States across the United States are reporting higher lottery sales in spite of lower consumer sentiment that is affecting other sales. Economists have noticed a trend of surging lottery ticket sales near or during a recession as more people look towards a financial windfall during hard times.
As job losses increase across America's middle-class, more people are taking up to lotteries in hope that a big winning will help them. But social researchers have found out that it is quite the contrary with lotteries contributing to financial despair during tough economic situations.
Lottery ticket sales have grown year-over-year for 28 of the 41 state lotteries that completed their fiscal year 2011 at the end of June. Also, 17 of those state lotteries reported record annual ticket sales.
[Related -Health Net, Inc. (HNT): Potential to Be Huge Winners Says Bank of America]
Experts believe that lotteries are cheap form of entertainment but bear the miniscule chance of a reward. That could be one reason why people spend less on other forms of cheap entertainment and more on lotteries during times of recession.
Lotteries are helping state governments to plug the holes in their budget deficit but some say that this comes at the expense of the common citizen. Studies show that low-income families spend a bigger proportion of their income on lotteries than wealthy one. This inadvertently means that America's poor are being taxed in order to solve a crisis when it should be the other way around.
A lot of this is a substitution effect that we see during times of recession, where people substitute one commodity for a cheaper commodity. Lotteries are a lot cheaper when compared to other forms of entertainment and this could be a reason why their sales have been through the roof in the past 12 months. A researcher cites another example of the substitution effect where gamblers are avoiding casinos and instead turning to lotteries. Gambling at casinos involves higher stakes and lotteries offer a cheaper alternative.
[Related -HomeAway, Inc. (AWAY) Q2 Earnings Preview: Top and Bottom Line Bullish Surprise?]
One positive however, from surging lottery sales is that revenue earned helps fill up state coffers and these funds can be redirected toward recovery efforts. Ticket sales provided essential funding to state education, health and welfare programs which are most needed as federal spending drops.
States are trying new and innovative games in order to attract more gamers and this is also contributing to ticket revenue growth. If the economic situation in the United States worsens further, state lotteries can be expected to make a lot more than it did the last fiscal year.