From time to time, 24/7 Wall St. covers the upcoming large lottery announcements and events. It is fun for most people to imagine what they would do if they won the jackpot, but the reality is that there is really only one lottery winner at the end of it all. The winner as an aggregate is not the lotto player, not by a long shot. The real winner here is the state operating the lottery, in this case Pennsylvania.

A recent announcement indicated that the Pennsylvania Lottery has closed out its 2013-14 fiscal year. It turns out that the PA Lottery generated a whopping $3.8 billion in sales. Of that entire amount, the state netted over $1 billion to benefit older Pennsylvanians — and the state wants more legislative action that would allow the PA Lottery to continue growing funds for seniors.

The 2013-14 fiscal year sales were up by 2.7% from the prior year, which comes to an additional $99.9 million. The prior year was a sales record of $3.7 billion. The PA Lottery said that net revenue rose by 1.3%, or by $14.1 million, over the previous year and prior record.

What should stand out to those who understand good risk versus bad risk is not just that the lottery winnings were up $77.7 million from the prior year. It should also not just be that only 76 PA Lottery players won prizes of $1 million or more last year. What needs to be considered is that only $2.4 billion of that $3.8 billion in revenue was paid out as prizes. On top of bad odds to begin with, the winnings are low on a total comparison in the aggregate.

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The PA Lottery said that more than 62 cents of every lottery sales dollar was returned to players in the form of prizes. Translation: lottery winners are still very few and far between, and they can see exactly how much of their gambling goes back to the state and its targeted beneficiaries.

The more than 9,100 retailers that sell lotto tickets earned a combined $202.4 million in the 2013-14 year. This was an increase of $6.3 million over the previous year.

The PA Lottery said that its administrative costs fell to 2.04% of sales in 2013-14, down from 2.07% the previous year.

Lotto players now need to consider that this marked the third consecutive year that the PA Lottery generated more than $1 billion to support vital services and benefits for older adults in Pennsylvania. Again, that is money right out of the aggregate and right to the state for benefit programs. Have you heard the term “idiot tax” before?

Again, the PA Lottery talked about the importance of getting legislative relief from the statutory minimum rate of return to position the PA Lottery to deliver more dollars to senior programs in future years. If you think what the statutory minimum rate of return means under legislative relief, this means a change to what the benefits for the state and may mean a change in the payout for lotto players. We will leave that final directional verdict up to your own interpretation.

The PA Lottery explanation of this says:

By law, the Lottery had to return at least 27 percent of ticket sales revenue to the Lottery Fund to pay for programs benefiting older Pennsylvanians last year. It returned 28.5 percent for senior programs, the lowest percentage of sales revenue, yet highest dollar amount in the history of Lottery. … While terminal-based games deliver the highest net revenue as a percentage of sales for the Lottery, consumer preference continues to shift toward instant games, which demand a higher payout percentage, and therefore deliver a lower percentage return for the Lottery Fund and senior programs.

In short, the state wants to change what its beneficiary programs are mandated to be received. Will this mean more or less to be paid out in winnings? Maybe the state thinks “the idiots know they are paying an idiot tax, so why not take even more.” And maybe not. The PA Lottery represented that instant game sales for the fiscal year totaled $2.4 billion, up 6% or $139.7 million from the prior year. Instant games also accounted for 64.3% of the year’s total game sales, a 2% rise over 2012-13.

The PA Lottery further said:

Our mega-jackpot games are exciting because they can generate tens of millions of dollars in senior funding over a span of days when jackpots get high. But in years where large jackpots are less frequent, instant games account for an even greater percentage of sales, and we move closer and closer to that statutory minimum rate of return. There are legislative proposals in both the House and the Senate that would decrease the minimum rate of return to 25% long-term, and this legislation is key to enabling future growth in Lottery funds for senior programs. Without legislative action to lower the mandated rate of return, which jumps back up to 30% for fiscal year 2015-16, the Pennsylvania Lottery will have to make adjustments to its marketing plan, including diminished payouts, which will likely harm sales and reduce profits by hundreds of millions of dollars in just a few years.

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Does it sound more and more like the lottery and these instant games are big business? They are! Just look at the final tally through time. Since the PA Lottery’s inception in 1971, it has contributed more than $24.7 billion to Pennsylvania’s state benefit programs.

We have shown over and over how the lottery is effectively a direct transfer of money from the lottery players to the state and to its beneficiaries. Sure, hopes and dreams come along the way. But only a few dozen of the millions and millions of players actually make it worthwhile. Playing the lottery is called an idiot tax for a reason, even if a lucky handful of people do occasionally strike it rich.

Now, again consider what you should do — and what you should not do — if you win the lottery jackpot.

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