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The economics of American lotteries

ON APRIL 1st millions of Americans watched as six numbered ping-pong balls tumbled out of a giant popcorn popper. The occasion was the latest drawing of Powerball, a multi-state lottery. The last draw offered punters a shot at a $1bn jackpot, the fifth-biggest in the game’s 32-year history.

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Chart: The Economist

The odds of winning the jackpot are unimaginably low—just one in 292m for Powerball. Yet sales are at a record high. In 2023 Americans shelled out more than $100bn on state-run lotteries (see chart 1). Were they a single company, America’s lotteries would be the ninth-most profitable in the country.

Why are lotteries so popular when the chances of winning are so low? For one, they are ubiquitous. Some 45 states, and the District of Columbia, operate them. Low prices mean that anyone can afford to play; vast jackpots add to the excitement. Moreover, proceeds tend to go to worthy causes, such as public education or programmes for the elderly. Whereas casinos keep less than 10% of the money wagered on slot machines, state lotteries keep around 30% of ticket sales, on average.

But the system is woefully regressive. An analysis of data obtained by The Economist through public-records requests finds that poorer households spend significantly more, in absolute terms, on lotteries than richer ones (see chart 2). As a share of income, the imbalance is even more striking. Using zip-code-level sales data from 24 states, we estimate that each 10% decrease in median household income is associated with a 4% increase in lottery spending. Age and ethnicity are also correlated with lottery sales: older and non-white Americans are more likely to play. But income is the most important factor.

In the poorest 1% of zip codes that have lottery retailers, the average American adult spends around $600 a year, or nearly 5% of their income, on tickets. That compares with just $150, or 0.15%, for those in the richest 1% of zip codes. In other words, the poorest households spend roughly 30 times more on lotteries than richer ones, as a share of income. The pandemic appears to have made things worse. In 2021 the poorest 1% of households—flush with stimulus cheques—spent $100 more on lotteries than they did in 2019. The richest 1% spent just $10 more.

As for the Powerball jackpot on April 1st, hopeful ticket-buyers can look forward to another shot. Although six ticket-holders won $1m by matching the first five winning numbers, nobody won the top prize. The next Powerball drawing takes place on April 3rd. The jackpot stands at $1.09bn.

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