State lotteries transfer wealth to needy communities

In South Carolina, gamers with household incomes below $35,000 a year spent more than double than gamers with household incomes between $100,000 and $150,000, according to a commissioned research study by the state in 2014 and obtained by the Howard Center. Black and Hispanic players each spent almost 20% more than white players.

Cloyd White, 26, is a construction worker from Jasper County, South Carolina. Surrounded by lottery advertisements at one of the state’s Shell gas stations, he said he knows people who would turn to the lottery to try to avoid cash shortages.

“When people come down they probably take the last $10 or $20 to try to win $100 to $400,” said White, who is black and estimated he spends $40 every day playing the lottery. “It’s a gamble and it’s risky, but I feel like it’s all about God.”

The Howard Center found that states are more likely to collect and publish customer information that obscures the importance of frequent gamblers. These states collect statistics that show the percentage of a given demographic that “enters” the lottery each year.

“For state lotteries, having access to this data is like taking a giant money-sucking cannon and aiming it at these demographics,” said Les Bernal, national director of Stop Predatory Gambling, a group of Washington, D.C.-based nonprofit advocacy “That dictates where they put lottery retailers. There’s a reason so many lottery outlets are concentrated in low-income areas.

Store concentration

One factor that experts say helps explain the economic and racial disparities driving lottery play is the overconcentration of lottery retailers in low-income, non-white communities.

The convenience store where Standifer bought his scratch tickets is in a neighborhood that has a poverty rate nearly three times the state average and a black population 25 percentage points above the state average.

In Michigan, neighborhoods with a lottery retailer have a median poverty rate that’s nearly double the rate of neighborhoods without lottery retailers and a median household income $16,000 lower, according to Howard Center analysis.

The analysis revealed that:

  • In neighborhoods with lottery retailers, the percentage of the population living in poverty is higher than in neighborhoods without lottery retailers in the 44 states analyzed and in Washington, D.C.
  • Median household income in neighborhoods with lottery retailers is lower than in neighborhoods without lottery retailers in 41 states and Washington, D.C. The only exceptions were Arkansas, Kentucky, and Vermont.
  • The black population was higher in neighborhoods with lottery retailers than in neighborhoods without lottery retailers in 35 states and Washington, D.C.
  • The Hispanic population was higher in neighborhoods with lottery retailers than in neighborhoods without them in 37 states and Washington, D.C.

“There is no debate that lotteries prey on the poor,” Bernal said. “You have half the country that has no assets. They don’t have an emergency fund. They have no investment. They don’t own property. Literally on every corner they sell $30 scratch tickets.

The North American State and Provincial Lottery Association, a lottery industry group, argues that looking at where stores are concentrated is misleading because people “don’t always buy their lottery in the neighborhoods where they live. They buy them on their way to or from work, while shopping or doing other errands, or even at the airport.

It is indisputable that people do not always “buy” their tickets where they live. But the first-of-its-kind analysis of Howard Center cellphone location data shows retail lottery customers are mostly local. The analysis used mobile location data from SafeGraph, a location-intelligence company that collects information about foot traffic at more than 6 million stores in the United States.

The analysis, which looked at in-store traffic patterns at nearly three-quarters of all U.S. lottery retailers, found similar patterns across the country.

The New Mexico Lottery traces those same national trends, targeting disparities by locating retailers in lower-income neighborhoods with a higher Hispanic population.

Who benefits from the system

Players like Standifer fund the system losing a total of $29 billion a year.

But there are consistent winners: the multinational corporations that run the lotteries on behalf of states, the stores that sell tickets – including the big convenience store chains, such as 7-Eleven and Circle K, the advertising and media companies , and state administrators who oversee the process.

Of these 29 billion dollars, these entities will keep more than a quarter: 8 billion dollars.

Private companies raked in about $1.9 billion from running U.S. lotteries in fiscal 2020, the analysis found.

The industry is dominated by two private companies, the British company International Game Technology PLC and the Canadian company Scientific Games Holdings LP.

Between the two companies, IGT and Scientific Games International are involved in running lotteries in all but two states, Vermont and Wyoming. Operating under regularly renewed long-term contracts, these companies print scratch tickets, manage computer systems that power the lottery, and, in some states, handle marketing and advertising.

State-level lobbying by Scientific Games in the 1980s was essential to the expansion of the lottery from one state, New Hampshire in 1964, to nearly every state today.

“While Scientific Games was not responsible for creating new lotteries after 1984,” writes historian Jonathan D. Cohen, “its campaigns paved the way for the massive spread of legalized gambling in the Midwest, West and the Upper South in the late 1980s and early 1990s.”

The New Mexico Lottery also relies on outside vendors, and Scientific Games is the state’s primary provider of specialty gaming services. In this role, he earns 1.599% of total ticket sales in New Mexico. In 2021, a year of record sales, these fees amounted to $1.9 million, according to the 10-year contracts signed in 2018.

In the coming years, society’s control over lotteries is expected to expand significantly as more state officials step back. Illinois, Indiana and New Jersey have already essentially privatized their lotteries.

The increased privatization comes as Scientific Games has just sold its lottery business to Toronto-based private equity firm Brookfield Business Partners LP for nearly $6 billion. Future profits will benefit Brookfield CEO Bruce Flatt, who is worth $4.5 billion and is the 622nd richest person in the world, according to Forbes in May 2022.

The sale also means that the largest companies running state lotteries are all controlled by non-US companies.

Retailers also gain

Convenience stores — including convenience stores located at gas stations — account for nearly two-thirds of all lottery sales. Although the profit margin is much lower than that of cigarettes, alcohol and food, lottery tickets are an important tool to attract customers to the store.

According to the National Association of Convenience Stores, people who buy tickets at convenience stores spend on average almost twice as much as other convenience store customers.

About Valerie Wilson

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