By Bruce Schreiner
The Associated Press

LOUISVILLE - With record-smashing sales for two straight years, these should be heady times for the Kentucky Lottery.

But even as lottery officials announced Thursday that a record $193.5 million in proceeds were turned over to the state last fiscal year, there was no time for celebration. Officials are too busy trying to stave off expected losses to Tennessee and its lottery that debuted this year.

For years, the Kentucky Lottery reaped a windfall from Tennesseans who crossed the border to play the numbers games, accounting for about one-fifth of Powerball sales in Kentucky.

Now, Tennesseans can stay home to play Powerball - the multistate game that sometimes offers gargantuan jackpots.

The Kentucky Lottery expects overall sales to drop by about $60 million in the current fiscal year, largely because of competition along the southern border, said Arch Gleason, the lottery's president and CEO.

The lottery projects overall sales of $665.8 million this fiscal year, which began July 1. Lottery sales climbed to $725.3 million last fiscal year, beating the previous year's record by nearly $52 million.

The lottery expects modest sales increases nearly statewide this fiscal year, Gleason said. The exception: counties bordering Tennessee. In those places, sales are projected to fall sharply, he said.

"Powerball jackpots that are a big cause for people to travel," Gleason said. "We won't get that traffic anymore."

Though lured by the instant millions of Powerball jackpots, Tennesseans often played other Kentucky lottery games.

In Franklin, just north of the Tennessee border, lottery sales at Lotto Land are off about 50 percent, said manager Jeff Milam.

Tennesseans used to make up about 80 percent of his customers, Milam said in a phone interview.

Some loyal customers still cross the border to buy lottery tickets along with groceries and gas, he said.

Milam said he's had to cut back hours for some store employees.

But he's hopeful for a turnaround in sales - pinning that partly on a new online game being introduced by the Kentucky Lottery this month. It's modeled after the game tic-tac-toe.

"When the new game comes, (we'll) just hang in there and see if that will soften the blow any," he said.

The game, called Tic Tac Cash, will debut Aug. 30. The object is to pick winning numbers that form a line across the board.

Prizes will range from $2 to $25,000.

Gleason said lottery officials hope the new game generates $7.5 million in sales in the last 10 months of the current fiscal year.

Lottery officials also are counting on continued sales growth in instant games, which represent just over half of lottery sales. Instant ticket sales surged by $37 million to $357 million last fiscal year, Gleason said.

"A key to our success is going to be able to get more people to play, not get more money from the same people," he said. "The challenge there is to offer games that are new and appealing."

There's a lot riding on the lottery's success. The state uses lottery proceeds primarily to finance college scholarships.

The $193.5 million in lottery proceeds turned over to the state last fiscal year was up 7 percent from the previous record - $180.7 million given to the state a year earlier.

The lottery expects its contribution to the state to fall to $177.3 million in the current fiscal year, Gleason said. That figure would still represent the third-highest amount ever, he said.