How to Succeed in the Lottery Business

The New York Times takes a look at the major corporate players in the state lottery game. The key to doing well in this business seems to be bribing state lottery officials. Getting caught doesn't even seem to be a big problem.

If we're going to have lotteries at all (I have mixed feelings about this) doesn't it seem like we really, really, really shouldn't make them state-licensed monopolies? After all, I imagine that if you had a whole bunch of different competing lottery firms they might need to start offering somewhat better odds in order to keep their customers.

Comments

This assumes that concern for the public welfare has any role in state lotteries.

This is the PT Barnum school of public finance. If it wasn't corrupt, that would be a sure sign that the firms running it were in need of new management. (Or that we weren't looking hard enough)

Posted by heedless | October 21, 2007 7:43 PM

Competition wouldn't lead to better odds - people who play lotteries simply don't *care* about odds.

Posted by Shadow Wolf | October 21, 2007 7:48 PM

Offering better odds would undermine state Lotteries as sources of revenue. Bad odds are what make Lotteries so profitable.

Keeping something like a lottery honest is really not that hard, because it does not take very many people to run one. This is not a Pentagon running a vast military-industrial complex.

Responsibility for a lottery can easily be lodged in the hands of a single official and a small staff. Then, the trick is to watch that official.

The corruption problem is hardly limited to state Lotteries. It has become endemic in the country, infecting private business as well as government. It is just a symptom of a political culture, which is gradually succumbing to the plutocracy. Erik Prince is our new hero.

Posted by Bruce Wilder | October 21, 2007 8:32 PM

I see SW has already beaten me to this point, but I too wondered if there's any evidence -- or even psychological (rather than economic) theory -- that suggests people would take the trouble to figure out (*and then act on*) the odds in a competitive market of gambling/lotteries?

From a purely personal, non-data driven, anecdotal perspective, my (legal and infrequent) gambling certainly isn't especially influenced by the odds.

Vegas already provides a rich data set for these questions, one would think; it doesn't seem like market-driven engagement in unbelievably long-odds gambling is particularly prevalent.

I would guess -- again, I readily admit having no data to back this up, just semi-informed speculation -- that lotteries are *overwhelmingly* regressive in terms of participants and cash input. Not good times.

Posted by AJ Rossmiller | October 21, 2007 8:36 PM

It's not so much the odds that make a lottery profitable, as the fact that the state is ready and willing to arrest the competition.

http://www.theagitator.com/archives/027726.php

And lotteries with payouts below $800 million (the vast majority) are highly regressive.

http://home.uchicago.edu/~eoster/powerballnote.pdf

The common term among stats geeks is "a tax on people who are bad at math" There's even a bumper sticker.

Posted by heedless | October 21, 2007 9:24 PM

I would've called it a tax on the poor and stupid, but then I've never been a stats geek.

Posted by southpaw | October 21, 2007 10:55 PM

It's all a remnant of prohibition-type thinking--Gambling is a corrupting force that has to be regulated. I happen to agree. People cannot be trusted.

Posted by Lev | October 21, 2007 11:18 PM

James Kunstler has a pretty interesting post on The Casino Syndrome

"What's wrong with state-sponsored gambling is simple: it promotes the idea -- inconsistent with the realities of the universe -- that it's possible to get something for nothing. It is unhealthy to an extreme for a society to make this idea normal because it defeats another idea that a society absolutely depends on for survival -- namely that earnest effort matters. . ."

Posted by roublen | October 21, 2007 11:19 PM

This assumes that concern for the public welfare has any role in state lotteries.

This is the PT Barnum school of public finance. If it wasn't corrupt, that would be a sure sign that the firms running it were in need of new management. (Or that we weren't looking hard enough)

Precisely. States have glommed onto lotteries because the two-bit hustlers who inhabit statehouses refuse to put honest choices before the voters: You want good roads? You'd better be ready to pay for them. You want good schools? Pony up. And the voters, always looking for painless, "cost-free" "solutions", lap it up.

That well-connected corporate swindlers should get in on the action doesn't really come as a surprise. Hell, Lockheed Martin now performs some city services right here in DC, and in other local jurisdictions as well. I imagine SAIC and the boys have similar deals, or are angling for them. Leveraging systems experience to enhance gaming entertainment transaction synergies? Shit, the PowerPoint slides practically write themselves.....

It's tangential, but this is why it's so mordantly hilarious reading the WaPo's occasional frets about Vladimir Putin: Russia's only a little less disingenuous about going down the same trajectory we are. Their oligarchs don't even bother to pretend that they're acting in the public interest. And right here in the nation's capital our oligarchs are busy attaching themselves to and feeding from of every public trough.

Posted by sglover | October 22, 2007 12:28 AM

Living in Vietnam, a society where gambling and numbers running may be even more endemic than in the US, I'm not really sure that eliminating state lotteries would do much for the public good. There's something to be said for the idea, at least, of driving private gambling out of business. But it ought to be run the way they run government-provided heroin in Holland. It should be completely illegal to promote the lottery. Advertisements should be required to follow the format: "Don't gamble! We guarantee you will lose money. But if you must, certainly don't gamble illegally, because you'll not only lose money, you might get arrested. Instead, play the state lottery." Lottery tickets should be ugly. The models on the advertisements should be ugly and wear bad clothes. The payouts should be frequent and small enough to even nourish fantasies. Maybe you should actually have to present a gambling addict's card to play, and scratch off the number at the same time as you buy. They should just make the whole thing totally unsexy, like government cheese.

Posted by brooksfoe | October 22, 2007 5:12 AM

>Competition wouldn't lead to better odds - people who play lotteries simply don't *care* about odds.

Not true. I was in NC last year -- about the time they instituted lottery games. The lottery law mandated a rather high capture rate of ticket sales (and low return to buyers). Initial sales were high, IIRC, but came down to earth quickly when people realized they weren't winning. I think the legis. was going to revisit the lottery regs.

Posted by Matt B | October 22, 2007 11:08 AM

AJ Rossetc--I've seen advertisements for casinos (namely, billboards on an Interstate, so targeted at a general audience) that touted how much of the take was paid out again as prizes. So there's at least some evidence that (some) people are odds-sensitive for gambling. Obviously might not hold for various demographics, differences between lotteries and casinos, etc., but still interesting.

Posted by Dan Miller | October 22, 2007 12:13 PM

Ironically, the Tuesday Morning QB over at page2 at ESPN predicted corrupt state lottery's just the other week on the basis of the payouts/earning. Apparently the typical 'administrative' costs of running these things run in the 10% or more range. That's like $100 million. No way it actually costs that much to run the lottery he reasons- must be state lottery officials giving sweetheart deals to local businessman. Sure enough, turns out to be the case.

Brooksfoe has an interesting perspective here. I tend to agree- a state lottery is good at preventing private gambling. The state should take something off the top for revenue (My personal opinion is that this doesn't make the lottery 'tax' any less regressive), but the problem is that once you institute a lottery, now their is big money at stake. Big money creates incentives to boost advertising and filter money into private pockets. The shame is that our society is at a stage where you basically have to assume that if you introduce those incentives they will be acted on. Public interest is not really a counter-vailing force at this poitn.

Posted by mpowell | October 22, 2007 12:57 PM