The largest jackpot in PowerBall history got a lot larger when no one selected the winning numbers again on Saturday night, and the nation’s lottery fever continues. The jackpot now stands at an estimated $1.3B, and as Americans gear up for the next round on Wednesday, it’s hard not to wonder how this all got started.
Lotteries in the United States go back as far as the country’s founders. In fact, England permitted the Virginia Company, which was deeply in debt, to hold a lottery to support the Jamestown colony in 1612. But the Virginia Company wouldn’t be alone in looking to a lottery as a quick way to get out of debt.
Crowdfunding, Old School Style – Early American Lotteries
Toward the end of his life, founding father Thomas Jefferson was financially in over his head, too. He enlisted the help of his grandson, Thomas Jefferson Randolph, who petitioned the Virginia legislature in January of 1826 to allow Jefferson to dispose of some of his assets by holding a lottery, according to Peter Onuf.
“The idea came to Thomas Jefferson ‘like an inspiration from the realms of bliss’,” said Onuf, 18th Century Guy at BackStory with the American History Guys and professor emeritus at the University of Virginia, in an email. Despite the efforts of Randolph, who traveled as far as New York City, Onuf said the lottery results were “pretty dismal.” Jefferson died later the same year, $100,000 in debt, and his estate, including Monticello, was liquidated.
Early Americans used lotteries much like the crowdfunding of today—as a quick way to generate cash. Lotteries cropped up frequently in the South and “were a perfect way to accomplish big things in places where there was not much cash,” according to Ed Ayers, BackStory’s 19th Century Guy and president emeritus at the University of Richmond.
Ayers cited the example of William Byrd III, son of the founder of Richmond, Va. Byrd, deep in debt thanks to a gambling habit, organized a lottery in an attempt to cash in the lands he had inherited from his father, William Byrd II. Again, the lottery failed to generate the attention and monies needed, and Byrd later committed suicide.
The instability of the lottery system was just one of many reasons why lotteries started to lose favor, according to Matthew Sweeney, author of “The Lottery Wars: Long Odds, Fast Money, and the Battle Over an American Institution.” Colonial Americans would organize lotteries hoping for the best, but would often fall short of their goals, sometimes adding to their problems. Later came the notion that lotteries were morally wrong, an idea first pushed by religious groups like the Quakers in the 18th century and further driven home by Horatio Alger, a 19th century author known for his rags-to-riches stories, Sweeney added.
Sweeney described the beginning of the 19th century lottery backlash as the Horatio Alger feeling. This was a feeling that “lotteries were the enemy of thrift,” said Sweeney. “They were the enemy of bootstrap, of rising up, of the American spirit.” He said that Alger saw lotteries as evil and that idea spread.
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Colonial lotteries were forms of entertainment in addition to gambling. They were also used to fund large-scale projects, like libraries, and to build infrastructure. Sweeney said people turned to lotteries rather than investors because there was strong opposition to taxes and a lack of a sophisticated system of funding, like banks. Eventually, however, banks stopped being crude and lottery corruption started being rampant.
In P. T. Barnum’s autobiography, published in 1888, Barnum bragged about a lottery scheme he concocted to unload glass bottles and old tinware he’d received in a bartering deal while managing a store in Bethel, Conn. “Some of the customers were vexed,” he wrote, when they learned of their prizes. Barnum also recalled a woman who had drawn five dollars and arrived at his store to find herself the not-so-proud owner of several of the bottles as well as a piece of tape, a spool of cotton and other worthless items. She begged to be paid in other goods, but Barnum told her it “would be contrary to the rules of the establishment.”
By the mid-19th century, a lottery based in New Orleans may have been the proverbial straw that broke the camel’s back. At this point, almost every state had banned lotteries on the grounds of morality and/or corruption. But the Louisiana State Lottery Company held on. This privately owned behemoth was known as the Octopus, earning the nickname, Sweeney wrote in his book, “because its arms reached into every state and city.”
According to “Lottery Wars” the Octopus was equipped with an army of lobbyists, notorious for bribing city officials. It was so corrupt, and so big, that it was difficult to topple. It used mail-order to reach into every state, actually beating Montgomery Ward to the title of “first nationwide mail-order business in the country,” according to Sweeney.
But mail-order proved to be the Louisiana lottery’s Achilles heel. Sweeney said that the Octopus “spread like wildfire,” because of the postal service, but added that its rapid growth contributed to the sense that it was a corrupt game. That feeling ultimately led the federal government to step in: In 1890, Congress outlawed the sending of any lottery-related materials through the mail, and with that, the lottery was dead in the United States, until New Hampshire succeeded in getting a sweepstakes bill passed in 1963.
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Like the prohibition on alcohol during the early part of the 20th century, the ban on lotteries left room for lucrative illegal activity. Jonathan Cohen, a UVA PhD student researching the cultural history of lotteries, said that illegal lotteries, like numbers running, were big business in America’s cities, especially for African-Americans. In fact, Cohen noted that the “New York State Lottery struggled in its early years because it offered only “passive” games.” He further explained that New York’s legal games were “akin to raffles, whereas the still-popular illegal games allowed players to choose their own numbers.” Cohen said it wasn’t until the promise of bigger prizes through state-sponsored games during the 1980s that illegal games met their demise.
While many states intend for lottery revenue to fund things like public education, and players may like to think that’s what happens, the money actually goes right into states’ general funds, according to Cohen. In an email, Cohen broke the average state’s lottery distribution down like this:
- 50 percent goes to prizes
- 5 to 12 percent goes to operating costs
- 40 to 45 percent goes to the state
Players have also been sold the idea that lottery revenue offsets their tax burdens and solves state budget issues. Also not true, said Cohen, in an email. “In reality, lotteries are relatively insignificant sources of state revenue, providing, on average, just above 1% of total income in lottery states in 2013 (the most recent year for which full data is available).”
Some states, including Arizona and Maryland, use a portion of lottery revenue to address problem gambling. Even though playing the lottery is addictive, it’s not the only form of gambling, and while compulsive gambling poses its own set of social issues, including crime (which is ultimately very costly to states), we have yet to see the type of backlash experienced in the past, said Cohen.
However, Cohen cautions that massive jackpots, like the one accumulating for Wednesday, may cause a re-emergence of political opposition. Until then, good luck, and in the words of the Kentucky Lottery’s motto: “Somebody’s gotta win, might as well be you.”
BackStory Digital Editor & Strategist