Lottery fever is upon us once again.
The Mega Millions jackpot hit $1.6 billion after there was no winner last week. That’s a cash option of $904 million and makes this jackpot the largest in U.S. history. The draw will be held at 11 p.m. ET on Tuesday. The second-largest win in the U.S. was the $1.586 billion Powerball jackpot won on Jan. 13, 2016. Don’t hold your breath for a win if you buy a ticket. Statistics show you are more likely to die or kill someone while driving 2 miles or be attacked by a shark.
The lottery only becomes ‘progressive’ — when high earners spend more on tickets than more than low earners — when the jackpot reaches $1 billion.
Mega Millions commercials encourage all people to participate: “Mega Millions is bigger. Make sure your dreams are too!” But critics say studies overwhelmingly show that those who buy the most tickets (and on a regular basis) are the ones who can least afford to do so.
Lottery jackpots are overwhelming played by low-income Americans, studies show. Les Bernal, national director of Stop Predatory Gambling, a Washington, D.C.-based nonprofit group, says the rags to riches advertising is a fantasy for more vulnerable people, and they are more tempted by jackpots than wealthier Americans. In fact, he calls scratch cards and lottery tickets a “Hail Mary investment strategy for the poor.”
Here are 5 things that you won’t learn in lottery commercials:
- 1 1. Wealthy people jump in when the jackpot hits $1 billion
- 2 2. Most lottery winners in one study were receiving state benefits
- 3 3. State lotteries are exempt from FTC ‘truth in advertising laws’
- 4 4. Lottery tickets are overwhelmingly bought by low-income Americans
- 5 5. Lotteries increase in popularity — along with the gap between rich and poor
1. Wealthy people jump in when the jackpot hits $1 billion
It seems like everyone wants to play when the stakes are this big. The lottery jackpot only becomes “progressive” — meaning that high earners spend more on tickets than more than low earners — when the jackpot is at least $806 million or more, according to this 2004 study of the Powerball lottery by Emily Oster, currently a professor of economics at Brown University. That’s more than $1 billion in 2018 dollars.
“Richer individuals may only be willing to play at higher jackpots — they have a higher threshold for entry — which would produce this result,” she wrote. “If income tracks education, the rich may have a better understanding of the odds. This, too, could cause richer players to wait until higher jackpots to enter.” As such, lottery cards are likely to be more “regressive,” that is mostly played by lower income Americans, Oster said.
“Most theories of why people play lotteries rely either on a ‘fun’ component of gambling which increases lottery utility or on players having a poor understanding of the odds of the game,” she added. She used demographic U.S. Census Bureau statistics about each zip code (including information on income, education, race, unemployment and urban population).
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“When lottery-playing individuals were asked if they bought their lotto tickets in their neighborhood, 84% of people who played more frequently than once a year said they did,” Oster added. “Since a neighborhood is probably smaller than a zip code in most cases, this number would likely be even higher were they asked about within zip code purchases. This provides some confidence in a high correlation between population and purchaser demographics.”
2. Most lottery winners in one study were receiving state benefits
Lotteries are seen as a “regressive” tax. Another study looked at winners. In 2015, the Maine Department of Health and Human Services analyzed data from the Bureau of Alcohol and Beverage and Lottery Operations on individuals who won money in the state lottery.
Some 4,865 winning tickets of $1,000 or more were cashed in by 3,685 individuals receiving state benefits over the previous five years, reaching $22 million in lottery jackpots of various sizes. So — unless they were an unusually lucky group of people — they likely spent far more than any other group on tickets.
For that reason, Brent Kramer, a research associate at the Fiscal Policy Institute, a nonprofit research and policy organization, and others call lotteries a “regressive tax” by offering the poor a rich fantasy. “If the promised return is by far illusory — and it is — it would be hard to argue that those purchases do not constitute a tax on those who believe the state’s hype,” Kramer wrote in a 2010 paper. In the event that someone did win the latest $700 million Powerball lottery, Bernal says it will be “the single biggest redistribution of wealth” since, well, the January 2016 Powerball.
3. State lotteries are exempt from FTC ‘truth in advertising laws’
Even though some scratch cards cost as much as $50 in Texas and $30 in Massachusetts, state lotteries are exempt from Federal Trade Commission “truth in advertising laws” The Federal Communications Commission prohibits the broadcast of lottery advertisements, but has exemptions for lotteries “conducted by a state acting under the authority of state law. Hence, TV commercials like “The Possibilities are Endless.”
Lotteries raise over $70 billion a year, according to the North American Association of State and Provincial Lotteries. Profits from the Powerball are used to fund public projects approved by state legislatures. Since the New Hampshire lottery was founded in 1964, lotteries have raised more than $200 billion for government programs in North America, according to the North American Association of State and Provincial Lotteries.
The NASPL disputes the findings of these various studies. Lottery retailers are located in areas where people work, not just in low-income neighborhoods, along with grocery stores, the organization says. This is why you will find more lottery outlets in the center of a city, just as you would find more grocery stores and convenience stores, the NASPL adds.
4. Lottery tickets are overwhelmingly bought by low-income Americans
Lower income Americans gamble on the lottery more frequently, according to one 2011 study of over 5,000 people published in the Journal of Gambling Studies. Americans in the lowest fifth socioeconomic status group had the highest rate of lottery gambling (61%) and the highest mean level of days gambled in the past year (more than 26 days), it concluded. Increased levels of lottery play have been linked with certain sections of the U.S. population — men, African-Americans, Native Americans, and those who live in disadvantaged neighborhoods.
(Susan Cartwright, a spokeswoman for Scientific Games
which sells scratch cards, says a 2014 study by an independent research firm, Chadwick Martin Bailey, found that lottery players mirror the general public’s ethnicity, employment, and income.)
There were very few observed differences in lottery gambling for those in the three upper socioeconomic status groups — approximately 43% gambled on the lottery and the three upper groups averaged about 10 days of gambling on the lottery in the previous year of the 2011 study, a trend that was found in other countries with lotteries.
5. Lotteries increase in popularity — along with the gap between rich and poor
The Mega Millions lottery will be played in an America where the gap between rich and poor has never been greater. As the gap between rich and poor increases, so does the money spent on the country’s lotteries. Americans spent $72.7 billion on lotteries in 2016, up from $29.8 billion 1995, according to U.S. Census Bureau data cited by The Washington Post. U.S. economic growth has been a double-edged sword for many Americans. In 1980, the U.S. and Western Europe had similar levels of inequality.
While the top 1% of earners made up just 10% in both regions in 1980, it increased slightly to 12% in 2016 in Western Europe, but doubled to 20% in the U.S., according to a report released last month by the World Inequality Lab, a research project in over 70 countries based at the Paris School of Economics, and co-authored by the French economist Thomas Piketty.
The average chief executive of an S&P 500 company made $13.1 million per year in 2016 — equivalent to 347 times more money than the average worker, according to separate data released by Executive Pay Watch, a report conducted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). “When adjusted for inflation, the average wage has remained stagnant for 50 years,” it found.
View more information: https://www.marketwatch.com/story/is-this-1-billion-scratch-card-game-a-new-high-or-low-for-us-lotteries-2017-05-12