What Happens to Public Budgets When Residents Spend Less on the Lottery?

States that run lotteries direct their net profits to support government programs like homeless shelters, police and firefighter pension funds, parks and education. In Virginia, the profits comprise about 10 percent of the state’s entire education budget, says Khalid Jones, executive director of the Virginia Lottery.

“It’s a line item that’s come to be relied upon,” Jones says.

But pinning such a sizable chunk of a budget on this kind of revenue stream can seem like a risky bet — after all, consumer habits fluctuate, especially during uncertain economic times.

So far, the bet has been paying off: in 2025, the state announced $901 million in lottery profits and, the year before, a state record-breaking $934 million. But Jones is well aware that as economic outlooks worsen, residents are going to be more careful with their dollars — as they should be.

“This is a discretionary product. If you have other concerns, then the lottery can wait,” Jones says. “We want to make sure that we're increasing our profits in a way that's responsible to the whole person. … Lottery is not an investment. Lottery is not a job. It is not a way to build wealth.”

Jones spoke to Governing after tariffs began raising consumer prices but before the federal shutdown further shook consumer confidence and cut off income for federal workers.

Funding K-12

Lotteries are sometimes criticized as a kind of regressive tax that harms the less wealthy (who are likelier to give their hard-earned cash over to the state in the hopes of winning big). Some critics have argued states should do away with the lottery entirely, and stop relying on it to fund programs.

The government's messaging in Virginia is sensitive to these concerns, though the commonwealth does use money from the Virginia Lottery to help fund public education. The Virginia Lottery emphasizes that residents should only gamble as much as is prudent for them. Current public messaging campaigns remind customers to set, and stick to, a budget for how much they’re willing to spend on lottery games. Online lottery games periodically send players a reminder to take a break.

At the same time, lottery profits mean money for K-12. A portion of profits go to the education department for statewide programs, with the remainder going to individual school districts for discretionary purposes.Schools have some limits on how they can use those discretionary funds, but some have directed the money into helping fund services for students with uncommon disabilities, programs for kids at high risk of dropping out, career and technical education programs and other options.

So, if consumers start belt-tightening, what does that mean for schools?

The impact is disputed. In 2023, Old Dominion University Economics Department Chair Bob McNab told WTKR that the state uses lottery income to replace education dollars that otherwise would have come out of the general fund, instead of adding to it to increase overall education funding. The Commonwealth Institute for Fiscal Analysis, a left-of-center Virginia public policy research and advocacy group, made similar statements about fiscal year 2024.

The Virginia Department of Education would not respond to questions about how lottery funding is used or about how a decline in lottery profits would impact schools.

Still, even if the impact of the lottery on schools is disputed, the games do mean more money for state initiatives.

Keeping Money Coming in Tighter Times

For his part, Jones works to keep the state informed if economic headwinds mean lottery earnings are likely to dip. And simultaneously, he’s working to entice customers to keep, or start, playing — just at a level that is responsible for their personal finances.

“We can do both. We can have great returns and great profits for the state, for public education, while at the same time having people do that responsibly,” Jones says. “I think that comes through in the kind of offerings that we have, and then also the kind of messaging that we have. … Even in times of economic uncertainty, people still want entertainment. Entertainment doesn't go to zero.”

Supplementing traditional brick-and-mortar lottery ticket sales, Virginia launched online games in 2020 to bring in younger players. Online revenues have been quick-growing, Jones says. People increasingly want variety, and offering a mix of gaming experiences and price points helps draw in different kinds of players. There are also new opportunities for games with smaller prizes available, if a player misses the big one.

Coming up next, Jones hopes to grow revenue by expanding lottery sales into more kinds of businesses. Currently, customers purchase lottery tickets alongside other third-party items in quick, transactional experiences at grocery and convenience stores. But Jones wants to develop new lottery experiences that could appeal to restaurant and bar patrons. That requires a different strategy, because these are environments where customers want to linger and where they might have come for a particular venue’s brand. Adapting the lottery could mean creating offerings suited to the venues’ branding.

And, Jones says, the lottery should keep advertising its social missions: “Every time you play, you do something good for K-12 education here in Virginia.”