Two Lotteries Worth More Than $300 Million

Half listening to the television I heard we spend more on state lotteries than movies, books, video, and music. Now while the statement comes from CNN Money, it is not entirely correct because while lottery spending is higher than any one of those items individually, which is frightening enough, lottery spending is less than their aggregate. But that said it did get me to thinking about those lotteries. Here are some facts:

Whose betting?

• 57% of Americans play the lottery during the year
• In 2017, $73.5 billion or about $325 per capita was wagered
• Citizens of Massachusetts (followed by Rhode Island, Deleware, New York and West Virginia) spent the most on the lottery $734 per capita – Massachusetts also had the highest payout at 73%
• Citizens of North Dakota spent the least $34 per capita, followed by Oklahoma, Montana, New Mexico and Nebraska
• Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah, and Wyoming have no state lotteries
• As with most averages, they hide interesting variations. In Michigan 20% of the players account for 71% of the lottery purchases; even higher in Pennsylvania where 29% of players account for 79% of lottery betting
• Higher income Americans more likely to engage in sports gambling
• Lower-income Americans more likely to buy lottery tickets or scratch-off lottery cards
• Women play more frequently than men
• 70% of people age 20-30 purchase lottery tickets compared to 45% for persons over 70

How is the money paid out?

• 63% on average was returned as prizes. For comparison, slot machines and table games pay out 90% of their wagers
• 23% goes for education, 3% to state’s general funds, 2% for state programs for the homeless, elderly and drug and alcohol treatment
• 8% to retailers as commissions
• 8% to administrative and advertising costs
• 1% of winnings never collected
• 0.03% to gambling addiction programs – No sense killing the goose

Taxes and return on investment

• For winnings greater than $5000, 25% federal tax is immediately withheld.
• Winners may have to pay additional taxes up to 39.6% of their winnings in combined federal and state taxation
• In calculating a return on investment consider the following based upon New York per capita spending of $398 annually
• Average lottery payout of $190 per capita results in a $208 annual loss.
• The same $398 was invested in 30-year IRA at 6% it would pay $33,300 for a gain of $712 annually

Statistically, you are more likely to be struck by lightning than win big.

• Between 2013-15 1,300 winners won more than $1 million from Power Ball or Mega Millions. During the same period only 67 people were struck by lightning in those states, so evidently you are more likely to win the lottery than being struck by lightning – so much for statistics.

We will give the North American Association of State and Provincial Lotteries the last word:

Lotteries provide fun and exciting entertainment that lets players dream about what they would do if they won. In our stressful world, the ability to dream is well worth the price of a lottery ticket.