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LOTTERIES

LOTTERIES. State-sanctioned lotteries have a long history as a way of raising "painless" revenue for "good" causes. Most European countries (France, Holland, England) utilized lotteries to finance capital improvements, such as roads, harbors, and bridges. For the original European immigrants to the United States, lotteries were an established method of raising the funds to build the infrastructure a developing country needed. Hence lotteries often are seen by American legislators as the harmless form of gambling that can be harnessed for the common good. The United States has experienced three waves of lottery activity.

The First Wave: State-Sanctioned Lotteries (1607–1840s)

The first wave of gaming activity in North America began with the landing of the first European settlers but became much more widespread with the outbreak of the Revolutionary War. A few of these lotteries were sponsored by colonies to help finance their armies, but most lotteries were operated by nonprofit institutions, such as colleges, local school systems, and hospitals, to finance building projects or needed capital improvements. For example, both Yale and Harvard used lotteries to build dormitories. In 1747 the Connecticut legislature gave Yale a license to raise £7,500, while Harvard waited until 1765 for approval from the Massachusetts legislature to conduct a lottery worth £3,200. The primary reason for the failure of Harvard's lottery was that it had to compete with lotteries to support British troops fighting the French and Indian War. It should also be noted that, during this wave of lottery activity, no colony ever operated its own lottery. Private operators conducted lotteries. An organization or a worthy project, such as the Erie Canal, received permission from state legislatures to operate a lottery to support its "worthy" cause.

But these private operators often were less than honest in conducting lotteries. One famous lottery scandal occurred in Washington, D.C. In 1823 Congress authorized a Grand National Lottery to pay for improvements to the city. Tickets were sold, and the drawing took place. But before anyone could collect winnings, the private agent that organized the lottery for the District fled town. While the majority of winners accepted their fates with resignation, the winner of the $100,000 grand prize sued the government of the District of Columbia, and the Supreme Court ruled that the District had to pay the winner. It was a sober reminder to local officials that authorizing lotteries could be potentially dangerous, and the movement to ban lotteries began. From 1840 to 1860 all but two states prohibited lottery activity due to various scandals that occurred in the 1820s and 1830s. However, less than forty years later lotteries once again exploded onto the national scene.

The Second Wave: National Lotteries (1860s–1890s)

With the conclusion of the Civil War, the South had to find some method to finance the construction of roads, bridges, school buildings, and various other social capital projects to recover from war damage. One way was to permit private operators to conduct lotteries to raise revenue for reconstruction. The primary difference between this period of lottery activity and the previous period was the scale of ticket sales. Whereas in the previous lottery boom, sales of tickets were confined to local regions, these southern lotteries took on a national scope and, ironically, were particularly popular in the North. The most famous southern lottery, known as the Serpent, was conducted in Louisiana. In the late 1880s almost 50 percent of all mail coming into New Orleans was connected with this lottery.

As was the case with the first wave of lottery activity, controversy surrounding lotteries eventually led to a federal government ban. In 1890 the charter that authorized the running of the lottery in Louisiana was about to expire. The operators bribed various state officials with offers of up to $100,000 to renew the Serpent's charter, and this was reported throughout the country. Various state legislatures passed resolutions calling on Congress and President Benjamin Harrison to stop this lottery. In late 1890 Congress passed the primary piece of legislation that crippled the Louisiana lottery by denying the operators the use of the federal mail. If customers could no longer mail in their requests for tickets, then the lottery's life would be short-lived. By 1895 the Louisiana lottery had vanished, and as the twentieth century dawned, gaming activity in the United States had ceased. But like a phoenix lotteries were resurrected as governments searched for additional sources in the late twentieth century.

The Third Wave: State Operated Lotteries (1964–)

In 1964 New Hampshire voters approved a lottery. The rationale used by proponents to justify its legalization was strictly economic. Proceeds from the lottery were to fund education, thereby averting the enactment of either a sales or an income tax for New Hampshire. The lottery was an instant success, with 90 percent of the lottery tickets purchased by out-of-state residents. But this lesson was not lost on neighboring northeastern states, and in the next ten years every northeastern state approved a lottery.

However, the greatest growth of state lotteries occurred in the period between 1980 and 1990. By 2001 only three states (Utah, Hawaii, and Tennessee) did not have some form of legalized gaming. Lotteries and associated forms of "gaming" had gained a social acceptance that had not occurred in previous waves of lottery activity.

This third wave of lottery activity was quite different from those that preceded it. First, the breadth or the widespread use of gambling as a source of revenue for state governments was greater. Thirty-eight states plus the District of Columbia sponsored a lottery by the twenty-first century.

Second, the depth of gambling taking place was unprecedented. No longer was lottery play confined to a monthly or even a weekly drawing. Most states offered three types of lottery games. First was a daily number game that involved selecting a three-or four-digit number for a fixed-amount prize. The second type of game fits the general rubric of "lotto." These games involved picking six numbers of a possible forty or forty-eight numbers. The game was usually played twice a week, and jackpots can build up quite enormously, sometimes up to $90 million. The final lottery innovation was the "instant" or scratch tickets, in which the players know immediately if they have won. The odds and the sizes of the prizes for these games varied greatly.

The third difference in the third wave of gambling activity involved both the state-authorization and the state-ownership of the lottery operations. Previously the actual operation of the lottery itself was given to private brokers. In the third wave the state itself became the operator and sole beneficiary of lotteries. While some states, such as Georgia, Nebraska, West Virginia, Maine, and Texas, have permitted private concerns, such as Scientific Games and G-Tech, to operate the instant game portion of their lotteries, the vast majority of lottery operations were conducted by the state at the beginning of the twenty-first century.

The final difference deals with the "good" causes lottery proceeds are used to support. In the two previous waves, the good causes were onetime events, and lottery proceeds supported building canals, waterworks, bridges, and highways. Once the good cause was complete, the lottery ceased. While the state needed the lottery to finance these projects, it did not depend on lottery proceeds to fund daily services, By the twenty-first century many states, such as California, Illinois, Florida, and New Jersey, used lottery proceeds to fund education. In other states lottery proceeds have funded Medicare (Pennsylvania), police and fire departments in local communities (Massachusetts), and a host of other day-to-day operations of government.

State lotteries are no longer one-shot affairs. They must provide the sponsoring state with a consistent source of revenue to fund various good causes in order to justify their approval.

BIBLIOGRAPHY

Fleming, Alice. Something for Nothing. New York: Delacorte Press, 1978.

Richard McGowan

See also Gambling.