Lottery is a form of gambling that encourages people to pay a small sum of money to be in with a chance of winning a large prize–often administered by state or federal governments. The lottery can be used in decision-making situations, such as sports team drafts or the allocation of scarce medical treatment, and it can also be used to raise money for charitable causes.
A lottery is a game of chance in which winners are selected by a random drawing. Some lotteries are a low-odds game of chance, while others are process-based and involve more than a simple chance selection.
HISTORY AND GENERAL INFORMATION
Lotteries were first recorded in China around 205 BC, when the Han Dynasty held a lottery to help finance major projects. They were also used in the United States during colonial times to help fund both private and public ventures, such as roads, libraries, colleges, churches, canals, and bridges.
Throughout the twentieth century, lingering fears about fraud and abuse kept public attitudes against lotteries. Despite these negative sentiments, gambling for charitable purposes became more common in the 1930s and continued to expand in the 1960s and 1970s as governments sought ways to raise revenue.
The lottery is a popular form of gambling, with millions of dollars in prizes available. Some lottery games have a fixed amount of cash or goods as the prize, and others allow players to select their own numbers on a ticket.
In many countries, the winner has a choice between a lump sum and an annuity payment of the prize. The annuity payment is smaller than the advertised jackpot, and is subject to income tax. The lump sum payment, however, is a significant percentage of the advertised prize and is subject to a range of taxes, including state and local income taxes.
LOCAL STATES AND THEIR LOTTERIES
Each state operates its own lottery system, with the authority to regulate and control the lottery operations being vested in a commission or board that sets and monitors the rules of the lottery. The commissions usually employ a few thousand people and are accountable to the legislature for their actions.
THE SECTOR OF LOTTERY SALES
Most lottery sales are done through retailers, who are contracted by the lottery to sell the tickets. Retailers receive a commission for each ticket sold, and are compensated in other ways depending on the state. Most states have incentive-based programs to encourage retailers to increase their sales. In Wisconsin, for example, retailers can get a bonus if they sell a ticket that costs $600 or more.
THE PERCENTAGE OF LOTTERY SALES THAT ARE PAID OUT AS PRIZES
About half of all U.S. lottery sales are paid out as prizes to winners, with the other half going to administrative costs, retailer commissions, and state profits. In general, retailers collect 5% to 8% of lottery sales in the form of commissions and approximately 2% as bonuses for selling winning tickets.