The Pomp Podcast - #1227 How The Lottery Funded America And Grew To $1 Billion Jackpots

Episode Date: July 20, 2023

Anthony Pompliano breaks down how the lottery has funded America, and how we are seeing a ton of $1 billion jackpots. Why is that happening? What have the rule changes been? Where does that money go? What do you mean the lottery has funded America? ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at ⁠https://pomp.substack.com.

Hey guys, what's going on? Today's episode is a little bit different. You just have me in a solo episode and I break down how the lottery has funded America and now we are seeing a ton of $1 billion jackpots. Why is that happening? What have the rule changes been? Where does that money go?

And what do you mean the lottery has funded America? This was a fascinating deep dive. And so I put together a very short podcast that I thought that you would find interesting. Once you get done listening, jump on Twitter and let me know what you think about these solo episodes. They're a little bit shorter and they're packed with information. But I want to hear from you. Do you like them or do you not? If a lot of people like them,

I'll keep doing them. If not, I'll say, hey, that was a cool experiment and I'll shut them down. Let's get into how the lottery has funded America and why we are seeing so many $1 billion jackpots today. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Gambling is an American tradition. More specifically, the lottery has been a core component to funding the rise of America

and many of our most respected institutions. If we go back in history, we see that the Virginia Company of London created the very first lottery in America in 1616 to raise money for ventures chartered by King Charles. This included the establishment of the first permanent settlement in Jamestown, Virginia. Then over time, all 13 of the original colonies established their own lotteries with the goal of raising money for their operations. Given where the money was going, it became a civic responsibility to play the lottery. But the lotteries didn't stop there. These games have been used to fund churches, libraries, and various prestigious universities, including Harvard, Yale, Columbia, Dartmouth, and Princeton. Lotteries have evolved over the years, and now jackpots are reaching more than $1 billion.

That seems insane, but why is it happening? The rules have recently changed, and now millions more people can participate in a single lottery drawing. The more people who are playing, as long as no one wins the pot of money, gives fuel to a larger and larger amount up for grabs. Now, there are two types of lotteries in the United States. There are state lotteries and then multi-jurisdictional lotteries. State lotteries can only be played within the state borders, and the winning ticket must be redeemed there as well.

Multi-jurisdictional lotteries are exactly what they sound like. They're available across multiple states. The state lotteries are usually smaller in size because fewer people are eligible to play them. The multi-jurisdictional lotteries are where the billion-dollar-plus winning pots have been accumulating. Now, there's two main lottery brands, Powerball and Mega Millions, that go across the different states. According to the Powerball website, they have raised more than $29 billion for public programs and services. Here's how they describe how it works. Powerball tickets are $2 to play

Tickets are sold in 45 states The District of Columbia, Puerto Rico, and the U.S. Virgin Islands More than half of all proceeds from the sale of Powerball tickets Remain in the jurisdiction where the ticket was sold And drawings are broadcast live Every Monday, Wednesday, and Saturday At 10.59 p.m. Eastern Players select five numbers

Between 1 and 69 And one Powerball number Between 1 and 26 The Powerball jackpot grows until it's won Players win a prize by matching one of the nine ways to win. And the jackpot is won by matching all five white balls in any order and the red Powerball. Now, if we go and we see how much money people have been winning, it's absolutely shocking. The 10 largest jackpot winnings range from $2 billion down to $632 million.

Literally, a $2 billion jackpot, a $1.5 billion jackpot, a $1 billion jackpot, and then six others that range from that $632 million up to $768 million. That's a lot of money. Mega Millions, the other major brand, is slightly less popular, but they have been the recipient of a number of large jackpots as well. Their largest is $1.5 billion, and they have four different jackpots over the years that have crossed over the billion-dollar threshold.

That means that there have been seven total jackpots that now have reached the billion-dollar mark. These jackpots are measured in hundreds of millions or billions of dollars. So where exactly does all the money go? The answer, as with most things in life, is it depends. Each lottery system is a little different, and each state treats the lottery revenue in a different way. Generally, here's a breakdown of where the funds go.

About 50% goes to the lottery winner. About 10% goes to the administrative costs and overhead. 5% is commissions to retailers who sell the lottery tickets. And then about 35% is divided among states based on pro rata ticket sales. The amount of money given to the states is where things get really interesting. Each state can receive tens of millions of dollars on the larger jackpots. So they have to decide what to do with that money. California, as one example, is exclusively focused on funding educational efforts with

their money, while Arizona supports the following programs, education, general government, Health and Welfare, Inspection and Regulation, Natural Resources, Protection and Safety, Commerce Authority Arizona Competes Fund, Court Appointed Special Advocate Fund, Department of Gaming, Healthy Arizona, Heritage Fund, Homeless Shelters, The General Fund, Mass Transit, University Bond Fund, Automation Projects Fund, Internet Crimes Against Children Victims Rights, Internet Crimes Against Children's Victims, and the Tribal College Dual Enrollment program. That's a hell of a lot of things that the state of Arizona is using lottery winnings and revenue to go ahead and fund inside of their state. Most people look at the lottery as a dumb

game that is a tax on the unintelligent. There's a hint of truth to that thought process. Gambling addiction is real, and every state sinks significant resources into addiction hotlines or other combative measures. Lotteries have also been a part of American culture since the founding of our country. They have helped to fund early settlements, well-respected institutions, and various public services in modern times. With billion-dollar jackpots happening more frequently due to multi-jurisdictional games, the lottery has become a big business. In fact, it is so big that the business and investing world will have a hard time ignoring it in the future. All right, guys, that's it for today's episode. I hope that you enjoyed this. Again, this was a

solo episode, super short and sweet, deep dive on the lottery business, how it's funded the growth of America and why we're seeing so many $1 billion jackpots. Jump on Twitter and let me know what you think. Do you like these short solo episodes or do you not like them? If a lot of people like them, I'll keep doing some of them. If people don't like them, that was a cool experiment and we'll be done. I always like the feedback and it helps us improve the listening experience for each one of you. Hope you all have a great day and I'll see you guys in the next episode. Thank you.