People spend billions of dollars each year playing the lottery, but there’s one thing that should be obvious to anyone who has ever played: the odds are stacked against you. Yet the lottery persists, and its popularity grows even as Americans struggle with financial challenges ranging from poverty to credit card debt. The problem is that lotteries don’t provide much of a solution to these problems. In fact, they often contribute to them.
A lottery is a state-sponsored game of chance in which numbers are drawn at random to determine winners and prize amounts. The game has broad appeal and is relatively easy to organize, which has led to its widespread adoption. Since New Hampshire introduced the modern era of state lotteries in 1964, most states have followed suit. They legislate a state monopoly; create a public corporation to run the lottery; start with a modest number of relatively simple games; and then, as revenues grow, expand into a wide variety of new games.
As state lotteries have expanded, they have become highly profitable enterprises. But there is a catch: The money that people hand retailers for tickets doesn’t actually go toward prizes. Instead, it gets added to a general pool of funds for future drawings. The pools are financed by sales of special U.S. Treasury bonds called STRIPS (Separate Trading of Registered Interest and Principal of Securities).
The reason for this is that state lotteries need to constantly increase their revenue streams in order to keep up with the cost of prizes and advertising. To do this, they must attract large groups of specific constituencies: convenience store operators (who purchase ads in their stores); lottery suppliers (heavy contributors to state political campaigns are reported); teachers (in states where the proceeds are earmarked for education); and, most importantly, the general public.