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7th Anniversary of Lottery sees Saturday Game drop by £20 million

Originally Published 13 November 2001

7th Anniversary of Lottery sees Saturday Game drop by �20 million
Professor Ian Walker

This month sees the 7th anniversary of the UK's National Lottery - first sales, 14 November 1994, first draw, 19 November 1994 - and also sees the start of Camelot's second seven year license period, In a research report published in the latest issue of the Economic Journal, Professor Ian Walker from the University of Warwick and Juliet Young analyse the lottery. they reveal that:

  • While the Saturday draw was initially a runaway success, quickly achieving weekly sales of ?70 million, sales have fallen gra

t.

The research suggests that good causes revenue migh t be higher if the game were meaner (with a lower take-out) because, although sales would fall a little (since it would become a worse bet), good causes would get a larger share of the smaller revenue. If more of the prize money was used for the jackpot, or if the varian ce in the expected prizes were reduced, sales would rise.

The research suggests that ticket sales depend positively on the average return - the proportion of rev enue returned as prizes - because punters like better bets. Sales also depend on the skewness in the prize distribution, for example, how much of the prize money goes to the jackpot: the more skewness, the better for sales. In addition, sales depend on the variance in the prize distribution, a measure of the riskiness of the return - so the less variance, the better for sales.

Sales of the new 'Extra' game, which has not been a success, are vo latile since it is designed to roll over frequently. But the average is barely ?1 million per draw. This research suggests that the skewness in the prize distribution (from being just a jackpot) fails to compensate for the low average/high variance return (because there is such a high probability of the return being zero in any draw - that is, there is a large rollover probability). The 'Thunderball' game is a fairly low variance game because it has a guaranteed jackpot, but this also implies quite low skewness.

Overall, the researchers conclude, there should be a lottery because people enjoy playing and it does little harm. But lotteries are not good vehicles for taxation because they are a larger part of the spending of the poor than of the rich.

Also there is no compelling evidence to suggest that there is any merit in having much of the take-out dedicated to good causes. In general, such 'hypothecation' is bad for sound investment decision-making. What is more, the best good causes - health, education, etc. - are already the recipients of taxpayer largesse, so adding lottery funds to these gives the Treasury an excuse for spending its own money elsewhere. Moreover, those causes where this 'additionality' issue is not a problem are unlikely to be very 'good' in the eyes of punters

Notes for Editors: 'An Economist's Guide to Lottery Design' by Ian Walker and Juliet Young is published in the November 2001 issue of the Economic Journal. Walker is Professor of Economics at the University of Warwick, Coventry CV4 7AL; Young is at National Economic Research Associates, 15 Stratford Place, London W1.

For further information please contact:

Professor Ian Walker, University of Warwick Tel: 024 76 523054
mobile: 07785-538218 Email: i.walker@warwick.ac.uk
ity of the return being zero in any draw - that is, there is a large rollover probability). The 'Thunderball' game is a fairly low variance game because it has a guaranteed jackpot, but this also implies quite low skewness.

Overall, the researchers conclude, there should be a lottery because people enjoy playing and it does little harm. But lotteries are not good vehicles for taxation because they are a larger part of the spending of the poor than of the rich.

Also there is no compelling evidence to suggest that there is any merit in having much of the take-out dedicated to good causes. In general, such 'hypothecation' is bad for sound investment decision-making. What is more, the best good causes - health, education, etc. - are already the recipients of taxpayer largesse, so adding lottery funds to these gives the Treasury an excuse for spending its own money elsewhere. Moreover, those causes where this 'additionality' issue is not a problem are unlikely to be very 'good' in the eyes of punters

Notes for Editors: 'An Economist's Guide to Lottery Design' by Ian Walker and Juliet Young is published in the November 2001 issue of the Economic Journal. Walker is Professor of Economics at the University of Warwick, Coventry CV4 7AL; Young is at National Economic Research Associates, 15 Stratford Place, London W1.

For further information please contact:

Professor Ian Walker, University of Warwick Tel: 024 76 523054
mobile: 07785-538218 Email: i.walker@warwick.ac.uk