Lotteries and Sports

The success of mega-jackpot state lotteries depends on network externalities. As the authors of a well-respected book on lotteries write:

Once in place the lottery quickly becomes a commonly shared experience; like sports or weather, the lottery is something that almost everybody knows something about. Especially in the midst of the frenzy created by the occasional giant lotto jackpot, players reportedly indulge in fantasies about what could be done with the prize money. Like a snowstorm or a World Series, a multimillion-dollar jackpot creates excitement that spills over to become a social event.^[7]

When many play lotteries, they become more exciting and consequently attract more players.

The 2002 World Cup soccer tournament was extremely popular for every participating country except the United States. Given the monotony of soccer play, people in other countries must have found the World Cup interesting because of network externalities. Following a sport is more interesting when the people you know also are interested in it. Consequently, sporting fans in a country effectively play a massive coordination game where they all choose the popular sports, and then it’s in everyone else’s interest to go along. So, if most people in your country watch soccer, then so should you. Since few Americans are interested in soccer, American soccer doesn’t receive any benefit from network externalities, and so it remains unpopular.

^[7]Clotfelter and Cook (1989), 9.