Scenario_1_CA_Lottery_FY_24-25_Annual_Report.pdf

California State Lottery Committed to enhancing education and supporting local communities

Annual Comprehensive Financial Report For the Fiscal Year Ended June 30, 2025

Prepared by the Finance Division of the California Lottery

California Lottery Annual Comprehensive Financial Report For the Fiscal Year Ended June 30, 2025

TABLE OF CONTENTS

INTRODUCTORY SECTION (Unaudited) Letter of Transmittal GFOA Certificate of Achievement

14 Organization Chart with Principal Officials

FINANCIAL SECTION

Independent Auditors’ Report

Basic Financial Statements

Required Supplementary Information (Unaudited)

Management’s Discussion and Analysis (Unaudited)

Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Notes to Financial Statements

Schedule of Lottery's Proportionate Share of Net Pension Liability and Related Ratios Schedule of Employer Contributions Related to Pensions Notes to Schedule of Employer Contributions Schedule of Lottery's Proportionate Share of Net OPEB Liability and Related Ratios Schedule of Employer Contributions Related to OPEB

81 Notes to Schedule of Employer Contributions

STATISTICAL SECTION (Unaudited) Net Position by Component - Last Ten Fiscal Years Change in Net Position - Last Ten Fiscal Years Sales by Product - Last Ten Fiscal Years Expenses by Type - Last Ten Fiscal Years California Demographics and Economic Information California Industry Number of Employees by Size Category California Demographics for Population and Players U.S. Lottery Data for Fiscal Years 2024 and 2025 Number of Employees - Last Ten Fiscal Years Information About Operating Indicators Capital Assets, Net - Last Ten Fiscal Years Contributions to Education - Last Ten Fiscal Years

November 21, 2025

The Honorable Gavin Newsom, Governor Members of the Legislature Citizens of the State of California

The California State Lottery (Lottery) is pleased to provide this Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2025. The Finance Division of the Lottery prepared this ACFR to present an overview of the Lottery. Pursuant to Government Code section 8880.46.5, the ACFR includes the Lottery’s annual financial statements presented in accordance with accounting principles, and audited in accordance with auditing standards, generally accepted in the United States of America.

The ACFR covers the financial activity of the Lottery as a single enterprise fund. The report follows formal standards of the Government Finance Officers Association of the United States and Canada (GFOA). Government organizations that publish this type of report can be compared to each other because similar types of information are included in the reports.

This letter of transmittal is designed to complement the Management’s Discussion and Analysis that accompanies the financial statements and should be read in conjunction with it.

Lottery management is responsible for the accuracy and completeness of the presentation, including all disclosures in this report. To the best of our knowledge, the enclosed information is accurate in all material respects and is reported in a manner designed to present fairly the financial position, the results of operations, and the cash flows of the Lottery. All disclosures necessary to gain an understanding of the Lottery’s financial activities have been included.

California statutes require an annual financial audit by an independent Certified Public Accountant (CPA). The independent auditors’ report on the Lottery’s financial statements is included in the financial section of this report.

Profile of the Lottery

The Lottery was created by a 1984 ballot initiative that was approved by 58 percent of the voters. The Lottery was established as an independent state agency to market and sell lottery products to the California public. The Lottery Act specifies that the Lottery is operated and administered by a five-member Commission appointed by the Governor. A Director, who is also appointed by the Governor, serves as the chief administrator of the Lottery. The Legislature has the authority to amend the Lottery Act by a two-thirds majority if, by doing so, it furthers the purposes of the measure.

Lottery ticket sales began on October 3, 1985, with the sale of the first Scratchers® ticket game called “California Jackpot.” More than 21 million tickets were sold on the very first day and more than 1.7 billion tickets were sold in the first nine months.

Draw game sales began on October 14, 1986, with Lotto 6/49®. Daily draw games were introduced in March 1990. The Lottery currently offers eight draw games. Players have 180 days from the date of the drawing to claim prizes, except for the Mega Millions® and Powerball® jackpot prizes which can be claimed within one year. Retailers pay prizes up to and including $599 while prizes over $599 are paid directly by the Lottery. A brief description of each game is provided over the next two pages.

On April 8, 2010, the Legislature amended the Lottery Act with Assembly Bill (AB) 142. AB 142 requires the Lottery to return at least 87 percent of revenues to the public in the form of prizes and contributions to education, and established a cap of 13 percent of revenues as the amount the Lottery may spend on operating expenses. Prior to AB 142, the Lottery was required to return, as nearly as practical, 50 percent of revenues to the public in the form of prizes; at least 34 percent to public education; and allocate no more than 16 percent to administrative costs.

As a result of the revenue distribution changes from AB 142, the Lottery expects to continue to deliver increases in sales and revenues to the public in the form of both prizes and contributions to education.

Scratchers – Tickets are played by removing a scratch-off coating to reveal symbols and “instantly” learn whether the ticket is a winner. Games are offered in a variety of price-points and feature many different themes and play styles. The Lottery started Scratchers game sales in October 1985 with a single $1 game. Multiple Scratchers games were first offered at retailer locations in October 1991, and games that retailed for more than $1 went on sale in October 1993. For the fiscal year ended June 30, 2025, prices for Scratchers tickets ranged from $1 to $40, and games featured prizes up to $15 million.

Powerball – Players select five numbers from a field of 1 through 69 and one Powerball number from a field of 1 through 26. There are nine prize categories in this game. To win the jackpot, players must match all five numbers plus the Powerball number. The jackpot prize in this multi-state game reached a record high $2.04 billion in November 2022 and was won by a single ticket in California. Jackpots are determined by sales. Winning numbers are drawn every Monday, Wednesday, and Saturday at 7:59 p.m.

PST.

Mega Millions – Players select five numbers from a field of 1 through 70 and one Mega number from a field of 1 through 24. There are nine prize categories in this game. To win the jackpot, players must match all five numbers plus the Mega number. The jackpot prize in this multi-state game has reached as high as $1.60 billion in August 2023. Jackpots are determined by sales. Winning numbers are drawn every Tuesday and Friday at 7:59 p.m.

PST.

SuperLotto Plus® – Players select five numbers from a field of 1 through 47 and one Mega number from a field of 1 through 27. There are nine prize categories in this game. To win the jackpot, players must match all five numbers plus the Mega number. Jackpot prizes start at $7 million and have reached more than $190 million. Winning numbers are drawn every Wednesday and Saturday at 7:57 p.m. PST.

Hot Spot® – This game was designed primarily for social trade styles like restaurants and bowling centers, but is available at all Lottery retailer locations. Players select numbers from a field of 1 through 80 and have a choice of playing ten different “Spots.” For example, a player who chooses to play a “3 Spot” would pick a set of three numbers. Players can also select the “Bulls-eye” option for a chance at winning more prizes if one of their chosen numbers also matches the Bulls-eye number. There are a total of 92 prize categories (including the Bulls-eye prizes) in this game. Twenty winning numbers are selected for each draw, one of them being the Bulls-eye. Top prizes have been as high as $300,000. Draws are conducted daily every four minutes with the first draw at 6:04 a.m. and last draw at 2:00 a.m. PST.

Daily 3 – This daily game was designed to provide very good odds of winning smaller prizes. Players select a set of three numbers, each from 0 through 9, as well as a playstyle where players try to match the three numbers drawn in the exact order (Straight) or in any order (Box). Based on the selected playstyle (Straight, Box, or Straight/Box combined), there are many ways to win a prize. The top prizes average $535. Winning numbers are drawn twice a day.

Daily 4 – This daily game was designed to offer a similar playstyle to Daily 3, but with larger prizes. Players select a set of four numbers, each from 0 through 9, as well as a playstyle where players try to match whether the four numbers drawn will be in the exact order (Straight) or in any order (Box).

Based on the selected playstyle (Straight, Box, or Straight/Box combined), there are many ways to win a prize. The top prize averages $4,560. Winning numbers are drawn once a day.

Fantasy 5 – This daily Lotto-style game was designed with better odds than SuperLotto Plus. Players select a set of five numbers from 1 through 39.

Winning tickets are those that match any two, three, four, or all five of the five numbers drawn. There are four prize categories in this game. Top prizes start around $60,000 and have reached more than $700,000 for matching all five numbers. Fantasy 5 is the only draw game that has a free ticket as part of the prize structure, with tens of thousands of free tickets awarded each draw.

Daily Derby® – This daily game was designed with a horse racing theme but is not associated with the results of any actual horse race. Players select three “horses” from a field of 12 and a “race time” which is a set of three numbers (e.g. 0, 1, and 9) with each number selected from a field of 0 through 9. There are five prize categories in this game. Top prizes start at $50,000 and have reached more than $1.5 million for matching the race time and all three horses in exact order.

Distribution of Revenues (in billions)

October 3, 1985 - June 30, 2025

Contributions to education * $48.1

Retailer compensation $11.0

Game costs $3.2

Operating expense $6.2

Prizes $96.8

*Includes interest income, unclaimed prizes, and other income of more than $1.9 billion.

From its inception in 1985 through June 30, 2025, the Lottery has generated approximately $163.4 billion in sales and contributed more than $48 billion to education. The retailers who sell lottery tickets have received more than $11 billion in compensation and approximately $96.8 billion has been paid to lucky Lottery winners.

Additionally, by saving money on operations, the Lottery has given more money to schools than required. Since October 1985, the Lottery has contributed more than $1.7 billion to education through operational savings.

For the fiscal year ended June 30, 2025, the State Controller issued payments from the Lottery Education Fund to school districts, educational institutions, and state agencies. Payments are made quarterly based on Lottery income and unclaimed prizes.

Funds allocated to various educational entities for the fiscal year ended June 30, 2025, are as follows:

Entity Amount Allocated K-12 $ 1,542,746,941 Community Colleges 283,282,157 California State University 75,608,704 University of California 56,231,845 College of the Law, San Francisco 222,749 Department of Education - State Special Schools 130,083

Total $ 1,958,222,479

The table above is a display of the amount allocated to education during the fiscal year ended June 30, 2025, and does not reflect the total earned during the fiscal year.

Distribution to Education (in billions)

October 3, 1985 - June 30, 2025

Community Colleges $6.8

Miscellaneous* $3.0

K-12 $38.0

*Includes payments to California State University, University of California, College of the Law - San Francisco, California Maritime Academy, Department of Education - State Special Schools, Department of Corrections and Rehabilitation - Division of Juvenile Justice, Department of State Hospitals, and the Department of Developmental Services. Further details of school district and institutional total quarterly and total fiscal year payments are available on the State Controller’s website (www.sco.ca.gov).

www.sco.ca.gov

Relevant Financial Policies

Accounting System and Policies

The Lottery operates the California State Lottery Fund, an enterprise fund that, like a private business, utilizes the full accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Budgetary Controls

Budgetary control for the Lottery is addressed through its enabling legislation, which provides specific limitations on operating and administrative expenses. A comprehensive annual budget is prepared in conjunction with the Lottery’s Annual Business Plan. The budget is prepared on both the cash basis and the full accrual basis of accounting. It is also prepared in distinct, quarterly segments to facilitate comparison to the quarterly financial statements.

The budget is based on sales forecasts, industry trends, program proposals, and approved action plans. While the Lottery does not have a legislatively appropriated budget, the operating budget is submitted to the Lottery Commission with the Annual Business Plan for approval.

Actual costs are monitored throughout the year for compliance with the approved budget and appropriate adjustments are approved if necessary.

Internal Controls

An internal control structure has been designed to ensure that assets are protected from loss, theft, or misuse, and to ensure that the accounting system allows compilation of accurate and timely financial information. The internal controls are designed to provide reasonable assurance that these objectives are met. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements.

No matter how well internal controls are designed and operated, they can only provide reasonable assurances that the entity will be able to achieve its objective. Absolute assurance of the achievement of an objective cannot be obtained due to the limitations of any control system.

The human equation alone introduces the possibility of mistakes, judgment errors, control overrides, and even collusion. Each of these factors individually or in conjunction can reduce the entity’s ability to achieve its goal. Beyond the human equation, mechanical and technical breakdowns can have equal measure in displaying the limitations of internal controls. Finally, unforeseen circumstances and factors can also materialize that require changes to the traditional internal control structure.

To enhance controls, Lottery management has separate responsibilities and provides approval and oversight for the following functions: personnel and payroll; purchasing and accounts payable; cash receipts and cash disbursements; retailer network management and retailer accounts receivable; and system data processing and system programming. Reviews of operations are achieved by the following procedures:

Internal Audits: Internal Audit personnel provide a continuing review of the internal controls and operations of the Lottery.

Draw verification: An independent CPA firm witnesses the draws of Lottery games (except for computer automated drawings of Hot Spot), and inspects all equipment used in such draws.

The following measures have been implemented to ensure the integrity of the Lottery:

• Specialized security and law enforcement staff

• Secured facilities and gaming equipment

• Background checks on retailers, contractors, and Lottery employees

• Lottery tickets with special inks, dyes, and security codes

• Detailed and strict security procedures for game drawings

• Lottery random number generators in stand-alone systems, certified by an independent

CPA firm prior to installation

• Lottery draw balls weighed and measured once a month to ensure standard compliance set by the Weights and Measures Division of the California Department of Agriculture

Employees

As of June 30, 2025, the Lottery Commission authorized a total of 1,148 positions for the Lottery’s headquarters located in Sacramento; for its nine district offices located in Sacramento, Milpitas, Richmond, Fresno, Chatsworth, Rancho Cucamonga, Santa Fe Springs, Costa Mesa, and San Diego; and for its two distribution centers located in West Sacramento and Rancho Cucamonga.

Major Initiatives

The California Lottery achieved sales approaching $9 billion during fiscal year 2024-25, which led to a contribution exceeding $1.9 billion for its designated beneficiary, California public schools. This milestone marks the 25th straight year that the Lottery has delivered more than $1 billion to its beneficiary, bringing total contributions of more than $48 billion since its inception four decades ago.

Scratchers games continued to be the primary contributor to Lottery sales, generating almost $6.9 billion and representing more than 77 percent of overall sales in the fiscal year. To further boost the funds allocated to its beneficiary, the Lottery has established prize payout levels intended to optimize returns, introducing its inaugural $25 Scratchers game called "2025" and a $40 Scratchers game titled "40 Years of Play," which commemorates four decades of supporting public school funding. Additionally, crossword-themed Scratchers and games with higher price points maintained strong performance throughout the fiscal year.

Powerball and Mega Millions, which are the Lottery's two multi-state draw games, collectively produced nearly $1 billion in sales, making up more than 10 percent of the total sales for the fiscal year. The decline in sales, compared to the previous fiscal year, stems from both Mega Millions and Powerball having significantly lower jackpot levels than usual, with only two draws where the announced jackpot was $1 billion or more in fiscal year 2024-25, compared to 13 such draws in fiscal year 2023-24. During this timeframe, the Mega Millions game was updated to include better overall odds, larger starting jackpots, and a built-in multipliers feature for non-jackpot prizes, with the cost of tickets increasing from $2 to $5. These enhancements are expected to generate increased revenue to benefit public education.

Sales of California’s own lotto-style game, SuperLotto Plus, continued to be driven by jackpot levels. SuperLotto Plus kicked off the fiscal year with a $54 million jackpot awarded to one lucky winner, and was followed by another lengthy run that ended with another player securing a $47 million jackpot prize. Despite the fact that subsequent jackpots during the fiscal year did not reach those earlier heights, SuperLotto Plus sales still exceeded $230 million for the year, although this figure marks a modest decline compared to the previous fiscal year.

The Hot Spot game experienced another successful year, with sales exceeding $424 million in fiscal year 2024-25, remaining consistent with the previous year’s results. The Lottery maintained collaboration with its retail partners to further promote the game. Additionally, the Lottery introduced a Hot Spot Scratchers game, featuring a complimentary Hot Spot play prize designed to motivate players to cross-play between the various kinds of Lottery games.

Lastly, sales of the Lottery's four daily games (Fantasy 5, Daily 3, Daily 4, and Daily Derby) totaled more than $426 million combined in fiscal year 2024-25, showing little change compared to the previous year’s sales.

The Lottery continues its commitment to its employees, retail partners, players, and the public at large to fulfill its critical mission of supplementing education funding. During fiscal year 2024-25, the Lottery’s network of retail partners consisted of more than 23,000. The Lottery supports its retail partners by making its product more appealing, fun, and exciting for Lottery players.

Furthermore, the successful rollout of "Paying Claims at the District Office" initiative in all nine district offices statewide has led to a decrease in the number of claims managed at Lottery headquarters and shortened the waiting period for prizewinners to receive their winnings.

Eligible prizewinners with validated claims can now receive checks instantly at district offices for qualifying prizes. Throughout the 2024-25 fiscal year, district offices issued upwards of 102,000 checks, distributing more than $106 million in total winnings.

In the 2024-25 fiscal year, the Lottery enhanced its successful advertising initiative, You Play, Schools Win, by introducing innovative creative formats and updating its messaging. This campaign, aimed at informing Californians about the Lottery’s purpose, showcased authentic narratives from actual students and educators within genuine educational settings. The goal was to connect with segments of the public who had the least understanding of the Lottery’s role in providing additional support to California’s public schools.

The Lottery recognizes it has a responsibility to its players to encourage responsible gaming.

During fiscal year 2024-25, the Lottery was re-certified at the highest level, Level 4 Responsible Gaming, from the World Lottery Association.

The Lottery also continues its commitment to environmental sustainability regarding its buildings and operations. Nine Lottery buildings throughout the state, including its headquarters building, have earned the ENERGY STAR rating from the United States Environmental Protection Agency. In addition to protecting the environment, these energy-efficient buildings require lower operating costs, which supports the Lottery’s mission of earning more money for its beneficiary.

Economic Outlook*

The U.S. and California economies generally performed in line with budget forecast,experiencing slowing but relatively stable growth during a mature economic expansion. However, the outlook has abruptly and significantly dampened because of various federal policies, including broad and elevated tariffs, strict immigration policies, and cuts to the federal government workforce. As a result of this, the U.S. Gross Domestic Product (GDP) growth is projected to be downgraded by

0.3 percentage points per year on average from 2025 to 2028.

As the Federal government continues to impose tariffs on our trade partners and these tariffs have not stabilized, it is difficult to predict economic growth. The state is expected to be specially vulnerable to tariffs as California serves as a gateway to goods imported from Asia and as Canada, Mexico and China are three of the state’s largest trading partners. The cost of these tariffs is expected to be passed on to consumers, leading to increased inflation across all major consumer price index (CPI) categories.

U.S. inflation was projected to decelerate from 2.9 percent in 2024 to 2.3 percent in 2025, broadly reaching the Federal Reserve’s inflation target rate of 2 percent. However, due to the inflationary impact of tariffs, the inflation forecast is revised significantly higher for both the nation and the state, by more than a full percentage point in 2025 and 2026. Tariffs are expected to push prices upward. California inflation is projected to accelerate from 3.1 percent in 2024, to 3.8 percent in 2025 and 3.5 percent in 2026. This is up from the previous projection of 2.3 percent in 2025 and 2.6 percent in 2026.

California's job market lost 18,000 jobs per month in the first three months of 2025, while the Governor’s Budget had projected a gain of 13,000 per month. Unlike California, the nation’s labor market remains comparably more stable as the U.S. added 144,000 jobs per month in the first four months of 2025. The state is downgrading their growth projection as growth is expected to slow through 2026. This is driven mainly by impacts from tariffs which are broadly assumed to dampen job growth across most sectors but particularly in manufacturing, leisure and hospitality, trade, transportation and utilities sectors.

The federal administration's approach to tariff policies has been remarkably inconsistent thus far, with tariff schedules changing frequently and making it very difficult for consumers and businesses to plan. Even if federal policy in this area were to stay stable for a period of time, tariffs near or above the current levels have no recent historical precedent and are expected to spur inflation and distort many goods markets, significantly impeding economic growth.

Due to uncertainties in federal administration policies on tariffs, immigration, and taxes, the economy may face effects such as increased inflation from higher goods costs. This could potentially reduce consumer spending and impact businesses. Persistent inflation might lead the Federal Reserve to maintain higher target interest rates for a longer period, which could affect business and consumer confidence and result in lower economic growth. Additionally, there are ongoing geopolitical risks, including natural disasters like wildfires, droughts, or floods, and the state's high living costs, particularly due to persistent housing shortages, continue to influence the economy.

*Department of Finance, excerpted from the 2025-2026 May Revision to the Governor’s Budget Summary, Economic Outlook section.

Acknowledgments

The GFOA awarded a Certificate of Achievement for Excellence in Financial Reporting to the Lottery for its Annual Comprehensive Financial Report (ACFR) for 20 fiscal years. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year. We believe that our current ACFR continues to meet the Certificate of Achievement Program’s requirements.

This report demonstrates the professionalism and dedicated team effort of Lottery employees.

We appreciate their contribution to the success of this report. The Lottery is committed to providing thorough and relevant financial information to the public. This ACFR reflects our commitment to meet the highest standards of accountability and to maintain public trust through the highest ethics, integrity, and transparency.

Respectfully submitted, Nicholas Buchen Deputy Director Finance Division

California State Lottery Commission

Ensuring integrity, security, fairness, and transparency.

The Lottery Act requires that the five-member Commission – appointed by the Governor – be comprised of no more than three members from the same political party; one must be a Certified Public Accountant and another must have at least five years of experience as a law enforcement officer. The Commission meets at least once a quarter and their meetings are open to the public.

Anthony Garrison-Engbrecht Lottery Commission Chair Dr. Anthony Garrison-Engbrecht is a dedicated higher education administrator and educator committed to crafting transformative, holistic student experiences that meet individuals where they are and empower them to reach their fullest potential. Currently serving as the Vice President of Student Affairs at the California Institute of the Arts, he brings a wealth of experience and a proven track record in student life leadership. Previously, Garrison-Engbrecht served as the Vice President of Student Life at Saint Mary's College of California. He has also held leadership positions at the University of California - Merced, the University of California - Berkeley, and Loyola Marymount University.

Throughout his career, Garrison-Engbrecht has consistently demonstrated a steadfast commitment to increasing access to education, cultivating inclusive campus environments, and elevating student engagement. Garrison-Engbrecht earned a BA in Sociology from Loyola University New Orleans, an MA in Education and Psychology from Pepperdine University, and an MA in Theology from Loyola Marymount University. He pursued his graduate studies in Culture and Curriculum at Chapman University and Rural Education at Oregon State University. His research interests encompass the impact of rurality and poverty on college access.

Keetha Mills Lottery Commission Vice Chair Ms. Mills is President and Chief Executive Officer of the Foundation for California Community Colleges (Foundation), the nonprofit auxiliary serving the California Community Colleges Board of Governors, Chancellor's Office, and all 116 colleges. Ms. Mills' professional background includes over 20 years of experience in executive leadership, finance, accounting, and operations. Prior to joining the Foundation, she served in a management role at Hines Interest Limited Partnership and held several regional positions at Planned Parenthood, including Chief Financial Officer of Planned Parenthood of Houston and Southeast Texas, Interim Chief Executive Officer of Planned Parenthood of Louisiana and the Mississippi Delta, and Chief Operating Officer of Planned Parenthood Gulf Coast. Earlier in her career, Ms. Mills worked with two of the nation's largest accounting firms at the time, Arthur Andersen and PricewaterhouseCoopers, and held positions at Dynegy. A community college alumna, Ms. Mills earned her associate of arts degree in business administration from Lee College in Baytown, Texas, and her bachelor of science degree in accounting from the University of Houston.

California State Lottery Commission (continued)

Tiffani Alvidrez Lottery Commission Member Tiffani Alvidrez leads strategic initiatives for public sector ecosystem expansions for NVIDIA. Prior to this role, she served as a Regional Policy Manager for Instacart, where she used her deep knowledge of public policy and her political acumen to help shape complex, cutting-edge public policy debates that define the future of work and e-commerce in the western region of the United States. Before that, she built a career in California state policy and politics. She spent 10 years as a Chief of Staff in the California State Legislature and held positions at every level of state government, including a former governor’s administration and as a state civil servant. Tiffani serves on the boards of Leadership California and the Environmental Justice League. She is also a member of the SALA Series, a community of leaders from a variety of industry sectors who share a common motivation to engage around important societal and business matters and help drive positive change. Tiffani has a Bachelor of Arts degree from the University of California, Davis, and a Masters in Business Administration. She is a proud member of Alpha Kappa Alpha Sorority, Inc. Tiffani currently resides in the Sacramento area.

Alexandre Rasouli, M.D.

Lottery Commission Member Alexandre Rasouli, M.D. is a nationally-recognized, board-certified spine surgeon who specializes in the surgical and nonsurgical management of cervical, thoracic and lumbar disorders of the spine, degenerative disorders, spinal trauma, adult and pediatric deformity, spinal oncology and minimally invasive surgery. He has been the medical director of RasouliSpine since 2006. He received his undergraduate degree from Stanford University and his Doctor of Medicine degree from the University of California, Irvine. He has been a Consultant Reviewer at the Journal of Bone & Joint Surgery since 2008. Rasouli is a member of the North American Spine Society and serves on the medical board of the International Society of Children with Cancer.

California State Lottery Commission updated as of October 31, 2025.

California State Lottery Management Team

Director Harjinder K. Shergill-Chima brings extensive experience to the California Lottery. She served Lottery in the capacity of Chief Deputy Director for four years before Governor Gavin Newsom appointed her to the Director position.

Prior to Lottery, Shergill-Chima was Assistant General Counsel at the California Government Operations Agency from 2018 to 2019. Before that, she was an Attorney at the California Department of Transportation from 2004 to 2018. She was an Associate at Rich, Fuidge, Morris & Iverson Inc. from 2002 to

Harjinder K. Shergill-Chima 2004 and at Reinecke & Daily in 2001. She earned a Bachelor of Science degree in Criminal Justice from California State

Director University, Sacramento and a Juris Doctor degree from Whittier Law School.

Shergill-Chima is the first Indian American serving as Director of the California Lottery.

Florence Bernal Chief Deputy Director

Fernando Aceves Chief Legal Counsel

Sharon Allen Deputy Director Sales & Marketing

Carolyn Becker Deputy Director Public Affairs & Communications

Nicholas Buchen Deputy Director, CFO Finance

Jean Cooper Deputy Director Operations

Chris Fernandez Deputy Director Human Resources

Jim Hasagawa Deputy Director Business Planning

Paula Negrete Deputy Director External Affairs

John Lowden Deputy Director Security & Law Enforcement

Sara Sheikholislam Deputy Director Internal Audits

Chris Lopez Deputy Director Information Technology Services

Cristina Ruelas-Barriga Equal Employment Opportunity Officer

Anthony Edmonds Enterprise Risk & Optimization Officer

Lottery management team updated as of October 31, 2025.

2300 North Field Street, Suite 1000 Dallas, Texas 75201

972-490-1970

Independent Auditor’s Report

The Commissioners California State Lottery Fund, State of California

Opinion

We have audited the accompanying financial statements of the California State Lottery Fund (the Lottery), a proprietary fund of the State of California, which comprise the statement of net position (deficit) as of June 30, 2025, the related statements of revenues, expenses, and changes in net position (deficit) and cash flows for the year then ended, and the related notes to the financial statements, which collectively comprise the Lottery’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the Lottery as of June 30, 2025, and the changes in financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Lottery and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter

As discussed in Note 1, the financial statements present only the Lottery and do not purport to, and do not, present fairly the financial position of the State of California as of June 30, 2025, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Lottery’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Weaver and Tidwell, L.L.P.

21 CPAs AND ADVISORS | WEAVER.COM https://WEAVER.COM

The Commissioners California State Lottery Fund

Auditor’s Responsibility for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions.

Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

Exercise professional judgment and maintain professional skepticism throughout the audit.

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Lottery’s internal control. Accordingly, no such opinion is expressed.

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Lottery’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of proportionate share of the net pension liability and related ratios, schedule of employer contributions related to pensions, schedule of proportionate share of net other postemployment benefits liability and related ratios and schedule of employer contributions related to other postemployment benefits on pages 25-33 and 73-82 be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Management is responsible for the other information included in the annual comprehensive financial report. The other information comprises the introductory section and statistical section but does not include the basic financial statements and our auditor’s report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon.

The Commissioners California State Lottery Fund

In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.

WEAVER AND TIDWELL, L.L.P.

Dallas, Texas November 21, 2025

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MANAGEMENT'S DISCUSSION AND ANALYSIS

(Unaudited)

The following discussion and analysis of the California State Lottery’s (Lottery) financial performance provides an overview of financial activities for the fiscal year ended June 30, 2025.

Please read it in conjunction with the Lottery financial statements that follow this section.

FINANCIAL HIGHLIGHTS

• During fiscal year 2024-25, the Lottery recorded nearly $9 billion in sales, resulting in a contribution of more than $1.9 billion to its designated beneficiary. This achievement represents the 25th consecutive year in which the Lottery has provided over $1 billion to its beneficiary, with cumulative contributions surpassing $48 billion over the past four decades since the Lottery was established.

▪ Scratchers games remain the biggest driver of Lottery's sales with approximately $6.9 billion and accounted for 77.2 percent of the total sales during the fiscal year. This strong performance is largely attributed to the ongoing popularity of the crossword-themed Scratchers game, the success of two special anniversary edition games, and the launch of the Lottery’s first ever $40 Scratchers game, "40 Years of Play," which celebrates forty years of supporting public school funding.

▪ Powerball and Mega Millions, the Lottery's two multi-state draw games, together generated close to $1 billion in sales and accounted for 10.7 percent of total sales for the fiscal year. During this period, Mega Millions was enhanced by introducing a new $5 price point wager, which now offers improved overall odds, higher initial jackpots, and an integrated multipliers element. These modifications to the game are anticipated to bring in more funds to support public education.

▪ The Lottery paid out more than $6.6 billion in the form of prizes and retailer compensation during the fiscal year. Of this, the Lottery paid approximately $6 billion in prizes to players, and more than $614.8 million in commissions, cashing bonuses, and other applicable compensation to retailers.

OVERVIEW OF THE FINANCIAL STATEMENTS

These required statements offer short-term and long-term financial information about the Lottery.

The statement of net position (deficit) provides information about the nature and amounts of investments in resources (assets and deferred outflows of resources) and obligations (liabilities and deferred inflows of resources) at the close of the fiscal year. All of the current year’s revenues and expenses are accounted for in the statement of revenues, expenses, and changes in net position (deficit). This statement measures the success of the Lottery’s operations over the past year. The final required financial statement is the statement of cash flows. The primary purpose of this statement is to provide information about the Lottery’s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, and financing activities, and provides answers to such questions as from where did cash come and for what was cash used. The financial statements are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America. The Lottery is structured as a single enterprise fund with revenues recognized when earned, not when received.

Position

(Unaudited)

FINANCIAL ANALYSIS

NET POSITION (DEFICIT)

A summary of the California State Lottery's net position (deficit) is presented below:

Percent June 30, 2024 June 30, 2025 Dollar Change

Current and other assets $ 1,948,798,354 $ 1,966,224,007 $ 17,425,653 Capital assets 176,881,782 172,555,349 (4,326,433) Total assets $ 2,125,680,136 $ 2,138,779,356 $ 13,099,220

Deferred outflows of resources $ 164,347,479 $ 147,053,212 $ (17,294,267) Total assets and deferred $ 2,290,027,615 $ 2,285,832,568 $ (4,195,047) outflows Current liabilities $ 1,519,287,232 $ 1,538,694,468 $ 19,407,236 Non-current liabilities 974,001,950 964,700,059 (9,301,891) Total liabilities $ 2,493,289,182 $ 2,503,394,527 $ 10,105,345

Deferred inflows of resources $ 92,338,832 $ 70,796,356 $ (21,542,476) Total liabilities and deferred $ 2,585,628,014 $ 2,574,190,883 $ (11,437,131) inflows Net investment in capital assets $ 171,072,647 $ 168,873,761 $ (2,198,886) Restricted by legislation (50,237,987) — 50,237,987 Unrestricted deficit (416,435,059) (457,232,076) (40,797,017)

Change

0.9 %

(2.4) %

0.6 %

(10.5) % (0.2) %

1.3 % (1.0) %

0.4 %

(23.3) % (0.4) %

(1.3) % (100.0) %

9.8 % Total net position $ (295,600,399) $ (288,358,315) $ 7,242,084 (2.4) %

During fiscal year 2024-25, the Lottery's net position increased $7.2 million to a net deficit of $288.4 million. Most of the increase is attribute to the decrease in pension and OPEB liability.

The net deficit also includes a net investment in capital assets of $167.4 million specifically land, buildings, and various equipment to run the Lottery, along with a $1.5 million net investment in leased assets, such as Lottery vehicles and software subscriptions. The total cost of these assets, approximately $358.9 million, is partially offset by accumulated depreciation totaling $186.3 million.

As of June 30, 2025, the Lottery incurred a net deficit within the funds restricted by legislative requirements designated to cover annuitized prize liabilities, as well as updates in how the state’s pension and other postemployment benefits (OPEB) are accounted for. Since GASB standards do not allow a negative restricted balance, this deficit was reclassified as unrestricted within the Statement of Net Position in the financial statements. For further information regarding the Lottery’s investment holdings, capital assets, pension and OPEB arrangements, please refer to Notes 2, 5, and 10 respectively.

(Unaudited)

CHANGE IN NET POSITION (DEFICIT)

A summary of the California State Lottery's change in net position (deficit) is presented below:

Operating revenues - Lottery sales

June 30, 2024 June 30, 2025 Dollar Change

$ 9,275,114,092 $ 8,932,712,123 $ (342,401,969)

Percent Change

(3.7) %

Prizes Sales after prizes

6,031,571,558 5,994,177,466 (37,394,092) $ 3,243,542,534 $ 2,938,534,657 $ (305,007,877)

(0.6) % (9.4) %

Game costs Income before operating expenses

Operating expenses

785,214,602 769,185,999 (16,028,603) $ 2,458,327,932 $ 2,169,348,658 $ (288,979,274)

300,159,146 325,120,518 24,961,372

(2.0) % (11.8) %

8.3 % Operating income $ 2,158,168,786 $ 1,844,228,140 $ (313,940,646) (14.5) %

Non-operating expenses $ (2,174,697,405) $ (1,836,986,056) $ 337,711,349 (15.5) % Change in net position $ (16,528,619) $ 7,242,084 $ 23,770,703 (143.8) %

Total net position - beginning of year (279,071,780) (295,600,399) (16,528,619) 5.9 %

Total net position - end of year $ (295,600,399) $ (288,358,315) $ 7,242,084 (2.4) %

(Unaudited)

REVENUES

The following chart shows the major sources and the percentages of operating revenues for the fiscal year ended June 30, 2025:

Operating Revenues

Scratchers games 77.2%

Hot Spot game 4.7%

Daily games 4.8%

Lotto games 13.3%

A summary of total revenues for the fiscal years ended June 30, 2024 and 2025, and the amount and percentage of change in relation to prior year amounts is as follows:

Percent June 30, 2024 June 30, 2025 Dollar Change Change

Operating revenues:

Lotto games $ 1,861,671,725 $ 1,189,825,216 $ (671,846,509) (36.1) % Scratchers games 6,561,264,485 6,892,391,897 331,127,412 5.0 % Hot Spot game 424,739,564 424,355,620 (383,944) (0.1) % Daily games 427,438,318 426,139,390 (1,298,928) (0.3) %

Total operating revenues $ 9,275,114,092 $ 8,932,712,123 $ (342,401,969) (3.7) % Non-operating revenues:

Unrealized gains (losses) on $ (15,444,317) $ 8,084,716 $ 23,529,033 (152.3) % investments Interest accreted/earned on 23,053,950 21,245,635 (1,808,315) (7.8) % investments Interest on funds held by State 62,441,489 42,251,452 (20,190,037) (32.3) % Treasurer Other income 194,418 127,593 (66,825) (34.4) %

Total non-operating revenues $ 70,245,540 $ 71,709,396 $ 1,463,856 2.1 % Total revenues $ 9,345,359,632 $ 9,004,421,519 $ (340,938,113) (3.6) %

Revenues to Education Allocation of sales $…