New Games Fail to Revive Lottery's Lackluster Sales : Finances: Director blames lack of money to advertise latest products. Meanwhile, two commission members have resigned and administrative payroll must be cut again.

TIMES STAFF WRITER

Despite the introduction of an array of games designed to bring players back, sales of California Lottery tickets have remained flat and forced officials to cut another $5 million from the administrative payroll.

"The situation is very, very difficult," Lottery Director Sharon Sharp said Tuesday. "It's crazy. We're bringing out new products and we have almost no money to advertise them."

To add to the lottery's woes, two members of its governing commission--William Johnston and Dennis Malody--have resigned, leaving the panel without a quorum to conduct business at a scheduled meeting today. The term of a third member, Daryl Arnold, expired in November but Gov. Pete Wilson has yet to appoint a replacement.

Franz Wisner, a spokesman for the governor, said Wilson expects to name two new board members as soon as background checks can be completed, but he doubted whether the appointments could be made in time for today's meeting. With only two of the five board members present, he said, the board will have to postpone all decisions.

Neither Malody nor Johnston could be reached for comment. Neither has publicly disclosed his reason for resigning, although Johnston has been openly critical of some of Sharp's recent recommendations on major contracts. Both were appointees of former Gov. George Deukmejian.

Their absence forces the commission to delay a decision on a controversial contract to supply the lottery with up to 10,000 additional player terminals and to automate its "scratcher" system. Sharp has recommended that the contract go to High Integrity Systems, a Florida-based firm, but another bidder, GTECH Corp., has claimed in a court challenge that it submitted a lower bid.

On Tuesday a Sacramento County Superior Court judge denied GTECH's request for an injunction that would have barred the commission from awarding the contract.

The purchase of the terminals is part of Sharp's long-term strategy to revive player interest in the games and to restore sales, which peaked at $2.6 billion in 1989 and have been declining since. Even with the introduction of games like Fantasy Five and different scratcher games, along with an overhaul of the Lottery's most popular game--Lotto--the latest figures show sales have not rebounded but seem to have stabilized.

Even so, sales for the year are markedly below projections. Last July, officials predicted that the lottery's revenue for the coming fiscal year would be $2 billion, but they later revised those projections downward. The latest report forecasts sales of $1.4 billion to $1.5 billion for the year.

Without a rebound in sales, Sharp said, the lottery must continue to cut expenses to comply with state law that allows only 16% of lottery revenues to be spent on administrative costs. She said her latest proposal for $5 million in budget cuts can be handled by attrition and without layoffs. Counting earlier cutbacks, she said, it means the lottery has had to reduce its work force by 400 since fall.

The bleak financial reports will have their greatest impact on the state's schools. This year, public schools and community colleges can expect only $560 million from the lottery, compared to $804 million last year. State law requires that at least 34% of the lottery's revenues be distributed to education.

Sharp, who took over as lottery director last fall, said she still thinks she is employing the right strategy to renew player interest in the games but is hamstrung by budget constraints and the gambler's nemesis--bad luck. She estimated that it would take 18 months to restore sales.

"You would think every new product should come out with a bang but ours don't come out with a bang because we don't have any money to promote them," she said. "It's almost like you have to get your customers back one by one because you can't use the mass media."

Without a major advertising campaign, Sharp said, it is difficult to get word to players that the lottery is offering a new lineup of games. While the lottery normally spends millions promoting a new game, she said, she will have to use "my last $500,000" for a two-week radio campaign in April launching a new daily numbers game.

The game--to be called Daily 3--debuts April 9. Players pick three numbers from 0 to 9 and the player who holds the correct numbers in the order they are drawn wins a top prize of $1,000.

The loss in advertising dollars, Sharp said, has been compounded by the failure of Super Lotto, the lottery's biggest moneymaker, to produce the big jackpots that drive up sales. Super Lotto set sales records in April, 1991, with a jackpot of $118.8 million, but didn't have another jackpot reach $30 million until earlier this month. Super Lotto does not build the big jackpots unless it fails for several straight drawings to produce a winner.

"When you promise an exciting game and then the jackpot gets hit every week, the response is lower sales," Sharp said.

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