👋 Ahem, sorry to interrupt your weekend of beaching, grilling, and Barbenheimer-ing.

As you might have seen, someone won the $1 billion jackpot last week after purchasing the ticket at a Los Angeles convenience store.

So today, we'll discuss the lottery’s history, how it works, and why the windfall doesn’t always bring sunshine and rainbows.

All this, and more, in just 4 minutes to read.

QUOTE OF THE DAY

"Lottery: A tax on people who are bad at math."

— Ambrose Bierce, writer

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WINNING TICKET

America's game

One lucky person claimed the $1.08 billion winning Powerball prize on Wednesday, a life-changing amount many times over.

But it’s the fourth prize to reach 10 figures since 2022 alone. What gives?

Billion-dollar jackpots are more common, yet just about everyone knows there remains an infinitely small chance to win the prize.

Odds-wise, it’s not high: In 2015, the Multi-State Lottery Association made winning the game harder, reducing the odds to one in 292 million from about one in 175 million. No sweat.

But the sums are enormous: The Federal Reserve’s interest-rate hikes inflated jackpots because the advertised prize is based on the value of the money’s investment in a portfolio of bonds over 30 years. That’s why the listed $1 billion jackpot last week would translate to $516.8 million before taxes should the winner choose the lump sum compared with 30 years of annual payments.

The lottery is yet another entity impacted by higher rates.

But enough about rates; let’s explore the lottery's history, how it’s evolved, and what the money funds.

History

Lotteries have existed for at least a few hundred years, long before colleagues played office lotto pools. In 17th-century Europe, the Netherlands organized lotteries to collect money for low-income people or raise public funds.

According to the University of North Texas, the first recorded public lottery in the West was held during the reign of Augustus Caesar for municipal repairs in Rome. The first recorded lottery to distribute prize money was held in 1466 in Bruges, in what is now Belgium, to assist the poor.

In 1616, the Virginia Company of London created one of the first lotteries on American soil to raise money for ventures chartered by King Charles, including establishing the first settlement in Jamestown, Virginia. Soon all 13 original colonies launched a lottery to raise money for operations.

In 1776, the Continental Congress voted to use a lottery to raise money for war. Benjamin Franklin tried to use a lottery to buy cannon to defend Philadelphia during the Revolutionary War, though his attempt failed.

Thomas Jefferson was also a fan of lotteries, writing: “Far from being immoral, they are indispensable to the existence of man.” He might have been biased, as the Virginia legislature permitted him to conduct a private lottery to pay off his many debts in 1826.

Another founding father, John Hancock, benefited from lotteries when he used them to finance the rebuilding of Faneuil Hall in Boston after it burned down in 1761.

By 1832, about 400 lotteries had been held annually—some funded buildings at colleges, including Columbia, Dartmouth, Harvard, and Yale.

It’s unclear who “invented” the lottery. Chances are, it’s been around much longer than the 17th century in various forms. But few can deny the lottery’s utility. After the Civil War, for example, Southern states used them to finance Reconstruction.

In time, states realized they could run lotteries to raise money for general governing, financing projects, and improving their cities. They also realized something else: Lotteries were a way to collect money from citizens without increasing taxes.

Where does the money go?

The Powerball website says it has raised over $29 billion for public programs and services. Tickets are $2 per play, sold in 45 states, Washington D.C., Puerto Rico, and the U.S. Virgin Islands. More than half of all proceeds from ticket sales go toward services, and the winner(s) collect the rest.

Generally, for every $3 spent on lotteries, only about $1 is paid out to winners, while the other $2 goes to expenses and state revenues.

California’s lottery centers on funding educational efforts, while Arizona supports “general government” and “health and welfare,” plus other entities such as natural resources, education, homeless shelters, and mass transit.

The winnings

The seven Biggest Powerball, Mega Millions Jackpots in Lottery History:

1. $2.04 billion, Powerball, Nov. 8, 2022 (one winner, California)
   

2. $1.59 billion, Powerball, Jan. 13, 2016 (three winners, California, Florida, Tennessee)
   

3. $1.54 billion, Mega Millions, Oct. 23, 2018 (one winner, South Carolina)
   

4. $1.35 billion, Mega Millions, Jan. 13, 2023 (one winner, Maine)
   

5. $1.34 billion, Mega Millions, July 29, 2022 (one winner, Illinois)
   

6. $1.05 billion, Mega Millions, Jan. 22, 2021 (one winner, Michigan)
   

7. $1.08 billion, Powerball drawing on Wednesday (one winner, California)

$230 per person

Americans spend about $70 billion on lottery tickets yearly, or about $230 per person, including children. That’s way more than Americans spend on books, sports, and movies.

Critics of the lottery say it unfairly baits low-income families into spending money on false hope when that money would be better directed toward saving, investing, or paying off credit cards.

Still, the lottery remains wildly popular in America: Nationwide sales for recent jackpots have ranged from $152 million to $197 million. As the jackpot swells, interest grows.

The curse

Winning tons of money via the lottery isn’t all good news, even if the dopamine of winning such a large sum is enormous.

The National Endowment for Financial Education has reported that 70% of lottery winners not only struggle with the windfall; they go bankrupt within three to five years. Studies chalk it up to careless spending, the desire for even more money, and emotional breakups within families as people argue over how the money should be deployed or spent. Perhaps the latter is the most powerful.

Lottery winners also have been found to struggle with suicide, depression, and divorce at higher rates than the general public. Concluded one study: “It’s the curse of the lottery because it made their lives worse instead of improving them.”

Recently, author Morgan Housel weighed in on the “social debt” that comes from the sudden collection of wealth:

“A common denominator of the stories is that lottery winnings have a high degree of, let’s call it, social debt – friends, family, and strangers who feel entitled to ask, beg, and steal in a way that leaves the winners not only broke, but socially exploited.”

Final thoughts

For decades, the lottery has stood out as the most widespread form of gambling in the U.S.

Today, lotteries have many critics, including those who say it drives harmful gambling behavior. Promoters usually point out that regardless of one’s view on the morality of gambling, lotteries increase funding for public services (public education, for example) and (at least in theory) reduce the necessity to reduce taxes.

In the words of one lottery director: "Lotteries are different from any other gaming product. Lottery players risk a small amount of money against very long odds to win a large prize, with the net proceeds going to the public good."

Dive deeper

Here’s CNN Business’ video on the history of the lottery.

See you next time!

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