KENO REMOVAL JUST ADDS TO LOTTERY'S TALE OF WOE.

Byline: Steve Geissinger Associated Press 

Peter Webster drinks from his beer, puffs a cigarette and waves toward the dark television screen where he always used to play the state lottery's keno game.

``I walked in one day and couldn't play. I was shocked,'' says Webster, a regular customer at County Club Lanes bowling alley. ``I still miss keno terribly.''

Branded illegal by the state Supreme Court, keno was halted by the California Lottery on June 24. Two months later, some of the lottery's most devoted customers are still confused and upset.

But problems aren't new to the 11-year-old lottery. The industry leader in the 1980s, California's lottery lost its first-place ranking in 1990 when sales plummeted. Ever since, industry observers have said the education-benefiting lottery isn't living up to its full potential.

And even as sales have slipped, the lottery has had to answer to critics in the Legislature who contend that the agency has made poor contracting decisions. Those critics are looking ahead to forthcoming audits, which are expected to be critical of the lottery on several points.

The lottery has had a rough summer. Nine days after keno died, state Attorney General Dan Lungren outlawed the lottery's 4,000 automated scratch-off ticket dispensers, calling them too close to slot machines for comfort.

Though scratch-off ticket sales continue at 18,000 stores and a replacement for keno may be on the way by the end of the year, the setbacks have led to the lottery's first sales slump in five years.

Projected sales for this fiscal year were adjusted downward - from $2.4 billion to $1.9 billion - at a lottery commission meeting in July.

Those sales projections are also down from estimated 1995-96 proceeds of $2.3 billion. It is the first year-to-year decline since 1991-92, when sales dropped to nearly $1.4 billion from $2.1 billion the previous year.

Schools get at least 34 percent of lottery sales. Half goes back in prizes. The remaining 16 percent is spent on administration of the games. Last year, the lottery raised $820 million for education.

In June, Gov. Pete Wilson put the future of the unique and troubled government business - the only state agency that exists solely to make money - in the hands of a second interim director in a row: Maryanne Gilliard, a former Sacramento County deputy district attorney.

Gilliard said in an interview Friday that the setbacks are unrelated to the sales decline of the 1990s, which she blames on the economy.

``You look at any business in 1990 and you see a slump. It was a recession. With tightening of belts at home, the last thing people were going to do was buy lottery tickets,'' she said.

But the problems feed on themselves. Lackluster sales in the lottery's centerpiece game, Super Lotto, are depriving players of the enormous jackpots - in the $100 million-plus range - once envisioned by the California Lottery.

Absence of ``lotto mania'' - wild player pursuit of fabulous jackpots - is in turn depriving public education of its share of frenzied sales.

Educators say the slumping returns from the lottery aren't a big problem. Despite being portrayed to voters in 1984 as a fix for education funding woes, the games provide only about 2 percent of public schools' annual budget.

But many players are unhappy, especially with the demise of keno. Country Club Lanes was among the more popular spots in California to play the game, said lottery spokeswoman Gina Stassi. It sported 24 big television screens displaying keno numbers across 48 bowling lanes.

``I liked keno better than the other lottery games because I didn't have to wait all week to see what would happen,'' said Country Club customer Tom Kessler.

Gilliard said she thinks the public ``is more angry at lawyers than the lottery'' for killing the game in a wrangle over legal technicalities.

The Supreme Court said keno wasn't a lottery game, in which players compete for a prize that depends on the total amount bet and the house has no stake in the outcome. The justices said keno was a ``banked game,'' in which players bet against the house.