North Carolina Education Lottery
Popular Annual Financial Report
Fiscal Year Ended June 30, 2016
About the Popular Annual Financial Report
The North Carolina Education Lottery (NCEL) finance division is proud to present you its Popular Annual Financial Report
(PAFR) for the Fiscal Year (FY) ended June 30, 2016. This report provided an overview of the NCEL’s financial condition
and a brief analysis of where the money comes from and where the dollars are spent.
Most of the information in this report is drawn from the financial information appearing on the NCEL’s FY 2016 Comprehensive
Annual Financial Report (CAFR). The CAFR is a more detailed and complete financial presentation prepared in conformance
with Generally Accepted Accounting Principals (GAAP) and was audited by an independent accounting firm, receiving ans
unqualified (clean) opinion. The financial data in this report also conforms to the GAAP. The CAFR, PAFR and the NCEL’s
Annual Report are available for viewing on the NCEL’s website at www.nclottery.com/about.aspx
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NORTH CAROLINA EDUCATION LOTTERY
For the 10th year in a row, the N.C. Educa􀆟􉽯on Lo􀆩􊥥ery completed its fiscal year by se􀆫􊭮ng a new record not only for
lo􀆩􊥥ery 􀆟􉽣cket sales, but also for its contribu􀆟􉽯on to educa􀆟􉽯on programs in North Carolina. The Educa􀆟􉽯on Lo􀆩􊥥ery
recorded $2.38 billion in sales in fiscal year 2016 and $636 million in earnings.
The instant product con􀆟􉽮nued to be the largest revenue source, genera􀆟􉽮ng $1.6 billion in sales. The lo􀆩􊥥ery launched 51
new instant games during the year, including its first $30 game, Ul􀆟􉽭mate Millions, which offered four $10 million prizes,
18 $1 million prizes, and three addi􀆟􉽯onal $1 million prizes that could be won in second‐chance drawings.
The lo􀆩􊥥ery also began a new draw game, Lucky For Life, a $2 game with a top prize of $1,000 a Day for Life that
winners receive every year for the rest of their lives. Draw games sales also benefited from a record Powerball jackpot
of $1.5 billion in February 2016, boos􀆟􉽮ng Powerball 􀆟􉽣cket sales to $208 million, up $78 million from the year before.
Lo􀆩􊥥ery players collected $1.49 billion in prize money. During the year, prizes of $1 million or more were won 58 􀆟􉽭mes,
including two prizes of $10 million. Many winners put their money right back to work in the economy, by paying bills,
buying new houses or cars, taking vaca􀆟􉽯ons, saving and inves􀆟􉽮ng the money for re􀆟􉽲rement or college, or dona􀆟􉽮ng to
personal good causes.
The lo􀆩􊥥ery ended the year with 6,898 retail loca􀆟􉽯ons across North Carolina. Retailers earned $167 million in sales
commissions and incen􀆟􉽶ves.
The N.C. Educa􀆟􉽯on Lo􀆩􊥥ery marked its 10th anniversary on March 30th. Over the decade the growing popularity of
lo􀆩􊥥ery games has raised more than $4.6 billion for the good cause it serves. Since incep􀆟􉽯on on March 30, 2006 through
the end of FY16, the lo􀆩􊥥ery surpassed $15.8 billion in sales. More than 722,000 North Carolinians have joined the
lo􀆩􊥥ery’s Lucke‐Zone, a website where they can get lo􀆩􊥥ery news, ask ques􀆟􉽯ons about lo􀆩􊥥ery games, and enter
second‐chance drawings and other promo􀆟􉽯ons.
To get a sense of the lo􀆩􊥥ery’s success, consider what happens every day across the state. Last year, the lo􀆩􊥥ery
averaged $6.5 million a day in lo􀆩􊥥ery 􀆟􉽣cket sales, $4.1 million in prizes, and $1.7 million raised for educa􀆟􉽯on. The
lo􀆩􊥥ery has increased sales and earnings every year of its opera􀆟􉽯ons, received “a clean opinion” from independent
auditors in each year’s audit of its finances, and become a leader in the U.S. lo􀆩􊥥ery industry on responsible gaming.
The State Lo􀆩􊥥ery Act directs the lo􀆩􊥥ery to increase and maximize the available revenues for educa􀆟􉽯on purposes. In
FY16, a breakdown of lo􀆩􊥥ery revenues showed 62.4 percent went to prizes, 26.5 percent for educa􀆟􉽯on programs that
the lo􀆩􊥥ery serves, 7 percent in retailer commissions. The remaining 4.1 percent of revenues went to administra􀆟􉽶ve
expenses, including 1.75 percent to gaming vendors, adver􀆟􉽳sing and marke􀆟􉽮ng, salaries, wages and benefits and other
administra􀆟􉽶ve expenses.
The Educa􀆟􉽯on Lo􀆩􊥥ery transfers its net assets on a quarterly basis to the Office of State Budget and Management to the
North Carolina State Lo􀆩􊥥ery Fund. The monies were distributed in FY16 as outlined in the budget approved by the
General Assembly.
The General Assembly made the following alloca􀆟􉽯on of lo􀆩􊥥ery dollars in its FY16 budget to educa􀆟􉽯on programs:
 58 percent of the net assets, or $310.5 million, to non‐instruc􀆟􉽯onal support personnel;
 19 percent, or $100 million, for the Public School Building Capital Fund which provides monies to North Carolina
coun􀆟􉽥es to build and repair schools;
 15 percent, or $78.3 million, to the N.C. Pre‐K program to fund seats in the prekindergarten program for at‐risk
four‐year‐olds;
 6 percent, or $30.4 million, for N.C. Educa􀆟􉽯on Lo􀆩􊥥ery Scholarships which are awarded based on financial need;
 2 percent, $10.7 million, to the UNC Need‐Based Grant program, which provides financial aid based on need to
students a􀆩􊥥ending one of the 16 UNC system ins􀆟􉽴tu􀆟􉽯ons.
Lo􀆩􊥥ery’s revenues exceeded projec􀆟􉽯ons and unallocated funds were placed in reserve funds. The General Assembly
also directed that $2.1 million in earnings go to the N.C. Alcohol Law Enforcement and $1 million to the N.C. Problem
Gambling Program.
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EDUCATION PROGRAMS RECEIVING LOTTERY DOLLARS
New Grays Creek Middle School in Cumberland
County, N.C.
Headline: Lo􀆩􊥥ery funds help build schools
Some of the money raised by the N.C. Educa􀆟􉽯on
Lo􀆩􊥥ery goes to help coun􀆟􉽥es in North Carolina
build and repair schools. Some coun􀆟􉽥es use
their por􀆟􉽯ons as a repair fund, fixing roofs and
HVAC systems. Other use the funds to build new
schools. Last year, Cumberland County used
lo􀆩􊥥ery funds to make a $1.5 million payment on
bonds used to build a new middle school. So far,
Cumberland County has used lo􀆩􊥥ery funds to
SALES
The gross lo􀆩􊥥ery 􀆟􉽣cket sales for fiscal year 2016 totaled $2.38 billion as compared to $1.97 billion for fiscal year 2015 and $1.84
billion for fiscal year 2014. This represents an increase of $411 million from 2015 and $130 million from 2014.
Gross instant 􀆟􉽣cket sales were $1.617 billion for fiscal year 2016 compared with $1.294 billion for fiscal year 2015 and $1.17
billion in fiscal year 2014, an increase of approximately $323 million from fiscal year 2015 and approximately $124 million from
fiscal year 2014. The increase realized during fiscal year 2016 is attributable to several factors. In August, the popular “Bucks”
family of games were re-launched and included $1 “Mighty Bucks”, $2 “Junior Big Ol’ Bucks”, $5 “Mega Bucks”, and $10 “Jumbo
Bucks”—and the “Bucks” family combined for a total $125 million in sales during fiscal year 2016. The NCEL’s first $30
scratch-off “Ultimate Millions” launched in September and totaled $280 million in sales. The NCEL saw continued strong
performance of games featuring “Back Scratch”, an additional play area on the back of the ticket, with the December launch of
the $5 scratch-off “$500 Cash”. $500 Cash was one of the highest performing $5 games of the year with nearly $45 Million in
sales. In February, another family of the popular multiplier scratch-off games was introduced, with the launch of “5X The Cash!”,
“10X The Cash!”, “20X The Cash!”, and “50X The Cash!” combining for sales of $109 Million in the final two quarters of fiscal
year 2016. To celebrate the NCEL’s 10th anniversary during FY 2016, a “10th anniversary family” of scratch-offs was launched in
April 2016, and the four games combined for $56 Million in the final quarter of fiscal year 2016. Additionally, scratch-off games
achieved double-digit growth rates at the following price points: $2, $3, and $10.
Draw game sales were $766 million for fiscal year 2016 compared to $678 million for fiscal year 2015 and $669 for fiscal year
2014, represen􀆟􉽮ng a $88 million increase over fiscal year 2015 and a $9 million increase over fiscal year 2014. Draw game
sales benefitted from a record-setting $1.5 billion jackpot in the multi-state game Powerball. This led to sales of $208 million for
fiscal year 2016, an increase of $78 million from fiscal year 2015. Mega Millions, the NCEL’s other multi-state game, reached a
top jackpot amount for fiscal year 2016 of $390 million during June, after reaching a top jackpot of $321 million in fiscal year
2015. This resulted in sales of $58 million during fiscal year 2016, a decrease of $3 million from sales of $61 million in fiscal year
2015.
Sales information by game are shown on the table below.
SASLAELSES F BYY 2 R0E1G4I OTNO F FYY 2 021021 6
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*The EZ Match game is an additional add on to the Carolina Cash 5 game, sales for EZ Match have been included with Cash 5 in the chart.
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STATEMENT OF NET POSITION
The Statement of Net Posi􀆟􉽯on presents the NCEL's financial posi􀆟􉽯on from a long‐term perspec􀆟􉽶ve. It reports all of the NCEL's
assets and liabili􀆟􉽥es.
Condensed Statement of Net Position (in thousands) A current asset is an asset which can either be converted to
cash or used to pay current liabili􀆟􉽥es within 12 months. The
NCEL’s total current assets mainly consist of total cash,
accounts receivable, investments in annuity contracts, and
inventory.
A noncurrent or capital asset is an asset or property which can
not easily converted into cash. The NCEL’s noncurrent assets
are mainly made up of long term investments in annuity
contracts, prepaid items, furniture and equipment.
Total current liabili􀆟􉽥es are what the NCEL currently owes to its
suppliers, winners and the state, all of which are short term
debts to be paid within a year. The NCEL’s total current
liabili􀆟􉽥es are made up of accounts payable, accrued payroll,
current annuity prizes, and due to other funds ("Due to Other
Funds" represents the amount of net revenues for the fiscal
year not yet transferred to the State as of June 30, 2016 but
will be transferred during fiscal year 2017.)
Noncurrent liabili􀆟􉽥es are the NCEL’s long term financial
obliga􀆟􉽯ons that are not due in the present accoun􀆟􉽮ng year.
The majority of the NCEL’s noncurrent liabili􀆟􉽥es consist of long
*Readers wanting more detailed financial information should refer to the
NCEL's FY 2015 Comprehensive Annual Financial Report (CAFR) available on
the NCEL's website at: http://www.nc-educationlottery.org/about.aspx
As required in the Lo􀆩􊥥ery Act, net revenues of the NCEL are transferred four 􀆟􉽭mes a year to the NC Educa􀆟􉽯on Lo􀆩􊥥ery Fund at
the Office of State Budget and Management. At year end, Net Revenues /Assets are zero for the NCEL. There are no changes
Activity for Capital Assets for Year Ended June 30, 2016 (in thousands)
The majority of capital asset investments were during our first full year of opera􀆟􉽯on in 2007. The investment in capital assets
includes game equipment, data processing equipment, telephone equipment, so􀅌􄱷ware and fixtures. The capitaliza􀆟􉽯on of all
items including equipment, computers, and furniture follows North Carolina’s Office of State Controller’s policies. Capital
assets are reported at their cost, and are depreciated over their es􀆟􉽭mated useful lives. 5
STATEMENT OF ACTIVITIES
This sec􀆟􉽯on reports the fiscal year's financial ac􀆟􉽶vi􀆟􉽥es from a long‐term perspec􀆟􉽶ve. It is designed to provide a
summary of the financial health and stability of the NCEL. Informa􀆟􉽯on in this sec􀆟􉽯on should provide the reader with a general
understanding of how the NCEL's resources are used.
Statement of Activities (in thousands) OPERATING REVENUES:
Opera􀆟􉽮ng revenues is income derived
from the lo􀆩􊥥ery’s everyday ac􀆟􉽶vi􀆟􉽥es,
and mainly consists of 􀆟􉽣cket sales and
communica􀆟􉽯ons fees collected from
retailers.
Total gross lo􀆩􊥥ery 􀆟􉽣cket sales for the
fiscal year 2016 were approximately
$2.383 billion as compared to $1.972
billion in fiscal year 2015. This
represents an increase of around
$411 million.
The majority of Fees and Licenses
represent a weekly retailer
communica􀆟􉽯on fee charged to ac􀆟􉽶ve
retailers for terminal satellite
communica􀆟􉽯ons and an applica􀆟􉽯on
fee for new retailers and changes in
ownership.
OPERATING EXPENSES:
The following charts show the major
components of NCEL opera􀆟􉽮ng
Expense and transfers as a percentage
of total revenues for the June 30,
2016, 2015, and 2014 fiscal years:
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An opera􀆟􉽮ng expense is an expense that an organiza􀆟􉽯on incurs as a result of its normal business opera􀆟􉽯ons. In the lo􀆩􊥥ery’s
case these expenses are all directly related to the produc􀆟􉽯on and sale of lo􀆩􊥥ery 􀆟􉽣ckets.
Sec􀆟􉽯on 18C‐162, NC General Statutes s􀆟􉽰pulates no more than 8% of the total annual revenues shall be allocated for payment
of expenses of the Lo􀆩􊥥ery. Adver􀆟􉽳sing expenses shall not exceed 1% of the total annual revenues.
Prizes, retailer commissions and gaming vendor charges all directly relate to sales. As expected, as sales have
increased and so have these expenses. In fiscal year 2016 prizes, commissions and gaming vendor charges
increased to $1,698 million from $1,397 million in 2015. The other expenses, which consist of adver􀆟􉽳sing, salary and benefits,
professional fees, rent, maintenance, bad debt, deprecia􀆟􉽯on and transfers, have remained at 4% of Total Annual Revenues
this year. Fiscal years 2016 and 2015 administra􀆟􉽶ve expenses were $55 million and $52 million respec􀆟􉽶vely.
The following graph shows the rela􀆟􉽯onship between sales and expense for the NCEL.
Operating Revenues vs. Expense
NONOPERATING REVENUES & EXPENSES:
Nonopera􀆟􉽮ng Revenues and Expenses are defined as revenues or expenses that are incurred by ac􀆟􉽶vi􀆟􉽥es not related to the
core opera􀆟􉽯ons of an organiza􀆟􉽯on. In the lo􀆩􊥥ery’s case, nonopera􀆟􉽮ng items are any revenues or expenses incurred not
directly associated with the sale of lo􀆩􊥥ery 􀆟􉽣ckets.
Nonopera􀆟􉽮ng Revenues consist of investment earnings from the Short Term Investment Fund held at the State Treasurer’s
office, and Mul􀆟􉼐‐State Lo􀆩􊥥ery Associa􀆟􉽯on (MUSL) dividends received.
Nonopera􀆟􉽮ng Expenses mainly consist of transfers from the NCEL to the State. These transfers consist of net revenues to
the state, compulsive gambling treatment contribu􀆟􉽯ons and unclaimed prizes transferred to the North Carolina Educa􀆟􉽯on
Readers wan􀆟􉽮ng more detailed financial informa􀆟􉽯on on any of the lo􀆩􊥥ery’s financial ac􀆟􉽶vi􀆟􉽥es and results should refer to
the NCEL's FY 2016 Comprehensive Annual Financial Report (CAFR) available on the NCEL's website at:
h􀆩􊥰p://www.nc‐educa􀆟􉽯onlo􀆩􊥥ery.org/about.aspx 7
A W A R D S & AC K NO W L E D G M E N T S
The Government Finance Officers Association of the United States and Canada (GFOA) has given an
Award for Outstanding Achievement in Popular Annual Financial Reporting to the North Carolina
Education Lottery for its Popular Annual Financial Report
for the fiscal year ended June 30, 2015. The Award for
Outstanding Achievement in Popular Annual Financial
Reporting is a prestigious national award recognizing
conformance with the highest standards for preparation
of state and local government popular reports.
In order to receive an Award for Outstanding
Achievement in Popular Annual Financial Reporting, a
government unit must publish a Popular Annual Financial
Report, whose contents conform to program standards
of creativity, presentation, understandability, and reader
appeal.
An Award for Outstanding Achievement in Popular Annual
Financial Reporting is valid for a period of one year only.
The North Carolina Education Lottery has received a
Popular Award for the last 8 consecutive years (fiscal
years ended 2008-2015.) We believe our current report
continues to conform to the Popular Annual Financial
Reporting requirements, and we are submitting it to
GFOA.
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