A performance audit from the North Carolina Office of the State Auditor indicates that online slot machine-style games are rapidly increasing North Carolina Education Lottery sales, while simultaneously reducing the proportion of proceeds allocated to the state's Education Fund.
The audit, which examined fiscal years 2023 through 2025, found a substantial 51% jump in the lottery's reported gross sales, rising from $4.3 billion to $6.6 billion in just two years. Over the same period, the percentage of sales transferred to the Education Fund decreased from 23% to 16%. Despite this percentage drop, the actual dollar amount transferred still increased, from $1.02 billion in FY 2023 to $1.09 billion in FY 2024, before experiencing a slight dip to $1.08 billion in FY 2025.
Auditors determined that the primary reason for this shrinking transfer percentage is the rapid expansion of “digital instant games” — online games designed to mimic casino slot machines with high payout rates. This growth has occurred alongside a decline in sales from traditional scratch-off and draw games. The online games feature an 87% prize payout rate, which consequently leaves a smaller portion of each dollar available for transfer to the Education Fund.
State Auditor Dave Boliek noted that his office's previous financial audit had raised questions about the funding reaching public schools. Boliek stated, “gambling trends have dramatically shifted,” highlighting that new online slot machine gaming now holds a dominant market position. He pointed out that online slot machine gaming grew from generating 0% of the Education Lottery's revenue to 40% in just three years, leading auditors to recommend a reevaluation of the lottery's primary policy objective.
The audit detailed the shift in sales, showing that online games surged from $0 in sales in FY 2023 to $2.6 billion in FY 2025. In contrast, revenue from scratch-off and draw games fell from approximately $4.3 billion to just under $4 billion during the same timeframe. Similar trends have been observed in Kentucky and Virginia following the introduction of comparable online gaming options.
North Carolina state law sets a target for the lottery to contribute roughly 38% of its revenue to the Education Fund “to the extent practicable,” though this target is not a statutory requirement. Historically, even when this percentage target has not been met, the total dollar amounts transferred each year have generally continued to increase.
Additional findings from the audit revealed that a total of $12.3 billion has been directed to education programs since the lottery's inception through FY 2025. In fiscal year 2025 alone, the lottery spent $54 million on advertising and marketing. Its three main gaming-system vendors received $125 million, contributing to total vendor expenses of $207 million. The audit also identified that the retailer with the highest lottery sales statewide was located in Brunswick County.
Auditors recommended that the lottery collaborate with the General Assembly to clarify its main strategic objective. This clarification would determine whether the lottery's goal is to maximize total dollars transferred to schools, maintain a minimum transfer percentage, or balance both through a defined policy framework. Lottery leadership has committed to reviewing the audit with its commission and to meeting with legislative leaders to discuss potential changes.