Spain's Christmas lottery - How does it work?

Spain's Christmas lottery, the largest in the world, takes place on Sunday, December 22. 

The lottery is deeply rooted in Spanish culture, with an estimated 70-90% of the adult population participating each year. 

This year's sales are expected to break all previous records, with each player spending an average of €72 on tickets. 

For those unfamiliar with it, the scale and traditions surrounding the lottery can be hard to comprehend. 

To illustrate, people line up for hours at places believed to bring good luck, travel to other cities to buy tickets, and perform all sorts of quirky rituals in the hopes of winning.

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The lottery is officially called La Lotería de Navidad but is better known by the nickname El Gordo - "The Fat One" - a reference to its large top prize. 

It is also the second longest running lottery in the world. Since its inception in 1812, it has continued uninterrupted, even surviving the Spanish Civil War and the Covid-19 pandemic. 

The lottery was originally created to raise funds for Spanish troops during the Peninsular War and is still organized by the state. 

Ticket system and prizes 

The lottery system is unique and can be a bit confusing, even for those who have grown up with the tradition.

Unlike other lotteries, where a single winner claims a massive prize, Spain's Christmas lottery distributes its winnings widely, creating thousands of winners.

There are only 100,000 ticket numbers, ranging from 00000 to 99999, and each number is printed on 1,930 décimos.

A décimo, which means "a tenth of a ticket," is the most common ticket people buy, costing €20.

The total prize pool is €2.7 billion, divided into thousands of prizes. The top prize, the coveted El Gordo, awards €400,000 per décimo.

Beyond El Gordo, there are other prizes: 

• The second prize awards €125,000 per décimo.

• The third prize awards €50,000 per décimo.

• The fourth prize awards €20,000 per décimo but is given to two numbers.

• The fifth prize awards €6,000 per décimo and is given to eight numbers.

In addition to these major prizes, there are smaller prizes like the pedreas, which award €100 to nearly 2,000 numbers.

The smallest prize is the reintegro, a cashback prize where you receive your €20 back if your ticket’s last digit matches the last digit of the winning number.

How does the draw work? 

The draw takes place annually on December 22, beginning at 9 am. It is held at Madrid's Teatro Real and lasts over four hours. The event is widely broadcast, making it accessible from many locations. 

The process is simple: two lottery drums are used - a larger one with balls for each of the 100,000 ticket numbers, and a smaller one with balls representing all the prizes. 

During the draw, one ball is simultaneously drawn from each drum, repeating the process until the smaller drum containing the prizes is emptied. 

To ensure fairness, the balls are crafted from boxwood, each weighing exactly 3 grams.  

The numbers and prizes are inscribed using lasers to maintain uniformity, as painting the balls could cause weight discrepancies.

Why do children sing the numbers?

One of the most iconic aspects of the draw is that children sing the winning numbers.

These children come from the San Ildefonso school in Madrid, which has been responsible for this tradition since the lottery began.

The school was originally founded to support orphaned children and continues to assist children in vulnerable situations today.

While the origins of this tradition are unclear, several legends surround it.

The most popular suggests that the organizers involved the children as a way to provide them with a source of income.

Today, the draw generates €350,000 annually for the school, helping fund its programs and support its students.

The children who participate are volunteers and must meet three conditions: they must be between 8 and 14 years old, have a good voice, and demonstrate vocal fluency.

There is no official confirmation, but it is also believed that winners often send donations to the children who sang their winning numbers.

Are the winnings subject to tax? 

As with all games of chance, the house - in this case the State - is always the ultimate winner.  

The first €40,000 of any prize is tax free, meaning that smaller prizes below this threshold are exempt from taxation.  

However, for prizes over €40,000, only the first €40,000 is tax-free. The remaining amount is taxed at a rate of 20%.  

For example, if you win El Gordo, which awards €400,000 per décimo, you would receive a net amount of €328,000 after taxes. 

How much does the State earn?

This year, the total value of the décimos available for sale is €3.86 billion, of which €2.7 billion - 70% of the total revenue - is allocated to prizes. 

The remaining 30%, or €1.16 billion, goes to the State. However, this amount is not entirely retained, as various expenses and commissions related to the organization of the draw must be covered. 

In addition, there are the so-called "phantom prizes", which refer to the prizes that remain unclaimed. 

Surprisingly, a significant number of prizes fall into this category, allowing the state to collect an additional €50 million. 

In addition, the taxes levied on the prizes generate another €160 million in revenue for the state.