“We were very pleased to see what we consider to be a solid performance in the last fiscal year,” lottery Director Kevin Hall told the Senate Finance & Appropriations Committee on Tuesday.
Lottery sales increased by $181.5 million, or almost 36%, in the first three months of the fiscal year that began on July 1, compared with the first three months of fiscal 2020, powered by the quick launch of internet sales of lottery tickets, which the General Assembly approved this year.
Even without the new internet boost, lottery sales increased by 13% in September at traditional retail operations.
Profits increased by $27.4 million in the quarter, or about 12%, after the state-run gaming operation weathered a sudden slump at the beginning of the COVID-19 pandemic to post profits of $595 million in the fiscal year that ended June 30.
The gains came despite a one-year reprieve that Gov. Ralph Northam and the General Assembly granted to electronic skill games, the Richmond Times-Dispatch reports. The governor’s move came after the legislature had voted to ban the games because of a competitive threat to lottery profits that go directly into state funding of public education. The competition eventually will include sports betting and casino gambling, which the lottery has begun regulating under legislation the assembly adopted early this year.
“This year we’ll see probably the most dramatic expansion of lottery responsibilities since we were created 32 years ago,” Hall said.
The lottery turned the pandemic to its advantage, as its sales rebounded in late April while other competitors — including Rosie’s historical horse racing emporiums, retail-based skill games and casinos in neighboring states — temporarily closed or scaled back operations to slow the spread of the coronavirus during the early months of the public health emergency, which Northam declared on March 12.
Hall warned, however, that the state budget assumed the lottery would generate total profits of $658 million this year and $666.1 million the next year without continued competition from skill games that he said threatened to reduce lottery proceeds for K-12 education by $40 million.
He said the state agency expects “to fine-tune” those revenue estimates as the Northam administration prepares a new two-year budget that the governor will introduce on Dec. 16.
Queen of Virginia, the dominant operator of skill games in the state, has said the lottery’s financial success proves that gaming competition will not threaten profits for public education. The company, an operating subsidiary of Atlanta-based Pace-O-Matic, reported that its 5,700 machines produced almost $7 million for the state in July. That was the first month of a new tax that Northam levied on the business to help pay for relief to small businesses and other operations hurt by the public health emergency.
The assembly adopted a budget last week that devotes $95.2 million collected from the new tax this year to public education to offset the loss of sales tax revenue to local school divisions.
The lottery has expanded its operations in downtown Richmond to include a gaming compliance division to regulate mobile sports betting and casino gambling. The lottery board of directors adopted regulations for sports betting last month and has begun accepting applications for operating licenses that the agency expects to begin awarding in February.
The agency also has begun drafting emergency regulations for casino gaming in five cities named under the law legalizing the operations. Four of those cities — Norfolk, Portsmouth, Danville and Bristol — will hold local voter referendums on casino gaming on Nov. 3. Richmond is not holding a casino gambling referendum this year. It will operate under what Hall called “a different timeline” before selecting a preferred operator for an eventual public referendum.
“I am pretty pleased to report that we are on track and meeting all of the deadlines” for regulating both types of new gaming operations, he told the Senate committee.
Senate Minority Leader Tommy Norment, R-James City, wondered about the next gaming option that will come before a legislature that he said has an “insatiable appetite for money they do not have to raise themselves.”
“Is enough enough at this point?” Norment asked.
Hall replied that the national gaming industry, after being hit hard by the pandemic, already has begun to talk about online casino gaming and other digital forms of gaming.
“Suffice it to say, there will always be industry interest in pushing the envelope,” he said.