A Report on Tennessee Lottery Revenues, Expenses, and Net Lottery Proceeds Presented to: The Fiscal Review Committee Presented by: Robert N. Currey Tuesday, October 9, 2007 Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 1

Outline Lottery Ticket Sales Miscellaneous & Total Net Revenue Gaming Expenses Operating & Total Expenses Net Lottery Proceeds & After-School Funding FY07-08 – Weekly Sales to Date Game Trends Points to Note Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 2

Lottery Ticket Sales Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 3

Miscellaneous and Total Net Revenue Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 4

Gaming Expenses Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 5

Operating & Total Expenses Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 6

Net Lottery Proceeds & After-School Funding Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 7

FY07-08 Weekly Sales to Date Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 8

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Points to Note (1) Growth of Ticket Sales (gross) appears to be diminishing 18.0% in FY % in FY % in FY07-08 (YTD thru 10/06/07)…..Summer Seasonality Growth of Total Expenses is diminishing 18.4% in FY % in FY06-07 Total Expenses are growing faster than Total Net Revenues Last year expenses grew 8.4% Last year revenues grew 6.2% Net Lottery Proceeds growth diminishing 18.4% in FY % for FY06-07 Getting close to the profit maximization point. Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 17

Points to Note (2) Whats needed for continued growth of net lottery proceeds? Hope for larger jackpots for Powerball and Lotto 5. Management MUST continue to find ways to increase sales. Cutting expenses is NOT a viable option because 95.6% of all lottery expenses are directly related to ticket sales…if you cut expenses, sales will decrease. Increase sales to an extent that revenue growth (dollars) exceeds expense growth (dollars). Instant Games – Continue increasing the prize expense ratio until the optimum prize expense point is reached. Marginal expense = Marginal revenue. Continue introducing new types of games such as Million Dollar Madness (Raffle game), and HotTrax Champions. Perhaps, a matrix change to Lotto 5. Tennessee General Assembly, Fiscal Review Committee, Robert Currey Slide 18