A Report on Tennessee Lottery Revenues, Expenses, and Net Lottery Proceeds

Presented to: The Fiscal Review Committee

Presented by: Robert N. Currey

Tuesday, October 9, 2007

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Outline

Lottery Ticket Sales Miscellaneous & Total Net Revenue Gaming Expenses Operating & Total Expenses Net Lottery Proceeds & After-School Funding FY07-08 – Weekly Sales to Date Game Trends Points to Note

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Lottery Ticket Sales

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Miscellaneous and Total Net Revenue

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Gaming Expenses

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Operating & Total Expenses

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Net Lottery Proceeds & After-School Funding

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FY07-08Weekly Sales to Date

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Points to Note (1) Growth of Ticket Sales (gross) appears to be diminishing

18.0% in FY05-06 6.2% in FY06-07 2.3% in FY07-08 (YTD thru 10/06/07)…..Summer Seasonality

Growth of Total Expenses is diminishing 18.4% in FY05-06 8.4% in FY06-07

Total Expenses are growing faster than Total Net Revenues Last year expenses grew 8.4% Last year revenues grew 6.2%

Net Lottery Proceeds growth diminishing 18.4% in FY05-06 0.8% for FY06-07

Getting close to the profit maximization point.

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Points to Note (2)

What’s needed for continued growth of net lottery proceeds? Hope for larger jackpots for Powerball and Lotto 5. Management MUST continue to find ways to increase sales. Cutting expenses is NOT a viable option because 95.6% of all

lottery expenses are directly related to ticket sales…if you cut expenses, sales will decrease.

Increase sales to an extent that revenue growth (dollars) exceeds expense growth (dollars).

Instant Games – Continue increasing the prize expense ratio until the “optimum prize expense point” is reached.

Marginal expense = Marginal revenue. Continue introducing new types of games such as Million Dollar

Madness (Raffle game), and HotTrax Champions. Perhaps, a matrix change to Lotto 5.

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