"They've mimicked just about everything we're doing," Musgrave said. "So we've lost a lot of that cross-border business."
Musgrave said he expects out-of-state competition to have a further impact in 2013.
"We think that Ohio's going to open a few more facilities; we've still got Maryland table games getting up to speed. We think we will be impacted," he said.
Musgrave said he hopes the bottom will come soon but said the Lottery will stick to conservative budget projections.
"We're hoping that we're going to plateau here before long, but I think, for our projections, we're even cutting back just a little bit more for the out years," he said.
Even if the out-of-state competition is factored out, Musgrave said it's hard to make a case for significant Lottery revenue growth.
"One of the problems is that our population's not growing," he said. "We've got a steady population, and more of a senior population, so it's just hard to grow a product like the one we're involved with."
For the month of December, the lottery collected more than $106 million in gambling revenue, down $13 million from December 2011. Most of that decline was due to a nearly $10 million decrease in racetrack slot revenue, with the rest due to a decline in revenue from the neighborhood slot parlors.
Contact writer Jared Hunt at jared.h...@dailymail.com or 304-348-5148.