The Virginia Lottery generated $595 million in profit for K-12 education in the past fiscal year — the third most profitable year in its history — despite concerns about competition from electronic skill games that the General Assembly subsequently banned but Gov. Ralph Northam revived for a year to produce taxes for a COVID-19 relief fund.
The lottery also recorded its second-highest year for sales, with $2.15 billion in gross revenue in the fiscal year that ended June 30, buoyed by a final quarter in which coronavirus quarantines and restrictions on other gaming opportunities limited competition for the state-run enterprise. Sales dropped steeply in March and early April but rebounded strongly in May and June.
“The final quarter of the fiscal year, the lottery was quite literally the only game in town,” said Kevin Hall, the lottery’s executive director, after announcing the results on Thursday.
Queen of Virginia, the biggest operator of electronic skill games in the state, greeted the annual results as proof that the state’s fear of competition from other forms of gaming was unfounded.
“From Queen of Virginia’s standpoint, we think it just proves that the lottery can operate at the same high level at the same time that Virginians can continue to enjoy playing skill games across the state,” said Tom Lisk, a Richmond lobbyist for Queen of Virginia and its Atlanta-based parent company, Pace-O-Matic Inc.
Lottery sales and profits were down from the previous year, which was the highest on record in part because of a $1.5 billion Mega Millions jackpot in October 2018.
Compared with 2019, sales were down by $145 million in fiscal 2020 and profits were $54 million below the previous year.
Senate Minority Leader Tommy Norment, R-James City, was one of the sponsors of legislation to ban skill games because of their effect on lottery profits and K-12 funding, but he had mixed feelings about the financial results.
“It is encouraging only from an K-12 educational funding stream,” Norment said in a text message on Thursday. “From a societal perspective not so positive, as more citizens home bound and many under financial stress looking for that pot of gold at the end of the rainbow.”
“Wait until casinos and sports betting embrace VA,” he texted. “Gaming revenues will be a significant line item in the revenue budget.”
The lottery had estimated that competition from thousands of unregulated and untaxed electronic skill games — which resemble slot machines but purport to operate on skill rather than chance — would reduce profits by $40 million a year.
After a fierce lobbying battle that included aspiring casino operators and slot machine manufacturers, the General Assembly banned skill games from stores, restaurants and truck stops in Virginia, despite protests from thousands of small-business owners who said the games had been an economic godsend for them.
The coronavirus pandemic changed the game.
Northam, who declared a public health emergency on the same day that the assembly approved a new state budget, proposed to allow the machines to operate until July 1, 2021, subject to a monthly tax of $1,200 per machine. This is expected to generate more than $120 million a year for a new COVID-19 relief fund. The assembly approved the governor’s proposal in April.
Initially, the partial lockdown the governor ordered to stop the spread of COVID-19 also hurt the lottery, which saw sales drop by 21% in March and 8% in April, compared with the same months the previous year. But sales bounced back in May, when they increased 9%, and rose by 15% in June.
At the same time, most electronic skill games were unplugged in retail outlets closed or slowed by coronavirus restrictions. Rosie’s Gaming Emporiums, which Colonial Downs Group operates in South Richmond and three other cities, were closed, as were casinos in neighboring states.
Voters in four cities — Norfolk, Portsmouth, Danville and Bristol — will decide in referendums in November whether to allow casino gambling under a law that also will give Richmond the option of approving a casino in the future. The lottery will regulate casino gambling, as well as sports betting approved by the assembly this year, and sell its games over the internet.
“At a time when the gaming environment in Virginia is changing and expanding as never before, the lottery continues to lead the way with integrity, solid business practices and innovation — all to benefit K-12 education in Virginia,” Hall said in an announcement of the financial results.