By Everette Pitts
Raleigh, NC – Over two years, the North Carolina Education Lottery sold $2.24 billion more in tickets and wagers. Nearly all that additional revenue disappeared before it reached the state’s Education Lottery Fund.
Gross lottery sales climbed from $4.34 billion in fiscal year 2023 to $6.59 billion in fiscal 2025, a 52 percent increase. But the annual transfer for education rose from $1.015 billion to $1.076 billion-an increase of just $61 million, or 6 percent.
Prize expenses, meanwhile, surged by $2.13 billion.
That means about 95 cents of every additional dollar recorded as lottery sales between 2023 and 2025 went toward higher prize expense. Less than 3 cents went to education.
Those figures, drawn from a new performance audit issued by State Auditor Dave Boliek’s office, answer the central question raised by the lottery’s explosive growth: Why did schools see relatively little additional money when reported sales jumped by more than $2 billion?
The short answer is that North Carolina dramatically changed what it sells.
Beginning in November 2023, the lottery introduced digital instant games that return approximately 87 percent of wagers to players as prizes. It also expanded traditional games with comparatively high payout rates, including a $50 scratch-off ticket. At the same time, sales declined for jackpot draw games that send a much larger share of each sales dollar to education.
Digital play also changes the meaning of “sales.” The lottery counts every wager as a sale, including wagers made by immediately replaying winnings. The same deposited dollar can therefore appear in reported sales multiple times.
The result is a lottery that moves substantially more money through its games without producing a comparable increase in money for education.
The September 2026 performance audit does not accuse lottery employees of misspending billions or uncover a missing pot of education money. It identifies a structural problem: North Carolina’s fastest-growing lottery products are designed to return most of their revenue to players, leaving far less for public purposes.
But the audit also presents an accountability problem shared among the Lottery Commission, which chooses and designs games; the General Assembly, which writes the governing law and authorizes online games; and lottery management, which oversees vendors, advertising and operating costs.
The auditor’s conclusion is blunt: state policymakers have never clearly decided whether the lottery’s primary objective is to maximize the total number of dollars transferred to education, preserve a minimum education percentage, or balance the two.
Until they do, record sales can coexist with an education return that is nearly flat.
The disappearing education share
The lottery’s three-year financial record shows how quickly its economics changed:
| Fiscal year | Gross sales | Prize expense | Education transfer | Education share |
|---|---|---|---|---|
| 2023 | $4.343 billion | $2.864 billion | $1.015 billion | 23.4% |
| 2024 | $5.376 billion | $3.803 billion | $1.092 billion | 20.3% |
| 2025 | $6.586 billion | $4.998 billion | $1.076 billion | 16.3% |
Prize expense rose almost 75 percent from 2023 to 2025-considerably faster than the 52 percent growth in sales. The education transfer rose only 6 percent.
The divergence was especially stark in the most recent year. From fiscal 2024 to 2025, sales increased by $1.21 billion. Prize expense increased by nearly $1.196 billion, absorbing 98.8 percent of that sales growth. The education transfer actually fell by almost $16 million.
Put another way, for every $100 in lottery sales in fiscal 2023, approximately $65.80 went to prizes and $23.40 went to education. By fiscal 2025, prizes consumed $75.80 while education received $16.30.
That 7.1-percentage-point drop represents a 30 percent reduction in education’s share of every reported sales dollar.
The Lottery Commission can accurately say that it continued transferring more than $1 billion a year. It can also accurately say that digital games generated education revenue that would not otherwise have existed.
Yet those statements do not change the underlying trend: the value to education of an average lottery sales dollar deteriorated sharply.
The auditor performed a revealing baseline comparison. If fiscal 2023 sales and transfers had simply continued unchanged through the next two years, the lottery would have recorded about $8.7 billion in total sales and transferred roughly $2 billion over fiscal 2024 and 2025.
Actual sales for those years totaled almost $12 billion-about $3.3 billion above the baseline. But education received only about $140 million more than the baseline.
For every $100 in additional sales above that no-growth scenario, only about $4 reached education.
When $10 becomes $18 in “sales”
The sales headline requires another qualification: Digital lottery sales do not necessarily represent an equivalent amount of new money deposited by players.
The audit illustrates the accounting with a hypothetical customer who deposits $10 and wagers all of it. The player wins $8, then immediately wagers that $8 and wins $6.
The lottery records $18 in gross sales-the original $10 wager plus the replayed $8-and $14 in prizes. But the customer deposited only $10 and ultimately withdrew $6. The lottery retained $4 before other expenses.
That $4, not the $18 headline, represents the game’s gross gaming revenue: wagers minus prizes.
Rapid digital play makes such recycling routine. A player can place repeated wagers without visiting a store or converting winnings to cash. Every replay expands both gross sales and reported prize expense, even though no new dollar entered the system.
This does not mean the figures are fraudulent. Gross wagering is a standard measure of gambling activity. But it does mean that comparing digital-era sales directly with traditional ticket sales can mislead taxpayers about the amount of new money available for education.
The lottery reported $3.7 billion in cumulative digital instant-game sales from their November 2023 launch through June 2025. In fiscal 2025 alone, digital games produced nearly $2.6 billion, or about 40 percent of total lottery sales.
A significant share of that total consisted of winnings wagered again.
Because digital instant games pay approximately 87 percent of wagers back as prizes, they are mathematically incapable of producing an education percentage comparable to the lottery’s lower-payout draw games.
The audit estimates that a typical $100 spent on Powerball or Mega Millions produces about $39 for education after prizes and operating expenses. A $10 Cash Pop purchase produces an estimated $19. A $10 scratch-off produces about $14.50, while a $50 scratch-off produces roughly $7.
A digital instant game also produces about $7 for education from each $100 in gross wagering.
Digital games can still add dollars to the education fund by generating extraordinary wagering volume. But each dollar of digital activity is substantially less productive for education than a dollar spent on a jackpot draw game.
A product-mix transformation
The digital expansion occurred while sales of traditional games were weakening.
Scratch-off sales declined from approximately $2.98 billion in fiscal 2023 to $2.84 billion in 2025. Draw-game sales fell from $1.36 billion to $1.15 billion.
Together, traditional-game sales declined by roughly $355 million even as total lottery sales soared.
Powerball sales dropped by approximately $134 million, or 52 percent, between fiscal 2024 and 2025, according to the audit, largely because the year produced fewer exceptional jackpots. Mega Millions sales fell 26 percent.
Those declines mattered disproportionately. Powerball and Mega Millions generally return about half of sales as prizes. Their remaining revenue can support a much larger education transfer than games paying 70, 80 or 87 percent to winners.
Meanwhile, the lottery introduced a $50 scratch-off game in December 2023 with an 80 percent payout. The game generated approximately $384 million in sales during fiscal 2024 and $588 million in fiscal 2025-about one-fifth of all scratch-off revenue that year.
The auditor estimated that the ticket generated about $27 million for education in 2024 and $41 million in 2025. Those are real contributions. But they represent only about 7 percent of sales.
Cash Pop, another higher-payout game, launched in November 2024. It recorded approximately $69 million in partial-year sales and an estimated $15 million education return.
These products help explain why average payout rates rose even within the lottery’s older categories. The overall scratch-off payout increased from 72.4 percent in fiscal 2023 to 73.4 percent in 2025. The draw-game payout moved from 50.1 percent to 51.4 percent.
This is not an accident or an accounting surprise. Higher prize payouts are a sales strategy. Frequent wins and larger advertised prizes encourage customers to keep playing, particularly in an online environment where another wager is seconds away.
But the strategy also creates an unavoidable tradeoff: The more of each dollar promised to players, the less remains for education.
The Lottery Commission’s responsibility
North Carolina’s nine-member Lottery Commission has authority to determine which games the lottery offers, including online games under the current version of General Statute 18C-130.
That makes the commission accountable for the payout and product decisions that produced the declining education percentage.
The commission approved a portfolio in which the fastest-growing product pays about 87 cents of every sales dollar back to players. Its managers also introduced the $50 scratch-off and Cash Pop while traditional, more education-productive games were declining.
The commission may argue-reasonably-that without attractive prize structures, players will move to competing forms of gambling or will not play at all. A smaller percentage of a much larger sales base can yield more dollars than a high percentage of weak sales.
That occurred to a limited degree here: The education transfer in 2025 remained $61 million higher than in 2023. But it was lower than in 2024, despite $1.21 billion more in sales.
The commission therefore should be required to show, game by game, whether high-payout products generate new net revenue for education or merely displace purchases of games with better education returns.
It should also publicly report digital deposits, withdrawals, gross gaming revenue and recycled wagering alongside gross sales. Gross wagering alone is an inadequate measure of digital lottery performance.
The lottery’s written response to the audit said it would review the findings with the commission and meet with General Assembly leaders about possible legislative changes. It also defended its performance, saying it seeks to meet consumer demand, remain competitive and maximize the return to education.
The audit found North Carolina’s total-dollar transfers compared favorably with several peer states. The state’s 16.3 percent transfer rate, however, was among the lowest in the comparison.
Only Virginia, where digital games made up a still-larger share of sales, posted a lower rate at 15.6 percent. New Jersey, which did not offer digital lottery games in the audit’s comparison, transferred 32.4 percent.
The legislature’s responsibility
Responsibility does not stop with the Lottery Commission.
The General Assembly created the governing formula and expanded the commission’s online authority. The 2023 appropriations law explicitly revised state law to permit commission-determined online lottery games. Digital instant games began later that year.
The same 2023 session law appropriated lottery-supported funding for noninstructional school employees, prekindergarten, school construction, scholarships and transportation.
Yet the lottery statute still reflects an earlier business model.
Under General Statute 18C-162, the commission is directed to maximize revenue for education while adhering, “to the extent practicable,” to four allocation guidelines: at least 50 percent for prizes, at least 38 percent for education, no more than 5 percent for lottery expenses and no more than 7 percent for retailer compensation.
The qualification matters. The 38 percent education figure is not an absolute transfer mandate. It is a target conditioned on what the commission considers practicable.
North Carolina has not approached that target in recent years. The education share was 23.4 percent in fiscal 2023, 20.3 percent in 2024 and 16.3 percent in 2025.
With digital instants returning 87 percent to players and consuming an estimated 6 percent in operating costs, only about 7 percent remains for education. A 38 percent education transfer from that product is mathematically impossible without a radical reduction in prizes.
The General Assembly has left the commission with conflicting instructions: maximize education revenue, offer competitive games and pursue an aspirational transfer percentage designed before digital instant wagering dominated the portfolio.
The auditor recommends that lawmakers choose a primary objective. They could prioritize the largest possible total-dollar transfer, establish and enforce a minimum transfer percentage, or adopt a transparent formula balancing both.
That decision belongs to elected lawmakers, not solely to lottery executives.
A rigid payout cap, however, carries risk. The audit points to Texas, which imposed a prize limit in 1997. Lottery sales subsequently fell by more than $655 million in one year and another $518 million the next. Education transfers declined as well, and lawmakers repealed the cap within two years.
The lesson is not that payout rates should escape oversight. It is that lawmakers must evaluate player behavior and total net proceeds rather than assume that every dollar removed from prizes will become a dollar for schools.
Operating costs deserve scrutiny-but they are not the main cause
The audit’s third accountability question concerns administration, vendors and marketing.
Those expenses increased in absolute dollars. Gaming-system service costs rose from $89.9 million in fiscal 2023 to $127.2 million in 2025, an increase of $37.3 million, or 42 percent. Other activity increased from $80.1 million to $114.9 million.
Combined advertising and marketing expenses grew from $37.3 million to $54 million.
Those increases warrant continuing oversight, particularly as the lottery becomes more dependent on technology contractors. The primary digital vendor generally receives 13.5 percent of gross gaming revenue after prizes, according to the audit-equivalent to about 1.76 percent of total digital wagers under the current payout structure.
But administrative growth does not explain the collapse in education’s percentage.
Advertising and marketing actually declined as a share of sales, from about 0.86 percent to 0.82 percent. Overall administrative costs remained below the statutory 5 percent ceiling and slipped from 4 percent of sales in 2023 to 3.8 percent in 2025.
Retailer commissions also fell, from $293.8 million to $269 million, because online games do not require convenience stores and other retailers to sell tickets. Commissions dropped from 6.8 percent of sales to 4.1 percent.
Those trends make prize expense the unmistakable driver. Prize costs grew by $2.135 billion-many times the combined increase in gaming services, advertising, marketing and other operating activity.
Critics should scrutinize vendor contracts and promotional spending. But cutting every dollar of the lottery’s fiscal 2025 advertising and marketing budget would not come close to restoring education’s lost share. The scale of the issue lies in game economics.
Transfers are not the same as school appropriations
The phrase “money going to schools” also requires precision.
The lottery does not send all proceeds directly to local schools. Under General Statute 18C-164, net revenue remaining after prizes and expenses is transferred to the Education Lottery Fund. The General Assembly then decides how the money is appropriated among eligible education programs.
Transfers, appropriations and final distributions can occur on different schedules. Reserves, unclaimed prizes and prior-year balances can cause program allocations in one year to differ from that year’s lottery transfer.
The audit’s historical allocation table, for example, lists about $1.017 billion allocated among education programs in fiscal 2023, $1.086 billion in 2024 and $1.140 billion in 2025. Those figures do not precisely match the lottery’s annual transfers because they measure a different stage of the process.
In fiscal 2025, the largest allocations included approximately $608 million for school construction, $386 million for noninstructional support personnel, $78 million for prekindergarten and $46 million for college scholarships. Another $21 million fell into a category including transportation and other purposes.
Thus, it would be inaccurate to say billions of dollars disappeared or that every school literally received the same amount as before.
The defensible finding is narrower-and still significant: Although gross lottery wagering increased by more than half, the annual amount generated for the Education Lottery Fund increased by only 6 percent, and education’s share of sales fell to a three-year low.
A billion-dollar question for policymakers
North Carolina’s lottery has transferred more than $12 billion for education since ticket sales began in 2006. It remains an important source of school construction, prekindergarten support, scholarships, transportation funding and school personnel money.
But its branding can obscure the distinction between a lottery that produces more gross wagering and one that produces more money for education meaningfully.
The 2025 results expose that distinction. The lottery processed a record $6.6 billion in sales, yet sent less to the Education Lottery Fund than it had the year before.
The state now must decide what “success” means.
If success means maximizing gross sales, digital instant games are working. If it means maximizing total transfers, their performance requires closer examination against displacement of traditional games and the cost of high payouts. If it means preserving education’s share of each dollar, the current system is failing.
The commission should disclose clearer digital metrics and justify payout decisions by their net education benefit. Lottery management should continue subjecting technology, marketing and vendor costs to public review. The General Assembly should replace its ambiguous, decades-old allocation guidance with an explicit standard suited to online gambling.
The audit has established where the money went. It went principally to prizes, by design.
What remains unanswered is whether North Carolina’s elected and appointed officials intended to build a lottery in which record sales could be celebrated even as education received only 16 cents of each wagering dollar.
That is no longer an accounting question. It is a public-policy choice.
Related links
- North Carolina Office of the State Auditor, “North Carolina Education Lottery: Factors Affecting Transfers to Education,” Performance Audit PER-2026-4670, September 2026. Primary source for fiscal 2023-2025 sales, prize expenses, transfers, operating costs, digital-game performance, product payout rates, peer-state comparisons, allocation history and the lottery’s response.
- North Carolina General Assembly, G.S. 18C-162: Allocation of revenues. Governing allocation guidelines for prizes, education transfers, expenses and retailer compensation.
- North Carolina General Assembly, G.S. 18C-164: Transfer of net revenues. Governing law for transfers to the Education Lottery Fund and treatment of reserves and excess funds.
- North Carolina General Assembly, G.S. 18C-130: Types of lottery games. Statutory authority governing the Lottery Commission’s selection of games, including online lottery games.
- North Carolina General Assembly, Session Law 2023-134. The 2023 appropriations act, including lottery-funded education allocations and the provision expanding statutory authority for online games.
- North Carolina Education Lottery, Education funding and historical distribution information. Lottery-published information on education programs and county-level distributions; historical figures from this source are also reproduced and evaluated in Appendix E of the state audit.