Lottery Advertising – Is it Appropriate for the State?

The casting of lots to decide matters of chance or fate has a long history in human affairs, with several instances recorded in the Bible. In modern times, states set up a state-owned or public corporation to run the lottery; license private firms in return for a portion of revenues (and perhaps also monopoly); begin operations with a modest number of relatively simple games; and, under pressure for more revenue, progressively expand the lottery’s scope and complexity, often sacrificing some level of integrity along the way.

As with any business, lotteries seek to maximize revenues and advertise in ways designed to attract specific groups of potential customers. As a result, advertising focuses on promoting the possibility of winning large sums of money, and it may promote gambling in ways that contradict other government policies. The question of whether such marketing is appropriate for the state is therefore an important issue.

When a prize is won, the winner usually receives either an annuity payment or a one-time lump sum, depending on the rules and regulations of a given jurisdiction. As such, an advertised jackpot amount reflects the total value of a prize over time—which is less than the actual lump sum, owing to the time value of money and income taxes that must be paid. As a result, the winnings are not paid out as a single event, despite expectations of many lottery participants. Moreover, annuity payments are often less than the advertised jackpots, as interest rates play a significant role in determining the amount of money that is actually paid to the winners.