Lotteries - Lottery History

Early History

The drawing of lots to determine ownership or other rights is recorded in many ancient documents, including the Bible. The practice became common in Europe in the late fifteenth and the sixteenth centuries. Lotteries were first tied directly to the United States in 1612 when King James I of England created a lottery to provide funds to the Jamestown, Virginia, settlement, the first permanent British settlement in America. Lotteries were used by public and private organizations after that time to raise money for towns, wars, colleges, and public-works projects.

An early American lottery, conducted by George Washington in the 1760s, was designed to finance construction of the Mountain Road in Virginia. Benjamin Franklin was also a lottery advocate and supported their use to pay for cannons during the Revolutionary War. John Hancock ran a lottery to finance the rebuilding of Faneuil Hall in Boston. Although many lotteries are mentioned in early American documents, the 1999 report of the National Gambling Impact Study Commission (NGISC) describes most colonial-era lotteries as "unsuccessful." Amid concerns about the public harm of lotteries, in the 1820s New York became the first state to pass a constitutional prohibition against lotteries.

The Rise and Fall of Lotteries in the United States

The southern states relied on lotteries after the Civil War (1861–65) to finance Reconstruction. The Louisiana lottery, in particular, became widely popular. In 1868 the Louisiana Lottery Company was granted permission by the state legislature to operate as the state's only lottery provider. In exchange, the company agreed to pay $40,000 per year for twenty-five years to the Charity Hospital of New Orleans. The company was allowed to keep all other lottery revenues and to pay no taxes upon those revenues. The Louisiana lottery was very popular nationwide and brought in more than 90% of its revenue from out of state. It was also extremely profitable, returning a 48% profit to its operators.

In 1890 the U.S. Congress banned the mailing of lottery materials. The Louisiana lottery was abolished in 1895 after Congress passed a law against the transport of lottery tickets across state lines. Following its closure, the public learned that the lottery had been operated by a northern crime syndicate that regularly bribed legislators and committed widespread fraud and deception in its operations. The resulting scandal was huge and widely publicized. Public opinion turned against lotteries, and by the end of the nineteenth century, they were outlawed across the country.

FIGURE 7.1

Negative attitudes about gambling began to soften during the early twentieth century, particularly after the failure of Prohibition. The state of Nevada legalized casino gambling in the 1930s, and gambling for charitable purposes became more commonplace across the country. Still, lingering fears about fraud kept lotteries out of the picture for another two decades.

Rebirth in the 1960s

In the early 1960s the New Hampshire legislature began considering a state-run lottery as a means to raise revenue. The state had no sales or state income tax at that time and desperately needed money for education programs. A lottery bill was passed in 1963, and the lottery (called the New Hampshire Sweepstakes) began in 1964. The game was patterned after the Irish Sweepstakes, which was very popular at that time, and was much different from the lotteries of today. Drawings were held infrequently, and the largest prize was $100,000. Tickets sold for $3 each. The biggest prizes were tied to the outcomes of particular horse races at the Rockingham Park racetrack. Nearly $5.7 million was wagered during the lottery's first year.

The state of New York followed quickly, introducing its own lottery in 1967. This lottery was particularly successful, grossing $53.6 million during its first year alone. It also enticed residents from neighboring states to cross state lines and buy tickets. Twelve other states established lotteries during the 1970s (Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Rhode Island, and Vermont). The lottery was firmly entrenched throughout the Northeast by the end of the decade. The reasons for this growth pattern are threefold. First, there was a desperate need to raise money for public projects without increasing taxes. Second, these states had large Catholic populations that were generally tolerant of gambling activities. Third, history has shown that states are most likely to start a lottery if one is already offered in a nearby state.

During the 1980s, lottery fever spread south and west with incredible swiftness. Seventeen states (Arizona, California,

FIGURE 7.2

Colorado, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Missouri, Montana, Oregon, South Dakota, Virginia, Washington, West Virginia, and Wisconsin) plus the District of Columbia started lotteries. Six more states started lotteries during the 1990s (Georgia, Louisiana, Minnesota, Nebraska, New Mexico, and Texas). They were joined in the early 2000s by South Carolina, Tennessee, and North Dakota.