It is obvious that we buy tickets to have a chance of winning a lottery jackpot. However, there is a lot more in how the lottery works, from its creation to the decision on its characteristics and the actual safe drawings. In this guide, we break down how lotteries are organized behind the scenes so you will figure out where the money comes from and how safe the process is so you can feel more confident when playing.
- Lotteries are built to accomplish a specific money accrual goal.
- Drawings may be physical or digital, but they always accompany safety protocols.
- The ticket prices are decided according to revenue and cost expectations.
- Physical winning tickets belong to those who possess them.
Contents
Understanding the Basics of the Lottery System
The whole lottery system is based on randomness and a proportional ratio between risk and reward. When a lottery is created to have millions of possibilities, it usually offers huge jackpots, while easier structures often pay small, fixed prizes.
In order to participate and have a chance of winning the biggest or secondary prizes, people purchase numbered tickets. Each combination in a ticket is a chance and has a fixed cost, which is where the lottery money comes from. Our tickets fund the prizes, administrative costs, and accumulated jackpots.
The winning numbers are random and cannot be predicted, being drawn by physical or digital systems built to be completely free of fraud. That is how the lottery works, regardless of the country, structure, or playing rules.
How Are Lottery Games Designed?
Lottery games are designed according to an initial plan of money collection, as the ultimate goal is to use the rest of the money accrued in ticket sales to fund governmental programs. Of course, the games need to be attractive to players.
Therefore, calculations are carried out by specialists, including market research if they take it seriously, to design characteristics like format, prizes, frequency, etc. The idea is to make sure the game appeals to the general public.
For example, a Pick 3 game usually has a low ticket cost such as $1 and only 1,000 possible combinations. Even though the biggest prize tends to be as low as $500, people buy several tickets as part of their Pick 3 strategy because of the tempting odds of 1 in 1,000. Therefore, it may accrue profit just like a game with 6/49 format, odds of 1 in 14 million, and a prize of $1 million.
Lotteries Vs. Instant Chance Games
While the lottery works with a fixed drawing time and tickets purchased even days ahead of it, other chance games have an instant effect. Most lottery fans also play games like scratchcards, keno, and bingo, which may be considered other types of lottery.
Although some of them share similar characteristics, they work differently from the lottery in several aspects. We have summarized them in the table below:
| Game | Lottery | Keno | Bingo | Scratchcards |
|---|---|---|---|---|
| Format | Combination taken from several possibilities in a pool of numbers. | Random pick of 10 to 20 numbers. Player can decide how many numbers to play with. | Random drawing of numbered balls. | Hidden prizes that can only be known when the player scratches the physical or digital card. |
| Prize | Prizes may rollover to up to billions but can also be fixed. | There are games paying up to 100,000x the total bet. | Up to thousands of dollars, or unlimited potential in digital bingos with the progressive jackpot. | Up to millions of dollars, depending on the scratchcard. |
| Odds | High variation with offers for all kinds of players. | Up to 1 in 100,000. | Depends on the number of drawn balls. The most common format has odds of 1 in 1.7 million. | Varies greatly. |
| Occurrence | Fixed day and time, up to three times a day. | Fixed day and time or at any time as a digital game. | Whenever the players decide to play it. | Whenever the players decide to play it. |
| Where to Play? | Authorized vendors, official sites, online lottery agents, and betting sites. | Authorized vendors and machines, casinos, online casinos | Authorized machines, specialized bingo houses, casinos, online casinos | Authorized vendors, online lotteries, online casinos |
How Is the Lottery Draw Prepared?
Lottery drawings may occur with physical balls and drawings or completely digital random picking through specialized software. Although the specific protocols may vary, it is easy to understand the idea through real examples.
Let’s take Powerball as the best example of physical lottery drawings that work and are safe:
- The process described by CNN mentions that machines are kept safe behind doors with limited access until drawings. Only with a security agent, a representative from the multi-state lotteries, and an independent auditor, those doors can be open. When that happens, all directors are immediately notified.
- Random machines and sets of balls are chosen in order to add another level of unpredictability. All of them are inspected annually and replaced every two years.
- The whole equipment goes through several tests and rehearsals, meaning the actual drawing is not the first one to occur. Also, no one is allowed to touch the equipment without gloves.
- The machine is finally activated for the actual drawing. Besides the activation, there is no more human influence in the sorting of numbered balls. In other words, no one could actually impact the results by moving a ball or anything similar to that.
Preparation of Digital Drawings
Some lotteries like the California Daily 3 and Superlotto Plus use digital systems with RNG (Random Number Generator) software instead of actual machines with physical balls.
In order to understand how the lottery works in those cases, let’s take the official California Lottery procedures as an example:
- Access to the draw room with identification badges is a must. There is a log book that specifies which equipment is going to be used. There is always an independent auditor accompanying every and each step linked to the drawing.
- The specialized RNG program, in this case provided by Smartplay International, identifies the drawing equipment for the next drawing. The RNG page must be printed and signed, and copies must be taken for the auditor.
- Test drawings are performed, and all actions are always recorded by at least one video camera.
- The actual live drawing follows through a button on the RNG program performed by specialized personnel. That is the actual lottery result that must be spoken.
How Online Lottery Works
An online lottery does not necessarily work differently from the traditional lotteries. Most lottery sites offer the chance to buy lottery tickets online or bet on the actual results, following the procedures detailed above.
In other words, they are either lotto betting sites or intermediates for a more comfortable purchase of tickets. Therefore, there is no change in how the lottery works.
On the other hand, by picking sites with exclusive lotteries created by them, such as Jackpot.com or Lottoland, you need to check the games they are based on or the specific procedure conducted by each company.
How Security, Fairness and Transparency Work in the Lottery?
Security is granted when we play those regulated games because of how the lottery works. Lotteries, either provided by private companies or governments, only act under specific and well-defined procedures accompanied by independent auditors. In other words:
- Drawings must be completely randomized without human influence.
- Auditors must accompany every step in the drawing days.
- Frequent inspection and change of equipment.
- Perfect balance of numbered balls, including weight and size.
That information was taken from a wide variety of procedures from different lotteries. While the level of transparency may vary from one country or state to another, live drawings usually present part of the verification process before the draw. The rest of the process, unveiled above, is recorded in case proof is needed.
Also, while some states and countries allow lottery winners to remain anonymous, we can easily verify where the ticket was purchased. The transparency is higher in some cases, with the name and even the picture of the lucky people, including the biggest lottery winners, like the case of Edwin Castro.
Cases of Lottery Fraud
Although rare, there were cases of fraud in the past. Besides the fact that they were all uncovered, those failures were useful in building the safe procedures that lotteries apply today. These are the most well-known cases:
- 1980: The TV host Nick Perry and his accomplices claimed approximately $1.8 million after exchanging the official balls in Pennsylvania Lottery machines. He was convicted only a year later.
- 1999: Balls were tempered in Italy Lotto so that blindfolded children could select numbers they were previously told to.
- 1999 – 2006: The OLG (Ontario Lottery and Gaming Corp) scandal was not about fraud in drawings but rather about retailers claiming prizes in place of the actual winners who bought tickets with them.
- 2010: A RNG software was rigged by Eddie Raymond Tipton in the event known as the Hot Lotto fraud, allowing him to fraud a jackpot of $14.3 million. He also rigged lotteries in Colorado (2005), Wisconsin (2007), and Oklahoma (2011). He was sentenced to 25 years in prison in 2017.
Those events may be triggering for people who fear fraud in the lottery, but we have good news. All the known cases were found out and came to a resolution, punishing the people responsible for them. Also, notice how the problem is not in the lottery itself, so the chances of winning are still there.
How Are the Lottery Winners Chosen and Verified?
Lottery winners are everyone who has picked the winning numbers by luck. Not even the lottery knows who possesses the ticket unless registered online, which means that anyone in possession of the ticket is considered to be the winner.
It does not matter if you bought a physical ticket or found it not signed on the street.
Whoever claims the ticket by signing it and going through the claim process is considered a verified and the true winner.
Whenever something strange occurs, an investigation may take place, just like in the few cases of fraud mentioned above. Other than that, an original ticket that was indeed purchased and is not damaged is always valid and legitimate. There are a few measures to ensure that:
- Damaged, cut, or erased tickets are deemed invalid.
- Official tickets are printed with special papers, signs, and even holograms.
- There may be special ink with the ticket details.
- Scannable codes ease the verification process.
If the ticket is all right, the only way claiming can go wrong is if there is any form of identity fraud or if the person is proven to be prohibited from playing, like a lottery official.
How Does the Lottery Payments System Work?
From the moment the lottery prize claim is accepted, the payment procedure initiates. When it is a really small prize, such as up to $500 or $600 in the case of the United States lotteries, it may be paid immediately at almost any lottery vendor.
The higher the prize, the more complex it is to finally put our hands in the prize. For example, after winning a huge Mega Millions jackpot, you need to go to the main lottery office with all your documentation and wait several business days to have it deposited.
Although a bit of an annoyance, that system ensures big amounts are indeed deposited to real people and is another layer of protection against fraud. Unless you decide on a lump-sum payment, which is the case for most winners, the annuity option is automatically applied.
The most important difference between taking lump-sum or annuities goes beyond taking the money immediately or receiving a fraction every year. A lump-sum payment has an immediate deduction of around 39% if we take the example of the most popular US lotteries. That is before taxes from the lottery country and your own jurisdiction (if playing from abroad).
Where Does the Lottery Money Go?
The lottery money goes to the prizes, but only a portion of it. According to the Tax Foundation, roughly 60% of the gross revenue in ticket sales goes to prizes. While that covers a single country’s study, we can confirm that is the case for any lottery.
Beyond prizes, the lottery money from sales must cover the administrative, marketing, technical, and operational costs. After all, those things cost money.
Besides, the lottery is not meant only to pay prizes and sustain its own operations. They are all created with a purpose, and that also varies from one lottery to another, especially according to each state and country. In general, they fund social or governmental programs, helping them operate thanks to ticket sales.
Using another country as an example, the United Kingdom has a well-defined destination for good causes in the case of the lotteries from The National Lottery:
Lottery Money Allocation in North America
Thanks to the complete data from the North American Association of State and Provincial Lotteries, we know where the rest of the lottery money goes in the United States and Canada. Here are the top 10 in the gross generation of revenue and the destination of that money:
| Jurisdiction | Total Contribution | Beneficiaries |
|---|---|---|
| New York | $3.77 Billion + | Education, NYS Education |
| Florida | $2.38 Billion + | Education Enhancement Trust Fund |
| California | $2.28 Billion + | Education Fund |
| Texas | $2 Billion + | Foundation School Fund, General Revenue Fund, Multicategorical Teaching Hospital, and the Texas Veterans Commission (Veterans Assistance Fund) |
| Ohio | $1.51 Billion + | Education, LPEF – Lottery Profits Education Fund |
| Georgia | $1.5 Billion + | HOPE Scholarships, Lottery for Education Account, and the Pre-Kindergarten Program |
| Maryland | $1.5 Billion + | Baltimore City Schools, Maryland General Fund, Maryland Stadium Authority, and the Veterans’ Organizations |
| Michigan | $1.23 Billion + | Education (K-12), General Fund, and Health and Human Services |
| Pennsylvania | $1.22 Billion + | Older Pennsylvanians |
| New Jersey | $1.18 Billion + | Education and Institutions |
| Massachusetts | $1.15 Billion + | Arts Council, Cities and Towns, Compulsive Gamblers, and the General Fund |
| North Carolina | $1.14 Billion + | Education, Alcohol Law Enforcement, NC Problem Gambling |
| Virginia | $1.12 Billion + | General Fund, Direct aid to Public Education K-12 |
| Québec | $1.07 Billion + | Agricultural Ministry, Aid Action International Humanitarian, Consolidated Fund, Contributions to the Ministry of Finance, Contributions to the Fight Against Excessive Gambling, Culture & Communication Ministry, Government of Canada, Independent Community Action Support Fund, Ministry of Public Security, Municipal Affairs, Social Services Ministry, and Special Commissions to Non-Profit Organizations |
| Ontario | $986 Million + | Province of Ontario |
What About Unclaimed Lottery Tickets?
When a lottery prize is not claimed, the prize that would be given to the winner is not directed to other winners or allocated to the next drawing. Instead, the usual protocol is to direct that amount to the projects that would otherwise only benefit from the remaining revenue, as in the table above.
Are Lotteries Really Well Built?
The lotteries are truly built to be completely random and to indeed be a challenge. It is in the organizations’ and governments’ best interest for them to be so while appealing to players to accrue funding. While cases of fraud happened in the past, they are rare, and a solution has been found, proving that the system cannot be cheated with impunity.
There are lotteries that are perhaps too hard to be interesting compared to others with similar jackpots, such as SuperEnalotto. Therefore, it is important to evaluate the odds, which, just like the ticket price, is decided when the lottery is planned and according to the revenue plan.
There are no standard recipes followed by every lottery, but now you understand how the lottery works based on our examples.
FAQs
Do lotteries work differently depending on the country?
Yes, even the same jurisdiction may have lottery games that are completely different, with varied levels of difficulty, prizes, and resources. They are created to generate revenue to fund varied projects, mainly educational ones, and adjusted according to money expectations.
How does the lottery work when you win?
It reserves that amount for you until you claim, as long as you respect the deadline determined by the jurisdiction for that lottery. Once claimed, the prize is directed towards you if the ticket is valid and your data is confirmed.
Who decides how the lottery works?
A board of directors, counselors, and independent auditors are involved in the process of creating lotteries. It is never the decision of a single person, and there is no pattern that needs to be followed.
Can anyone start a new lottery?
No, a lottery needs authorization to operate and to follow strict regulations. Since it works better under a monopoly, most countries offer their own lotteries through a specific governmental institution created for that purpose.
Can the lottery prevent anyone from winning?
No, the lottery can only work and be trusted if the results are truly random. However, some people are prevented from playing and winning would not be allowed, which is the case for people involved in the lottery process, like auditors and officials.
How Is the Lottery Tickets Price Calculated?
Lottery ticket prices are calculated from the inception of the lottery game in order to generate enough revenue to cover prizes, costs, and still leave a profit. There is no formula ready for all lotteries, which is also why they aren’t all equals.
