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Management’s Discussion & Analysis
Management’s Discussion and Analysis
The following Management Discussion and Analysis (MD&A) allows Idaho Lottery (Lottery) management to provide users of the financial statements with an analysis of the Lottery’s financial activities based upon currently known facts, decisions and conditions. Please read it in conjunction with the Idaho Lottery Financial Statements that follow this section.
A key focus of the MD&A is the discussion of the current-year results in comparison with the prior year. While the accompanying financial statements present the financial position of the Idaho Lottery as of June 30, 2022, and financial activity for the year then ended, the MD&A also includes information for the year ended June 30, 2021, in order to allow for this comparison.
OVERVIEW OF THE ACCOMPANYING FINANCIAL STATEMENTS
These required statements offer short and long-term financial information about the Idaho Lottery.
The Statements of Net Position provides information about the nature and amounts of investments in resources (assets and deferred outflows of resources) and obligations (liabilities and deferred inflows of resources) at the close of fiscal year 2022 and 2021.
The Statements of Revenues, Expenses and Changes in Net Position, measures the success of the Lottery’s operations for fiscal year 2022 and 2021 and the resulting increase or decrease in net position.
The Statements of Cash Flows - The primary purpose of this statement is to provide information about the Lottery’s cash receipts and cash payments during the fiscal year 2022 and 2021. The statement reports cash receipts, cash payments and net changes in cash resulting from operations, investing and financial activities and provides answers to such questions as where cash originated from and where it went during the fiscal years.
The Idaho Lottery is structured as a single enterprise fund with revenues recognized when earned, not when received. Expenses are recognized when incurred, not when paid. Capital assets are capitalized and depreciated over their useful lives. The notes to the financial statement contain, among other information, a description of the Idaho Lottery’s significant accounting policies. The accompanying notes are an integral part of the financial statements.
The reader should refer to the financial statements and the accompanying notes for information on the individual components of the Statements of Net Position. The following analysis is intended to highlight selective changes between 2022 and 2021.
ASSETS
CURRENT ASSETS Cash and cash equivalents Receivables Other
Total current assets Deposits with MUSL Property and Equipment, net Right of use asset, net Other Post Employment Benefit Asset Pension Asset
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows pensions
LIABILITIES AND NET POSITION
CURRENT LIABILITIES Accounts payable and accrued expenses Dividend payable Due to MUSL Prizes payable Current portion of capital leases Total current liabilities NON-CURRENT LIABILITIES Long-term capital leases Other post employment benefits Net pension liability Total liabilities
DEFERRED INFLOWS OF RESOURCES
Deferred inflows pensions
NET POSITION
Invested in capital assets Unrestricted
Total net position 2022 2021
Change 2022 to 2021
48,462 - 48,462
1,664,893 133,169 1,531,724
83,541 40,822
1,550,322 108,169 1,442,153
* Amounts for year end June 30, 2021 were not restated for the effects of GASB 87.
Receivables
The Lottery’s billing week is from Sunday through Saturday. The amount due from retailer transactions (i.e., sales, less commissions and prizes paid by the retailer) are transferred from the retailer’s bank account to the Lottery’s account the following Thursday. Similarly, any amounts due to the retailer from the Lottery are transferred to the retailer’s account on Thursday. The Lottery refers to this transfer as a “sweep”, and this mandatory process between the Lottery and its retailer customers simplifies collections. The receivables balances for 2022 and 2021 consist of the following:
Week ended June 30 sales Accounts to Attorney General for Collection Total 2022 $2,313,619 2,275 $2,315,894 2021 $3,901,033 2,625 $3,903,658
Ticket Inventory (Other Assets subcategory)
Shared two Scratch Ticket printing contracts were awarded in March 2021 to primary vendor, Pollard Banknote and the secondary printing contract to Scientific Games. The contracts include three, two-year extension options. PullTab tickets are expensed when the tickets are sold to the retailers. The Ticket Inventory balances on June 30, 2022 and 2021, consist of any unamortized production costs of scratch tickets.
Plant, Property, and Equipment, net
The balances shown were derived as follows:
Beginning balance GASB 87 implementation Add: acquisitions Deduct: net retirements Deduct: depreciation Ending balance
2021 $544,971
112,392
(161,798) $495,565
LIABILITIES AND NET POSITION Dividend Payable
The dividends declared by the Idaho Lottery Commission for 2022 and 2021 were $73,000,000 and $72,500,000, respectively. The dividend is declared on or before June 30th and paid on July 1st or shortly thereafter.
Prizes Payable
The decrease in prizes payable between 2021 and 2022 of $1,689,897 is primarily due to the decrease in the Five Star draw jackpot of $571,685 and the decrease in scratch ticket prizes payable.
Total Net Position
Net position represents the difference between the Lottery’s total assets and deferred outflows of resources and its total liabilities and deferred inflows of resources. Net position is allocated between the portion which represents the net investment in capital assets (i.e., plant and equipment and other leased assets) and unrestricted net position.
Comparative operating revenues for the four major product sales classifications: Draw tickets, Scratch tickets, Raffle, PullTab/TouchTab tickets and other for revenue are as follows:
Draw Game Sales
Powerball Pick 3 Mega Millions Weekly Grand Lucky for Life Lotto America Idaho Cash 5 Star Draw 2by2 Pick 4 Raffle
Total Draw Game Sales 2022 2021
Change 2021 to 2022
$30,242,308 $26,323,815 $3,918,493 2,346,461 2,655,481 (309,020) 13,885,979 19,803,804 (5,917,825) 1,647,644 1,662,420 (14,776)
4,586,090 3,265,888 1,320,202
2,586,664 2,343,635 1,707,501 1,770,082 1,901,485 2,811,900
628,926 203,620
1,123,620
591,528 2,500,000 2,500,000 243,029 (62,581) (910,415) 425,306 532,092 -
63,156,678 63,932,173 (775,495)
Scratch ticket Sales PullTab ticket Sales TouchTab ticket Sales
Total Sales 234,832,327 241,246,461 (6,414,134) 2,030,150 2,009,407 76,295,737 64,834,117 20,743 11,461,620
376,314,892 372,022,158 4,292,734
Data Line Charges Other revenues Total operating revenues 650,338 665,300 (14,962)
50,738 29,625
21,113 $377,015,968 $372,717,083 $4,298,885
Draw Game Ticket Sales
The Powerball game is sold in forty-five states, Washington, D.C., Puerto Rico and the U.S. Virgin Islands. These lotteries contribute a fixed percentage of their Powerball sales revenue to a consolidated Jackpot prize. There are three Powerball drawings a week with a minimum-starting jackpot of $20 million. Each time the jackpot is not won it rolls into the next draw and thus the jackpot grows until it is won. Selling for close to 30 years, Powerball is still the most recognizable brand and game offered by the Idaho Lottery. Current odds of winning the Powerball jackpot are 1:292,201,338. Big game sales are very jackpot driven; the higher the announced jackpot, typically the higher the sales. While Powerball enjoys a consistent core group of players, as half-a-billion dollar or higher jackpots become more common place, more casual lottery players wait to join the game until it reaches near-record levels. While larger jackpot runs have generally tended to make big game sales trend up, it is important to be aware of the relationship of the jackpot and sales as illustrated in the chart on the next page.
Draw Game Ticket Sales Powerball Relationship between Announced Jackpots and Sales
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Average Announced Jackpot Per Draw $214,013,986 152,447,619 108,490,385 200,451,293 176,504,762 166,451,923 160,275,143 105,336,538 117,846,154 121,403,846 Average Sales Per Draw $204,340 250,703 194,258 288,163 316,170 271,443 406,027 282,027 351,215 436,059
Annual Sales $30,242,308 26,323,815 20,397,045 30,257,158 33,197,811 28,501,559 42,632,859 29,330,831 36,526,313 45,350,144 In 2010, the Idaho Lottery began selling Mega Millions with Megaplier. The Mega Millions game is similar to Powerball but holds drawings on Tuesday and Friday. Mega Millions was originally launched and sold by states NOT selling Powerball. All states came together in 2010 to agree on a cross selling initiative which allowed all states to sell both of the “big games” across borders.
Mega Millions is sold in forty-seven localities – forty-five states plus the District of Columbia and the U.S. Virgin Islands, with odds of winning the jackpot 1:302,575,350.
As with Powerball, there is typically a strong relationship between the jackpot and resulting sales.
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Average Announced Jackpot Per Draw $143,564,356 166,576,923 136,914,286 219,259,615 146,490,385 78,152,381 101,730,769 93,752,381 98,259,615 42,865,385 Average Sales Per Draw $133,519 190,421 125,834 224,098 130,040 89,755 99,912 107,577 128,645 88,973
Annual Sales $13,885,979 19,803,804 13,212,519 23,530,337 13,524,177 9,334,536 10,390,885 11,295,562 13,379,076 9,253,222 The smaller jackpot games, both in-state and multi-state games are as sensitive to jackpots as Powerball and Mega Millions. Both games have a consistent player base, although players will sometimes shift their buying habits from both games to Powerball and Mega Millions when jackpots are unusually large. The Lottery offers the following Draw games: Powerball, Mega Millions, Lucky for Life, Weekly Grand, Idaho Cash, Pick 3, Pick 4, 5 Star Draw, 2by2 and a fall Raffle game.
The Draw games, with higher profit margins than Scratch, increase profits in the Draw category.
Scratch™ Ticket Sales
Scratch game portfolio is to introduce fun, easy to play themes in all price points. The lower priced games typically have a lower pay out and are more profitable. The more expensive games generally offer more interesting and longer play features than the simple “match three” format of many one and two-dollar games. As a result, some players feel the higher priced tickets offer more entertainment value. Keeping the perfect Scratch Ticket Game Portfolio is a challenge, as higher priced tickets are less profitable, so the mix is important and an inordinate number of higher price point sales can skew profit results dramatically.
In FY15 the Lottery launched a new product line, InstaPlay, which are played like a Scratch ticket, with predetermined odds, but printed from the Lottery terminal without having to wait for a drawing like a Draw game. Players are loving the fun play action and sales continue to reflect their interest in these games.
Scratch ticket sales by price point for the fiscal years 2022 and 2021 are as follows:
PullTab tickets, which are sold mainly in restaurants and bars, historically make up less than 2% of the Lottery’s total annual sales. Although these games fight competition from illegal gaming machines, annual sales were $2,030,150 in fiscal year 2022, an increase of $20,743 from fiscal year 2021 sales of $2,009,407. The sales increase is anecdotally correlated to reduced access to other entertainment options during the COVID-19 pandemic.
Concentrated efforts between the Lottery and our PullTab vendor, International Gamco are ongoing and while the paper PullTab product continues to hold with steady sales, we conservatively seek out additional selling locations and increased sales in the coming fiscal year. As of February of 2018, vendor International Gamco is wholly owned by Pollard Banknote. In May of 2019, the Lottery Commission approved a subcontract agreement between International Gamco and Diamond Game (another wholly owned subsidiary of Pollard Banknote) and in 2020 an extension was granted for five years – extending the contract term to June 30, 2026. With the extension comes a revised revenue share formula that will yield an estimated $1,000,000 extra in net revenue to the Idaho Lottery.
PullTab Ticket Sales
2022 2021
One-dollar games Two-dollar games $5,263,853 2.2% $6,638,927 2.8% 6,284,228 2.7% 7,676,976 3.2%
Three-dollar games Five-dollar games
13,794,615 5.9% 16,683,744 6.9% 53,751,790 22.9% 57,109,025 23.7% Ten-dollar games 52,774,530 22.5% 51,174,940 21.2% Twenty-dollar games 41,212,780 17.5% 49,199,380 20.4% Twenty-five dollar games (225) 0.0% - 0.0% Thirty-dollar games 43,882,170 18.7% 38,682,060 16.0% Fifty-dollar games 5,306,300 2.3% - 0.0% InstaPlay 12,562,286 5.3% 14,081,409 5.8% Total Sales $234,832,327 100.0% $241,246,461 100.0%
Increase (decrease) over prior year $(6,414,134) $55,679,751
TouchTab Sales
Together with our PullTab vendor partner International Gamco, the Idaho Lottery launched a pilot project from 11/2010 to 6/2011 to introduce a new TouchTab dispensing device to retailers around Idaho. The TouchTab dispensing device is co-located with our paper ticket vending machines (TabBOXX), and only offered in age controlled environments (bars and taverns). TouchTab games are nearly identical to paper PullTabs; each game is played just like the paper version; with a predetermined number of tickets; odds are finite with winning tickets randomly seeded throughout the number of tickets in the game; and prizes must be claimed by the selling retailer. Subsequent phases, after the successful pilot, added additional age-controlled locations that have passed our criminal and financial background checks. While the Idaho Lottery expects to deliver enhanced dividends from this product going forward, the payout to the player for this product is higher than other offerings, the resulting profit margin is lower. At $76,295,737 in fiscal year 2022, TouchTab sales increase by $11,461,620 over fiscal year sales 2021 of $64,834,117. Again, this sales increase is likely due to the restricted access to other entertainment options during the year of COVID-19 limitations.
All idle cash with the State Treasurer is invested in a variety of securities. The Lottery is an involuntary member of this pool. Estimated interest accrued is reflected in the Lottery’s financial statements. The interest earned is offset by a transfer to the State of Idaho General Fund. Interest income earned on the funds held at the state by the Lottery for 2022 and 2021 were $208,410 and $136,287, respectively.
2022 and 2021 operating expenses are as follows:
Interest Income on Funds Held at the State
Operating Expenses
Prizes, net of unclaimed prizes Retailer commissions Gaming system services Scratch tickets PullTab tickets Advertising Salaries and benefits Depreciation and amortization Telephone and data line costs Professional services Office and equipment Shipping costs Supplies Tribe compact Other costs
Total operation expenses 2022 2021
Change 2021 to 2022 $257,122,291 $252,890,557 $4,231,734 22,102,833 21,912,532 8,601,643 8,493,120 190,301 108,523
2,677,098 3,729,786 (1,052,688)
4,650,410
4,062,490 4,031,845 4,285,868 2,965,345 3,408,038
587,920 (254,023) (442,693)
499,925 30,623 140,644 30,612 715,967 161,798 28,418 135,000 442,526 698,309 338,127 2,205 5,644 (411,914) 17,658
122,099 69,886 52,213
189,962 190,964 (1,002)
329,600 262,121
67,479 $304,210,897 $300,771,413 $3,439,484
Operating Expenses continued ...
Generally, the changes in expenses during the three fiscal years reflect the change in the level of sales as well as a shift in the product sales mix, i.e., the relative percentage that each product group (Draw, Scratch, PullTab, and TouchTab) represents of total sales. Sales levels and mix for each of the years is represented below:
2022 2021
Mix % Mix %
Draw sales
$63,156,678 16.8% $63,932,173 17.2% Scratch ticket sales 234,832,327 62.4% 241,246,461 64.8% PullTab ticket sales 2,030,150 0.5% 2,009,407 0.5% TouchTab ticket sales 76,295,737 20.3% 64,834,117 17.4% Total Sales $376,314,892 100.0% $372,022,158 100.0%
Increase (decrease) over prior year $4,292,734 $94,419,667
Certain cost categories, namely advertising, salaries and benefits, depreciation and amortization, telephone and data line costs, professional services, office and equipment, supplies and other costs are only minimally affected by sales increases or shifts in the sales mix. However, the change in sales level or mix does impact prizes, retailer commissions, gaming system services, Scratch and PullTab ticket costs, as well as shipping, detailed in the following information which outlines prize expense percentages. The increase in depreciation and amortization and the decrease in office and equipment expense is the result of GASB 87 classification.
Prizes, Net of Unclaimed Prizes
Each of the three product types, Draw games, Scratch games (including InstaPlay), and PullTabs (including TouchTabs) have differing average prize expense percentages associated with that product. The average prize percentage for each category depends upon the prize percentage of the individual games within that product type. For example, Powerball has a prize percentage of 50% (so 50% of the sales go to the prize fund for Powerball); Lotto America also has a 50% prize percentage while Mega Millions has a prize percentage of 51%. The overall average prize percentage for the suite of Draw game products depends upon the sales mix for the games. Similarly, most Scratch and PullTab games have different prize percentages, although they average in the range of 58-78%, with higher price point tickets generally offering a higher prize payout percentage. TouchTab games have a prize percentage of between 78-82%.
Two other factors are considered in computing prize expense. The first factor is the prize expense associated with second chance draws. Second chance draws are held in conjunction with Draw or Scratch games, where the drawing entry is normally a non-winning ticket. The second factor is unclaimed prizes. The value of all prizes not claimed within the statutory 180-day claiming period is offset against and reduces that year’s total prize expense.
The product mix and resulting sales can significantly skew the overall prize payout.
Prizes, Net of Unclaimed Prizes continued ...
Draw Game Contractor Fee
Prize expense, net of unclaimed prizes, consisted of the following years 2022 and 2021.
Changes in these cost categories generally reflect and are related to the corresponding change in sales.
The Lottery contracts with INTRALOT as the draw game vendor. INTRALOT provides the Lottery with critical hardware and software, network communications, and support personnel.
2022
Draw ticket sales
Scratch ticket sales
Raffle sales
PullTab ticket sales
TouchTab ticket sales
Second Chance draws
Unclaimed prizes
Sales
$60,656,705 234,832,327 2,500,000 2,030,150 76,295,737
Prize %
Prizes
52.21% $31,667,317 70.83% 166,335,412 52.00% 1,299,980 70.16% 1,424,351 80.09% 61,106,724 150,835 (4,862,328) $257,122,291
2021
Draw ticket sales
Scratch ticket sales
Raffle sales
PullTab ticket sales
TouchTab ticket sales
Second Chance draws
Unclaimed prizes
Sales
$61,432,173 241,246,461 2,500,000 2,009,407 64,834,117
Prize %
Prizes
52.38% $32,180,895 70.72% 170,602,865 52.00% 1,300,050 70.03% 1,407,174 80.12% 51,948,156 274,007 (4,822,590) $252,890,557
OUTLOOK FOR THE FISCAL YEAR ENDED JUNE 30, 2023
The Idaho Lottery celebrated 33 years of operations by returning a record-setting dividend to the People of Idaho for $73 million at the conclusion of Fiscal Year 2022. The end of Fiscal Year 2022 also saw the Idaho Lottery eclipse the $370 million threshold in sales for the second consecutive year. Setting another record, the Lottery had $376.3 million in sales, an increase of 1.2% over the previous year. To date, the Idaho Lottery has recorded over $5 billion in total sales while returning over $1.1 billion to benefit Idaho public schools and the State’s permanent buildings.
As the world, United States, and Idaho continue to recover from the COVID-19 pandemic, the economy in the Gem State continued to thrive. The State of Idaho reported a record surplus of $2 billion in tax revenue for Fiscal Year 2022. Mirroring the continued growth and booming economy, Idaho Lottery sales outpaced the previous year. Powerball had back-to-back $600 million-plus jackpots over the first half of the year. A price change to $3 a play that automatically includes PowerPlay and the addition of a Monday night draw to Powerball that both occurred in August of 2021 led to a 14.8% increase in the game’s sales for the year.
Mega Millions never reached even a $500 million jackpot for the year. Subsequently sales dropped off from FY2021. Likewise, Scratch ticket sales also recorded decreases in both traditional and InstaPlay games in FY2022. Gains were made with increases in Lucky for Life (40.4%), Lotto America (10.4%), and a full year of Idaho Pick 4 sales (89.9%). Lucky for Life and Idaho Cash moved to daily draws in July of 2021.
As the price of automobile fuel increased throughout the spring of 2022 and inflation gained a grip on the economy, Idahoans traveled less and, anecdotally, many players made less frequent visits to neighboring states which offer full-blown casino style gambling. The Idaho Lottery remained an affordable, viable entertainment choice for its citizenry. These factors led to the largest product growth for the year, occurring in the TouchTabs category, as players and patrons visited their favorite age-controlled establishment and enjoyed this entertainment. TouchTabs realized an 17.6% increase in sales, roughly $11.4 million more than the previous year.
With this unique product mix, the Lottery was only able to realize a 0.7% dividend increase of $500,000. In all, the Idaho Lottery recorded thirty winners who claimed a prize of $200,000 or more. There were twenty-seven jackpot winners including seven on Idaho Cash. The ever-popular Idaho $1,000,000 Raffle made its annual millionaire after selling out the game before Thanksgiving and in the fewest number of days in the game’s fifteen-year history.
The Idaho Lottery continued strong fiscal management during the year. Publicly, in addition to winner awareness, the Idaho Lottery made a concentrated effort to increase messaging surrounding their three “Do Good” initiatives, Classroom Wishlist, Bucks for Books, and Scratch for Schools. This successful awareness of the Lottery benefits on large and local levels has brokered an outpouring of interest and public support.
Scratch for Schools completed its 21st year and awarded over $89,000 for individual school needs, Classroom Wishlist provided resources to 61 different schools with immediate learning needs by awarding $114,780, and the Lottery offered the most successful year for the Bucks for Books program by awarding 39 schools a total of $105,000 for new book acquisition in elementary school libraries.
OUTLOOK Continued ...
Idaho’s marketplace seems to be settling into a nice rhythm, although the ebb and flow of inflation and constantly fluctuating fuel prices could have an impact on sales and available, disposable income. The Gem State continues to have a strong economy, and although house prices are stabilizing, demands for housing from emigrants looking to call the Gem State home continue. As citizens relocate to Idaho from other jurisdictions with Lottery, the Idaho Lottery’s entertainment options continue to attract new customers to start FY2023. This leads to anticipation of weekly sales stabilizing throughout the year at a slightly higher level than FY2022.
While sales estimates for FY2023 look promising to reach a strong dividend return, the unknowns surrounding any further developments or impacts from inflation and higher fuel prices continue to cloud any heightened speculation or forecast above our current projections.
This financial reporting is designed to provide a general overview of the Idaho Lottery’s finances and to demonstrate accountability for money earned by the Idaho Lottery. If you have questions about this report or need additional financial information, contact Becky Schroeder, Chief Operating Officer, Idaho Lottery, P.O. Box 6537, Boise, ID 83707-6537, or call 208.334.2600.
