Options Exist for Increasing Lottery Proceeds for Education

Options Exist for Increasing Lottery Proceeds for
Education
Final Report to the Joint Legislative
Program Evaluation Oversight Committee
Report Number 2017-03
May 1, 2017

Program Evaluation Division
North Carolina General Assembly
Legislative Office Building, Suite 100
300 North Salisbury Street
Raleigh, NC 27603-5925
919-301-1404
www.ncleg.net/PED
75 copies of this public document were printed at a cost of $41.55 or $0.55 per copy.
A limited number of copies are available for distribution through the Legislative Library:
Rooms 2126, 2226 Room 500
State Legislative Building Legislative Office Building
Raleigh, NC 27601 Raleigh, NC 27603
919-733-7778 919-733-9390
The report is also available online at www.ncleg.net/PED.

NORTH CAROLINA GENERAL ASSEMBLY
Legislative Services Office
Paul Coble, Legislative Services Officer
Program Evaluation Division
300 N. Salisbury Street, Suite 100
Raleigh, NC 27603-5925
Tel. 919-301-1404 Fax 919-301-1406
John W. Turcotte
Director
AN EQUAL OPPORTUNITY/AFFIRMATIVE ACTION EMPLOYER
May 1, 2017
Members of the Joint Legislative Program Evaluation Oversight Committee
North Carolina General Assembly
Legislative Building
16 West Jones Street
Raleigh, NC 27601
Honorable Members:
The Joint Legislative Program Evaluation Oversight Committee’s 2015–17 Work Plan directed
the Program Evaluation Division to evaluate whether the North Carolina State Lottery is
providing the maximum benefit to the State by examining its operations, existing revenue-
generating strategies, and efforts to reduce costs.
I am pleased to report that the NC Lottery cooperated with us fully and was at all times
courteous to our evaluators during the evaluation.
Sincerely,
John W. Turcotte
Director

PROGRAM EVALUATION DIVISION
NORTH CAROLINA GENERAL ASSEMBLY
May 2017 Report No. 2017-03
Options Exist for Increasing Lottery Proceeds for
Education
Summary
As directed by the Joint Legislative Program Evaluation Oversight
Committee, the Program Evaluation Division evaluated whether the North
Carolina State Lottery is providing the maximum benefit to the State by
examining its operations, existing revenue-generating strategies, and
efforts to reduce costs.
Annual lottery revenues have steadily grown and performance is
slightly above average compared with other states. In Fiscal Year 2016,
the NC Lottery produced total operating revenues of almost $2.4 billion
with a net income of $634 million transferred to the Education Lottery Fund.
Ticket sales and revenue returns to the State have increased in each of the
Lottery’s 10 years of complete operations. North Carolina ranks 18th (out of
44) in per capita sales and 14th (out of 34) in per capita net revenues
returned to the state from traditional lottery ticket sales.
Expanding the retailer network could increase lottery revenue. Increasing
the number of retailers that sell lottery tickets has the potential to increase
revenue by making lottery products more readily available for purchase.
The NC Lottery ranks 26th in retailer density among the 44 lottery states.
Reducing the compensation paid to NC Lottery retailers could yield
additional revenue. North Carolina provides the 7th highest compensation
paid to its lottery retailers among the 44 lottery states.
Additional options with the potential to increase sales revenue and
subsequent increased transfers to the NC Education Lottery Fund include
authorizing Video Lottery Terminals and offering iLottery games online.
These actions would create more retailers resulting in more opportunities for
purchasing lottery tickets and could boost sales among younger generations
of players.
Improved data collection and analysis methods could help the NC
Lottery more effectively measure the influence of advertising on sales.
Presently, the Lottery does not have a model that measures or predicts the
relationship between sales and advertising expenditures.
To address these findings, the General Assembly should (1) require the
NC Lottery to establish targets for retailer growth and annually report on
its performance in meeting these targets; (2) direct the Lottery to examine
the retailer compensation structure for all games and consider developing
alternatives to the current compensation structure; (3) direct the Lottery to
provide a business case for options to increase lottery ticket sales; and (4)
require the Lottery to annually report on the effectiveness of advertising
expenditures on ticket sales.

North Carolina State Lottery Report No. 2017-03
Page 2 of 30
Purpose and Scope
The North Carolina Joint Legislative Program Evaluation Oversight
Committee directed the Program Evaluation Division to undertake this
evaluation as part of its 2015–17 Work Plan. This project evaluated
whether the North Carolina State Lottery is providing the maximum
benefit to the State by examining its operations, existing revenue-
generating strategies, and efforts to reduce costs. The directive did
not request that the Program Evaluation Division determine social
impacts of the NC Lottery.
Three research questions guided this evaluation:
1. What does the NC Lottery do to maximize the net income it
transfers to the State?
2. What do other states do to maximize lottery net income transferred
to their respective states and how does North Carolina’s performance
compare?
3. What other options could the NC Lottery pursue to maximize net
income transferred to the State?
The Program Evaluation Division collected data from several sources
including
interviews with and data queries of the NC Lottery;
review of laws governing the regulation and reporting requirements
for the NC Lottery;
review of statutorily required annual financial and performance
reports;
review of professional association literature and academic journals;
and
interviews with evaluators of lottery programs in other states.

Page 3 of 30
Background
In August 2005, the North Carolina State Lottery Act and the 2005
Appropriations Act were signed into law, establishing the North Carolina
State Lottery.1 The North Carolina State Lottery is also known as the “North
Carolina Education Lottery” (NCEL). In this report we will refer to the North
Carolina State Lottery as simply the NC Lottery or the Lottery.
In the United States, 44 states operate a lottery. As shown in Exhibit 1,
Alabama, Alaska, Hawaii, Mississippi, Nevada, and Utah are the only
states without lotteries.2
Exhibit 1
Forty-Four States Operate
a Lottery
Source: Program Evaluation Division based on La Fleur’s 2016 World Lottery
Almanac.
The mission of the NC Lottery is “to operate the lottery with the highest
degree of integrity and security to maximize net revenues raised for the
education programs identified by the legislature.”3 To that end, the Lottery
has returned over $4.6 billion to the State for education purposes since its
first day of sales on March 30, 2006. In Fiscal Year 2016, the NC Lottery
produced total operating revenues of almost $2.4 billion with a net income
of over $634 million transferred to the NC Education Lottery Fund.4
The two largest portions of the Lottery’s revenue are directed towards
prizes (62.4%) and earnings for education (26.5%). The relationship
between these two categories of revenue distributions has changed over
time. Initially, the percentage of revenue dedicated to prizes was 50%,
whereas the percentage returned to education was 35%. Session Law
2007-323 gave the NC Lottery flexibility regarding the percentage of
revenues dedicated to prize percentage payout in order to increase
overall revenues and thus increase the money directed to fund education.
Exhibit 2 depicts the distribution of lottery revenue in Fiscal Year 2016 and
further shows the breakdown of allocations for education.
1 N.C. Sess. Laws 2005-344 and 2005-276.
2 This report only examined U.S. states; it did not examine any jurisdictions or territories such as Washington, D.C. or Puerto Rico.
3 North Carolina Education Lottery Strategic Plan, 2015-2020.
4 The largest Powerball jackpot in history, $1.59 billion, occurred on January 13, 2016, which contributed to the NC Lottery’s record
sales in Fiscal Year 2016.

Page 4 of 30
Exhibit 2: Distribution of Lottery Revenue and Breakdown of Allocations for Education, FY 2016
Source: Program Evaluation Division based on financial data from the NC Lottery.
Lottery ticket sales generally increase as prize payout percentages
increase. In one study, the Georgia Lottery concluded that sales and
profits have increased significantly for every state that has raised
payouts.5 The Massachusetts State Lottery, which ranked first in per capita
sales in Fiscal Year 2015, also had the highest prize payout percentage
for instant ticket games (76%) among the 39 states that reported this
figure to the North American Association of State and Provincial Lotteries
(NASPL).6 The NC Lottery ranked 16th in payout percentage in Fiscal Year
2015 with a prize payout percentage of 69% for instant games and 50%
for draw games. The average for the 39 reporting lottery states was
68.3% for instant games and 52% for draw games, meaning the NC
Lottery’s payout percentage was slightly higher than the average of other
states for instant games and below the average of other states for draw
games.
Exhibit 3 shows NC Lottery sales increasing in each of its 10 years of
complete operations. Appendix A in this report provides a condensed
history of the NC Lottery’s revenues and expenses for the 10 full years of
operations (Fiscal Years 2007–2016).
5 Profit Optimization for Georgia Education, The Impact of Prize Payouts on Returns to Education, prepared by the Georgia State
Lottery.
6 Five of the 44 states with lotteries (Illinois, Kansas, Ohio, Oklahoma, and Wyoming) did not report their prize payout percentages to
NASPL. NASPL data is self-reported by state lotteries.

Page 5 of 30
Exhibit 3
Lottery Sales Have
Increased Every Year Since
the NC Lottery Began
Exhibit 4 shows NC Lottery returns to the State increasing in each of its 10
years of complete operations.
Exhibit 4
Lottery Returns to the State
Have Increased Every Year
Since the NC Lottery Began
Revenues generated by the Lottery are based on ticket sales related to
two basic types of games: (1) instant scratch-off games and (2) draw
games. Appendix B in this report provides a history of NC Lottery ticket
sales by game for the 10 full years of operations (Fiscal Years 2007–
2016). Instant scratch-off games generated $1.6 billion of the Lottery’s
operating revenues in Fiscal Year 2016 and accounted for about 68% of
total ticket sales. The Lottery launches approximately 50 new instant
scratch-off games annually. These games are available at price points of
$1, $2, $3, $5, $10, $20, and $30 tickets with multiple play styles and
designs. Examples of some of the current instant scratch-off games
available for sale by NC Lottery retailers are shown in Exhibit 5.
$0.9
$1.1
$1.3
$1.4 $1.5
$1.6 $1.7
$1.8
$2.0
$2.4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fiscal Year
Sales (in Billions)
$314
$348
$414 $432 $436 $459 $479 $503 $521
$634
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fiscal Year
Returns to Education (in Millions)

Page 6 of 30
Exhibit 5: Examples of Instant Ticket Games Sold by the NC Lottery
Source: Program Evaluation Division based on the NC Lottery website.
Draw games generated sales of $766 million in Fiscal Year 2016 and
represent the remaining 32% of operating revenues. Some draw games
are multi-state, such as Powerball, Mega Millions, and Lucky for Life,
whereas some are only in-state (Pick 3, Pick 4, and Cash 5 with an EZ
Match additive). Appendix C provides a brief description of the games
currently offered by the NC Lottery.
The NC Lottery has a history of actively managing operations to increase
net revenue. For example, various scratch-off and draw games are
introduced annually. In addition, a subscription program offering online
sales of Powerball, Mega Millions, and Carolina Cash 5 was launched in
December 2013, and Play at the Pump was introduced in January 2015.
Play at the Pump allows players to purchase Powerball, Mega Millions, or
Carolina Cash 5 tickets through debit purchase at the gas pump at about
200 locations. The NC Lottery also plans to begin offering Keno games
during 2017. Exhibit 6 provides a representative overview of revenue-
generating activities that have been employed by the NC Lottery since its
inception.

Page 7 of 30
Exhibit 6
Timeline of Revenue-
Generating Activities
Undertaken by the NC
Lottery
2006
2007
2009
2010
2013
2014
2015
2016
March 2006 – First day of ticket sales; scratch ticket games offered
at $1, $2, and $5 price points.
May 2006 – Powerball added.
October 2006 – Carolina Pick 3 and Carolina Cash 5 added; $10
instant ticket game added.
July 2007 – Session Law 2007-323 removes requirement to return 35%
to education by making it a guideline, allowing the Lottery to increase
the prize payout for instant tickets beginning in January 2008.
October 2009 – $20 instant ticket game added.
January 2015 – Play at the Pump program introduced, selling Powerball,
Mega Millions, and Carolina Cash 5 at certain gas station pumps.
February 2016 – Lucky for Life, a multi-state draw game, added.
January 2010 – Mega Millions added.
September 2015 – $30 instant ticket game added.
September 2014 – All or Nothing in-state draw game added.
December 2013 – Subscription program launched.
April 2009 – Carolina Pick 4 added.
Source: Program Evaluation Division based on data from the NC Lottery.
The NC Lottery operates with about 260 employees located across six
regional offices in Asheville, Charlotte, Greensboro, Greenville, Raleigh,
and Wilmington.7 Lottery retailers, such as gas stations, convenience stores,
and grocery stores, directly sell tickets to consumers. There were 6,874
active retailers selling lottery tickets across the state as of December 10,
2016.
The NC Lottery is governed by a 9-member North Carolina State Lottery
Commission.8 Five members are appointed by the Governor, two by the
President Pro Tempore of the Senate and two by the Speaker of the House
of Representatives. Members serve staggered five-year terms.
7 The majority of Lottery employees work in the Raleigh Central Office. Employees work in one of nine divisions: sales, administration,
security, brand management, MIS/gaming, human resources, audit and legal, finance, and the executive team.
8 N.C. Gen. Stat. § 18C-111.

Page 8 of 30
There is also a Joint Legislative Oversight Committee on the North Carolina
State Lottery.9 The Committee consists of 14 members: seven members of
the Senate appointed by the President Pro Tempore of the Senate, at least
one of whom is a member of the minority party, and seven members of the
House of Representatives appointed by the Speaker of the House of
Representatives, at least one of whom is a member of the minority party.
Terms on the Committee are for two years and begin on the convening of
the General Assembly in each odd-numbered year.
In summary, the NC Lottery has grown to become a $2 billion business since
beginning operations in 2006. Total revenue and subsequent returns to the
State for education purposes have increased every year over 10 full years
of operations. However, it is essential that the NC Lottery continues to
examine its operations by reviewing revenue-generating strategies and
efforts to reduce costs, thereby providing the maximum benefit to the
State. This evaluation provided an opportunity to examine the ways in
which the NC Lottery can continue to increase the amount of funds it returns
to the State for educational purposes. The following findings and
recommendations detail strategies meant to aid the Lottery in pursuing its
mission.
Findings
Finding 1. The NC Lottery’s performance is slightly above average
when compared with other states.
Two significant performance metrics used in the lottery industry are per
capita sales and per capita net revenues returned to the State. Details for
each state’s performance and ranking on these metrics are provided in
Exhibit 7.10 As shown, in Fiscal Year 2015 the NC Lottery ranked 18th and
14th on these two measures, respectively.11 As stated in its 2015 Strategic
Plan, the NC Lottery’s goal is to be ranked among the top 12 lottery states
in both of these categories within the next five years.
9 N.C. Gen. Stat. § 120-295.
10 The Program Evaluation Division’s primary source for data on other states was La Fleur’s World Lottery Almanac, 2016 Edition. It
contains self-reported data compiled from surveys sent to all lottery organizations. La Fleur’s is considered an authoritative source for
lottery data.
11 Fiscal Year 2015 data is the most recent data available for these two performance measures at the time of this evaluation. All 44
lottery states reported per capita sales data. The Program Evaluation Division excluded from its per capita returns to the state rankings
nine lotteries that also received revenue from video lottery terminals or casinos in order to measure returns to the state solely derived
from traditional lottery tickets sales (Wyoming was also excluded; it did not report any returns to the state for Fiscal Year 2015
because it only began lottery operations in August 2014). Therefore, North Carolina ranked 14th out of 34 states when being
compared to other states on returns from traditional lottery ticket sales.

Exhibit 7: NC Lottery Ranked 18th Out of 44 States in Per Capita Sales and 14th Out of 34 States in
Per Capita Returns to the State from Traditional Lottery Ticket Sales, Fiscal Year 2015
State
(Year of Inception)
Population
(in millions)
Traditional
Ticket Sales
(in millions)
Returns
to State
(in millions)
Per Capita
Sales
Sales
Rank
Per Capita
Returns
Returns
Rank
Massachusetts (1972) 6.8 $ 5,005.7 $ 985.9 $ 736.1 1 $ 145.0 1
Georgia (1993) 10.2 3,903.5 980.5 382.7 2 96.1 3
New York (1967) 19.8 7,251.0 Includes VLTs 366.2 3 - -
New Jersey (1970) 9.0 3,027.3 960.0 336.4 4 106.7 2
Connecticut (1972) 3.6 1,144.0 324.4 317.8 5 90.1 4
Ohio (1974) 11.6 3,665.0 Includes VLTs 315.9 6 - -
Pennsylvania (1972) 12.8 3,819.6 1,060.9 298.4 7 82.9 5
Maryland (1973) 6.0 1,760.9 Includes VLTs 293.5 8 - -
South Carolina (2002) 4.9 1,401.7 343.5 286.1 9 70.1 8
Michigan (1972) 9.9 2,771.9 799.4 280.0 10 80.7 6
Florida (1988) 20.3 5,583.3 1,496.4 275.0 11 73.7 7
Rhode Island (1974) 1.1 243.1 Includes VLTs 221.0 12 - -
Illinois (1974) 12.9 2,837.8 743.9 220.0 13 57.7 10
Virginia (1988) 8.4 1,843.9 533.8 219.5 14 63.5 9
New Hampshire (1964) 1.3 281.1 74.3 216.2 15 57.2 11
Tennessee (2004) 6.6 1,368.5 347.8 207.3 16 52.7 13
Kentucky (1989) 4.4 886.9 236.1 201.6 17 53.7 12
North Carolina (2006) 10.0 1,972.2 521.2 197.2 18 52.1 14
Maine (1974) 1.3 253.1 54.7 194.7 19 42.1 17
Vermont (1978) 0.6 111.8 22.8 186.3 20 38.0 19
Missouri (1986) 6.1 1,127.4 271.3 184.8 21 44.5 16
Delaware (1975) 0.9 149.8 Includes VLTs 166.4 22 - -
Texas (1992) 27.5 4,529.7 1,242.7 164.7 23 45.2 15
Indiana (1989) 6.6 1,040.7 242.7 157.7 24 36.8 20
California (1985) 39.1 5,524.9 1,364.5 141.3 25 34.9 21
Arkansas (2009) 3.0 408.7 72.8 136.2 26 24.3 26
Idaho (1989) 1.7 210.2 45.1 123.6 27 26.5 23
Arizona (1981) 6.8 750.0 176.0 110.3 28 25.9 24
Iowa (1985) 3.1 324.8 74.5 104.8 29 24.0 27
West Virginia (1986) 1.8 180.0 Includes VLTs 100.0 30 - -
Minnesota (1990) 5.5 546.9 135.5 99.4 31 24.6 25
Wisconsin (1988) 5.8 574.6 167.6 99.1 32 28.9 22
Colorado (1983) 5.5 538.0 128.0 97.8 33 23.3 28
Louisiana (1991) 4.7 452.5 184.8 96.3 34 39.3 18
Kansas (1987) 2.9 250.0 Includes casinos 86.2 35 - -
Nebraska (1993) 1.9 160.0 37.1 84.2 36 19.5 31
Washington (1982) 7.2 600.3 141.3 83.4 37 19.6 29
Oregon (1985) 4.0 318.3 Includes VLTs 79.6 38 - -
New Mexico (1996) 2.1 137.0 41.1 65.2 39 19.6 30
South Dakota (1987) 0.9 51.2 Includes VLTs 56.9 40 - -
Montana (1987) 1.0 52.3 12.4 52.3 41 12.4 33
Oklahoma (2005) 3.9 171.6 60.9 44.0 42 15.6 32
North Dakota (2004) 0.8 27.0 6.7 33.8 43 8.4 34
Wyoming (2014) 0.6 17.5 Not reported 29.2 44 - -
Averages $ 185.2 $ 48.1
Note: States in bold are neighboring states to North Carolina that were used in a subgroup comparison.
Source: Program Evaluation Division based on La Fleur's 2016 World Lottery Almanac.

Page 10 of 30
The Program Evaluation Division compared the NC Lottery’s performance
to a subgroup of five other states with similar games and characteristics.12
These states were Georgia, Kentucky, South Carolina, Tennessee, and
Virginia. North Carolina and the neighboring states in the subgroup are
displayed in bold in Exhibit 7. North Carolina ranked last among these
states in per capita sales and in per capita net revenues returned to the
state in Fiscal Year 2015.
The ways in which North Carolina’s performance compares to other states
reflects the differential approaches of lotteries and behavior of buyers as
well as state policies governing the types of games offered. For example,
Video Lottery Terminals (VLTs) account for large portions of lottery net
revenue in some states. Potentially, VLTs could improve performance in
North Carolina, but the NC Lottery does not offer this type of game. See
Finding 4 for details about VLTs as an option to increase NC Lottery sales
and returns to the State.
In summary, the performance of the NC Lottery is slightly above average
when compared with other states. In Fiscal Year 2015, the NC Lottery
ranked 18th (out of 44) and 14th (out of 34) respectively on two significant
performance measures: (1) per capita sales and (2) per capita net
revenues returned to the state. These rankings indicate room for growth
and improvement.
Finding 2. Expanding the retailer network could increase lottery
revenue.
Lottery retailer density and per capita sales are correlated. In Fiscal Year
2015, the 10 states with the highest per capita sales all had a higher
retailer density than North Carolina.13 The Massachusetts State Lottery
ranked first in per capita sales and had the highest retailer density with 1
retailer per 825 residents. The lottery industry best practice for retailer
density is 1 retailer per 1,200 residents because ticket availability to
potential buyers increases likelihood of sales. As shown in Exhibit 8, the 10
states with the highest per capita sales had an average retailer density of
1 retailer per 1,173 residents. Appendix D in this report contains retailer
density information for all 44 lottery states.
12 All six states in the subgroup offer the same lottery games with two exceptions: only two states (Georgia and Kentucky) offer “Fast
Keno” and only three states (Kentucky, South Carolina, and Virginia) offer “Win for Life.” North Carolina began offering the “Lucky for
Life” draw game in Fiscal Year 2016.
13 In the lottery industry, “retailer density” refers to the measure of the number of residents in a state or county per each retail location
selling lottery tickets.

Page 11 of 30
Exhibit 8: Each of the Top 10 State Lotteries in Per Capita Sales Had Higher Retailer Density than
the NC Lottery, Fiscal Year 2015
Per Capita
Sales
Rank
State
Per Capita
Sales
(in millions)
2015
Population
Total
Retailers
Retailer
Density
Retailer
Density
Rank
1 Massachusetts $ 736.1 6,794,422 8,240 1: 825 1
2 Georgia 382.7 10,214,860 8,644 1: 1,182 10
3 New York 366.2 19,795,791 18,000 1: 1,100 8
4 New Jersey 336.4 8,958,013 7,183 1: 1,247 13
5 Connecticut 317.8 3,590,886 2,854 1: 1,258 14
6 Ohio 315.9 11,613,423 9,801 1: 1,185 11
7 Pennsylvania 298.4 12,802,503 9,076 1: 1,411 24
8 Maryland 293.5 6,006,401 4,536 1: 1,324 20
9 South Carolina 286.1 4,896,146 3,825 1: 1,280 16
10 Michigan 280.0 9,922,576 10,747 1: 923 4
Averages of Top 10 States $ 361.3 9,459,502 8,291 1: 1,173
18 North Carolina $ 197.2 10,042,802 6,901 1: 1,455 26
Retailers in North Carolina are less plentiful than in any of the top 10
states ranked by per capita sales. North Carolina ranked 26th in retailer
density in Fiscal Year 2015 with a ratio of 1 retailer per 1,455 residents.
As shown in Exhibit 9, the NC Lottery ranked fifth in retailer density among
six similar neighboring states.
Exhibit 9: NC Lottery Ranked Next to Last in Retailer Density among Six Neighboring States that
Have Lotteries, Fiscal Year 2015
Retailer
Density Rank
State
Retailer
Density
2015
Population
Total
Retailers
1 Georgia 1: 1,182 10,214,860 8,644
2 South Carolina 1: 1,280 4,896,146 3,825
3 Tennessee 1: 1,320 6,600,299 5,000
4 Kentucky 1: 1,413 4,425,092 3,131
5 North Carolina 1: 1,455 10,042,802 6,901
6 Virginia 1: 1,579 8,382,993 5,309
Average of Six Neighboring States 1: 1,372

Page 12 of 30
Although the NC Lottery actively recruits new retailers, it has not
significantly increased its retailer network over the last five years.
Average annual growth over the last five years has been less than 0.5%.
Exhibit 10 shows the number of retailers as of June 30 for each year from
Fiscal Years 2007–2016.
Exhibit 10: Number of NC Lottery Retailers Has Not Significantly Increased During the Last Five
Years
Source: Program Evaluation Division based on data from the NC Lottery.
In order to increase its retailer network, the NC Lottery plans to focus in
2017 on recruitment and contracting of chain accounts and non-traditional
business establishments. Specifically, the Sales Division of the NC Lottery
plans to take the following actions:
expand the Play at the Pump program;
pursue sales at Alcoholic Beverage Control (ABC) locations; 14
pursue Cherokee retailers (which requires boundary approval);
focus on recruitment of non-traditional retail locations;
conduct bi-annual recruiting blitz during 1st and 3rd quarters;
include sales representative recruitment goal of nine new retailers
as part of their annual appraisals; and
14 House Bill 895, An Act to Authorize the Installation and Operation of Lottery Ticket Vending Machines in ABC Stores, was introduced
in 2015 but was not enacted.
5,799
5,867
6,004
6,228
6,612
6,779
6,839
6,774
6,901 6,883
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
NumberofRetailers
Fiscal Year
Average Annual Growth < 0.5%

Page 13 of 30
include regional manager goal of increasing their region’s retailer
base by 1 to 3% by the end of each fiscal year as part of their
annual appraisals.
The Program Evaluation Division examined best practices in other states
related to increasing ticket sales. Specific to ABC locations, at least 36 of
the 44 lottery states sell tickets in liquor stores. In these states, 8.6% of the
retailer network is located in liquor stores. If the NC Lottery were able to
install self-service lottery machines that sell both instant ticket and draw
games in the 427 ABC stores in North Carolina, the Program Evaluation
Division estimates additional operating revenues of about $32 million
annually with about $8.6 million annually going to the NC Education
Lottery Fund.15
In addition to the pursuits the Lottery plans to undertake, the Program
Evaluation Division found that other lottery states are using the following
methods to boost their retailer networks.
Expand to other retail locations such as airports. A trend among state
lotteries during the past five years is opening locations in airports. About
half of the 44 state lotteries in the United States have airport locations. The
top-selling retailers for the Georgia Lottery, generating more than $7
million in yearly sales since opening in 2006, are the two lottery ticket
kiosks at Atlanta’s Hartsfield-Jackson International Airport. Miami's airport
reported annual lottery ticket sales of $3 million and Chicago's O'Hare
International Airport reported annual lottery ticket sales of $2.4 million.
Lottery sales at other major airports have averaged between $1 million
and $2 million annually.
Although other states report high ticket sales numbers in airports, the
volume of passengers varies by location. Atlanta’s airport had 101.5
million passengers in 2015, compared to 44.9 million passengers at
Charlotte Douglas International Airport and 9.9 million passengers at
Raleigh-Durham International Airport. Lottery Sales Division personnel have
contacted airports in Charlotte, Raleigh-Durham, and Wilmington but have
not been successful in reaching sales agreements.
Increase use of self-service vending machines. The NC Lottery reported
it had about 1,100 vending machines but plans to expand to 1,500. To
control the limited quantity of expensive vending machines, the Lottery
requires retailers to have ticket sales of at least $500 per week or the
machine is removed. Over the last three years, 65 vending machines have
been removed because of low-volume sales. The NC Lottery concluded in
its vending machine criteria statement:
We understand corporate retailer recruitment is the quickest way to
expand our retailer base. Retailers understand the tremendous sales
potential of the category but are finding it difficult to integrate the
category into their sales and marketing plans. This new technology will
be a catalyst in our recruitment efforts and adds better protection and
safeguards for the product with reduced labor and will better position
15 Average lottery ticket sales for self-service machines that sell both instant and draw tickets in Fiscal Year 2016 was $75,656. This
average multiplied by the 427 ABC stores in 2016 is $32.3 million. The 2016 percentage transferred to the Education Lottery Fund
was 26.5%. This percentage multiplied by $32.3 million is $8.6 million.

Page 14 of 30
the NCEL to encourage retailers to integrate lottery as part of their
service and sales plan.16
Focus on recruiting new retailers in counties that are well below the
state average and 1:1,200 best practice standard. Exhibit 11 is a map of
North Carolina counties that depicts how widely lottery retailer market
penetration varies across the State. Based on 2016 data, the NC Lottery
would need to add 1,573 retailers in order to achieve the best practice
standard of 1:1,200 residents.17 The Program Evaluation Division estimates
that reaching that best practice level could result in about $144 million
being added to the NC Education Lottery Fund assuming the Fiscal Year
2016 rate of return to the State of 26.5% is maintained.
16 NCEL’s policy: Instant Ticket Vending Machine (ITVM), Lottery to Go (LTG), and Lottery Vending Machine (LVM) Criteria and Placement.
17 The total number of retailers necessary to achieve the lottery industry best practice standard of 1 retailer per 1,200 residents would
be 8,456 retailers (state population of 10,146,788 divided by 1,200). The number of lottery retailers as of June 30, 2016 in North
Carolina was 6,883. Therefore, 1,573 (8,456 minus 6,883) additional retailers would be needed.

Exhibit11:LotteryRetailerMarketPenetrationVariesAcrosstheState
Source:ProgramEvaluationDivisionbasedondatafromtheNCLottery.

Page 16 of 30
In summary, expanding the retailer network could increase lottery revenue.
The NC Lottery’s retailer density of 1 retailer per 1,455 residents is below
the industry best practice standard of 1 retailer per 1,200 residents. North
Carolina also has lower density than each of the top 10 lottery states in
sales per capita. Lower density equates to lower market penetration,
meaning there are not as many retailers that sell lottery tickets in an area.
Increasing the number of retailers that sell lottery tickets has the potential
to increase revenue by making lottery products more readily available for
purchase.
Finding 3. Alternative approaches to the structure and amount of
retailer compensation could yield additional revenue returned to the
State.
Lottery retailers in North Carolina receive a 7% commission on every
lottery ticket they sell. This commission rate was established at the inception
of the lottery in 2005.18 In addition to the base commission rate, the
Lottery Commission approved a retailer incentive program in 2010 that
boosts the actual retailer compensation rate to 7.04%. This incentive
program rewards retailers with additional money for selling a top/second
tier prize in various games.19 The 44 lottery states differ in how they
define and provide retailer compensation but most states have some type
of sales commission rate as a base and then add incentives to that base.
The average retailer compensation rate among the 44 lottery states is
6.28%, ranging from 4.89% in Ohio to 8.44% in Oregon. North Carolina
is above average among the 44 lottery states both in terms of base
commission rates and overall compensation rates. As shown in Exhibit 12,
the states geographically adjacent to North Carolina have an average
rate of 6.48%, slightly higher than the national average but still lower than
North Carolina. A list of retailer compensation rates for all U.S. lottery
states is available in Appendix E.
Exhibit 12: Retailer Compensation in Adjacent States
Rank State
Retailer
Compensation
(in % of sales)
Instant Game
Commission
(in % of sales)
Draw Game
Commission
(in % of sales)
Ticket Sales
(in millions)
Retailer
Compensation
(in millions)
1 South Carolina 7.05 7.00 7.00 $ 1,401.7 $ 98.8
2 Tennessee 7.04 6.50 6.50 1,368.5 96.3
3 Georgia 6.38 6.00 6.00 3,903.5 249.0
4 Kentucky 6.30 5.00 5.00 886.9 55.9
5 Virginia 5.64 5.00 5.00 1,843.9 103.9
Averages of Adjacent States 6.48 5.90 5.90 $ 1,880.9 $ 120.8
2 North Carolina 7.04 7.00 7.00 $ 1,972.2 $ 138.7
Source: Program Evaluation based on La Fleur's 2016 World Lottery Almanac.
18 N.C. Gen. Stat. § 18C-142.
19 In Fiscal Year 2010, the North Carolina State Lottery Commission approved a retailer incentive program wherein retailers would
receive compensation for selling a top/second tier prize in the multi-state games Powerball and Mega Millions and a top tier prize in
Carolina Cash 5. As of December 2011, the retailer incentive program was expanded to include instant ticket prizes of over $1 million.
As of February 8, 2016, the program was again expanded to include Lucky for Life. Total payments issued for the retailer incentive
program for Fiscal Year 2016 were $1.2 million.

Page 17 of 30
The amount of compensation retailers receive directly influences how
much money is available to be transferred to the State. The Program
Evaluation Division estimates that if North Carolina’s retailer commission
rate had been 6% instead of 7% from the inception of the NC Lottery, an
estimated additional $157 million would have been available for the NC
Education Lottery Fund, assuming all other expenses and conditions
remained the same. Going forward, the Program Evaluation Division
estimates a one-percentage-point shift in the retailer compensation rate
could annually yield an additional $23 million directed toward the
education fund. The NC Lottery itself cannot adjust compensation structure
because the retailer commission rate was set in statute.
Several options are available to adjust the compensation amount that
retailers currently receive. First, the retailer commission rate could simply
be decreased from 7% to 6% or even 6.5% and the NC Lottery could
continue offering its current incentive package. Another option is to reduce
the sales commission on self-service terminals while keeping other retailer
commission rates the same, creating a tiered retailer rate. Alternatively, a
tiered commission structure based on game type could be created. Finally,
changing the incentives retailers receive in ways that offset a lower
commission rate but ultimately yield a lower overall compensation rate
could be explored. Below are examples of alternative approaches to
retailer compensation undertaken by other lottery states.
Georgia. In 2011, Georgia lowered its overall retailer compensation rate
from 7.1% to 6.4% by eliminating incentive programs that total 2% and
adjusting sales commission from 5% to 6%. Georgia now provides a bonus
program that adds 0.4% to overall compensation by offering retailers
small amounts of free tickets. Following this change, the retailer density in
Georgia remained the same, indicating that a decrease in compensation
did not deter vendors from remaining or becoming lottery retailers.
California. California structures its retailer compensation in tiers based on
vendor type. Self-service terminals receive a 4.5% sales commission,
whereas over-the-counter retailers receive a 6% sales commission.
Colorado. Colorado differentiates its retailer compensation by game type.
Retailers in Colorado receive a 7% sales commission on scratch games and
a 6% commission on jackpot games. There is also a cashing bonus of 1%
and a performance incentive bonus of 1% on all jackpot games if sales in
a given period are larger than the same period in the previous year.20
In summary, the current retailer compensation rate in NC is relatively high
when compared to all lottery states and North Carolina’s geographic
peers. Different options exist that could lower the retailer rate, which
would in turn make more money available for the education fund. Georgia
was able to transition to a lower retailer compensation rate without
experiencing a drop in retailer density and without negatively influencing
overall ticket sales.
20 The purpose of a cashing bonus is to cover an employee’s time spent handling and cashing winning tickets at the retail store.

Page 18 of 30
Finding 4. Additional options to promote the sales of lottery tickets
could result in increased transfers to the NC Education Lottery Fund.
Below are options whereby the NC Lottery could increase sales of lottery
tickets and therefore increase transfers to the NC Education Lottery Fund
assuming all expenses remain the same. These options are used by some
other state lotteries in order to increase sales of their lottery tickets and
increase returns to their respective states.
Keno. Keno is a quick draw game that is primarily offered in social
establishments. It can be administered through the existing gaming system.
Draw results are displayed at pre-determined intervals, between three
and five minutes. Sixteen states offer Keno games as part of their state
lotteries, including two neighboring states, Georgia and Kentucky. The NC
Lottery plans to implement Keno at some point in 2017.
Video Lottery Terminals (VLTs). VLTs are electronic gaming devices
located at age-restricted establishments. The devices are similar to slot
machines. Eight states, including West Virginia, offer VLTs. VLTs represent
about 87% of West Virginia’s total lottery income.
iLottery. iLottery games are interactive instant and draw games played on
the Internet that are also available for play on smartphones. They provide
a digital version of instant scratch-off tickets. Only a few states offer
iLottery games, with Michigan successfully launching its games in 2014.
Exhibit 13 provides images of a Keno play slip, a video lottery terminal,
and a smartphone with iLottery. Exhibit 14 provides additional details
about each of the three options described above.

Page 19 of 30
Exhibit 13: Keno, Video Lottery Terminals, and iLottery Represent Options that Could Increase
Transfers to the NC Education Lottery Fund
Source: Program Evaluation Division based on Internet research.
Exhibit 14: Details about Three Options that Could Increase Lottery Revenues
Keno Video Lottery Terminals iLottery
Description:
Quick draw game that can
be administered through the
existing gaming system;
results are displayed at pre-
determined intervals,
between 3 and 5 minutes
Electronic gaming program
where video gaming or lottery
machines are located at age-
restricted establishments
E-Instant, interactive, and draw
games available on computers and
smartphones; it is a digital version of
the scratch-off ticket
Implementation time: 6-9 months 12 months 8 months
Number of states that
offer this option: 16 8 4
Statutory change
needed, if any:
Allowed under current
legislation
Electronic gaming would
require new legislation and
an additional gaming system
Allowed under current legislation
First year projected sales: $24 million $255 million To be determined
Estimated return
to the State
$6 million To be determined To be determined
Comment:
NC Lottery plans to
implement Keno
during 2017
Similar to slot machines
Online lottery ticket sales represent
an untapped market for state
lotteries, potentially reaching out to
younger generations of players
Source: Program Evaluation Division based primarily on data from the NC Lottery presented in March 2016 to the Joint Legislative
Oversight Committee on the North Carolina State Lottery.

Page 20 of 30
In summary, additional options with the potential to increase sales revenue
and subsequent increased transfers to the NC Education Lottery Fund
include authorizing Video Lottery Terminals and offering iLottery games
online. These actions would create more retailers resulting in more
opportunities for purchasing lottery tickets, and could potentially boost
sales among younger generations of players.
Finding 5. The NC Lottery could improve how it measures the
effectiveness of its advertising expenditures.
In Fiscal Year 2016, the NC Lottery’s annual advertising expenditures
totaled nearly $20 million, or slightly less than 1% of total lottery ticket
sales. Advertising activities focus on sharing information about available
products using media such as television, radio, and print. The Lottery directs
other funds, about $4 million, or 0.17% of total sales, to marketing efforts
that promote the Lottery through interactive events and other efforts to
educate players about games. For the purposes of this evaluation, the
Program Evaluation Division only examined the relationship between
advertising expenditures and ticket sales.
In Fiscal Year 2015, North Carolina ranked 30th out of 44 states in
advertising budget as a percentage of total ticket sales.21 In the 44 states
with lotteries, advertising budget as a percentage of ticket sales ranges
from 0.2% to 3.6%, with Wyoming representing an outlier at 22.6%. At
1.0%, North Carolina is below the national average, which is 1.3%.
Advertising represents an expense to the Lottery, and other state
evaluations have examined advertising expenditures to determine whether
more or less money should be spent in this category.
The NC Lottery’s advertising staff and its advertising consultant
measure the efficiency and effectiveness of its media buys by
considering market rates for comparable purchases and the positioning
of media purchases at specific times in specific markets. Unlike other
consumer products that have clear substitutes, it is challenging to measure
the influence of lottery advertising on lottery ticket sales. The NC Lottery
noted that it is nearly impossible to produce models that predict sales in
relationship to advertising dollars, meaning it is difficult to say $1 of
advertising sales will yield a given amount of dollars in ticket sales. It is
also difficult to assess the effectiveness of advertising or its influence on
sales. Academic literature corroborates the claim that measuring
advertising effectiveness is challenging. However, the Lottery’s advertising
staff reported that they observed a negative effect on ticket sales when
the advertising department significantly scaled back spending in a given
market.
Program Evaluation Division staff tested different types of regression
models to assess the relationship between advertising expenditures and
ticket sales. The Program Evaluation Division constructed models with
available lottery data to assess the relationships between the following
variables: total advertising expenses and total ticket sales, instant ticket
advertising and instant ticket sales, and specific advertising expenditures
21 Fiscal Year 2015 data was the most recent data for advertising budget as a percentage of sales that was available from La Fleur’s
at the time of this evaluation.

Page 21 of 30
and ticket sales for several specific instant games.22 Other variables in the
models included
prize percentage payout,
unemployment rates from the Bureau of Labor Statistics,
average retailer density,
Gross Domestic Product per capita from the Bureau of Economic
Analysis, and
variables controlling for season and region.
All data were examined by fiscal year quarters from 2014–16 and by
NC Lottery region, of which there are six.
The advertising data available do not allow for an accurate assessment
of the influence of advertising expenditures on ticket sales. Although
some of the models yielded significant statistical results for variables other
than advertising, the nature of the results indicates that the data is not
robust enough to accurately predict the relationship between advertising
expenditures and ticket sales. Furthermore, the nature of the data leads to
violations of model assumptions, meaning the results of the different models
are not accurate. These results occurred even after efforts were made to
transform and correct the variables.
Measuring the relationship between advertising and ticket sales is
difficult but is possible and should be pursued prior to any changes
being made to the advertising budget. It would take time and effort to
enhance the level of data being collected by the NC Lottery in order to
yield more meaningful statistical results. However, some states have
produced viable statistical models and each of these states offers
examples of what types of data would be needed.
Florida. The Florida Legislature’s Office of Program Policy Analysis and
Government Accountability (OPPAGA), which examines the Florida lottery
on an annual basis, built a statistical model in 2014 using lottery data from
2006 to 2013 that established a relationship between advertising and
ticket sales. OPPAGA aggregated and examined the data by month and
market area for Florida’s 10 markets. Additionally, the office used other
predictor and control variables that accounted for seasonal effects,
economic health, and other influential factors related to ticket sales. The
office also produced a lag variable that accounted for the time that must
lapse in between the airing of an advertisement and the purchase of a
ticket.
Although OPPAGA found a statistically significant, predictive relationship
between lottery advertising expenditures and lottery ticket sales,
advertising only accounted for 1% of the variation in lottery sales in this
model while six other factors—jackpot size, seasonality, market area,
retailer density, general economic conditions, and the introduction of
Powerball—explained over 80% of the variation in per capita lottery
sales.
Washington. The Washington Legislature’s Joint Legislative Audit and
Review Committee (JLARC) looked at the extent to which advertising
22 The Program Evaluation Division examined instant ticket advertising expenditures because the NC Lottery prioritizes advertising these
products.

Page 22 of 30
influences lottery ticket sales. JLARC examined advertising expenditures in
the 2009–11 biennium and concluded that advertising expenditures did
not increase weekly ticket sales. However, JLARC did find that jackpot
amounts and economic conditions influence ticket sales.
These findings demonstrate that capturing the effect of advertising on
ticket sales is challenging. It does not suggest that a relationship between
advertising and ticket sales does not exist. Both states conducted their
analyses at a more granular level than is currently available with the NC
Lottery’s advertising data.
Further analysis of the effects of advertising on lottery sales would
benefit from more precise data. If the NC Lottery wishes to explore the
relationship between advertising expenditures and ticket sales, the
advertising department (or an advertising consultant) needs to collect
advertising expenditure data at the same level of granularity and
precision that the NC Lottery tracks ticket sales. Presently, advertising
expenditures are recorded at quarterly intervals, by media market, by
media type, and by game or game suite. In contrast, ticket sales data are
available at weekly and daily intervals, by store, by region, and by game.
Therefore, raw advertising and sales data are incompatible for analytical
review. Transforming ticket sales data to match advertising data (e.g.,
aggregating weekly data into quarters) attenuates or weakens the data.
Because collection on this level of granularity would be costly for the
advertising department, it could consider tracking detailed data for a
sample of games.
In summary, the question of whether the NC Lottery is spending the optimal
amount on advertising is unresolved. The relationship between expenditures
on advertising and ticket sales needs to be measured at a more granular
level over time in order for this expenditure to be properly managed.
Recommendations
While the Lottery has increased sales and transfers to the North Carolina
Education Lottery Fund every year for 10 years, the following actions
could further increase sales and efficiency and increase transfers to
education.
Recommendation 1. The General Assembly should require the Lottery to
establish targets for retailer growth and to annually report on its
performance in meeting these targets.
As reported in Finding 2, expanding the retailer network could increase
lottery revenue. Increasing the number of retailers that sell lottery tickets
has the potential to increase revenue by making lottery products more
readily available for purchase. The NC Lottery ranked 26th in retailer
density among the 44 lottery states in Fiscal Year 2015.
All efforts to expand the retailer network should be included in the annual
report to the General Assembly. The first report should be submitted to the
Joint Legislative Oversight Committee on the North Carolina State Lottery
by November 1, 2017.

Page 23 of 30
Recommendation 2. The General Assembly should direct the Lottery to
examine the retailer compensation structure for all games and develop
alternatives for rewarding the performance of retailers.
As reported in Finding 3, reducing the compensation paid to NC Lottery
retailers could yield additional revenue. North Carolina provides the 7th
highest compensation rate paid to its lottery retailers among the 44 lottery
states. By lowering the compensation paid to retailers, the NC Lottery could
direct additional revenue to the North Carolina Education Lottery Fund.
The Lottery should hire an independent contractor to provide an analysis of
whether a reduction in commission percentage might impact the number of
retailers in both the short and long term. This report should include comments
on why retailers participate in selling lottery tickets with particular attention
paid to motivation derived from the commission compared to motivation
derived from increased foot traffic in the store. As noted earlier, Georgia
was able to transition to lower retailer compensation without a drop in
retailers and without negatively affecting overall revenue. The results of this
analysis should be provided to the Joint Legislative Oversight Committee on
the North Carolina State Lottery by February 1, 2018.
Recommendation 3. The General Assembly should direct the Lottery to
provide a detailed business case for options to increase the sale of
lottery tickets.
As reported in Finding 4, additional options with the potential to increase
sales revenue, and subsequently increase transfers to the NC Education
Lottery Fund, include authorizing Video Lottery Terminals and offering
iLottery games online. These actions would create more retailers, resulting in
more opportunities for purchasing lottery tickets, and could potentially boost
sales among younger generations of players.
The General Assembly should direct the NC Lottery to provide a detailed
business case for options to increase the sale of lottery tickets to the Joint
Legislative Oversight Committee on the North Carolina State Lottery by
February 1, 2018. If interested in a particular option, the General
Assembly could direct the Lottery to provide a detailed business case
analysis that includes time frames for implementation and needed statutory
changes, if any.
Recommendation 4. The General Assembly should require the Lottery to
develop tools to measure the increase in sales resulting directly from
advertising expenditures and to annually report on its efforts to measure
the effectiveness of expenditures for advertising.
As reported in Finding 5, the NC Lottery needs to accurately measure the
effectiveness of advertising on sales in order to manage this expenditure.
Consideration should be given to the Program Evaluation Division’s
suggestion to collect advertising expenditure data at the same level of
granularity and precision that the Lottery tracks ticket sales. Different
methods and approaches exist to enable the NC Lottery to use more
granularly-collected advertising data to assess the effect of advertising
spending on ticket sales including commercially available off-the-shelf

Page 24 of 30
software products. Better alignment of data would allow regression analysis
models to measure the effectiveness of advertising and would provide
justification for spending larger or smaller amounts on advertising.
Alternatively, the Lottery could design targeted advertising interventions to
observe what occurs when more funds or less funds are spent on specific
advertising expenditures in an effort to assess the relationship between
advertising expenditures and sales.
All efforts to measure the effectiveness of advertising should be included in
the annual report to the General Assembly. The first report should be
submitted to the Joint Legislative Oversight Committee on the North
Carolina State Lottery by November 1, 2017. Annual reports would include
the impact on sales of specific advertising campaign expenditures.
Appendices
Appendix A: NC Lottery Revenues and Expenses, Fiscal Years 2007 through
2016 (in millions)
Appendix B: NC Lottery Ticket Sales by Game, Fiscal Years 2007 through
2016 (in millions)
Appendix C: Description of the Games Offered by the NC Lottery
Appendix D: Lottery Retailer Density in the United States, Fiscal Year 2015
Appendix E: Lottery Retailer Compensation in the United States, Fiscal Year
2015
Agency Response
A draft of this report was submitted to the North Carolina State Lottery to
review. Its response is provided following the appendices.
Program
Evaluation Division
Contact and
Acknowledgments
For more information on this report, please contact the lead evaluator, Jim
Horne at Jim.Horne@ncleg.net.
Staff members who made key contributions to this report include Jeff
Grimes and Emily McCartha. John W. Turcotte is the director of the
Program Evaluation Division.

AppendixA:NCLotteryRevenuesandExpenses,FiscalYears2007through2016(inmillions)
FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16
OperatingRevenues:
GrossSales$885.58$1,078.08$1,293.02$1,421.31$1,461.11$1,596.69$1,689.80$1,839.26$1,972.22$2,383.59
Less:PrizeTickets(23.90)(29.73)(9.58)(1.31)(1.38)(0.18)----
BadDebt/BadDebtRecoveries---(0.41)(0.15)(0.06)(0.09)(0.05)(0.01)0.02
FeesandLicenses4.524.784.664.865.065.385.305.435.275.36
TotalOperatingRevenues$866.20$1,053.13$1,288.10$1,424.46$1,464.64$1,601.84$1,695.01$1,844.64$1,977.49$2,388.98
OperatingExpenses:
Salaries,Wages,andBenefits$12.28$13.79$14.69$15.3$15.82$16.64$17.54$18.13$18.74$19.74
LotteryPrizes451.79588.49731.69835.30863.00961.561,024.441,135.051,231.241,491.03
RetailerCommissions61.9375.3790.3799.34102.13111.62118.15128.55137.77166.44
RetailerIncentives0.000.000.000.390.590.610.780.830.981.15
GamingSystemsServices14.3217.2920.6022.6423.4826.0327.2630.3428.6840.64
Advertising7.818.6211.1711.7913.7614.7015.2815.2419.1019.97
Marketing0.951.221.752.242.362.513.543.604.183.98
OtherServices(Note1)2.341.882.182.762.633.633.804.164.305.14
Furniture,Fixtures,andEquipment1.430.240.250.380.930.761.311.320.981.49
Depreciation0.390.380.540.580.620.460.350.440.570.67
OtherGeneralandAdministrativeExpenses1.491.672.752.372.392.392.482.552.952.54
TotalOperatingExpenses$554.73$708.95$875.99$993.09$1,027.71$1,140.91$1,214.93$1,340.21$1,449.49$1,752.80
OperatingIncome$311.46$344.19$412.11$431.37$436.93$460.93$480.08$504.43$528.00$636.18

AppendixA(Cont’d.):NCLotteryRevenuesandExpenses,FiscalYears2007through2016(inmillions)
FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16
Non-OperatingRevenues(Expenses):
InvestmentEarningsandOtherRevenue$8.54$8.90$4.25$2.70$1.18$0.52$0.42$0.67$0.41$1.19
CompulsiveGamblingContribution(1.00)(1.00)(1.00)(1.00)(1.00)(1.00)(1.00)(1.00)(1.00)(1.00)
AlcoholLawEnforcementGamingEnforcement(0.70)(0.70)(0.80)(0.80)(0.80)(1.00)(1.00)(1.00)(0.97)(2.10)
TransferstoEducationLotteryFund:
1.InteresttoMedicaid----(0.81)-----
2.UnclaimedPrizestoMedicaid----(8.56)-----
3.UnclaimedPrizestoEducationLotteryFund(8.04)(16.79)(19.90)(14.89)(8.62)(11.08)(11.38)(14.04)(13.84)(13.70)
4.NetRevenuestoEducationLotteryFund(306.32)(331.52)(394.03)(417.31)(418.25)(448.39)(467.13)(489.09)(512.59)(620.57)
MiscellaneousNon-OperatingExpenses(Note2)(3.95)(3.07)(0.64)(0.06)(0.06)0.020.010.04(0.01)0.00
TotalNon-OperatingRevenues(Expenses)$(311.46)$(344.19)$(412.11)$(431.37)$(436.93)$(460.93)$(480.08)$(504.43)$(528.00)$(636.18)
NetIncome$-$-$-$-$-$-$-$-$-$-
SummaryofTransferstoEducationLotteryFund:
TotalTransfers(Seelineitemdetailsabove)$(314.36)$(348.31)$(413.93)$(432.20)$(436.24)$(459.47)$(478.51)$(503.13)$(526.43)$(634.27)
PriorPeriodAdjustment--------(5.28)-
TransferstoEducationLotteryFund(adjusted)$(314.36)$(348.31)$(413.93)$(432.20)$(436.24)$(459.47)$(478.51)$(503.13)$(521.15)$(634.27)
Notes:
(1)OtherServicesincludessecurity,backgroundchecks,communications,legal,andtravel.
(2)MiscellaneousNon-OperatingExpensesincludedividendsreceivedfromtheMulti-StateLotteryAssociationandsalesofsurplusproperty.
Source:ProgramEvaluationDivisionbasedonfinancialdatafromtheNCLottery.

Page 27 of 30
Appendix B: NC Lottery Ticket Sales by Game, Fiscal Years 2007 through 2016 (in millions)
Instant Games FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
$1 $ 181 $ 122 $ 119 $ 93 $ 78 $ 83 $ 91 $ 95 $ 94 $ 95
$2 111 106 148 139 137 154 174 165 175 199
$3 29 45 56 44 61 61 66 78 57 67
$5 142 169 212 246 227 272 266 337 398 423
$10 28 195 264 183 204 233 236 253 253 293
$20 - - - 150 154 158 179 242 317 260
$30 - - - - - - - - - 280
Subtotal Instant Games $ 491 $ 636 $ 799 $ 856 $ 862 $ 960 $ 1,012 $ 1,170 $ 1,294 $ 1,617
Percent of Total Sales 55% 59% 62% 60% 59% 60% 60% 64% 66% 68%
Draw Games FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Powerball $ 259 $ 229 $ 210 $ 199 $ 139 $ 154 $ 197 $ 149 $ 130 $ 209
Mega Millions - - - 26 73 86 54 75 61 58
Cash 5 37 59 60 61 58 58 64 65 54 286
Pick 4 - - 16 57 65 92 104 113 123 126
Pick 3 90 147 209 223 258 248 259 261 278 53
Raffle 10 7 - - 6 - - - - -
EZ Match - - - - - - - 6 11 9
All or Nothing - - - - - - - - 20 13
Lucky for Life - - - - - - - - - 13
Monopoly - - - - - - - - 1 -
Subtotal Draw Games $ 395 $ 442 $ 494 $ 566 $ 599 $ 637 $ 678 $ 669 $ 678 $ 766
Percent of Total Sales 45% 41% 38% 40% 41% 40% 40% 36% 34% 32%
Total Ticket Sales $ 886 $ 1,078 $ 1,293 $ 1,421 $ 1,461 $ 1,597 $ 1,690 $ 1,839 $ 1,972 $ 2,384

Page 28 of 30
Appendix C: Description of the Games Offered by the NC Lottery
Instant Tickets. Instant tickets are games played by scratching the latex covering off of a play area and
learning instantly if the ticket is a winner without having to wait for the results of a drawing. There are several
ways to win on an instant ticket, such as matching like symbols, dollar amounts, or letters or ticket symbol
matching a key symbol. Instant tickets offer a wide variety of themes and ticket prices ranging from $1 to $30.
Powerball. Players select 5 numbers ranging from 1 to 69 and one additional number ranging from 1 to
26 designated as the “Powerball.” To win the jackpot, players need to match all five lotto numbers and the
Powerball. Jackpot prizes start at $40 million, which increase in the event that no one matches all of the
numbers. There are also nine secondary prizes ranging from $4 to $1 million. For an additional dollar, players
can “Power Play” and have the opportunity to increase their winnings, except for the jackpot, by up to 10
times. When players match the 5 lotto numbers and power play the ticket, they automatically win $2 million.
Mega Millions. Players select 5 numbers ranging from 1 to 75 lotto numbers and one additional number
ranging from 1 to 15 designated as the “Mega Ball.” To win the jackpot, players need to match all five lotto
numbers and the Mega Ball. Jackpot prizes start at $15 million, which increase in the event that no one
matches all the numbers. There are also eight secondary prizes ranging from $1 to $1 million. For an
additional dollar, players can “Megaply” and have the opportunity to increase their winnings, except for the
jackpot, by up to five times. When players match the 5 lotto numbers and Megaply the ticket, they multiply
their winnings by 2, 3, 4, or 5 times the original amount.
Lucky For Life. Players select 5 numbers ranging from 1 to 48 and one additional number ranging from 1 to
18 designated as the “Lucky Ball.” The top prize is $1,000 A Day For Life. To win the top prize, players need
to match all five lotto numbers and the Lucky Ball. If a player matches the 5 lotto numbers only, the player
wins a $25,000 A Year For Life prize.
Carolina Cash 5. Players select 1 set of 5 numbers ranging from 1 to 41. Players win prizes by matching
from two to five numbers and must match all five numbers drawn to win the jackpot. Drawings are held daily
with jackpot amounts starting at $50,000 that increase for subsequent drawings if no one matches all five
numbers. On March 30, 2014, an EZ match add-on was created. This feature prints an instant “EZ” match
number with a corresponding prize amount. If the EZ match number matches any of the pick 5 numbers, the
player wins the corresponding prize instantly.
Carolina Pick 4. Players select a four digit number from 0000 to 9999 and choose if the numbers need to
match the drawn number exactly or in any combination. Drawings for this game are conducted daily, once at
midday and once in the evening. This game offers the opportunity to win a top prize of $5,000 for each
winning combination matching in the exact order drawn.
Carolina Pick 3. Players select a three digit number from 000 to 999 and choose if the numbers need to
match the drawn number exactly or in any combination. Drawings for this game are conducted daily, once at
midday and once in the evening. This game offers the opportunity to win a top prize of $500 for each winning
combination matching in the exact order drawn.
Source: Program Evaluation Division based on the North Carolina Education Lottery’s 2016 Comprehensive Annual Financial Report.

Page 29 of 30
Appendix D: Lottery Retailer Density in the United States, Fiscal Year 2015
Rank State
2015
Population
Total
Retailers
Retailer
Density
1 Massachusetts 6,794,422 8,240 1: 825
2 Rhode Island 1,056,298 1,235 1: 855
3 Vermont 626,042 691 1: 906
4 Michigan 9,922,576 10,747 1: 923
5 New Hampshire 1,330,608 1,318 1: 1,010
6 Oregon 4,028,977 3,939 1: 1,023
7 Maine 1,329,328 1,246 1: 1,067
8 New York 19,795,791 18,000 1: 1,100
9 Montana 1,032,949 889 1: 1,162
10 Georgia 10,214,860 8,644 1: 1,182
11 Ohio 11,613,423 9,801 1: 1,185
12 West Virginia 1,844,128 1,514 1: 1,218
13 New Jersey 8,958,013 7,183 1: 1,247
14 Connecticut 3,590,886 2,854 1: 1,258
15 Missouri 6,083,672 4,821 1: 1,262
16 South Carolina 4,896,146 3,825 1: 1,280
17 Iowa (FY14) 3,123,899 2,396 1: 1,304
18 Idaho 1,654,930 1,265 1: 1,308
19 Tennessee 6,600,299 5,000 1: 1,320
20 Maryland 6,006,401 4,536 1: 1,324
21 Wyoming 586,107 440 1: 1,332
22 Delaware 945,934 685 1: 1,381
23 South Dakota 858,469 620 1: 1,385
24 Pennsylvania 12,802,503 9,076 1: 1,411
25 Kentucky 4,425,092 3,131 1: 1,413
26 North Carolina 10,042,802 6,901 1: 1,455
27 Indiana 6,619,680 4,508 1: 1,468
28 Florida 20,271,272 13,586 1: 1,492
29 Wisconsin 5,771,337 3,710 1: 1,556
30 Illinois (FY13) 12,859,995 8,242 1: 1,560
31 Texas 27,469,114 17,403 1: 1,578
32 Virginia 8,382,993 5,309 1: 1,579
33 Arkansas 2,978,204 1,879 1: 1,585
34 Louisiana 4,670,724 2,926 1: 1,596
35 Nebraska 1,896,190 1,180 1: 1,607
36 Kansas 2,911,641 1,778 1: 1,638
37 North Dakota 756,927 445 1: 1,701
38 Minnesota 5,489,594 3,044 1: 1,803
39 California 39,144,818 21,630 1: 1,810
40 Colorado 5,456,574 2,973 1: 1,835
41 New Mexico 2,085,109 1,100 1: 1,896
42 Washington 7,170,351 3,755 1: 1,910
43 Oklahoma 3,911,338 1,827 1: 2,141
44 Arizona 6,828,065 3,051 1: 2,238
Average of All 44 Lottery States 1: 1,412

Page 30 of 30
Appendix E: Lottery Retailer Compensation in the United States, Fiscal Year 2015
Rank State
Instant Game
Commission
(in % of sales)
Draw Game
Commission
(in % of sales)
Ticket
Sales
(in millions)
Retailer
Compensation
(in millions)
Retailer
Compensation
(in % of sales)
1 Oregon 5-10 5-10 $ 318.3 $ 26.9 8.44
2 Colorado 7.00 6.00 538.0 39.8 7.40
3 Michigan 6.00 6.00 2,771.9 203.6 7.35
4 Maryland 5.50 5.50 1,760.9 128.6 7.30
5 Rhode Island 5.00 8.00 243.1 17.3 7.12
6 South Carolina 7.00 7.00 1,401.7 98.8 7.05
7 Tennessee 6.50 6.50 1,368.5 96.3 7.04
7 North Carolina 7.00 7.00 1,972.2 138.7 7.04
9 West Virginia 7.00 7.00 180.0 12.6 7.00
10 Wisconsin 6.25 5.50 574.6 39.6 6.89
11 California 6.00 6.00 5,524.9 380.3 6.88
12 Arizona 6.50 6.50 750.0 51.0 6.80
13 Indiana 6.00 6.00 1,040.7 70.1 6.74
14 Oklahoma 6.00 6.00 171.6 11.4 6.66
15 Maine 7.00 5.00 253.1 16.7 6.60
16 New Mexico 6.00 6.00 137.0 8.9 6.53
17 Iowa 5.50 5.50 324.8 21.0 6.46
18 Delaware 5.00 5.00 149.8 9.7 6.46
19 Nebraska 5.00 5.50 160.0 10.2 6.39
20 Georgia 6.00 6.00 3,903.5 249.0 6.38
21 Kentucky 5.00 5.00 886.9 55.9 6.30
22 Washington 5.00 5.00 600.3 37.3 6.21
23 Vermont 5.75 5.75-6 111.8 6.9 6.17
24 Wyoming N/A 6.00 17.5 1.1 6.10
25 Missouri 5.00 5.00 1,127.4 68.4 6.07
26 Minnesota 5.50 5.50 546.9 32.9 6.01
27 New York 6.00 6.00 7,251.0 434.7 5.99
28 Montana 5.00 5.00 52.3 3.1 5.94
29 Idaho 5.00 5.00 210.2 12.5 5.94
30 Kansas 5.00 5.00 250.0 14.8 5.92
31 New Hampshire 5.00 5.00 281.1 16.3 5.78
32 Massachusetts 5.00 5.00 5,005.7 286.7 5.73
33 Illinois 5.00 5.00 2,837.8 161.6 5.69
34 Arkansas 5.00 5.00 408.7 23.3 5.69
35 Virginia 5.00 5.00 1,843.9 103.9 5.64
36 Connecticut 5.00 5.00 1,144.0 64.3 5.62
37 New Jersey 5.00 5.00 3,027.3 169.4 5.60
38 Florida 5.00 5.00 5,583.3 312.0 5.59
39 Louisiana 5.00 5.00 452.5 25.3 5.59
40 South Dakota 5.00 5.00 51.2 2.8 5.49
41 Texas 5.00 5.00 4,529.7 248.6 5.49
42 Pennsylvania 5.00 5.00 3,819.6 203.2 5.32
43 North Dakota N/A 5.00 27.0 1.4 5.07
44 Ohio 5.50 5.50 3,665.0 179.2 4.89
Average of All 44 Lottery States 6.28
Note: Retailer compensation includes commissions as well as bonus compensation for selling a winning ticket, cashing winning tickets, and
sales incentives.

Options Exist for Increasing Lottery Proceeds for Education

Options Exist for Increasing Lottery Proceeds for Education

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