In Iowa, lottery sales over the years have greatly exceeded the amounts that have been paid back to winners. As explained on the official Iowa Lottery website (http://www.megamillions.com/whereto/states_ia.asp), "Lottery proceeds have three main purposes in Iowa. They provide support for veterans; help for a variety of significant projects through the state general fund; and backing for the Vision Iowa program."

But where does all the money that makes up the big prizes come from?  Is it from all the tickets that are sold, or do people donate it?  That's the part I'm not exactly clear about.  It would make sense if all the money from the lottery tickets was to go into a central pool, and then the winning tickets get a portion.  But how do the lottery people know how many tickets to draw?

As others have stated, the money comes from the tickets purchased.  If there is not a winner, the prize money rolls over and the subsequent week's prize grows.  There have been many times that the winning number wasn't drawn for several weeks resulting an mega prizes.  There is actually a great surplus from the lottery, and in Texas, the lottery was allowed in a traditionally conservative state to fund education (although the role it has played could be questioned).

To participate in a lottery, one only needs to purchase a lottery ticket. Many states offer their own lottery, and some states offer lotteries for multiple states. While I do not play the lottery myself (I prefer scratch-offs), playing the lottery is simple. Lotteries use different number combinations. Some use pick three, four, or five. Others have as many as six or seven numbers. Many pay out for as little as two matches out of six.

To play, one must know how many numbers they need to pick (or one can allow the machine to pick random numbers for him or her). Once the numbers are chosen, one must fill out a paper stating the numbers he or she wishes to play. The ticker seller will punch in the numbers and a ticket will be processed. After, one only needs to wait for the drawing to see if he or she has won. Tickets, up to a certain amount, can be redeemed at any payment center. Some winnings need to be collected at the local lottery office only.

Lottery money comes from the people who purchase tickets. It is not donated, and, for the most part, it is not tax-supported. Most states that have lotteries in the US mandate that lotteries have to be self-sustaining. Usually, people choose numbers, and the numbers are drawn randomly. A Pick-five, for example, consists of people choosing five numbers, and paying a certain amount of money to do so. The lottery commission then draws five numbers, and a person with that exact combination of numbers wins. In many cases, you can win a partial prize if you have only some of the numbers. But that is basically how it works--the lottery jackpot comes from ticket sales.

The money, at least in the US, is not just from the tickets that are bought.  There are guaranteed amounts for each level of winning, regardless of how many tickets are bought.  The state sells as many tickets as people are willing to buy.  It is just assumed that the state will make money because the odds are in its favor.

But where does all the money that makes up the big prizes come from?  Is it from all the tickets that are sold, or do people donate it?  That's the part I'm not exactly clear about.  It would make sense if all the money from the lottery tickets was to go into a central pool, and then the winning tickets get a portion.  But how do the lottery people know how many tickets to draw?

Many states have lottery systems; like in Texas, you can buy different kind of lottery tickets for the publicized drawings on TV.  Some of these tickets are 'scratch-off' in which the buyer scratches off part of the ticket, hoping to get matching pictures or symbols, and the amount of matches on the ticket equates to a certain amount of prize winnings. 

The really big lottery for millions in Texas is more like a traditional lottery as described by post #2.  In that particular lottery, you buy a ticket at a convenience store and choose a certain amount of numbers for the ticket.  Then during the local news, they show the results of the drawing and which numbers were selected. 

There are several types of lotteries. All of them incorporate a drawing of lots, usually random. Depending on what kind of lottery we're talking about, different specific descriptions will apply. 

Are you involved in a lottery for courses? A lottery contest with a money award?