North Carolina’s auditor says $100 of digital lottery play sends $7 to schools, and asks lawmakers to rethink the 38% target

The North Carolina Education Lottery sold $6.6 billion of tickets in fiscal 2025, up 51% from $4.3 billion two years earlier. It sent $1.08 billion to the state's Education Lottery Fund, up 6% from $1.02 billion. According to a performance audit released Tuesday by State Auditor Dave Boliek, the share of sales reaching schools fell from 23% to 16% over those two years, and the audit sets out to explain why.

The auditor estimated what happens to $100 spent on each kind of ticket after prizes and operating costs come out.

Digital instant games did not exist in North Carolina in fiscal 2023. In fiscal 2025 they were $2.6 billion of sales, about 40% of the total, and they are built to pay back about 87 cents of each dollar. Powerball and Mega Millions, which leave $39 of every $100 for education, saw North Carolina sales fall 52% and 26% as fewer jackpots passed $400 million. Scratch-off and draw game sales together slipped from $4.3 billion to just under $4 billion.

Where the money went

The audit checked the other places a sales dollar can go and cleared them. Administrative costs held at about 4% of sales, under the 5% statutory cap. Retailer commissions fell from nearly 7% of sales to about 4%, because digital games pay no store commission. Prizes were the whole story.

$50 scratch-offs, launched in December 2023 at an 80% payout, sold $588 million in fiscal 2025, about a fifth of all scratch-off revenue, and by the auditor's estimate sent $41.2 million to education. Cash Pop, launched in November 2024 at an average 67% payout, sold $69 million and sent an estimated $15.2 million. They were the only traditional products that grew.

The auditor's point is that the dollars and the percentage moved in opposite directions on purpose. Against a baseline where fiscal 2023 simply repeated itself twice, the lottery sold $3.3 billion more over the next two years and sent $140 million more to the Education Fund. A product can raise total education money and lower the education share at the same time, and digital games did both.

A 38% target that has never been met

State law says at least 38% of revenue should go to the Education Fund, alongside at least 50% to prizes, no more than 5% to administration, and no more than 7% to retailers. The audit notes the statute qualifies all of it with "to the extent practicable," and that the 38% figure has not worked as a requirement in practice. The original 2005 target was 35%. The lottery hit it in its first full year, and its average since inception is about 27%. The General Assembly raised the target to 38% in 2021, two years before digital games launched.

"The public should expect a certain level of performance with the education lottery," Boliek said in announcing the findings, according to WRAL. He did not propose a new number. The audit's recommendation is that the lottery and the General Assembly settle what the lottery is for, whether that means the most dollars possible to education, a fixed minimum percentage, or a defined balance of the two. If the percentage is the goal, the audit says lawmakers should ask whether 38% still fits what the lottery now sells.

In his written response, lottery CEO Mark Michalko agreed the two objectives "are not always compatible in a modern lottery environment," said lawmakers should consider whether 38% remains appropriate, and wrote that the lottery will "work to meet consumer demand, remain competitive and maximize return to education." He and the lottery's government affairs chief will meet with legislative leadership.

Every state with a big digital program looks like this

The audit compared North Carolina with nine other lotteries on the same two figures, digital share of sales and share transferred to the state.

The four states with no digital games transfer 20% to 32%. The four with the largest digital programs transfer 15% to 20%. Virginia, the audit's closest parallel, went from 27.7% transferred in fiscal 2020 to 20.8% in fiscal 2022 as digital games reached a third of sales, while its total transfers rose 31%. Kentucky raised its digital payout from about 74% in 2017 to 87% by 2025 and saw digital sales go from $5 million to $799 million over the same years.

The audit also records what happened the one time a state tried to legislate the payout down. Texas capped prize payouts in 1997 to send more to public purposes. Sales fell $655 million the next year and $518 million the year after, transfers fell $85 million and then $144 million, and the legislature repealed the cap within two years. The percentage went up briefly. The dollars went down.

The December fiscal audit first put the numbers on the table. This report is the explanation. What it leaves to the General Assembly is whether a lottery that pays out 87 cents on the dollar to keep players online is the lottery the state meant to create when it wrote 38% into the statute, and how much of that money reaches classrooms is a separate question the audit does not take up.

How we did this. All figures are from the North Carolina Office of the State Auditor's September 2026 performance audit, "North Carolina Education Lottery: Factors Affecting Transfers to Education," including its per-$100 product estimates, the FY2023 to FY2025 expense shares, the peer-state comparison, the Virginia, Kentucky, and Texas examples, and the lottery's written response. Boliek's spoken remarks are as reported by WRAL. Peer-state digital shares and transfer percentages are the audit's, drawn from each state's FY2025 financial statements, with Michigan at FY2024. Dollar figures are rounded as the audit rounds them.

Sources

WRAL: Auditor: May be time to change the math as lottery sales soar, money to schools doesn’t

North Carolina Office of the State Auditor: Performance Audit, North Carolina Education Lottery, Factors Affecting Transfers to Education, September 2026