Lotteries as a State Revenue

Lotteries in this country have been used to generate revenue since Jamestown (1).  Forty-two states currently operate a lottery, with Arkansas set to become the forty-third.  The expansion of state lotteries over the past half century reflects society's changing views on gambling.  It also has been spurred by interstate competition: most states want part of the action and the resulting revenue.

The graph below shows state lottery ticket sales, proceeds to states, and what percentage of total state revenues net proceeds represented from 1997 to 2006 (the last year for which data are available) (2). 

Source: NCSL calculations based on information from the Delaware Lottery, West Virginia Lottery, and The Bureau of the Census, 2008

Ticket Sales

State lotteries sold $53.7 billion worth of tickets in FY 2006.  That was equal to 3 percent of the $1,773 billion in total state revenue generated that same year (3).   Lottery ticket sales from 1997 to 2006 have mostly stayed around 3 percent of total state revenues with the exception of 2002 when state revenues were particularly low due to recession. 

Net Proceeds from Ticket Sales

While lottery ticket sales have continued to grow, the net proceeds that states realize (what money is left after subtracting administration costs and prize payouts) has been relatively flat.  As a percentage of state revenue, the share from net proceeds has actually decreased in the last 10 years.  In 1997, the take for states from lottery operations was $12.3 billion, or 37 percent of ticket sales.  In 2006, states received $16.9 billion, or 31 percent of lottery ticket sales as net proceeds.

Proceeds and Total State Revenue

For most states, the amount that states receive from gambling has accurately been described as "niche revenue" (4).  State net proceeds from lotteries in 2006 were less than 1 percent of total state revenues—a decline from the prior 10 years.  Net proceeds have gone from 1.19 percent of total state revenue in 1997 to 0.95 percent in 2006.  That was less than the revenue from motor vehicle license taxes in 2006 (1.07 percent) and slightly larger than collections from excise taxes on insurance premiums (0.87 percent) and tobacco (0.82 percent).

Sources:

(1) Snell, Ronald.  New Realities in State Finance. Denver: National Conference of State Legislatures, 2004. p 73

(2) Five states adopted lotteries during this period: South Carolina, Tennessee, North Dakota, Oklahoma and North Carolina.

(3) "Total state revenue" includes money received by states from: federal grants; tax collections; user fees and charges; state liquor store and utility sales; employee contributions to state retirement programs; and "miscellaneous general revenue"—the category under which the Census Bureau includes lottery revenues.  See the Census' Classification Manual for more details.

(4) See New Realities in State Finance p 75.