Special to the Recorder
Lotteries date back to before Christ.
The Han Dynasty sold Keno tickets to finance The Great Wall of China. The King James version of the Gospel of Luke tells us that Caesar Augustus sent out a decree “that all the world should be taxed.” Apparently taxing the world was not enough, Caesar Augustus also organized a lottery. The proceeds from that early lottery were used to make repairs and improvements to the city of Rome. “I found a city built of sun-dried brick,” Augustus declared toward the end of his four-decade reign. “I leave her clothed in marble.” Governments have long loved lotteries as a way to raise money without raising taxes.
The first official English lottery pre-dates the King James Version of the Bible. It was organized by Queen Elizabeth I in 1567 to provide funds for the "reparation of the havens and strength of the realme, and towardes such other publique good works." To this day, lotteries still advertise that the proceeds will be used for the public good. Florida, for instance, advertises that the proceeds of its lottery are used to fund education. King James organized a nationwide lottery to finance the colonization of Jamestown, Virginia, in 1612.
Initially, the government sold tickets directly to the public. Later, ticket sales were turned over to brokers. These brokers hired “runners” to sell tickets. Since many of the poorer members of society could not afford a whole ticket, the tickets were broken into sixteenths. These early brokers of lottery tickets would eventually become modern stock brokers.
America has a long history with lotteries. Columbia University, Princeton University, and the University of Pennsylvania were all initially financed by lotteries. Benjamin Franklin organized a lottery to buy cannon for the defense of Philadelphia in 1747. The scheme of that first Pennsylvania lottery called for selling 10,000 tickets at two pounds each. Three-thousand pounds would go to defense and the remaining 17,000 would be paid out to 2,842 winning tickets with no winning ticket worth more than 500 pounds.
The Continental Congress used lotteries to finance the American Revolution. We were fighting a war against taxes, so the Founding Fathers used a lottery to raise taxes without actually raising taxes. George Washington organized a lottery in 1768 to build a road across the Alleghany Mountains. It failed, but if you still have your hand-signed ticket, it is worth $20,000 today at auction.
George Washington’s lottery proposed to pay out 85 percent of the proceeds to many winners. Most early lotteries paid out many small prizes rather than one big prize. It was Alexander Hamilton who first proposed the idea of one giant prize. “Everybody,” he said, “will be willing to hazard a trifling sum for the chance of considerable gain ... and would prefer a small chance of winning a great deal to a great chance of winning little." I doubt even Hamilton would have foreseen how big those prizes would get.
In 2016, the Powerball paid out over 1.5 billion dollars on one drawing. That is still the record payout. Lotteries fell out of favor in the 1830s, largely because they were seen as an unfair tax on the poor. For decades, the only major lottery in the United States was run by the Louisiana State Lottery Company, a notably corrupt organization known as the “octopus.”
Lotteries came back in favor following the initiation of the New York State Lottery in 1967. That first Lotto advertised itself as "Your Chance of a Lifetime to Help Education." The NY Lotto has been criticized for paying out only 40 percent of what it takes in. Ticket sales were suspended in 1975 and 1976 because organizers were manipulating the game so that unsold tickets were selected as winners.
The first multi-state lottery was organized in 1985. Powerball, the big daddy of lottery drawings, began in 1992. Powerball tickets are now sold in 44 states. When Florida joined Powerball in 2009, one of the conditions was that the drawings would be held at Universal Studios in Orlando. Today the chances of winning the Powerball Drawing is one in 195 million. On average, half of the money from ticket sales is paid out as a prize.
Math is hard. Numbers are confusing. When someone in Alabama or Kentucky wins half a billion dollars in the lottery, we tend to see it as a miracle. After all, the chance of winning that big grand prize is almost one in 200 million. But, in another sense, the odds that someone will win that prize is actually 100 percent. The odds of you winning are astronomical. The odds of someone winning are even odds. The chance of the Government winning is the same: 100 percent.
Most of us, who don’t win the grand prize, would be better off investing our ticket purchases into the stock market. Twenty dollars a week invested at a 10 percent rate of return will grow to almost $500,000 in 40 years. That is a lot less than a half billion if you hit the winning ticket, but, as I already discussed, it will be a miracle if you do.
Scott A. Grant is the president of Standfast Asset Management in Ponte Vedra Beach. In addition to managing assets for individuals in the community, he is an author, columnist, historian and speaker.