State Lottery Sales: Separating the Influence of Markets and Game Structure zy JOHN L. MIKESELL C. KURT ZORN zyxw ABSTRACT State lotteries are the fiscal gimmick for the zyxw 1980s, receiving widespread popular and legislative approval. Unfortunately, the impact of struc- tural and external influences on lottery sales is not well understood. This analysis sheds light on these influences, demonstrating that state economic activity, age of the game, interstate lottery competition, and game portfolios significantly affect sale and, consequently, benefit to the state. TATE LOTTERIES ARE ENJOYING a burst of interest as a mech- S anism for government finance, and the revenue that they produce is substantial in an absolute sense. In fiscal year 1985, state-administered lotteries had ticket sales exceeding $8.5 billion and net proceeds, after prize payouts and administrative costs, of more than $3.5 billion. The net pro- ceeds amounted to barely 3 percent of fiscal 1985 own-source general revenue for states operating lotteries, although up from 1.7 percent in fiscal 1980. Despite the fact that net lottery proceeds remain an insignificant percentage of state revenue, lottery net proceeds in the 14 states that had lotteries in both 1980 and 1985 grew at an average annual compound rate of almost 28 percent during the period.' This dramatic growth is not like- ly to continue, as lottery participation stabilizes and most states adopt lot- teries, but it remains remarkable (DeBoer 1986b). There is no diminution in popularity coincident with the revenue surge. Of the twenty-three lotteries (22 states plus the District of Columbia) operat- ing in mid-1987, 13 received statewide voter approval before they went into effect (Mikesell and Zorn 1985).In November 1986voters in five more states (Florida, Idaho, Kansas, Montana, and South Dakota) approved lotteries, zy John L. Mikesell is a professor and C . Kurt Zorn an associate professor in the School of Public and Environmental Affairs, Indiana University.