What Is a State Lottery?

A state lottery is a gambling operation designed to raise funds for various government programs and for public education. Many states also use lottery funds to support cultural and recreational activities.

Lotteries are a popular source of state income, drawing more than $70 billion from players annually. Many legislators see them as an easy, painless alternative to raising taxes. Critics charge that the lottery promotes addictive gambling behavior and is a regressive tax on poorer citizens.

Despite this, critics have been unable to dissuade the majority of American states from instituting lotteries. In some cases, however, lottery promotions have proved to be a fiasco for the state. Maryland, for example, spent heavily to promote a new game in the early 1990s, expecting it to generate $8 million to $10 million in revenues. Instead, players flopped. The prize was only $73,626 after expenses.

Other states have learned their lessons the hard way. A sagging economy in the early 1990s caused California to spend more than 16 percent of its lottery proceeds on administrative costs, exceeding a limit set by law. The lottery fund was almost empty by the end of the fiscal year.

Another concern is that the state often makes a policy mistake when it implements a lottery, by placing too much emphasis on maximizing revenue, which has a perverse effect on poorer citizens who play. For example, some states have a practice of calculating the percentages of different demographic groups that “participate” in the lottery, but they don’t measure how much those people actually spend. This type of misleading information may violate the Federal Trade Commission’s truth-in-advertising laws.