SACRAMENTO – The California State Lottery Commission today voted to approve a mid-year revision of the California State Lottery’s budget for the 2006-07 fiscal year. The budget revision was prompted by updated sales projections that show an expected $400 million decrease in sales compared to the projected budget for the fiscal year. The revised budget predicts sales of $3.2 billion for the 2006-07 fiscal year with public education projected to receive $1.13 billion in supplemental funding as a result. This represents a reduction of $136 million in education funding compared to what was projected and would be the third highest contribution to education in the Lottery’s 22-year history.
Last year, the California Lottery contributed a record $1.28 billion to public education in 2005-06 out of historic sales of $3.58 billion. The budget for the 2006-07 fiscal year projected a modest increase in sales for a total of $3.6 billion. The budget projections were largely based on sales for the lotto games MEGA Millions and SuperLOTTO Plus® increasing by $65 million. Instead, sales for these games are projected to fall short of budgeted goals by $285 million. MEGA Millions sales are now projected at $355 million, or 37% below budget. SuperLOTTO Plus sales are now estimated at $605 million, or 12% below budget.
The shortfall in sales for MEGA Millions and SuperLOTTO Plus is attributable to an unusual absence of large jackpots for the first six months of the fiscal year. Lotto game sales are jackpot driven; meaning higher jackpots lead to higher sales. Jackpot levels are out of the Lottery’s control and have been significantly below average this year. In 2005-06 there were MEGA Millions jackpots of $170 million, $258 million and $315 million over the first six months. This year there has been only one MEGA Millions jackpot over $150 million ($163 million) over the same period of time. SuperLOTTO Plus has experienced a similar drought of large jackpots and sales have suffered as a result.
All MEGA Millions member states are experiencing dramatic declines in MEGA Millions sales because of lower jackpot levels. Because of statutory restrictions the California Lottery uses the proceeds from sales of its draw games like MEGA Millions and SuperLOTTO Plus, and additional administrative savings, to fund prize levels for its Scratchers® products. The decline in draw games sales will force the Lottery to curtail the sale of Scratchers tickets because it cannot afford to fund Scratchers prize funds at desired levels. As a result, the Lottery projects a decline of six percent in Scratchers sales below the original target of $1.88 billion for a revised total of $1.76 billion in sales. The decline in Scratchers sales is unfortunate because while other MEGA Millions states have seen similar sales declines, an average of 30%, they have the ability to mitigate their deficits through higher Scratchers sales.
Public education will continue to receive 34% of sales as mandated by the Lottery Act. Unfortunately, after a record contribution of $1.28 billion in supplemental funding last year, the revised budget now projects that the Lottery will contribute $1.13 billion (35.4% of sales) over 2006-07. This reduction of $136 million in supplemental funding for education since last year still represents the Lottery’s third highest contribution to public education in its history.
In response to this budget shortfall, the Lottery is taking steps to introduce new and exciting products, developing additional games for the future and conducting research to assist in determining new ways to boost sales. The Lottery has also reduced administrative expenses by eliminating $3 million in funding for over a dozen projects planned for this fiscal year and reduced its administrative spending reserve from $8 million to $1 million. It should also be noted that since 1996, the Lottery has voluntarily reduced administrative expenses from 15.5% to 12.6% of total sales. The 12.6% for administrative expenses includes over 7% dedicated to retailer compensation.
Attached is a chart comparing of the original budget for 2006-07 to the adjusted budget.