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Lottery surprises with $81M surplus

CHARLESTON, W.Va. --  The West Virginia Lottery ended the just-completed budget year with an $81 million surplus, giving state revenues a surprising boost, but agency officials say the future remains challenging at best in the face of increasing competition from border states.

The stronger-than-expected results also remain below the lottery's peak returns during the past decade, suggesting its best years may be behind it because of these market forces.

"We view this as uncharted territory," said James Toney, the lottery's chief financial officer. "No state lottery has gone through this particular type of competition before. We're gauging these things as we're moving through the environment."

Lottery sales topped $1.45 billion for the year that ended June 30, a better showing than either of the two previous fiscal years. Officials had forecast $1.32 billion, or a nearly 5 percent decline from the prior year.

Lottery Director John Musgrave expects $81 million in surplus revenue once proceeds satisfy their obligations for the year. The state budget for the just-completed year included $521.5 million in spending backed by lottery dollars. These revenues fund the PROMISE college scholarship program and other areas of education, as well as programs meant to help seniors and tourism.

The lottery has become a vital revenue source for state government, supplying more than $6 billion over the past 10 years. It has also provided $221 million to county and local governments during that time, including an estimated $22 million during the just-completed budget year.

West Virginia's lottery hasn't been limited to scratch-off tickets and games like Powerball and Mega Millions since the early 1990s. These more traditional offerings accounted for $201 million of the year's sales. The largest share, nearly $765 million, came from the nearly 9,000 video slot- and poker-style machines hosted by the state's four racetracks.

These machines reversed several years of declines. They were also expected to bring in only $712 million for the year, largely because of neighboring competition. A majority of the state's racetrack gamblers hail from other states. But neighboring Pennsylvania, Maryland and most recently Ohio have all opened their own gambling venues over the past decade. Two of West Virginia's tracks are located in the Northern Panhandle. A third and largest in terms of revenues, Hollywood Casino at Charles Town Races, is in the Eastern Panhandle.

Both Musgrave and Toney cited the pacing of Ohio's emerging network of four casinos. Two opened in Cleveland and Toledo in May, with the others slated for Cincinnati and Columbus. A racetrack outside Columbus, meanwhile, added 1,800 video slot machines last month.

"We had anticipated that the competition from Ohio would have accelerated and come on board in December. It did not start until June," Toney said.

Musgrave said West Virginia's tracks also benefited from the mild winter. The fragile recovery may have played a role as well.

"We noticed that at some of our facilities, we had the same number of individuals as we had previously, but they were spending less money," Musgrave said of operations during the past several years. "Overall, the gaming industry nationwide was up about 6 percent."

But with the Ohio casinos opening their doors and the Scioto Downs track offering video lottery, West Virginia officials estimate that in-state sales will drop to $1.13 billion during the year that began July 1, a 14 percent decline from the prior year's forecast.

"We still expect next year to have severe competition from Ohio, and from Pennsylvania, and for that matter from Maryland," Musgrave said.

West Virginia's tracks -- some of which are operated by companies that also run competing venues in these border states -- lobbied the Legislature to allow them to pursue casino table games in 2007 in response to this competition. All four tracks have since become full-blown casinos with these games. Lawmakers also approved table games for The Greenbrier resort, which opened its casino in 2010.

The table games are also part of the lottery system, and saw gross receipts reach $229 million during the just-completed year. The overall results beat the previous year's figures, though largely because of Charles Town with the other casinos either keeping pace with the prior year or falling below it. These games, plus The Greenbrier's video slots, have so far yielded $237 million in revenues, including $81 million during this past year.

The past year also proved one of the best yet for the thousands of video lottery machines found in licensed bars and clubs throughout the state, with net revenues of $190 million. The proceeds improved over either of the previous two years even though the number of machines and locations has declined since 2006. There were 7,390 machines operating in 1,478 bars and clubs last month.

"We cut back purposely on the number," said Musgrave, citing the recent bidding for new 10-year licenses for these machines. "We felt it would be an adequate number to generate the same revenue."


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