Education Lottery Audit: Online Slot Machine Gaming Skyrockets, Now Makes Up 40% of Lottery Income

The introduction of on-line slot machine-style gaming by the North Carolina Education Lottery (NCEL) is driving new lottery gross sales whereas additionally inflicting a lower within the proportion of proceeds transferred to the State’s Education Lottery Fund (the Education Fund), in response to a new performance audit by the North Carolina Office of the State Auditor (OSA).

Between FY 2023 and FY 2025, the NCEL’s reported product sales elevated from $4.3 billion to $6.6 billion, up 51% in simply two years. Over that very same interval, the proportion of gross sales transferred to the Education Fund fell from 23% to 16%. Actual {dollars} transferred to the Education Fund elevated from $1.02 billion in FY 2023 to $1.09 billion in FY 2024, however dipped to $1.08 billion in FY 2025.

OSA’s audit discovered that speedy development in ‘digital instant games’ – the high-payout on-line video games that mimic slot machines at casinos – and decrease gross sales of conventional lottery video games have been the first causes of the lower within the proportion of lottery proceeds transferred to the Education Fund.

“Last December, the State Auditor’s Office released a financial audit of the Education Lottery, and we were left with questions on the amount of money going toward our public schools. With the release of this performance audit, we found that gambling trends have dramatically shifted. New online slot machine gaming, which has an 87% payout rate, now dominates the market,” stated State Auditor Dave Boliek. “Online slot machine gaming grew from generating 0% of the Education Lottery’s revenue to 40% in just three years. The Education Lottery today isn’t what it used to be, prompting auditors to recommend the primary policy objective of the lottery be revisited.”

The on-line lottery choice is designed with prize payout charges of roughly 87%. Since launching, the video games have gone from producing $0 in gross sales in FY 2023 to $2.6 billion in FY 2025. Conversely, scratch-off and draw sport revenues fell from roughly $4.3 billion in FY 2023 to only underneath $4 billion in FY 2025.

The increased payout fee from the net slot machine video games leaves fewer cents of every gross sales greenback out there for switch to the Education Fund. Similar playing tendencies have been seen throughout state strains in Kentucky and Virginia, the place lottery gross sales have grown considerably following the introduction of on-line video games.

North Carolina regulation units a goal that the NCEL contribute roughly 38% of revenues to the Education Fund “to the extent practicable.” That goal, nevertheless, just isn’t a statutory requirement. Despite routinely lacking the 38% goal, complete {dollars} transferred to the Education Fund every year have traditionally elevated, together with in years the switch proportion has dropped.

Other information from the audit embrace:

• A complete of $12.3 billion has been distributed to teaching programs from the NCEL’s inception by FY 2025.
• The NCEL spent $54 million on promoting and advertising in FY 2025.
• The NCEL spent $125 million on its three principal distributors for gaming system companies in FY 2025.
• Total vendor bills reached $207 million in FY 2025.
• The retailer with the best variety of lottery gross sales was in Brunswick County.

Auditors really helpful the NCEL work with the General Assembly to make clear North Carolina’s main strategic goal for the Education Lottery. Specifically, a strategic resolution is required to find out whether or not the NCEL’s main goal is to maximise complete {dollars} transferred to the Education Fund, keep a specified minimal proportion to switch to the Education Fund, or steadiness each aims by clearly outlined coverage framework. NCEL management has dedicated to reviewing the audit with the NCEL Commission and assembly with General Assembly management on attainable legislative modifications.

Disclosure: The State Auditor appoints one member to the NCEL Commission.