Watch CBS News

Powerball is already pulling in billions this year

Powerball fever has gripped the U.S., pushing sales of the multistate lottery game to $3.3 billion so far this year, not much less than it generated in all of 2015. The current world record payout, now estimated at $1.5 billion, is fueling dreams of instant riches across the nation.

According to economist Victor Matheson of the College of the Holy Cross, about $1.6 billion of the Powerball sales probably will go to fund the payouts of jackpots, with states getting another $1 billion or so. The rest of the money will be spent on administrative costs, advertising and retailer commissions.

Record-setting Powerball jackpot nears $1.5 billion 01:47

A spokeswoman for the Multistate Lottery Association, which runs the Powerball lottery, disputed Matheson's analysis but declined to offer other figures. Matheson, a professor, has done scholarly research on lotteries.

For states and their budgets in the tens of billions, the windfall from the Powerball is too small to make a fiscal impact. Still, it's "easy money" for them because they earn this revenue without having to raise taxes, according to Lucy Dadayan, a senior policy analyst at the Rockefeller Institute of Government.

States have incentives to promote Powerball because it's a more profitable lottery game than scratch-off and other games, given that it doesn't pay out as much in small jackpots. Powerball designates about 50 percent of sales for its prize fund, while other lottery games set aside as much as 75 percent for prizes.

Canadians rush to U.S. for Powerball tickets 02:43

Powerball sales will likely keep rising in the week after the winner is chosen but will soon drop off to more normal levels. However, now that the jackpot has crossed the $1 billion level, Powerball will have difficulty atttacting the public's attention unless the jackpots are significantly larger, according to Matheson.

"The term for that is lottery fatigue," he said in an interview.

Indeed, according to Powerball sales data, the game's popularity has ebbed and flowed in recent years as lotteries overall faced increased competition from other forms of gaming such as casinos. Sales in fiscal 2011 were $3.1 billion, surging to $5.95 billion two years later before falling to $3.98 billion in fiscal 2015.

Powerball players form huge line 01:52

Lotteries have been criticized for years for being regressive, meaning the poor spend a greater portion of their income on lotteries than the rich do. According to Matheson, the average person spends about $200 per year on lottery tickets regardless of how much money that they earn. That can create hardships for some players.

"Two hundred dollars isn't much money for Donald Trump," he said. "Two hundred dollars is a significant part of someone's income if they're a minimum wage worker."

In 2004, economist Emily Oster theorized in a paper that Powerball would become progressive, meaning wealthier people would spend a greater portion of their income on tickets, if it offered a jackpot of $806 million, which at the time seemed like an unfathomable number.

"This should be taken with extreme caution, since it is out-of-sample and it is difficult to know how people would behave at jackpots of this magnitude," she wrote. "It is also difficult to know whether this jackpot level is something that could ever be achieved."

Oster, a professor at Brown University, told CBS MoneyWatch she was surprised that the Powerball jackpot has gotten to its stratospheric level, although not by the frenzy surrounding it.

"People enjoy the opportunity to dream about what they might do if they were rich, which generally fuels a desire to play," she wrote in an email. "In addition, once everyone is playing, there is a strong social aspect to it."

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.