A Closer Look at the Lottery Business Model

Powerball and Mega Millions lotteries attract millions of people with the promise of instant riches, yet closer inspection of these so-called non-profitable enterprises reveals their ugly underbelly: these lottery schemes are really big gambles preying on hopes and anxieties of poor and vulnerable people as well as satisfying an irresistibly human impulse to play the lottery.

Lotteries derive their name from the Dutch noun “lotte,” meaning fate or assignment. Casting lots to determine decisions has long been used in society to make decisions and assign fates; public lotteries for money probably began appearing in Europe around 1600 in Low Countries towns that held lottery-like games to raise funds for town defense, aid to the poor, or other civic purposes.

Today, many states regulate the sale of state-sponsored lotteries through legislation. Typically, state laws establish a monopoly, typically delegated to an agency or public corporation run by government (rather than licensing private firms for a cut of profits). Lotteries typically start out offering only simple games but as additional revenues come pouring in they gradually broaden their portfolio of offerings.

Today’s state lotteries provide multiple forms of games ranging from raffles and scratch-off tickets, with prize amounts that depend on how many numbers match and the chances of winning. In the 1970s, innovations enhanced prize amounts while decreasing ticket prices to increase participation rates among wider populations. Revenues saw dramatic spikes after these innovations but have since decreased steadily, necessitating new games be introduced so as to maintain or increase revenues.

People play the lottery for various reasons, not simply as an act of entertainment or gambling. Lotteries provide instant riches through billboards along roadways promising Mega Millions or Powerball prizes to millions.

Lotteries may be popular, but their existence does not benefit the public in any substantial way. Their existence only adds burdens for poor, middle class, and businesses that do not relate directly to lotteries themselves. Furthermore, critics charge that lotteries regularly engage in unfair practices such as inflating odds of winning; misleading advertising; depicting winners as heroes rather than gambling addicts; and hiding real value of winnings through lump sum payments over two decades which are heavily taxed.