STATE OF WEST VIRGINIA
PRELIMINARY PERFORMANCE REVIEW
OF THE

WEST VIRGINIA LOTTERY

Revenues Compare Favorably with Other States

OFFICE OF LEGISLATIVE AUDITOR
Performance Evaluation and Research Division
Building 1, Room W-314
State Capitol Complex

CHARLESTON, WEST VIRGINIA 25305
(304) 347-4890



Summary of West Virginia Lottery Revenues and Expenses for 1997

Fiscal year ending June 30, 1997 financial statements disclosed total revenues of $245,119,362, less commissions of $61,348,251, for net lottery revenues of $183,771,111. The prize costs for 1997 were $92,796,572, for a gross profit of $90,974,539. Total operating expenses of $19,634,096, and other income of $1,416,336, left $72,756,779 for operating transfers to the State of West Virginia. (See Table 1)

TABLE 1

Fiscal Year 1997 Revenues and Expenses

Total Revenues$245,119,362
Less: Commissions to Sales Agents (61,348,251)
Net Revenue 183,771,111
Less: Prize Costs (92,796,572)
Gross Profit 90,974,539
Less: Operating Expenses (19,634,096)
Other Income 1,416,336
Operating transfers to West Virginia $72,756,779

Source : West Virginia Lottery Financial Statements, June 30, 1997
and Independent Auditors' Report.

Revenues of West Virginia Lottery: 1986-1997

(Figures in millions of dollars)

TABLE 2

Total West Virginia Lottery Sales

Fiscal YearOn-Line GamesInstant Games Video LotteryTotal
1986053.0053
198712.754.0066.7
1988(1)21.934.0055.9
198931.927.0058.9
199043.123.9.02367.023
199143.535.21.079.7
199245.144.43.993.4
1993(2)68.146.94.7119.7
199484.252.55.6142.3
199590.961.727.5180.1
199686.476.747.2210.3
199782.680.382.3245.2
Total610.4589.6172.2231372.22

(1) - Powerball began (on-line game) (2) - Keno began (on-line game)
Source: Appendix A
Graph Illustrations: Appendix B

ISSUE AREA 1: West Virginia Lottery's on-line games, 3-digit, 4-digit, Lotto, Powerball, and Keno ranked 6th, 2nd, 18th, 5th, and 8th respectively, in average annual percentage increase of per capita revenues among selected states.

The West Virginia Lottery operates a variety of on-line lottery games. On-line games operate by a licensed sales agent selling tickets to the public with the use of computerized terminals. The West Virginia Lottery then has a drawing at a designated time to determine the winner which has the matching numbers. The three digit game began full operation in fiscal year 1987. It has been a consistent revenue source for the lottery. The average percentage annual increase of per capita revenues since 1987 is 19.92%, which ranks sixth with the sixteen systems compared. (See Table 3)

TABLE 3

3 Digit Game

State


Beginning Year of Calculation
Annual Average % Increase/Decrease in Per Capita Revenues

Rank

Virginia1989119.90%1
California199248.63%2
Kentucky199042.12%3
Missouri198723.92%4
Georgia199420.40%5
West Virginia198719.92%6
Wisconsin19939.71%7
Pennsylvania19861.72%8
Delaware19861.66%9
Michigan19861.47%10
Ohio19861.27%11
District of Columbia1986.27%12
Rhode Island (1)1987-.56%13
Maine1986-.91%14
Indiana1991-1.34%15
Maryland1986-3.84%16

(1) - Rhode Island combines 3 and 4 digit revenues.
Source: Appendix A

The four digit game began full operation in fiscal year 1987. It has also been a consistent revenue source for the lottery. The average percentage annual increase of per capita revenues since fiscal year 1987 is 20.83%, which ranks second with the fourteen systems compared.
(See Table 4)

TABLE 4

4 Digit Game

State


Beginning Year of Calculation
Annual Average % Increase/Decrease in Per Capita Revenues

Rank

Kentucky1994223.06%1
West Virginia198720.83%2
Ohio198611.77%3
Virginia199211.05%4
Pennsylvania19869.83%5
District of Columbia19869.73%6
Indiana19927.85%7
Delaware19867.50%8
Michigan19866.92%9
Maryland19863.80%10
Maine19863.36%11
Oregon19873.33%12
California1996-13.34%13
Wisconsin1994-15.88%14

Sources: Appendix A

Lotto has been in full operation since fiscal year 1987. It has had an average percentage annual per capita revenue increase of 3.38% and ranks eighteenth out of twenty-seven systems compared. This game style is the most difficult to evaluate due to the ever changing styles of lotto from system to system. The key here is that the lottery has maintained a steady revenue with lotto that has not decreased over time. (See Table 5)

TABLE 5
Lotto

State


Beginning Year of Calculation
Annual Average % Increase/Decrease in Per Capita Revenues

Rank

Nebraska1995126.10%1
Montana1991100.56%2
New Hampshire199263.83%3
Virginia199052.64%4
Colorado198946.38%5
Indiana199044.47%6
Iowa198638.78%7
South Dakota199434.58%8
Oregon198630.53%9
California198722.17%10
District of Columbia198619.55%11
Kansas198817.09%12
Kentucky199015.15%13
Idaho199410.77%14
Delaware19865.35%15
Vermont19864.74%16
Maine19863.90%17
West Virginia19873.38%18
Wisconsin19913.22%19
Missouri19872.89%20
Ohio1986.81%21
Michigan1986-4.65%22
Maryland1986-5.95%23
Connecticut1986-6.43%24
Georgia1994-10.18%25
Pennsylvania1986-11.30%26
Rhode Island1986-13.49%27

Sources: Appendix A

Powerball/Lotto America is a multi-state lottery system in which the lottery has been participating in since fiscal year 1988. It's revenues tend to fluctuate in relation to the jackpot size. The larger the jackpot, the higher the revenues. The per capita revenues from Powerball/Lotto America has had an average annual increase of 49.05% and ranks fifth out of eleven systems compared. (See Table 6)

TABLE 6

Powerball/Lotto America

State


Beginning Year of Calculation
Annual Average % Increase/Decrease in Per Capita Revenues

Rank

Delaware199157.51%1
Oregon198855.88%2
Indiana199150.96%3
Wisconsin199050.57%4
West Virginia198849.05%5
District of Columbia198848.59%6
Missouri198848.52%7
Kentucky199140.81%8
Rhode Island198938.58%9
Idaho199013.89%10
Nebraska1995-17.24%11

Sources: Appendix A

Keno is a game which is drawn every five minutes and played at adult environments. The lottery has been operating it since fiscal year 1993. It has had an average annual percentage per capita increase in revenues of 6.37% and ranks eighth out of the twelve systems compared. (See Table 7)

TABLE 7

Keno

State


Beginning Year of Calculation
Annual Average % Increase/Decrease in Per Capita Revenues

Rank

Massachusetts1993435.10%1
Kansas1991108.05%2
Georgia199681.36%3
New York198959.36%4
Maryland199328.63%5
California199320.54%6
Rhode Island19938.51%7
West Virginia 19936.37%8
Oregon19925.14%9
Washington1993-4.84%10
Michigan1990-12.76%11
Colorado1992-16.42%12

Source: Appendix A

ISSUE AREA 2: West Virginia Lottery's instant game average annual percentage increase/decrease of per capita revenues rank 17th with other systems
compared.

Instant games are printed tickets which the public purchases from licensed agents and scratch off a latex material to reveal an underlying object or number which denotes whether the ticket is a winner. Scratch-off instant tickets have been in operation since fiscal year 1986. They have been consistent performers since the inception of the West Virginia Lottery. The scratch-off annual average percentage per capita increase in revenues is 6.96% and rank seventeenth out of twenty-eight systems compared. (See Table 8)

TABLE 8
Instant Games

State


Beginning Year of Calculation
Annual Average % Increase/Decrease in Per Capita Revenues

Rank

Georgia1993636.91% 1
New Mexico199682.76%2
Vermont198637.83%3
New Hampshire198635.57%4
Ohio198628.58%5
Maine198626.54%6
Delaware198624.09%7
Maryland198623.46%8
District of Columbia198620.61%9
Connecticut198618.16%10
Michigan198616.91%11
Kentucky198913.46%12
Rhode Island19868.86%13
Colorado19868.72%14
Oregon19868.01%15
Pennsylvania19867.29%16
West Virginia19866.96%17
Kansas19886.27%18
Wisconsin19894.82%19
Idaho19903.20%20
Iowa19862.87%21
Missouri19862.34%22
Indiana1987.99%23
Virginia1989-3.29%24
South Dakota1988-3.79%25
Nebraska1994-5.52%26
California1986-8.94%27
Montana1988-11.09%28

Sources: Appendix A

ISSUE AREA 3: West Virginia Lottery's video lottery system's average annual percentage increase of per capita revenues ranks 3rd with other systems.

The West Virginia Lottery initiated the video lottery system in fiscal year 1990. Video lottery is a self activated video version of lottery games which are keyboard operated. The player places bets for the chance to be awarded credits for cash or replay as additional bets. The video lottery per capita average annual increase in revenues is 121.94% and is ranked third out of five systems compared. The increases are due to both increased numbers of video lottery terminals, locations to play and increased popularity. (See Table 9)


TABLE 9

Video Lottery

State


Beginning Year of Calculation
Annual Average % Increase/Decrease in Per Capita Revenues

Rank

Delaware1996233.72%1
Oregon1992136.44%2
West Virginia 1990121.94%3
Rhode Island199460.88%4
South Dakota199027.63%5

Sources: Appendix A


Conclusion:

The West Virginia Lottery has a wide array of game styles to keep the revenues consistently increasing. Video lottery shows the commission's initiative to give the public more variety and excitement in their lottery experience. With the lottery industry consistently changing and becoming more popular, it is easy to fall behind. But the past eleven years of the West Virginia Lottery's revenue producing capabilities shows this not to be the case in West Virginia. The lottery's per capita revenues have shown an increase since their inception. Therefore, the Legislative Auditor's Performance Evaluation and Research Division concludes that the West Virginia Lottery is performing at least average, and sometimes above average when compared to other states.