La Fleur's 2004 World Lottery Almanac lists the types of lottery games offered by various states as of mid- 2003. (La Fleur's is a Maryland-based research firm that publishes statistics on the world's lotteries.) Nearly all states operating lotteries offered cash lotto and instant games. Most offer other numbers games, such as three-digit and four-digit games. Pull tabs, spiel, keno, and video lottery games are much less common. In general, keno and video lottery games are considered casino-type games. This makes them more controversial and generally less acceptable to the public than traditional lottery games, like lotto.
Most lotto tickets sell for $1 each. Each dollar buys a chance to choose a small set of numbers out of a larger set of numbers. Drawings are held once or twice per week to determine the winning numbers. In 2002 Connecticut, Georgia, and Michigan launched new lottery games that can be played for pocket change, anywhere from 25 cents to 99 cents.
Today many lottery games are online, using a computer network. Retail outlets have computer terminals that are linked by phone lines to a central computer at the lottery commission. The central computer records the wagers as they are made. Retailers can sell tickets for online games and validate winning tickets. The computer network is a private dedicated network accessible only by lottery officials and retailers. Thus, online lottery games differ from the Internet, which anyone can access. Lotto, keno, and numbers games are all conducted as online games. Players can either choose their numbers themselves or allow the computer to select numbers randomly, an option known as "Quick Pick."
Most lotto drawings are televised live. In addition, some states air lottery game shows in which contestants compete for money and prizes. The California lottery's game show, The Big Spin, has aired since 1985. Contestants are chosen through lottery drawings or special promotions. During the thirty-minute show, contestants spin a big wheel in an attempt to win cash prizes while family and friends cheer from the audience.
Lottery winners generally have six months to one year to collect their prizes, depending on state rules. The top prize in a lotto game is called the jackpot. In most lotto games a jackpot that is not won rolls over to the next drawing, increasing the jackpot each time. The most popular lotteries are often those in which a jackpot has rolled over several times and therefor has grown to an unusually large amount.
Most states allow players to choose in advance how a jackpot will be paid to them—either all at once or in installments. Either way, taxes are subtracted from the prize. Jackpots paid all at once are called cash lump-sum prizes. Annuities are jackpots paid out over many years—usually twenty or twenty-five. Even those who choose annuities can pursue ways to receive most of their money all at once. Businesses engaged in cash-flow financing often purchase the rights to annuities from lottery winners and pay them a discounted lump sum in exchange. For example, a $1 million jackpot winner might choose to collect the winnings in installments of $36,000 per year for twenty years. This totals $720,000. A broker would probably offer the winner about $500,000 in immediate cash in exchange for the future rights to the monthly installments.
Scratch Games
In 1974 Massachusetts became the first state to offer an instant lottery game based on scratch-off tickets. Today, games involving scratch tickets (or "scratchers," as they are called in some states) are extremely popular. Lottery
TABLE 7.1
| Modern lottery games | ||
| Type | Description | Administration |
| SOURCE: Adapted from "Modern Lottery Games," from Glossary of Lottery Terms, North American Association of State & Provincial Lotteries, 2001, http://www.naspl.org/terms.html (accessed September 14, 2004) | ||
| Lotto | A game where players select a group of numbers from a large set and are awarded prizes based on how many match a second set chosen by a random drawing. In a typical lotto game, a player might be asked to select six numbers from a set of 49. At a predetermined time six numbers are randomly selected by the lottery. The player wins a major prize if all six of their numbers match those chosen in the random drawing. The player wins smaller prizes for matching three, four, or five of the drawn numbers. | Drawings are held anywhere from once a day to once a week. Requires computers and communication networks |
| Cash lotto | Cash Lotto is a lotto where the prize is awarded as a lump-sum cash payment. Unwon jackpots do not roll over. Cash lotto games typically have a smaller top prize than large jackpot games, more favorable odds of winning that top prize, and require players to select fewer numbers out of a smaller field. | |
| Spiel | An add-on feature to a lotto game. For an additional fee an extra set of numbers (typically four to six numbers) is printed on the bottom of a ticket. Players win by matching one or more of these numbers to those selected in a random drawing. | |
| Screcth-off instant game | Players purchase preprinted paper tickets on which spaces have been coated with a latex substance that can be scratched off to reveal numbers or text underneath. They must match posted sequences to win. | Do not require computerized terminals. Can be sold out of vending machines. |
| Pull tabs (also called Breakopens) | Players purchase two-ply laminated paper tickets that have perforated tear-away tabs that can be pulled back to reveal symbols or numbers underneath. A winning ticket must match the posted symbol combinations either across, down, or diagonally (similar to tic-tac-toe). | |
| Daily numbers games | Players select three or four digits (0 to 9) and match them with a similar set selected at random by the lottery. The player can select several different types of wagers with payoffs varying accordingly. For example, players making a "straight" bet win if their three digits match the three digits selected by the lottery in the same order. | Requires computers and communication networks. |
| Keno | A lotto game in which a set of numbers (typically 20) is selected from a large field of numbers (typically 80). Players select a smaller set of numbers (up to 10) and are awarded prizes based on how many of their numbers match those in the drawn set. Players have discretion over how many numbers to select, and can choose to play for a small prize with good odds (by selecting a small set of numbers such as three), a large prize with much greater odds (by selecting a large set of numbers such as 10) or combinations in between. In "fast keno" drawings may be held every few minutes. Fast keno is typically hosted by bars, lounges, and other establishments. | Requires computers and communication networks. |
| Video lottery terminals (VLTs) | Electronic games of chance played on a video screen. They often simulate popular casino games such as blackjack, poker, or spinning-reel slot machines. Unlike slot machines, video lottery terminals do not dispense money. Rather, a winning player is provided a ticket that is redeemed by the retailer for prizes. | Limited to only a few states |
| Sports lottery | Games where outcomes are determined by the results of sports events. Sports lotteries are the most popular lottery games in much of the world (where they are frequently called "toto" or "football pools"). | Available only in Oregon |
organizations offer many different scratch games with various themes. For example, during the summer of 2004 the Connecticut lottery had more than one hundred scratch games ongoing.
Scratch games run for a specified period of time, usually for several months to up to a year. The top prize amounts are often hundreds of thousands of dollars. However, a wide variety of prizes are offered in these games besides money, including merchandise, trips, vehicles, and tickets to sporting events and concerts. In 2004 the Texas lottery offered scratch players a chance to instantly win a Corvette convertible. A Missouri lottery scratch game gave away sixty trips to Las Vegas, plus $500 in spending money. The winning tickets included payment by the lottery commission of federal and state income taxes on the value of the prizes.
Many lotteries have teamed with sports franchises and other companies to provide popular products as prizes. Lotteries in several states during the early 2000s offered scratch games featuring Harley-Davidson motorcycles as the top prizes. The use of licensed brand names in lottery games has become very popular. Most brand-name promotions feature famous celebrities, sports figures/teams, or cartoon characters. Lottery officials seek out joint merchandising deals in which companies provide prizes for scratch games. The companies benefit through product exposure and advertising. The lotteries benefit when companies share in advertising costs.
The latest trend in instant games is the sale of high profit point (HPP) tickets. Traditional scratch tickets sell for $1 each. HPP tickets are priced as high as $20 each and are usually part of a holiday or themed promotion. Most states offer several $5 and $10 ticket games, particularly around Christmas and other gift-giving holidays. In 2002 the Connecticut lottery was the first in the United States to offer a $30 instant ticket. The HPP tickets appeal to many scratch players because they offer more valuable prizes and payouts than regular-priced tickets. Lottery officials hope they will attract more affluent players to the games.
In 2001 the California lottery was sued for continuing to sell scratch-game tickets after the top prizes had been awarded. In other words, people bought scratch-game tickets not knowing that there was no chance for them to win the most valuable prizes. In January 2002 California lottery officials apologized for their actions and promised to stop selling instant-win tickets in the future after the top prizes were awarded. The state also set up a second-chance drawing for people holding losing scratch tickets from the earlier promotion.
A similar problem occurred in Colorado in 1997 after a Colorado Springs newspaper reported that more than $2 million in tickets were sold after the grand prizes had already been awarded. A lawsuit was filed against the state in 2000 by a woman with losing scratch tickets from the Luck of the Zodiac game. A judge dismissed the case because the plaintiff had not pursued her complaint through lottery administrative channels first. The ruling was appealed, and in August 2002 the state appeals court reinstated the lawsuit. The woman's lawyers hope to have the suit certified as a class-action suit on behalf of all scratch players who played the game. Similar lawsuits have been filed in Arizona and the state of Washington.
Most lotteries operate a toll-free number or Web site that provides information on scratch game prize claims. Patrons can find out which prizes have already been awarded and which prizes remain to be claimed.
Second-Chance Games
Sometimes even nonwinning lottery tickets have value. Most state lotteries run occasional second-chance drawings, and even third-chance drawings, in which holders of nonwinning tickets for particular games can still try for cash or prizes. The Colorado lottery held a second-chance drawing during the summer of 2004 in which holders of nonwinning Lucky Dog scratch tickets could win money for animal-related nonprofit organizations and themselves. Other state lotteries offer new vehicles, concert tickets, and a variety of other prizes.
Video Lottery Games
Video lottery games are computer games played on video lottery terminals (VLTs). VLTs are essentially slot machines (video gaming devices) that are monitored and controlled by a central computer system that is overseen by a state's lottery agency. Thus, VLT profits (all or in part) benefit state lotteries.
According to La Fleur's 2004 World Lottery Almanac, VLTs were operated in only eight states in 2003—Delaware, Louisiana, Montana, New York, Oregon, Rhode Island, South Dakota, and West Virginia. Video lottery games are highly profitable. During fiscal year 2003, nearly 42,000 VLTs were in operation with a net income of $2.4 billion.
VLTs in Louisiana, Montana, and South Dakota are owned by private entities. Those in Rhode Island are leased by the state to private operators. VLTs in the other states are owned by state lottery commissions. VLTs in Delaware, New Mexico, New York, and Rhode Island are only allowed at racetracks. Profits from these VLTs are split between the racetracks and the state lotteries.
In 2001 the state of New York passed legislation allowing the installation of video lottery games at racetracks in the state. Although the VLTs finally began operating in early 2004, they have been fought in lawsuits. In July 2004 a state appeals court ruled that the legislation authorizing VLTs at racetracks was unconstitutional. New York's constitution requires lottery proceeds to benefit education programs. Some VLT revenue was going to the racetrack owners and operators and to the racing industry. This diversion of lottery revenue was considered unconstitutional by the court. As of August 2004 the state's VLTs were still operating while the ruling is appealed to a higher court.
In general, video lottery games are controversial because many people consider them "hard-core" gambling. They allow continuous gambling for large sums of money, as opposed to lotto play, which features drawings only once or twice a week. Opponents of video lottery games contend that they are much more addictive than traditional lottery games because of their availability and instant payoffs. They also have special appeal to children and adolescents, who are already accustomed to playing video games.
Multistate Games
During the 1980s, lottery officials realized that multi-state lotteries could offer higher payoffs than sole-state lotteries because the costs of running one game could be shared by numerous states. Table 7.2 lists the states that operate lotteries and participate in multistate lotteries.
POWERBALL. The Multi-State Lottery Association (MUSL) was formed in 1988 as a nonprofit association of states offering lotteries. It is entirely owned and operated by the member-state lotteries. The MUSL administers various games, the best known of which is called Powerball. Powerball is a lotto game in which five numbers are selected out of fifty-three numbers, and then a separate number is selected out of forty-two numbers, for a total of six numbers. The first Powerball drawing was held on April 22, 1992. Drawings are held twice weekly. In December 2002 Powerball paid out the largest jackpot ever awarded to a single winner—$314.9 million. It was won by a West Virginia contractor who reported that he only played the lottery when the jackpot exceeded $100 million.
TABLE 7.2
| State lottery games, 2004 | ||||||||
| State | State lottery | Powerball | Mega Millionsa | Hot Lottob | Wild Card | Mega Bucks | Lotto South | 2 By 2 |
| aFormerly called "The Big Game" | ||||||||
| bFormerly called "The Multi-State Rolldown" | ||||||||
| SOURCE: Created by Kim Masters Evans for Thomson Gale, 2004 | ||||||||
| Alabama | None | |||||||
| Alaska | None | |||||||
| Arizona | X | X | ||||||
| Arkansas | None | |||||||
| California | X | |||||||
| Colorado | X | X | ||||||
| Connecticut | X | X | ||||||
| Delaware | X | X | ||||||
| District of Columbia | X | X | X | |||||
| Florida | X | |||||||
| Georgia | X | X | X | |||||
| Hawaii | None | |||||||
| Idaho | X | X | X | |||||
| Illinois | X | X | ||||||
| Indiana | X | X | ||||||
| Iowa | X | X | X | |||||
| Kansas | X | X | X | |||||
| Kentucky | X | X | X | |||||
| Louisiana | X | X | ||||||
| Maine | X | X | X | |||||
| Maryland | X | X | ||||||
| Massachusetts | X | X | ||||||
| Michigan | X | X | ||||||
| Minnesota | X | X | X | |||||
| Mississippi | None | |||||||
| Missouri | X | X | ||||||
| Montana | X | X | X | X | ||||
| Nebraska | X | X | X | |||||
| Nevada | None | |||||||
| New Hampshire | X | X | X | X | ||||
| New Jersey | X | X | ||||||
| New Mexico | X | X | ||||||
| New York | X | X | ||||||
| North Carolina | None | |||||||
| North Dakota | X | X | X | |||||
| Ohio | X | X | ||||||
| Oklahoma | None | |||||||
| Oregon | X | X | ||||||
| Pennsylvania | X | X | ||||||
| Rhode Island | X | X | ||||||
| South Carolina | X | X | ||||||
| South Dakota | X | X | X | X | ||||
| Tennessee | X | X | ||||||
| Texas | X | X | ||||||
| Utah | None | |||||||
| Vermont | X | X | X | |||||
| Virginia | X | X | X | |||||
| Washington | X | X | ||||||
| West Virginia | X | X | X | |||||
| Wisconsin | X | X | ||||||
| Wyoming | None | |||||||
As of August 2004 MUSL had thirty members. Each member state offers at least one MUSL game, and twenty-eight of them offer the Powerball game. (See Table 7.2.) Each member state keeps 50% of its own Powerball ticket sales. The rest is paid out in prizes. The profits from all MUSL games are retained by the individual states.
MEGA MILLIONS. Another popular multistate game is called Mega Millions. It is played by eleven states, as shown in Table 7.2. Players choose six numbers from two separate number pools: five numbers from 1 to 52, and one number from 1 to 52. All six numbers must match to win the jackpot. Drawings are held twice weekly.
Mega Millions was formerly known as the Big Game. The first Big Game ticket was sold on August 31, 1996, and the first drawing took place on September 6, 1996. The Big Game became very popular and soon offered jackpots in excess of $50 million. As of late 2002, it held the record for the largest jackpot ever offered in a North American lottery—$363 million in May 2000. That jackpot was split by two winners, one in Michigan and one in Illinois. Overall, the Big Game had an average jackpot of $47 million during its run.
The Big Game was plagued by lagging sales during fiscal year 2001. Average sales had dropped by 34% from the year before. At that time, the Big Game accounted for approximately 6% of total lottery sales in the states in which it was offered. The game operators wanted to capture a bigger market and so renamed the game Mega Millions and increased the initial jackpot to $10 million, twice what it was for the Big Game. The lure of higher jackpots proved to be a strong sales incentive. Ticket sales increased dramatically.
CONSTITUTIONAL QUESTIONS. In January 2002 church groups and other lottery opponents sued the state of Ohio over a bill passed the month before allowing the state to join the Mega Millions lottery. The lawsuit claimed that the state's constitution required Ohio to run its own lottery and that the bill would transfer this authority to other states. Ohio officially joined Mega Millions in May 2002 in hopes of raising $41 million annually to overcome a $1.5 billion budget gap.
In July 2002 a judge ruled that Ohio's participation in Mega Millions was not unconstitutional because the state would retain sufficient control over the lottery to satisfy the constitution. However, he did overturn a part of the bill that would have allowed the state to divert the money raised away from the Department of Education into the general budget. The Ohio Constitution specifies that lottery revenues must go toward education programs. The bill writers had tried to circumvent this requirement with an accounting maneuver that would have initially assigned the revenues to the Department of Education but then allowed them to be taken out for other purposes. The judge ruled that this practice did violate the state's constitution.
New York's decision to join Mega Millions in May 2002 was also challenged in court on constitutional grounds. The plaintiffs claimed that participation in the multistate lottery diverted lottery profits away from education programs. In July 2004 a state appeals court ruled that the administrative costs of participating in the lottery were insignificant and did not constitute a diversion of funds.
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