Lotteries pay out big prizes, but how does the lottery make money?
Where does that lottery prize money come from?
Let’s find out.
So How Does the Lottery Make Money
The lottery makes money every time you buy a ticket.
The breakdown varies a bit. But for every $1 you spend, about two thirds (67c) of that is used to pay out prizes. So a large percentage of the ticket price you pay covers the cost of all those prizes.
Here’s a rough breakdown of the lottery ticket price:-
| Percentage of Ticket Price | Where The Money Goes |
|---|---|
| 67% | Winners prizes |
| 23% | Charitable causes / benefits programs |
| 8% | Retailer fees/commissions |
| 2% | Operating expenses |
This breakdown will vary for different lottery companies, but mostly follows this kind split (above is how the Pennsylvania Lottery split the ticket price). This is how lotteries get their money.
And yes, the lottery company themselves only take a very small percentage to run the games. It still adds up to a lot, because they are selling millions of tickets. But they really do only take 1-2c of each $1 you spend. That’s to cover all their operating costs.
So where does lottery money come from?
FACT: lottery money comes from the price you pay when you buy a lottery ticket.
How Much Money Does the Lottery Make a Year?
It depends if you mean profit or how much money they take in sales of tickets.
The New York Lottery for example makes around $9 billion per year from selling tickets. But the vast majority of that goes out again in prize money, about $5.2 billion (this is where the money comes from when you win the lottery). And another $3.2 billion goes straight to School Aid.
So the actual ‘profit’ the lottery makes is about $234 million (about 2.6%). Which isn’t really profit as such, as this is what pays for all of their operating and marketing costs.
How Do Lottery Retailers Make Money?
Lottery retailers make money from a commission on the tickets they sell. They may also be paid more in relation to their winning tickets cashed in. And can also earn bonuses when they sell a big winning ticket.
How do lottery retailers get paid?
It depends on which state they sell tickets for. North Carolina for example pays 7% commission on tickets sold to retailers, plus bonuses if the retailer sells a jackpot winner. Ohio pays 5.5% to stores on tickets sold, but up to 1.5% extra depending on winning tickets cashed in, plus bonuses for big winners.
How much does the seller of a winning lottery ticket get?
This depends on the lottery company, but the seller will typically get around 1% of the prize – but only for wins over $10,000. This is capped though so even big jackpot draw games usually only pay out $10,000 maximum to the retailer. But the big Mega Millions and Powerball games will net the retailer $50-$100,000 if they sell a jackpot winning ticket.
Remember this does not come out of your prize, this is already accounted for in the breakdown of the ticket price. Most lottery companies put aside 5%-8% of the ticket price for the sellers of winning tickets.
Related Questions
No, lottery money does not come from taxes. All lottery money comes from the sales of tickets from people who choose to play.
Powerball get their money from the sale of Powerball tickets. This is collected across all states in the US to pay the jackpot prizes. See How Is the Powerball Lump Sum Calculated?
Mega Millions money comes from the sale of Mega Millions tickets. The game is played across many states of the US and those funds are collected together to pay out the grand prizes.
See Also
Have My Lottery Numbers Ever Won the Lottery?
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