How Lotteries Transfer Wealth From Poor
A report from The Associated Press shows that state lotteries have nearly doubled in size over the past two decades, transferring billions of dollars from low-income U.S. communities to multinational corporations.
The Howard Center for Investigative Journalism at the University of Maryland found that lottery retailers are disproportionately clustered in low-income areas. Analysis of cellphone location data shows that customers come from similar communities.
All but five U.S. states have lotteries. According to La Fleur’s 2022 World Lottery Almanac, lottery ticket sales have grown from $47 billion to $82 billion since 2005. Lotteries generate more revenue than corporate taxes in 10 states.
The investigation found that lotteries’ promise to support education isn’t true. Lotteries often exacerbate inequities by favoring college students and wealthier school districts far from where most tickets are sold.
Gregory W. Sullivan, a former Massachusetts inspector general and now research director for a free-market think tank in Boston, said, “Poor people are collateral damage to a cause of raising money for what the legislators feel is good purposes … public safety, local schools.”
Ashley Standifer buys tickets in one of Warren, Michigan’s poorest neighborhoods to start the multibillion-dollar wealth transfer.
On a snowy April day, Standifer bought scratch-off tickets at the Korner Party Store in a Detroit suburb.
She buys daily scratch tickets. Her last big win was $1,000 on a $3 ticket four years ago.
“Of course, you know, I’m expecting to get my money back,” Standifer said. “But if I don’t … I’m still gonna buy it.”
Standifer’s spending is a small part of the $82 billion annually spent by lottery players, the first input in a nearly nationwide system that brings state-sponsored gambling to more than 200,000 stores.
Standifer loses 35 cents for every dollar she spends.
Standifer spent $130 and won $85 yesterday, losing $45.
Lotteries exist to offset these losses, $29 billion annually. The losses enrich a Canadian private equity billionaire and a Japanese convenience-store conglomerate.
In popular imagination, people who buy Powerball tickets when the jackpot is big fund the lottery. False.
Two-thirds of lottery sales are $1 to $50 instant scratch-off tickets. Few players spend the most.
The top 10% of lottery spenders account for two-thirds of sales, according to a 1999 report. Most frequent players had low incomes, were high school dropouts, and were disproportionately Black.
Dropouts spend four times as much as grads. Blacks spent five times as much as whites.
Massachusetts recognizes the importance of frequent players. The top 10% of players account for 40% of lottery sales, according to a 2016 study. This group’s average weekly lottery spending was $200.
According to a 2014 state-commissioned study obtained by the Howard Center, South Carolina players with incomes below $35,000 spent twice as much as those with incomes between $100,000 and $150,000.
Cloyd White, 26, a construction worker from Jasper County, South Carolina, spends $40 a day. “It’s a gamble and it’s risky, but I feel like it’s all about God.”
It’s also about state lottery sales decisions.
Stop Predatory Gambling’s Les Bernal says there’s a reason so many lottery outlets are in low-income areas.
The Howard Center found that stores in most states with lotteries are disproportionately concentrated in low-income, minority communities with high poverty rates.
Alabama, Alaska, Hawaii, Utah, and Nevada lack lotteries. The Howard Center couldn’t get South Dakota lottery retailer locations, but it did for 44 other states and D.C.
In all 44 states and D.C., neighborhoods with lottery retailers have a higher poverty rate than those without.
In 35 states and D.C., Black populations were higher in neighborhoods with lottery retailers.
In 37 states and D.C., Hispanic population was higher in neighborhoods with lottery retailers.
The store where Standifer bought her tickets is in a poor neighborhood. Four lottery retailers are there, with 28 more nearby.
Neighborhoods with a lottery retailer in Michigan have a nearly doubled poverty rate, the center found.
The North American Association of State and Provincial Lotteries says it’s misleading to examine store concentration because people “don’t always buy their lottery tickets in the neighborhoods where they live.”
Indeed. First-of-its-kind Howard Center analysis of mobile phone location data shows lottery customers are mostly local.
SafeGraph, a location intelligence firm, provided the center with mobile location data on U.S. store foot traffic. SafeGraph reveals a store’s customers’ neighborhoods.
A Warren, Michigan Marathon gas station sold more than $725,000 in lottery tickets in 2020, ranking in the top 20% of retailers statewide.
More than two-thirds of its customers live in the same neighborhood or nearby, with the average customer living within 1.1 miles.
The Howard Center found similar patterns at nearly three-quarters of U.S. lottery retailers. Except for Arizona and D.C., most lottery retailers served local customers.
The Marathon gas station’s customers had an average household income $16,000 less than Michigan’s $57,000 median. In 29 of 44 states and D.C., the Howard Center found a similar divide: neighborhoods that visited lottery retailers had lower average household incomes than the state overall.
A Howard Center review found states recruit retailers based on store security, sales goals, and advertising compliance. No evidence suggests states consider racial or economic inequity.
Groups of small players lose while m ultinational companies that run state lotteries, large stores, and advertising and media companies are consistent winners.
These entities and state administrators will keep $8 billion of the $29 billion lost by players.
International Game Technology PLC and Scientific Games Holdings LP dominate the lottery operations industry.
Scientific Games’ lobbying in the 1980s helped expand the lottery from New Hampshire in 1964 to nearly every state. Scientific Games sold its lottery business to Brookfield Business Partners LP for $6 billion. Forbes values Brookfield CEO Bruce Flatt at $4.5 billion.
Stores earn commissions on ticket sales and winnings. They earn 6% on average, plus bonuses when customers win big. La Fleur’s almanac says they made $5 billion in 2020.
Convenience stores sell most lottery tickets. Japanese firm Seven & I Holdings owns more than 10,000 7-Eleven and Speedway stores.
Many states allow low-income store sales. The Howard Center found that check-cashing stores sell lottery tickets in 24 states.
After prizes and lottery costs are paid, $21 billion is left for government programs.
At least $21 billion is for education.
Standifer plays the Michigan lottery, which promotes education. The state spends most lottery money on K-12 education.
Studies show the state’s funding formula is unfair. The Education Law Center gave Michigan a “D” in 2021 for how it funds low-income districts.
15 states were classified as regressive, meaning high-poverty districts received a third less per student. Florida, Illinois, Michigan, Missouri, New Hampshire, and Texas have lotteries that fund K-12 education.
Some states fund scholarships with lottery money.
In Kentucky, nearly half of lottery scholarship funding goes to the Kentucky Educational Excellence Scholarship (KEES).
A Howard Center analysis of 2020 state scholarship data shows that Black Kentucky high school students received less than 5% of KEES merit-based scholarship funding. The average white KEES recipient received $1,745, while Black recipients received $1,244.
Black students received 11% of need-based scholarships in the state.
Abby Donahue, 21, said gambling is a “system designed to make you lose.”
College is so expensive, she said, that students don’t think about where the money comes from.
Meanwhile, Standifer and millions of others like her continue to play.