State Lotteries May Offer Worse Bets Than Prediction Markets, Analysis Suggests

While emerging forms of gambling like sports betting and prediction markets such as Kalshi and Polymarket are drawing the attention of politicians and regulators, state-run lotteries may present some of the most unfavorable odds for consumers, according to an analysis.

Americans wagered over $113 billion on lottery tickets in fiscal year 2024, a figure that has nearly doubled since 2008. This spending occurs daily, with over $300 million spent each day on lottery products. Despite the surge in sales, the odds of winning major lottery jackpots remain exceedingly low. For instance, the chances of winning the Powerball jackpot are approximately 1 in 292.2 million, and for Mega Millions, it's about 1 in 290.5 million.

Lotteries have evolved to encourage higher spending. Games like Mega Millions have increased ticket prices from $2 to $5, promising larger starting jackpots and prize multipliers. Powerball has introduced NFL-themed games, and scratch-off tickets are available at various price points, including $5, $10, $20, and even $50.

The financial impact of lottery spending can be disproportionately felt by lower-income individuals. For someone earning $50,000 annually, spending $20 per week on lottery tickets amounts to over $1,000 per year. This amount could otherwise contribute to an emergency fund, pay down debt, or be invested. Economists have long noted that lotteries can be regressive, as the spending, even if not the highest in dollar amounts, represents a significant portion of income for those with fewer financial resources.

Lotteries often market themselves as a funding source for public programs, particularly education. In fiscal year 2024, U.S. lotteries transferred nearly $30.6 billion to beneficiaries, supporting education, veterans, and senior programs. However, the analysis posits that this revenue generation method involves the government selling a product with extremely low probabilities of financial windfalls, unlike prediction markets where some research or analysis might influence outcomes.

The argument is that lotteries, despite their public funding initiatives, should not be exempt from scrutiny applied to other forms of gambling. The fundamental odds remain stacked against the player, a reality often summarized by the adage that "the house always wins," with the government acting as that house in the case of state lotteries.