Playing The Lottery: Looking For “Easy Street” In All the Wrong Places?

In Part 3 of our series, it’s time to focus on the people who play the lottery. Other states conduct extensive marketing surveys that pinpoint players’ demographic characteristics and use those statistics to create marketing plans. For instance, the advertising plan for Ohio’s SuperLotto game was to advertise most heavily early in the month – when government benefit checks are distributed. That strategy was based on demographic studies that showed likely players had the most disposable income during that time.

The federal government banned lottery advertising until 1975, when states were free to market the games. In 1997, states spent over $400 million on advertising and promotion. That’s because marketing is critical to the success of a state lottery. Lotteries – more than any other state program or service – are run as businesses where there’s constant pressure to expand and maximize profits. They do this by selling hope, fantasy, and excitement. For instance, the 1991 book on state lotteries by Charles Clotfelter and Philip Cook – Selling Hope: State Lotteries in America – describes these marketing campaigns (pp. 203-208):

• New York advertises “All you need is a dollar and a dream!”
• A California TV commercial for a game called “The Good Life” showed images of well-dressed, happy people in expensive cars, vacationing in exotic locales, and living in houses that would impress the Vanderbilt family.
• Washington DC ads showed a man who appeared to be homeless – unshaven, raggedy clothes, matted hair etc. After winning the lottery, he’s shown in a tuxedo holding a theater program. “The ad proclaims, “Just One Ticket… and It Could Happen To You.”
• In Michigan, the sales pitch is simple. “The rich. Join them.”

None of this is illegal – although some states like Massachusetts and Virginia have imposed restrictions on lottery ad campaigns due to concerns about misleading ads that overstate the benefits and ignore the long odds.

And none of this is immoral. Many people play the lottery for entertainment and enjoy the fantasy of “what would I do with the money if I won?” It’s a harmless thrill that costs even less than a movie ticket. But unlike movie producers who take enormous financial risks financing movies, lotteries are a pretty sure bet to make money:

Lotteries have the highest profit rates in gambling in the U.S.: in 1996, net revenues (sales minus payouts, but not including costs) totaled $16.2 billion, or almost 38% of sales. They are also the largest source government revenue from gambling, in 1996 netting $13.8 billion, or 32% of money wagered, for governments at all levels.

But profits can only be sustained if people continue to be entertained and continue to hope for a big win. This entails new games, larger jackpots, and more advertising targeted towards current and new players.

Let’s look at who those people are on the flip….

FYI… Parts 1 & 2 of the series are here:  Part 1     Part 2

 

Who Plays the Lottery?
The most well-researched and comprehensive information on demographics and spending that I could find comes from Clotfelter and Cook, the same two economists who wrote Selling Hope. In 1999, they presented a report to the National Gambling Impact Study Commission (NGISC) titled: “Lotteries at the Turn of the Century” (warning: it’s a 45-page PDF!). It’s a fascinating study of the growth and operation of the lottery industry from the 1960’s through 1998.

As part of the effort, the two economists collected data on who plays the lottery and how often. They broke it out by gender, race, income level, and education level – with fascinating results as you can see in these charts:

Lottery play by gender:

Lottery play by Education level:

Lottery Play by Ethnic Group

Lottery Play by Income: Note… for simplicity and space, I rounded the income levels so instead of $10k – $24,999 for example, I went up to $25k.

Characteristics of “Heavy” Lottery Players – Those in the top 20% for frequency of use.

A few takeaway points:

• Men are slightly more likely than women to play but men are far more likely to play “heavily.”
• Approximately the same percentage of people in each income group play the lottery, but there are huge differences in how often they play and how much they spend per capita. Therefore, it’s important to study the
• The lower a person’s education level and income, the more likely they are to play and purchase more tickets.
• Blacks and Hispanics are far more likely to play heavily than Whites.

Income and education not only influences how much you spend on lottery tickets (if you buy them at all), but they can also predict what type of games you’re more likely to play. The Chicago Sun-Times found that lower-income players are more likely to be daily players and tend to gravitate towards the scratch-off tickets and “instant win” games that trade “lower payoffs with a higher chance of winning.”

Lotto-type, pari-mutuel games like “Powerball” and big-jackpot, multi-state lotteries draw more ticket buyers from upper-income groups “most of whom are only occasional players, usually when the prize money reaches large proportions.”

Low Income Players: Too much hope? Or too little?
Given their lower levels of disposable household income, it strikes many as odd that lower income people spend comparatively more per capita on lottery tickets. A 2008 study conducted by Carnegie Mellon University found that the issue is not too much hope but rather too little:

“Some poor people see playing the lottery as their best opportunity for improving their financial situations, albeit wrongly so,” said the study’s lead author Emily Haisley, a doctoral student in the Department of Organizational Behavior and Theory at Carnegie Mellon’s Tepper School of Business. “The hope of getting out of poverty encourages people to continue to buy tickets, even though their chances of stumbling upon a life-changing windfall are nearly impossibly slim and buying lottery tickets in fact exacerbates the very poverty that purchasers are hoping to escape.”

These are people who have lost faith in our economic system. With less education and fewer financial resources than most of the population, even the 5,000,000 to 1 odds of winning the lottery seems like a better deal than struggling out of poverty by relying on government benefits or minimum wage jobs.

Advertisers understand the mindset all too well, leading them to design campaigns like this notorious example described in the NGISC study:

The image of the state promoting a highly regressive scheme among its poorest citizens by playing on their unrealistic hopes is a highly evocative one. The most frequently cited, and most egregious, example of this was a billboard in one of Chicago’s poorest neighborhoods that touted the lottery as: “How to go from Washington Boulevard to Easy Street – Play the Illinois State Lottery.”

But some Tennessee legislators took a different perspective during the 2009 legislative session, introducing a bill that would cap lottery winnings at $600 for any person on public assistance. Additional winnings would be returned to the state. The proposal was dropped after lottery officials estimated it would cost the program over $6 million in revenues the first year.

Nobody’s Forced to Play the Lottery
Lottery proponents sometimes deride concerns about the poor and under-educated as paternalistic, nanny-type thinking. And sometimes they’re right.  Most organized opposition to lotteries comes from religious groups that condemn any sort of gambling.

Certainly, nobody forces anyone to buy a lottery ticket and in that sense, the lottery can reasonably be compared to a “voluntary tax” much like excise taxes on liquor and tobacco products. After all, you don’t pay high excise taxes on cigarettes and Jack Daniels unless you smoke and drink, right?

That’s certainly true and I’m not as concerned with the moral and ethical arguments for and against lotteries as I am the basic financial arrangements. If Alabama has a lottery, I want it to work for the benefit of all citizens – not the well-connected guys who can snag lucrative contracts and shady legislators who can steer millions to pet projects and contributors.

However, I confess that I am troubled by these numbers. Many state lotteries are paying for advertising that, in many cases, is misleading and coercive. It preys on the people least likely to understand the odds – and indeed, it downplays the long odds of winning. I applaud the states that have taken steps to curb advertising and make it more realistic, but in doing so, they cut into their profits. So how long will the curbs stay in place? The one surety about state lotteries is the pressure to produce more and more money for the state.

Tomorrow’s post will probably be even more provocative.

We’re going to look at who actually benefits from lottery scholarships in Georgia and Florida. Given that you have to actually graduate from high school to get a college scholarship, many low-income and black Alabama students will have a lot of ground to make up before they can ever claim the lottery’s promise of a better education and a better life.