When states make the decision to increase government revenue from gambling, they have to mediate between a range of options for operating, regulating and controlling an industry viewed by many people to produce more public harm than benefits. Very little research has been conducted that explores the interface between the generation of revenue from state-directed gambling and efforts that governments make to use this revenue source for a social purpose. This study addresses this gap by exploring the choices available to governments for how to use gambling revenue. Cross-national comparative research reveals that the Canadian province of Saskatchewan is the only jurisdiction in North America -- and one of only six places in the world -- where the government licenses a nonprofit agency to both operate a state lottery and work with civil society organizations to determine priorities for these public funds. Saskatchewan is unique in that it is the only jurisdiction where a sports’ federation has the monopoly license to operate lotteries. The operator of the lottery is also the central funding body for amateur sport, providing core funding and project grants for most aspects of the province’s amateur sport system. Grounded theory methodology under the interpretivist paradigm was used to analyze interview and focus group data of 123 participants with knowledge of the history and outcomes of Saskatchewan’s lottery-funded sport, culture and recreation system. Evidence from this policy case study suggests that if governments want to maximize the social benefits from gambling, valuable lessons can be drawn from the model developed in Saskatchewan. One of the most important findings from this research is the promise that collaborative governance arrangements like the lottery system in Saskatchewan have for empowering communities and creating social capital. This case study documented the type of mechanisms necessary to connect the voluntary sector with government to create a shared sense of purpose and develop programs that facilitate community empowerment. Governments can maximize their ability to address policy problems with public funds by leveraging additional resources and garnering community support by working in a collaborative fashion with private participants. Policy environments that encourage the formation and support of a large number of small, civil society organizations hold great promise for fulfilling public mandates. These findings have implications that extend beyond gambling policy. The case study described in these pages meets almost every measure of what constitutes “best practices” in the literature on collaborative governance arrangements. Themes that emerged from the grounded theory analysis, with insight from related fields such as organizational empowerment, social capital and management of common-pool resources, formed the basis for the development of an analytical framework. Practical advice is offered on how to design and implement collaborative governance arrangements that facilitate organizational empowerment and collective ownership by the partners in such relationships. Keywords: Lotteries; gambling; sport, culture, recreation; social capital; collaborative governance; organizational empowerment; agenda setting; institutional change; grounded theory; oral history; case study; public policy; Saskatchewan; wicked policy.