The casting of lots for decisions and determining fates by chance has a long history, dating back to biblical times. Lotteries for material gain have been less ancient, and since the early seventeenth century, they have played a significant role in financing private and public projects, including roads, canals, churches, colleges, schools, and even wars. Most states now operate a state lottery, and most countries offer national lotteries in addition to local or regional ones. In these lotteries, money is drawn by a random process to determine the winner of a prize.
Lotteries are often promoted as a source of tax-free revenue. This appeal is especially effective in a time of financial stress, such as an economic recession or deficit. Moreover, a lottery can raise funds for specific public projects without the need for a direct tax or fee on all state residents, which might be unpopular and politically difficult. But studies have shown that the popularity of lotteries is not related to the state government’s actual fiscal condition: Lotteries are as popular in good times as they are in bad.
State lotteries differ in the way they raise and distribute proceeds from ticket sales, but they all share several basic characteristics. They must have a mechanism for collecting and pooling the money placed as stakes; a system of marketing that can promote, sell, and record tickets; a set of rules governing the frequency and size of prizes; and a percentage of profits or revenues must be taken out to cover the costs of organizing and promoting the lottery. The remaining pool of prizes must be able to attract players and sustain interest, and this requires the decision whether to offer few large jackpots or many smaller prizes.
Once a lottery is established, debate and criticism shifts from the desirability of a lottery to more specific features of its operations: Lotteries are alleged to contribute to addictive gambling behavior, are viewed as major regressive taxes on lower-income groups, and are subject to numerous other abuses.
Despite these concerns, the overall evidence is compelling that state lotteries are a valuable tool for raising needed revenues. While they are not without problems, these can be overcome with continued innovation and tight management.
In the past, most state lotteries resembled traditional raffles, with tickets sold to be drawn at some future date, sometimes weeks or months away. Beginning in the 1970s, however, innovations reshaped the industry. In one instance, a daily numbers game was launched, modeled on the illegal numbers games that had been widely available in most cities, and the new format boosted both player participation and revenue dramatically. The success of this model was replicated by other operators, and other innovations soon followed. The growing competition between lotteries also led to the development of games with higher prize levels, and more rapid payouts, allowing winners to realize their prizes within days. The revenue growth generated by these innovations has made the modern lottery far more complex and diverse than its ancestor.