Vice Squad
Sunday, October 07, 2007
"Behind the Jackpot"

The front page of the New York Times today featured an article on state lotteries in the US, as part of an eventual series (I suppose) entitled "Behind the Jackpot." The online version also features a spiffy and informative interactive map where you can check out some state-by-state figures, and a 10-minute-plus video focusing on North Carolina's recent adoption of a state lottery. The relatively small contribution that lotteries make to overall education budgets, even when proceeds are earmarked for education, is highlighted, as are some of the unsavory marketing tools employed in some states. The overall tone of the article (and video) is quite negative, and to my mind, ingenuously so. The article and video make a big deal over the fact that the majority of money spent by lottery ticket buyers does not go to the state as net revenue -- but this mainly is because you have to return something like half the money in prizes to have a sustainable lottery. The map notes that the Massachusetts lottery has the highest payback rate -- 72 percent -- and attracts the largest per-capita spending, and that other states hope to emulate it. Massachusetts's sort of success can be spun as failure (and is so spun in the article) if your measure of success is the percentage of ticket revenues that remains in state coffers. I agree that marketing and administrative expenses are worth keeping track of, and there is something to be said for controlling advertising and not seeking to maximize profits, but the percentage of the spend that becomes net state revenue, which almost has to be less than 50 percent, is just not an important metric. (Whew.)

The Iowa figures on the map, which seem to suggest that administrative expenses equal 40 percent of the ticket sales, appear dodgy. Ignoring those, the lowest payback rate is reported to be in North Dakota, where prizes are 49% of sales and the lottery is not very popular ($35 in annual sales per capita). Per-capita ticket sales in Massachusetts are a staggering $699 yearly.

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