The Evolution of the Lottery Industry


The drawing of lots for determining rights, privileges, or rewards has a long history in human culture. Its use in the United States began in 1612 with a lottery to raise money for the Jamestown, Virginia settlement. Today lotteries are common in sports and in the financial sector, where people pay to buy a ticket and then win prizes if their numbers match those randomly drawn by machines. Other lotteries award a range of goods and services, from kindergarten placements at a reputable school to subsidized housing units.

Many state governments have embraced the lottery as a way to increase revenue without raising taxes or cutting public programs. The main argument used in promoting state lotteries is that the proceeds can be directed to a public good, such as education. This claim is made especially persuasive during periods of economic distress, when the threat of higher taxes or cuts in programs looms large in the public mind. But studies have found that the popularity of lotteries is not tied to the objective fiscal condition of a state government.

A key issue in the growth of lottery revenues is how to manage the prize pool. Normally, a percentage of the prize pool is deducted to cover costs of organizing and promoting the lottery and another portion goes to the state or sponsors. The remainder of the prize pool is available to winners. The decision must be made whether to offer a few large prizes or many smaller ones. Most states offer a combination of both. The large prizes tend to attract the most attention and tickets sales, but they require a great deal of time and effort to promote. Consequently, there is a constant struggle over how much of the prize pool to devote to big prizes and how to balance this with the desire to generate continuing interest in the lottery.

As a result of this ongoing struggle, the lottery industry has evolved in ways that have little or no relationship to the original arguments offered for its introduction. Most lotteries now have multiple games and a broader scope of prizes than originally anticipated, while the number of states in which they operate has grown dramatically. In addition, the proliferation of new types of games, like keno, has led to a decrease in the overall profitability of the lottery industry. This trend appears likely to continue, and the industry will need to make some significant changes if it wants to maintain its profitability and popular appeal.