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ANNUAL REPORT 2019

ION L L I M 6 $90


Table of Contents Lottery Mission 2 Governor’s Message 3 Director’s Message 5 Commissioner’s Message 7 Where the Money Goes 8 Scratch for Schools 9 Classroom Wishlists 10 Scratch Games™ 11 InstaPlay Games 12 Draw Games™ 13 PullTab Games 14 Lottery Retailers 14 Charitable Gaming 15 Vendor Partners 15 Auditor’s Letter 17 Management’s Discussion & Analysis 19 Financial Statements 28 Notes to Financial Statements 31 Independent Auditor’s Report 37


Lottery Mission The mission of the Idaho Lottery is to responsibly provide entertaining games with a high degree of integrity to maximize the dividend for public schools and the Permanent Building Fund.

Lottery Vision To Become the highest performing jurisdiction in North America

Operations & Overview The Idaho Lottery is a self-funding and self-governing agency of the State of Idaho. In-house operations include security, marketing, sales, media relations, warehousing and inventory control, information technology, and fiscal management. The Idaho Lottery operates with 45 full-time staff members.

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Governor’s Message My Fellow Idahoans, I join many citizens in congratulating the Idaho Lottery on their 30th Anniversary!

Brad Little Governor of Idaho

On July 19, 2019, I stood on the same Capitol steps where three decades before the Idaho Lottery sold their very first ticket to Idaho business legend, J.R. Simplot. Thirty years and $4 billion in sales later, I accepted the annual ceremonial dividend check. It was the largest Lottery dividend check ever presented to an Idaho Governor, one worth $60 million to benefit Idaho public schools and buildings. The Lottery’s achievement has come from the hard work of Lottery employees, the continued commitment of nearly 1,200 Idaho businesses who offer Lottery products to the public, and the support of players who voluntarily participate. In the three decades since the Lottery began, more than $900 million has been returned to the citizens of the Gem State. We have watched as the Idaho Lottery grew into a model followed by other lotteries, seeing it recognized nationally for its leadership, creativity, and responsibility. For 30 years, the Idaho Lottery has ensured the fairness, accountability, and integrity of all their games and operations. Most importantly, the Idaho Lottery has made good on their commitment to make significant contributions toward education, helping to fund meaningful projects that improve safety, learning environments, and scholastic achievement for Idaho’s students. The Idaho Lottery is a winner! Sincerely,

Brad Little Governor, State of Idaho

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Idaho Lottery Management Team The Idaho Lottery Management Team members for FY2019 (clockwise from back center): Jeffrey R. Anderson, Director Larry Polowski, Deputy Director of Sales Becky Schroeder, Chief Operating Officer Sherie Moody-St.Clair, Deputy Director of Marketing Tony Pittz, Director of Lottery Security


Director’s Message Dear Friends,

Jeffrey R. Anderson Executive Director

When the citizens of Idaho voted to establish a state lottery in 1988, they did so with the understanding those charged with stewardship of the effort would ensure responsible play, public trust, high integrity, and support for the infrastructure of public education and buildings. From the first ticket sold on July 19, 1989 through today, the Idaho Lottery has consistently delivered on the people’s expectations. Our 30th Anniversary continued an exceptional run of record dividends for our beneficiaries, ticket sales, prizes awarded to players, and commissions earned by retailers. I had the privilege of presenting a ceremonial check to Governor Brad Little for $60 million, the largest dividend in our history. That dividend represented a 12% increase over last year on a 9% increase in sales. Team Lottery – our employees, business partners, retailers, and players – consistently meets the letter and spirit of the law that established our purpose by producing the maximum amount of net income to benefit public schools and buildings. Responsible play is essential for continuing to deliver on our mission. Our players voluntarily participate in the fun of the games. We have always been and remain focused on operating the Lottery consonant with the sensibilities of Gem State citizens. With close to $1 billion in dividends transferred to Idaho public schools and buildings, the foresight of what was true in 1989 is still true today – every play pays. Sincerely,

Jeffrey R. Anderson Executive Director

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Idaho Lottery Commission The five-member Commission adopts rules for the agency, approves contracts, and monitors all Lottery operations. Its members are appointed by the Governor with each serving a five-year term. The current Idaho Lottery Commissioners are (clockwise from back center): Mel Fisher, Commission Chairman Gary Michael, Commissioner Craig Corbett, Commissioner Susan Kerrick, Commissioner Grant Brackebusch, Commissioner


Commission’s Message There have been many successes over the past thirty years, perhaps the most remarkable achievement by the Idaho Lottery is their unblemished reputation for security, integrity, and responsible play. Without public confidence in the games offered, there would not be an opportunity to achieve record sales, pay record amounts in prizes, or provide the largest dividend in this organization’s history.

Mel Fisher Chairman of the Idaho Lottery Commission

Personally, I am proud to have been a part of the most successful year in Idaho Lottery history. It was my privilege, along with my fellow commissioners, to commemorate the Idaho Lottery’s 30th Anniversary by presenting Governor Little with the first dividend check to reach $60 million. Over the course of the past years, there have been thousands of project improvements in all communities of Idaho which have made our schools safer and more productive for learning. The Idaho Lottery takes great pride in its annual contributions and the role it plays in supporting public education. The Idaho State Lottery Commission congratulates Director Jeff Anderson and Team Lottery for achieving these successes during this, their 30th Anniversary year. It is a strong testament to Director Anderson’s leadership and the dedication of his team to continually strive for excellence in their industry. As a Commission, we are confident this dedication will continue to translate into positive financial resources to invest into Idaho’s future. Sincerely,

Melville W. Fisher II, Chairman Idaho Lottery Commission

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Where the Money Goes Idaho’s educational facilities are the building blocks of tomorrow’s academic achievements. Spanning three decades, the Idaho Lottery has proudly served our role by making significant financial contributions which provide meaningful improvements for education at every level, kindergarten through college. At the conclusion of our 30th year, the Idaho Lottery marked our celebration by returning a record $60 million to the people of Idaho. Since 1989, we have returned $906 million. Any time anyone plays the Lottery in Idaho, you, your community, the businesses in your area, and your local schools all benefit. Specifically, the Idaho Lottery provides dividend dollars to three different public funds: the Department of Education’s Public School Building Fund Account, the Department of Education’s Bond Levy Equalization Fund, and the Department of Administration’s Permanent Building Fund. As a result, this year there are new secure doors and energy efficient lighting at the buildings in the Wendell School District. In the Payette School District, roof repairs were made to the middle school. Funds were also used from the Permanent Building Fund to repair sidewalks campuswide at Lewis-Clark State College. Over the years, every community has benefitted from Lottery dividends with projects like these. Beyond the dividend, during Fiscal Year 2019, players claimed a record $190 million in prizes. Also a record, over $16.6 million in commissions was earned by our network of nearly 1,200 retail locations in 168 communities across the Gem State for providing Lottery products to their customers. The Idaho Lottery has a passion for its mission of benefiting Idaho Public Schools and the Permanent Building Fund. Our players are passionate, too. Thanks to their play, hundreds of maintenance, repair, and capital improvement projects for Idaho’s public schools and the State of Idaho’s permanent facilities, places like our college campuses, will occur to provide safe, secure learning environments for Idaho’s leaders of tomorrow.

Prizes 66% Dividend 21%

Retailer Commissions 6% Marketing/ Communications 1%

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Program Operations/ Game Support 4% Administration 2%


Scratch for Schools during the fall of 2018 was a year for record winnings by the 460 participants. Never before in the history of Scratch for Schools has the Lottery ever awarded more than $100,000 for the events. In FY2019, the second largest collection of schools claimed a total of $109,601 – an average of $238 per school. The largest event was held in Boise where 94 schools claimed over $23,000. Two venues hosted more schools than ever before – Twin Falls on the campus of the College of Southern Idaho, and Nampa where the event has grown so large the Lottery is now hosting the schools at the Ford Idaho Center. This years’ ticket was also unique and designed specifically for Scratch for Schools. The scratch game Straight As featured a top prize of $500, but came with four, second chance prizes of $1,000 for the player and then another $1,000 for the public school of the winner’s choice. Here is a break-down of all the events this past year and the winnings earned at each location: Event Location: Nampa, Ford Idaho Center Boise, Century Link Arena Idaho Falls, Idaho State University Extension Pocatello, Idaho State University Twin Falls, College of Southern Idaho Lewiston, Lewis-Clark State College Coeur d’ Alene, Coeur d’ Alene Inn

Number of Schools: 93 94 56 52 71 40 54

Dollars to Schools: $22,045 $23,143 $13,192 $12,175 $16,591 $9,766 $12,689

Total attendance and prizes claimed from events:

460

$109,601

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Classroom Wishlist New this year, the Idaho Lottery introduced Classroom Wish List. This program allows schools to propose small projects and Lottery VIP Club members donate their points to help fund the project. This program has awarded over $10,000 for projects like a classroom kitchen, a 3D printer, and a water filtration system. PROJECTS COMPLETED IN FISCAL YEAR 2019 Classroom Kitchen – Park Ridge Elementary, Nampa Classroom Set of Treasure Island Books – Victory Middle School, Meridian Alternative Classroom Seating – Camelot Elementary, Lewiston Basketball Hoops – Mullan Trail Elementary, Post Falls 3D Printer – American Falls Elementary, American Falls Water Fountains – Juliaetta Elementary, Juliaetta Battle of the Books Set – North Valley Academy, Gooding

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Scratch Games™ For three decades, the main staple of the Idaho Lottery has been its portfolio of Scratch Games TM for its players. Scratch ticket sales increased in Fiscal Year 2019, year-over-year by 8.3%, or about $12.1 million. This was due in part to the successful launch of a family of 30th Anniversary-themed scratch games including the first ever Scratch Game launched at the $30 price point. The family also included a $5 and $10 game so that everyone could celebrate this year’s anniversary. Here’s a look back at the memorable games from FY2019.

Broncos, Bengals, Vandals

Cue the marching bands, rally the cheerleaders, and breakout the college spirit. For the first time ever, the Idaho Lottery collaboratively produced games in cooperation with each university. This collegiatethemed family of $5 games launched shortly before the 2018 college football season. There was the Boise State ticket, decked out in the famous blue and orange of Bronco lore and legend. Storming in from the north, a tribe of tickets featuring Joe Vandal himself represented Idaho. And growling and prowling to the east, the orange and black attack of the Bengals from Idaho State. Each of the $5 tickets came with the chance to win one of the 20 top prizes of $5,000 scattered across all three games. Players could also enter any non-winning ticket for a chance to win a trip for two to see Boise State take on the Oklahoma State Cowboys in Stillwater, or enter for a chance to go to Boise State’s Bowl Game. What better way to celebrate college football then with your own commemorative college footballthemed Scratch ticket from the Idaho Lottery. Go. Play. Win!

30th Anniversary Family

It was the biggest party of the year. As we prepared to celebrate the Lottery’s 30th anniversary on July 19, 2019, we commemorated the occasion by offering an entire family of anniversary-themed Scratch Games which debuted in February 2019. This festive family of games included a $5, $10, and first-ever $30 game with top prizes ranging from $30,000 to $300,000. To support the games, there was an on-line game for secondchance entries to win weekly and game-ending prizes, up to $30,000. These games’ creativity and market success was recognized internationally by the North American Association of State and Provincial Lotteries who awarded the Idaho Lottery with their highest accolade: an Innovation Award for the Best New Scratch Game of the Year.

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FROGGER 3

Third time was a charm for this licensed property as Frogger leapt from the lily pads, across the roads, through the parking lots and into ticket dispensers in early April of 2019 to become one of the most popular Scratch GamesTM ever offered by the Idaho Lottery. Frogger. Just like its predecessors, the Lottery version of the popular 1980’s arcade game played true to the timeless arcade version, only without the joystick, arcade music, and sound effects. Of course the tradeoff was a game filled with prizes from $5 to the top prize of $50,000. True video gamers had their opportunity to show their skill to win weekly prizes by playing Frogger online through the Lottery’s website and the top ranking player on the leader board each Wednesday won a Frogger prize pack that included a Frogger umbrella and $50 in Frogger scratch tickets. Plus all nonwinning Frogger tickets could be entered for a second chance draw to win the grand prize of $1,000 cash, a Sony Playstation 4, and Frogger Digital Game.

InstaPlay Games InstaPlay Games, or terminal based scratch games, continued their responsible, steady growth. InstaPlay Games are instant play-style scratch games generated through the Lottery terminal. Everything a player needs to know is printed on each InstaPlay game ticket. The games play just like Scratch Games, with a finite pool of predetermined prizes loaded into each game and distributed randomly throughout the life of the game. The InstaPlay product line proved successful during FY2019 generating more than $11.4 million in sales. Leading the way for InstaPlay was the family of rolling jackpot games, Idaho Jackpot – the original $5 InstaPlay jackpot game, the $10 Big Money Jackpot game, and the $20 Ultimate Diamond Jackpot game. Idaho Jackpot recorded its biggest jackpot ever, reaching $121,370 in October of 2018. For the Big Money Jackpot game, the largest jackpot was $91,121 in December of 2018. The largest jackpot of the year belonged to the Ultimate Diamond Jackpot game when it reached $294,212 on May 4, 2019. That jackpot was won on a ticket purchased from the Korner Jifi Stop in Rathdrum. During the course of the Fiscal Year, these Idaho-only games delivered nine jackpot winners.

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Draw Games During the Lottery’s 30th year, the celebrating started early in October 2018 when Mega Millions made a run at the all-time, draw game jackpot world record and at the same time Powerball reached its fourth highest level. These big jackpots made for a prosperous windfall during FY2019 as draw game sales over the entire portfolio grew by $7.1 million over the previous year – an 11.6% increase. POWERBALL - After 30 years, Powerball is still the most recognizable brand and game offered by the Idaho Lottery. The game’s sales performance still dominantes over all Draw Games and remains the single highest selling game in Idaho. During the course of Fiscal Year 2019, Powerball recorded two substantial jackpots, reaching its fourth highest level at $687.8 million in October 2018 and its second highest level of $786.4 million in March 2019. MEGA MILLIONS - Benefitting from two half-a-billion dollar jackpots and the highest jackpot in Mega Millions history (ending short of a world record at $1.537 billion in October 2018), Mega Millions enjoyed its most successful year in Idaho Lottery history, realizing a 74% sales increase over the previous year. LUCKY FOR LIFE - Luck that lasts a lifetime found Idaho again with another two second-tier, $25,000 a year for life prize winners, one in November 2018 and one in May 2019. These makes the fifth, secondtier winners in Idaho on this game in as many years we’ve offered the game. Lucky for Life, a game that awards $1,000 a day every day for as long as you live to a jackpot winner, continued its popularity and following among players. Sales for the year were $3.24 million. LOTTO AMERICA - The newest, big jackpot game is played in 19 jurisdictions and has settled in with a consistent following of players. Sales on the game remained steady from year-to-year, with FY2019 being the first full year of sales. PICK 3 - Idaho’s Pick 3 saw an overall increase in game play and sales. This year’s 4% improvement was due in part to the continued popularity of the Sum It Up! feature which allows players to add to their winnings, or win when the total of their selected numbers matches the total of the numbers drawn, even if they do not match the individual numbers. Fiscal Year 2019 marked the tenth consecutive year for an increase in sales of this game. RAFFLE - The Idaho Lottery celebrated the 12th edition of the Idaho $1,000,000 Raffle by providing the most anticipated game of the year with more prizes than in any previous Raffle. The Idaho $1,000,000 Raffle ran a daily promotion from October 21 through October 30 where each day the Lottery announced a different $1,000 daily winner. This year’s game also featured the return of the ‘game within a game’. Players who were lucky enough to purchase one of the ten 25,000th tickets (025000, 050000, 075000, 100000, 125000, 150000, 175000, 200000, 225000, and 250000) won $1,000 instantly, and their ticket was still eligible to win the game’s top prize of $1,000,000. Idaho $1,000,000 Raffle sold out three days after Christmas making it the twelfth sell-out in the game’s history.

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WEEKLY GRAND - As the value propositions of the Draw Game portfolio continues to evolve, Weekly Grand still maintains its staunch, steady support among the player base. This $2, Idaho-only game delivers $1,000 a week after withholding taxes, every week for a year to players who win the jackpot. During the year, Weekly Grand produced two jackpot winners and since beginning in 2011, this game has delivered a total of 38 jackpot winners! IDAHO CASH - Rounding out the year’s portfolio, the in-state game, Idaho Cash, recorded a near 20% increase in year-over-year sales. Idaho Cash is as great as the state it represents. It has a rolling jackpot that starts at $20,000 and grows until it’s won. And the limit on the jackpot is as high as the Idaho sky on a clear summer day. The largest single jackpot won during the year on Idaho Cash was also the largest in the game’s history at $299,000. In addition to this big winner, there were two additional jackpot winners during the year.

PullTabs PullTabs games are best enjoyed in social settings and age-controlled environments. They are played using self-service terminals throughout Idaho. Classic ‘break open’ PullTabs games remain well-liked after nearly thirty years in Idaho’s marketplace. The popularity among players for TouchTabs, has become well established over the past decade due to the variety of entertainment value of those fun games. These games are also less expensive to deliver to retailers and offer added security features.

30 Years of Idaho Lottery Retailers The Idaho Lottery has generated over $3.9 billion in sales by retailers in our thirty year history. Retailers along the way have earned $232.6 million in commissions from those sales, including $16.6 million this year. As an enterprise agency for the State of Idaho, we are charged with creating economic opportunity in every corner of Idaho. Today, we have a network of 1,170 retail locations in 179 communities in the Gem State that offer our products. We thank everyone who has had a hand in contributing to our success. Our success means that Idaho’s businesses can prosper and our education system can flourish. About 8.75% of our retailers have been with the Idaho Lottery since 1989. Thank you to the 91 brick and mortar establishments who have been with Idaho Lottery since the beginning.

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Charitable Gaming Since 1993 the Idaho Lottery has been responsible for Charitable Gaming and protecting the public from fraudulently conducted operations. We also ensure that charitable groups and institutions realize the profits from these games. When a non-profit organization or a charity wishes to conduct a bingo game or a raffle in Idaho, they are required by law to obtain a license from the State through the Idaho Lottery. Licenses for bingo and raffle operations are necessary when the annual gross revenue (bingo) or prize value (raffle) exceeds statutory benchmarks. Each year in December, the Idaho Lottery publishes an Annual Report for Charitable Gaming in Idaho. For more information on charitable bingo and raffles in Idaho, visit www.idaholottery.com/charitablegaming.

Vendor Partners of Record The success of the Idaho Lottery is also dependent on the continued good success of its vendor partners. The Idaho Lottery appreciates the creativity, strategic ability, and professional execution of all of these companies’ efforts during Fiscal Year 2019. •

INTRALOT, USA - Terminal and gaming system provider. Headquarters: Marietta, Georgia, United States

IGT Printing, Inc. - Scratch GamesTM developer/printer Headquarters: Lakeland, Florida, United States

Pollard Banknote, Ltd. – Scratch GamesTM developer/printer Headquarters: Winnipeg, MB Canada

Diamond Game Enterprises – PullTabs provider Headquarters: Chatsworth, California, United States

CLM - media and strategic marketing services Headquarters: Boise, Idaho, United States

Mitchell+Palmer – creative marketing services Headquarters: Boise, Idaho, United States

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To the Board of Commissioners Idaho Lottery Boise, Idaho Report on the Financial Statements We have audited the accompanying financial statements of Idaho Lottery (the Lottery), an agency of the State of Idaho, which comprise the statements of net position as of June 30, 2019 and 2018, and the related statements of revenues, expenses, and changes in net position and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Lottery’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Lottery’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Lottery as of June 30, 2019 and 2018, and the changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the schedule of employer’s share of net pension liability, and the schedule of employer’s contributions as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated September 26, 2019 on our consideration of the Lottery’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the Lottery’s internal control over financial reporting or on compliance. That reports is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Lottery’s internal control over financial reporting and compliance.

Boise, Idaho September 26, 2019

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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, 2019 and 2018, and financial activity for the years then ended, the MD&A also includes information for the year ended June 30, 2017, in order to allow for a broader 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 2019 and 2018. The Statements of Revenues, Expenses and Changes in Net Position, measures the success of the Lottery’s operations for fiscal year 2019 and 2018 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 2019 and 2018. 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 2019 and 2018 and between 2018 and 2017.

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ASSETS AND DEFERRED OUTFLOW OF RESOURES CURRENT ASSETS Cash and cash equivalents Receivables Other Total current assets

LIABILITIES, DEFERRED INFLOWS OF RESOURCES, 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 OPEB liability Non-Pension Liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Deferred Inflows Pensions NET POSITION Invested in capital assets Unrestricted Total net position

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2018

Change 2019 to 2018 2017

Change 2018 to 2017

$ 61,971,688 2,033,520 207,105 64,212,313

$ 55,747,947 1,922,630 90,044 57,760,621

$ 6,223,741 110,890 117,061 6,451,692

$ 49,374,084 1,142,910 480,877 50,997,871

$ 6,373,863 779,720 (390,833) 6,762,750

3,055,406 382,621 230,431

2,576,547 420,814 -

478,862 (38,193) 230,431

2,502,776 437,766

73,771 (16,952) -

447,146 $ 68,327,920

443,511 $ 61,201,493

3,635 $ 7,126,427

633,051 $ 54,571,464

(189,540) $ 6,630,029

$

$

1,471,710 53,500,000 311,088 3,679,882 42,241 59,004,921

$ (55,661) 6,500,000 ( 30,278) 549,310 8,768 6,972,139

33,014 63,906 1,015,250 67,089,230

59,786 91,579 1,087,348 60,243,634

(26,772) ( 27,673) (72,098) 6,845,596

64,226 1,359,279 54,021,940

(4,440) 91,579 (271,931) 6,221,694

215,333

198,854

16,479

185,371

13,483

298,598 724,759 1,023,357

318,787 440,218 759,005

( 20,189) 284,541 264,352

322,005 42,148 364,153

(3,218) 398,070 394,852

$ 68,327,920

$ 61,201,493

$ 7,126,427

$ 54,571,464

$ 6,630,029

Reserves with MUSL Plant and Equipment, Net OPEB asset DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Pensions

2019

1,416,049 6 0,000,000 2 80,810 4,229,192 51,009 65,977,060

$

1 ,373,328 48,500,000 170,282 2,503,290 51,535 52,598,435

$

98,382 5,000,000 140,806 1,176,592 (9,294) 6,406,486


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 2019, 2018 and 2017 consist of the following: 2019 2018 2017 Week ended June 30 sales $ 2,020,795 $ 1,911,555 $ 1 ,131,610 Accounts to Attorney General for Collection 1 2,725 11,075 11,300 Total $ 2,033,520 $ 1,922,630 $ 1,142,910

Ticket Inventory (Other Assets subcategory) Shared Scratch ticket printing contracts were awarded in March 2013 to primary vendor, IGT Printing (formerly known as GTECH) and the secondary printing contract in May 2013 to Pollard Banknote. The Lottery has granted a third and final two year extension and this contract ends in March of 2021. The Pollard Printing contract was also extended through May of 2021. PullTab tickets are expensed when the tickets are sold to the retailers. The Ticket Inventory balances on June 30, 2019, 2018, and 2017, consist of any unamortized production costs of scratch tickets. Property and Equipment, net The balances shown were derived as follows: 2019 2018 2017 Beginning balance $ 420,814 $ 437,766 $ 385,978 Add: acquisitions 111,825 1 10,065 1 77,478 Deduct: depreciation (150,018) ( 127,017) ( 125,690) Ending balance $ 382,621 $ 420,814 $ 437,766

LIABILITIES AND NET POSITION Dividend Payable The dividends declared by the Idaho Lottery Commission for 2019, 2018 and 2017 were $60,000,000, $53,500,000, and $48,500,000, respectively. The dividend is declared on or before June 30th and paid on July 1 or shortly thereafter. Prizes Payable The increase in prizes payable between 2017 and 2018 of $1,176,592 and the subsequent increase between 2018 and 2019 of $549,310 are primarily due to an increase 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 investment in capital assets (i.e., plant equipment and other fixed assets) and the total.

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REVENUES EXPENSES AND CHANGES IN NET FIXED ASSETS Operating Revenues 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: Change Change 2018 to 2017 to 2019 2018 2019 2017 2018 Draw game sales Powerball $ 30,257,158 $ 33,197,811 $ ( 2,940,653 $ 28,501,559 $ 4,696,252 Pick 3 2,477,919 2 ,385,518 92,401 2,307,494 78,024 Hot Lotto 1 ,180,730 (1,180,730) 2,505,619 (1,324,889) Mega Millions 23,530,337 13,524,177 10,006,160 9,334,536 4,189,641 Weekly Grand 1,761,998 1,900,908 (138,910) 1,996,150 (95,242) Lucky For Life 3,244,654 3,298,584 (53,930) 3,378,658 (80,074) Lotto America 2,755,083 1,535,009 1,220,074 1,535,009 Idaho Cash 1 ,915,502 1,606,887 308,615 884,810 7 22,077 Raffle 2,500,000 2 500,000 2,500,000 Mini Raffle 357,06 500,000 (142,940) 500,000 Total Draw Game Sales 68,799,711 61,629,624 7,170,087 1,908,826 9,720,798 Scratch ticket sales PullTab ticket sales TouchTab ticket sales Total sales Data Line Charges Other revenues Total operating revenues

170,464,207 1,944,618 46,704,400 287,912,936

158,038,307 1,878,988 43,537,675 265,084,594

12,425,900 65,630 3,166,725 22,828,342

147,926,832 1,696,958 8,397,250 239,929,866

10,111,475 182,030 5,140,425 25,154,728

641,575 34,750 $ 288,589,261

685,307 36,142 $ 265,806,043

(43,732) (1,392) $ 22,783,218

674,270 45,420 $ 240,649,556

11,037 (9,278) 25,156,487

$

Draw Game Ticket Sales The Powerball game is sold in forty-four 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 two Powerball drawings a week with a minimum starting jackpot of $40 million. Each time the jackpot is not won it rolls into the next draw and thus the jackpot grows until it is won. Current odds of winning the jackpot are 1:292,201,338. For close to 30 years, Powerball is still the most recognizable brand and game offered by the Idaho Lottery. The game’s sales performance is still dominant over all Draw Games and remains the single highest selling game in Idaho. During the course of Fiscal Year 2019, Powerball recorded two substantial jackpot runs, reaching its fourth highest level at $687.8 million in October 2018 and its second highest level of $786.4 million in March 2019. Despite these two significant jackpot runs, Powerball sales decreased by 8.86% year-over-year. 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 below.

22


POWERBALL RELATIONSHIP BETWEEN ANNOUNCED JACKPOT AND SALES 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Average Announced Jackpot per Draw $ 200,451,923 $ 176,504,762 $ 166,451,923 $ 160,275,143 $ 105,336,538 $ 117,846,154 $ 121,403,846 $ 85,857,143 $ 63,019,232 $ 83,361,905 $ 68,605,769 $ 71,146,154 $ 69,694,286 $ 82,345,192 $ 49,202,885 $ 62,099,048 $ 49,337,500

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

Average Sales per Draw 288,163 316,170 271,443 406,027 282,027 351,215 436,059 331,028 285,412 352,521 353,725 379,533 365,226 430,385 289,351 339,498 302,959

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

Annual Sales 30,257,158 33,197,811 28,501,559 42,632,859 29,330,831 36,526,313 45,350,144 34,757,979 29,682,810 36,662,205 36,787,378 39,471,389 38,348,748 44,760,077 30,092,519 35,647,385 31,577,648

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, instead of Wednesday and Saturday. Mega Millions was originally launched and sold by states NOT selling Powerball. In 2010 all states came together 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 six localities - forty four states plus the District of Columbia and the U.S. Virgin Islands, with odds of winning the jackpot 1:302,575,350. A year after a significant game change and price increase per play, the Mega Millions jackpot reached historic heights during a lengthy jackpot run that ended in late October 2018 at $1.537 million, just short of a world record. In addition, during the year, Mega Millions crossed the half-a-billion dollar threshold two additional times, realizing an annual average announced jackpot amount of $219.2 million with an average jackpot win of $558.7 million, the largest annual average of any jackpot game in history. Subsequently, Mega Millions enjoyed its most successful sales year in Idaho, selling $10 million more in game play than the previous year; a 74% increase. This marks the second consecutive year Mega Millions sales increased in Idaho. As with Powerball, there is typically a strong relationship between the jackpot and resulting sales. MEGA MILLIONS RELATIONSHIP BETWEEN ANNOUNCED JACKPOT AND SALES 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Average Announced Jackpot per Draw $ 219,259,615 $ 146,490,385 $ 78,152,381 $ 101,730,769 $ 93,752,381 $ 98,259,615 $ 42,865,385 $ 68,780,952 $ 64,615,385 $ 62,720,930

$ $ $ $ $ $ $ $ $ $

Average Sales per Draw 224,098 130,040 89,755 99,912 107,577 128,645 88,973 133,949 86,182 61,002

$ $ $ $ $ $ $ $ $ $

Annual Sales 23,530,337 13,524,177 9,334,536 10,390,885 11,295,562 13,379,076 9,253,222 14,064,660 8,962,895 2,623,081

23


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, Lotto America, Idaho Cash, Pick 3, and a fall Raffle game. The Draw Games, with higher profit margins than Scratch, increase profits in the Draw category. Scratch Ticket Sales Sales are up in all categories of Scratch games. The ongoing goal when managing the 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 result dramatically. In FY15 the Lottery launched a new product line, InstaPlay, which are played like a Scratch Games, 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. Beginning in FY14, the Lottery launched a terminal based scratch game called TAP Scratch. TAP Scratch Games play just like regular Scratch Games but are paperless. These eco-friendly games are fun, entertaining and have carried top prizes as high as $20,000. These games were played on Lottery MultiPlay Station (MP) vending machines, limited to age controlled establishments, primarily bars and taverns, however, interest in these games waned over time and this play style was ended on March 25, 2017. The Lottery continues its pursuit of other authorized replacement game styles that our players might enjoy more. Scratch Game sales by price point for the fiscal years 2019, 2018 and 2017 are as follows: 2019 2018 One-Dollar games $ 5,874,932 3.4% $ 6,204,057 3.9% $ Two-Dollar games 6,835,298 4.0% 6,977,564 4.4% Three-Dollar games 15,831,858 9.3% 16,676,646 10.6% Five-Dollar games 42,033,950 24.7% 42,497,525 26.9% Ten-Dollar games 31,605,300 18.5% 28,087,010 17.8% Twenty-Dollar games 30,688,060 18.0% 26,895,340 17.0% Twenty-five-Dollar games 17,470,925 10.2% 19,568,525 12.4% Thirty-Dollar games 8,699,25 5.1% 0.0% InstaPlay 11,424,634 6.7% 11,131,640 7.0% TAP Scratch 0.0% 0.0% Total sales $ 170,464,207 100.0% $ 158,038,307 100.0% $ Increase over Prior year

24

$ 12,425,90

$ 10,111,475

$

2017 6,299,206 7,039,202 15,851,028 41,320,085 22,123,500 21,244,860 23,250,150 - 10,641,784 157,017 147,926,832

4.3% 4.8% 10.7% 27.9% 15.0% 14.4% 15.7% 0.0% 7.2% 0.1% 100.0%

11,886,102

PullTab Ticket Sales PullTab tickets, which are sold mainly in restaurants and bars, historically make up less than 2% of the Lottery’s total annual sales. Fighting competition from illegal gaming machines, annual sales reached $1,944,618 in fiscal year 2019, an increase from the previous fiscal year. 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 continue to seek out additional selling locations and increased sales in the coming fiscal year. We also continue our focus on new delivery options for our PullTab product this fiscal year, with increased installations of paper ticket vending machines (TabBOXX) around the state. 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). The substance of the contract and deliverables required remains unchanged.


TouchTab Ticket 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 $46,704,400 in fiscal year 2019, TouchTab sales continue to trend up. Interest income on funds held at the State 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 2019 and 2018 were $770,113 and $586,942, respectively.

Operating expenses 2019, 2018 and 2017 operating expenses are as follows: Change Change 2019 2018 2018 to 2019 $ 190,047,371 $ 176,187,739 $ 13,859,632 Prizes, net of unclaimed prizes 16,641,294 15,607,357 1,033,937 Retailer commissions 6,397,021 5,851,945 545,076 Gaming system services 2,766,747 2,539,540 227,207 Scratch tickets 2,961,699 2,769,066 192,633 PullTab tickets 4,622,774 3,779,829 842,945 Advertising 2,943,409 3,217,687 (274,278) Salaries and benefits 150,018 127,017 23,001 Depreciation and amortization 24,771 29,757 (4,986) Telephone and data line costs 176,515 135,136 41,379 Professional services 455,983 578,844 (122,861) Office and equipment 558,357 476,916 81,441 Shipping costs 65,612 107,967 (42,355) Supplies 161,503 175,976 (14,473) Tribe compact 373,207 324,414 48,793 Other costs $ 228,346,281 $ 211,909,190 $ 16,437,091 Total operating expenses

2017 $ 160,304,895 14,063,068 5,091,877 2,329,951 2,374,690 3,431,517 2,955,874 125,690 27,865 173,524 449,451 448,471 115,623 160,282 253,441 $ 192,306,219

2017 to 2018 $ 15,882,844 1,544,289 760,068 209,589 394,376 348,312 261,813 1 ,327 1 ,892 (38,388) 29,393 28,445 (7,656) 15,694 70,973 $ 19,602,971

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: 2019 Mix% 2018 Mix% 2017 Mix% $ 68,799,711 23.9% $ 61,629,624 23.2% $ 51,908,826 21.6% Draw sales 170,464,207 59.2% 158,038,307 59.6% 147,926,832 61.7% Scratch ticket sales 1,944,618 0.7% 1,878,988 0.7% 1,696,958 0.7% PullTab ticket sales 46,704,400 16.2% 43,537,67 16.4% 38,397,250 16.0% TouchTab ticket sales $ 287,912,936 100.0% $ 265,084,594 100.0% $ 239,929,866 100.0% Total sales Increase (decrease) from prior year

$ 22,828,342

$ 25,154,728

$ 3,850,238

25


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, Draw Game commissions, Scratch and PullTab ticket costs, as well as shipping, detailed in the following information which outlines prize expense percentages. Prizes, Net of Unclaimed Prizes Each of the three product types, Draw Games, Scratch (including InstaPlay and the now ended TAP Scratch), 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); Pick 3 also has a 50% prize percentage while Mega Millions has a prize percentage of 51% and Hot Lotto has a prize percentage of 50%. 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 58-76%, 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. Prize expense, net of unclaimed prizes, consisted of the following for the years 2019, 2018, and 2017: 2019 Sales $ 6 5,942,651 Draw ticket sales $ 170,464,207 Scratch ticket sales $ 2,857,060 Raffle sales $ 1,944,618 PullTab ticket sales $ 46,704,400 TouchTab ticket sales Second chance draws Unclaimed prizes

Prize % 50.44% 70.11% 54.60% 70.15% 80.18%

Prizes $ 33,263,682 119,504,580 1,560,000 1,364,151 37,447,814 241,996 (3,334,852) $ 190,047,371

2018 Sales $ 58,629,624 Draw ticket sales $ 158,038,307 Scratch ticket sales $ 3,000,000 Raffle sales $ 1,878,988 PullTab ticket sales $ 43,537,675 TouchTab ticket sales

Prize % 51.21% 70.16% 52.00% 70.29% 80.16%

Prizes $ 30,024,021 110,873,90 1,560,000 1,320,828 34,899,972 286,559 (2,777,544) $ 176,187,739

Prize % 51.13% 70.95% 52.00% 70.50% 80.62%

Prizes $ 25,007,632 104,950,702 1,560,000 1,196,394 30,955,008 91,519 (3,456,360) $ 160,304,895

Second chance draws Unclaimed prizes

26

2017 Sales $ 48,908,826 Draw ticket sales $ 147,926,832 Scratch ticket sales $ 3,000,000 Raffle sales $ 1,696,958 PullTab ticket sales $ 38,397,250 TouchTab ticket sales Second chance draws Unclaimed prizes


Retailer commissions, Scratch™ and PullTab ticket costs Changes in these cost categories generally reflect and are related to the corresponding change in sales.. Draw Game Contractor Fee The Lottery contracts with INTRALOT as the draw game vendor. INTRALOT provides the Lottery with critical hardware and software, network communications, and support personnel. Outlook for the Fiscal Year ended June 30, 2019 It was a hallmark year for the Idaho Lottery during Fiscal Year 2019 as we celebrated our 30th Anniversary with record sales, more prizes awarded, more commissions earned by retailers, and returned the largest dividend in our history at $60 million. FY2019 was historic in that the Idaho Lottery sold more than $287.9 million in products, 436% more than the Lottery’s very first year in 1989 and the most in Idaho Lottery history. The Lottery also returned $6.5 million more than the previous year. Since beginning operations in 1989, the Idaho Lottery has now returned $906 million to the people of Idaho after 30 years of operations. The dividend returned to beneficiaries was a 12.1% increase over the previous year’s return on only an 8.6% increase in sales. The strength of sales came largely from the highest jackpot run in Mega Millions history (ending short of a world record at $1.537 billion) plus the second and fourth largest jackpots in Powerball history ($768 and $687.5 million respectively). Mega Millions enjoyed its most successful year in Idaho Lottery history, realizing a near 80% sales increase over the previous year. Scratch ticket sales also increased year-over-year by 8.3%, or about $12.1 million during the year. This was due in part to the successful launch of a family or 30th Anniversary-themed scratch games including the first ever Scratch Game launched at the $30 price point. The family also included a $5 and $10 game. Terminal based jackpot games continued their responsible, steady growth. These three games produced a total of ten jackpot winners during the year. Coupled with regular Scratch Games, this product category realized a total increase of more than $12.4 million over the previous year. Rounding out the year’s portfolio saw the in-state game Idaho Cash recorded a near 20% increase in year-overyear sales with the support of the game’s largest jackpot in its history - $299,000. The Idaho $1,000,000 Raffle also sold out prior to New Year’s Eve and the multi-state draw games Lucky for Life and Lotto America continued their steady performance compared to previous years. Lucky for Life saw two winners receive the second level prize of $25,000 a year for life during the year. In all, the Idaho Lottery recorded twenty-one winners who claimed a prize of $200,000 or more, while making two new millionaires. There were ten jackpot winners between the three terminal-based Scratch Games Idaho Jackpot, Big Money Jackpot, and Ultimate Diamond Jackpot; the largest being $294,212. There were also three jackpot winners on the new in-state Draw Game Idaho Cash. The ever popular Idaho $1,000,000 Raffle sold out well prior to New Year’s Eve. Fiscal Year 2019 saw the continued support for Idaho-only games and products. The market conditions supported this with the success of the Idaho $1,000,000 Raffle and steady growth in the Scratch Game and terminal-based Scratch Game portfolio, especially the 30th Anniversary family of games, including the first $30 game. A clear understanding of the dynamic market conditions of FY19 will lead to offering products and services in FY20 that will exceed this year’s accomplishments. Looking ahead to FY20, the Idaho Lottery believes the sales performance of Powerball will remain constant between the FY17 and FY18 level. Mega Millions, despite enjoying its celebrated year and historic jackpot run in October 2018, will more than likely return to a level more consistent with its FY18 sales. These baseline projections do not account for any significantly-sized jackpots (in excess of $450 million) during the year. Given the stability and consistency of growth in both traditional and terminal based Scratch Games, the Idaho Lottery believes there may be as much as 5% to 7% sales increase to offset any loss of Draw Game sales and allow for marginal growth during the year. The introduction of the Idaho Lottery’s new $30 Scratch Game product line, plus the addition of a new, Idaho-only Draw Game in late September 2019 will likely bolster sales. With noted game refinements, Idaho’s consistently strong economy, and the steady, continued player migration toward higher Scratch Game price points, sales estimates for 2020 look promising to reach another strong dividend return.

27


Contacting the Idaho Lottery 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.

Financial Statements Statements of Net Position ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS 2019 $ 61,971,688 Cash and cash equivalents 2,033,520 Receivables 207,105 Other 64,212,313 Total current assets 3 ,055,409 DEPOSITS WITH MUSL 382,621 PROPERTY AND EQUIPMENT, NET 230,431 OTHER POST EMPLOYMENT BENEFITS ASSET DEFERRED OUTFLOWS OF RESOURCES 447,146 Deferred Outflows Pensions $ 68,327,920 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION CURRENT LIABILITIES Accounts payable and accrued expenses Dividend payable Due to MUSL Prizes payable Current portion of notes payable Total current liabilities LONG TERM NOTES PAYABLE OTHER POST EMPLOYMENT BENEFITS LIABILITY NET PENSION LIABILITY Total Liabilities DEFERRED INFLOWS OF RESOURCES Deferred Inflows Pensions NET POSITION Invested in capital assets Unrestricted

28

Total net position

See Notes to Financial Statements

$

1,416,049 60,000,000 280,810 4,229,192 5 1,009 65,977,060

2018 $ 55,747,947 1,922,630 90,044 57,760,621 2,576,547 420,814 -

$

$

443,511 61,201,493

1,471,710 53,500,000 311,088 3,679,882 42,241 59,004,921

33,014 63,906 1,015,250 67,089,230

59,786 91,579 1,087,348 60,243,634

215,333

198,854

298,598 724,759 1,023,357 $ 68,327,920

318,787 440,218 759,005 $ 61,201,493


Statements of Revenues, Expenses, and Changes in Net Position OPERATING REVENUES Scratch ticket sales Draw ticket sales PullTab ticket sales TouchTab ticket sales Raffle sales Data line charges Other Total operating revenues

2019 $ 170,464,207 65,942,651 1,944,618 46,704,400 2,857,060 641,575 34,750 288,589,261

2018 $ 158,038,307 58,629,624 1,878,988 43,537,675 3,000,000 685,307 36,142 265,806,043

OPERATING EXPENSES 190,047,371 Prizes, net of unclaimed prizes 16,641,294 Retailer commissions 6,397,021 Gaming system services 2,766,747 Scratch tickets 2,961,699 PullTab tickets/TouchTab tickets 4,622,774 Advertising 2,943,409 Salaries and benefits 150,018 Depreciation and amortization 24,771 Telephone and data line costs 176,515 Professional services 455,983 Office and equipment 558,357 Shipping costs 65,612 Supplies 161,503 Tribe compact 373,207 Other 228,346,281 Total operating expenses

176,187,739 15,607,357 5,851,945 2,539,540 2,769,066 3,779,829 3,217,687 127,017 29,757 135,136 578,844 476,916 107,967 175,976 324,414 211,909,190

60,242,980

53,896,853

19,650 7,090 770,113 (5,368) 791,485

4,885 586,942 (6,886) 584,941

61,034,465 INCOME BEFORE TRANSFERS TRANSFERS (22,500,000) State Permanent Building Fund (22,500,000) State Public Schools Building Fund (15,000,000) State Bond Equalization Fund (770,113) State general fund-interest earnings (60,770,113) Total transfers

54,481,794

OPERATING INCOME NONOPERATING REVENUES (EXPENSES) Gain on disposal of capital assets Interest income Interest income on funds held at the State Interest expense Total non operating revenue

CHANGE IN NET POSITION TOTAL NET POSITION, BEGINNING OF YEAR TOTAL NET POSITION, END OF YEAR

(20,062,500) (20,062,500) (13,375,000) ( 586,942) (54,086,942)

264,352 394,852 759,005 364,153 $ 1,023,357 $ 759,005

29


Statements of Cash Flows OPERATING ACTIVITIES 2019 2018 Ticket sales $ 288,478,371 $ 265,026,323 Prizes paid to winners (189,528,339) (174,870,341) Commissions and payment to retailers (16,641,294) (15,607,357) Paid to vendors for goods and services (14,115,823) (12,512,782) Paid to vendors for promotions (4,622,774) (3,779,829) Paid to employees for service (3,259,081) (3,182,580) NET CASH FROM OPERATING ACTIVITIES 60,311,060 55,073,434 NON CAPITAL FINANCING ACTIVITIES Transfers to State Permanent Building Fund (20,062,500) (18,187,500) Transfers to State Public Schools Building Fund (20,062,500) (18,187,500) Transfer to Bond Equalization Fund (13,375,000) (12,125,000) Transfer to State general fund - interest earnings (770,113) (586,942) NET CASH USED FOR NON CAPITAL FINANCING ACTIVITIES (54,270,113) (49,086,942) CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of equipment and software (87,025) (36,279) Proceeds from sale of capital assets 19,650 Principal paid on notes payable (42,804) (87,520) Interest paid on notes payable (5,368) (6,886) NET CASH USED FOR CAPITAL AND RELATED FINANCING ACTIVITIES (115,547) (130,685) INVESTING ACTIVITIES Interest income Change in deposit with MUSL NET CASH FROM INVESTING ACTIVITIES

777,203 (478,862) 298,341

591,827 (73,771) 518,056

6,223,741 6,373,863 NET CHANGE IN CASH AND CASH EQUIVALENTS 55,747,947 49,374,084 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 61,971,688 $ 55,747,947 CASH AND CASH EQUIVALENTS, END OF YEAR RECONCILIATION OF OPERATING INCOME TO NET CASH FROM OPERATING ACTIVITIES $ 60,242,980 $ 53,896,853 Operating income Adjustment to reconcile operating income to net cash from operating activities 150,018 127,017 Depreciation and amortization (258,104) 91,579 Other post employment benefit adjustment (59,254) (68,908) Pension expense adjustment Changes in assets and liabilities (110,890) (779,720) Receivables (117,061) 390,833 Other assets (55,661) 98,382 Accounts payable and accrued expense (30,278) 140,806 Due to MUSL 549,310 1,176,592 Prizes payable $ 60,311,060 $ 55,073,434 NET CASH FROM OPERATING ACTIVITIES

30

Supplemental Disclosure for Cash Flow Information Non cash Investing, Capital and Financing Transactions Copier purcahsed by capital lease Vehicles purcahsed by notes payable

$ 24,800

$ 73,786


Notes to the Financial Statements NOTE 1– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Authorizing Legislation The Idaho Lottery (the Lottery), an agency of the State of Idaho (the State), was established in November 1988 with the enactment of Title 67, Chapter 74 of the Idaho Code (the Act) The purpose of the Act is to establish a lottery to generate revenue for the State. Revenues generated by the Lottery, after allowances for prizes and expenses, are distributed to the State Permanent Building, Public School Building, and Bond Equalization Funds. Basis of Presentation The Lottery is accounted for and reported as a proprietary-type enterprise fund of the State. Basis of Accounting The financial statements are prepared on the accrual basis of accounting. Multi-State Lottery Association State statutes authorize the Lottery to participate in the Multi-State Lottery Association (MUSL). MUSL is a nonprofit, government benefit association that administers low odds draw games with other participant state lotteries. The Lottery contributes to the related prize pools based on weekly draw ticket sales. MUSL holds semi-weekly drawings for prize amounts determined by ticket sales. Revenue Recognition Lottery tickets are sold to the public by contract retailers. Revenue from the sale of draw tickets is recognized at the time of the draw. Revenue from the sale of scratch tickets is recognized when retailers “settle” instant ticket packs. “Settling” occurs either after the retailer sells the scratch tickets to players, or upon delivery of the pack. The timing is determined by retailer policy but settling at the time the pack goes on sale is encouraged.

drawings to wait for. Winning tickets are validated through the Lottery terminal just like any other Idaho Lottery game. Average payout for InstaPlay games is between 70-72%.

Multi-State Draw Games:

Idaho Powerball – The Powerball game is sold in forty-our states along with the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Prize expense represents 50% of revenues recognized for the game. Prizes are paid out over a twenty-nine year annuity (thirty payments) or as a single cash payment.

Mega Millions – The Mega Millions game is sold in forty-six localities (forty-four states, the District of Columbia, and the U.S. Virgin Islands). Sales began in Idaho on January 31, 2011 and prize expense represents 51% of revenues recognized for the game. Prizes are paid out over a twenty-five-year annuity (twenty-six payments) or as a single cash payment.

Lucky for Life - Lucky for Life launched in Idaho in January, 2015 along with 15 other US jurisdictions, and offers an actual FOR LIFE prize as its jackpot prize. The game has since grown to 21 US lotteries and continues to be a popular option in Idaho. The prize expense for this game is 62.4%.

Lotto America – Lotto America is a multi-state game available to play in 13 jurisdictions. Participating states are Delaware, Idaho, Iowa, Kansas, Maine, Montana, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota, Tennessee and West Virginia. Lotto America was launched on November 12, 2017 to replace Hot Lotto and takes its name from the original Lotto America which was offered from 1988 to 1992. Players select five from numbers 1 to 52 and then select one number from 1 to 10 for the Lotto America Star Ball. Drawings are held every Wednesday and Saturday.

Hot Lotto – Hot Lotto was ended in Fiscal Year 2018.

Accounts Receivable The Lottery provides credit in the normal course of business to its customers and performs a thorough credit evaluation of each customer before approving a license to sell lottery products. The Lottery sweeps accounts receivables directly from its customers’ accounts weekly, and will place customers’ accounts on hold if there are insufficient funds after two weeks. Since the Lottery identifies bad accounts quickly, the credit losses, when realized, have been within the range of the Lottery’s expectations and, historically, have not been significant. Consequently, no allowance for doubtful accounts has been established.

Idaho Draw Games:

Commissions Retailers receive a commission of 5% on ticket sales. Additional discretionary commissions of up to 1% may be awarded to retailers and as a result, commission expense will be closer to six percent of revenue. In addition, retailers selling a winning draw or scratch ticket with a prize amount of $1,000 or greater receive a selling bonus of 10% of the prize amount, up to a predetermined limit.

Idaho Pick 3 – Sales of Idaho Pick 3 began in June 2000. Prize expense is budgeted at 50% of game revenues, but adjusted in the financial statements to reflect the actual prize expense for the reporting period. Prizes are paid out as single cash payments.

Weekly Grand – Weekly Grand is an Idaho only game launched on August 18, 2011. Weekly Grand has proven to be a popular replacement to Double Play Daily™. Players can win $1,000 a week for a year, with the Idaho Lottery paying all of the required withheld taxes. The game pays out on Match 5 ($1,000/week for a year), Match 4 ($200), Match 3 ($25), and Match 2 (free ticket) prize levels, but also offers a second chance draw each month for $100 per week for a year.

Idaho Cash – Sales of Idaho Cash began February 12, 2017. This is an instate game that offers two plays for $1.00 and a cash jackpot prize paid in one lump-sum. Idaho Cash continues to maintain sales above Weekly Grand and helps round out the Idaho Draw Game portfolio.

Prizes In accordance with the Act, at least 45% of Lottery revenues must be returned to players in the form of prizes.

Scratch Games™ - Prize expense for scratch games is recognized as ticket packs are settled by retailers based on a predetermined prize structure for each game.

TAP Scratch Games – The Lottery introduced TAP Scratch games in July of 2013. These games are played on existing vending kiosks, but limited to age controlled establishments, primarily bars and taverns. They play like regular Scratch Games but are paperless. These eco-friendly games are fun, entertaining and carry top prizes as high as $25,000. The average payout for TAP Scratch games was 62.8% in 2017. This play style ended in March of 2017, but are still reflected in historical sales.

InstaPlay Games – Idaho InstaPlay Games were launched in October of 2014. They are instant play-style games generated through the Lottery terminal. Every InstaPlay Game ticket is generated at the time of purchase with a set of numbers/symbols on it. Players simply match their play numbers/symbols to see if they won. There are no

Raffle – Idaho’s Million Dollar Raffle is a game developed by the Idaho Lottery and played only in Idaho. The first version of the Million Dollar Raffle launched on November 11, 2007 and sales end when all available tickets are sold out or when an established draw date commences. There is only one draw annually. Prize expense represents 52% of revenues recognized for the game. The one jackpot prize is paid out as a single cash payment.

Deposits with MUSL Two percent of the payments to MUSL for multi-state draw games are accumulated in a deposit account with MUSL until the account balance has reached a level established by the MUSL Board. The Lottery is an involuntary member of the MUSL Prize Reserve Funds Account (PRFA) investment pool. The PRFA is an unrated investment pool. All investments of the PRFA shall meet the general requirements of state public funds laws. Permitted investments shall

31


include the direct obligations of the United States Government, perfected repurchase agreements, and obligations issued or guaranteed as to payment of principal and interest by agencies or instrumentalities of the United States Government, and mutual funds of approved investments. The average portfolio maturity shall be no more than 2 years. The duration as of June 30, 2019 for the US Government Treasury securities and Agency securities was 1 year. Unclaimed Prizes Prizes may be claimed for a period of 180 days after the drawing for draw games or 180 days from the declaration of the end of game for scratch games. Unclaimed prizes are offset against that fiscal year’s prize expense. Cash and Equivalents Cash and equivalents include liquid investments with original maturities of three months or less. The Lottery’s excess funds are held in the State of Idaho’s investment pool. Funds held in the pool are generally available to the Lottery within 90 days. Property and Equipment Property, equipment and software are stated at cost. Depreciation/amortization is computed using the straightline method over the estimated useful life ranging from three to five years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the results of operations in the period of disposal. Other Assets Other assets are comprised of prepaid expenses and ticket inventory. Ticket inventory consists of Scratch tickets which are recorded at a fixed cost related to ticket designs. The fixed costs of the scratch tickets are amortized over the estimated total sales of the games, with any remaining unamortized amount being expensed to operations at the end of the game. Compensated Absences Employees earn the right to be compensated during absences for vacation and illness. Within limits established by law, unused vacation benefits are paid to employees upon separation from State service and are the responsibility of the State entity employing the ndividual at the time of their separation from State service. Accumulated unused sick leave is paid upon the employee’s retirement and is the responsibility of the State. Accumulated benefits for compensated absences are based on the period of service with the State and are accrued at current salary rates. Accordingly, the Lottery assumes the liability for benefits accumulated for employees who transfer to the Lottery from other State agencies. The Lottery will be relieved of liability upon the transfer of an employee to another State agency. Pensions For purposes of measuring the net pension liability and pension expense, information about the fiduciary net position of the Public Employee Retirement System of Idaho Base Plan (Base Plan) and additions to/deductions from Base Plan’s fiduciary net position have been determined on the same basis as they are reported by the Base Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position includes a separate section for deferred outflows of resources. This separate financial statement element, deferred outflow of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The Lottery has one item that qualifies for reporting in this category: the employer pension obligations. The pension obligations results from changes in the assumptions or other inputs in the actuarial calculation of the Lottery’s net pension liability. In addition to liabilities,

32

the statement of financial position includes a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Lottery has one item that qualifies for reporting in this category: the employer pension obligation. The employer pension obligation results from the differences between the expected and actual experience and the net difference between projected and actual earnings on pension plan investments derived from the actuarial calculation of the Lottery’s net pension liability. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Dividends Dividends are recorded on the date they are declared, in June of each year, by the Idaho Lottery Commission. Budget The appropriation for administrative costs is limited to 15% of revenue. Modification of the administrative appropriation must be approved by the State Division of Financial Management. In addition, the Lottery prepares and monitors an operating budget. The budget does not meet the definition of a legally adopted budget for financial reporting purposes. Accordingly, no budget is presented within the financial statements. Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Management considers all available information related to estimates up to the date of the report. Significant estimates used in preparing these financial statements include those assumed in determining the prizes payable and interest income from the funds held at the state. It is at least reasonably possible that the significant estimates used will change within the next year. NOTE 2 – CASH AND EQUIVALENTS

Cash and cash equivalents consisted of the following at June 30, 2019 and 2018 2019 2018 Cash in banks $ 2,088,150 $ 2,095,290 Cash on deposit with State Controller 120,000 120,000 Investments in the State of Idaho’s General Fund Investment Pool, at cost, which approximates market 59,763,538 53,532,657 Total cash and equivalents

$ 61,971,688

$ 55,747,947

The Lottery is required to keep excess cash on deposit in the State of Idaho’s General Fund. The State Treasurer’s Office acts as the State’s bank, receiving and disbursing all monies. In accordance with Idaho Code, Section 67-210 and 67-1210A, all idle cash deposited with the State Treasurer is invested in a variety of securities. The Lottery is an involuntary member of this investment pool, and the Lottery receives no interest or investment income on its cash and equivalents. Further disclosure of the State’s investment pool is located in the State of Idaho’s Comprehensive Annual Financial Report. The cash in banks is invested in highly rated financial institutions and may, at times, exceed FDIC insurance limits. NOTE 3 – PROPERTY AND EQUIPMENT Capital asset activity for the year ended June 30, 2019 was as follows:


Depreciable capital assets 2018 Additions Retirements 2019 Computer equipment $ 809,232 $ 34,078 $ - $ 843,310 1,149,903 34,027 (13,130) 1,170,800 Office furniture 459,778 43,720 (35,761) 467,737 Vehicles 446,211 446,211 Leasehold improvements 111,825 (48,891) 2,928,058 Total depreciable capital assets 2,865,124

obtained on the PERSI website at www.persi.idaho.gov. Responsibility for administration of the Base Plan is assigned to the Board comprised of five members appointed by the Governor and confirmed by the Idaho Senate. State law requires that two members of the Board be active Base Plan members with at least ten years of service and three members of the board who are Idaho citizens and not members of the Base Plan except by reason of having served on the Board.

Less accumulated depreciation (730,269) Computer equipment (1,007,634) Office furniture (302,058) Vehicles Leasehold improvements (404,349) Total Accumulated (2,444,310) Depreciation Property and equipment, net $ 420,814

Pension Benefits - The Base Plan provides retirement, disability, and death and survivor benefits of eligible members or beneficiaries. Benefits are based on members’ years of service, age, and highest average salary. Members become fully vested in their retirement benefits with five years of credited service (5 months for elected or appointed officials). Members are eligible for retirement benefits upon attainment of the ages specified for their employment classification. The annual service retirement allowance for each month of credited service is 2.0%.

(40,619) (47,456) (55,244) (6,699) (150,018) 51,788

$

$

13,130 35,761 -

(770,888) (1,041,960) (321,541) (411,048)

48,891 -

(2,545,437) $ 382,621

Capital asset activity for the year ended June 30, 2018 was as follows: Depreciable capital assets 2017 Computer equipment $ 797,796 1,125,060 Office furniture 403,378 Vehicles 446,211 Leasehold improvements Total depreciable capital assets 2,772,445 Less accumulated depreciation (687,484) Computer equipment (967,719) Office furniture (281,825) Vehicles Leasehold improvements (397,651) Total Accumulated (2,334,679) Depreciation Property and equipment, net $ 437,766

Additions Retirements

$

11,436 24,843 73,786 110,065

$

(42,785) (39,915) (37,619) (6,698) (127,017) $ (16,952)

$

2018

(17,386) (17,386)

$ 809,232 1,149,903 459,778 446,211 2,865,124

17,386 -

(730,269) (1,007,634) (302,058) (404,349)

17,386 -

(2,444,310) $ 420,814

Depreciation and amortization expense for the year ended June 30, 2019 and 2018 was $150,018 and $127,017, respectively. NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following at June 30, 2019 and 2018. 2019 2018 $ 567,803 $ 582,007 Trade accounts payable 129,716 134,774 Personnel costs payable 151,737 144,992 Accrued compensated absences 566,793 609,937 Deferred draw sales Accounts payable and accrued expenses

$

1,416,049

$

1,471,710

NOTE 5 – PENSION PLAN Plan Description - the Lottery contributes to the Base Plan which is a cost-sharing multiple-employer defined benefit pension plan administered by Public Employee Retirement System of Idaho (PERSI or System) that covers substantially all employees of the State of Idaho, its agencies and various participating political subdivisions. The cost to administer the plan is financed through the contributions and investment earnings of the plan. PERSI issues a publicly available financial report that includes financial statements and the required supplementary information for PERSI. That report may be

The benefit payments for the Base Plan are calculated using a benefit formula adopted by the Idaho Legislature. The Base Plan is required to provide a 1% minimum cost of living increase per year provided the Consumer Price Index increases 1% or more. The PERSI Board has the authority to provide higher cost of living increases to a maximum of the Consumer Price Index movement or 6%, whichever is less; however, any amount above the 1% minimum is subject to review by the Idaho Legislature. Member and Employer Contributions- Member and employer contributions paid to the Base Plan are set by statute and are established as a percent of covered compensation and earnings from investments. Contribution rates are determined by the PERSI Board within limitations, as defined by state law. The Board may make periodic changes to employer and employee contribution rates (expressed as percentages of annual covered payroll) if current rates are actuarially determined to be inadequate or in excess to accumulate sufficient assets to pay benefits when due. The contribution rates for employees are set by statute at 60% of the employer rate for general employees. As of June 30, 2019, it was 6.79% for general employees. The employer contribution rate as a percent of covered payroll is set by the Retirement Board and was 11.32%. The Lottery’s contributions were $254,736 and $244,738 for the years ended June 30, 2019 and 2018, respectively. Pension Liabilities, Pension Expense (Revenue), and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2019, the Lottery reported a liability for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2018, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The Lottery’s proportion of the net pension liability was based on the Lottery’s share of contributions in the Base Plan pension plan relative to the total contributions of all participating PERSI Base Plan employers. At July 1, 2018 and 2017, the Lottery’s proportion was .0688296 percent and .0691772 percent, respectively. For the year ended June 30, 2019 and 2018, the Lottery recognized pension expense of $196,342 and $173,451, respectively. At June 30, 2019, the Lottery reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual experience $ 111,445 $ 76,676 Changes in assumptions or other inputs 66,062 Changes in proportionate share 20,846 25,857 Net difference between Projected and Actual Investment Earnings on Pension Plan investments 248,793 Lottery contributions subsequent to measurement date $ 447,146 $ 215,333

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At June 30, 2018, the Lottery reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Differences between expected and actual experience $ 150,632 Changes in assumptions or other inputs 20,108 Change in Proportionate Share 28,033

Net difference between Projected and Actual Investment Earnings on Pension Plan investments Net difference between projected and actual earnings on plan investments 244,738 Lottery contributions subsequent to measurement date $ 443,511

Deferred inflows of Resources $ 97,961 35,746 65,147 $

198,854

The best-estimate range for the long-term expected rate of return is determined by adding expected inflation to expected long-term real returns and reflecting expected volatility and correlation. The capital market assumptions are as of January 1, 2018. Long-Term Long-Term

$248,793 and $244,738 were reported as deferred outflows of resources related to pensions resulting from employer contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2019 and 2018, respectively.

Asset Class Core Fixed Income Broad US Equities Developed Foreign Equities

The average of the expected remaining service lives of all employees that are provided with pensions through the System (active and inactive employees) determined at July 1, 2018, the beginning of the measurement period ended June 30, 2019 is 4.8 years.

Portfolio Arithmetic Mean Return Portfolio Standard Deviation

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense (revenue) as follows: Year Ended June 30 2020 2021 2022 2023

$

74,401 8,403 (77,853) (21,931) $ (16,980)

Actuarial Assumptions - Valuations are based on actuarial assumptions, the benefit formulas, and employee groups. Level percentages of payroll normal costs are determined using the Entry Age Normal Cost Method. Under the Entry Age Normal Cost Method, the actuarial present value of the projected benefits of each individual included in the actuarial valuation is allocated as a level percentage of each year’s earnings of the individual between entry age and assumed exit age. The Base Plan amortizes any unfunded actuarial accrued liability based on a level percentage of payroll. The maximum amortization period for the Base Plan permitted under Section 59-1322, Idaho Code, is 25 years. The total pension liability in the June 30, 2018, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Salary increases including inflation 3.75 percent Investment rate of return 7.05 percent, net of pension plan investment expense Cost of Living (COLA) adjustments 1.00 percent Mortality rates were based on the RP – 2000 combined table for healthy males or females as appropriate with the following offsets: •

Set back one year for all general employees and all beneficiaries

An experience study was performed for the period 2013 through 2017 which reviewed all economic and demographic assumptions other than mortality. Mortality and all economic assumptions were studied in 2018 for the period from July 1, 2013 through June 30, 2017. The Total Pension Liability as of June 30, 2018, is based on the results of an actuarial valuation date of July 1, 2018.

34

Even though history provides a valuable perspective for setting the investment return assumption, the System relies primarily on an approach which builds upon the latest capital market assumptions. Specifically, the System uses consultants, investment managers and trustees to develop capital market assumptions in analyzing the System’s asset allocation. The assumptions and the System’s formal policy for asset allocation are shown below. The formal asset allocation policy is somewhat more conservative than the current allocation of System’s assets.

The long-term expected rate of return on pension plan investments was determined using the building block approach and a forward-looking model in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.

Target Allocation 30.00% 55.00% 15.00%

Expected Nominal Rate of Return (Arithmetic) 3.05% 8.30% 8.45%

Expected Real Rate of Return (Arithmetic) 0.80% 6.05% 6.20%

2.25% 1.50%

2.25% 1.50%

6.75% 12.54%

4.50% 12.54%

Portfolio Long-Term (Geometric) Expected Rate of Return 6.13% Assumed Investment Expenses 0.40% Portfolio Long-Term (Geometric) Expected Rate of Return, 5.73% Net of Investment Expenses

3.77% 0.40%

Portfolio Long-Term Expected Real Rate of Return, Net of Investment Expenses Portfolio Standard Deviation

4.19% 14.16%

Valuation Assumptions Chosen by PERSI Board Long-Term Expected Real Rate of Return, Net of Investment Expenses Assumed Inflation Long-Term Expected Geometric Rate of Return, Net of Investment Expenses

4.05% 3.00% 7.05%

Assumed Inflation - Mean Assumed Inflation - Standard Deviation

3.37%

Discount Rate - The discount rate used to measure the total pension liability was 7.05%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate. Based on these assumptions, the pension plans’ net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The long -term expected rate of return was determined net of pension plan investment expense but without reduction for pension plan administrative expense. Sensitivity of the Employer’s proportionate share of the net pension liability to changes in the discount rate. The following presents the Employer’s proportionate share of the net pension liability calculated using the discount rate of 7.05 percent and 7.10 percent for 2019 and 2018, respectively, as well as what the Employer’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate: Current 1% Decrease Discount Rate 1% Increase June 30, 2019 (6.05%) (7.05%) (8.05%) Employer’s proportionate share of the net pension liability (asset) $2,541,397 $1,015,250 $(248,465) June 30, 2018 Employer’s proportionate share of the net pension liability (asset)

1% Decrease (6.10%) $2,527,218

Current Discount Rate 1% Increase (7.10%) (8.10%) $1,087,348

$(109,224)


Pension plan fiduciary net position - Detailed information about the pension plan’s fiduciary net position is available in the separately issued PERSI financial report.

Both leases are renewable at the option of the Lottery. Future lease expense for the operating leases follows:

PERSI issues a publicly available financial report that includes financial statements and the required supplementary information for PERSI. That report may be obtained on the PERSI website at www.persi.idaho.gov.

2020 $ 2021 2022 2023 2024 Thereafter $

Payables to the pension plan At June 30, 2019, the Lottery reported no payables to the defined benefit pension plan for legally required employer contributions and for legally required employee contributions which had been withheld from employee wages but not yet remitted to PERSI. NOTE 6 – OTHER POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS

374,790 351,448 328,384 338,236 289,438 1,084,345 2,766,641

Rent expense for operating leases was $304,129 and $346,048 for the years ended June 30, 2019 and 2018, respectively.

The Lottery contributes to the Retiree Healthcare, Long-Term Disability, Long-Term Disability Income (Health and Disability) Sick Leave Insurance Reserve Fund (Sick Leave) other postemployment benefits (OPEB) plans.

NOTE 9 – CONTINGENCIES AND COMMITMENTS

The Retiree Healthcare and Long-Term Disability plans are single-employer defined benefit plans administered by the Idaho Department of Administration in accordance with Idaho Code Section 67-5761. The plans are funded on a pay-as-you-go basis; the State does not set aside any assets in a trust as defined by GASB Statement 75, paragraph 4. The State does not issue a publicly available financial report.

The Lottery purchases annuity contracts in the name of individual jackpot prize winners. Although the annuity contracts are in the name of the individual winners, the Lottery retains title to the annuity contracts. The Lottery remains liable for the payment of the guaranteed minimum prizes in the event the insurance companies issuing the annuity contracts default. The guaranteed minimum prize payments for which annuity contracts have been purchased are due in varying amounts through March 2034. The specified payments are $9,880,000 and $10,572,000 for the years ended June 30, 2019 and 2018, respectively.

The Sick Leave plan is a cost sharing, multiple-employer defined benefit plan administered by the PERSI in accordance with Idaho Code Sections 67-333, 33-1216, 59-365, and 33-1228, and covers substantially all employees of the State of Idaho, its agencies and various participating political subdivisions. Plan assets are set aside in a trust, as defined by GASB Statement 75, paragraph 4, and comingled with assets from other plans for investment purposes. The PERSI issues a publicly available financial report that includes financial statements and the required supplementary information for the PERSI. At June 30, 2019 and 2018, the Lottery has recorded an OPEB asset related to Sick Leave for $230,431 and $0, respectively. At June 30, 2019 and 2018, the Lottery has recorded an OPEB liability related to Health and Disability for $63,906 and $91,579, respectively. There were no deferred outflows or inflows of resources related to the OPEB asset and liability as of June 30, 2019 and 2018. Details of the plans can be found in the Comprehensive Annual Report of the State of Idaho, which may be obtained as follows: Office of the Idaho State Controller 700 W State Street, 4th Floor Boise, ID 83702 P.O. Box 83720 Boise, ID 83720-0011 www.sco.idaho.gov NOTE 7 – CONTRACT WITH INTRALOT Like most U.S. lotteries, the Idaho Lottery contracts with a gaming contractor to provide the Lottery with critical hardware and software, network communications, and technical support personnel necessary to efficiently operate the lottery gaming systems. The Lottery entered into a contract with INTRALOT to provide these services with a contract period of October 1, 2017 to October 1, 2027; with an option for the Lottery to extend the contract. This contract includes an all-in price based upon a percentage of sales, which is 2.26% of Total Net Sales for the initial 10 year portion of the contract period. The contract does include two five year extension options, not to exceed a total of 20 years. The contract includes terminals, ticket checking devices, scratch and draw game automated vending machines and electronic jackpot signs.

Prize Annuities

NOTE 10 – NOTE AND CAPITAL LEASES PAYABLE The notes payable consists of two three-year leases for the purchases of vehicles for the Lottery Sales Representative fleet. The first loan was for four vehicles with a final note payment due in February 2021. The second loan was for the purchase of a vehicle with a final note payment due in December 2022. In addition, the Lottery entered into a capital lease agreement for a copier in 2015 which matures in April 2020. A summary of the activity in notes and capital leases payable for the year ended June 30, 2019 is as follows: 2018 Additions Retirements 2019 $ 37,806 $ $ (18,371) $ 19,435 Capital lease for copiers 64,221 24,800 (24,433) 64,588 Notes payable for copiers $ 102,027

$ 24,800

$ (42,804)

$ 84,023

A summary of the activity in notes and capital leases payable for the year ended June 30, 2018 is as follows: 2017 Additions Retirements 2018 Capital lease for copiers $ 55,153 $ $ (17,347) $ 37,806 Notes payable for copiers 60,608 73,786 (70,173) 64,221 $ 1 15,761

$ 73,786

The annual payment requirements are as follows: Capital Lease Principal Interest For the year ended June30, 2020 $19,435 $610 2021 2022 2023 $19,435

$610

$ (87,520)

$ 102,027

Notes Payable Principal Interest $31,574 24,126 6,529 2,359 $64,588

$2,649 970 321 26 $3,969

NOTE 8 – LEASES The Lottery has entered into operating leases for the rental of headquarters offices (expiring December 31, 2027), a warehouse lease (expiring in June 30, 2023).

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Required Supplementary Information Employer’s proportionate share of the net pension liability as a percentage of its covered employee payroll

Persi - Base Plan Last 10 - Fiscal Years*

Measurement Period of July 1, 2019 2018 2017 2016 2015

Employer’s portion of the net pension liability

Employer’s proportionate share of the net pension liability

Employer’s covered employee payroll

0.0688296% 0.0691772% 0.0670535% 0.0672688% 0.0716557%

$ 1,015,250 $ 1,087,348 $ 1,359,277 $ 885,82 $ 527,498

$ 2,217,591 $ 2,064,242 $ 1,900,483 $ 1,819,11 $ 1,812,989

45.78% 52.68% 71.52% 48.70% 29.10%

Plan fiduciary net position as a percentage of the total pension liability 91.69% 90.68% 87.26% 91.38% 94.95%

*GASB Statement No. 68 requires ten years of information to be presented in this table. However, until a full 10-year trend is compiled, the Lottery will present information for those use for which information is available. Persi - Base Plan Last 10 - Fiscal Years* Statutorily required contribution

Measurement Period of June 30, 2019 2018 2017 2016 2015

$ $ $ $ $

254,736 244,738 221,998 219,749 213,289

Contributions in relation to the statutorily required contribution $ $ $ $ $

254,736 244,738 221,998 219,749 213,289

Contribution (deficiency) excess $ $ $ $ $

-

Employer’s covered employee payroll $ $ $ $ $

2,252,306 2,127,591 2,064,242 1,900,483 1,819,119

Contributions as a percentage of the covered employee payroll 11.31% 11.50% 10.75% 11.56% 11.72%

*GASB Statement No. 68 requires ten years of information to be presented in this table. However, until a full 10-year trend is compiled, the Lottery will present information for those use for which information is available.

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Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Board of Commissioners Idaho Lottery Boise, Idaho We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of Idaho Lottery (the Lottery) as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the Lottery’s basic financial statements, and have issued our report thereon dated September 26, 2019. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Lottery’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Lottery’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Lottery’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Lottery’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Lottery’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Boise, Idaho September 26, 2019

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Benefiting Idaho Public Schools and the Permanent Building Fund. P.O. Box 6537, Boise, ID 83707-6537 | idaholottery.com

Profile for Idaho Lottery

2019 Annual Report  

Idaho Lottery Annual Report for fiscal year 2019

2019 Annual Report  

Idaho Lottery Annual Report for fiscal year 2019