Contraband that is not in-and-of-itself illegal is routinely sold at police auctions to the public. I'm not entirely sure what happens with the proceeds of those auctions. I'm pretty sure they go to the local police department in the same revenue split as cash.
Illegal contraband, such as drugs, are destroyed. The federal government gives grants to companies or police departments to cover the inflated costs of destruction.
No matter how police choose to play the game, they get money.
One thing that doesn't seem to be covered is how it changes the motivation to seize contraband, as it is much more profitable to wait until the contraband is sold and then seize the money.