soaking the rubes

On my long Saturday runs, I often stop for a li'l convenience store Gatorade. Over the years, I've spent more and more time waiting in line behind the lottery players. According to the Wall Street Journal, U.S. lottery sales have risen from about $20 billion in 1992 to over $77 billion in 2008. With the current recession, however, they may be declining in some states.

The Wall Street Journal story suggests that die-hard gamblers are still playing just as much, but the part-timers have dropped off during the recession. I suspect we'd see the same sort of pattern with alcohol spending: heavy drinkers would drink just as much during a recession -- though they might switch to cheaper stuff -- but moderate drinkers would (because they could) moderate their expenditures.

To try to understand the $77 billion figure in the WSJ chart, I checked out the source data at the U.S. Census Bureau and made a few plots after standardizing by the adult population. I should add a caveat here, since I'm unfamiliar with the accounting procedures and the social science literature on lotteries. But here goes...


By my count, there were $336 in annual state-administered lottery ticket sales per U.S. adult resident in 2008.

Three states run ginormous lotteries: Delaware, West Virginia, and Rhode Island. I'd imagine these are "destination" lotteries, drawing purchasers from neighboring states. If so, the per capita numbers are likely misleading (e.g., $11,960 per adult in Delaware), so I top-coded the first graph at $1,000 per resident.

The census data also listed prizes, administrative costs, and net proceeds available, which might say something about the efficiency of each state's operation. I'm not a fan of state-run lotteries, but I'd hope that after soaking the good rubes they'd at least put a li'l cash back into the state coffers. A simple plot of the proceeds returned per sales dollar suggests that Michigan and Illinois do best on the latter count: they each return about 39 cents for every dollar in sales.

Michigan took in 2.33 billion, paid out 1.35 billion, spent $66 million on administration, leaving $913 million available for the state's financially troubled public schools.

I was not at all surprised to see Minnesota rank low in terms of sales, proceeds, and return to the state coffers. Apart from the three mega-lottery states (who surely make it up in volume), Minnesota, Massachusetts, and South Dakota had the lowest proceeds per dollar sold. At .22, the Minnesota rate is a bit more than half that of Michigan.

Still, I'm a little disappointed to think that there were $411 million in lottery tickets sold in my state last year -- or over a hundred bucks for every man and woman in the state. I'm also a little cheesed off about the ratio. If we'd been running our lottery like Michigan, we'd have $161 million of the proceeds in the coffers (.392*411m), rather than the $92 million currently available to the state.