State’s Fading Lottery in Disarray : Revenue: Some officials want to cut staff, but governor wants to delay major policy decisions until a new director is in place.

With fewer and fewer players taking a chance on California’s lottery, state officials are proposing to eliminate dozens of middle-management jobs and reduce the agency’s promotions budget to avert a financial crisis.

But Gov. Pete Wilson said Thursday that all major decisions at the lottery should remain on hold for the time being.

“Rather than act unilaterally on any policy decision, obviously it would be best if the Lottery Commission waited until a final decision is made on the director, which should be very soon,” Wilson said through a spokesman.

While Wilson refused to divulge his plans for the lottery, it has been known for some time that his Administration was interviewing lottery directors throughout the country in a search for a replacement for Chon Gutierrez, the current director.

Documents obtained by The Times show ticket sales have plunged so low in the last month that officials are recommending that the state Lottery Commission reduce administrative expenses by at least $6 million.

But officials close to the situation said they believed the governor was trying to stop the agency from making major policy decisions so a new director would be free to propose his own strategy for coping with the lottery’s worsening financial situation.

“A new director should determine his own strategy and should not be brought in and told ‘This is what we’ve done for you; now you make it work,’ ” said Don Beaver, president of the California Grocers Assn., which represents businesses that market lottery tickets.

Gutierrez said that while the governor’s office had not informed him of any new directive, he was certain “we will do whatever he wants immediately.”

Wilson’s statement was issued just a few hours after Gutierrez mailed a stack of memos to the commission, recommending changes in the Lotto game and proposing a series of budget cuts, including layoffs of mid-management staff and reductions in the agency’s promotions program.

Since the beginning of the state’s fiscal year July 1, reports show ticket sales for all games except Little Lotto have dropped below the most conservative projections. At the end of last week, sales for the 10-week period were $265 million, or $109 million short of the lottery’s goal.

The new sales figures provide further indication that the lottery is in a deep financial tailspin that officials seem unable to reverse. Just three months ago, they projected sales for the new fiscal year would be $2 billion, a $133-million drop from last year’s revenues. But if the current sales trend continues through the year, officials now estimate revenues would be in the range of $1.7 billion to $1.9 billion.

The most significant declines have been in the games that traditionally produce the biggest revenue--Lotto and Scratcher. Sales for Lotto, a computer game where players select six numbers from a field of 53, have fallen 30% below the projections, while those for Scratcher, a game which provides instant prizes, have missed the projections by 48%.

The latest downturn in revenues is creating financial problems because of a provision in state law that allows only 16% of the lottery’s revenue to be spent on administrative expenses. Since the lottery’s administrative budget is based on sales projections that have turned out to be overly optimistic, it must cut administrative costs to keep from exceeding the 16% ceiling.

Despite the bleak revenue picture, Gutierrez said he had not proposed more drastic measures because he expected sales to rebound later in the year. That is when the lottery introduces new games and makes other adjustments to reignite interest.

A decision last year to change the odds in Lotto in an attempt to provide more big jackpots has been blamed in part for the lottery’s financial problems. The change, which nearly doubled the odds against winning, required players to pick six numbers from a field of 53 instead of 49. Gutierrez said he has recommended that the commission reinstate the old game.

Gutierrez said he was disappointed by the governor’s statement because he thinks the lottery needs to take steps quickly to reverse the sales downturn.

He said he believes sales have been soft not only because of the change in the Lotto game, but because of players’ misperception that lottery revenues are not helping education. He said market research shows players believe there should be enough revenue from the lottery to make up for any loss in tax revenue that schools are experiencing. He said they do not understand that even though the lottery collects billions of dollars in sales, it provides only about 3% of the revenue used by schools.

Under state law, at least 34% of lottery revenues must be turned over to schools.

Unlucky Lottery

State lottery officials are facing a financial crisis because of a plunge in sales in almost every game. Here is a comparison of the lottery’s sales goals, and the actual numbers, in millions of dollars: Scratcher: Annual Goal: $450 Year to Date Goal: $83 Year to Date Sales: $43 Little Lotto: Annual Goal: $170 Year to Date Goal: $39 Year to Date Sales: $41 Lotto 6/53: Annual Goal: $1,160 Year to Date Goal: $220 Year to Date Sales: $153 Topper: Annual Goal: $100 Year to Date Goal: $19 Year to Date Sales: $16 Decco: Annual Goal: $35 Year to Date Goal: $14 Year to Date Sales: $12 Total: Annual Goal: $2,000 Year to Date Goal: $374 Year to Date Sales: $265 NOTE: Figures reflect fiscal year that began in July

SOURCE: California Lottery

Lottery: The Dollar Figures

Here is a look at the weekly sales, in millions of dollars, for various lottery games since the start of the 1991 fiscal year:

Week Ending Scratcher Little Lotto Lotto 6/53 Topper Decco Total July 6 $3.0 $ 4.3 $15.0 $1.6 $1.2 $25.1 July 13 $2.5 $4.3 $16.5 $1.7 $1.2 $26.2 July 20 $9.5 $4.3 $15.1 $1.6 $1.2 $31.7 July 27 $6.6 $4.2 $15.8 $1.7 $1.2 $29.5 Aug. 3 $4.3 $4.2 $14.6 $1.6 $1.2 $25.9 Aug. 10 $5.3 $4.1 $14.2 $1.6 $1.2 $26.4 Aug. 17 $3.6 $4.0 $17.3 $1.8 $1.2 $27.9 Aug. 24 $3.9 $4.0 $13.8 $1.5 $1.1 $24.3 Aug. 31 $2.6 $3.9 $17.6 $1.8 $1.1 $27.0 Sept. 7 $1.6 $3.8 $13.3 $1.5 $1.1 $21.3

SOURCE: California Lottery