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How lottery money helped build the United States

The secret history of American lotteries.

Customers fill out Mega Millions lottery tickets outside of a convenience store on October 23, 2018, in New York City.
Drew Angerer/Getty Images

The $1.5 billion Mega Millions jackpot this week captured the imagination of millions of gamblers hopeful for the distant chance that it would catapult them to a better life — a chance that became a reality for one lucky winner in South Carolina who took home the jackpot. What many eager bettors ignored, though, is that lotteries like the Mega Millions exist not just to provide a last-ditch chance at becoming a billionaire, but to raise money for state governments.

Last year, Americans spent $2.5 billion on Mega Millions tickets, a significant fraction of the $80.8 billion spent on all lottery games. These sales translated to $22.3 billion for state governments, which devote profits to education, general funds, or specific programs like conservation or care for the elderly. Lotteries present an obvious win for states, as gamblers voluntarily provide millions of dollars to help fund popular programs.

The use of lotteries to raise revenue is as old as the nation itself. In the 1700s and 1800s, lotteries were foundational to the operation of government in the United States and to the European settlement of North America. Like today’s gamblers, colonial Americans turned to lotteries in the hopes that the government could provide services without leveling taxes.

The urge to play lotteries goes back centuries as well. Critics often condemn lottery players as subverting the work ethic, that the pursuit of gambling defies a longstanding American tradition of getting ahead through work, not luck. But gambling has been an American pastime since before the foundation of the republic, as generations have bet on the odds of changing their lives through fortune.

Like these ticket buyers, politicians have long bet on betting, and gambling remains popular among lawmakers to this day because it appears to offer an unparalleled way to pay for government without taxes. But revenue generated by the lottery is a fraction of states’ funding, and if Americans are serious about raising money for their government, they are better off with different forms of fundraising.

Lotteries and public finance

Before America existed, lotteries were crucial for financing the British settlement of North America. In 1612, the heads of the Virginia Company approached King James in London with concerns about their new settlement in Jamestown. Rather than provide direct royal aid, the king instead permitted the company to hold lotteries to raise funds for its failing enterprise. The lottery raised £29,000, which went toward British settlers. However, other drawings failed to attract attention, and when the company gained a reputation for not paying its winners on time, Jamestown was taken over by the crown in 1626.

Lotteries were an even more important means of public finance in the North American colonies. With banking centers located a ship’s voyage away in London, it could be difficult to collect large amounts of cash for construction projects. Lotteries could help raise funds and were also useful in facilitating the purchase of expensive goods. When someone wanted to sell a plot of land that could not be divided into smaller parcels but which no single buyer could afford, they could offer a lottery. The seller would receive all the ticket sales, and the jackpot winner received not a life-changing sum of cash, but a life-changing plot of land.

Colonial governments quickly realized how popular and profitable lotteries could be and got in the game for themselves. By the mid-1700s, all lotteries were authorized by state governments in order to raise revenue without taxation. Massachusetts politicians in 1744, maintaining that taxes were too high, formed a lottery to help raise money for defenses against French forces.

Once states took control of the lottery system, they could authorize games as they saw fit in order to help specific institutions raise money. State governments owned lottery wheels, which were used for drawing tickets, and politicians would lend them to the organizations the state permitted to hold drawings.

Though conservative Protestants have opposed gambling for centuries, many of the first church buildings in the United States were built with lottery money. Many of the world’s most elite universities, too, owe their existence to lotteries. Parts of the campuses of Harvard, Yale, Brown, Princeton, and Dartmouth were paid for with lottery money, and the New York legislature held multiple lotteries to fund the creation of what is now Columbia University. And because lotteries were tied to specific institutions — or even specific buildings — the public had obvious evidence of their effectiveness in avoiding taxes and building the new nation.

American gamblers

Lotteries were successful at raising revenue because gambling was so popular among the public. In the 1790s, the average resident of New York and Philadelphia spent the modern equivalent of $1,400 a year on lottery tickets. Who were these eager lottery players? Gambling was an almost ubiquitous pastime but offered a particular appeal to those eager to get ahead and to change their circumstances.

One notable example was Telemaque, an enslaved man in South Carolina also known as Denmark Vesey. Vesey won a $1,500 lottery jackpot in 1799 ($31,000 in today’s dollars) and purchased his freedom for $600. Twenty years later, he planned an ultimately failed slave uprising, one that scared South Carolina officials into taking legislative action to prevent the possibility of similar revolts in the future.

Vesey embodies one of the reasons lotteries were controversial: They threatened a core ethos of American society that supposedly connects merit and money. As a result of this — and, more importantly, skimming by dishonest operators — by the 1850s most American states had soured on lotteries. State after state added lottery prohibitions to their constitutions.

Lotteries went underground for the next few decades. Illegal games proliferated, especially in urban centers. By the 1960s, tax-averse residents of New Hampshire — one of the only states without a sales or income tax — turned to the old tactic of a lottery to fund education. Sales were slow but steady, and other states, desperate for any new sources of revenue that did not require taxes, followed along.

This week’s Mega Millions mania broke records for sales and jackpots. But it also offers a reminder of lotteries’ long shadow over American history. For centuries, politicians and voters have turned to gambling, hoping to reconcile their desire for services with their reluctance to pay for them. Lotteries today raise billions of dollars for the government, but this sum accounts for just a fraction of overall state revenue. Nonetheless, as indicated by states’ rush toward sports betting in the aftermath of the Supreme Court’s decision in May, politicians continue to pursue new forms of gambling, hopeful that voluntary taxation will help balance their budgets.

But modern lotteries cannot compare to those of the eighteenth century. Players today demand that a much larger share of sales be returned in prizes, and costs of government have expanded considerably. Nonetheless, politicians often treat gambling much like colonists did: as a panacea, a quick and painless way to raise a windfall. What many ignore is that this windfall is drawn primarily from the pockets of the poor. While as many as half of Americans buy tickets for massive Mega Millions jackpots, lotteries disproportionately attract poorer, less educated, and minority gamblers, a population that should be receiving state services, not subsidizing them for others.

If Americans want government programs, they need to make difficult sacrifices to pay for them. It is long past time to recognize lotteries as a relatively insignificant revenue source in the modern day, one that holds an obvious appeal but inhibits Americans from funding their government in a more straightforward and sustainable fashion.

Jonathan D. Cohen is a PhD Candidate in Corcoran Department of History at the University of Virginia. He is the co-editor of All In: The Spread of Gambling in Twentieth-Century United States.

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