It seems odd that any U.S. state would actively encourage its citizens to gamble, especially during hard economic times. But that’s exactly what the vast majority of states do via lotteries. Firms on state payrolls are constantly devising new ways to bring in more players and more money, including high-stakes scratch-off games ($50 to play) and an increased use to technology to attract young people. Some day soon, you might be able to pick up lottery tickets at Walmart, or gamble in state-sanctioned games on your iPhone. Matthew Sweeney, author of the recently released book The Lottery Wars: Long Odds, Fast Money, and the Battle Over and American Institution—which has been praised by the Wall Street Journal and the San Francisco Chronicle—gives the lowdown on topics including whether lotteries lower your taxes (not really), who loses the biggest proportion of their income on lotteries (poor people of color), how much some players gamble away annually on lotteries ($30,000 in one instance), and if the lottery is ever a good bet (need we answer?).
Cheapskate: What are the demographics of people who play the lottery regularly? Do they tend to be poor or rich? Are certain ethnic groups more likely to play? Certain ages? From certain states, or in certain parts of the country?
Matthew Sweeney: About $60 billion worth of lottery tickets was sold in the U.S. in 2008. There lotteries in 42 states—not including Arkansas, which will start selling tickets later this year—and the District of Columbia.
Roughly one-third of money, a little less than $18 billion, went back into government budgets for scholarships, education funds, senior programs, and so on.
More than half of us gamble on the lottery at one time or another. While most of us play once in a while—usually when a jackpot reaches $100 or $200 an gets wide attention—it’s a small group that buy the lion’s share of tickets. Roughly 80 percent of tickets are bought by 20 percent of players.
Players come from all walks of life, but the people who spend the most on lotteries tend to be less educated and have lower incomes. A study by the Commission on Thrift reported that households with an income below $13,000 spend 9 percent of their money on lotteries. By comparison, households making $130,000 spend 0.3 percent of income on lotteries. The same report found average household spending on lotteries was about $525 a year in the U.S. A federal government’s National Gambling Impact Study found that those with the least education spend the most.
Men play more than women, married people play more than singles, and Hispanics, Asians, and African Americans spend more on lotteries—relative to the population than Caucasians, according to studies by both by state lotteries and independent economists such as Charles Clotfelter and Philip Cook at Duke University.
Older players usually go for lotto draw games where the ping pong balls dance around. These games, which were the core of the lottery in the 1980s, have been on a downward slide for years. More and more, states lotteries are turning to faster paced games and scratch tickets. Younger players veer toward scratch tickets. In general, however, most lottery players are middle aged or older.
CS: Any estimates on how much the average participant blows each year by playing the lottery?
MS: A 2002 study found that Americans spent more on lotteries than on books or movies. Massachusetts is the “best” lottery in strictly business terms. State resident spend just under $700 a head, mostly on scratch tickets. Massachusetts’ model is a cheap, fast gambling game that more states are trying to follow. Increasingly, Massachusetts is testing out video games such as a horse racing game that players bet on animated horses that race around a track. It’s hoped such games are more social—they’re in bars—and attract younger players.
If video lottery terminals—basically video poker and slot machines—are included, Massachusetts falls from first to fifth in per capita spending on state lotteries. The other four, based on 2007 and compiled by the Tax Foundation, are: Rhode Island, ($1,712), Delaware ($880), South Dakota ($874), and West Virginia ($863).
Leaving out the state-run slots and sticking strictly to lottery sales, the states that sell the most tickets are: New York ($7.5 billion in 2008), Massachusetts (4.7 billion), Florida ($4.1 billion), Texas ($3.6 billion), Pennsylvania ($3 billion), California ($3 billion).
CS: What kind of impact does the lottery have on people who play it regularly? Do people go broke because they play too much?
MS: Some people do go broke. The majority of people plays once in a while and risk small amounts or play on a lark when a big jackpot draws a lot of attention, but others have a gambling addiction. Roughly 3 to 5 percent of adults are problem gamblers, meaning they have trouble controlling their urge to gamble.
A smaller group, about 1 to 2 percent of adults, has a severe gambling problem and will spend the rent money or steal to gamble. I spoke with a man in Massachusetts who, in the depths of his gambling habit, was broke and would pick through the trash looking for missed over scratch tickets. He actually found one worth $10,000.
Another man had money from a successful business and at his worst, spent $30,000 a year on $10 and $20 scratch tickets. He could afford it, but for a time he could not control it.
Gambling on lotteries is not a rational act. One study found that sales increase at stores where a winning ticket is sold in the weeks afterward. Sales of the winning game also increase, despite the fact that the jackpot was now lower or the odds of winning a top prize were now worse. The study set out to examine whether lottery gambling was addictive. The result was inconclusive.
CS: What’s new with lotteries and scratch-off games nowadays? Are they being marketed to people in different ways, or paying off different from how they used to?
MS: Lotteries are mandated to raise as much money as they can for the state so they are constantly trying to increase sales. State lotteries are keenly interested in attracting younger players through new games and automation. Greater reliance on scratch tickets and higher prices for them—a couple of states have tried $50 scratchers—are trends in recent years.
To attract younger players, and cut down on the lines that clog up the gas stations and convenience store, more states are selling scratch tickets from vending machines. This has a dual benefit because their own research shows that, unlike older players who want a personal interaction when they’re buying tickets, younger players prefer automation. It’s a retail business so state’s pay a lot of attention to customer behavior.
These are small changes however. One major expansion that interests lotteries is a presence on the internet. They cannot sell tickets online—internet gambling is illegal in the U.S. under the current interpretation of the 1961 Wire Act—but some states have tested out text message promotions and similar direct marketing they hope brings in younger gamblers.
Lottery firms such as GTECH, which supply the technology for the state lotteries, are poised to bring high tech gambling to the U.S. since they already provide such services in other countries. If the law changes, playing lotteries from an iPhone would be the next step for state lotteries. It would also open the door for new games have more in common with video games than lotto drawings.
Overall, state lotteries are somewhat stagnant. Double-digit growth was commonplace through the 1980s and 1990s but it is ending. Lotteries have saturated gas stations, convenience stores and many states find themselves bumping against a ceiling of 5 percent or lower profit increases. One possibility for growing sales is to convince major retailers like Wal-Mart, Home Depot, Sears, and others to carry scratch tickets vending machines or lottery tickets counters.
Another possibility, particularly in tough economic times, is to grow video lottery terminals. Eight states have them now. The games are controversial, however, and have been described as the “crack cocaine” of gambling.
CS: Can you generalize about the impact that winning the lottery has on the winner and his/her family?
When people win a large amount they’re usually not prepared for sudden wealth. A lot of people buy a new home, a new car, or a boat and go about their lives. For others it unleashes their best and worst impulses. Some give money to charitable causes, others get divorced, and quickly spend beyond their means.
One change is a loss of privacy. A lottery winner receives countless unsolicited requests for money from strangers, often accompanied with terrible stories—either true or false —attached. Family relationships are often strained. And winners are constantly told by friends, family, and strangers how they should spend the money. One of the odd things about the lottery is that it taps into a dream of wealth most of us have indulged. Many people, lottery players or not, have already imagined what they would do if they won the lottery.
CS: Do lotteries actually lower the average person’s taxes? If so, any indication by how much?
MS: In numerous states lotteries were presented as a way to hold off a tax increase, yet taxes went up anyway. In the 1980s and 1990s lotteries played a greater role in state budget than they do now. Today, lotteries account for no more than 1 or 2 percent of state budgets. Public perception is often that lotteries are paying for much more than they really are. This is often because the lotteries were over-hyped when they were put into a public referendum.
Even in states where lottery profits are earmarked for education, their contribution to overall education budgets is a tiny fraction of the whole.
As a tax item, the lotteries are regressive. Much of the money comes, voluntarily, from lower income and less educated families and is distributed to the whole of the state without regard for the source of the revenue.
Even in cases where lottery money funds college scholarships, such as Georgia, at least one study has shown that the people benefiting from the scholarships tend to have more education than the lottery players whose dollars funded the aid.