The California Lottery is planning to win big with escalating prize payouts, predicting record sales in the year ahead.

Rising revenue signals a potential rebound for the state-run gambling operation, which for years faced criticism that it was underperforming.

"I think we're on the upward trend," said lottery Director Robert O'Neill, who calls the curve "hockey stick growth."

Lottery sales across the country soared this spring when the Mega Millions jackpot hit a record-breaking $656 million. The ticket frenzy created by that March jackpot helped make California the second-highest-grossing lottery in the country in the first three months of 2012, state officials say.

But other changes are also paying off, including 2010 legislation that altered the lottery's spending formula to allow more revenue to be used for prizes. Players who don't hit the bigger jackpots now have more chances to win smaller amounts.

"The more people who win, the more people will play," said David Gale, executive director of the North American Association of State and Provincial Lotteries. "And they don't have to win huge prizes to feel like they've contributed to where the money goes and, at the same time, gotten the value for their dollar."

California Lottery officials also credit efforts to promote $5 and $10 scratch tickets, and a focus on recruiting new retailers for the "Hot Spot" electronic lottery console, which spits out number drawings every four minutes. The lottery is projecting a 20 percent spike in sales in those two areas, which officials expect to bring in a combined $3.47 billion this fiscal year.

It's too soon to tell whether the trend will continue. But additional growth would dial down years of criticism and calls for overhauling the lottery, which voters approved in 1984 on the promise it would raise money for public education.

Former Republican Gov. Arnold Schwarzenegger tried to shake up the lottery during his second term.

His proposals included handing off the lottery to private investors, but that was derailed by a U.S. Department of Justice opinion that said state lotteries could not be entirely privatized.

Voters rejected another plan to let lawmakers borrow billions from future profits and make major changes to the game on their own.

Some still question whether the lottery is realizing its maximum potential. A British firm approached Gov. Jerry Brown's office last year with a proposal to privatize some of its operations, saying it could generate more revenue for schools, but the idea has yet to gain traction.

The lottery expects to raise about $1.3 billion for public education, which gets about 26 percent of the revenue, through next June.

While that would represent an increase of $200 million from this year's total, the supplemental money accounts for just 1.5 percent of the state's public education funding.

Still, commissioners appointed to the lottery's board by Brown say they want to highlight and maximize the money that goes to schools as they look to expand the lottery's reach. They want to add new games, recruit more retailers and push ticket-display changes and other promotions to boost sales.

The agency put a focus on hiring and training sales and marketing staff members to further the expansion under the direction of the new board and O'Neill, who also is a Brown appointee.

Longtime opponents of a state-run gambling operation aren't happy.

The Rev. James Butler, executive director of the California Coalition Against Gambling Expansion, worries that the new retailers and advertising campaigns will target low-income Californians, who studies have shown are more likely frequent lottery players. That, he said, could lead to "exploiting that class of people that, especially in this economic downturn, are probably struggling more."

"The question becomes how many people are spending money that is not discretionary," he said. "How much of these dollars that are spent in any (gambling) enterprise are coming not in the $5 at the end of the day but the $20 or the $50 before their bills are paid?"

National lottery sales are also up, but some analysts say states can't rely on rapid growth. Lucy Dadayan, a senior policy analyst at the Nelson A. Rockefeller Institute of Government, said income in the industry nationally has been "significantly slowing."

"That's an indication that legislatures cannot really count on revenues generated from lottery," she said, adding, "It's not sustainable over time."

Both the economic downturn and states allowing more gambling activities are factors, said Dadayan, who studies revenue generated by gambling operations.

She said the prospect of Internet gambling in some states, including California, could also compete for players' money.

Lottery officials here say they're preparing for such changes, exploring options for using mobile phones and the Internet to boost sales.

Gale, whose organization counts lotteries in 44 states and the District of Columbia as members, said new marketing strategies and overall modernization will be the key to future success.

Many lotteries "are at a point in their existence where they need to be taking a look at their organization," he said. "They need to be making the decisions that California obviously has been making over the past 12 months."

Editor's Note: This story has been corrected from online and print versions to specify that the U.S. Department of Justice, not the U.S. Supreme Court, opined that lotteries could not be entirely privatized. Corrected at 9:30 a.m., July 11, 2012.

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