Where Does Lottery Money Go?

Are You Wasting Your Money When You Play the Lottery?

Image of Money on an Abacus
Where Does All of the Lottery Money Go?. Image (c) malerapaso / Getty Images

Every time Powerball jackpots soar, ticket sales skyrocket in response. 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 distributed in three major categories: payouts to winners and commissions to the companies that sold them their tickets, overhead costs, and distribution to the states that sold the tickets. Here's how that breaks down:

The majority of the funds that the lottery brings in — usually around 50 to 60% — is distributed to the winners. This includes big jackpots and the smaller prizes for matching fewer lottery numbers. Retailers also receive commissions for selling tickets and bonuses for selling jackpot-winning tickets, which accounts for another 5% of the lottery's revenue.

About 10% of the lottery revenue goes toward paying administrative costs and overhead for running the game. Advertising, staff salaries, legal fees, the printing of the tickets, and other necessities are included in this category.

The rest of the lottery money goes to the states who participate. In the case of the Powerball lottery, for example, the funds are distributed based on ticket sales — states who 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 participating state can decide how to use the money they raise through lottery funds.

Most states allocate a small amount of the money they receive from the lottery to addressing gambling addiction. Many also put a percentage of their lottery funding into a general fund that can be used to address budget shortfalls in important communal areas like roadwork, the police force, and other social services.

The rest is usually allocated to public works, most commonly the educational system. 14 states mandate that all of their lottery revenue go toward education, either through public school funding or through college scholarship programs.

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

Good Causes That Benefit From Lottery Revenue

The participating states have used the billions of dollars in income from the lottery to do good for their residents. Here are some examples:

  • 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. The funds are tallied and split among qualifying residences as a reduction in the amount of property taxes that are owed each year.
  • Minnesota puts about a quarter of its lottery revenue into an Environment and Natural Resources Trust Fund. This fund has been used to ensure water quality, protect native fish and animals, regulate septic pollution, and many other important initiatives.
  • Indiana places lottery revenue into a Build Indiana Fund, which has tackled projects like preserving historic buildings, upgrading infrastructure, funding organizations that help children and seniors, and other projects to help the state.
  • Over $900 million dollars generated by the Pennsylvania Lottery has been used for programs for the elderly including free transportation, rent rebates, care services, and more.
  • The Texas Lottery created a scratch-off game specifically to benefit veterans. The lottery has generated more than $80 million since 2009, which has been distributed to organizations that directly help Texan veterans and their families. The program was such a success that even more lottery games have been developed to help vets.
  • The Georgia Lottery funds the HOPE Scholarship Program that helps students that show academic excellence receive degrees. The scholarship pays for four years of education in a Georgia-based college or university as well as a stipend for books. Billions of dollars in scholarships have been awarded to over a million Georgia students thanks to these lottery funds.
  • 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 Washington DC, Puerto Rico, and the US Virgin Islands, have subscribed to the idea that lottery money helps the greater good. But some critics aren't so sure.

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 can increase the occurrence of 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 very difficult to track.

Some states, like Maryland, are proposing ways to ensure that the money is spent as promised.

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 that you lose money 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. But charitable contributions are usually more beneficial (plus, they come with a tax write-off).

Think of lottery as playing a game, not as a serious way to fund your future, or a replacement for donations or volunteerism.

Most importantly: Be sure to never spend money on a lottery ticket if you can't afford to lose it.