Where Does Lottery Money Go?

Every time Powerball jackpots soar, ticket sales skyrocket in response. When you think about it, that's a lot of money flowing out of the pockets of everyday citizens. According to the North American Association of State and Provincial Lotteries (NASPL), Americans spent over $73 billion on lottery tickets in 2015.

So where does all that money go? Does it go to a private company, government coffers, or to fund worthy causes? Who really benefits from lottery revenue?

How Lottery Revenue Is Distributed

In general, lottery revenue is divided into three major categories: payouts to winners and commissions to the retailers that sold the tickets, overhead costs, and distribution to the states where winning tickets were purchased. Here's how that breaks down:

The majority of the lottery funds — around 50–60% — goes to the winners. This includes both the jackpots and the smaller prizes. Retailers also receive commissions for selling tickets in general along with bonuses for selling jackpot-winning tickets. These commissions account for another 5% of the lottery's revenue.

About 10% of the lottery revenue goes toward administrative costs and overhead for running the game. This includes costs like advertising, staff salaries, legal fees, ticket printing, and other necessities.

The rest of the lottery money goes to the states who participate. With Powerball, for example, the funds are divvied out based on ticket sales — states that sell more tickets receive a larger percentage of the revenue. Revenue from state lotteries goes entirely to the hosting state.

In 2015, the U.S. Census Board estimated that state-administered lotteries put over $21 million into state coffers, and that's not even considering the revenue from the larger multi-state lotteries like Powerball and Mega Millions. 

So how do the states use that money?

What States Do With Lottery Revenue

Each state decides independently how to use the money it raises through lottery funds.

Most states allocate a portion of the money they receive from the lottery to addressing gambling addiction. Many also put a percentage of the income into a general fund that they can use to address budget shortfalls in areas that are important to the community, like roadwork, the police force, and other social services.

The rest is usually allocated to public works, most commonly the educational system. Public school funding and college scholarship programs are two popular ways of using the lottery revenue.

For more details, NAASPL has a breakdown of how states allocate their lottery funds.

Good Causes That Benefit From Lottery Revenue

Here are some ways that states have used lottery revenue to do good for their residents:

• Wisconsin uses its lottery funds to help make owning a home more affordable. The Lottery and Gaming Credit is funded by the Wisconsin Lottery, pari-mutuel on-track betting, and bingo games. The funds are tallied and split among qualifying residences as a reduction in the amount of property taxes owed each year.
• Minnesota puts about a quarter of its lottery revenue into an Environment and Natural Resources Trust Fund that ensures water quality, protects native fish and animals, regulates septic pollution, and much more.
• Indiana places lottery revenue into a Build Indiana Fund, which tackles projects like preserving historic buildings, upgrading infrastructure, funding organizations that help children and seniors, and other beneficial initiatives.
• Over a billion dollars generated by the Pennsylvania Lottery has been used for programs for the elderly including free transportation, rent rebates, care services, and more.
• The Georgia Lottery funds the HOPE Scholarship Program, which helps students who excel academically receive degrees. The scholarship pays for four years of education in a Georgia-based college or university, as well as a stipend for books. Thanks to these lottery funds, billions of dollars in scholarships have been awarded to over a million Georgia students.
• In many states, lottery funds allow the state to spend more money on education without raising taxes.

Criticism About Using Lottery Funds for Good Causes

Almost every state in the United States, as well as many U.S. territories, has subscribed to the idea that lottery money helps the greater good. But some experts disagree.

One criticism is that using the lottery to fund public works places an unfair burden on the people who are least able to afford to pay. Studies have shown that the people who lose the most money on the lottery tend to be "males, Blacks, Native Americans, and those who live in disadvantaged neighborhoods." So is it just to encourage people who are already at an economic disadvantage to pay more for education and other social benefits?

Another criticism is that just having a lottery in a state increases problem gambling. Is it right for the state to take advantage of addiction to raise funds? If there's a link between legal lotteries and gambling addiction, isn't it wrong for the state to tempt addicts?

Critics also take issue with how the funds are used. In many cases, states sell the idea of using gambling revenue to increase the funds available for education or other good causes. But once the funds start rolling in, the educational system might not see the boost that lottery proponents hoped for.

For example, some states have invested the lottery funds into the educational system as promised, but they then reduce the funding they allocate to schools through regular sources. "In almost every case states either earmark the funds for education but then decrease the general fund appropriations for education by a similar amount, or, in more cases, they simply put the money in the general fund," Denise Runge of the University of Alaska Anchorage said.

Now, even if the money isn't as much of a help for education as expected, perhaps it still helps each state in other ways. It's hard to tell because lottery spending is difficult to track.

So Are You Doing Good When You Buy a Lottery Ticket?

When you play a lottery, like Powerball, your odds of winning a jackpot are incredibly long. So long that some people have said that the odds of winning are about the same whether you buy a ticket or not. Even though the odds of winning a smaller prize are much better, your risk of losing more than you win is high. 

It can be fun to have a chance of winning a life-changing prize — and comforting to know that your money is doing your community some good, even if you lose.

However, if doing good is your goal, charitable contributions are more beneficial. Plus, they come with a tax write-off.

Think of the lottery as playing a game, not as a serious way to fund your future or a replacement for donating or volunteering.

Most importantly, never spend money you can't afford to lose on a lottery ticket.