Whether people are buying Powerball tickets at a local convenience store or scratch-off games in the lobby of their doctor’s office, Americans love their lotteries. In fact, according to Gallup polls, it’s the nation’s most popular form of gambling. But while state lottery profits are enormous, many critics charge that the monopoly-based lottery model preys on the poor and has serious social costs.
To keep lottery sales robust, states must give out a respectable proportion of revenue as prize money—which reduces the amount available for general state purposes. And though some state officials earmark lottery funds for education, health care and recovery programs for problem gamblers, in reality this money often represents an adjustment in state accounting rather than a real injection of cash.
Amounts devoted to prizes and expenses, including a reasonable contingency reserve, may not exceed 16 percent of the total annual revenues. The director shall make a monthly financial report to the commission, which shall include a full and complete statement of state lottery revenue, prize disbursements, expenses and net revenues for that month. The director shall also submit such reports to the Governor, Attorney General, Secretary of State, State Treasurer and the Legislative Assembly upon request.
State lotteries are a business, and their success depends on keeping players coming back for more. So if they are to maintain their popularity, the industry must be continually reinvesting in advertising, promotion and research—just like any other business. But, as Cohen demonstrates, these strategies can backfire: they can alienate consumers and erode public trust.