One of the simplest yet riskiest business transactions to ever exist has got to be the American lottery: you can pay as little or as much as you want to potentially win millions, or in this year’s case, billions of dollars. Standing in line at the grocery or convenience store, with ticket in hand, lottery players probably wonder how to spend their money if they win, who they will tell and how many financial advisers to contact. But what some of these people, myself included, probably don’t wonder is how the lottery system actually works.
One might assume at a glance that it is simple: the Powerball money comes from people who buy lottery tickets in hopes of winning. If no one wins, the jackpot keeps growing as more people pour their money into purchasing tickets until someone eventually wins it all. However, that’s not the entire story.
Until Jan. 13, the prospect of an individual winning the latest Powerball looked pretty bleak. But one party has been winning this whole time: state governments. Each state can spend the money differently, but for the most part, it goes directly into an education or transportation fund. That sounds good, but it also kind of sounds like taxes, which begs the question: is the lottery just a form of taxation in disguise
The amount of money generated from lottery tickets obviously varies based on ticket sales, with larger states like California racking up more sales than smaller states. The state legislatures then organize a fund and funnel the money through it.
A typical reaction to government taxes is one of repulsion, because we seem to have to pay taxes on everything we purchase: groceries, clothes, homes, etc. Even after we die, a portion of our possessions is transferred to the government. The lottery is a different type of tax, though. First, it’s not officially a tax; it just seems like one since we buy a ticket, and some of the profit indirectly goes to the government. Second, it’s voluntary. No government officials are forcing anyone to spend their money on lottery. That being said, the general concept of sales tax isn’t technically forced upon us either, but unless we choose to live the hunter-gatherer lifestyle, we cannot survive without buying taxed goods.
It’s not necessarily a bad thing that the money we spend on one thing goes toward something else — in this case, toward improving participating states’ infrastructures. So for those who think that the lottery is just the government’s sneaky way of tricking us into emptying our pockets for its sake, you’re not exactly right. We empty our own pockets primarily in the hope of scoring the winning ticket, which is a one in 292.2 million chance.
There’s another constant winner of the lottery that we don’t often consider: convenience store owners. When a store sells a product, the owner keeps a percentage of the profit. Think about how much money people typically spend at convenience stores on various necessities. Now factor in the lottery tickets. Some convenience store owners have turned a 10 percent profit increase thanks to the latest Powerball, thus profiting from the lottery without having to purchase a single ticket.
Obviously, the real winners are the actual winners of the lottery. The jackpot started at $40 million in early November and grew to a record $1.5 billion by mid-January. Of course, nearly half of that will go straight into the government’s pocket, but can the winner of nearly $700 million really complain?
The three winning tickets were sold in California, Florida and Tennessee, and their purchasers’ identities will remain a mystery since those states require that the winners’ names not be disclosed. I’m not quite sure why, but the secrecy could be a blessing in disguise. Imagine how many texts and missed calls you would have on your phone every day, between CNN announcing your name as a Powerball winner and, well, the day you die.
Lottery winners are usually real people, by which I mean people who are not familiar with coming into millions of dollars in a single day. Not disclosing their names to the public is for the best, especially since the winners tend to lose it all at some point. For the most part, the lottery winners were happy until they won the lottery, and only after they claimed their winning sum did their lives turn into absolute madness. Abraham Shakespeare, for instance, won $30 million in 2006 and spent the next three years warding off money hungry friends until he went missing. Before he went off the grid in 2009, though, a close friend convinced him to transfer the money to her so that his greedy and shallow friends would leave him alone. Stupidly, he obliged and then found himself murdered at the hands of the close friend who possessed all his money. Not all winners suffer such dramatic and violent downfalls, though. Take the more subtle downfall of David Lee Edwards, an unemployed and drug addicted Floridian, who won $26 million in 2001. Within a decade, he spent every dollar, returned to drug abuse and moved into a storage unit.
As upsetting as these stories are, we cannot be too surprised that the past winners’ lives ended up the way they did because, as the old saying goes, “Money changes people.” It’s almost to be expected that people who belonged to a specific socioeconomic class for their entire lives will change after they have an overnight addition of nearly $20 million to their bank account.
The behavioral pattern that winners seem to adopt when they realize they’ve just won more money than they could have ever imagined is impulsive. So far we have seen the winners carry out their impulses to their deaths, but there are certainly some winners who spend for the greater good and don’t die afterwards. Five years ago, for instance, John Kutey won the Mega Millions Jackpot and spent it on a water park in honor of his parents and then donated a significant portion of the rest. Louise White, the 81-year old winner of $336.4 million, used her winning money to open a trust for her family. One couple, the Butlers, decided against impulsion and invested their millions on financial advice from wealth managers.
Winning millions of dollars for doing nothing more than spending a few dollars seems like a dream come true. Whether or not that dream actually comes true depends on the winner. It doesn’t matter who the winner was before he or she won the lottery because, at the end of the day, coming into millions of dollars overnight will change the person’s life. What matters is how the winner decides to use the money. As for the rest, that’s just taxes. Sort of.
Jessica is a College senior from Bethesda, Maryland.