Where Does Lottery Money Go?

Are You Wasting Your Money When You Play the Lottery?

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Every time Powerball jackpots soar, ticket sales skyrocket in response. According to the North American Association of State and Provincial Lotteries (NASPL), Americans spent over $73 billion on lottery tickets in 2015. So where does all that money go? Who really benefits from lottery revenue?

How Lottery Revenue Is Distributed

Out of all of the money that the lottery makes, the majority of the funds (usually around 50 percent to 60 percent*) goes to the winners. Retailers also receive commissions for selling tickets and bonuses for selling jackpot-winning tickets, which accounts for about 5 percent of the lottery's revenue.

Another 10 percent or so of the lottery money goes toward paying administrative costs and overhead for running the game. Advertising, staff salaries, legal fees, printing of the tickets, and other necessities are included in this category.

The rest of the lottery money goes to the states who participate. In the case of the Powerball lottery, for example, the funds are distributed based on ticket sales. The states who sell the most tickets receive a larger percentage of the revenue. Revenue from state lotteries goes entirely to the hosting state.

In 2015, the U.S. Census Board estimated that state-administered lotteries put over $21 million into state coffers, and that's not even considering the revenue from the larger multi-state lotteries like Powerball and Mega Millions

What States Do With Lottery Revenue

Each participating state can decide what to do with the money they raise through lottery funds.

Most states allocate a small amount of the money they receive from the lottery to addressing gambling addiction. Many also put a percentage of their lottery funding into a general fund that can be used to address any budget shortfalls in areas like roadwork, the police force, and other social services.

The rest is usually allocated to public works, most commonly the educational system. 14 states mandate that all of their lottery revenue go toward education, either through public school funding or through college scholarship programs. NAASPL has a breakdown of how states allocate their lottery funds.

Good Causes That Benefit From Lottery Revenue

The states have used the billions of dollars in income from the lottery to do good for their residents. Here are some examples:

  • Wisconsin uses their lottery funds to help make owning a home more affordable. The Lottery and Gaming Credit is funded by the Wisconsin Lottery, pari-mutuel on-track betting, and bingo. The funds are tallied and split among qualifying residences as a reduction in the amount of property taxes that are owed each year.
  • Minnesota puts about a quarter of its lottery revenue into an Environment and Natural Resources Trust Fund. This fund has been used to ensure water quality, protect native fish and animals, regulate septic pollution, and many other important initiatives.
  • Indiana places lottery revenue into a Build Indiana Fund, which has tackled projects like preserving historic buildings, upgrading infrastructure, funding organizations that help children and seniors, and other projects to help the state.
  • Over $900 million dollars generated by the Pennsylvania Lottery has been used for programs for the elderly including free transportation, rent rebates, care services, and more.
  • The Texas Lottery created a scratch-off game specifically to benefit veterans. The lottery has generated more than $80 million since 2009, which has been distributed to organizations that directly help Texan veterans and their families. The program was such a success that even more lottery games have been developed to help vets.
  • The Georgia Lottery funds the HOPE Scholarship Program that helps students that show academic excellence receive degrees. The scholarship pays for four years of education in a Georgia-based college or university as well as a stipend for books. Billions of dollars in scholarships have been awarded to over a million Georgia students thanks to these lottery funds.
  • In many states, lottery funds allow the state to spend more money on education without raising taxes.

Criticism About Using Lottery Funds for Good Causes

Almost every state in the United States, as well as Washington DC, Puerto Rico, and the US Virgin Islands has been persuaded that lottery money goes to help the greater good. But the critics aren't so sure.

Many states have adopted lotteries because of the promise of receiving millions of dollars of tax-free money every year. However, there are also critics who argue against having a lottery despite the possible benefits for both moral and pragmatic reasons.

One criticism is that using the lottery to fund public works places an unfair burden on the people who are least able to afford to pay. Studies have shown that the people who lose the most money on the lottery tend to be "males, blacks, Native Americans, and those who live in disadvantaged neighborhoods." So is it just to encourage people who are already at an economic disadvantage to pay more for education and other social benefits?

Another criticism is that just having a lottery in a state can increase the occurrence of problem gambling in that state. Is it right for the state to take advantage of an addiction to raise funds? If there is a link between legal lotteries and gambling addiction, isn't it wrong for the state to tempt addicts?

Critics also take issue with how the funds are actually used. In many cases, states sell the idea of using gambling revenue to increase the funds available for education or other good causes. But once the funds start rolling in, the educational system might not see the boost that lottery proponents hoped for.

For example, some states have invested the lottery funds into the educational system as promised, but they then cut the funding they allocate to schools through regular sources. "In almost every case states either earmark the funds for education but then decrease the general fund appropriations for education by a similar amount, or, in more cases, they simply put the money in the general fund," Denise Runge of the University of Alaska Anchorage said.

Now even if the money isn't as much of a help for education as expected, perhaps it is still helping each state in other ways. It is hard to tell because lottery spending is very difficult to track. And some states, like Maryland, are proposing ways to ensure that the money is spent as promised.

So Are You Doing Good When You Buy a Lottery Ticket?

When you play a lottery like Powerball, your odds of winning a jackpot are incredibly long. So long that some people have said that the odds of winning are about the same whether you buy a ticket or not. Even though the odds of winning a smaller prize are much better, your risk that you lose money is sky high. 

It can be fun to have a chance of winning a life-changing prize and comforting to know that your money is doing your community some good, even if you lose. But charitable contributions are usually more beneficial (plus, they come with a tax write-off).

Think of lottery as playing a game, not as a serious way to fund for your future or as a replacement for donations or volunteerism. Be sure to never spend money on a lottery ticket if you can't afford to lose it.