Revamping of Slumping State Lottery in the Works : Gambling: New director is preparing to recommend a $25-million cut in administrative expenses. Every aspect of the operation is likely to be hit.

As lottery sales continue to register record lows, the state’s new lottery director is preparing to recommend a $25-million cut in administrative expenses and a major reorganization of the agency.

On Friday, Sharon Sharp said sales were so low that if the trend continues, lottery revenues at the end of the fiscal year will only be $1.5 billion--the lowest since the first year of operation.

Since state law requires that only 16% of lottery revenues can be used for operating costs, Sharp said nearly a fifth of the administrative budget would have to be cut, or the agency runs the risk of exceeding the ceiling by the end of the fiscal year. She said the cuts would be made gradually throughout the year, and retailers’ commissions would be the last area she would look to make reductions.

“We’re still identifying cuts that will literally impact the entire agency. It will impact jobs. It will impact advertising. It will impact promotion,” Sharp said. “Everything that is not directly related to game revenue will have to be streamlined.”

Although the cuts must get final approval from the State Lottery Commission, the panel is not expected to overrule any of her recommendations.

Last week, the first layoff notices were delivered to six middle-management employees whose contracts were not renewed. Sharp said eliminating their contracts would save $206,000.

Although she remains confident that she can take steps that will cause sales to rebound, Sharp said it would be several months before she can put any changes into effect.

“This decline has come about over the last couple of years,” she said. “When a lottery starts to go down, it takes a lot more to bring it back up. It will take action at many, many levels.”

When she took over the director’s job three weeks ago, Sharp said, she was aware that the lottery was in trouble, but the extent of the sales slump has come as a surprise.

“I have never seen so much happen to one lottery in a (short) period of time,” she said.

She said the sales slump began two years ago when players began losing interest in the games of chance. But it was accelerated by recession and complaints about making the Lotto game harder to win.

To attract more interest in Lotto by creating bigger jackpots, officials had reduced the chances of winning by adding to the field from which players selected their numbers. Instead of picking six numbers from 49, the game was changed so players picked six from 53.

Sharp said the plan backfired because the change was announced months before it took effect, giving players too much time to digest the new odds and decide they didn’t like them.

In the next few weeks, Sharp said, she will go to the commission with a plan for new games that she hopes will reignite lottery interest. It will be difficult to sell the games to the public, she cautioned, because of the deep reductions she must make in advertising and promotion budgets.

Along with the recommended budget cuts, Sharp said she will also propose reorganizing the agency to make it “more efficient.” The lottery has been criticized in the past for having too much fat--too many overlapping middle-management jobs.