Economy

The Hypocrisy of Your State's Lottery System

January 16th 2016

By:
Aron Macarow

Like more than 370 million other Americans, I bought a Powerball ticket for Wednesday night's drawing. Three, to be exact. (In case you were wondering, I didn't win.)

The odds that I would snag the jackpot on a single ticket were only one in 292 million; I'm more likely to get crushed by a meteor (one in 700,000). But what if I wanted to try to win my money back at a game that involved more skill and less chance, as in a casual betting pool in my office for the Super Bowl 50 next month — or online poker?

In most states, both of those options would be illegal. So why are state lotteries allowed to flourish? Hint: It has nothing to do with your best interests as a gambler.

RELATED: WHICH STATES HAVE THE BEST ODDS FOR POWERBALL DRAWING?

It's about state revenue

Wyoming state representative David Zwonitzer hoped that state lotteries would be "a profitable venture" when the state's governor signed a bill to bring lotto games to Wyoming in 2013, noting that revenues from ticket sales would likely benefit local cities, counties, and schools.

And that attitude has prevailed in all but seven U.S. states. Alabama, Mississippi, Nevada, Utah, Wyoming, Hawaii, and Alaska don't hold statewide lotteries or participate in national drawings such as Powerball. But the rest of the country does, and for good reason.

While the odds of winning the lottery are notoriously bad, states always stand to win big.

Profits from lottery sales in 2010 amounted to more than $17 billion flowing into state coffers nationally. States brought in anywhere from $6.33 million (Montana) to $2.7 billion (New York) in profit via state lotteries during the 2010 fiscal year. That's not a small amount of revenue.

This shouldn't be surprising, however, because this is how the system is designed to function.

ALSO: I'm Addicted to Gambling, but I Sell Lotto Tickets for a Living

Lotteries can actually be seen as a form of taxation.

But taxes are usually mandatory, right? Not necessarily. While the taxes that you pay on your income with each paycheck are mandatory, there are also voluntary forms of taxation, such as the tax you pay when you decide to purchase a product.

According to the Tax Foundation, state-run lotteries "constitute an implicit tax similar to the excise taxes on goods like cigarettes and alcohol." This means that the tax portion of the ticket price, which you probably don't consider when you drop that $2 for your Powerball ticket, is the compulsory form of tax on your voluntary lottery buy-in. One (or more states) also stand to win big twice, because those states will get to tax the winnings via state income tax and lottery-specific taxes, as ATTN: has previously explained.

Unfortunately, this tax is often paid by those who can least afford it.

Half of Americans play the lottery in a given year. A surprising 70 percent of tickets are bought by only 20 percent of players, each spending about $1,800 per year on the lotto. Who makes up the most frequent lotto players? Sadly, those who are also the least likely to afford it.

A study in Colorado found that those with a maximum household income of $15,000 were almost as likely to play the lottery as the rest of the population as a whole. A Duke University study in 1999 uncovered similar findings: Those with household incomes under $10,000 made up only 5 percent of the general population but 10 percent of the heaviest lottery players. Similarly, high school dropouts made up more than 20 percent of those most frequent lottery players, but accounted for only 12 percent of the country's population at the time of the study.

With slick advertisements suggesting that winners can start a college fund, state-run lotteries are touted like investment plans when they should be marketed as entertainment, John Oliver has shrewdly pointed out:

Still, most states insist that the lottery is different.

Despite the evidence that state lotteries prey on those living in poverty, most states maintain lottery systems while going after other forms of betting.

New York Attorney General Eric Schneiderman called fantasy sports betting "particularly pernicious," despite having a flourishing state lotto, and is working to bar two online fantasy sports outlets from his state.

Even casual sports betting pools are illegal in all but four states, and the state of Washington has gone so far as to make online poker a felony.

Ironically, Nevada — home to Las Vegas — does not have a state lottery.

"I think it's the gaming industry that doesn't want to have a lottery," Nevada State Gaming Control Board chairman A.G. Burnett told ABC News, implying that it's about competition. Perhaps states feel similarly about their own gambling ventures.