Presentation to California State Lottery Commission February 16, 2017 Director’s Comments Presentation to California State Lottery Commission February 16, 2017 Director’s Report 6A

Overview General Business Update Agenda Consent Calendar Item YTD Sales Update Audited Financial Statements Agenda Consent Calendar Item Scratchers® Core Game Profile Template Agenda Action Items Hudson Alley Contract Extension Microsoft Enterprise Agreement Network Maintenance Contract Telecommunications Contract Lottery Investment Strategy and Investment Policy Good morning Commissioners and welcome back to Sacramento. For today’s director’s report, I will provide our year to date sales picture As well as a few general information items of interest After going over the voting item agenda, Jim Hasegawa will provide research information about who plays the lottery

Sales Update

Powerball Draw Sales

Launch of our Second $30 Game First $30 game introduced as part of our 30th Anniversary Celebration Sold $300 million last fiscal year “California Gold” launched on Jan 23 10” x 4” ticket on holographic paper Top prize is again at $10 million First 3 weeks of sales were over $48 million, very close to the pace of our first $30 game

Audited Financial Statements State law requires the Lottery to engage an independent firm of CPAs to conduct an annual audit KPMG LLP conducted the FY 2015-16 annual audit No material issues found in the audit $6.276 billion in sales, $3.956 billion in prizes, and $433.0 million to retailers $1.587 billion to California public schools and colleges The Lottery Act (Gov’t Code section 8880.46.5) requires us to bring on an independent CPA firm to conduct an annual audit of the Lottery’s financial statements. Although the Lottery’s year-end financial statements are typically audited by October 15 of each year, there was again a delay in the fiscal year 2015-16 financial statements being audited due to the implementation of GASB 68. You may recall that GASB 68 significantly revised how state and local governments account for and report pensions. Although it became effective last year, there were some unique issues related to the second year of implementation that we dealt with. Also, to complete the GASB 68 portion of our financials, we rely on various control agencies to provide pension data. While we received this data significantly earlier than last year, the control agencies still have some kinks to work out in this process. KPMG conducted the audit for the 2015-16 fiscal year and I am pleased to say that, once again, no material issues were found. It was another historic year for the Lottery with sales of $6.276 billion, nearly $4 billion returned to our players in the form of prizes, and $433 million provided to our retailers in commissions, cashing bonuses, and other retailer incentives. These are each the highest respective levels in the Lottery’s 31-year history. Most importantly, we generated a total of $1.587 billion in supplemental funding for California’s public schools, which is the highest contribution in Lottery history.