43 states and the District of Columbia have virtually monopolized certain forms of lottery gambling, apart from what they license or allow, what's done on Indian nations, and what's done underground. The proceeds are sometimes called a "voluntary tax." This is an altogether false designation. State-run lottery gambling provides a service to people who gamble. These 44 governments have grabbed the lottery business for themselves and prevented certain gambling trades of the people, by the people, and for the people. They've prevented freedom in gambling. In California, gross lottery revenues were $3 billion in 2004, and the state netted $1.09 billion. In 2010, the gross was $9.7 billion. That payback is close to what the old numbers racket would pay out, which used to be $600 for every $1,000 that was bet.
The states are acting like businesses when they improve their distribution methods by offering lottery tickets in convenient locations like supermarkets and gas stations. Minnesota is innovating with ticketless sales with debits and credits done electronically to one's accounts. (Thanks to Joe Osmundson for that item.) This has nothing to do with taxation or with state-controlled morality and everything to do with monopoly and the prevention of free trade. But it is also true that cultural and social history influence the directions that state monopolizations take. Minnesota has a $50 weekly limit on how many state lottery tickets one can buy. I view that as a profit-maximizing restriction, not as anything morally-generated. In the long-run, it's in the state's interest not to bankrupt customers and generate bad publicity that scares off bettors. It's better for the state's profits to tap into a person's spending over a long horizon. If morality were the issue, the state wouldn't be in the gambling business at all. Neither would churches run bingo games and occasional lotteries.
Any government can find an excuse to socialize-communize-monopolize almost any kind of business activity. Running a lottery has certain advantages for the state over some other businesses it might absorb. The cash inflows and outflows are not influenced by bureaucrats. If the state took over banking, for example, the question of who would get cash outflows in the form of loans would immediately become a severe problem. If it took over automobiles, it would have problems of manufacturing and distribution. Lotteries are a much simpler business.
The state doesn't have to enter these businesses. It has the power to TAX. It allows its citizen-slaves to transact in many business activities and then proceeds to take a substantial cut as the silent partner.
In this realm of finance, there are at least two concrete things one can do to thwart the state, short of moving out of its jurisdiction. One is not to buy its lottery tickets. The state will then have to raise taxes, which is more difficult for it to do and encounters more resistance. The second is not to lend the state any money. Don't buy its bonds.
For the state to hassle Intrade and drive it out of the American market is doubly ironic. A lottery is a witless form of gambling that takes zero skill, and it's a sure loser in expectation. One can expect to win about $600 to $700 for every $1,000 bet if California is typical. One gets skewness from a lottery, which comes from the chance of a huge payback. Furthermore, a lottery is a manufactured risk. By contrast, Intrade has bets on real events, not manufactured risks. Also, advantages and higher winnings accrue to the better forecasters who bet.