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Although the North Carolina Education Lottery’s sales have increased significantly over the past two years, the percentage of sales transferred to the state’s education fund has declined, according to a new state audit.
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That means a greater percentage of the money made from selling lottery products like tickets is going toward player prizes rather than public schools.
The state’s Education Lottery was established in 2005 after former Gov. Mike Easley signed the North Carolina State Lottery Act into law. The lottery contributes part of its revenue to education, including funding school construction, support staff positions and scholarships.
The Education Lottery’s gross sales increased 51% over two years, from $4.3 billion in fiscal year 2023 to $6.6 billion in fiscal year 2025.
The Office of the State Auditor found that the lottery has shifted toward digital instant games — which are similar to slot machine games at casinos and have substantially increased in popularity in North Carolina — and other products that provide a higher payout for players. Even though sales are up, fewer cents of each sales dollar are available for the fund, the audit found.
State law sets a target that 38% of the Education Lottery’s revenues is transferred to North Carolina’s education fund, but the figure “has not operated as a fixed transfer requirement,” according to the audit.
In fiscal year 2025, the lottery’s percentage of sales transferred to the education fund was 16%, which is down from 23% in fiscal year 2023. The lottery’s long-term average transfer percentage is around 27%, the audit said.
State Auditor Dave Boliek said when the office conducted a financial audit of the Education Lottery in December, “we were left with questions on the amount of money going toward our public schools.”
He said in a news release the recent performance audit “found that gambling trends have dramatically shifted.”
“The Education Lottery today isn’t what it used to be, prompting auditors to recommend the primary policy objective of the lottery be revisited,” Boliek said.
The audit recommends that the lottery work with the North Carolina General Assembly “to clarify the State’s primary strategic objective for the Lottery.” It suggests that state law should clearly define whether the lottery’s objective is to maximize the total transferred to the education fund, or “maintain a specified minimum percentage to transfer.”
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The audit said either objective “may not always be compatible in a modern lottery environment.”
Demi Dowdy, a spokesperson for Republican House Speaker Destin Hall, told The News & Observer that the office “is currently reviewing the auditor’s report and taking a closer look at its findings.”
The state legislature plans to reconvene for voting sessions after the 2026 election.
The audit looks at the Education Lottery’s financial statements from fiscal year 2023 to fiscal year 2025.
The audit found that between 2023 and 2025, changes to the Education Lottery’s product portfolio — particularly digital instant games — has increased its sales and also reduced its percentage of sales transferred to the education fund.
In fiscal year 2023, digital instant games generated zero dollars. Two fiscal years later, the games had generated $2.6 billion in sales for the lottery, which accounted for 40% of its total sales that year, according to the audit.
While digital instant games were increasing in popularity, sales for traditional lottery games and scratch-off tickets decreased, the audit said. Those types of games have lower prize payout percentages, which means fewer dollars from ticket sales are going toward winners and more dollars are going toward the lottery and its education fund.
The audit also noted that administrative costs and retailer commissions did not factor into the lottery’s declining transfer percentage.
Mark Michalko, the CEO of the Education Lottery, signed a response letter in the audit that the lottery will meet with the NCEL Commission and “develop a plan to advance these important conversations.”
The letter said that Michalko, alongside Hayden Bauguess, the chief government affairs officer, will meet with leadership in the General Assembly “to discuss possible legislative changes need to clarify the State’s primary objectives.”
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This story was originally published September 9, 2026 at 8:00 AM.