A History Of The Lottery
06/20/2003

by Chad Hills

A history of the lottery from ancient times to modern-day video lotteries.

Note: The majority of lottery history presented in this feature has been summarized from C. Clottfelter and P. Cook's book, Selling Hope: State Lotteries in America (Cambridge, MA: Harvard University Press, 1989). This book is highly recommended for those who wish to gain a comprehensive and detailed understanding of the lottery. The authors and researchers are to be commended for developing this excellent resource.



The Genesis of Lots
Lotteries, in one form or another, have existed since man has existed within a social environment. In biblical times, lots were drawn to determine animals for sacrifice (Leviticus 16:8), land ownership (Numbers 26:55, Joshua 18:8-10) and to end disputes (Proverbs 18:18) among other decision-oriented venues. There was no consideration or financial contribution, no skill was required — the sovereignty of God determined the outcome, and not merely chance. And there was no prize per se, but rather a directive was established by drawing lots.

Land ownership was certainly a valued possession, but no deposit, investment or consideration was required to participate in the drawing of lots (often differing lengths of straw, sticks, rocks, bones … whatever material was available).

Legally, gambling must have three components: A consideration or something of value that serves as a deposit; chance, skill or the opportunity to win — regardless of the odds; and a prize or reward, which usually consists of the sum total of the other participants' losses.

Sweepstakes or drawings (for automobiles or other items), that require no financial investment, are not considered gambling. Although, participating in such activities can trigger a relapse for recovering gamblers or an entry point for those who have never gambled before, as the "hope" of winning is a strongman in the cycle of gambling addiction. Raffles, bingo and other games requiring player to purchase a ticket, card or other item in order to have a chance to win a prize are legally classified as gambling — even in churches (deemed "charitable" gambling).

If winning the drawing item or sweepstakes purse becomes and obsession, the potential to become "hooked" could be lurking in the shadows. Approach such activities with caution, as they fall one component short of being legally classified as gambling.

Ancient cultures such as Rome, Greece, India, China and Japan have a long history with lots and various forms of lot-based games. The game of Keno — or Chinese Lottery — for instance, is many centuries old. While there are different stories of Keno's origin, it is generally believed that the warlords of China developed this game of chance-based wagering to help fund the building of the Great Wall.

Translations from ancient Chinese scrolls indicate that Keno was first introduced by Cheung Leung early in the Han Dynasty, about 195 BC. Then the ruler of a besieged city, Cheung was hard pressed to provision his defending army. After failed appeals to his people to make greater war contributions, Cheung created a game of chance, Keno, to persuade citizens to wager their money and property for a chance to win. The concept of Keno was introduced to America with the import of Chinese workers, who helped build American railroads.1



Lotteries Become A Gambling-Based Government Revenue
The first known lottery requiring a payment of some consideration for the chance of winning money — besides Chinese wagering — occurred in Florence, Italy around 1530, and the revenue generated went to the government. Italy then brought the lottery to France in 1533.2 The first English government lottery took place in 1566, during the reign of Queen Elizabeth l.3

In 1612 the first lottery crossed the shores of America. The English authorized a drawing to help fund the Virginia Jamestown settlement.4 Colonial lotteries were common and usually driven by the need to finance public projects such as constructing roads, building bridges and erecting buildings. Lotteries run for private profit were never legal, yet they still existed. During the Revolutionary War, the lottery proceeds were used for meeting the needs of troops in the field.5

Drawings used to take weeks or even months before the winners were announced. Early lotteries returned about 85 percent of their proceeds as prizes, and 15 percent went directly to the beneficiaries. No commissions were taken out.6 Lotteries were viewed more as charitable contributions toward public needs, not as a source of revenue for local or governmental use.7

In the early 1800's, lotteries became a popular form of entertainment. It is estimated that in 1832, eight states grossed over $53 million in lottery sales — these expenditures were over three percent of the national income for that year.8

Privatization of lotteries came into existence during the nineteenth century. Marketing firms would send full-time employed ticket brokers to various cities to sell lottery tickets and make a commission. The public could then purchase tickets from lottery shops. Newspapers and other forms of media began to promote lotteries, drawing increased participation through print media.9

"I hope I shall always possess firmness and virtue enough to maintain what I consider the most enviable of all titles, the character of an honest man." — George Washington

Greed and dishonesty soon took root, and corruption entered the arena. Lottery managers were fraudulent paying out awards, drawings were rigged and lottery theft was common.10 Those opposed to lotteries for moral reasons, began to rally their forces and take a stand against the rapidly surfacing lottery scourge. Feeling the mounting pressure to react, states started shutting down lotteries. By 1860, Missouri, Kentucky and Delaware were the only three remaining states to maintain lotteries.11

Following the Civil War, however, several states chose to legalize the lottery again. But one notorious scandal, concerning the Louisiana Lottery Company founded in 1868, would change the face of the lottery for many years to come. From it's birth, the Louisiana lottery was surrounded by blatant political bribery — from both lottery supporters and opponents.12 Smaller lotteries were soon outlawed, and Louisiana became the lottery Mecca of the nation.

The Louisiana lottery was different, as it was a multi-state lottery. Over 90 percent of its revenue came from out-of-state sources (much like modern-day multi-state Powerball lotteries). And the percentage of proceeds it withheld for expenses and profits was nearly 50 percent — withholding far more than former lotteries.13 Many states began to forbid the purchase of out-of-state lottery tickets, but the Louisiana Lottery Company shrewdly side-stepped the law by continuing business via mail. Because of the nation's increasing anti-lottery sentiment, in 1890 the federal government placed restrictions on all lottery-related mail and went on to prohibit all multi-state lottery commerce in 1995.14

"Money never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of filling a vacuum, it makes one." -Benjamin Franklin 15

Lottery Prohibition
By 1894, lotteries were prohibited in all states, and 35 states developed constitutional language forbidding lottery operation. For 70 years (1894 – 1964), no legal lotteries operated in the United States.16 But, much like the prohibition on alcohol, people still found various avenues — both legal and illegal — to satisfy their cravings. Bingo, church raffles and foreign lotteries partially filled the void created by the lottery prohibition. Much like the current debate over internet gambling (foreign-based gambling operations that receive wagers, bets and money for electronic gambling), the Irish Sweepstakes (1930) began to grow popular in the United States.17

"Honesty pays, but it doesn't seem to pay enough to suit some people." -F. M. Hubbard 18

Two major forms of illegal lotteries took root in the soil of prohibition. The first was Policy (insurance). Because early legal lottery drawings took a considerable amount of time to complete, bets were often placed on the side, as to which numbers would be drawn on certain days. Even the lottery shops began to offer policy bets alongside lottery tickets.19 Soon, independent operators of illegal lotteries began to form, and a relatively organized effort from patrons maintained the business of illegal lotteries.20

The second form of illegal gambling began in the 1920s, as the numbers game was born. This allowed people to play a simple lottery — based on a combination of three digits — daily. Players could choose their own "lucky" numbers, giving them a greater sense of control over their perceived odds of winning (actual probability of winning was 1 in 1,000). Numbers were most commonly played in the urban areas of the northeastern United States, in metropolitan cities such as New York. 21

Many charitable and civic events held bingo games and sweepstakes to raise money and attract participants, during the lottery prohibition. Even though bingo was not legalized in many of the eastern states until the late 1930s into the 1960s, state officials did not seem reinforce the bingo laws for charitable events.22

Sweepstakes were another alternative for lottery enthusiasts, and they did not qualify legally as a form of the lottery. A lottery has three components: consideration (a purchase or investment), chance and prizes. Sweepstakes always had an element of "chance" and they eventually awarded prizes to winners (usually a drawing). No purchase or investment is necessary to play sweepstakes; thus, they are legally different than a lottery. Many debates remain over contest rules and legal variations.23

Throughout the earlier portion of the twentieth century, American attitudes became more malleable toward the practice of gambling. In 1931 Las Vegas, Nevada became recognized as the gambling capital of the nation, as it legalized casinos, horse racing (betting) and slot machines.24 Around the depression, two out of five states had legalized gambling at horse races.25



New Hampshire Breaks A 70-Year Lottery Ban
New Hampshire was the first state to break the 70-year ban on lotteries, by legalizing a state lottery in 1964. It was labeled a "Sweepstakes" associated with horse racing to avoid the caustic gaze of the anti-lottery segment.26 In 1967, New York became the second state to legislate a lottery.27 Canada legalized gambling and allowed provinces the authority to run lotteries and operate casinos two years later in 1969. The first modern Canadian lotteries began in 1970.28 In the same year, New Jersey started a state lottery with a weekly drawing. New Jersey sold almost $73 million in tickets during its first fiscal year. The world's first automated electronic wagering system also began in New Jersey in 1971 — Automated Wagering developed the first machine.29 Lottery sales surpassed $500 million by 1973.30

Instant lottery tickets have revolutionized the convenience and speed of playing the lottery. The first secure instant ticket was developed by Scientific Games. In 1974, Massachusetts offered the first scratch-off ticket. The lottery continued to grow in popularity and gain access into American homes. Through a federal law, amended in 1975, allowed state lotteries to advertise on radio and television.31 Entering the world of sports, the Delaware State Lottery began wagering bets on National Football League games (called the Delaware Sports Lottery). The NFL lost a legal battle to ban the wagering, but the Sports Lottery was abandoned after 14 weeks anyway. By 1976, lottery sales had exceeded $1 billion nationwide.32



Multi-State Lotteries
The first multi-state lottery was legalized in 1985. The Tri-State Lotto linked the state lotteries of Maine, New Hampshire and Vermont, to create a larger pot of money to be won.33 Illinois became the first state to offer qualifying "entry" tickets for a grand prize drawing in 1986, during which time North Dakota became the first state to vote against initiating a state lottery. Two years later, in 1988, Oregon, Iowa, Kansas, Rhode Island, West Virginia and the District of Columbia collectively formed the Multi-State Lottery Association (MUSL). 34 As of January of 2003, there were 26 states (including the Virgin Islands) that have a multi-state form of the lottery. 35

New forms of the lottery followed the multi-state games such as Keno, which was introduced by the New York Lottery in 1988. Keno, originally introduced to the U.S. by Chinese railroad workers, is a lottery game in which a set of numbers (typically 20) is selected from a large field of numbers (around 80). Players select a smaller set of numbers (up to 10) and are awarded prizes based on how many of their numbers match those in the drawn set. 36



South Dakota — The First Video Lottery Teminals
The first time video lottery terminals (VLT's) were licensed and regulated in the U.S. was in 1989, when approved in South Dakota.37 VLTs have become a very popular and convenient form of lottery play since their introduction. Legitimate concerns have been raised about the addictive nature of VLTs, and how closely they resemble slot machines (Poker, Black Jack, etc.). 38 "[L]awmakers need to factor into their analysis something that has received little attention thus far: that video gambling machines are 'the crack cocaine' of gambling because they are so addictive." comments Robert Hunter, a clinical psychologist at the Problem Gambling Center in Las Vegas, on the addictive nature of VLT's.39

Also in 1989, the Oregon Lottery began accepting bets on NFL games and other professional sports.Two years later, in 1991, the Virginia Lottery was the first state to have a contract to install instant-ticket vending machines. 40

The Big Game, another multi-state lottery, was initiated by six states in 1996. Georgia, Illinois, Massachusetts, Maryland, Virginia and Michigan were the first members. In May of 1999, New Jersey became the seventh state to join. The Big Game made headlines, in May of 2000, when it offered the largest jackpot in North American history — $363 million, which was split by two winners ($90 million each). New York, Ohio and Washington became members in 2002, bringing the total number of members up to ten. The name was changed to "Mega Millions" in the same year. 41 Approximately 35 percent of the revenue goes to member-state governments, 50 percent returned to players as prizes, 5 percent to retailers and about 10 percent to the lottery administration. 42

In 2003, legalized lotteries on the United States exist in 40 states (including the District of Coumbia), and over 100 foreign lotteries currently operate around the world.43



Six Trends
Clottfelter and Cook have noted six trends since the re-introduction of lotteries in 1964: