Running a lottery is an expensive undertaking for any operator, and the income that they make is immediately diminished by the costs involved to actually run that lottery and carry out each draw.
There are many types of expenses that must be paid before any money is declared a profit and parceled out to benefactors.
The cost of blank-ticket printing and distribution can be quite high.
Using an authorized and secured printing house, the rolls of tickets that are inserted into retail lottery terminals need to have the operator’s logo, markings, authentication marks, and other identifiable graphics printed all along the entire roll.
Once this is done, the tickets are then packaged and shipped out to the operator, who then has to have them shipped out to the retailers.
Each retailer has been provided, usually at the operator’s expense, with the lottery terminals and all electronic equipment necessary to print the ticket and automatically register the information into the operator’s database, plus the necessary equipment for consumers to validate their winning tickets.
Number-selection forms, advertising and marketing material, and all other items necessary to sell tickets and advertise the lottery and the draws are also provided by the operator.
Retailers usually get a set percentage for each ticket sold and usually another percentage for any major prize won on a ticket sold by the operator.
Third-party charges are incurred for the use of couriers and shippers; the purchase, delivery, installation, maintenance, and repair of retailer lottery terminals, external auditors, and other similar third-party companies.
Of course, winnings of all amounts must be paid out on all claimed winning tickets, and that’s where a majority of the income usually goes.
Then there is payroll for direct and indirect employees, which is for all employees involved in the operation of the lottery, both internal and external. Vacations, sick days, no-shows, and such have to be factored in as well as they all come out of lottery proceeds.
Then, there are advertising and marketing costs that go towards promoting the lottery and the upcoming draw. Television, newspaper, and radio ads, print ads, mailers to loyalty program members, special promotions to entice new players, internet marketing, and other ways to drum up business also come out of ticket sales.
After that, there are the costs involved for creative internal and external employees to design new lottery games for the operator in an attempt to entice even more people to play the lottery.
The inevitable payment of taxes loom over everything. It doesn’t matter if the operator is a private company or part of a government agency, everybody has to pay taxes on their income, including lottery operators.
So, although lotteries bring in billions of dollars per year, tens of millions go out just to enable those billions to be made.
Yes, lotteries are expensive to operate, but the amount of profit made is so much more than the money that goes out that running a lottery is a good way to make money to parcel out to programs and agencies that really can use to provide their services to the public.