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The Billion-Dollar Jackpot: Engineered to Drain Your Wallet

Credit...Minh Uong/The New York Times

If you’ve noticed that colossal lottery winnings are becoming almost common this year, it’s no accident. Four of the 10 biggest jackpots in United States history have already occurred in 2016, an engineered outcome intended to generate mind-bogglingly big winners.

That’s thrilling if you are the rare winner of hundreds of millions of dollars. But whether it’s a good thing for scores of millions of other people who play government-sponsored lottery games is highly questionable, as a close look at the numbers reveals.

What is immediately evident, though, is that the high frequency of enormous jackpots results from skillful planning, says Salil Mehta, an independent statistician. “This was deliberate,” Mr. Mehta says. “The jackpots are growing very rapidly, and at a certain point when the jackpot rises into the hundreds of millions of dollars, there is a buzz, and people start betting much more.”

Consider that on July 30, an unnamed person in New Hampshire won a $487 million Powerball jackpot. That would be a big deal on its own, but in the same year, we’ve also seen jackpots of $429 million, $536 million and $1.586 billion. That’s according to a tally kept by Mr. Mehta, formerly director of research and analytics for the Treasury’s Troubled Asset Relief Program and the federal Pension Benefit Guaranty Corporation.

He says that the rapid buildup of enormous prizes resulted from redesigns of the nation’s two big multistate government-sponsored lotteries — Mega Millions in 2013 and Powerball in October 2015. The idea was to stimulate gambling and increase revenue for state governments after the financial crisis by generating enormous headline-grabbing jackpots while also making it easier to win smaller prizes.

It’s worked. Overall sales of state-run lottery games in the United States increased to $73.9 billion last year, according to the North American Association of State and Provincial Lotteries, from $70.1 billion the previous year. Sales appear to be rising in 2016.

How was this done? For those of a wonky disposition, Mr. Mehta provides elegant analyses on his blog. Basically, the infinitesimally small odds of winning the big jackpots became even worse — they are now one in roughly 292 million for Powerball and one in 259 million for Mega Millions. There are many smaller prizes for these multistate games, as well as myriad local lottery games that help keep interest alive when drawings for the big games fail to produce a winner. Each time that happens — and, given the odds, it will happen frequently — the big-game jackpot swells.

Those gigantic jackpots set people dreaming. I’m not immune to lottery fever. I hadn’t bought a lottery ticket of any kind for years, until last January, when the Powerball jackpot amounted to nearly $1.6 billion. That was one awesome number. We began talking about it at work. Two colleagues and I split a few tickets. We understood that we had almost no chance of winning, and didn’t care: It was fun.

Behavior like ours seems to account for the rapid surge in lottery sales, bringing jackpots to a higher and higher level, Mr. Mehta suggests. Once the jackpot reaches a certain threshold — somewhere in the hundreds of millions, these days — people begin talking and rushing to buy tickets, including people who don’t typically buy lottery tickets, and the jackpot soars even higher.

I have no problem with that on a personal level. In fact, if the lottery exceeds $1 billion again, I’ll probably buy a ticket again. I have dreams, too.

But Mr. Mehta persuaded me to crunch the numbers to see what effects the government-sponsored lotteries are having on people who buy tickets regularly. The results are troubling.

Consider that for state-run lotteries as a whole, only about 60 cents of every dollar goes back to ticket buyers in the form of winnings, an analysis of United States Census Bureau data shows. The flip side is that in the long run, players as a group lose about 40 percent of the money they put into the lottery, and the chances of a big win are vanishingly small.

For the July 30 Powerball drawing, for example, the lottery sold roughly 74 million tickets across the country, the data indicates. In addition to the $487 million jackpot winner, lottery statistics show that one ticket won a tidy $2 million. Other people won money too, but they didn’t win much: Just under 4 percent of tickets — fewer than one in 25 — produced any winnings at all. And for 78 percent of those winning tickets, the prize was only $4. If you won one of those little prizes and had bought two tickets, you broke even for the day. For more than 96 percent of tickets, though, you simply kissed your money goodbye.

In short, if your goal was actually to win money, your chances would be much better at the blackjack table in a casino.

How much are people losing at state-run lottery games?

For some of us, it’s a paltry sum, $10 or $20 a year. And a handful of people win multimillion-dollar pots. But for the millions of regular lottery players, it’s a different story. It takes a while to figure this out. But using publicly available lottery and census data, I estimate, very roughly, that millions of adults, perhaps as many as 50 million, are swallowing net losses that average $1,000 a year. (I used lottery estimates suggesting that roughly 20 percent of all players account for about three-quarters of all sales, and proceeded from there. Mr. Mehta does an elaborate version of this on his blog.)

That’s a lot of money for a lot of people, and over a lifetime it could make the difference between a comfortable retirement and utter penury. In fact, if you were to invest that money in a diversified mutual fund every year from the age of 20 until 65, and it returned 5 percent annually, you would have a nest egg of about $150,000.

When you realize that households in the United States had only a median net worth of $68,828 in 2011, according to the Federal Reserve, it’s clear that this forsaken nest egg is a significant amount of money. (I calculated the nest egg for an individual; statistically speaking, the Fed says, a household typically includes 1.8 adults, so the comparable nest egg would be about $270,000.)

These numbers don’t take into account the impact on poorer people, who truly cannot afford to forgo such sums of money. And they don’t include the effects of taxes, which subtract from winnings. Money spent to play the lottery has already been taxed, while winnings, which are still subject to tax, are worth less than their face value.

I’m not a puritan. I have no problem with gambling as a form of entertainment. If anybody wants to spend money this way, fine. But few people run these numbers themselves or, really, are equipped to do so: A recent study suggests that most Americans are not really financially literate. I suspect that few people fully understand the trade-offs they are making.

At a minimum, the government ought to be doing no harm to its citizens, yet it appears to be promoting and benefiting from activities that are surely harming the life prospects of many people.

It’s true, lottery revenue may help the government finance education and other programs, many of them quite worthwhile. Yet policy levers could be used in other ways. Local and state governments could instead engage in aggressive and creative marketing schemes that would actually improve our odds of attaining a decent financial future.

Twitter: @jeffsommer

A version of this article appears in print on  , Section BU, Page 6 of the New York edition with the headline: Bigger Jackpots. And Even Bigger Losers.. Order Reprints | Today’s Paper | Subscribe

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