CALIFORNIA STATE LOTTERY FUND

Financial Statements

June 30, 2025 (With Independent Auditor's Report)

2300 North Field Street, Suite 1000 Dallas, Texas 75201

972-490-1970

Weaver and Tidwell, L.L.P.

CPAs AND ADVISORS | WEAVER.COM

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.

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.

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 4-12 and 48-55 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.

WEAVER AND TIDWELL, L.L.P.

Dallas, Texas November 21, 2025

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.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Unaudited)

FINANCIAL ANALYSIS

NET POSITION (DEFICIT)

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

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

Current and other assets $ 1,948,798,354 $ 1,966,224,007 $ 17,425,653 0.9 % Capital assets 176,881,782 172,555,349 (4,326,433) (2.4) % Total assets $ 2,125,680,136 $ 2,138,779,356 $ 13,099,220 0.6 %

Deferred outflows of resources $ 164,347,479 $ 147,053,212 $ (17,294,267) (10.5) % Total assets and deferred outflows $ 2,290,027,615 $ 2,285,832,568 $ (4,195,047) (0.2) %

Current liabilities $ 1,519,287,232 $ 1,538,694,468 $ 19,407,236 1.3 % Non-current liabilities 974,001,950 964,700,059 (9,301,891) (1.0) % Total liabilities $ 2,493,289,182 $ 2,503,394,527 $ 10,105,345 0.4 %

Deferred inflows of resources $ 92,338,832 $ 70,796,356 $ (21,542,476) (23.3) % Total liabilities and deferred inflows $ 2,585,628,014 $ 2,574,190,883 $ (11,437,131) (0.4) %

Net investment in capital assets $ 171,072,647 $ 168,873,761 $ (2,198,886) (1.3) % Restricted by legislation (50,237,987) — 50,237,987 (100.0) % Unrestricted deficit (416,435,059) (457,232,076) (40,797,017) 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS

CHANGE IN NET POSITION (DEFICIT)

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

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

Operating revenues - Lottery sales $ 9,275,114,092 $ 8,932,712,123 $ (342,401,969) (3.7) % Prizes 6,031,571,558 5,994,177,466 (37,394,092) (0.6) %

Sales after prizes $ 3,243,542,534 $ 2,938,534,657 $ (305,007,877) (9.4) %

Game costs 785,214,602 769,185,999 (16,028,603) (2.0) % Income before operating expenses $ 2,458,327,932 $ 2,169,348,658 $ (288,979,274) (11.8) %

Operating expenses 300,159,146 325,120,518 24,961,372 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) %

MANAGEMENT'S DISCUSSION AND ANALYSIS

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:

June 30, 2024 June 30, 2025 Dollar Change Percent 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 investments $ (15,444,317) $ 8,084,716 $ 23,529,033 (152.3) % Interest accreted/earned on investments 23,053,950 21,245,635 (1,808,315) (7.8) % Interest on funds held by State Treasurer 62,441,489 42,251,452 (20,190,037) (32.3) % 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) %

MANAGEMENT'S DISCUSSION AND ANALYSIS

REVENUES (continued)

Lottery operating revenue decreased $342.4 million or 3.7 percent from the previous fiscal year. Lotto games showed the biggest decline in sales, with a decrease of $671.8 million or 36.1 percent. The decrease in sales is primarily due to Mega Millions and Powerball reaching much lower than typical jackpot levels, with only two draws in which the advertised jackpot exceeded $1 billion or more in fiscal year 2024-25 (by comparison, there were 13 such draws in fiscal year 2023-24). Scratchers sales increased $331.1 million or 5 percent due to the continued popularity of our crossword-theme and higher price point games, including our first $40 price point game with a $15 million top prize. Daily games and Hot Spot game sales fell approximately $1.7 million or 0.4 percent combined from the previous fiscal year. Non-operating revenue increased approximately $1.5 million from the previous fiscal year primarily due to unrealized gains on investments.

EXPENSES

The Lottery Act requires that the Lottery return not less than 87 percent of annual revenues to the public in the form of prizes and contributions to education, and spend no more than 13 percent of annual revenues on operating expenses. Lottery prize payments, contributions to education, and operating expenses are shown below as a percentage of operating revenue for the year ended June 30, 2025.

Lottery Sales $ 8,932,712,123 100.0 %

Revenue returned to the public Prizes $ 5,994,177,466 67.1 % Allocation of sales to education 1,844,228,139 20.6 %

Total revenue returned to the public $ 7,838,405,605 87.7 %

Expenses of the Lottery Retailer costs $ 614,805,168 6.9 % Game costs 154,380,831 1.7 % Operating expenses 325,120,518 3.7 %

Total expenses of the Lottery $ 1,094,306,517 12.3 %

A summary of the total funds transferred by the Lottery to the education community for the fiscal year ended June 30, 2025, is shown below.

Revenues to Education Allocation of sales $ 1,844,228,139 Unclaimed prizes directly allocated to the Education Fund 44,968,741 Interest income 42,251,452 Other income 127,593

Total declared for allocation to the Education Fund $ 1,931,575,925

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXPENSES (continued)

The following chart shows prizes, retailer costs, game costs, operating expenses, and allocation to education as a percentage of operating revenues for the fiscal year ended June 30, 2025:

Prizes and Allocation of Sales Returned to the Public, and Expenses of the Lottery as a Percentage of Operating Revenues

Prizes 67.1%

Retailer costs 6.9%

Game costs 1.7%

Operating expenses 3.7%

Allocation of sales to education 20.6%

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXPENSES (continued)

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

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

Prizes:

Draw game prizes $ 1,383,320,213 $ 1,062,429,565 $ (320,890,648) (23.2) % Scratchers game prizes 4,648,251,345 4,931,747,901 283,496,556 6.1 %

Total prizes $ 6,031,571,558 $ 5,994,177,466 $ (37,394,092) (0.6) %

Game costs:

Retailer costs $ 632,678,900 $ 614,805,168 $ (17,873,732) (2.8) % Draw/Scratchers game costs 152,535,702 154,380,831 1,845,129 1.2 %

Total game costs $ 785,214,602 $ 769,185,999 $ (16,028,603) (2.0) %

Operating expenses:

Salaries, wages, and benefits $ 123,281,104 $ 142,049,639 $ 18,768,535 15.2 % Advertising 101,755,246 108,469,821 6,714,575 6.6 % Promotion, public relations, and point of sale 12,229,984 13,310,553 1,080,569 8.8 % Other professional services 21,662,247 21,753,318 91,071 0.4 % Depreciation and amortization 14,518,446 15,274,619 756,173 5.2 % Other general and administrative expenses 26,712,119 24,262,568 (2,449,551) (9.2) %

Total operating expenses $ 300,159,146 $ 325,120,518 $ 24,961,372 8.3 %

Non-operating expenses:

Allocation to Education Fund $ 2,220,804,693 $ 1,886,607,184 $ (334,197,509) (15.0) % Interest imputed on annuitized prize liability 24,138,252 22,088,268 (2,049,984) (8.5) %

Total non-operating expenses $ 2,244,942,945 $ 1,908,695,452 $ (336,247,493) (15.0) %

Total expenses $ 9,361,888,251 $ 8,997,179,435 $ (364,708,816) (3.9) %

Draw game prize expense decreased primarily due to lower sales of the Lotto games. Scratchers prize expense rose with increased sales of our popular crossword-themed and higher-priced Scratchers games. Advertising and promotional costs increased as the Lottery continues to explore new ways to expand and utilize our strong retail network, as well as focusing on direct-to-consumer marketing. Depreciation costs decreased mainly because older equipment such as jackpot signs and vending machines surpassed its useful life.

MANAGEMENT'S DISCUSSION AND ANALYSIS

CAPITAL ASSETS

A summary of capital assets as of June 30, 2024 and 2025, and the amount and percentage of change in relation to prior year amounts is as follows:

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

Capital Assets:

Non-depreciable capital assets:

Land $ 18,798,281 $ 18,798,281 $ — — % Depreciable capital assets:

Gaming equipment $ 58,025,980 $ 54,941,329 $ (3,084,651) (5.3) % Software 18,192,147 25,912,625 7,720,478 42.4 % Vending machines 58,086,273 55,204,383 (2,881,890) (5.0) % Buildings 164,622,525 165,499,836 877,311 0.5 % Data processing equipment 6,542,455 6,048,866 (493,589) (7.5) % Office furniture and equipment 5,786,246 5,864,743 78,497 1.4 % Vehicles 11,245,910 10,732,095 (513,815) (4.6) % Audio and Video 524,056 553,181 29,125 5.6 % Warehouse Equipment 1,353,256 1,295,008 (58,248) (4.3) % Mobile Equipment 783,996 783,996 — — % Other 4,381,838 4,561,218 179,380 4.1 %

Subtotal $ 329,544,682 $ 331,397,280 $ 1,852,598 0.6 % Less accumulated depreciation (177,270,316) (182,791,537) (5,521,221) 3.1 %

Total depreciable capital assets $ 152,274,366 $ 148,605,743 $ (3,668,623) (2.4) % Capital assets, net $ 171,072,647 $ 167,404,024 $ (3,668,623) (2.1) %

Right to use leased assets:

SBITAs $ 4,074,495 $ 4,681,596 $ 607,101 14.9 % Vehicles 4,043,424 3,999,746 (43,678) (1.1) %

Subtotal $ 8,117,919 $ 8,681,342 $ 563,423 6.9 % Less accumulated depreciation (2,308,784) (3,530,017) (1,221,233) 52.9 %

Right to use leased assets, net $ 5,809,135 $ 5,151,325 $ (657,810) (11.3) %

Lottery activities total, net $ 176,881,782 $ 172,555,349 $ (4,326,433) (2.4) %

Capital Assets decreased 2.1 percent from last fiscal year due to the disposal of outdated gaming and data processing equipment. This reduction was partially offset by new software applications, including upgrades to the Lottery's Personal Web Server, ServiceNow HR Service Delivery implementation, and PowerBI Cloud integration.

The value of right-to-use leased assets fell by 11.3 percent, reflecting ongoing amortization. More information on the Lottery's capital assets can be found in Note 5.

MANAGEMENT'S DISCUSSION AND ANALYSIS

NON-CURRENT LIABILITIES

At June 30, 2025, the California State Lottery had $964.7 million in non-current liabilities, a decrease of $9.3 million from the previous year. This includes an increase in the net other postemployment benefits (OPEB) liability of $24.5 million, to $261.3 million. The increase in net OPEB liability was primarily due to changes in assumptions. The Lottery's net pension liability decreased by $13.9 million, or 8 percent, to approximately $159.0 million. The decrease in net pension liability was primarily due to the actual investment returns on plan assets trailing projected returns. Changes in the proportion of the Lottery's share of the State's net pension liability also contributed to the decrease. The reserve for unpaid prizes decreased $18.6 million as the majority of jackpot and annuity-level prize winners choose the cash option rather than annuitized payments. Lease and SBITA liabilities were reduced by $407.6 thousand through ongoing repayments to the lessor. Additional detailed information on long-term prize liability may be found in Note 6, lease and SBITA liability may be found in Note 8, and information on pension and other postemployment benefits (OPEB) liability may be found in Note 10.

CONTACTING THE LOTTERY’S FINANCIAL MANAGER

This financial report is designed to provide a general overview of the Lottery’s finances and to demonstrate the accountability for the money the Lottery earns. If you have questions about this report or need additional financial information, contact the California State Lottery, Finance Division, 700 N. 10th Street, Sacramento, CA 95811.

MANAGEMENT'S DISCUSSION AND ANALYSIS

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Assets Cash and cash equivalents (Note 2) $ 623,039,096 Investments, current portion (Note 2) 56,389,992 Accounts receivable, net of allowances (Note 3) 779,716,663 Due from state funds (Note 4) 10,575,194 Ticket inventories 19,713,512 Other 7,653,355

Total current assets $ 1,497,087,812

Investments, less current portion (Note 2) $ 466,182,034 Capital assets, net (Note 5) 167,404,024

Right to use leased assets, net (Note 5) 5,151,325 Long-term prepaid charges, net 2,954,161

Total non-current assets $ 641,691,544

Total assets $ 2,138,779,356

Deferred Outflows of Resources (Note 10) $ 147,053,212

Total Assets and Deferred Outflows of Resources $ 2,285,832,568

Liabilities Accounts payable $ 96,469,634 Current prize liability (Note 6) 999,317,286 Due to state funds (Note 7) 407,391,258 Accrued liabilities 32,972,716 Unearned revenue 2,543,574

Total current liabilities $ 1,538,694,468

Prize liability, less current portion (Note 6) 540,710,193 Lease/SBITA liabilities (Note 8) 3,681,588 Net other postemployment benefits liability (Note 10) 261,314,000 Net pension liability (Note 10) 158,994,278

Total non-current liabilities $ 964,700,059

Total liabilities $ 2,503,394,527

Deferred Inflows of Resources (Note 10) $ 70,796,356

Total Liabilities and Deferred Inflows of Resources $ 2,574,190,883

Net Position (Deficit) Net investment in capital assets (Note 5) $ 168,873,761 Unrestricted deficit (457,232,076)

Total Net Deficit $ (288,358,315)

See accompanying notes to the financial statements.

CALIFORNIA STATE LOTTERY FUND

STATEMENT OF NET POSITION (DEFICIT)

JUNE 30, 2025

Operating revenues: Lottery sales $ 8,932,712,123 Prizes 5,994,177,466

Sales after prizes $ 2,938,534,657

Less game costs:

Retailer costs $ 614,805,168 Gaming system costs 104,430,041 Scratchers® game costs 49,950,790

Total game costs $ 769,185,999

Income before operating expenses $ 2,169,348,658

Operating expenses:

Salaries, wages, and benefits $ 142,049,639 Advertising 108,469,821 Promotion, public relations, and point of sale 13,310,553 Other professional services 21,753,318 Depreciation and amortization (Note 5) 15,274,619 Other general and administrative expenses 24,262,568

Total operating expenses $ 325,120,518

Operating income $ 1,844,228,140

Non-operating (expenses) revenues:

Investment income (Note 9) $ 71,581,803 Interest expense imputed on annuitized prize liability (22,088,268) Other income 127,593 Allocation to Education Fund (Note 7) (1,886,607,184)

Total non-operating expenses $ (1,836,986,056)

Change in net deficit $ 7,242,084 Total net deficit - beginning balance (295,600,399)

Total net deficit - ending balance $ (288,358,315)

See accompanying notes to the financial statements.

CALIFORNIA STATE LOTTERY FUND

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (DEFICIT)

YEAR ENDED JUNE 30, 2025

Cash flows from operating activities:

Receipts from customers $ 8,917,804,684 Payments for prizes (6,698,075,227) Payments to retailers (614,805,396) Payments to suppliers for goods and services (284,177,251) Payments to employees (129,210,667) Internal activity - payments to state funds (16,870,506) Receipts from other states 799,330,110 Other receipts 257,408

Net cash flows provided by operating activities $ 1,974,253,155

Cash flows from non-capital financing activities:

Distributions to Education Fund $ (2,051,363,435)

Net cash flows used in non-capital financing activities $ (2,051,363,435)

Cash flows from capital and related financing activities:

Proceeds from disposal of property and equipment $ 52,420 Payments for leased assets (2,501,754) Payments for property and equipment (9,260,009)

Net cash flows used in capital and related financing activities $ (11,709,343)

Cash flows from investing activities:

Proceeds from matured securities $ 86,335,148 Investment and Surplus Money Investment Fund interest 46,463,191 Purchase of securities (14,907,489)

Net cash flows provided by investing activities $ 117,890,850

Increase in cash and cash equivalents $ 29,071,227

Cash and cash equivalents at July 1, 2024 $ 593,967,869

Cash and cash equivalents at June 30, 2025 $ 623,039,096

See accompanying notes to the financial statements. (Continued)

CALIFORNIA STATE LOTTERY FUND

STATEMENT OF CASH FLOWS

Cash flows from operating activities:

Operating income $ 1,844,228,140 Adjustments to reconcile operating income to net cash provided by operating activities:

Depreciation and amortization $ 15,274,619 Provision for doubtful accounts 607,077 Provision for returned tickets 5,967,124 Provision for free ticket redemptions 6,758,441 Net gain on retirement or disposal of capital assets 103,992 Other income 127,593

Changes in assets and liabilities:

Increase in accounts receivable (50,231,599) Decrease in due from other funds net of SMIF 690 Increase in ticket inventories (12,172) Increase in other assets (411,969) Decrease in long-term prepaid charges 2,658,934 Increase in accounts payable 41,454,302 Increase in prize liability 95,432,349 Increase in due to state funds 17,583,073 Increase in accrued liabilities 6,502,444 Increase in unearned revenues 10,693 Decrease in OPEB and net pension liability (11,800,576)

Net cash flows provided by operating activities $ 1,974,253,155

Supplemental disclosure of non-cash activities:

Interest accreted on annuitized prizes $ 22,088,268

Unclaimed prizes directly allocated to the Education Fund $ 44,968,741

Unrealized gain (loss) on investments $ 8,084,716

Interest accreted on zero coupon bonds $ 17,210,096

See accompanying notes to the financial statements.

CALIFORNIA STATE LOTTERY FUND

STATEMENT OF CASH FLOWS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The California State Lottery Fund (the Fund) was created with the passage of the California State Lottery Act of 1984 (the Act). The Fund is a part of the primary government of the State of California and is reported as a proprietary fund and business-type activity within the State of California’s financial statements. The purpose of the Act is to support the preservation of the rights, liberties, and welfare of the people by providing additional monies to benefit education without the imposition of additional or increased taxes. The operations of the Fund are separate and distinct from other operations of the State of California.

Effective April 8, 2010, Chapter 13, Statutes of 2010 (AB 142) amended the Act to allow the California State Lottery (Lottery) to offer its players a higher prize payout percentage. Research has shown that higher prize payouts result in increased sales revenues and thus will afford increased allocations to education. Under AB 142 beginning with the 2010-11 fiscal year, the Lottery is required to return not less than 87 percent of revenues to the public in the form of prizes and contributions to education, and to spend no more than 13 percent of revenues on operating expenses of the Lottery.

Basis of Presentation

The Fund is accounted for as an enterprise fund. The financial statements are prepared on the accrual basis of accounting and the economic resources measurement focus in accordance with accounting principles generally accepted in the United States of America. Operating revenues and expenses are those that result from providing services and producing and delivering goods and/or services. The principal operating revenues of the Fund come from the sale of lottery tickets. The principal operating expenses of the Fund are prizes, retailer commissions, game costs, salaries and benefits, advertising and promotion, professional services, depreciation of assets, and general and administrative costs.

Revenue Recognition – Scratchers Games

Sales of Scratchers tickets are made to the public through contracted retailers. Revenue is recognized upon the sale of tickets to the retailers for active games. An allowance is recognized for the retailers’ right to return unsold tickets. Operating revenue is reduced for free tickets and for unsold tickets remaining in vending machines.

Retailers receive a commission of up to six percent which is recognized when tickets are sold to the retailers.

Revenue Recognition - Draw Games

Lottery sales for draw games are made to the public through gaming terminals at contracted retailers. Revenue is recognized upon the sale to the public. With the exception of Powerball® and Mega Millions®, the public has the right to cancel a sale on the same day before pool closure. All Powerball and Mega Millions sales are final. The applicable retailers’ commission of four and one-half to six percent is recognized when sales are made to the public.

Recognition of the revenue from sales for future draws is considered unearned until those draws become current.

The retailers’ commission related to the unearned revenue is reflected as a prepaid expense until the revenue is recognized.

Prizes – Scratchers Games

Prize expense for Scratchers games is recognized based on the predetermined prize structure for each game in the period revenue is recognized. Prizes that are not claimed are recognized as unclaimed prizes 180 days after the end of each game. Unclaimed prizes not directly payable by the Lottery are recognized as a reduction of prize expense and included in the Lottery’s operating income that is allocated to the Education Fund. Unclaimed prizes directly payable by the Lottery are allocated directly to the Education Fund.

CALIFORNIA STATE LOTTERY FUND

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Prizes – Scratchers Games (continued)

Scratchers games with annuitized prizes are generally paid in equal, annual installments over 20 or 25 years. Some games offer graduated, annual payments, and others offer the choice of an annuitized prize paid in weekly, monthly, or annual installments, or a lump sum cash payment. Prize expense for annuity prizes is based on the present value of the annuity using an interest rate equal to the interest yield on the zero coupon U.S. Treasury bonds. Interest earned is imputed on the annuity using the same interest rate.

Prizes - Draw Games

Powerball and Mega Millions - Prize expense for the thrice-weekly Powerball and twice-weekly Mega Millions multi-state draw games is recognized on the basis of the predetermined prize structure when the revenue is recognized.

Nine distinct prize categories for each game are established which are dependent upon the amount of money wagered and the quantity of numbers to be matched. In the event that no winning share for a specific prize category of Powerball or Mega Millions is selected, all monies allocated for that prize are carried forward to the following drawing and remain in the pool for that same prize category.

The total Grand/Jackpot Prize liability for each multi-state Powerball or Mega Millions drawing is shared by each participating state lottery (Party Lottery) as follows: each Party Lottery is responsible for an amount equal to a percentage of that Party Lottery’s Powerball or Mega Millions sales, said percentage being the proportion of the total Grand/Jackpot Prize liability to the total Powerball or Mega Millions sales. The California Lottery is prohibited by state law from paying fixed prizes and participating in the liability calculation for prize levels two through nine.

The California Lottery is therefore solely responsible for its own prize liability for levels two through nine for the multi-state games.

Powerball and Mega Millions Grand/Jackpot Prizes won in California are paid in 30 graduated, annual installments.

For each game, winners have up to 60 days after the date the Lottery validates the winning ticket and authorizes payment to irrevocably elect to receive the cash value of the prize instead of annual payments. Payments for all other prize categories are made in a single payment.

In the event that a Powerball or Mega Millions Grand/Jackpot Prize won in California is unclaimed, the prize monies will be returned to the Party Lotteries in the same ratio that each Party Lottery contributed to the prize plus interest, and the amount contributed by the California State Lottery will be allocated directly to the Education Fund. The unclaimed prize monies for all other Powerball or Mega Millions prize categories won in California but not claimed within the specified period are allocated directly to the Education Fund.

SuperLotto Plus® - Prize expense for the twice-weekly draw game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Nine distinct prize categories are established which are dependent upon the amount of money wagered and the quantity of numbers to be matched. In the event that no winning share for a specific prize category in SuperLotto Plus is chosen, all monies allocated for that prize are carried forward to the following drawing and added to the 5 of 5 plus Mega number category (Grand Prize).

SuperLotto Plus Grand/Jackpot Prizes of $1 million or more won between April 1, 1998, and May 10, 2013, are paid either in 26 graduated, annual payments or in a single payment equal to the cash value of the 26-payment annuity, in accordance with the rules and regulations of the Lottery. Starting May 11, 2013, Grand Prizes are paid in 30 graduated, annual payments or in a single payment equal to the estimated cost to fully fund the annuity prize as advertised prior to the draw. Such estimated cost is determined by market pricing for U.S. Treasury bonds.

Claimants have up to 60 days after the Lottery validates the winning ticket and authorizes payment to irrevocably elect to receive the cash payment instead of the annuitized payments. Payments for all other prize categories are made in a single payment. All SuperLotto Plus prizes won but not claimed within the specified period are allocated directly to the Education Fund.

CALIFORNIA STATE LOTTERY FUND

NOTES TO FINANCIAL STATEMENTS

Prizes - Draw Games (continued)

Fantasy 5 - Prize expense for the seven-draws-per-week game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Distinct prize categories are established which are dependent upon the amount of money wagered and the quantity of numbers to be matched. In the event that no winning share for a specific prize category is selected, all monies allocated for that prize category are carried forward to the following drawing and added to the 5 of 5 prize category. All Fantasy 5 prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Daily 3 - Prize expense for the two-draws-per-day game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Distinct prize categories are established which are dependent upon the amount of money wagered, the quantity of numbers to be matched, and the order of numbers chosen. All Daily 3 prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Daily 4 - Prize expense for the seven-draws-per-week game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Distinct prize categories are established which are dependent upon the amount of money wagered, the quantity of numbers to be matched, and the order of numbers chosen. All Daily 4 prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Daily Derby® - Prize expense for the seven-draws-per-week game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Distinct prize categories are established which are dependent upon the amount of money wagered, the quantity of numbers to be matched, and the order of numbers chosen. In the event that no winning share for a specific prize category is selected, all monies allocated for that prize category are carried forward to the following drawing and added to the Grand Prize category. All Daily Derby prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Hot Spot® - Prize expense for the multiple-draws-per-day game is recognized on the basis of the predetermined prize structure when the revenue is recognized. The game includes Typical Prize Pools for the 8 Spot Match 8 of 8, the 9 Spot Match 9 of 9, and the 10 Spot Match 10 of 10 categories, and Typical Prize Amounts for all other spots.

The Hot Spot Wagered Prize Fund (fund) balance is adjusted daily based upon daily sales contributions and prizes won. In the event the balance in the fund is not sufficient to pay the allocations and amounts of a particular draw, prizes will be systematically reduced until the fund is sufficient to pay the reduced amounts. The Director will authorize promotions to ensure that the fund balance at the end of any given fiscal year is liquidated. All Hot Spot prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Raffle - The Lottery may periodically conduct raffle games. The $1 million top prizes for the two raffle games held to date were each paid in single payments. There were no raffle games conducted during fiscal year 2024-25.

Cash Equivalents

Cash equivalents represent cash deposited in the Surplus Money Investment Fund (SMIF) of the State of California.

Investments

The Lottery applies Statement No. 31 of the Governmental Accounting Standards Board (GASB), Accounting and Financial Reporting for Certain Investments and for External Investment Pools. This statement establishes accounting and financial reporting standards for all investments held by governmental external investment pools and establishes fair value standards for other governmental entities. In accordance with GASB 31, the Lottery has stated investments at fair value. The difference between the carrying value and the fair value of investments is reported as a component of total net position restricted by legislation for prizes on the statement of net position (deficit). Per GASB guidelines, the restricted deficit has been offset against the unrestricted net position, ensuring that the restricted net position category on the Statement of Net Position does not reflect a negative balance.

CALIFORNIA STATE LOTTERY FUND

NOTES TO FINANCIAL STATEMENTS

Investments (continued)

The Lottery applies GASB 40, Deposit and Investment Risk Disclosures – An Amendment of GASB Statement No.

3. This statement addresses common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. As an element of interest rate risk, this statement requires certain disclosures of investments that have fair values that are highly sensitive to changes in interest rates. Deposit and investment policies related to the risks identified in this statement also are required to be disclosed. More information can be found in Note 2.

The Lottery applies GASB 72, Fair Value Measurement and Application, which supersedes some paragraphs of GASB 31 and requires additional disclosures related to fair value measurements, the level of fair value hierarchy, and valuation techniques. More information can be found in Note 2.

Allowances for Doubtful Accounts, Ticket Returns, and Free Ticket Redemptions

The allowance for doubtful accounts is based on an analysis of collectability of accounts receivable which considers the age of the accounts and historical collection results. An allowance for ticket returns for Scratchers games is estimated using sales revenue and historical return data for the games in progress at the end of the reporting period. An allowance for free ticket redemptions for Scratchers games is estimated using sales revenue and free ticket redemption data for games in progress at the end of the reporting period.

Ticket Inventories

Inventories are carried at cost and consist of tickets for games in progress not yet sold to retailers and tickets for future games. The cost of tickets is charged to operations when the tickets are sold to retailers. The cost of unissued and returned tickets is written off at the end of each game.

Capital Assets

The Lottery has adopted a policy of capitalizing assets with an acquisition cost or established value of $5,000 or greater. Additionally, the Lottery capitalizes all gaming equipment as well as the purchase of like-kind assets totaling $5 million or more in a single purchase. Capital assets are carried at cost. Depreciation on property and equipment is computed using the straight-line method over estimated useful lives ranging from one to ten years. Depreciation on buildings, improvements, and land improvements is computed using the straight-line method over estimated useful lives of five to 40 years. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations in the period of disposal. Amortization of leasehold improvements is computed using the straight-line method over the remaining lease terms.

Leases

The Lottery has adopted GASB Statement No. 87, Leases. The objective of GASB 87 is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. The statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases. GASB 87 establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset. Under GASB 87, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources. More information on the Lottery’s leased assets can be found in Note 8.

CALIFORNIA STATE LOTTERY FUND

NOTES TO FINANCIAL STATEMENTS

Leases (continued)

The Lottery has adopted GASB Statement No. 96, Subscription-Based Information Technology Arrangements (SBITA), which improves the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users. This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset - an intangible asset - and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended. More information on the Lottery's SBITA can be found on Note 8.

Long-term Prepaid Charges

The Lottery incurs costs in connection with certain contracts which extend beyond a one-year period. These costs are prepaid and amortized over the life of the contracts.

Pensions

The Lottery has adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement requires recognition of a liability equal to the net pension liability, which is measured as the total pension liability, less the amount of the pension plan’s fiduciary net position. The total pension liability is determined based upon discounting projected benefit payments based on the benefit terms and legal agreements existing at the pension plan’s fiscal year end. Projected benefit payments are required to be discounted using a single rate that reflects the expected rate of return on investments, to the extent that plan assets are available to pay benefits. This Statement requires that most changes in the net pension liability be included in pension expense in the period of the change.

For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the California Lottery Fund and additions to or deductions from the California Lottery Fund's fiduciary net position have been determined on the same basis as they are reported by the California Public Employees' Retirement System (CalPERS) Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

Other Postemployment Benefits

The Lottery has adopted GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Other postemployment benefits (OPEB) include retiree health and dental benefits.

This Statement requires recognition of a liability equal to the net OPEB liability, which is measured as the total OPEB liability, less the amount of the OPEB plan’s fiduciary net position. The total OPEB liability is required to be determined through an actuarial valuation. Projections of benefit payments are required to be based on claims costs, or age-adjusted premiums approximating claims costs, and the benefit terms and legal agreements existing at the measurement date.

For purposes of measuring the net OPEB liability, deferred outflows and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the California Lottery Fund and additions to or deductions from the California Lottery Fund’s fiduciary net position have been determined on the same basis as they are reported by the State. For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

CALIFORNIA STATE LOTTERY FUND

NOTES TO FINANCIAL STATEMENTS

Deferred Outflows of Resources and Deferred Inflows of Resources

Changes in net pension liability not included in pension expense are reported as deferred outflows of resources or deferred inflows of resources. Employer contributions subsequent to the measurement date of the net pension liability are reported as deferred outflows of resources. The unamortized net difference between projected and actual earnings on investments are recorded as deferred inflows of resources.