Friday, October 19, 2007


Where does the lottery money go?

Ah, state lotteries: the other opium of the people. They advertise them wildly and widely, of course, with the idea that someone will win eventually, and it might just be you. One of New York’s slogans is, “Hey... you never know.”

And, well, that’s true, you never do know. Indeed, you could win. And you could be crushed by a falling cow as you walk down the street, too. That’s about as likely, or close enough so as doesn’t matter.

No, someone will win. Just not you.

So let’s be real here: the state lotteries are just selling false dreams to credulous people. But there is a silver lining, because at least when you donate your money to the lottery system you’re giving to a good cause. You’re supporting the schools. Because many states — more than half of those with lotteries — earmark their lottery money for the schools.

Can’t lose on that one! Good citizens get the thrill of flushing their money down the toilet buying a lottery ticket and hoping they’ll win, and the schools get all that money to educate our children. And, of course, it’s all about the children!

Um... or not.

The New York Times tells us that relatively little of that money actually goes to the schools. So where does it go? How many guesses do you need? It goes right back into the lottery, of course, on advertising, prizes, and payments:

For years, those states have heard complaints that not enough of their lottery revenue is used for education. Now, a New York Times examination of lottery documents, as well as interviews with lottery administrators and analysts, finds that lotteries accounted for less than 1 percent to 5 percent of the total revenue for K-12 education last year in the states that use this money for schools.

In reality, most of the money raised by lotteries is used simply to sustain the games themselves, including marketing, prizes and vendor commissions. And as lotteries compete for a small number of core players and try to persuade occasional customers to play more, nearly every state has increased, or is considering increasing, the size of its prizes — further shrinking the percentage of each dollar going to education and other programs.

In some states, lottery dollars have merely replaced money for education. Also, states eager for more players are introducing games that emphasize instant gratification and more potentially addictive forms of gambling.

And that last paragraph is especially troubling, in two ways:
  1. As is often true with “earmarks”, where the earmarked money goes in, money that had been allocated before, from other sources, goes out. The net effect is that while we said we were going to use the earmarked money to fund something, it really just amounts to fraud: the funded programs get no more money than before.
  2. The states are teaching people to gamble, encouraging them to gamble. In the short run, we’re institutionally sucking money out of their pockets by deluding them. In the long run, we’re building up a real addiction problem.

Don’t get me wrong here: I have nothing against having gambling available for those who want to do it. I have a big problem with the states’ promoting it, downplaying the insanely long odds, and advertising it as a means of setting yourself up financially. I note that the casino ads, at least around here, promote themselves as a way to have fun, not as a way to establish financial stability.

But back to where the money goes.

The Times review of documents from all 42 states with lotteries and the District of Columbia found that nearly all have increased payouts and lowered the percentage going to programs. And those that have not changed their payout formulas are considering it.
Collectively, “state lotteries raised more than $56 billion and returned $17 billion to the state governments last year.” Assuming that the state governments don’t pick further at the money, that means that around 30% — less than one third — of the money gets used by the states. That’s not a good percentage, and what it tells us is that these lotteries are a fabulous money-making business... but not for the schools, and not for the players.

And then we get silly, disingenuous statements like this to try to defend the fact that less than 1% of school funding, nationwide, is coming from lottery proceeds:

Lawmakers and lottery officials defend the practices, saying schools and other programs will still benefit from the extra money raised by lotteries.

“Too much of the focus is on percentages,” said Gardner Gurney, acting director of the New York lottery. “My focus is on dollars. You can’t spend percentages.”

Say what? Well, sure, any money the programs get is better than nothing. But “you can’t spend percentages”? Ah, no, the question is what it costs to get those few dollars into the schools. If you buy a lottery ticket with the thought that you’re helping fund education, and then you find out that only 30 cents on the dollar is actually doing that — at best, in the best states — are you happy? I’m not.

But as long as we’re fed the argument that the next state has a lottery, so we should too, we’ll soon see the eight remaining states come over also (well, except maybe Alaska and Hawaii, which have neither lotteries nor neighbouring states). And as long as there’s an incentive for states to hoodwink the gullible into sending their hard-earned money into the lottery abyss, we’ll have this scam around.

Because, well... hey... you never know.


D said...

Do you really think that anyone "buy(s) a lottery ticket with the thought that (they’re) helping fund education"?

Dr. Momentum said...

Good post!

D: I think some people do think that, although it's probably the case that most do not, or at least it is not their primary consideration. Certainly many people support or don't oppose the lottery on the basis that they imagine it helps education, and that's at least as important if not more important than what they're thinking when they buy the ticket.

Barry Leiba said...

Yeah, what James said is it. D's right — I don't really think anyone says, "Hey, I think I'll go play the lottery and help educate kids." What I think is that the idea that it's sending a major amount of money to the schools is what builds up support for it.

Paul said...

I tend to buy a lottery ticket fairly regularly. I don't ever expect to win, but what the hell, someone has to. I figure that everyone likes to play the fantasy game: "what I'd do if I won the lottery." And I figure that it's somewhat silly to play that game if you don't actually own a ticket. So there. I play so I can dream. Silly, huh?

Reminds me of my favourite joke...

Maggie said...

I go to a little convenience store to pick up milk sometimes, and there's always a long line. They also sell gas and alcohol, so it's usually people paying for gas or buying beer, but they're almost always buying a lottery ticket too.

Once a woman in front of me said, "I'll have two 'Set for life.'" That struck me as so funny and ironic that I almost said something, then thought that the store owner probably wouldn't appreciate me insulting his lottery customers. I think you only need to be "set for life" once, because you only get one life, so clearly there's some false advertising there. :-)

Will there always be vices? Is it better for the government to capitalize on that and do some good with it? It feels like the education the lottery is paying for should be *math* education, so people will stop wasting their money on lottery tickets!!

Barry Leiba said...

"Set for Life", how amusing. Yes, I often see people throwing in a ticket or two along with their smokes at the convenience store.

Oh, and a clarification, on looking at Paul's comment: I think it's absolutely fine if someone wants to play the lottery, if he's aware of the odds and decides to do it anyway. I don't find it "fun", but I know that people do, and that's cool. My objection is the state's spin that downplays the long odds. I think most people who play it don't realize or don't accept just HOW long those odds are.

Pete said...

After doing some research on this topic, I think a great start would be to stop allowing lotteries to advertise in anyway including using a 64% payout as a tool for marketing and gaining repeat customers.

The next step would be to insure that no bank being used to hold onto a lotteries money is allowed to charge any fees or profit from the money in these accounts in any way at all. When you take a look at the outside sources who benefit the most from lotteries, it's not the lottery merchants, it's the banks getting huge windfalls.

The next step would be to bring back and allow every winner to claim a one time payout.

Just a start, but at least it's a start to getting things back on the right track.