RALEIGH — North Carolina’s Education Lottery is taking in far more money than it did two years ago. The share of that money reaching public schools is not keeping pace.
A performance audit from State Auditor Dave Boliek’s office found reported gross sales jumped from $4.3 billion in fiscal year 2023 to $6.6 billion in fiscal year 2025 — a 51% increase in two years. Transfers to the Education Lottery Fund stayed near $1 billion: $1.02 billion in FY 2023, $1.09 billion in FY 2024, and $1.08 billion in FY 2025. The portion of sales sent to education fell from 23% to 16%.
“The top line result of our audit is the education lottery is probably not what you think it is,” Boliek said. “The business of the lottery has changed tremendously over the last two decades. The primary driver of that change is electronic gaming. We see that very clearly in North Carolina, where in 2023, there was zero dollars in revenue from any type of digital phone or computer gaming systems. It was all scratch-offs and Powerball. So, in just two and a half short years, that revenue went from zero to $2.6 billion in revenue.”
Digital instant games
Digital instant games — played on the lottery website or mobile app — launched in November 2023. In FY 2025 they produced $2.60 billion, about 40% of total lottery sales. From launch through FY 2025 they accounted for $3.7 billion in gross sales. An average prize payout near 87% means those games leave less for education than traditional products.
Lottery officials told auditors the high payouts are needed to compete online.
“When you’ve got casino-type games, which is really what these digital instants are, and you’re paying out north of 80% in winnings, it becomes a volume business,” Boliek said. “That necessitates the need for new gamblers, more people to gamble. It’s essentially the difference between shopping at Costco or shopping at a small corner store. In order for a Costco to make a lot of money, you’ve got to have a lot of people spending money in Costco. Same is true for digital instants.”
Traditional sales slip
Scratch-offs and draw games slipped from about $4.3 billion in FY 2023 to just under $4 billion in FY 2025. Those products return a larger share of each dollar to education.
“Where is the lottery focusing its marketing efforts?” Boliek asked. “Are we focusing on the scratch-offs, or are we now applying more dollars on the advertising side to the digital instance? Those are questions I think that this audit raises.”
Higher-payout products
The lottery also added higher-payout products. Fifty-dollar scratch-offs, launched in December 2023 with an 80% prize rate, reached about $588 million in FY 2025 sales — roughly one-fifth of all scratch-off revenue. Cash Pop, a draw game launched in November 2024 with an average payout near 67%, generated about $69 million in its first year. Both added dollars for education while pulling the overall transfer rate down.
State law sets a 38% transfer target for education funding. The original target when the lottery was created was 35%; lawmakers raised it to 38% in the 2021 session. The audit says the lottery hit the original target in its first full year, but its long-term average has been about 27%.
Among states the auditors reviewed, lotteries with a larger digital share generally transferred a smaller percentage for public use. Virginia saw sales and total transfers rise after digital games while its transfer rate fell from 27.7% to 20.8%. Kentucky raised digital prize rates from about 74% to more than 87% and watched digital sales climb from $5 million to nearly $800 million. North Carolina’s FY 2025 digital share (39.4%) and transfer rate (16.3%) sat near Virginia’s on that spectrum. States without digital games, including South Carolina and Tennessee, transferred a higher percentage.
Policy choice, not a kill order
The auditor’s office does not tell the lottery to stop digital games or to chase the 38% target at any cost. It asks the General Assembly which goal comes first: maximizing total dollars for education, holding a minimum percentage, or balancing the two under a defined framework. If the percentage remains the primary test, auditors say lawmakers should decide whether 38% still fits a market built around 87% online payouts.
“When the lottery was first set up, the strategic business model was to have a certain amount of percentage of revenue contributed to public education,” Boliek said. “Does that make sense now moving forward? And does it make sense to put the emphasis on digital instant games moving forward? These are all reasonable policy questions that our team at the Auditor’s Office has recommended that both the Lottery Commission and the legislature start actually grappling with.”
Education Lottery CEO Mark Michalko, in the agency’s response, said the lottery will review the audit with its commission and that he and Chief Government Affairs Officer Hayden Bauguess will meet with legislative leaders on possible statutory changes. The lottery said it will keep meeting consumer demand, staying competitive, and maximizing the return to education.
Boliek spoke in Catawba County earlier this month at a free Old North State Republican Men’s Club program: State Auditor Dave Boliek addresses Old North State Republican Men’s Club in Catawba County. Related: State Board plans new school report card as grades improve · North Carolina public schools can claim new federal scholarship money · Nearly 75% of Hickory AP exams clear the college bar.
