No matter where you gamble, the house always wins. And when it comes to state lotteries, some states pocket more of your bets than others.
Lottery fever intensified across the U.S. this week as the multistate Powerball jackpot soared to $1.5 billion, making it the largest prize ever paid. Ticket sales remained strong ahead of Wednesday's drawing, likely boosting the final payout. Powerball tickets are sold in 44 states, Washington, D.C., and two U.S. territories.
State-run lotteries have been around since the U.S. was founded, but since the modern era of government games in the 1960s, they've become a multibillion-dollar enterprise, taking in nearly $62 billion in sales in the 2013 fiscal year, according to the latest available Census data.
That year, after paying out nearly $39 billion in prizes, and $3.2 billion on operating expenses, states collected some $20 billion in proceeds to fund a long list of programs and services, from education to social services. On average, that works out to about 62 cents in prizes for every dollar the states take in from lottery revenues.
But not all states are as generous with their payouts as others. West Virginia, which took in $720 million in lottery revenues in fiscal 2013, paid out just $116 million in prizes – or about 16 cents of every dollar. Other low payout states include Delaware (22 cents), South Dakota (22 cents), Oregon (24 cents) and Rhode Island (28 cents).
Some states spend much more than others on operating costs. On average, about 5 cents of the money states collect from your lottery ticket go to pay for administering the game. Rhode Island, Massachusetts, Pennsylvania and New Jersey spend less than 3 cents. Maryland, Iowa and North Dakota spend more than 15 cents of every dollar of lottery revenue on administrative costs.
(Seven states – Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah and Wyoming – don't have lotteries.)
States with tight budgets can use all the ticket sales they can generate. But the overall proceeds from lotteries represent about a penny of every dollar of total state revenues. Rhode Island relied most heavily on lottery collections for the 2013 fiscal year — roughly 4.4 percent of total state revenues. West Virginia (3.9 percent) and Delaware (3.5 percent) also banked on lottery proceeds to balance the budget. But for most states, lottery income is a tiny line item in the budget.
State-run lotteries have been promoted as a way to raise additional revenues for services like public education. But critics of these lotteries argue that the long-term impact on education funding has been minimal — because lawmakers often use lottery earnings to displace other funds from the state's general revenues.
Critics also argue that using lotteries to pay for government services shifts the funding burden unfairly onto the poor and working class.
The link between lottery sales and low-income purchasers has been fairly well established. In 2004, three Cornell economists reviewed 10 years of data from 39 states and found a strong correlation between lottery sales and poverty rates.
"State oﬃcials laud the beneﬁts of lottery proceeds and promote the fun and excitement of participation," the researchers wrote. "This entertainment value is one explanation for lottery demand by the poor: individuals with lower incomes substitute lottery play for other entertainment."
By contrast, the researchers found little correlation between poverty rates and sales of movie tickets.