The D.C. Lottery's contribution to District government coffers is expected to decline this year for the first time in its five-year history, a drop-off caused by lagging consumer interest in the games and increased marketing costs.

Profits from the lottery are expected to drop from $40 million in fiscal 1986 to $38.5 million this year, lottery officials told members of the D.C. Council's Finance and Revenue Committee yesterday. The return this year would be 19 percent less than the $47.6 million lottery officials originally predicted.

Every year since the lottery games were initiated in 1982, the District government's share of its revenue has increased, peaking at $40 million last year. But the long-running Instant Lottery game, in which patrons scratch off numbers on a ticket, has "faded dramatically," one official said.

The decline of the instant game is a key factor that has slowed overall ticket sales growth significantly, the official said. The latest midyear budget projections under review by the council indicate that there will be a 50 percent drop in instant lottery ticket revenue.

"The game is not selling as well as our original projections," said Bernard C. Edwards, executive director of the D.C. Lottery and Charitable Games Board. "We anticipated that sales would hold, and they haven't."

The lottery is projected to take in $123 million in sales for all five games this year, roughly half of which is expected to be paid in prize money. The lottery board deducts the administrative costs of running the games and transfers the remaining funds to the District's general fund.

The rate of growth in lottery revenue has been declining since 1984, when officials recorded a 60 percent increase over the previous year. In 1985, that increase fell to 30 percent over the previous year's revenue. Last year, the increase was 6 percent.

Robert Reid, the lottery's chief financial officer, said there has not been an actual decrease in the number of tickets sold, but that an increase in prize budgets, higher guaranteed minimum jackpots and the cost of moving to a new lottery board headquarters have further depressed profits.

"What we're seeing is a plateau effect," Reid said yesterday. "But there are still a number of areas where we can see some growth."

Lottery officials are hoping to stop the decline by marketing the lottery to middle-income consumers who generally do not patronize the lottery.

A measure awaiting action in the D.C. subcommittee of the House Appropriations Committee would overturn a federal rule that prohibits the lottery board from selling tickets in Georgetown and the city's federal enclave, which includes the Capitol and other principal government buildings.

A lottery spokeswoman said that such an expansion could bring in an extra $5 million.

Lottery officials also are hoping that a proposed multistate lottery, in which it would join seven states in providing a huge jackpot, could attract new players.

But Reid cautioned that the lottery board's projections could change again before the end of the fiscal year, further complicating the council's efforts to find ways to avoid a tax increase. Mayor Marion Barry has proposed a $17.9 million midyear tax rise to balance the budget.

"Does it look any better for 1988?" committee Chairman John A. Wilson (D-Ward 2) asked Edwards.

"No," he said. "We're expecting to hold tight, but no increase."