If you follow mainstream headlines, you’re probably aware by now that the Mega Millions jackpot currently stands at over $1.1 billion. That sounds like a lot of money – and it is. Many of us still see these ten-figure jackpots as rare opportunities. However, it may be that billion-dollar prizes have become the new normal.
Since 2016, the big interstate lotteries — Powerball and Mega Millions — have produced five jackpots of a billion dollars or more, with the current one set to become the sixth. The pace is also accelerating; this will be the fourth in the past two years. The November 2022 Powerball jackpot also set an all-time world record of $2.04 billion.
What’s behind this trend? Will jackpots continue to grow even larger over time? Is a $10 billion prize in the lottery’s future?
To answer these questions, Bonus spoke to lottery expert and economics professor Victor Matheson of the College of the Holy Cross.
Lower Odds Mean Bigger Prizes
According to Matheson, the lottery’s organizers have been making it harder and harder to win for years. At the same time, it has become more expensive to play.
The future arrived back in 2012. That’s when Powerball officials upped the price of each basic Powerball play from $1 to $2 (PowerPlay games saw a price increase from $2 to $3).
“So right away,” says Matheson, “twice as much money is going into the pool.”
That money continues to roll over into each successive draw until someone wins.
The change in the odds came a few years later. In October 2015, Powerball organizers made a second tweak. They added ten more white balls to the pool, increasing the available numbers from 59 to 69.
They partially offset this by decreasing the Powerball pool from 35 numbers to 26. That allowed the lottery officials to tell the public that it had improved a player’s chance of winning a prize to 1 in 24. However, the change simultaneously reduced the jackpot odds to 1 in 292,201,338, compared to about 1 in 175 million before.
Matheson points out this means more buyers on average before finding a winner.
Bigger by Design
Increasing the frequency of small prizes while making the jackpots more elusive is no accident. The lottery organizers, observes Matheson, have done so specifically to let the jackpots grow larger.
That has been the case for both major lotteries. In 2017, Mega Millions followed Powerball’s lead. It increased its ticket prices and added more number combinations, super-sizing its jackpots in the process. The change was smaller, but the odds for Mega Millions had been longer to begin with, going from 1 in 259 million before the change to 1 in 302.6 million.
In part, this has been to keep up with inflation. Since 1982, the buying power of a dollar has decreased by a factor of three. Mathson points out that people’s expectations have changed as a result:
Thirty years ago what generated excitement over the lottery was a jackpot of $100 million. That’s no longer that exciting. Plus, $100 million just doesn’t go as far as it used to.
Maintaining Consumer Interest
New Hampshire was the state that started it all back in 1964, establishing the first modern draw lottery in the US.
In 1985, Maine and Vermont joined it, paving the way for the country’s first multi-state lottery. Lotto America sold its first tickets in Feb 1988, changing its name to Powerball four years later. According to Matheson, “Powerball got its start because states like Iowa and others joined together in the Midwest.”
The reason for states banding together was because they saw that bigger jackpots produced greater interest. Naturally, the more people who play the lottery, the bigger the jackpots can grow, and pooling customers was one way to achieve that.
From there, a feedback loop starts. Increased interest means more ticket sales. That, in turn, leads to bigger jackpots and even greater interest. The result is exponential growth.
However, Matheson points out a caveat related to behavioral economics:
It’s like a drug. Bigger jackpots trigger the dopamine in our brain. But, you need bigger and bigger jackpots to generate that excitement. Otherwise, there’s the danger of lottery fatigue setting in. People tend to say, ‘Well, maybe when it reaches $200 million, then I’ll buy a ticket.’ That’s why you make the odds longer to combat this.
In recent years, lottery fever has only seemed to grip the nation when a jackpot nears or passes the billion-dollar mark.
The ‘Sweet Spot’ for Odds
Lottery organizers have found a formula that seems to be working, for now at least. Mathson says:
The people who run the lottery, they’re happy with what’s going on. They’ve established their sweet spot [for jackpot odds], which roughly equals the size of the playing population.
For example, if it’s the Massachusetts state lottery, that sweet spot is 1 in 7 million. If it’s Florida, it’s 1 in 20 million. Nationwide, it’s 1 in 300 million, which is where Powerball and Mega Millions have settled.
As Matheson told CNBC last November, someone’s winning the jackpot “just frequently enough that we don’t lose hope. Because the lottery is all about selling hope.”
Of course, it’s also about creating revenue for public coffers. Matheson refers to it as a form of “voluntary taxation.”
Like all games of chance, the mathematics of the lottery makes it a losing proposition in dollar terms. However, Matheson points out that a ticket is a reasonable purchase only “if it’s about entertainment and spending $2 to dream with friends and family.”
The Lottery is not Without Its Critics
Others take a much less forgiving view of lotteries and their tactics. On the heels of the November 2022 record jackpot, Les Bernal, national director for the nonprofit advocacy group Stop Predatory Gambling, told Time:
We’re having this huge debate around wealth inequality in our country, and you have people spending hundreds of dollars, sometimes thousands on these lottery games, which is pushing people into deeper debt. Powerball is just like the exclamation point on that.
Bernal and other critics point to research showing that state lottery retailers tend to be concentrated in lower-income areas and communities of color. “The lotteries,” said Bernal, “don’t exist without low-income people spending their fortunes.”
Matheson agrees that ticket purchases are a losing proposition:
Who benefits? Obviously, whoever wins the jackpot. And [the revenue] is good for whatever’s [designated to receive it] in each state, such as education and general resources. But it’s bad for the average ticket buyer. They’re still losing money on the average.
However, he disagrees with the assessment that interstate lotteries are inherently predatory:
What’s nice about Powerball is that it doesn’t prey on the poor. It’s not just selling hope to poor people.
Few Other Paths for Expansion
US lotteries are already available pretty much everywhere they’re going to be. Forty-five states and several US territories now have a lottery. An effort to create one is underway in Alabama, but the remaining four states – Hawaii, Nevada, Utah and Alaska – have shown no interest.
International expansion isn’t really viable, either. Foreigners can play US lotteries, and Canadians sometimes cross the border to buy tickets when a billion-dollar jackpot is on offer. However, the overall amount of foreign ticket sales has been paltry.
Matheson observes that seeking international sales could also backfire:
It’s tricky to go international. But that probably has something to do, again, with behavioral economics. Someone in Vermont might keep playing even if someone in Texas is always winning. But if a person in China plays and wins, that might be a disincentive. I continue to play as long as someone like me wins.
So what’s the path forward for US lotteries? Matheson isn’t sure:
It’s hard to know where you go from here. The easy way to get bigger and bigger was by adding all the states together. But there aren’t that many left.
The Mathematical Ceiling
Last year’s $2 billion Powerball jackpot will be hard to beat without additional rules changes. And forget about adding another zero. According to Matheson:
It’s essentially mathematically impossible to reach a $10 billion jackpot. You need to sell too many tickets to get to that figure and have a winner.
Only another increase in the price of tickets and lengthening the odds would push a lottery into that territory.
Such a change may be a while off. For now, the lottery officials are keeping an eye on ticket sales. Making the jackpot too hard to hit could hurt as much as it helps. As Matheson says:
If no one ever wins, people stop playing.