The lottery industry in the United States is massive, with billions of dollars spent on lottery tickets each year. Lotteries are operated by 45 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Revenues from lotteries are often used to fund state budgets, including education, infrastructure, and more.
What is the history of lotteries in the US?
Lotteries have a long history in the United States, dating back to the colonial era. Some of the earliest lotteries were used to help finance projects like building roads, libraries, churches, colleges, canals, and bridges. For example, the College of William and Mary held a lottery in 1750 to finance construction of a building. Lotteries were also used to help fund the Revolutionary War.
By the early 19th century, privately operated lotteries flourished. However, scandal and corruption led many states to ban lotteries. From 1894 to 1964, lotteries were banned nationally after Congress enacted a law prohibiting the mailing of lottery tickets and advertisements. It wasn’t until 1964 that New Hampshire brought back the first modern government-run lottery, followed by New York in 1967.
Today, lotteries are not only popular, but are considered an acceptable way for state governments to generate revenue. Currently, 45 states, Washington D.C., Puerto Rico, and the U.S. Virgin Islands offer government-operated lotteries.
What types of lottery games are available in the US?
There are several major types of lottery games available in the United States:
- Multi-state lotteries – These games are offered in multiple states with jackpots starting in the tens of millions. The two biggest are Mega Millions and Powerball.
- Statewide lotteries – Each state lottery offers games that are only available within that state. These include pick-3, pick-4, scratch cards, and other games unique to each state.
- Instant games – Also known as scratch cards, these lottery tickets can be purchased for prices ranging from $1 to $30. Players scratch off the card to reveal if they’ve won a prize.
- Daily lotteries – Some states offer a lottery where a new draw happens every day. Games like Pick 3 and Pick 4 allow players to choose numbers and win smaller prizes.
- Video lottery terminals – Similar to slot machines, these exist in about a dozen states and allow players to insert money and play electronic versions of games.
The lottery options available vary by state based on local laws and the types of games they’ve chosen to operate.
How many people play the lottery in the US?
According to polls and surveys, around half of American adults (about 150 million people) report having played the lottery in the past year. With over 300 million Americans, that means a significant percentage of the US population plays the lottery regularly.
A 2021 poll by Gallup showed the following breakdown:
- 53% of respondents said they purchased a lottery ticket in the past 12 months
- 27% said they play the lottery about once a week or more
- 61% of those with annual incomes under $40k reported playing the lottery
- 75% of lottery players only spend $10 or less per month on tickets
Based on the prevalence of lottery play across income levels and states, lotteries seem to have mass appeal to Americans across demographics.
What is the biggest single lottery jackpot ever won?
The largest single lottery jackpot won in US history was a Powerball drawing on January 13, 2016. The jackpot was an estimated $1.586 billion and was split between three winning tickets purchased in California, Florida and Tennessee.
Here are the 5 biggest US lottery jackpots to date:
| Amount | Date | Game |
|---|---|---|
| $1.586 billion | January 13, 2016 | Powerball |
| $1.537 billion | October 23, 2018 | Mega Millions |
| $1.05 billion | January 22, 2021 | Mega Millions |
| $768.4 million | March 27, 2019 | Powerball |
| $758.7 million | August 23, 2017 | Powerball |
As you can see, the two biggest jackpots were both over $1.5 billion. The largest Mega Millions and Powerball jackpots seem to consistently reach into the hundreds of millions or more, creating huge fervor and lottery ticket sales when the amounts get that high.
What states have the most lottery ticket sales?
The states with the highest annual lottery ticket sales are:
- New York – $9.69 billion
- Massachusetts – $5.51 billion
- Pennsylvania – $4.54 billion
- California – $3.56 billion
- Texas – $3.45 billion
New York leads the pack by a wide margin. The New York Lottery accounts for over 10% of all US lottery ticket sales by itself. The next biggest lotteries of Massachusetts, Pennsylvania, California and Texas make up large but significantly smaller portions of nationwide sales.
Notable states missing from the top 5 list are Florida (7th in sales) and Georgia (6th in sales). However, Florida and Georgia do rank 2nd and 3rd in per capita lottery sales, meaning their smaller populations spend more on average than states like California and Texas.
Does every state have a lottery?
Almost every state has a lottery, with 45 states, Washington D.C., Puerto Rico, and the U.S. Virgin Islands operating their own lotteries as of 2023.
The only states without lotteries are:
- Alabama
- Alaska
- Hawaii
- Mississippi
- Nevada
- Utah
Despite most states running lotteries, they are prohibited in Nevada, which also does not allow any form of casino gambling. Lotteries are also banned in Utah and Hawaii for cultural and religious reasons related to gambling. The other non-lottery states simply have not passed legislation to create one.
How much revenue do state lotteries generate each year?
The total lottery revenue earned by states adds up to tens of billions annually. Here are the key facts about state lottery revenue:
- Total US lottery revenue in 2021: $105 billion
- Revenue from just the 11 Mega Millions consortium states in 2021: $17.2 billion
- Revenue from just the 47 US Powerball states in 2022: $22.6 billion (projected)
- New York Lottery’s revenue in 2021: $3.59 billion
- Massachusetts Lottery’s revenue in 2021: $5.83 billion
As these numbers show, lottery revenues are a multi-billion dollar boon to state budgets every year. While 2005 remains the peak year with over $113 billion in national lottery revenue, annual revenues consistently stay above $80 billion in most years.
Where does lottery revenue go?
While each state allocates lottery revenue differently, here are some of the most common beneficiaries of lottery funding:
- Education – The most frequent recipient, with most states dedicating some or all revenues to educational systems.
- General state funds – Revenue that contributes to the overall state budget.
- Infrastructure projects – Some states devote proceeds to building projects.
- Environmental causes – A smaller number commit funds to environmental conservation and preservation.
- Capital projects – Revenue directed at specific capital expenditures like facilities.
Some states also set aside parts of lottery revenue for gambling addiction programs. While education seems to be the most popular destination for lottery dollars, states have flexibility in how they use the billions generated.
What percentage of lottery revenue goes to prizes vs. state funds?
On average across all US lotteries, here is the breakdown of how each dollar spent on lottery tickets is allocated:
- Prizes – 63%
- State funds – 29%
- Operating expenses – 6%
- Retailer commissions – 2%
So for every $1 in lottery sales:
- $0.63 goes towards prize money
- $0.29 goes to the state
- $0.06 goes to operating costs
- $0.02 goes to retailer commissions
The payout percentage for prizes ranges from about 50% in some states to as high as 75% in others. But the majority tend to pay out 60-65% towards prizes.
Do state lotteries target particular demographics?
There is often a perception that lotteries deliberately target lower income demographics in their marketing and advertising. However, most lottery organizations dispute that claim and maintain they market to all adults who might play lottery games. Some key facts around lottery demographics:
- Studies show lower income households do spend a greater portion of their income on lottery tickets.
- Heavy advertising has been focused around jackpot amounts, which appeals more to low-income aspiring millionaires.
- But lottery ads today frequently depict happy winners of all races and backgrounds.
- Many lotteries now advertise big scratch card prizes, which are affordable to play.
- Lotteries claim they avoid targeting any particular group and aim for universal appeal.
So while lotteries may not actively target specific groups, jackpot fever and scratch games tend to incentivize disproportionate spending from low-income households. But lotteries also point out that the majority of revenue goes back into state budgets to benefit all citizens.
How do lottery jackpots continue to grow so high?
The incredibly high jackpots advertised in games like Powerball and Mega Millions are made possible by some key factors:
- Lower odds – Reducing the odds of winning increases the number of rollovers when no one wins.
- Larger pools – More states joining the consortiums increases the number of possible ticket sales.
- Higher ticket prices – Increasing ticket prices raises the amount of funds that roll over.
- Jackpot cap removal – Eliminating jackpot caps allows the big pots to keep growing.
For example, when Powerball changed their rules in 2015 to make the odds 1 in 292 million and removed the jackpot cap, it paved the way for the world record $1.586 billion jackpot just a year later. The lure of winning fortunes in the hundreds of millions or more leads to the viral jackpot fever that boosts ticket sales.
How do state lotteries sell tickets?
Lottery tickets are sold in the following ways:
- At grocery stores, gas stations, convenience stores, and liquor stores
- At pharmacy retailers like CVS, Duane Reade, and Walgreens
- At big box stores like Walmart and Target
- At newsstands and tobacco shops
- Online via lottery websites and mobile apps in some states
- At select other licensed retailers
Lotteries contract with thousands of retailers around each state to allow easy purchase of tickets everywhere people shop. Forming relationships with major chains ensures widespread lottery ticket availability. States that sell online represent a smaller but growing distribution channel.
Can other entities run lotteries?
While nearly all lotteries are run at the state level, there are a couple other entities permitted to operate US lotteries in limited circumstances:
- US Territories – Puerto Rico, US Virgin Islands, and American Samoa can operate their own lotteries.
- First Nations – Federally recognized Native American tribes can conduct lotteries under tribal gaming laws.
- Non-profits – Some 50/50 charity raffles and event sweepstakes are allowed.
However, in general, private organizations and local municipal governments are not allowed to run unauthorized lotteries or games of chance. State lotteries have exclusivity over broad lottery games.
What is the tax rate on lottery winnings?
Lottery winnings are subject to both federal and state taxes. Here are the key tax rates to know:
- Federal tax: Ordinary income tax rates up to 37%. There is no separate gambling tax.
- State tax: Varies by state, from 0% up to 8% of winnings.
- Withholding: 24% federal tax and variable state tax is withheld immediately.
So combined federal and state taxes can take out 30-50% of large jackpots. Some key tips around lottery taxes:
- Winnings are taxed in the state where ticket was purchased, not where winner resides.
- Jackpots paid as annuities over 30 years have taxes taken out of each payment.
- Winners have the option to pay more up front to receive a reduced annuity.
The lump sum cash option is taxed immediately, while the withholding on annuity payments draws those taxes out over time. State taxes are dependent on each state’s rates.
Are lotteries legal online?
The legality of online lotteries depends on the state:
- Most states restrict lottery ticket sales to in-person retailers.
- A small number of states do allow ticket purchase through lottery websites and mobile apps.
- Third-party websites selling tickets without lottery approval are illegal.
The states that currently permit online lottery sales direct from the state are:
- Illinois
- Kentucky
- Michigan
- New Hampshire
- North Carolina
- North Dakota
- Pennsylvania
This list is likely to grow as more states look to digital sales. However, the majority of states still limit retail locations due to regulatory and technical challenges of expanding online.
Conclusion
The US lottery industry involves a complex ecosystem of multi-state consortiums, individual state operations, ticket retailers, advertising partners, software vendors, regulatory oversight, and independent auditing. Hundreds of millions in annual revenue are generated, most going back into public budgets.
A cultural acceptance of lotteries for fundraising purposes combines with dreams of jackpot riches to fuel an industry that seems positioned for continued success. But lotteries also receive criticism around targeting and enabling problematic gambling. The controversies and debate highlight the tensions underlying a business that many states have become dependent on.
For players looking to take a chance on fortune, and for critics concerned over fairness, the lottery system offers something for both ardent supporters and vocal opponents. Yet as an established revenue source in most of the country, state lotteries appear entrenched in American society for the long haul.
