REPORT FINDS NUMBER OF LOTTERY WOES.

Byline: Steve Geissinger Associated Press 

Public schools lose nearly $1 billion a year because the California Lottery is among the poorest run and worst performing state lotteries in the nation, says a scathing insider's report obtained by the Associated Press.

GTECH Inc., the lottery's primary contractor, says in the report that inefficiency and flawed planning by state officials have made the California Lottery, which gives one-third of all its revenue to schools, among the lowest selling lotteries by several industry measures.

``If the California State Lottery continues operating its business as it has in the past, it will remain light years away from realizing its potential,'' the report concludes.

The lottery discounted the GTECH report as inaccurate and self-serving.

GTECH, an industry leader that has run California's lotto and other on-line lottery games since 1985, says it prepared the unsolicited 150-page report to help the lottery and itself increase revenues. GTECH, based in Greenwich, R.I., gets 2.9 cents of every dollar wagered on the computerized games.

But Lottery Commission Chairman Arthur Danner accused GTECH on Friday of writing the report as part of a strategy to win a new contract in bidding next year.

``Throughout the report, GTECH is alleging that an outside entity . . . could better manage lottery operations and meet corporate objectives,'' Danner said. That entity, he said, is ``presumably (GTECH) itself.''

Danner, in a letter to GTECH, largely dismissed the report as filled with ``inflammatory statements . . . based on misleading and, at times, inaccurate information.''

The existence of the report, delivered to the lottery Sept. 11, came to light because policy-setting lottery commissioners briefly criticized it at a public meeting Oct. 11.

At that time, interim Lottery Director Maryanne Gilliard refused to make the report public and GTECH said it was not its place to disclose or discuss the document. It was obtained Friday from the lottery under a California Public Records Act request.

The report detailed what it calls the lottery's failure to be a stable and dependable source of funds for public education, which receives 34 percent of the lottery's proceeds.

A performance just matching that of 11 large states' lotteries in 1995 would have produced $5 billion in sales, more than twice actual sales, GTECH said. The income would have meant an additional $917 million for public education last year, GTECH said.

If ticket sales in the past six years had matched the average change for all other 36 state lotteries, the California games would have contributed an additional $2.5 billion to schools, said the report.

In four of the past 10 years, sales have declined from the previous year's level by at least 7.5 percent. None of the other 10 largest lottery states has experienced a drop of that magnitude, according to GTECH, which operates on-line games for 27 other state lotteries.

Among the 10 largest state lotteries, California ranked last in terms of both net income per lottery employee and revenue per sales representative.

The Lottery Commission chairman discounted GTECH's assessment.

``Comparisons of California with the other top-10 states based on population are often misleading and uninformative since only two of the 10 are western states,'' said Danner.

The lottery business ``is quite different between western and eastern states due to geographical considerations, economic realities and a variety of social factors,'' he said. ``When compared to other western states, California performs well,'' Danner said.