Every time the Mega Millions or Powerball lottery soars, ticket sales skyrocket. In 2015, Americans spent about $73 Billion on lottery tickets. $73 billion is a significant amount of personal income and this surely makes us wonder who exactly is benefitting from all this lottery revenue?
How is Lottery Revenue Distributed?
About 50% to 60% of the money that goes into the lottery is paid to winners (not only does this cover the cost of multi-million dollar prizes, but it also pays for thousands of smaller prizes). In addition to the prizes for the winners, retailers also get a bonus for selling the jackpot-winning tickets. These prizes account for nearly 5% of gross lottery revenue. Another 10% of the lottery income pays to run the game including administration fees, staff salaries, advertisements, legal fees, the printing of the tickets, and other overhead charges required to keep the game running.
After that, the rest of the money is distributed among the states who participate. Take the Powerball lottery as an example, funds are distributed depending upon the sale of the tickets in each state. The more tickets a state sells, the bigger portion of the revenue they receive. The US Census Board states that state-administrated lotteries bring in about $21 million.
How Do States Spend Lottery Revenue?
Most states allocate the money raised from lotteries to social services. Most also allocate a certain percentage of the money to address gambling addiction. Other states use a significant percentage of their revenue to fund budget shortfalls in areas like the police force, roadwork, or other social services. For the most part, lottery revenue supports social and public service. 14 states spend nearly all of their lottery funds on education, either through the public school system or through college scholarship programs.
States are receiving billions of dollars from lottery ticket sales and they do good for their residents. Here are some examples of good deeds fulfilled with the lottery revenue-
- Georgia established a scholarship program named HOPE and uses its lottery revenue to offer scholarships to students who show academic excellence. This program pays for four-year degrees in Georgia based educational institutions. Billions of funds are allocated to this program with the funds generated by the lottery.
- Texas runs a program named Benefit Veterans which is supported by the scratch-off lottery games program alone generated about $80 million since 2009. These funds are distributed directly to organizations that help Texan Veterans and their families.
- Pennsylvania Lottery has generated about $900 million which they use to run programs for the elderly including free transportation, care services, rent rebates, and so on.
- Indiana runs a program named Build Indiana Fund, which tackles the projects like preserving historic buildings, upgrading infrastructure, allocating money to organizations to help children and senior citizens, and other programs as well.
- Minnesota state runs a program named ENTRF (Environment and Natural Resources Trust Fund) which ensures water quality compromised due to the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. This program ensures water quality, regulates septic pollution, protect native fishes and animals, and undertakes other important initiatives.
- Wisconsin uses lottery funds to make housing more affordable for the public. They basically tally and split the funds among qualifying residences in order to reduce property taxes and make owning a home more affordable.
Criticisms About Using Lottery Funds
Almost every state, including the US Virgin Islands, Puerto Rico, and Washington DC claims that they are using the lottery money for the greater good, but there are critics who are not so sure about this redistribution of wealth. Various states have adopted lotteries with the claim that they will generate millions in tax-free revenue every year. However, critics argue that the money generated is not truly “tax-free” and that the easy availability of lotteries creates additional social problems.
One criticism about lotteries is that studies have reported that the people who lose money on the lottery tend to be low-income males, blacks, Native Americans, and those living in disadvantaged neighborhoods. Thus, a lottery can be seen as an additional tax on people who are already in need of social support. critics argue that funding social and public services with the money of the people who need social and public services simply transfer money to lottery operators.
Critics also claim that having a lottery in the state can increase the rate of gambling addiction in the state. They are concerned about states taking advantage of gambling addicts to raise funds for good causes. If there is any direct or indirect link between gambling addiction and legal state lotteries, critics believe it is wrong for the lottery commission to tempt addicts to make their problems even worse.
Critics also point out what they see as a problem with the way lottery money is spent. The investment is so ambiguous that it becomes very hard to track the spending. For example, most of the states promise educational benefits but the funds are not placed in a special educational account. Instead, most states put the money into their general fund's account. This doesn’t mean that the funds are necessarily misused. Instead of actually going to help the education sector, funds may still end up helping other state programs and organizations in other ways.
With multistate lottery games
like Powerball and Mega Millions, the odds are incredibly long to hit the jackpot. So, lotteries do function much like a voluntary tax. But directly or indirectly by playing the lottery, you are making charitable contributions and doing good in your community.