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Here's What Happens to the Billions of Powerball Dollars That Nobody Wins

Today's $1.5 billion Powerball jackpot will provide a windfall for state governments, which often justify lotteries by saying they raise money for education. The truth is far more complex.
People wait to buy Powerball tickets in Westminster, California Tuesday. (Photo by Eugene Garcia/EPA)

The last Powerball jackpot was won on November 4, 2015. It was a mere $142 million.

Since then, more than 1 billion tickets have been purchased at $2 apiece. That means more than 1 billion tickets were (and will be) losers, though there's no telling whether a winner (or winners) will finally claim the record $1.5 billion jackpot tonight.

As the jackpot has increased over the past two months, so too have ticket sales. About 12 million tickets were sold for the first draw — $40 million — on November 7. By December 16, the jackpot was $180 million; there were 18.4 million tickets sold for that draw. In the lead-up to last Saturday, when the jackpot topped $947 million, people bought a whopping 440 million tickets.


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That's about $880 million in ticket sales — some people pay an extra dollar per ticket to increase certain payouts — for last Saturday's draw alone. Here's how it generally breaks down: Half the money ($440 million) goes into the prize pool, whether added to the jackpot or used to pay off people who won lesser prizes — from $4 to $2 million — by picking some, but not all, of the numbers. Though nobody won the jackpot, about 18 million people won something.

Of the other $440 million generated from Saturday's draw, 5 percent gets divided up between the retailers who sold the tickets ($22,000,000) and 10 percent ($44,000,000) is used to pay the administrative costs of running the lottery. The other $374,000,000 goes into government coffers; 44 states — along with Washington, DC; Puerto Rico; and the US Virgin Islands — sell Powerball tickets.

So what do the states do with all that money?

It's a difficult question to answer because it's nearly impossible to track lottery funds in state budgets. Almost all states dictate that a very small portion of lottery money be used to fund programs to help those with gambling problems. (States spend far more — about $500 million a year — advertising lotteries, however.) Beyond that, the revenue is used in a variety of different ways, says Victor Matheson, a professor of economics at the College of the Holy Cross.


'We've all seen the big novelty check being handed over from the lottery director to the state secretary of education. The question is, are the effects on education as good as advertised?'

In some states, it goes into a general fund, which means the money is available for pretty much anything: police, schools, roads, etc. In others, the money is specifically designated for certain needs. Fourteen states dictate that 100 percent of the money be used to fund education; some states use it for K-12, others fund in-state college scholarships.

But that doesn't mean spending on any of those things actually goes up. In fact, the opposite is often true.

"We've all seen the big novelty check being handed over from the lottery director to the state secretary of education," Matheson says. "The question is, are the effects on education as good as advertised?"

Legislators almost always start devoting fewer tax dollars to education — or any other target of lottery money — once the lottery spigot is turned on, Matheson says. A 2007 CBS News investigation found that after 24 states started to earmark lottery funds for education, spending on education either remained flat or went down in 21.

Before Ohio's lottery was launched in 1975, spending on education increased at a rate of $11 per capita every year. That shot up to $26 in 1976 thanks to the lottery — then it fell to less than $7 because lawmakers slashed education spending. When Florida introduced its lottery in 1988, the state was spending 60 percent of its budget on education. Five years later, that percentage had dropped to 51 percent. Twenty years later, the state's national rank in spending per pupil had dropped from 37 to 46.


States without lotteries — Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah, and Wyoming — spend on average about 10 percent more of their budgets on education than those with lotteries.

Private donations to educational institutions in a state also tend to decline when a lottery shows up.

"Lotteries haven't really panned out for education in terms of extra revenue over and above," says Stephen Bronars, a partner at Washington, DC consulting firm Edgeworth Economics. "They just free up some resources to be spent in other ways."

Or not spent — lotteries also end up justifying tax cuts, but ones that don't necessarily benefit the people actually playing the lottery, who tend to be low-income. In 2009, eleven states collected more revenue from lotteries than they did from corporate income taxes.

Overall, the people getting the rawest deal from the lottery are the players themselves. The purchaser of a Powerball ticket effectively has zero chance of winning. So why do people play? State lottery commissions cite the excitement and promote playing as an inexpensive form of entertainment that might come with a life-altering payoff (though it won't). The poor, however, see the lottery more as an investment than a game, according to researchers from Cornell University.

Analyzing data from 39 states over a 10-year period, they established a strong link between lottery sales and poverty rates. On the other hand, they found "no relationship between movie ticket sales, another inexpensive form of entertainment, and poverty rates."


Last October, a set of rule changes made it even harder to hit the Powerball jackpot. Players now pick five of 69 numbers rather than 59 (plus the Powerball number, which is one of 26). This raised the odds of winning from about 1 in 175 million to today's 1 in 292 million.

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This is (arguably) a good thing. Fewer winners mean bigger jackpots, and statistics show bigger jackpots draw in more people. Matheson describes these big-jackpot players as "disproportionately wealthy" compared to the typical purchasers of lottery tickets, making what many describe as a tax on the poor slightly less regressive.

Still, as Bronars says of the lottery, "There is no casino that pays out such low percentages."

Follow Justin Rohrlich on Twitter: @JustinRohrlich