Nothin’ But a GTech Thing
Of the different forms of legalized gambling permitted in the United States the most common is also the least-justifiable — the state-sponsored lottery. That industry, meanwhile, is dominated by a firm called GTech. A firm that, as Ken Silverstein details, has extensive ties to the McCain team.
What’s particularly infuriating about the lottery, to me, is when you consider what would happen if instead of a state monopoly you allowed lotteries, taxed them, and subjected them to some pretty basic regulations. It seems to me that market competition would drive the odds in favor of the customer. It would always need to be a bad bet for the ticket-buyer, of course, to work as a business. But in a competitive environment it ought to become a very low margin business since there’s no really good way to differentiate the product except by offering more favorable terms. But instead of doing that, or the other sensible alternative of banning lotteries, we’ve gone with this neither fish nor fowl system that seems to include the worst aspects of several different approaches to gambling regulation up to and including the horrible spectacle of quasi-public agencies spending money encouraging people to waste their money gambling.
36 Responses to “Nothin’ But a GTech Thing”
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September 29th, 2008 at 4:11 pm
Just what do you have against regressive, inefficient, and deceptive taxation, anyway. Are you some kind of Islamocommiehomoterrorist?
September 29th, 2008 at 4:14 pm
I guess I’m enough of an elitist that I don’t mind having a tax on people who don’t understand math.
September 29th, 2008 at 4:15 pm
Yeah, that’s smart. 35 percent of the American population enjoys gambling, playing the lottery and going to casinos. And Obama is going to alienate them. Smart move, go for it!
September 29th, 2008 at 4:22 pm
Matt, I’m having trouble believing that the people playing the lottery would be choosing between competitors on the basis of calculations of their expected winnings. If they were that rational and numerate they wouldn’t be playing in the first place.
September 29th, 2008 at 4:23 pm
The state sponsored lottery is a tax on hopelessness.
The church stopped the selling of such indulgences in the sixteenth century; it’s high time our society caught up.
September 29th, 2008 at 4:26 pm
Nah, it can be worse Matt.
Here in Illinois, one of the factions of Democrats is trying to privatize the State Lottery monopoly.
Privatize a bad system in exchange for a lump sum payment.
Lottery advertising will go through the roof while payouts are even less frequent, and even more extensive targeting of poor people.
September 29th, 2008 at 4:30 pm
I could be misremembering, but I thought you’d posted here before about how the numbers racket had substantially better odds than the current lottery does. I can’t find the studies with the numbers on this right now, but a link to them would make a nice addition to the post.
September 29th, 2008 at 4:38 pm
One of the worst bets possible, in simple mathematical terms. Worse than the sucker bets John McCain so enjoys playing with 100-dollar chips.
September 29th, 2008 at 4:39 pm
Playing the slots in Vegas has better odds than a state-run lottery does.
September 29th, 2008 at 5:02 pm
Adam Villani has a point - Las Vegas is basically a privatized lottery. If casinos paid different odds, it would be on the internet and everyone would go to that casino until the others lowered their odds. But Vegas is a pretty profitable place for casinos.
Lottery players, in any case, are by definition irrational. If you’ve ever lived on a state border it’s obvious: people cross borders to buy lottery tickets not because one state has better odds, but because on state has a bigger jackpot.
September 29th, 2008 at 5:03 pm
KCinDC is exactly right. There is no reason to believe private companies would compete based on the expected payout. And I am a bit shocked that Matt would believe they would — he is usually not quite that naive!
Private lotteries would compete in a variety of ways, based on flashy big prices, various gimmicks and games, cute mascots, or celebrity endorsements. But the idea that private competition would have people choose the lotteries with the highest payouts is only slightly less naive than the idea that in a fully private health care system people would choose the action with the best health outcome.
September 29th, 2008 at 5:23 pm
LAP: “I guess I’m enough of an elitist that I don’t mind having a tax on people who don’t understand math.”
Do you also favor the government actually endorsing and encouraging their poor reasoning about probability? I’d rather see a straightforward tax on poor grades in college stats courses. At least there the government is paying to try to make you smarter rather than dumber.
MY: “the horrible spectacle of quasi-public agencies spending money encouraging people to waste their money gambling.”
Yes, it is a horrible spectacle. But not much worse than the government privatizing big-business gambling then claiming it’s all in the interest of getting the consumer better odds! To privatize is to multiply. It’s like contracting out tax collection to replace the IRS, so we can avoid the “horrible spectacle” of the government terrorizing people with the threat of an audit. We can’t abolish taxation, but we can abolish big-business gambling that’s promoted by a weak state than can’t get people of means to pay for public services.
Somewhat on this subject, read Borges’ amazing short story, “The Lottery in Babylon” if you haven’t already.
September 29th, 2008 at 5:30 pm
In Vegas, there are a number of casinos that (at least) advertise better odds on their slots. I’m not privy to any data showing whether customers are reacting to the marketing.
September 29th, 2008 at 5:35 pm
Matthew, you are apparently unfamiliar with another “very low margin business with no really good way to differentiate the product except by offering more favorable terms.”
It’s called the credit card industry.
Thank goodness that more competition has gotten us such great credit rates!
September 29th, 2008 at 5:39 pm
I agree completely with what LaFollette Progressive said. (Countdown to his reconsidering… five…four…three…)
I also am curious how Matthew thinks the companies would compete on odds. Does Matthew thinks the lottery companies would really start advertising their odds? How exactly would that work?
Company 1: “Our lottery has a $1 million pay off on 2,000,000-1 odds!”
Company 2: “We’re much better than Company 1, we pay $1 million on 1,900,000-1 odds!”
Really, Matthew?
September 29th, 2008 at 5:54 pm
Al, I hope he does reconsider, because he’s wrong. I second Colatina: the government should not be in the swindling industry, particularly when the best marks for that swindle are the people who need the most help.
September 29th, 2008 at 5:59 pm
“35 percent of the American population enjoys gambling, playing the lottery and going to casinos.”
Look, people like a lot of things — drinking, adultery, etc. That doesn’t mean we want a President who does any of those things compulsively as McCain seems to do with gambling. Throw in the strong possibiltiy that a Senator spending too much time at a casino can wind up like Pat Geary in Godfather II, and the fact that McCain almost certainly lied on his tax returns by not declaring gambling income or losses, and you’ve got a problem.
Also, this 65% who doesn’t approve of gambling? Much of it is the Republican base.
September 29th, 2008 at 6:03 pm
Thank goodness that more competition has gotten us such great credit [card] rates!
To be fair, if you pay your bill on time every month, it has. (more precisely, it’s eliminated annual fees)
September 29th, 2008 at 6:32 pm
I am told, and I absolutely can not back this up and it may be totally untrue, that Vegas casinos are actually forbidden to advertise as having the “loosest” slots and instead just advertise “loose” slots. But certainly, you see that claim all over the place.
September 29th, 2008 at 6:51 pm
“Lottery players, in any case, are by definition irrational. If you’ve ever lived on a state border it’s obvious: people cross borders to buy lottery tickets not because one state has better odds, but because one state has a bigger jackpot.”
My thinking on lotteries is since the states take such a large percent of the pot that the size of the pot is what drives your expected payoffs. In some cases, with very large pots, your expected payoffs can be as high as the $ your risking. Now it doesn’t change that you have a very low probability of winning $xx million, but it’s proportional to what you are risking. So in some sense, I feel its pretty rational to cross the state line. Dumb, but rational.
“What’s particularly infuriating about the lottery, to me, is when you consider what would happen if instead of a state monopoly you allowed lotteries, taxed them, and subjected them to some pretty basic regulations. It seems to me that market competition would drive the odds in favor of the customer.”
How? You’re still taxing them. Let’s use Georgia as an example.
GA takes 55% of the pot off the top and then they pay administrative and marketing expenses. The remainder goes to fund free higher education for students who qualify and attend a state college. So let’s say 50% of the pot ends up going to students in GA.
Now instead you tax 50%. Have 10 lotteries in the state. It seems to me the fact that people justifiable like big pots would offset any efficiencies gained by them being wholly private. Heck, the contract to administer the lottery in competitive bid. TV ads will cost the same. How are they goign to be more efficient? You just lose the big pots marketing aspect.
September 29th, 2008 at 7:36 pm
I have no way to justify it but I sort of like the big lotto games. Twice weekly. A buck. Nobody throws a lot of money at them. It’s not a game that encourages addicts. I’m glad to throw mid 2 figures a year at them for the schools and the vicarious dreams of winning. The worst part of them is actually winning. It screws many people up when you give them millions.
The daily games and instant games of all flavors are terrible. Meant to appeal to, encourage, and produce addiction.
Numbers games still exist I’ve heard. Payouts are better. Well above the states 50% I understand.
McCain is arguably an addict. It offers no threat of personal financial problems for him. Still, it’s an addiction. I’ve never heard of any president who gambled a lot. Well I guess Grant love poker. Poker is in a different league than craps however.
September 29th, 2008 at 8:01 pm
One interesting state model comes to mind: lottery bonds like the UK’s Premium Bonds.
It’s a tax-free savings scheme that has a monthly lottery distribution based upon the pool that would have been earned in interest. The principal remains intact.
(Though the weekly lotterly draws don’t bother me as much as the instant-win stuff, either, save that GTech has had questionable business practices.)
September 29th, 2008 at 8:16 pm
The premise here is faulty. Anyone who’s rationally examining odds isn’t in the market for lottery tickets in the first place. You’re buying the fantasy of winning, not your actual chance of winning.
September 29th, 2008 at 8:34 pm
That’s why I buy. I buy a lottery ticket for the high-payout game every few weeks or so, allowing me to imagine winning and being able to pay off my student loans.
September 29th, 2008 at 8:45 pm
Matt the free market crusader. There is a reason early progressives wanted to control lotteries. First they realized banning them was practically impossible and dangerous. Second raising the prices should decrease demand. Of course modern progressives would be wise to use all the gambling proceeds to help gamblers. The only problem is state governments are addicted to gambling tax revenue and voters love a sin tax.
September 29th, 2008 at 11:16 pm
Actually, sometimes playing the lottery isn’t such a bad idea even when half your money doesn’t go to into the prize pool.
Most of the big lotteries have progressive jackpots — if no one wins one week, the pool continues to the next drawing, and so on. But the losing tickets aren’t valid anymore. So at some point, the odds turn in your favor — the expected value of a $1 ticket can be more than $1, sometimes even $2 or $3 dollars.
Most of the big multi-state lotteries have something like 50 to 100-million to one odds. If you only play when the payout is more than that (plus some extra to account for the fact that sometimes you will have to share with another winner, and especially when the jackpot is big).
September 29th, 2008 at 11:18 pm
oops hit submit to early…
If you only play then, you’d have the odds in your favor.
September 30th, 2008 at 9:28 am
The thing that all state lotteries have that private lotteries/casinos do not is transparencies. Drawings are audited and frequently televised. Odds statements and prize information are verified by third party auditors.
People are going to gamble; why not have them do it a way where there is safety, transparency, significant government oversight and the proceeds benefit a mutually agreed upon goal.
September 30th, 2008 at 10:27 am
Exactly.
I realize I could just wad up a dollar and toss it in the trash for the same effect, but I still buy a Powerball about once a week. I know I may win $3 twice a year, but it’s the thought of winning that’s kinda fun. (And we can actually afford it, as well.)
If I want to gamble and actually win, then I hit blackjack tables. I’ve yet to lose a penny.
September 30th, 2008 at 2:25 pm
Weren’t lotteries popular with Southern Democrats running for governor in the 1980s and 1990s? It allowed the Dems to exploit a wedge issue that broke apart anti-gambling Bible thumpers from soccer moms worried about funding public schools (but who didn’t want to pay more taxes for them).
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