Iowa LotteryAnnual Report Fiscal Year 2009

Meeting the Challenge

2

The Iowa Lottery Board has dealt with many important issues during the past year.We welcomed Terry Rich to the Iowa Lottery family as the new Chief Executive Officer. Rich spoke to the Board about plans to boost the amount of proceeds the lottery sends to benefit the state. The Board also welcomed Joe

Diaz as the Lottery’s new Vice President of Security and Brenda Loy as the Lottery’s new Chief Financial Officer.The Board voted on several contract extensions for vendors providing services to the lottery. We voted to exercise the final one-year

extension on the lottery’s on-line system vendor Scientific Games’ contract. The lottery will be issuing a Request For Proposals (RFP) for on-line services in fiscal year 2010. Rich reported to the Board on the lottery’s dialogue with the Iowa Citizens’ Aide/Ombudsman’s office regarding a report issued by them about the Iowa Lottery in March 2009. The lottery has already implemented some of the recommendations made in the report, and it expects to implement other changes in the coming year. Most notably, the lottery Security department implemented an electronic case database following the report. Plus, Diaz reported 100 percent compliance in three separate rounds of retailer compliance checks around the state for proper ticket validation and prize payment during the past fiscal year. The lottery continues to work with retail locations to ensure that store personnel are requiring customers to sign their lottery tickets before they can be checked or cashed.I thank my colleagues at the lottery for another successful and profitable year. It was a fulfilling way to finish my 10th year as a Lottery Board member. The journey of participating in the lottery’s increasing revenues to the State of Iowa has been an exceptional experience. — Mary Junge, Board Chair

CEO and Board Chair

We’re proud to report that the past fiscal year raised the highest amount of proceeds to help the state from the combined sale of lotto, instant-scratch and pull-tab products in the Iowa Lottery’s history. We raised more than $60.5 million in proceeds for state programs in fiscal year 2009, an increase of 7.1 percent from a year ago. We will continue to work hard for our players and Iowa.And we have many more accomplishments to be proud from the last fiscal year:• We raised $2.8 million for the Iowa Veterans Trust Fund. Thanks to legislation passed in March 2008, the Lottery was able to begin directing profits from the sale of its first two scratch games and first two pull-tab games especially created to benefit veterans and their families. We’ll continue to create two instant-scratch and two pull-tab games each year with proceeds from those games dedicated to the Trust Fund. • Our “Keep Your Ticket Handy” campaign kicked off this spring and is scheduled to run through August. Visitors to the Iowa Lottery Web site may download coupons for discounts at Iowa businesses with a nonwinning Powerball ticket. This initiative really demonstrates how the Lottery

can expand its reach by utilizing its huge promotional power to help other businesses in Iowa. • Our positive impact extends beyond just proceeds for the state. Iowa businesses received nearly $15.3 million in commissions from the Lottery for their daily work in selling lottery products in fiscal year 2009, and the state of Iowa also received $1.2 million in tax withholding revenue from lottery prizes.I appreciate the Lottery staff’s hard work and our players’ continued support for the Lottery’s success this last fiscal year and look forward to meeting the challenges in the coming year. — Terry Rich, CEO

TERRY RICH

IOWA LOTTERY BOARD MEMBERS FROM LEFT: MIKE KLAPPHOLZ, CEDAR RAPIDS; TOM RIAL, DES MOINES; CHAIRPERSON MARY JUNGE, CEDAR RAPIDS; ELAINE BAXTER, BURLINGTON; AND BRAD SCHROEDER, PLEASANT HILL.

3

Lotto and Instant-Scratch Tickets

RUSS TWELMEYER OF DES MOINES, BELOW RIGHT, WON THE TOP PRIZE OF $250,000 PLAYING THE “LUCKY DIAMONDS” SCRATCH GAME. HE WAS CONGRATULATED BY CEO TERRY RICH.

The Kansas and Iowa lotteries built on the success of the first Midwest Millions scratch game with a second version that went on sale in both states in September 2008. The game was a joint effort between the two states. Tickets in the game featured scenes of landmarks that represent Kansas and Iowa.

Players could win up to $50,000 instantly or enter nonwinning tickets in two second-chance drawings, one in January and the other in April. Each second-chance drawing offered a grand prize of $500,000 and five $10,000 prizes. While both grand-prize winners were from Kansas, Iowa players won six of the 10 $10,000 prizes. Iowa’s $10,000 winners were: Eric Corrill of Council Bluffs, Jim Gardner of Ottumwa, Harry Marquis of Des Moines, Bob Newlin of Center Point, Dezi Richardson of Newton and Dave Von Sprecken of Swisher.

The $500,000 grand-prize winners were Sandra Vines of Wichita, Kan., and Adam Sorell of Shawnee, Kan. A third version of Midwest Millions will begin in September 2009.

Winners

CLYDE AND SUSAN HENDRICKS, TOP, AND RICKY RUSHTON, BOTTOM WITH CEO TERRY RICH, WON $1 MILLION PLAYING POWERBALL WITH THE POWER PLAY.

JIM GARDNER OF OTTUMWA WON $10,000 IN THE JANUARY MIDWEST MILLIONS SECOND-CHANCE DRAWING.

Midwest Millions Drawings

Sales of lotto and instant-scratch tickets were strong this fiscal year. We congratulated many winners. Just a few are pictured here.

4 5

the lottery celebrated the holiday season with a scratch ticket honoring the classic movie “it’s a wonderful life,” starring jimmy stewart and iowa’s own donna reed. iowans got in on the fun with a george and mary bailey look-alike contest. winners decided by a vote on the lottery’s web site were peter lohr of sioux city and amy burgmaier of des moines.

nancy fear of milford won a brand new chevy tahoe hybrid® suv in the “set of wheels” second-chance drawing. she entered a nonwinning “set for life” scratch ticket in the drawing. the lottery awarded the vehicle in a live drawing at the iowa state fair.

August 2008

paul sundell of cedar rapids and pamela shugar of ackley each won a trip package for two to las vegas to see the iowa state cyclones play football against unlv! they were the grand-prize winners in the “fly with cy game day getaway” promotion, where players entered nonwinning “twister” scratch tickets for a chance to win the trip.

larry pace of ankeny was the grand-prize $100,000 winner in the “holiday riches” second-chance drawing. players could enter nonwinning “holiday riches” tickets for a chance to win cash prizes of up to $100,000 in the drawing.

September 2008 & April 2009

January 2009

for a limited time with “super sampler,” players could purchase three powerball plays with the power play and three hot lotto sizzler plays (a $12 value) for just $10.

December 2008

February 2009

lottery players entered nonwinning hot lotto sizzler tickets for a chance to win up to $100,000! james walker of oklahoma city won the $100,000 top prize and 40 other iowa lottery players won $500 prizes.

May 2009in may during the “big beepin’ deal” promotion, when players purchased five powerball plays with the power play and they heard the “beep-beep,” they won $20 instantly! one $20 prize was awarded for every 20th qualifying purchase statewide.

May 2009

it’s a wonderful life tm & © 2008 melange pictures llc. all rights reserved. donna reed used with permission. licensed by sovich minch, llp. james stewart used with permission. licensed by the stewart family, llc.

Promotions Timeline

businesses across the state are joining with the iowa tourism office and the iowa lottery in the “keep your powerball ticket handy” initiative. it’s designed to encourage people to travel iowa over the summer, frequent iowa attractions and businesses and give the entire state a boost in these tough economic times.

players have access through the lottery’s web site to special offers at popular events and attractions and discounts on a host of products for those who have a powerball ticket.

the initiative is scheduled to run through august.

6

Player Security

In fiscal year 2009, the Iowa Lottery conducted three rounds of unannounced security checks at retail locations across the state to see how winning tickets would be handled, and all prizes were properly paid by store personnel.Lottery investigators posing as customers visited more than 200 randomly selected retail locations, presenting tickets for cashing that each had won prizes of up to $100. In every instance, the location paid the correct amount. The retailer compliance program is part of the Lottery’s ongo-ing focus on security and integrity.There have been instances where lottery customers were de-frauded in areas outside Iowa. Continuing security checks are designed to guard against even the possibility of that here.The Iowa Lottery varied its approach in each round of checks. In February, Lottery security investigators, all of whom were men, posed as the customers. In April, investigators oversaw the process, but female Lottery employees posed as the customers and presented tickets for cashing. In May, many of the checks were conducted at night, while the earlier rounds had occurred during the day.The May checks were intentionally timed to occur during a period of high lottery sales driven in large part by the Powerball jackpot, which topped an estimated $170 million in May 2009.It’s important for the Lottery to cover a range of scenarios as part of its work. Players must know that the Lottery’s games are fair and secure, and retailers must follow the rules.The Lottery continues to work with retail locations to ensure that store personnel are requiring customers to sign their lottery tickets before they can be checked or cashed. In February, about half the retail locations visited did not require signatures on tickets. That number has improved, with nearly two-thirds of locations requiring signatures in the Lottery’s latest checks in May.

Lottery Checks Retailer Compliance

7

Veterans Trust Fund Games

$2.8 MILLION RAISED FOR FUNDA highlight of the Lottery’s FY 2009 results was the $2.8 million it raised for the Iowa Veterans Trust Fund. Legislation dedicating some lottery proceeds to veterans’ causes was signed into law by Governor Culver in March 2008. The Lottery’s first games to benefit the Veterans Trust Fund began sales in July 2008 and it will continue to create two new instant-scratch and two additional pull-tab games each year, with proceeds from those games dedicated to the Trust Fund.CEO Terry Rich noted that when the idea of games dedicated to veterans was initially discussed, the Lottery estimated it could raise $2 million to $3 million annually for the Iowa Veterans Trust Fund. The total for FY 2009, which reached the upper end of that range, demonstrates Iowans’ support for the cause, Rich said.“Our thanks go out to our players for recognizing this important cause and helping us provide a stable, ongoing source of revenue for the Iowa Veterans Trust Fund,” he said.

VETERANS GAMES DEBUT

The Iowa Lottery’s first two games to benefit the Iowa Veterans Trust Fund, Stars & Stripes and All American, debuted in July 2008. Two more games, Freedom Rings and Land of Liberty, went on sale in January 2009.

Veterans Trust Fund

The Iowa Veterans Trust Fund was created to assist qualified veterans in paying for expenses such as:• unemployment or

underemployment assistance due to service-related causes

• assistance with vision, hearing or dental care

• durable medical equipment and prescription drugs

• counseling and substance abuse services

• emergency housing repair and

• transitional housing in an emergency.

To learn more about the Veterans Trust Fund, visit www.iowava.org.

8

Top 10 Retailers in FY 2009 (total sales of lotto, instant-scratch and pull-tabs)

Retailers/Sales

InstantMulti-State (Powerball) Pull-tabs

$100,000 Cash Game

Cash 4 Life Pick 3

Freeplay Replay Rolldown

Hot Lotto

Monitor Vending

TouchPlay (net) Pick 4 Raffle

FY ‘00 $90.3 $48.0 $27.2 $4.9 $3.3 $4.1 $0.4

FY ‘01 $84.2 $52.1 $27.0 $4.3 $0.5 $4.0 $0.7 $2.2

FY ‘02 $80.6 $60.9 $27.6 $4.3 $5.0 $0.4 $1.2 $1.3

FY ‘03 $84.9 $57.6 $28.4 $4.4 $6.0 $0.3 $6.0 $0.2

FY ‘04 $95.3 $66.0 $25.5 $4.4 $6.3 $0.1 $7.7 $1.3 $0.3 $1.7

FY ‘05 $103.3 $54.2 $23.6 $4.4 $6.2 $10.4 $6.4 $2.0

FY ‘06 $106.6 $71.1 $18.3 $4.3 $6.1 $9.6 $121.5 $2.1

FY’ 07 $125.1 $61.5 $21.1 $4.4 $6.3 $14.5 $2.2

FY’ 08 $137.9 $63.8 $21.4 $4.3 $6.4 $11.7 $2.3 $1.4

FY ‘09 $136.3 $58.2 $21.3 $4.1 $6.5 $14.3 $2.6

Sales for Past 10 Fiscal Years

Hy-Vee, 20 Wilson Ave S.W., Cedar Rapids                        $940,715Hy-Vee, 1843 Johnson Ave N.W., Cedar Rapids $804,645Quick Shop Foods, 405 S. Madison Ave., Ottumwa $652,283Porter’s Convenient 66, 1512 Lincoln Way, Clinton    $583,899Dahl’s, 4343 Merle Hay Road, Des Moines                            $578,581Hy-Vee, 2540 E. Euclid Ave., Des Moines $572,294Dezi’s Quick Shop, 702 First Ave. E., Newton                  $525,172Hy-Vee Drugstore, 1520 Sixth St. S.W., Cedar Rapids         $524,745Dahl’s, 3400 E. 33rd St., Des Moines                             $507,204Hy-Vee, 1107 S.E. Army Post Road, Des Moines $503,429

Porter’s Convenient 66 in Clinton

quick Shop Foods in Ottumwa

9

Sales

ADAIR $ 1,100,000 ADAMS 400,000 ALLAMAKEE 1,300,000 APPANOOSE 1,300,000 AUDUBON 400,000 BENTON 1,600,000 BLACKHAWK 13,800,000 BOONE 2,000,000 BREMER 1,500,000 BUCHANAN 1,800,000 BUENA VISTA 2,100,000 BUTLER 1,100,000 CALHOUN 600,000 CARROLL 2,000,000 CASS 1,100,000 CEDAR 1,300,000 CERRO GORDO 5,600,000 CHEROKEE 1,100,000 CHICKASAW 1,100,000 CLARKE 700,000 CLAY 1,600,000 CLAYTON 1,600,000 CLINTON 5,600,000 CRAWFORD 1,600,000 DALLAS 2,900,000 DAVIS 300,000 DECATUR 300,000 DELAWARE 1,200,000 DES MOINES 3,100,000 DICKINSON 2,000,000 DUBUQUE 6,900,000 EMMET 1,000,000 FAYETTE 1,500,000 FLOYD 1,800,000 FRANKLIN 900,000 FREMONT 1,200,000 GREENE 700,000 GRUNDY 700,000 GUTHRIE 400,000 HAMILTON 2,200,000 HANCOCK 1,000,000 HARDIN 1,500,000 HARRISON 1,200,000 HENRY 1,300,000 HOWARD 800,000 HUMBOLDT 1,100,000 IDA 400,000 IOWA 1,100,000 JACKSON 1,700,000 JASPER 2,500,000 JEFFERSON 1,000,000 JOHNSON 6,700,000

JONES 1,700,000 KEOKUK 500,000 KOSSUTH 1,100,000 LEE 2,900,000 LINN 19,000,000 LOUISA 800,000 LUCAS 700,000 LYON 300,000 MADISON 1,000,000 MAHASKA 1,500,000 MARION 2,200,000 MARSHALL 3,300,000 MILLS 1,100,000 MITCHELL 700,000 MONONA 500,000 MONROE 1,000,000 MONTGOMERY 1,000,000 MUSCATINE 4,200,000 O’BRIEN 900,000 OSCEOLA 500,000 PAGE 800,000 PALO ALTO 800,000 PLYMOUTH 1,400,000 POCAHONTAS 500,000 POLK 35,300,000 POTTAWATTAMIE 8,000,000 POWESHIEK 1,600,000 RINGGOLD 200,000 SAC 800,000 SCOTT 14,400,000 SHELBY 700,000 SIOUX 800,000 STORY 3,800,000 TAMA 1,000,000 TAYLOR 500,000 UNION 1,400,000 VAN BUREN 300,000 WAPELLO 5,300,000 WARREN 2,600,000 WASHINGTON 1,500,000 WAYNE 500,000 WEBSTER 5,400,000 WINNEBAGO 900,000 WINNESHIEK 1,400,000 WOODBURY 6,600,000 WORTH 700,000 WRIGHT 1,500,000

Sales By County (rounded to nearest $100,000)

Sales Report

The Iowa Lottery raised more than $60.5 million for state programs in fiscal year 2009, the highest profits total from the sale of lotto, instant-scratch and pull-tab games since the Lottery’s start in 1985.Proceeds to the state in fiscal year 2009 increased 7.1 percent from a year earlier, although lottery sales were down during the same period. Lottery sales totaled $243.3 million in FY 2009, down 2.4 percent from sales of $249.2 million in fiscal year 2008.The Lottery raised $2.8 million for the Iowa Veterans Trust Fund. Legislation dedicating some lottery proceeds to veterans’ causes was signed into law by Governor Culver in March 2008. The Lottery’s first games to benefit the Iowa Veterans Trust Fund began sales in July 2008 and it will continue to create two new instant-scratch and two ad-ditional pull-tab games each year, with proceeds from those games dedicated to the Trust Fund.Due to the 2008 floods and the national economic reces-sion, lottery sales and proceeds early in FY 2009 had trailed results from the prior year. The Lottery’s “Keep Your Ticket Handy” campaign this spring helped the Lottery respond to make a big improvement in the numbers as the year continued.Hot Lotto sales were a highlight for the Lottery in FY 2009, increasing more than 22.2 percent from the previous year to $14.3 million. Pick 3 and Pick 4 also saw strong results in FY 2009. Pick 3 sales rose 2.5 percent from a year earlier to $6.5 million, while Pick 4 sales increased 10.4 percent to $2.6 million.Sales in the Lottery’s other product categories were down for the year.Since the Iowa Lottery’s start in 1985, its players have won more than $2.4 billion in prizes while the Lottery has raised nearly $1.2 billion for state programs.

10

Iowa Lottery Authority - Statement of Revenues, Expenses and Changes in Net Assets - Year ended June 30, 2009

Operating revenues: Instant-scratch ticket sales $136,268,555 Pick 3 sales 6,534,765 Powerball sales 58,220,203 Hot Lotto sales 14,329,610 Pick 4 sales 2,555,237 $100,000 Cash Game sales 4,113,307 Pull-tab sales 21,315,424 Application fees 3,680 Other 65,449 Total operating revenues 243,406,230 Operating expenses: Prizes: Scratch tickets 81,846,620 Pick 3 3,834,735 Powerball 28,118,140 Hot Lotto 7,015,713 Pick 4 1,473,587 $100,000 Cash Game 2,271,476 Pull-tab 13,389,649 Promotional 475,421 Total prizes 138,425,341 Retailer compensation 15,298,982 Advertising production and media purchases 6,995,166 Retailer lottery system/terminal communications 8,248,110 Instant/pull-tab ticket expense, machine maintenance 3,194,530 Terminal equipment/ticket dispensers 81,250 Other operating expenses 12,235,787 Total operating expenses 184,479,166 Operating income 58,927,064 Non-operating revenue (expense): Interest income 421,090 Interest expense (48,986) Net non-operating revenues 372,104 Income before transfers 59,299,168 Transfer proceeds to other funds: State General Fund 56,550,792 Veterans Trust Fund 2,783,377 IA Dept. of Public Health- Gambling Treatment Fund 1,219,137 Total transfers to other funds 60,553,306 Change in net assets (1,254,138) Net assets beginning of year 5,667,781 Net assets end of year $ 4,413,643

Financial Statements

Iowa Lottery Authority - Statement of Net Assets - June 30, 2009 Assets Current assets: Cash $ 18,810,486 Restricted assets-cash 404,148 Interest receivable 33,797 Prepaid expense 72,917 Accounts receivable, net 3,293,552 Ticket inventories 1,195,091 Investment in prize annuities 2,796,557 Total current assets 26,606,548 Noncurrent assets: Prize reserve 4,421,853 Investment in prize annuities 9,434,092 Capital assets, net 4,286,169 Total noncurrent assets 18,142,114 Total assets $ 44,748,662 Liabilities Current liabilities: Lotto prizes payable $ 2,297,882 Annuity prizes payable 2,836,557 Accounts payable 1,414,603 Due to: State General Fund 15,440,315 Other state agencies 890,165 Interest Payable 3,831 Bonds Payable 100,000 Deferred revenue 408,234 Salary and benefits payable 88,383 Compensated absences 737,069 Total current liabilities 24,217,039

Long-term liabilities: Accounts payable 194,026 Prize reserve fund 4,421,853 Bonds payable 1,300,000 Compensated absences 768,009 Long-term annuity prizes payable 9,434,092 Total long-term liabilities 16,117,980 Total liabilities 40,335,019

Net Assets Invested in capital assets, net of related debt 2,886,169 Unrestricted 1,527,474 Total net assets $ 4,413,643

11

Iowa Lottery Authority - Statement of Revenues, Expenses and Changes in Net Assets - Year ended June 30, 2009

Operatingrevenues: Instant-scratchticketsales $136,268,555 Pick3sales 6,534,765 Powerballsales 58,220,203 HotLottosales 14,329,610 Pick4sales 2,555,237 $100,000CashGamesales 4,113,307 Pull-tabsales 21,315,424 Applicationfees 3,680 Other 65,449 Totaloperatingrevenues 243,406,230 Operatingexpenses: Prizes: Scratchtickets 81,846,620 Pick3 3,834,735 Powerball 28,118,140 HotLotto 7,015,713 Pick4 1,473,587 $100,000CashGame 2,271,476 Pull-tab 13,389,649 Promotional 475,421 Totalprizes 138,425,341 Retailercompensation 15,298,982 Advertisingproductionandmediapurchases 6,995,166 Retailerlotterysystem/terminalcommunications 8,248,110 Instant/pull-tabticketexpense,machinemaintenance3,194,530 Terminalequipment/ticketdispensers 81,250 Otheroperatingexpenses 12,235,787 Totaloperatingexpenses 184,479,166 Operatingincome 58,927,064 Non-operatingrevenue(expense): Interestincome 421,090 Interestexpense (48,986) Netnon-operatingrevenues 372,104 Incomebeforetransfers 59,299,168 Transferproceedstootherfunds: StateGeneralFund 56,550,792 VeteransTrustFund 2,783,377 IADept.ofPublicHealth- GamblingTreatmentFund 1,219,137 Totaltransferstootherfunds 60,553,306 Changeinnetassets (1,254,138) Netassetsbeginningofyear 5,667,781 Netassetsendofyear $4,413,643

How More Than $1.1 Billion In Lottery Profits Have Helped Iowa

$170,318,439 Iowa Plan The Iowa Plan was a long-term economic development program. The Iowa Plan was divided into four basic areas: a Jobs Now program designed to put people to work; government construction programs; community and eco-nomic betterment; and educational and agricultural research. Lottery profits were dedicated to the Iowa Plan from fiscal year 1986 through fiscal year 1990.

$35,894,355 CLEAN Fund The CLEAN Fund stood for Committing the Lottery to Environment, Agriculture and Natural Resources. The program dedicated money to environmental and cultural causes. Lottery profits were dedicated to the CLEAN Fund during fiscal year 1991.

$952,253,908 General Fund Within the state budget, the general fund provides money to a variety of vital projects in Iowa. Some of the programs that receive money from the general fund include education, natural resources, health and family services and public safety. The Governor and the Iowa Legislature allocate money from the general fund based on where they believe those funds are needed most. Since 1992, a majority of Iowa Lottery proceeds have been directed to the General Fund.

$2,783,377 Iowa Veterans Trust Fund Beginning in fiscal year 2009, the Iowa Lottery develops two instant-scratch and two pull-tab games annually to provide money for the benefit of veterans’ causes. The proceeds from the sale of tickets from these lottery games are deposited in the Iowa Veterans Trust Fund.

$15,732,208 Iowa Gamblers Treatment Fund The Iowa Lottery is committed to responsible play and helping to address the issue of compulsive gambling. The state Gambling Treatment Program provides treatment, counseling and outreach programs as well as the 1-800-BETSOFF helpline. A portion of lottery profits were dedicated to the Gambling Treatment Program each year through the end of FY 2009.

$13,773,572 Special Appropriations A portion of lottery profits have been earmarked for specific purposes within the state budget.

Profits to Iowa

Des Moines2323 Grand Ave., Des Moines, IA 50312Phone: 515-725-7900

Cedar Rapids2345 Blairs Ferry Road NE, Cedar Rapids, IA 52402Phone: 319-395-9313

Mason City2900 Fourth St. SW, Mason City, IA 50401Phone: 641-424-6011

Storm Lake822 Flindt Dr., Storm Lake, IA 50588Phone: 712-732-6662

Council BluffsOmni Centre Business Park, Suite 8300 W. Broadway, Council Bluffs, IA 51503Phone: 712-242-2161

Iowa Lottery Offices

www.ialottery.comPrinted on recycled stock containing 50% post-consumer fibre.