A lottery is a form of gambling which involves the drawing of lots for a prize. Lotteries are outlawed by some governments, while others endorse it to the extent of organizing a national or state lottery. It is common to find some degree of regulation of lottery by governments. Though lotteries were common in the United States and some other countries during the 19th century, by the beginning of the 20th century, most forms of gambling, including lotteries and sweepstakes, were illegal in the U.S. and most of Europe as well as many other countries. This remained so until well after World War II. In the 1960s casinos and lotteries began to re-appear throughout the world as a means for governments to raise revenue without raising taxes.
Lotteries come in many formats. For example, the prize can be a fixed amount of cash or goods. In this format there is risk to the organizer if insufficient tickets are sold. More commonly the prize fund will be a fixed percentage of the receipts. A popular form of this is the "50–50" draw where the organizers promise that the prize will be 50% of the revenue. Many recent lotteries allow purchasers to select the numbers on the lottery ticket, resulting in the possibility of multiple winners.
The purchase of lottery tickets cannot be accounted for by decision models based on expected value maximization. The reason is that lottery tickets cost more than the expected gain, so one maximizing expected value should not buy lottery tickets. Yet, lottery purchases can be explained by decision models based on expected utility maximization, as the curvature of the utility function can be adjusted to capture risk-seeking behavior. More general models based on utility functions defined on things other than the lottery outcomes can also account for lottery purchase. In addition to the lottery prizes, the ticket may enable some purchasers to experience a thrill and to indulge in a fantasy of becoming wealthy. If the entertainment value (or other non-monetary value) obtained by playing is high enough for a given individual, then the purchase of a lottery ticket could represent a gain in overall utility. In such a case, the disutility of a monetary loss could be outweighed by the combined expected utility of monetary and non-monetary gain, thus making the purchase a rational decision for that individual.
- 1 Early history
- 2 Early modern history
- 3 Modern history by country
- 4 Probability of winning
- 5 Scams and frauds
- 6 Notable prizes
- 7 Payment of prizes
- 8 Rollovers and Roll Downs
- 9 Non-randomness
- 10 Fortune cookie payout
- 11 See also
- 12 Further reading
- 13 References
- 14 External links
The first recorded signs of a lottery are keno slips from the Chinese Han Dynasty between 205 and 187 BC. These lotteries are believed to have helped to finance major government projects like the Great Wall of China. From the Chinese "The Book of Songs" (2nd millennium BC.) comes a reference to a game of chance as "the drawing of wood", which in context appears to describe the drawing of lots. From the Celtic era, the Cornish words "teulel pren" translates into "to throw wood" and means "to draw lots". The Iliad of Homer refers to lots being placed into Agamemnon's helmet to determine who would fight Hector.
The first known European lotteries were held during the Roman Empire, mainly as an amusement at dinner parties. Each guest would receive a ticket, and prizes would often consist of fancy items such as dinnerware. Every ticket holder would be assured of winning something. This type of lottery, however, was no more than the distribution of gifts by wealthy noblemen during the Saturnalian revelries. The earliest records of a lottery offering tickets for sale is the lottery organized by Roman Emperor Augustus Caesar. The funds were for repairs in the City of Rome, and the winners were given prizes in the form of articles of unequal value.
The first recorded lotteries to offer tickets for sale with prizes in the form of money were held in the Low Countries in the 15th century. Various towns held public lotteries to raise money for town fortifications, and to help the poor. The town records of Ghent, Utrecht, and Bruges indicate that lotteries may be even older. A record dated May 9, 1445 at L'Ecluse refers to raising funds to build walls and town fortifications, with a lottery of 4,304 tickets and total prize money of 1737 florins (worth about $170 thousand in 2014 US dollars). In the 17th century it was quite usual in the Netherlands to organize lotteries to collect money for the poor or in order to raise funds for all kinds of public usages. The lotteries proved very popular and were hailed as a painless form of taxation. The Dutch state-owned Staatsloterij is the oldest running lottery. The English word lottery is derived from the Dutch noun lot meaning "fate".
The first recorded Italian lottery was held on January 9, 1449 in Milan organized by the Golden Ambrosian Republic to finance the war against the Republic of Venice.
However, it was in Genoa that Lotto became very popular. People used to bet on the name of Great Council members, who were drawn by chance, five out of ninety candidates every six months . This kind of gambling was called Lotto or Semenaiu. When people wanted to bet more frequently than twice a year, they began to substitute the candidates names with numbers and modern lotto was born, to which both modern legal lotteries and the illegal Numbers game can trace their ancestry.
Early modern history
King Francis I of France discovered the lotteries during his campaigns in Italy and decided to organize such a lottery in his kingdom to help the state finances. The first French lottery, the Loterie Royale, was held in 1539 and was authorized with the edict of Châteaurenard. This attempt was a fiasco, since the tickets were very costly and the social classes which could afford them opposed the project. During the two following centuries lotteries in France were forbidden or, in some cases, tolerated.
Although the English probably first experimented with raffles and similar games of chance, the first recorded official lottery was chartered by Queen Elizabeth I, in the year 1566, and was drawn in 1569. This lottery was designed to raise money for the "reparation of the havens and strength of the Realme, and towardes such other publique good workes". Each ticket holder won a prize, and the total value of the prizes equalled the money raised. Prizes were in the form of silver plate and other valuable commodities. The lottery was promoted by scrolls posted throughout the country showing sketches of the prizes.
Thus, the lottery money received was an interest free loan to the government during the three years that the tickets ('without any Blankes') were sold. In later years, the government sold the lottery ticket rights to brokers, who in turn hired agents and runners to sell them. These brokers eventually became the modern day stockbrokers for various commercial ventures. Most people could not afford the entire cost of a lottery ticket, so the brokers would sell shares in a ticket; this resulted in tickets being issued with a notation such as "Sixteenth" or "Third Class".
Many private lotteries were held, including raising money for The Virginia Company of London to support its settlement in America at Jamestown. The English State Lottery ran from 1694 until 1826. Thus, the English lotteries ran for over 250 years, until the government, under constant pressure from the opposition in parliament, declared a final lottery in 1826. This lottery was held up to ridicule by contemporary commentators as "the last struggle of the speculators on public credulity for popularity to their last dying lottery".
Early America, 1612–1900
An English lottery, authorized by King James I in 1612, granted the Virginia Company of London the right to raise money to help establish settlers in the first permanent English colony at Jamestown, Virginia.
Lotteries in colonial America played a significant part in the financing of both private and public ventures. It has been recorded that more than 200 lotteries were sanctioned between 1744 and 1776, and played a major role in financing roads, libraries, churches, colleges, canals, bridges, etc. In the 1740s, the foundation of Princeton and Columbia Universities was financed by lotteries, as was the University of Pennsylvania by the Academy Lottery in 1755.
During the French and Indian Wars, several colonies used lotteries to help finance fortifications and their local militia. In May 1758, the State of Massachusetts raised money with a lottery for the "Expedition against Canada".
Benjamin Franklin organized a lottery to raise money to purchase cannon for the defense of Philadelphia. Several of these lotteries offered prizes in the form of "Pieces of Eight". George Washington's Mountain Road Lottery in 1768 was unsuccessful, but these rare lottery tickets bearing Washington's signature became collectors' items; one example sold for about $15,000 in 2007. Washington was also a manager for Col. Bernard Moore's "Slave Lottery" in 1769, which advertised land and slaves as prizes in The Virginia Gazette.
At the outset of the Revolutionary War, the Continental Congress used lotteries to raise money to support the Colonial Army. Alexander Hamilton wrote that lotteries should be kept simple, and that "Everybody ... will be willing to hazard a trifling sum for the chance of considerable gain ... and would prefer a small chance of winning a great deal to a great chance of winning little". Taxes had never been accepted as a way to raise public funding for projects, and this led to the popular belief that lotteries were a form of hidden tax.
At the end of the Revolutionary War the various states had to resort to lotteries to raise funds for numerous public projects.
The first big lottery on German soil was held in 1614 in Hamburg.
Modern history by country
The first lottery in Australia took place in the 1880s in Sydney. It was a private sweepstakes that was quickly prohibited, despite being moved to other areas such as Queensland and Victoria. In 1916, the Australian government started their own lottery, named the 'Golden Casket Art Union', with the intention of raising money for charities and projects. Its first draw is credited with raising funds for veterans of World War One.
In Germany, the government has a monopoly on the lottery system, where it offers a "pick 6 out of 49" system. The chances of winning the jackpot are 1:13,983,816. A ticket would need 6 matching numbers out of 49 and an additional "super number" from 0 to 9.
Winning numbers are drawn twice a week, on Wednesday and Saturday. Germany offers some additional games like Super6, Spiel77 and the Glücksspirale. The highest jackpot ever won was December 5, 2007 where 3 people had to share 45,382,458 euros. This is just about 2 million euros less than the highest jackpot possible. The lowest jackpot ever won was in 1984 where a German with the numbers 1, 3, 5, 6, 9, 12, 25 received only DM 16,907 (8,644.41 euros).
There are many lottery games that take place in India, all of which are run by state government organisations under the rules and regulations of the federal government.
State governments such as those of Kerala, Punjab, Goa and Sikkim, run their own lottery departments and conduct lucky draws daily or weekly. Kerala State Lotteries, established in 1967, under the lottery department by the Government of Kerala was the first of its kind in India. The department was successful and has grown throughout the state of Kerala by contributing to the needful and became the role model for other states for starting their own lotteries.
States banning the lottery
Games include the flagship lottery, Chance, Keno, 777, 123, Hish Gad (themed scratchcard games), lottery subscriptions and the Big Lottery.
The Mexican Lotería Nacional dates back to the late 18th century. The goal of the Lotería is to create jobs and to "impulse the wealth redistribution process". The Lotería is also a member of the North American Association of State and Provincial Lotteries.
In New Zealand, lotteries are run by the New Zealand Lotteries Commission, a Crown entity. It runs Lotto NZ, including Powerball and Strike!, Big Wednesday, Instant Kiwi, Bullseye and Keno.
A lottery was first held in Thailand (then known as Siam) during the reign of King Chulalongkorn (Rama V), as part of an international fair organised for his birthday. A second lottery was organized in 1917, to help finance the country's entry into the First World War. A third lottery was organized in 1932 to finance the Thai Red Cross's operating costs, whilst another was held two years later to raise funds because of a shortfall in the government's income during the Great Depression.
The present Thai National Lottery began in 1939, conducted by the National Lottery Bureau, which is under the Ministry of Finance. The drawings take place on the 1st and 16th of each month, with the top price now being 2 million baht.
The National Lottery is the state-franchised national lottery in the United Kingdom and the Isle of Man. It is operated by Camelot Group, to whom the licence was granted in 1994, 2001, and again in 2007. The lottery is regulated by the National Lottery Commission, and was established by the prime minister John Major in 1994.
The National Lottery can be played in person or online. To play online, players need to sign up for either direct debit or fund a loaded account that can be used to purchase tickets. 12% of the revenue from the National Lottery is expected to go to the government, 5% goes to lottery retailers, 5% is retained by Camelot Group for operating costs, 28% goes to various good causes as do unclaimed prizes, and 50% remains for the total prize fund of which 5% is diverted to a Super Draw fund, leaving 45% for normal prizes. Thus, for long term players or those buying many tickets, the average percentage return will equal this c.45% share of the ticket sales devoted to prizes. The National Lottery holds the balance of unclaimed prizes for a period of 180 days before it is released to charitable organizations that benefit from the lottery. This is approximately 2% of all lottery sales in the UK. In October 2013 the cost of a ticket was doubled and it remains to be seen if this affects the number of sales.
The numbers game operated out of "Policy shops", where bettors choose numbers, were in the U.S. prior to 1861. In 1875, a report of a select committee of the New York State Assembly stated that "the lowest, meanest, worst form ... [that] gambling takes in the city of New York, is what is known as policy playing". The game was also popular in Italian neighborhoods known as the Italian lottery, and it was known in Cuban communities as bolita ("little ball").
By the early 20th century, the game was associated with poor communities, and could be played for as little as $0.01. One of the game's attractions to low income and working class bettors was the ability to bet small amounts of money. Also, unlike state lotteries, bookies could extend credit to the bettor. In addition, policy winners could avoid paying income tax. Different policy banks would offer different rates, though a payoff of 600 to 1 was typical. Since the odds of winning were 1000:1, the expected profit for racketeers was enormous.
When lotteries raised their head again in 1964, it would take many years of constitutional amendments by the various states before the lotteries were allowed to flourish again. On March 12, 1964, New Hampshire became the first state to sell lottery tickets in the modern era. As of 2013[update], 44 states and territories offer government-operated lotteries.
In 2012, the state of Illinois was the first state to begin to sell lottery tickets online but at present only "intra-state" sales are allowed. 12 other states have already approved a move to expand sales online.
Probability of winning
The chances of winning a lottery jackpot can vary widely depending on the lottery design, and are determined by several factors, including the count of possible numbers, the count of winning numbers drawn, whether or not order is significant, and whether drawn numbers are returned for the possibility of further drawing.
In a simple 6-from-49 lotto, a player chooses six numbers from 1 to 49 (no duplicates are allowed). If all six numbers on the player's ticket match those produced in the official drawing (regardless of the order in which the numbers are drawn), then the player is a jackpot winner. For such a lottery, the chance of being a jackpot winner is 1 in 13,983,816.
In bonusball lotteries where the bonus ball is compulsory, the odds are often even lower. In the Mega Millions multi-state lottery in the United States, 5 numbers are drawn from a group of 75 and 1 number is drawn from a group of 15, and a player must match all 6 balls to win the jackpot prize. The chance of winning the jackpot is 1 in 258,890,850.
The odds of winning can also be reduced by increasing the group from which numbers are drawn. In the SuperEnalotto of Italy, players must match 6 numbers out of 90. The chance of winning the jackpot are 1 in 622,614,630.
Most lotteries give lesser prizes for matching just some of the winning numbers. The Mega Millions game gives a payout (US$1) if a player matches only the bonus ball. The weekly 6/49 lottery operated by the ILLF offers a two-ball cash prize, for which the odds is 1 in 6.63. In the UK National Lottery the smallest prize is £25 for matching three balls.
Matching more numbers, the payout goes up. Although none of these additional prizes affect the chances of winning the jackpot, they do improve the odds of winning something and therefore add a little to the value of the ticket. On the other hand, multiple smaller prizes usually mean smaller jackpots. It is common for the jackpot to be split evenly if multiple players have tickets with all the winning numbers.
Scams and frauds
Lotteries, like any form of gambling, are susceptible to fraud, despite the high degree of scrutiny claimed by the organizers. Numerous lottery scams exist.
Some advance fee fraud scams on the Internet are based on lotteries. The fraud starts with spam congratulating the recipient on their recent lottery win. The email explains that in order to release funds the email recipient must part with a certain amount (as tax/fees) as per the rules or risk forfeiture.
Another form of scam involves the selling of "systems" which purport to improve a player's chances of selecting the winning numbers in a Lotto game. These scams are generally based on the buyer's (and perhaps the seller's) misunderstanding of probability and random numbers. Sale of these systems or software is legal, however, since they mention that the product cannot guarantee a win, let alone a jackpot.
There have also been several cases of cashiers at lottery retailers who have attempted to scam customers out of their winnings. Some locations require the patron to hand the lottery ticket to the cashier to determine how much they have won, or if they have won at all, the cashier then scans the ticket to determine one or both. In cases where there is no visible or audible cue to the patron of the outcome of the scan some cashiers have taken the opportunity to claim that the ticket is a loser or that it is worth far less than it is and offer to "throw it away" or surreptitiously substitute it for another ticket. The cashier then pockets the ticket and eventually claims it as their own.
Notable prizes on different continents are:
|$656 million pre-tax||Mega Millions||United States||Three winning tickets sold - one each in Milford Mill, Maryland; Red Bud, Illinois; and at a store somewhere in northeast Kansas;||30 March 2012||World's largest jackpot|
|$590.5 million pre-tax||Powerball||United States||One ticket holder named Gloria C. Mackenzie in Zephyrhills, Florida||18 May 2013||World's largest jackpot won by an individual player|
|€185 million or £161 million||EuroMillions||United Kingdom||One ticket holder from Scotland;||12 July 2011||Europe's largest jackpot|
|RMB¥ 570 million||China Welfare Lottery||People's Republic of China||One ticket holder from Beijing||12 June 2012||Asian largest prize and the biggest prize taken in China|
|R$244 million||Mega-Sena||Brazil||Three ticket holders from Franca (SP), Aparecida de Goiania (GO) and São Paulo.||31 December 2012||South America's largest prize|
|A$112 million||OZ lotto||Australia||Four winners||6 November 2012||Australia's highest
Payment of prizes
Winnings (in the U.S.) are not necessarily paid out in a lump sum, contrary to the expectation of many lottery participants. In certain countries, mainly the U.S., the winner gets to choose between an annuity payment and a one-time payment. The one-time payment (cash or lump sum) is a "smaller" amount than the advertised (annuity) jackpot, even before applying any withholdings to which the prize is subject. While withholdings vary by jurisdiction and how winnings are invested, it is suggested that a winner who chooses lump sum expects to pocket 1/3 of the advertised jackpot at the end of the tax year. Therefore, a winner of a $100,000,000 jackpot who chooses cash can expect $33,333,333.33 net after filing income tax document(s) for the year in which the jackpot was won.
Lottery annuities often are for a period from 20 to 30 years. Some U.S. lottery games, especially those offering a "lifetime" prize, do not offer a lump-sum option.
In some online lotteries, the annual payments are only $25,000, with a balloon payment in the final year. This type of installment payment often is made through investment in government-backed securities. Online lotteries pay the winners through their insurance backup. However, many winners choose lump sum, since they believe they can get a better rate of return on their investment elsewhere.
In some countries, lottery winnings are not subject to personal income tax, so there are no tax consequences to consider in choosing a payment option. In Canada, Australia, Germany, Ireland, Italy, New Zealand, Finland, and the United Kingdom all prizes are immediately paid out as one lump sum, tax-free to the winner. In Liechtenstein, all winnings are tax-free and the winner may opt to receive a lump sum or an annuity with regard to the Jackpot prizes.
In the US, federal courts have consistently held that lump sum payments received from third parties in exchange for the rights to lottery annuities are not capital assets for tax purpose. Rather, the lump sum is subject to ordinary income tax treatment.
Rollovers and Roll Downs
When there is no winning ticket for a lottery then the prize is said to Rollover to the following week leading to notable increases in prize funds. If a lottery hits a certain threshold of Rollovers then the total prize fund becomes automatically payable and is paid to the lower tier of winners. In the case of the Euromillions lottery the draw of 17 November 2006 led to a total of 20 winners sharing a Roll Down jackpot of €183 million or $234 million
In 2003, Mohan Srivastava, a Canadian geological statistician, found non-random patterns in "Tic-Tac-Toe" tickets sold by the Ontario Lottery and Gaming Corporation. "Tic-Tac-Toe" was pulled off the shelves, and became the first game ever recalled by the OLG.
In 2011, it was reported that Joan R. Ginther, a former statistics professor, had won four different multi-million dollar jackpots in Texas—three of which came from purchasing scratch-off lottery tickets. It was speculated that there was actually a pattern to where and when the winning tickets were sold, and that Professor Ginther had figured out this pattern. Ms. Ginther was in fact outed a year earlier in the online publication "The Big Retort".
The U.S. Powerball lottery drawing of the March 30, 2005 game produced an unprecedented 110 second-place winners, all of whom picked five numbers correctly with no Powerball number. The total came out to $19.4 million in unexpected payouts. 89 tickets won $100,000, but 21 additional tickets won $500,000 due to the Power Play multiplier option.
Powerball officials initially suspected fraud, but it turned out that all the winners received their numbers from fortune cookies made by Wonton Food Inc., a fortune cookie factory in Long Island City, Queens, New York. The number combinations printed on fortunes are reused in thousands of cookies per day. The five winning numbers were 22, 28, 32, 33, and 39. The sixth number in the fortune, 40, did not match the Powerball number, 42.
- Betting pool
- Combinatorial number system
- Gaming mathematics
- GTech Corporation
- List of lotteries
- Lotteries by country
- Lottery payouts
- Problem gambling
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