1. Lottery Overview and Sales Report Presentation to California State Lottery Commission December 3, 2008

2. Lottery Sales Over Time Over 23 years, there have been periods of sales growth and periods of decline in sales. –First Year sales: over $1.76 billion –Lowest FY sales: $1.358 billion in FY 1992 –Highest sales: $3.58 billion in FY 2006

3. Fiscal Year Total Sales over 23 Year History

4. Key Reasons for Growth over Time The key strategies contributing to sales: Product Improvements: Higher Prize Payouts Scratchers sales more than doubled between FY 1997 and FY 2000 –Sales were $525 million the fiscal year before this payout strategy started. And, by FY 2000, Scratchers sales were nearly $1.2 billion –See the orange bars in the chart on the following page. Scratchers Sales Grew by $700 million more from FY 2003 to FY 2006 due to growth in the sale of $3 and $5 games –Growth in $3 games is due to Bingo and Crosswords. These extended play games were launched with Bingo after that theme restriction was removed from the Lottery Act by the Legislature in 2002. Strong and Continuous Marketing efforts Only conducted for Scratchers in the first few years of the Lottery and periodically for Lotto games.

5. Scratchers Sales History $1,930

6. The Most Successful Strategies Can’t Be Maximized Now The 34% mandated to education limits funding for the best revenue generating strategies –Programs like Higher prize payouts and Marketing support Real business would invest in proven sales builders –It would driven by growing dollar profits not maintaining a fixed percentage of profit Other Lotteries have seen their Sales and Profits grow dramatically in past several years w/ Scratchers –$5, $10, $20 games have fueled growth elsewhere –Higher prize payouts are essential for having successful games at $5, $10 and $20 price points.

7. In FY 2007-2008, CA had the Largest Year over Year Sales Decline Because California cannot fully adopt the successful strategies that have been done in other states, sales in California during FY 2007- 2008 declined by the largest amount compared to other U.S. lotteries. –Chart on the following page Despite this large decline, California still had the 7 th highest amount of ticket sales and produced the 3 rd largest profit in terms of dollars among U.S. lotteries. –NY was #1 at $2.579 billion in profits on sales of $6.67 billion –FL was #2 at $1.288 billion in profits on sales of $4.17 billion North Carolina had the largest increase in sales – a jump of 21% over the prior fiscal year. Their increase was primarily in Scratchers due to boosting their payout as a result of legislative change.

8. In FY 2007-2008, CA had the Largest Year over Year Sales Decline

9. Instant Ticket Sales Trends in a Sample of Large States Fiscal Year

10. Prize Payout Relief Crucial to Long-Term Success The California Lottery has known that sales and profits improve by increasing the prize money in Scratchers games but has been unable to gain the ability to make this change. As early as 2001, a bill has been in the legislature to allow the California Lottery to increase its prize payouts –In 2001, SB 930 got to a floor vote in the State Senate but failed to get the two-thirds majority needed for passage –Subsequent legislative sessions saw somewhat similar bills introduced. Because no change in the law occurred, schools have lost potential money.

11. Impact of MEGA Millions Not as Great as Expected If more sales from a game like MEGA Millions (which works at a 50% prize payout) materialized, this could help fund more Scratchers prizes and add Marketing programs. Unfortunately, the impact of the MEGA Millions game was short- lived. Jackpot fatigue quickly set in as consumers saw enormous jackpots. A high percentage of the MEGA Millions sales were cannibalized from Super LOTTO Plus. There were not enough funds for a sustained marketing effort. As MEGA Millions sales fell below expectations, Scratchers sales had to be curtailed since there was less money available to fund the higher payouts.

12. Sales for First 4 Months of FY 2008-2009 Total Sales: $985 million (7/1 thru 10/31) –Last Fiscal Year: $1,090 million same period or down 10% Jackpot Games – represent the greatest decline due to fewer big jackpots –Super LOTTO Plus & MEGA Millions: Sales of $278 million for the first 4 months of this year Compared to $378 million last year - down 26% –MEGA Millions had 4 draws with a jackpot of $100 million or more this year but had 9 draws with jackpots of this size last year. The Largest this year was $132 million vs. $330 million last yr –Super LOTTO Plus had 1 draw with a jackpot above $50 million between July and October this year compared to 9 such occurrences last year. The Largest this year was $53 million vs. $93 million last yr

13. Sales for First 4 Months of FY 2008-2009 Scratchers: Sales from July 1 to October 31 were $555 million this year –Just 2% down from last year Daily Games: Sales are up 3% over the comparable period last year. This is due to the addition of the Daily 4 game launched in May, 2008. –While Daily 3 sales were down 14% relative to year ago figures, the total of Daily 3 plus Daily 4 sales were nearly $60 million vs. sales of just Daily 3 last year of $51 million. Hot Spot: Sales continue to decline –This year’s sales of $40 million represent a 7% decline compared to figures from last year at this same time.

14. Other Lotteries The most recent quarter July - September saw the vast majority of jurisdictions have year over year sales declines. Many more lotteries are experiencing a slow down in sales this current fiscal year compared to the earlier chart looking at last fiscal year. Of the 12 MEGA Millions states, 7 are showing a sales decline. There are 3 states with sales gains so far this year. –Georgia: The biggest gains were in Daily 4 and Keno during the quarter. And, their strong selling Instant Tickets grew by 5%. –New York: The biggest increase for a single product line was Instant Tickets where sales grew by 8%. –Mass: Instant Tickets and the 4 digit numbers game grew by 3%.

15. This Year, Only a Quarter of Lotteries Had Sales Gains in First 3 Months

16. Other Gaming Also Down Gaming Revenue in greater Las Vegas is also down compared to year ago figures –July 2008: $819 million – down 15.0% vs. July 2007 –August: $759 million – down 9.4% vs. August 2007 –Sept.: $853 million – down 2.9% vs. Sept. 2007 Visitor Volume to greater Las Vegas is also down during those months –July: down 4.6% vs. year ago figures –August: down 4.3% against last year –Sept. down 10.1% vs. year ago numbers Source: Las Vegas Convention and Visitors Authority (www.lvcva.com)

17. Strategies and Tactics in January – June 2009 Premiere of new TV Show – “Make me a Millionaire” –Supports efforts to Improve Brand Image Continue developing no cost Cross Promotions –Leverages other company’s marketing efforts –Associations w/ fun or other entertainment products Launch 2 nd Chance Drawings for all Scratchers –Supports positioning of “more winning” Pursue administrative efficiencies – Elimination of manual processes w/ cost savings