An Unusual Practice: How and Why an Icelandic University Got Involved in Gambling

Contents:

• How the University Got Involved in Lotteries
• How Lottery Financing Works in the US
• Why They Call for Abandoning Such "Assistant" Lotteries

Education is traditionally financed either by the state budget or by contributions from students and their parents. However, in most countries, there are persistent complaints about a lack of public funding. Increasing tuition fees without restrictions is impossible, leading to the search for unconventional solutions. One such approach is the launch of lotteries, the proceeds of which are used to support the education system. In this context, it is worth considering successful examples of such initiatives from different countries and their impact on the quality of education.

How a University Took Up Lotteries

State lotteries exist in many countries and often serve as a source of funding for social, cultural, and charitable projects. In Russia, for example, the Sportloto organization is managed by the Ministry of Sports, and the proceeds from the lotteries are used to develop sports and physical education in the country. Lotteries not only help fund important initiatives but also offer participants the chance to win significant prizes, making them popular among the population. Thus, state lotteries serve a dual function: they support public needs and provide an opportunity to improve the financial situation of participants.

Iceland has unique cases that deviate from generally accepted practice. One such example is the country's oldest lottery, organized by the University of Iceland. This university not only runs the lottery but also receives significant revenue from it.

The creation of the university system in Iceland is closely linked to the country's historical context. Iceland was long under Danish control and only gained independence in the 20th century. However, already in the late 19th century, Icelanders actively advocated for the establishment of their own university, which would have been an important step towards national self-determination and strengthening of national identity. As a result, the university was founded in 1911, just two years after Iceland formally gained autonomy. This move marked a new era in the country's education and culture, contributing to the development of science and education in Iceland.

At its inception, the University of Iceland had only 45 students. Over time, the institution began to expand, but for a long time it did not have its own building. Students and faculty were housed in the Icelandic Parliament building, known as the Althing. In the 1930s, the government finally agreed to build a main university building, but funds for the project were insufficient. As a result, the university's administration and faculty developed the idea of ​​a lottery. If the government was unable to allocate the necessary funds, the university could organize a lottery, the proceeds of which would be used to build the campus. This initiative was approved in 1933, and on January 10, 1934, the first lottery took place, marking an important step towards creating a building for the University of Iceland.

The conditions under which the university received a patent for organizing the lottery for a period of five years, included several key aspects. Approximately 70% of the total expenditure fund went toward payments to lottery participants. In exchange for the patent, the university was obliged to transfer 20% of its net revenues to the state treasury, with the remainder remaining at the university's disposal. These conditions ensured a balance between the interests of the educational institution and public finances, promoting the development of the lottery business and its transparency.

The first lottery issued 25,000 tickets, but by the 1960s, the volume had increased to 60,000 tickets per year. Revenue also increased: in 1934, the university raised almost 100,000 Icelandic krona for construction, and by the 1960s, total revenues amounted to 23 million krona. This demonstrates the significant increase in the popularity of the lottery and its importance in funding educational projects.

The university's main building was completed in 1940. Lottery funds were used to build a gym, a hospital complex, a technology park, faculty buildings, and dormitories. These facilities contributed to the development of university infrastructure and the creation of comfortable conditions for students and faculty.

The university's lottery patent is still being extended, and in addition, the university is entitled to revenue from the sale of scratch cards, i.e. cards with instant wins, as well as from slot machines. Although online casinos and casinos in general are officially banned in the country, the lottery operator actively lobbied the government to obtain permission to establish them. Such actions highlight the university's commitment to expanding revenue sources and innovative approaches to gambling.

In 2022, it was estimated that the university earns approximately ISK 1 billion annually. Of this amount, 10% comes from slot machine revenue. Funds raised from gambling continue to be used to construct new facilities and maintain existing buildings, while other university needs are financed by the state budget.

How Lottery Financing Works in the USA

In most cases, responsibility for lotteries and other forms of education funding lies not with educational institutions, but with government agencies. This practice is widespread, especially in countries like the United States. Lottery funds are often used to support educational programs, improve school infrastructure, and enhance the quality of education. Thus, government authorities play a key role in ensuring financial sustainability and accessibility of education for all segments of the population.

As of 2010, 19 US states actively organized lotteries at the local level or participated in federal projects, dedicating 100% of lottery proceeds (after winnings) to funding education, both basic and higher education. Lottery organizers often emphasize how the funds are used to encourage people to buy tickets. For example, in California, the lottery launched under the slogan "Schools Win Too," in Virginia, tickets were sold with the slogan "Help Virginia Schools," and in Missouri, the slogan "When You Play, Kids Win" was used. These marketing strategies emphasize the social significance of lotteries and their role in supporting the educational system.

State governments use lottery funds differently. In some regions, funds are used to purchase necessary teaching materials for teachers, which contributes to the improvement of the educational process. In other cases, funds are used to provide scholarships for students or fund childcare, helping to maintain access to quality education. There are also states where lottery revenues are used to construct and maintain school buildings, ensuring comfortable learning conditions. This approach to the distribution of funds allows us to improve the quality of education and maintain the educational infrastructure at the proper level.

At first glance, Lottery revenues appear quite attractive. According to 2016 data from the International Business Times, in New York, lottery revenues accounted for 14% of the state's total education budget, equivalent to approximately $3 billion. In Florida, this figure was 6%. These figures highlight the importance of lottery funds for funding educational programs and initiatives.

Despite the popularity of lotteries as a source of education funding, the situation is not so simple. The proceeds are not directed to schools as additional funding, but are used to replace part of the already planned budget expenditures. This means that the state effectively saves budget funds through lotteries, shifting the financial burden onto participants. For example, in Virginia, where lotteries helped support public schools, $5 billion was raised over 24 years. However, these funds were used to replace budget funding, which allowed for reductions in allocated funds, as The Washington Post reported in 2012. This practice is not the exception, but rather the rule. As a result, lottery money does not provide the opportunity to open new bets, purchase additional equipment, or carry out significant renovations to educational institutions.

It is important to note that a significant share of lottery revenue is used to pay out winnings, which are subject to taxation. This creates a vicious circle: even the money won eventually goes to the budget, but funding is often cut, especially in education. This highlights the need for more efficient distribution of lottery revenue to support important social programs.

Why are there calls to abandon such "helpful" lotteries?

Calls to ban lotteries and gambling have been heard for a long time. In February 2022, The Higher Education published an article titled "The University of Iceland is Addicted to Gambling," in which the university was criticized by both outside experts and its own staff and students. This situation highlights the importance of discussing the impact of gambling on educational institutions and the need to ensure responsible gambling practices.

A mathematics professor has initiated a petition drive among his colleagues to ban the university from operating slot machines and receiving funding from these activities. This demand has been supported by the Association of Problem Gamblers of Iceland, which points out that 67% of people with gambling addictions lose money on slot machines, both in brick-and-mortar establishments and online casinos. The association does not advocate a complete ban on lottery tickets, considering them harmless, but experts emphasize that they can also have negative consequences for some players. The impact of gambling on society remains a pressing issue, and measures are needed to protect vulnerable groups.

An article by the American Institute for Economic Research (AIER) analyzes the results of numerous studies showing that the desire to try one's luck is most often expressed by members of the poor. Interestingly, the lower a person's income relative to the general income in society, the higher the likelihood that they will purchase a lottery ticket. Cognitive biases and a lack of education hinder adequate assessment of the situation: lottery participants perceive the purchase of a ticket as a minor expense, while a potential win seems large. However, in practice, people with low incomes spend up to one-sixth of their annual salary on lotteries. And even if they win, the winnings are often significantly less than the expenses they incurred.

Laura Williams raises an important issue in her article: the incomes of the poorest and least educated Americans are shamelessly collected and redistributed. At the same time, it is promised that only one in millions will be able to escape the social status imposed on them by the public education system. This situation raises serious questions about the fairness and effectiveness of existing social mechanisms, as well as about the real opportunities for improving the living conditions of vulnerable groups.

There is a paradox: lottery systems created to fund education exploit people's desire for quick enrichment. These people often do not have sufficient education to adequately assess their chances of winning. Thus, instead of helping with education, lotteries become a tool for manipulation, which undermines their primary purpose.

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