL has a breakdown of how states allocate their lottery funds.

Good Causes That Benefit From Lottery Revenue

The participating states have used the billions of dollars in income from the lottery to do good for their residents. Here are some examples:

  • Wisconsin uses its lottery funds to help make owning a home more affordable. The Lottery and Gaming Credit is funded by the Wisconsin Lottery, pari-mutuel on-track betting, and bingo. The funds are tallied and split among qualifying residences as a reduction in the amount of property taxes that are owed each year.
  • Minnesota puts about a quarter of its lottery revenue into an Environment and Natural Resources Trust Fund. This fund has been used to ensure water quality, protect native fish and animals, regulate septic pollution, and many other important initiatives.
  • Indiana places lottery revenue into a Build Indiana Fund, which has tackled projects like preserving historic buildings, upgrading infrastructure, funding organizations that help children and seniors, and other projects to help the state.
  • Over $900 million dollars generated by the Pennsylvania Lottery has been used for programs for the elderly including free transportation, rent rebates, care services, and more.
  • The Texas Lottery created a scratch-off game specifically to benefit veterans. The lottery has generated more than $80 million since 2009, which has been distributed to organizations that directly help Texan veterans and their families. The program was such a success that even more lottery games have been developed to help vets.
  • The Georgia Lottery funds the HOPE Scholarship Program that helps students that show academic excellence receive degrees. The scholarship pays for four years of education in a Georgia-based college or university as well as a stipend for books. Billions of dollars in scholarships have been awarded to over a million Georgia students thanks to these lottery funds.
  • In many states, lottery funds allow the state to spend more money on education without raising taxes.

Criticism About Using Lottery Funds for Good Causes

Almost every state in the United States, as well as Washington DC, Puerto Rico, and the US Virgin Islands, have subscribed to the idea that lottery money helps the greater good. But some critics aren’t so sure.

One criticism is that using the lottery to fund public works places an unfair burden on the people who are least able to afford to pay. Studies have shown that the people who lose the most money on the lottery tend to be “males, Blacks, Native Americans, and those who live in disadvantaged neighborhoods.”   So is it just to encourage people who are already at an economic disadvantage to pay more for education and other social benefits?

Another criticism is that just having a lottery in a state can increase the occurrence of problem gambling. Is it right for the state to take advantage of addiction to raise funds? If there’s a link between legal lotteries and gambling addiction, isn’t it wrong for the state to tempt addicts?

Critics also take issue with how the funds are used. In many cases, states sell the idea of using gambling revenue to increase the funds available for education or other good causes. But once the funds start rolling in, the educational system might not see the boost that lottery proponents hoped for.

For example, some states have invested the lottery funds into the educational system as promised, but they then reduce the funding they allocate to schools through regular sources. “In almost every case states either earmark the funds for education but then decrease the general fund appropriations for education by a similar amount, or, in more cases, they simply put the money in the general fund,” Denise Runge of the University of Alaska Anchorage said.  

Now, even if the money isn’t as much of a help for education as expected, perhaps it still helps each state in other ways. It’s hard to tell because lottery spending is very difficult to track.

Some states, like Maryland, are proposing ways to ensure that the money is spent as promised.

So Are You Doing Good When You Buy a Lottery Ticket?

When you play a lottery, like Powerball, your odds of winning a jackpot are incredibly long. So long that some people have said that the odds of winning are about the same whether you buy a ticket or not. Even though the odds of winning a smaller prize are much better, your risk that you lose money is high.

It can be fun to have a chance of winning a life-changing prize and comforting to know that your money is doing your community some good, even if you lose. But charitable contributions are usually more beneficial (plus, they come with a tax write-off).

Think of lottery as playing a game, not as a serious way to fund your future, or a replacement for donations or volunteerism.

Most importantly: Be sure to never spend money on a lottery ticket if you can’t afford to lose it.

Billions of dollars are spent on the lottery every year. Where does all of that lottery revenue go? Does playing help worthy causes? Find out here.

Where Does Lottery Money Come from and Where Does It Go?

Just think about it – lotteries hand out millions of dollars monthly. For some of the world’s biggest lotteries, these sums probably exceed billions of dollars per year. Thus, you may have one fundamental question to ask – where does lottery money come from?

Lottery funding can be obtained in several distinctive ways. When asking this question, most people think of national lotteries that follow more or less the same principle.

Here’s the lottery money journey from beginning to end.

People Are the Main Source of Lottery Money

Lottery money comes from one authoritative source – the people that play the lottery itself.

Just think about it – a lottery ticket costing one dollar that’s bought two million times for a drawing will generate two million dollars. In reality, lottery tickets are a bit costlier, which means that the fund for the drawing is going to be even bigger.

If you take a look at the websites of official lottery operators, you will find the information about where the money comes from and how it is distributed.

Typically, a percentage of the funds generated through ticket sales will go towards the top prize. Another portion will be distributed among the lower prize tiers.

Where Does Lottery Money Come from?

There’s one important mechanism to keep in mind when thinking about the origin of lottery money.

Anyone who plays the lottery regularly knows that many games feature the so-called roll-over. A roll-over allows prizes that weren’t won during one drawing to be rolled over towards the next one.

Thus, some of the funds generated for one drawing through ticket sales will go towards the next one to make the prizes bigger.

In some instances, there will be a limit on the number of roll-over times.

Let’s take the following example to illustrate the principle – a lottery has a rollover cap of 10 drawings. If the jackpot isn’t won within the specified period, the sum that has been accumulated will roll down. What exactly does this mean? It will be distributed among those who qualify for the second prize tier after the jackpot.

These rules vary from one game to another so you may want to check out what applies to the lottery that you play regularly.

Where Does Lottery Money Go?

One thing is obvious – a lot of lottery money goes to pay prizes.

The jackpot isn’t the only prize tier. There are many smaller prizes, and they can add up to a massive amount for every single drawing. For the latest Powerball drawing in the US, for example, there were 292,742 lowest prize tier winners, 125,979 eighth prize tier winners, 16,670 seventh prize tier winners and so on.

All of the lower prizes are usually paid out in cash, but this isn’t necessarily the case for the jackpots.

A jackpot can be paid out in the form of a cash lump sum, which reduces the advertised amount significantly. Alternatively, a player can choose annuity payments. A portion of the jackpot will be paid out each year while the rest of the money will earn interest. In the Powerball example above, the jackpot can be paid out in 30 annual payments. The rest of the money will earn an interest rate of approximately five percent.

Since the money accumulates interest over the years, the jackpot that will be received through annuity payments is going to be bigger than in the case of a cash lump sum.

Apart from paying out prizes, lottery operators also dedicate some of the money to charitable causes.

Lottery Money for a Good Cause

When playing one lottery or another, check out whether some of the funds will be dedicated to charitable and social initiatives.

Many national lotteries have been set up to earn some money for the overall benefit of society.

Typically, lotteries raise funds for sports development, education, social initiatives, healthcare, and the development of underprivileged communities.

This money, once again comes from spending on tickets. A percentage of the overall proceeds goes to support good causes.

Usually, charitable proceeds are generated by national lottery operators. Some private lottery operators may also announce their support for good causes. So if you are a conscious individual who would like to do things for the benefits of society, you will need to check out where lottery money goes after all of the tickets are sold.

Where Does the Rest of the Money Go?

There is still a relatively small percentage of the money that hasn’t been accounted for. Where does this small percentage go?

Remember that lottery operators have to pay salaries, they have expenses related to organizing games, and they also have to pay taxes.

These are the so-called operational costs.

Lotteries have to cover their expenses, and some of the money from ticket sales will go towards these activities.

Transparency – It’s Important

This is the usual way in which lottery funds are generated. This is also the usual way in which the money is paid to player, charities, non-governmental organizations, and other entities.

When playing the lottery, you have the right to be informed.

Reputable lottery providers should give you a detailed overview of where the money comes from and how it’s spent on each drawing.

This information needs to be readily available on the lottery operator’s website. It should also be possible to get in touch with the operator’s customer support and inquire about the funds.

Choose the lotteries you play carefully. If a financial breakdown isn’t provided, you have a reason to worry. The chances are that the organization isn’t the most reputable one out there. Remember – you’re spending money, and you’re a client of the lottery operator. You have the right to be informed about how the prize pool accumulates and how the money is spent.

Lottery funding can be obtained in several distinctive ways. Here's the lottery money journey from beginning to end. ]]>