程阳：New York State Lottery in FY 2009

The New York State Lottery(Lottery) was established in 1967. The Lottery is currently administered by the Division of the Lottery, an  independent unit of the New York State Department of Taxation and Finance, which operates in accordance with the provisions of the New York  State Lottery for Education Law (Tax Law Article 34). The purpose of the Lottery is to raise revenue for education in the State of New York  (State) through the administration of lottery games.

The management of the New York State Lottery (New York Lottery or Lottery) offers readers the following general overview and analysis of the  New York Lottery’s financial position and activities for the fiscal year ending March 31, 2009 and 2008. We encourage readers to consider  this information in conjunction with the detailed financial statements and explanatory notes that follow. The New York Lottery’s basic  financial statements for the fiscal years ending March 31, 2009 and 2008 have been prepared in accordance with U.S. generally accepted  accounting principles.

Financial Highlights

• New York Lottery revenues totaled $7.660 billion, the largest total ever for the Lottery, while net proceeds earned for Lottery Aid to  Education reached $2.544 billion for fiscal year 2009.

• New York Lottery revenues in fiscal year 2009 surpassed the revenues of 2008 by $111.7 million or 1.5%. In fiscal year 2008, the annual  revenue increase was $373.4 million or 5.2%.

• Net proceeds earned for Lottery Aid to Education in fiscal year 2009 were less than the net proceeds of 2008 by $12.2 million or .5%.  Comparatively, the annual increase in earnings for education in fiscal year 2008 was $196.5 million or 8.3% over the earnings of 2007.

• Prize expense increased by $50.5 million or 1.3% during fiscal year 2009. Prize expense decreased by $18.0 million or 0.5% during fiscal  year 2008.

• Operating income decreased by $79.4 million or 3.1% during fiscal year 2009. Operating income increased by $267.9 million or 11.6% during  fiscal year 2008.

• Nonoperating income decreased by $12.0 million during fiscal year 2009. This decrease follows a $38.6 million increase in fiscal year 2008.  The decrease is the net result of a decrease in unrealized gains on investments and lower interest earnings on cash deposits in 2009  partially offset by a large bad debt expense in 2008.

• Working Capital (current assets minus current liabilities) decreased to $135.8 million at the end of fiscal year 2009. This was a decrease  of $.4 million or .3% compared to fiscal year 2008. At the end of fiscal year 2008, working capital was $136.2 million, a decrease of $77.4  million or 36.2% over the fiscal year ended 2007.

Summary of Revenue, Expenses, and Changes in Net Assets

The following summary compares the Lottery’s operating revenues, expenses and changes in net assets for the fiscal years 2009, 2008 and 2007  (in millions).

 

Revenues

The New York Lottery exists for the sole purpose of raising revenue to help support Aid to Education. The Lottery achieves its mission  through the sale of Lottery tickets at approximately 16,000 licensed retail locations across the state. The Lottery also achieves its mission  through video lottery at eight licensed video lottery gaming facilities located in Saratoga, Monticello, Farmington, Hamburg, Batavia, Tioga,  Vernon, and Yonkers, New York.

During the fiscal year 2009, the Lottery achieved $3.029 billion in on-line sales, $3.666 billion in instant sales, and $965.1 million in  video lottery gaming net machine income for a total of $7.660 billion, a 1.5% ($111.7 million) increase over the previous fiscal year. This  record year eclipses the record set the previous year when 2008 revenues reached $7.548 billion, a $373.4 million or 5.2% increase.  Significant growth was reflected in video lottery during both fiscal years and in instant games during 2009.

 

The following compares the Lottery’s revenues by game and the percentage of total revenues by game for the fiscal years 2009, 2008, and 2007  (in millions).

 

 

Direct Expenses

Direct expenses consist of prize expense for traditional Lottery games, commissions to Lottery retailers and video lottery gaming facilities,  fees to gaming contractors, expenses of providing instant tickets to players, and telecommunications. The largest expenditure in this  category is prize expense which made up roughly 80% of direct expenses during each of the three years being discussed. This expense increased  by $50.5 million to $4.003 billion in fiscal year 2009. At the same time, traditional retailer commissions decreased by $.1 million to $400.7  million and gaming contractor fees increased by $5.6 million to $126.5 million. The largest year-to-year change in this category was in video  lottery gaming commissions to facilities, which increased by $130.9 million to $438.7 million. This was a result of changes to the legislated  allocation of net video revenue and accounted for the majority of the increase in this category.

During fiscal year 2008, prize expense decreased by $18.0 million to $3.953 billion, retailer commissions increased by $2.4 million to $400.8  million, and gaming contractor fees increased by $20.3 million to $120.9 million. As a result of increased video revenue, commissions to  video lottery gaming facilities reached $307.7 million, an increase of $110.8 million, which is the majority of the increase in direct  expenses.

Other Operating Expenses

Other operating expenses include marketing, state agency charges, personal services, fringe benefits and other administrative costs. These  costs were $130.2 million during fiscal year 2009 which was relatively unchanged from $130.7 million in the prior year. By contrast, fiscal  year 2008 had experienced a decrease of $9.7 million from the $140.4 million for these costs in 2007. The decrease in 2008 was primarily due  to the ending of state police security details which had been maintained at video lottery gaming facilities during the initial stages of the  program.

Nonoperating Revenues (Expenses)

Nonoperating revenues and expenses consist of miscellaneous income plus the net growth or decline in the fair market value of the United  States guaranteed marketable securities used to fund long-term prizes. Investment income ($123.9 million in 2009, $175.0 million in 2008, and  $102.3 million in 2007) consists of both the fair value adjustments of investments plus the normal growth of the value of Lottery investments  as the securities move closer to maturity. The market driven, fair value adjustment is the primary factor in the fluctuation in this amount  from year to year. Investment expense is a reflection of the Lottery expending the investment income to increase the valuation of the long- term prizes payable to winners. The annual fair value adjustment of investments (shown here as income) flows to the unrestricted net assets  balance on the statement of net assets. This fair value adjustment is unrealized by the Lottery since it expects to hold investments to  maturity.

Income Before Required Allocation and Change in Net Assets

The revenues and expenses for fiscal year 2009 resulted in income before required allocation totaling $2.548 billion. This amount consists of  a required allocation for Aid to Education of $2.544 billion that transfers out as a contribution for Aid to Education and a $4.2 million  increase in net assets for the year. The $4.2 million increase in net assets is a combination of a $38.0 million decrease in net assets  restricted for prizes, a $.1 million increase in net assets invested in capital assets, and a $42.1 million increase in unrestricted net  assets. The revenues and expenses for fiscal year 2008 resulted in income before required allocation totaling $2.639 billion. This amount  consists of a required allocation for Aid to Education of $2.556 billion that transfers out as a contribution for Aid to Education and an  $83.5 million increase in net assets for the year. The $83.5 million increase in net assets is a combination of a $6.2 million increase in  net assets restricted for prizes and a $77.3 million increase in unrestricted net assets.

Summary and Outlook

The revenues reported here include those from eight video lottery gaming facilities. This included the facilities at Tioga, Vernon, and  Yonkers, NY which opened in fiscal year 2007 and were operational for their first full year during fiscal year 2008. One more facility is  expected to open in Queens, NY, at the Aqueduct Racetrack but the date of its opening has yet to be determined.Contacting New York Lottery’s Financial Management of the New York State LotteryThis financial report is designed to provide the State of New York, the public and other interested parties with an overview of the financial  results of the New York State Lottery and an explanation of the Lottery’s financial condition. If you have any questions about this report  or require additional information, email Questions@Lottery.state.ny.us or write to The New York Lottery Communications Office, One Broadway  Center, P.O. Box 7500, Schenectady, NY 12301-7500.

 

 

The more significant accounting policies of the Lottery are described below:

(a)

Revenue Recognition

(i) Draw Games

Revenue from ticket sales for Lotto, Quick Draw, Take 5, Pick 10, Mega Millions, New York’s Numbers and Win-4 games, and promotional games  (draw games) is recognized when the related drawing takes place. Receipts from subscription sales and other ticket sales for future drawings  are recorded as deferred revenue and recognized when the related drawings take place.

(ii) Instant Games

Revenue from Instant Games is recognized based on the dollar value of the total number of tickets available for sale. Tickets are available  for sale upon being activated on the Lottery Validation System at the retailer locations.

(iii) Video Lottery

Revenue from video lottery gaming is recognized based on net machine income, which is defined as amounts played less prizes won.

(b)

Commissions and Fees

Retailers selling draw and Instant Game tickets receive a commission of 6% based on the total tickets sold. For video lottery, video gaming  facilities receive a varying percent of incremental annual net machine income according to provisions of Section 1612 of the Tax Law. The  particular percent applied to a range of net machine income can vary depending on the facility’s number of video gaming machines,  geographical area of the state, population level, or proximity to Native American gaming facilities. The draw game contractor and the video  lottery central processing contractor receive fees equal to a contractual percentage of the sales generated through the network maintained by  the respective contractor. The instant game contractor is paid a fee equal to a contractual percentage of instant sales. Video lottery  terminal contractors receive a fee equal to a contractual percentage of revenue, adjusted for the units of service provided. All other gaming  contractors are paid fees based on the units of service provided (see note 13).

(d)

Allocation of Revenue from Ticket Sales

The allocation of ticket sales is made in accordance with the provisions of the New York State Lottery for Education Law which requires:• Allocations of ticket sales revenue to New York for educational purposes to be at least 20% for the New York State Lottery Instant Games,

35% for Take 5, New York’s Numbers, Win-4, Mega Millions and Pick 10, 45% for Lotto and promotional games, and 25% for Quick Draw. In  addition, the Lottery has legislative authority to issue up to three Instant Games per year with at least 10% for educational purposes. For  video lottery, the required allocation to education is a varying percent of each facility’s annual incremental net machine income, depending  on factors such as the facility’s number of video gaming machines, geographical area of the state, population level, and proximity to Native  American gaming facilities.

• Allocations of ticket sales revenue for the payment of lottery prizes are not to exceed 65% for the New York State Lottery Instant Games,  50% for Take 5, New York’s Numbers, Win-4, Mega Millions, and Pick 10, 40% for Lotto and promotional games, and 60% for Quick Draw. In  addition, the Lottery has legislative authority to issue up to three Instant Games per year with up to 75% allocated to prizes. Video lottery  is required to pay prizes that average no less than 90% of gross sales.

• Allocations of ticket sales revenue from all traditional games for the payment of Lottery administrative expenses (including agent  commissions and contractor fees) are not to exceed 15%. For video lottery, 10% of net revenue (the total revenue wagered after payout for  prizes) is allocated for Lottery Administration. Unlike traditional games, video lottery administrative expenses do not include commissions  and fees which are described separately in note 1b. Any excess of the maximum allocation over actual administrative expenses is allocated to  education. Such allocations amounted to approximately $382,605,000 and $379,989,000 for fiscal years 2009 and 2008, respectively.  Administrative expenses incurred by the Lottery represent telecommunications, advertising, salary and other operating costs.

(13)

Commitments and Contingencies

(a)

Contractual Arrangements

The Lottery maintains a gaming network of approximately 16,000 on-line locations where all traditional lottery games are sold. GTECH Holdings  Corporation (GTECH) is responsible for operating all traditional Lottery games under a contract expiring on February 28, 2010.

Instant Game sales are also supported by services provided under additional contracts:

(1) Under a contract that expires July 23, 2009 Scientific Games, Inc. is the primary supplier of Instant Game tickets.

(2) Under a contract expiring July 30, 2009 Pollard Banknote Limited is the secondary supplier of Instant Game tickets.

(3) Under contracts that expire on July 27, 2009 Oberthur Gaming Technologies and Gtech Printing Corporation are tertiary suppliers of  Instant Game tickets.

(4) Instant Game tickets are also sold through approximately 4,000 vending machines at approximately 3,000 locations. A contract with Gtech  which expires on April 30, 2009, provides for maintenance of the vending machines.

Video lottery games are offered on approximately 13,000 video gaming machines spread over eight video lottery gaming facilities. Multimedia  Games, Inc. provides a central processing system for the operation of video lottery games under a contract expiring on January 27, 2010.  Video lottery gaming machines are provided under contracts expiring December 31, 2010 with three different companies (Bally Gaming,  International Game Technology, and Spielo USA, Inc.).

In March 2009, the Lottery awarded a seven year contract through February 28, 2017 to Gtech Corporation for a gaming network and vending  machines including related communication services. The Lottery and Gtech Corporation expects necessary approvals of the contract by the New  York State Attorney General and the New York State Office of the State Comptroller. A completed new gaming system will be operational under  this contract in 2010.

On June 1, 2009 an extension of the Multimedia Games, Inc. contract for the video gaming system was approved by the New York State Office of  the State Comptroller. The new expiration date is December 31, 2017.

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