##### How the Lottery Works

Throughout the years, there have been many different Lottery games with various prize money. Some have even been co-sponsored by sports franchises and other companies. For example, in the early 2000s, several states offered a chance to win Harley-Davidson motorcycles. Others have partnered with licensed brand names like Disney, cartoon characters, or sports figures. These joint promotions have helped lottery officials find ways to increase their exposure to both companies and consumers.

## Public innumeracy

The odds of winning the lottery are 14 million to one, but many people ignore the laws of probability. A professor of mathematics once said that lottery games are an example of public innumeracy. The excitement and rush of winning the lottery can make people forget about the odds.

## Prize money

If you win the lottery, it’s important to save your winnings for a rainy day. Most lotteries offer winners 180 days or so to claim their prizes. After that, you can choose to receive your money as a lump sum or as an annuity. The latter option will provide you with a regular stream of income over several years. Ideally, you should deposit a percentage of your prize money into an emergency fund.

Lottery advertising is a controversial practice. States spend around half a billion dollars annually on marketing campaigns to encourage more spending and playing. Though it is legal to advertise the lottery, some states have enacted laws limiting its advertising.

## Costs

The costs of lottery operations are typically high and should be examined carefully. Operating expenses should not exceed 15 percent of gross revenues, and advertising expenses should not exceed two percent. Gross revenues are defined as Ticket sales plus interest and other revenues, minus any amount transferred to the state Department of Revenue in lieu of sales taxes. In 2002 and 2003, operating expenses accounted for 14.2 percent of gross revenues. More information on Lottery expenses can be found in Chapter 3.

## State profits

In recent years, state profits from the lottery have increased substantially. In fiscal year 2020, the lottery produced a net profit of \$979 million. That is the third highest profit in Lottery history, and the sixth consecutive year the lottery’s revenue has topped \$5 billion. In fiscal year 2013, the lottery’s net profit and revenues broke records.

## States with declining lotteries

A recent study revealed that 21 out of 44 states with lotteries had revenue declines between 2014 and 2015. The decreases were most noticeable in the Northeast, Mid-Atlantic, and Southeastern regions. The decrease in revenue can be attributed to many factors, including “jackpot fatigue,” fewer millennials playing the lotto, and increased competition from casino gaming. Despite the decline in lottery revenue, some states have resorted to increasing ticket prices and prize amounts to boost revenue.