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Tue April 3, 2012
State Legislatures To Benefit From Mega Millions
AUDIE CORNISH, HOST:
The mystery continues for another day. Three tickets matched last week's record $656 million-Mega Millions drawing. The tickets were bought in Kansas, Illinois and Maryland, but so far, no one has claimed the prize. It could mean a life-changing $218 million per winner before taxes, but record-breaking lotteries like this are also a payday for the 44 states, and District of Columbia, which sell the tickets.
So to find out just where the money goes, we turn to Charles Clotfelter. He's a professor at Duke University and coauthor of a book called "Selling Hope: State Lotteries in America." Professor Clotfelter, welcome to the program.
CHARLES CLOTFELTER: Thanks very much for having me.
CORNISH: So just how much money can states make from lottery revenue? And what should people understand about where that revenue is really going?
CLOTFELTER: Out of the average dollar that gets spent on a lottery ticket, something on the order of 60 cents gets returned to players in the form of prizes. It costs about 15 cents per dollar to give the retailer a commission and then pay for the running of the lottery. And that leaves 25 cents for the state. That's a pretty good profit.
Twenty-five cents on a dollar is a lot like a 25-tax on a 75-cent product. And that, if it were a tax, would be a tax of 33 percent. It would be a rate way higher than anything else that we apply to taxed goods including alcohol, tobacco and gasoline.
CORNISH: Now, I know that more than two dozen states earmark money for education, but what are the other reasons that states are so quick to embrace lotteries?
CLOTFELTER: First and foremost, it's a need for revenue. And once the ball got started, then you could look across the state line at your neighboring state, they were making money. You didn't want to be the sucker to have all your people go cross this border, use their gas stations, their convenience stores and buy tickets over there. So it was almost a question of self-defense.
But to put a little historical perspective on this, lotteries were used in the colonial era. Lotteries financed bridges, the Revolutionary War and part of Harvard College. Some big names were lottery players, including George Washington and Benjamin Franklin. It's got a long history. And then it went into disrepute at the end of the 19th century, and then it was not until 1964 when New Hampshire started it again. And now, the majority of states have those.
CORNISH: Is this, in a way, a kind of morale booster for people who play, for states?
CLOTFELTER: I look upon the way that people talk about the lottery, exchange stories about what would you do if you won that, is a good thing. It's something that brings people together, and it's harmless entertainment for most people.
CORNISH: Professor Clotfelter, I have to ask, do you play the lottery?
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CORNISH: Never been tempted?
CLOTFELTER: Oh, I have done it maybe a couple of times. But most of the people that are professors of economics, they think that it is a bad investment. And as an investment, it's a pretty terrible investment. But it's not simply an investment. It might be a form of entertainment, and it's not any more irrational than playing a video game, going to a movie or buying a cookie.
CORNISH: Well, thank you so much for talking with us.
CLOTFELTER: You're welcome.
CORNISH: Professor Charles Clotfelter. He teaches at Duke University in Durham, North Carolina. He coauthored the book "Selling Hope: State Lotteries in America."
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ROBERT SIEGEL, HOST:
When it comes to winning the lottery, you may have heard that you have a better chance of getting struck by lightning. Well, that happened to Bill Isles on Thursday night. The getting struck part, that is, not the winning. Isles is a volunteer for the National Weather Service in Kansas, and he had just stepped outside to scan the skies for bad storms when he was struck.
It happens that Isles had already bought several tickets to the Mega Millions drawing. He turned out to be OK. And, of course, the odds were correct. He did not have one of the winning tickets. Transcript provided by NPR, Copyright National Public Radio.