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Feeling the economic power of Powerball

Sally Herships Jan 11, 2016

Feeling the economic power of Powerball

Sally Herships Jan 11, 2016

What would you do if you won the lottery? With the Powerball lottery at an unprecedented high of $1.4 billion, before taxes it’s a question on a lot of people’s minds. It’s also one that states get to ask all the time. Because regardless of individual winners and losers, states always win.

Consider California. In the last fiscal year, the state got to keep about 25 cents of every dollar spent on lottery tickets. And like a lot of states did, it used the money to help fund education.

“We see some schools buying text books. Some schools could use it to hire another teacher. Some schools could save their music program with it,” said Alex Traverso, spokesman for the California lottery.

Retailers in California, who sell tickets also stand to benefit. According to Traverso, depending on the kind of ticket sold, scratch off or self service, they can take in anywhere up to six percent per ticket.

“This is probably about as easy as it’s been for them to sell tickets because the jackpot is so high,” Traverso said.

Then there are the companies that print the tickets and manage the in-store displays, in California it’s IGT. Depending on the size of the jackpot IGT gets a little less than 1.5 percent of every sale. But just like you hear the stories about winners who end up broke, there’s another side to the lottery.

Patrick Pierce is a professor who researches the politics of legalized gambling at St. Mary’s college in Indiana. He says states that think they’ve hit the jackpot by selling lottery tickets, are likely dreaming big. 

“We found that states with education lotteries came to spend less on education than they would have spent if they had not adopted the education lottery,” he said.

The pattern takes about eight years to unfold, notes Pierce. After that, states that participate in lotteries often begin to spend less on the very programs they began selling tickets to support. And there’s another problem, said Pierce, the lottery can shift the burden of paying for government programs to those who can least afford it.

“Folks who are less off, are paying — depending on your perspective — more than their fair share,” he said. 

The lottery holds a lot of appeal to politicians and consumers a like. “It’s kind of a fiscal gimmick to be used by state officials,” said Lucy Dadayan, a senior policy analyst at the Rockefeller Institute of Government,.

States spend hundreds of billions of dollars a year on education, said Dadayan. In 2013, around $600 billion. While last year, she pointed out, the lottery generated only about $18 billion dollars. When it comes to budgets – “it’s a really tiny portion,” she said.

“If the revenue from [the] lottery goes up, [it] doesn’t necessarily mean that spending on education are also going to go up,” said Dadayan.

“Most citizens don’t know where the money is going,” said Patrick Pierce.  “Politics is a messy business.”

According to the California Lottery, as of this weekend, the state had already sold about $125 million dollars of tickets. So dream big, but be careful what you wish for.

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