0001 1 2 3 * * * * * * * * * * * * * * * * * * * * * * * * * * * 4 5 TEXAS LOTTERY COMMISSION 6 MEETING 7 8 MARCH 5, 2004 9 10 * * * * * * * * * * * * * * * * * * * * * * * * * * * 11 12 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY COMMISSION 19 meeting was held on the 5th day of March, 2004, from 20 8:30 a.m. to 12:49 p.m., before Shelley N. Jones, RPR, CSR 21 in and for the State of Texas, reported by machine 22 shorthand, at the Offices of the Texas Lottery Commission, 23 611 East 6th Street, Austin, Texas, whereupon the following 24 proceedings were had: 25 0002 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Mr. James A. Cox, Jr. 6 General Counsel: Ms. Kimberly Kiplin 7 Executive Director: 8 Mr. Reagan E. Greer 9 Deputy Executive Director: Mr. Gary Grief 10 Assistant Director, Charitable Bingo Operations Divisions: 11 Mr. Phil Sanderson 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances....................................... 2 4 5 AGENDA ITEMS 6 ITEM NUMBER I.................................... 4 ITEM NUMBER II................................... 31 7 ITEM NUMBER III.................................. 33 ITEM NUMBER IV................................... 35 8 ITEM NUMBER V.................................... 39 ITEM NUMBER VI................................... 47 9 ITEM NUMBER VII.................................. 48 ITEM NUMBER VIII................................. 49 10 ITEM NUMBER IX................................... 4 ITEM NUMBER X.................................... 58 11 ITEM NUMBER XI................................... 59 ITEM NUMBER XII.................................. 61 12 ITEM NUMBER XIII................................. 61 ITEM NUMBER XIV.................................. 62 13 ITEM NUMBER XV................................... 74 ITEM NUMBER XVI.................................. 74 14 ITEM NUMBER XVII................................. 78 ITEM NUMBER XVIII................................ 79 15 ITEM NUMBER XIX.................................. 80 ITEM NUMBER XX................................... 83 16 ITEM NUMBER XXI.................................. 118 ITEM NUMBER XXII................................. 117 17 ITEM NUMBER XXIII................................ 118 ITEM NUMBER XXIV................................. 108 18 ITEM NUMBER XXV.................................. 109 ITEM NUMBER XXVI................................. 115 19 Reporter's Certification......................... 122 20 21 22 23 24 25 0004 1 MARCH 5, 2004 2 Texas Lottery Commission Meeting 3 CHAIRMAN CLOWE: If everyone will take 4 their seats, we'll come to order. 5 It is 8:30 a.m. and March the 5th, 2004. 6 The Texas Lottery Commission will come to order. 7 Commissioner Cox is here. My name is Tom 8 Clowe. Commissioner Olvera has unfortunately run into 9 airline accommodation difficulties coming out of the Valley 10 and will be absent. We have a quorum of the commission, 11 and, therefore, we are coming to order and will conduct the 12 business of the commission. 13 I'd like to move immediately to Item Number 14 IX on the agenda, report, possible discussion and/or action 15 on the activities of Scientific Games and/or the lottery 16 industry. We have a witness affirmation form for Mr. Cliff 17 Bickell, Scientific Games. 18 Good morning. We're happy to have you 19 here. 20 MR. BICKELL: Thank you and good morning, 21 Commissioner Cox and Commissioner Clowe. As I told 22 Commissioner Clowe this morning, he has to be careful what 23 he wishes for or at least asks for. He asked that from time 24 to time Scientific Games -- 25 MS. KIPLIN: Excuse me. Can you guys both 0005 1 identify yourselves for the record. We've got a reporter. 2 I'm sorry to interrupt you. 3 MR. BICKELL: That's all right. Sorry. I 4 was going to do that on another slide, but that's okay. 5 My name is Cliff Bickell. I'm with 6 Scientific Games. I'm president of a group called printed 7 products, and we make instant scratch-off tickets and 8 prepaid phone cards, and with me is Ron Williams. He is the 9 account manager for Texas Lottery and lives here in Austin. 10 Anyway, as I was saying, I was asked from 11 time to time that Scientific Games might come and give a 12 review of what -- what your suppliers are doing, what's 13 going on in the industry, and that's what our agenda is for 14 this morning. Again, I'll divide this into two -- two 15 places. One, I'll review the industry and then Scientific 16 Games. That's the purpose of our visit. 17 And just some observations on the lottery 18 industry itself, the lottery industry remains a significant 19 business. It's about $42 billion in the United States in 20 2003. And -- and the business right now is divided 21 basically into an instant product and online products. As 22 you can see from the graph here, that online has grown in 23 the last ten years from about 17 and a half billion in sales 24 to about 21, 22. And instant has grown from -- it doubled 25 basically from 20 to 22 as well. 0006 1 Basically, in -- instant has grown very 2 well. It has grown 50 percent since 1998 which is really a 3 phenomenal situation. It's been driven by, we think, a 4 couple of very important things. One is that lotteries are 5 getting more astute in -- in -- in the marketing of the 6 product. Average prize points have been going up. And with 7 average prize points going up from $1.54 in 1998 to $2.44, 8 the average pay out goes out -- goes up as well. And if 9 consumers see that there is a better chance of winning, they 10 will buy more, and that has helped fuel the business as 11 well. The sale of instant tickets is really a consumer 12 products business. And when you look at you're going to 13 compete for consumer discretionary spending and treat it as 14 a product and add value. When they buy a one-dollar ticket, 15 you get a certain chance of winning. When you buy a 16 two-dollar, you're -- you get a better chance of winning. 17 The whole economics fall in your favor. 18 Just an idea to -- to substantiate that 19 point, if you look at the top ten selling lotteries, the 20 average sale price is -- was -- was $2.33. It's hard to get 21 current data, since it's only the first part of March, as 22 far as what happened in 2003. But the best lotteries were 23 selling at $2.33, the top ten, and the remainder were $1.88. 24 So the best were actually selling higher prize points and 25 having higher pay outs. 0007 1 If you look at from the online side, nine 2 of the top 16 lotteries posted year-over-year sales 3 increases in the year. From the instant standpoint, the top 4 16 posted year over year. So the nine versus 16, so the 5 instant product was growing quite well in the last six 6 months, and, you know, half of the 16 at double digit 7 growth. So eight of the 16 not only had high growth but 8 double digit growth, which is impressive because a number of 9 these lotteries have been doing it year after year, as you 10 can see from that total chart. 11 In combination with higher prize points and 12 things, the lotteries are offering the consumer a greater 13 selection of -- of product. So of the top 16 lotteries, 14 almost 17 percent increase in the number of offerings of -- 15 of products during the year. 16 Some of the events that have happened, the 17 40th and the 45th -- 41st, excuse me, lotteries have 18 approved to sell, have a lottery, have come online, and the 19 first -- 41st is just about ready to come on. But Tennessee 20 started in the latter part of January of this year. It's 21 been a very successful launch. Not only was it the -- kind 22 of the quickest that has ever happened but in the first four 23 weeks they had done a 120 million in revenues from the 24 instant ticket product. And, remember, that's a state of 25 six million people, so that was an impressive roll out. And 0008 1 it beat the last one which set a record as well, which was 2 the state of South Carolina. They had the quickest start up 3 and highest sales in a start up, and then Tennessee broke 4 that record. 5 There continues to be an interest in 6 lotteries as states look for revenue sources. And Oklahoma, 7 North Carolina, and Wyoming are some of those that are -- 8 that are interested. It's hard to tell when will be the 9 next, but it probably will be in the next couple of years. 10 More internationally, the French, the U.K. 11 National Lottery, and the Spanish Lottery have started the 12 first -- almost the first international or country multigame 13 lottery called Euromillions, and that was started a few 14 weeks ago. And it started with kind of medium success. 15 Their base point is they have started with 15 million Euros 16 in their base prize and continue to have rollovers just like 17 the multi-state games we have in here. And we will be 18 interested to see how that goes. 19 They really put this together over a couple 20 of year period of time but with the intent of adding other 21 countries as well. And I know the German lotteries and the 22 Scandinavian lotteries are also looking anxiously to -- to 23 join this as well. So you could be seeing very, very large 24 jackpots sometime in the future from Euromillions. 25 The growth in the European lotteries, the 0009 1 growth part, has come from parts of keno. So many from many 2 of these states play French Rapido, which is a quick draw 3 type that is -- is helping them grow. And sports betting 4 which is played on some form of the lotteries is -- is one 5 of the growth spots. Instant tickets and online have been 6 only mixed. The U.K. National Lottery instant tickets are 7 growing like eight to ten percent while the French lotteries 8 are about the same. And actually the French lotteries or 9 its instant ticket lottery entered the world at about $3 10 billion for that country of about 60 billion. 11 International lotteries over the last few 12 years have been very interested in the technology, the way 13 that they are offering products. That's internet games, 14 cell phone, betting, and such. The idea is to try and 15 expand the player base in targeting the -- the younger 16 audience and that has had, at -- at best, moderate success. 17 I think that has been below their expectations. But they're 18 pioneering, and it will be interesting to see what we can 19 learn from the experiences that they've had and when it 20 becomes permissible in this country on a state-by-state 21 basis that our -- our -- lotteries can learn from -- from 22 their experiences. 23 Lotteries around the world have a great 24 deal of respect and integrity, which is the whole basis 25 of -- of the lottery to begin with. If you don't have 0010 1 integrity, people will not play your product. As gaming has 2 somewhat expanded, often coming up with new products like 3 video lottery as an example, the governments have elected to 4 give those product lines, in many case, two lotteries 5 because of the integrity and the success of management that 6 the lotteries have had around the world, including this 7 country. So that's kind of a trend as well. 8 So that's kind of the conclusion of just a 9 couple of years of what's going on. I know you're busy, but 10 if you have any questions in any of that, I can certainly 11 get back to you. Okay. Thank you. 12 CHAIRMAN CLOWE: Mr. Bickell, we -- we do 13 wish that you would come from time to time and we are 14 appreciative of the fact that you're here to give us this 15 briefing. You didn't say your position and how long you've 16 been with Scientific Games. 17 MR. BICKELL: Okay. Well, first of all, 18 I'm only halfway through but -- with Scientific Games -- 19 CHAIRMAN CLOWE: Oh, I thought you were 20 finished. 21 MR. BICKELL: No. That was just the 22 industry piece. Now I'm going to talk a little bit about 23 Scientific games. But I am president of the printed 24 products group, and I'll explain that in just a second. But 25 I've been with Scientific Games a little over nine years. 0011 1 CHAIRMAN CLOWE: We're interested and when 2 you give us a chance, we'll respond. I'll hold my questions 3 until you're done. 4 MR. BICKELL: Oh, okay. This is more on 5 Scientific Games. I was just trying to -- 6 CHAIRMAN CLOWE: Yeah, well, maybe -- maybe 7 one of my questions would be appropriate now since you're 8 talking about the industry in general and -- and instant 9 tickets. 10 MR. BICKELL: Sure. 11 CHAIRMAN CLOWE: I really don't understand 12 the instant tickets, and I hope you'll educate me. All the 13 attention seems to be focused on the online games. We have 14 billboards that advertise the jackpots. We have advertising 15 that concentrates, I think, on the online games. All the 16 interest in the media and that which I hear about here at 17 the commission seems to be -- be focused on the online game. 18 The instant aspect of our operation is quiet, general. I 19 understand there's advertising and promotion, but it 20 continues to grow. It continues to be over two thirds, 21 roughly, of our sales. 22 MR. BICKELL: Right. 23 CHAIRMAN CLOWE: And that's different, as 24 you pointed out, from some other foreign country or perhaps 25 some other states. Can you explain that relationship, and 0012 1 is there an answer to that question? 2 MR. BICKELL: Well, because of my specific 3 interest in the instant side, you probably have to temper 4 some of my comments because I might be a little prejudice. 5 But what I -- I think is that the two products work well 6 together. I think the -- the odds are much higher on the 7 online side, but the -- the jackpots are much more 8 significant. Although, for example, the -- I think you had 9 just over a two million-dollar winner here, which is -- you 10 know, it's getting up into sales and interest to the 11 consumers. 12 But I think -- I think the lotteries over 13 time and the things that we have tried to work with is the 14 fact that, as I said earlier, instant product really is a 15 consumer product. It competes many times with Snicker bars 16 and chewing gum and -- and things of that nature and is -- 17 comes out of the discretionary spending of -- of a person 18 and many times is an impulse action. But I think the thing 19 that an instant ticket offers that I think we're trying to 20 offer on the online side is entertainment and a chance to 21 win, and you have frequent winners. And the fact that you 22 have a lot of $20, $50, $100, $200 prizes and that somewhat 23 brings people back to try it again because they had a 24 successful, enjoyable experience. Even though realizing 25 that when they don't win or whatever, it -- that this money 0013 1 goes to a good cause. The fact that it offered 2 entertainment, it's different, there's a wide variety, 20 3 games at least upon sale to pick from, that way you can have 4 different interests. And I think the lotteries have done a 5 very good job in marketing and realizing that they are a 6 consumer product. They're selling entertainment as well as 7 a chance to win. 8 Now -- now, there is a gaming product 9 the -- the marketing aspect of the product is -- you can see 10 right up front, you have so many chances to win $20,000. 11 And I think with the increase in prize points and the 12 increase in pay outs, you have larger gains and the prizes 13 begin to grow. I mean, the Massachusetts lottery -- and 14 people get tired of hearing about Massachusetts -- is -- is 15 a 70-million ticket game at $10 which is a 700 million- 16 dollar game, which is larger than many lotteries. And they 17 have like 16 four million-dollar winners in that. And that 18 creates a lot of interest and -- and a lot of buzz, and the 19 chances of winning are fairly good. 16 out of 70 million in 20 that case, and then there's a number of one million-dollar 21 winners. 22 So understanding why people play the game, 23 they play to win but they're also looking for entertainment 24 and they're also looking for a variety and -- and a 25 reasonable chance to win is I think the bottom line of why 0014 1 instant tickets and internet gaming have been successful 2 over the last ten years and a half. 3 CHAIRMAN CLOWE: And we're -- we're very 4 pleased with the growth of our instant ticket sales. Do you 5 have any comments regarding specifically the Texas Lottery? 6 MR. BICKELL: Well, I think the Texas 7 Lottery's record for instant ticket stands on its on. I 8 think they've had tremendous growth, especially with the 9 four years that we've had the opportunity to -- to sell 10 tickets to the lottery, and I think they are doing a lot of 11 things right. And I think they have -- once the legislation 12 changed a couple of years ago increasing the prize 13 structure, they've -- they've increased the -- they have 14 increased the average prize point. They offer a lot of 15 different games. And I think, you know, I think the record 16 stands on its own, and they'll continue to execute those 17 fundamentals and look for good games, and we hope to be able 18 to help them do that. And I think that I don't have 19 anything to add. 20 CHAIRMAN CLOWE: From your view of other 21 lotteries, do you see anything we can do better? 22 MR. BICKELL: Well, that's a tough 23 question. I'm -- I'll just think about that and maybe, you 24 know, get back to you or back to -- to Ray for this. I 25 think -- because I think you're a person that's going to 0015 1 depend a lot on sales and marketing, and I think bringing 2 inside to the lottery fresh thoughts of how retail people 3 and consumer products goods are sold and matching that with 4 inexperience that maybe we can -- that we can help with and 5 team up with, and it's something that contributed to further 6 growth in the future. 7 CHAIRMAN CLOWE: I see you're going to move 8 into Scientific Games. And I do have another question which 9 is broader than your company, and I would like to ask it 10 now, if I may. 11 MR. BICKELL: Sure. 12 CHAIRMAN CLOWE: You mentioned internet 13 gaming, and I would like to ask you to make more specific 14 remarks on where you see that, if you have a thought, and 15 advise us of how you think that's developing, based on your 16 company's activities and research. 17 MR. BICKELL: We have offered internet 18 gaming in Europe, and it's been more for sports betting. 19 And specific aspects of targeting markets has been very good 20 because what -- in sports betting, for -- for example, in 21 soccer -- football, as they call it in Europe -- being able 22 to quickly make a bet has -- has been an answer to a need 23 rather than going to and stopping or finding a place to do 24 that, like being able to do it over the internet. And even 25 more important, and we've done from the -- the racing side, 0016 1 is being able to place a bet on a cellular phone. We've 2 been doing that for a number of years. And I think that the 3 U.S. lotteries have been slow, but rightfully so -- so to 4 enter into those things because the legal aspects have not 5 been clear. And I think over time it's been figured out 6 it's the states' legal issue. And just yesterday the 7 Georgia lottery announced that they are going to offer 8 internet betting. 9 I think the things that have been learned 10 in general, being able to buy online tickets, for example, 11 through the internet, has been less than expected in Europe, 12 and I think that will build over time. But I think the 13 initial investment is fairly significant, so your -- your 14 return is going to be -- for the European lotteries has been 15 slow. 16 Cellular phone, because of the technology 17 with cell manufacturer -- companies as -- as they are 18 looking for -- for those kind of air time avenues, probably 19 has less of an investment and -- and there's a lot of 20 packaging, you can do that. So if I was going to do that if 21 I was a lottery, and I'm not an expert by any means, I would 22 probably go the cell phone route because the technology is 23 there. It offers the same thing. More people have cell 24 phones than have -- have computers. And it's really more 25 accessible than the computer because you have to have your 0017 1 computer, and most people have cell phones with them almost 2 all the time. So that's some ideas. 3 CHAIRMAN CLOWE: You mentioned something 4 that I was unaware of. The Georgia lottery, you said they 5 were going to announce -- or they did announce yesterday, 6 internet sales. Did you -- 7 MR. BICKELL: They are going to offer 8 internet sales. I think it'll be not until 2006, you know, 9 but they made that announcement in yesterday's paper and 10 so... 11 CHAIRMAN CLOWE: Oh. 12 MR. GREER: Me too. We'll check it out. 13 MR. BICKELL: But, again, it's not -- not 14 going to be offered until 2006, but that's the direction 15 that they're going in. 16 CHAIRMAN CLOWE: Go ahead, now, if you 17 would, please. Thank you. We appreciate the opportunity 18 to question you. 19 MR. BICKELL: Thank you for your questions. 20 Scientific Games -- excuse me -- basically 21 is -- has a number of different businesses and things that 22 we're involved in, but they're all very related. We provide 23 service and systems to the lottery and -- as well as instant 24 tickets and online lotteries, and we're also in the racing 25 business. All of these have a similarity or continuity in 0018 1 the fact they're in the gaming arena. And we're very much 2 involved in the sales and service of those, so we get 3 involved with the financial management of the various 4 aspects of the businesses, which gives us a great insight to 5 better understand what is going on so that we can be -- 6 provide better service and better advice, in some cases, to 7 our customers. 8 We are the largest in instant tickets and 9 we are the largest in -- in the racing side of those -- of 10 those markets. Just briefly how we are organized, Lorne 11 Weil is our president -- or chairman, president, and CEO. 12 We have the racing business, as I said. We have licensed 13 products, and I'll speak about that in a second, instant 14 tickets and phone cards and we do it online. And we're the 15 second largest in the world in online systems. So that's 16 basically how we're structured. 17 Financially, we have grown very nicely. In 18 fact, in 2000 -- or in the year 2000, Scientific Games was 19 acquired by Autotote, that was the racing side, with some 20 online business. And with that acquisition, Autotote 21 changed it's name to Scientific Games. And after some 22 reorganizations that took place in 2000 and 2001, the 23 company has had a revenue growth of about 27 percent over 24 the three years shown there. But probably more important is 25 that the operating profit has more than doubled and the -- 0019 1 the EBITDA interest, before interest tax, amortization has 2 grown about 50 percent. And -- so the things that we're 3 doing or the investments we're making are beginning to pay 4 off. Part of the growth has come from acquisitions and -- 5 and I think this is much of a commitment to the industry and 6 to the customer bases that we're involved in. 7 We, early in 2002 -- excuse me -- 2003, we 8 acquired a company called MDI Entertainment that has 9 licensed products like Harley Davidson, Elvis Presley, Betty 10 Boop in -- in MDA, a number of licensed products that we 11 have a right to offer to the lotteries for exclusive sell in 12 the lottery business. And the purpose of -- and where 13 licensed property sits in and expands the player base -- and 14 I'll talk about that in a minute, what you're trying to do 15 is grow your sales and one way is from -- from new players 16 and people who don't play as often. Licensed properties 17 many times can supply the answer. 18 We acquired also just recently at the end 19 of 2003, a company called OES, which stands for Online 20 Entertainment Systems. It was the second largest online 21 company in the United States. It offered a number of things 22 for us. It was also new online games that they were 23 developing. On -- OES was the name that was changed from 24 AWI -- I don't want to throw a lot of alphabet soup at you 25 here -- and then IGT-owned. So IGT bought a company that 0020 1 had AWI as an online supplier and they had less interest in 2 that business. But they changed the business name to Online 3 Entertainment Systems where it becomes OES. 4 And their point because of their slot 5 machine dominance that they had, it's consumer based 6 playing, it's when games appeal to people. And they were 7 trying to bring that and marry online systems and -- and 8 slot machine games and trying to find out what works and 9 what could be used in each other's business. And we think 10 that concept is very strong and that was one of the primary 11 reasons for us acquiring them. 12 And in addition to the online business, 13 they also have a video lottery business and -- that we 14 are -- we have three or four customers -- a few customers 15 there, and that is a business that will be an evolution to 16 many lotteries today and is a good product offering for us 17 to service. And it fits very nicely. It's very synergious 18 for other online businesses because it's all that system 19 based technology and terminal related, so it's a very nice 20 fit for our system and business. 21 We've also made a smaller investment in a 22 company called Instant Technologies which we've changed to 23 Retail Solution. They offer a retail dispensing machines, 24 but we think that they're much more advanced than -- than 25 the industry has seen until -- until recently. We call it a 0021 1 play central, and I'll talk about that in a second, as well 2 as a convenience section of those other products that are 3 offered by them. So those are the -- some of the 4 investments that we have made in 2003. 5 Generally, we have about 3,000 employees. 6 We are the largest supplier of instant tickets with 28 7 customers, 65 percent of the market. We have 16 online U.S. 8 customers and about 60 customers worldwide. Let's talk 9 about instant tickets for a second. We have plans in the 10 United States, probably the largest facility in the world 11 for instant tickets. We have a European operation in 12 Europe, England. And then Santiago, Chile services our 13 Latin-American market. Our European and Latin-American 14 operations not only supply instant tickets but prepaid phone 15 cards as well. 16 In the United States last year we grossed 17 about 13 billion just by producing instant tickets. The 18 street value of that is going to be about 15 -- 14 or 15 19 billion dollars' worth of -- worth of product. We have 20 plenty of capacity at 16 billion, and it's going to even get 21 larger as -- during this coming year as we continue to look 22 for ways to enhance our ability to service the customer. 23 Individual games in the Texas Lottery 24 probably did 110 games, thereabouts. Well, our operation 25 did 1348 different games. You know, and the ability to turn 0022 1 around that many games in -- in most cases in a very short 2 period of time is not a simple exercise. 3 Because we are large, we are given 4 certain -- it has certain attributes. We are able to 5 continue to invest in the quality and capacity and have the 6 latest state-of-the-art equipment as well as be able to 7 invest in market -- sales and marketing both on the instant 8 side as well as on the online side. 9 We have a fundamental philosophy which has 10 served us well. We -- Scientific Games helped start the 11 first six or seven lotteries in this country, and those kind 12 of roots of helping to manage and understand the lottery 13 have -- have stayed with us for a long period of time. We 14 really believe that we're going to be successful only to the 15 degree that our customers are successful. 13 of our 28 16 instant customers have an arrangement with us where we get 17 paid only when they sell the product. We have the inventory 18 risk, and that is -- our old -- my old boss used to say, 19 "When we're in the game, we have an investment in every 20 sense of the word," in the game being successful as well as 21 it, you know, selling through. And if it's successful we 22 get more reprints and how quickly can we put a successful 23 game back on the street in a short period of time. If it's 24 selling well, what you don't want to miss that sale by 25 having a retail establishment be out of that particular 0023 1 game. 2 We are very proud of the fact that our 3 customers are more successful than the customers -- or the 4 lotteries that we don't have as customers. If you look on a 5 per capita basis and the average per capita is like 78 -- 6 $78 last year. Over the last three years our customers' per 7 capita sales in instant tickets have been up almost $24, 8 where our customers in lotteries that we don't have as 9 customers were up about four and a half dollars. And we 10 like to partner and we like to be a participant in the 11 game, so to speak, and we think that when we partner with 12 the lottery, we both do better. 13 Research has shown that, you know, how do 14 you increase your sales. That's your goal. And how do you 15 do that. You do that with offering products that the 16 consumer likes. And, like I said, the promotional business 17 offers that particular avenue, and we have like 30 different 18 licenses. And as an example here, Massachusetts ran a 19 5-dollar Harley Davidson game and it was one of the most 20 successful 5-dollar games in lottery history that -- and one 21 of the objectives was to bring in new players. And one 22 percent isn't necessarily a grand slam home run, but it's 23 not something not every game can do. And four percent 24 brought back customers had -- had played only occasionally 25 or haven't played for a long period of time. So that's what 0024 1 the industry was looking for and so we made that investment 2 in MDI because that is what we think will be helpful to the 3 industry and to our customers in the long run. 4 If you look at where the retail sales take 5 place, where those transactions are, the two -- some of the 6 largest retail establishments in the country, for example, 7 Wal-Mart, Target, and such, do not sell our product. Well, 8 it's been challenge of individual lotteries and lotteries 9 collectively how to you break into those particular 10 lotteries, and there's a lot of different ways to do that. 11 And one of them is offering the dispensing machine. But how 12 do you make it easier for the retailer and how do you make 13 it easier for the player. And some of the new things that 14 we have come out with is the dispensing machine that only -- 15 not only dispenses instant tickets but it dispenses online 16 products as well. So you have that very valuable real 17 estate on a retailer premises being able to sell both of 18 those. 19 It's a touch screen, and that's easier to 20 work. If you don't how the game works, you have a video 21 that will play and describe to you how that -- that ticket 22 is played. It also is tied to a system so that when your 23 ticket stock is running low, the central site is notified 24 and that particular ticket bin can be filled. Filling 25 that -- having a pad where they have that piece of 0025 1 dispensing equipment if it isn't -- those tickets -- the 2 bins aren't filled, it's a waste of time for everybody. The 3 retailer doesn't make out, the consumer doesn't have his 4 choice, and the retailers have lost sales. 5 Right now the largest selling arena for 6 instant tickets is in convenience stores that sell gasoline 7 and -- and other things. A headache for retailers is the 8 fact that it is a separate transaction for the most part. 9 They have to be able to audit tickets between different 10 shifts of retailers. They have to retrain people on how to 11 sell it, how to account for it, et cetera. And we have come 12 up with a system that is tied to a dispensing device that 13 you can see, for example, posted instant tickets and say, 14 gee, I want to play this particular game. And the retailer 15 says, okay. He rings it up through his cash register. All 16 the accounting is done and then it dispenses out that ticket 17 and it exchanges just like you buy another item. It sounds 18 very straightforward, but that simple ability to tap in very 19 simply without having the retailer change his accounting 20 system or his computer system is a great step forward and 21 we're beginning to offer that particular product right now. 22 And these -- again, these are some of the investments that 23 we have made to help continue to grow. 24 Again, with size comes leverage. The last 25 two years we have spent $4 million just in being able to -- 0026 1 to print a better high quality ticket. We spent $2 million 2 improving our ability to respond quickly to -- to reprints 3 or whatever. Remember, where we come from, when we 4 have over 13,000,028 customers, if they have a hot game, we 5 have an inventory responsibility. We have a vested interest 6 that that game continues to sell, so we can turn that game 7 around in ten days and have it on the shelf of that 8 retailer, again, without having a -- an outage. We're 9 helping the lottery and ourselves as well. Over the next 12 10 months we're going to continue to invest and we're going to 11 continue to invest about $6.5 million which will increase 12 our capacity and our ability to respond. 13 Online systems, on the OES side, they're -- 14 it enhances our ability in games because what the lottery 15 has large jackpots now. What it needs is more games, more 16 interesting games, similar to the instant concept that we 17 talked about earlier is the variety and something that's 18 more entertaining with greater chances of -- of winning 19 smaller prizes, but it is more engaging. We think that's 20 the answer to having the online area be able to grow. This 21 acquisition has helped us in the game design, as well as in 22 our ability to offer more games as well. 23 From -- and I only have two more slides. 24 But instant tickets in -- in the lottery here in Texas, 25 we've been very proud to have a relationship of about four 0027 1 years. During that time period, we've had 253 games that we 2 have delivered to the lottery. That constitutes about 4.3 3 billion tickets, and in sales terms, the value of those 4 tickets come in at about $8.4 billion. The 79 -- excuse 5 me -- '99, 2003, we've increased -- we have increased -- the 6 lottery has increased sales by 50 percent and as, you said, 7 represents over two thirds of the sales -- total sales of 8 the lottery. 9 We've been very proud to have this 10 partnership with the lottery and we hope we have the 11 opportunity to continue. Thank you very much for your 12 attention and the opportunity to be here today. 13 CHAIRMAN CLOWE: We appreciate you being 14 here. 15 MR. BICKELL: Thank you very much. 16 COMMISSIONER COX: I have one question, 17 Mr. Bickell. You indicated that the -- you were developing 18 the electronic dispensing machine -- thank you, Kim -- for 19 such as Wal-Marts and Targets. Have you been able to 20 penetrate those or any similar kind of outlets? 21 MR. BICKELL: What -- what we are doing is 22 developing dispensing machines that would be more effective 23 and have a greater chance of penetrating Wal-Mart. The -- 24 the problem with Wal-Mart is they're country-wide and 25 different lotteries have different requirements and things 0028 1 of that nature, so trying to do the corporate sale has been 2 more difficult. What lotteries have been trying to do is do 3 it independently state-by-state. And what we're trying to 4 do is offer products that we can more universally offer. We 5 have not specifically made -- had success of that to date. 6 COMMISSIONER COX: Have you had success 7 with any smaller groups of the general retail kind of nature 8 that don't have those multi-state kinds of challenges? 9 MR. BICKELL: We are just now rolling out 10 these products in three states. And the response has been 11 good. The sales have been higher than they are in the 12 previous dispensing machine, and we hope to be able to use 13 that sales data to help make the case for the larger 14 retailers, such as Wal-Mart. 15 COMMISSIONER COX: Thank you. 16 MR. BICKELL: Thank you. 17 CHAIRMAN CLOWE: Where are your tickets 18 printed, Mr. Bickell? 19 MR. BICKELL: We have three locations. The 20 ones operated in Georgia serves the United States and many 21 places in Europe like England and France. We are just now 22 looking forward to starting the launch of the Italian 23 lottery very shortly. So the tickets that we print for the 24 Texas Lottery come from Atlanta, Georgia. 25 CHAIRMAN CLOWE: And how many machines are 0029 1 located there? 2 MR. BICKELL: We have three printing 3 presses with the capacity to provide 16, 16 and a half 4 billion and like I said, we're going to increase that 5 capacity. 6 CHAIRMAN CLOWE: Great. I've seen some 7 correspondence between your company and our staff -- 8 MR. BICKELL: Yes. 9 CHAIRMAN CLOWE: -- on your pursuit of 10 business. 11 MR. BICKELL: Yes. 12 CHAIRMAN CLOWE: I'd like to say just for 13 one, commissioner, I like that. I like energetic pursuit of 14 business, and I encourage that. 15 MR. BICKELL: Well, thank you. 16 CHAIRMAN CLOWE: I view that favorably and 17 think that's a good thing for the Texas Lottery. 18 MR. BICKELL: Well, we -- we think that we 19 have had a great relationship with the Texas Lottery. We 20 would like that to continue. We think that the -- the 21 strategy of the lottery to increase sales is by offering 22 good products. It is very sound, and we would like to 23 participate in that more. And we are trying to -- to work 24 through this in a -- in positive way so that we will 25 continue our relationship in a positive way. 0030 1 CHAIRMAN CLOWE: Initially, my 2 recollection, and correct me if I'm wrong, is that you did 3 not submit a proposal from your company on our last online 4 request. 5 MR. BICKELL: That's correct. 6 CHAIRMAN CLOWE: And we would like to be on 7 your radar screen. You're growing, and then I think you had 8 told us there are 41 states that are entering in the lottery 9 business. We're the third, I think, in those 41. And 10 although we have a current contract, at a point in time, 11 that will be ripe for reconsideration. And, as I say, we 12 like to be on your radar screen. 13 MR. BICKELL: Well, you definitely are. 14 It's hard to keep Texas off of the radar screen. 15 CHAIRMAN CLOWE: People tell me that. 16 MR. BICKELL: I think a number of years ago 17 Mr. Weil, our chairman had the opportunity to address the 18 commission and explain the reason is that the RFP offering 19 was right at the same time we were -- that Autotote was 20 acquiring Scientific Games. And we are going to make a bid 21 that's going to be very sincere and we're going to have all 22 our efforts focused on this and at that particular point, we 23 had too many distractions with a major acquisition going 24 on. But I can rest assured that if Mr. Weil was here today 25 he would very emphatically say that Texas is on our radar 0031 1 screen. 2 CHAIRMAN CLOWE: Fair enough. Thank you so 3 much for being here. 4 MR. BICKELL: Okay. Thank you very much. 5 CHAIRMAN CLOWE: Next, we'll go to Item II 6 on the agenda, consideration of and possible discussion 7 and/or action, including adoption, on amendments to 16 TAC 8 402.558 relating to bingo card/paper. 9 Mr. Oldham. 10 MR. OLDHAM: Good morning, Commissioners. 11 How are you doing? 12 My name is Kevin Oldham, and I'm assistant 13 general counsel here at the Lottery Commission. 14 Commissioners, this item came as a result 15 of a request for rule-making from American Games. And at 16 the November commission meeting, the commission passed an 17 order to proceed with that rule-making process. The staff 18 presented a proposed amendment to the Bingo Advisory 19 Committee on December 4th, 2003, and they recommended that 20 the commission propose that rule in the Texas Register for 21 public comment. 22 On the -- on December 18th, 2003 commission 23 meeting, the commission did vote to publish that rule, and 24 it was published. The comment period lasted until February 25 2nd, 2004. There were no negative comments received. The 0032 1 only comment that the commission received during that time 2 was favorable comment from the organization, American Games 3 being the one that actually requested the rule-making in the 4 first place. The change basically has to do with bingo 5 card/paper and specifically the break-open bingo paper 6 dealing with where the manufacturer assigned serial number 7 is located at on that paper. 8 At this time the staff recommends that the 9 commission vote to adopt the amended -- amendment to the 10 rule 16 TAC 402.558. And I'll be happy to answer any 11 questions you have. 12 CHAIRMAN CLOWE: Mr. Fenoglio, you 13 scratched out Item II, did you not? 14 MR. FENOGLIO: I did, Mr. Chairman. 15 CHAIRMAN CLOWE: Are there any comments or 16 questions. 17 Phil, do you have any anything? 18 MR. SANDERSON: Chairman Clowe, I have 19 nothing else to answer -- add to that. 20 CHAIRMAN CLOWE: I move the adoption to 21 this rule. 22 COMMISSIONER COX: Second. 23 CHAIRMAN CLOWE: All in favor, please, say 24 aye. 25 THE COMMISSIONERS: Aye. 0033 1 CHAIRMAN CLOWE: Opposed? No. 2 The vote is 2-0 in favor. 3 Next, Mr. Oldham will move to Item Number 4 III, consideration and possible and/or action, including 5 proposal, on new rule relating to unit managers. 6 MR. OLDHAM: Thank you, Mr. Chairman. This 7 particular rule comes out of the House Bill 2519, which was 8 passed here in the 78th Legislation in October, 2003, 9 between members of the Bingo Advisory Committee -- 10 Committee -- excuse me -- and members of the industry and -- 11 and staff. The draft has, you know, changed somewhat over 12 time. The Bingo Advisory Committee took it under 13 consideration at their December 4th, 2003 meeting, and they 14 entered into a dialogue with staff and -- and members of the 15 industry. Some changes were recommended, but they did go 16 ahead and recommend that the commission move to publish the 17 rule with the changes that they incorporated during their 18 meeting. 19 Subsequent to that meeting, staff met with 20 members of industry and members of the -- the Bingo Advisory 21 Committee's appointed members and made changes to the rule 22 at the January meeting. Subsequent to that meeting, the 23 rule was circulated again among members to make sure that 24 everybody was on the same page. So that's basically where 25 the draft stands at this time. Some of the issues that were 0034 1 raised were that the bond amount for a unit manager might be 2 too high. There was some problems with clarification in the 3 beginning of what actually would be the bond amount. And so 4 we tried to shore that up a little bit with help form the 5 industry and get that as clear as possible. 6 At this time the commission is going to 7 recommend -- I mean, the staff recommends to the commission 8 that the rule be published in the Texas Register for public 9 comment for a period of 30 days. 10 I'd be happy to answer any questions you 11 might have. 12 CHAIRMAN CLOWE: Mr. Sanderson. 13 MR. SANDERSON: Chairman Clowe, the only 14 thing is -- that I'd like to add is that the working group 15 and the staff and the industry, the BAC representatives did 16 meet several times on this, and we did come to what I feel 17 is an agreement on the license fee amount and somewhat on 18 the bond amount. So that's the only thing I need to add. 19 CHAIRMAN CLOWE: Mr. Fenoglio. 20 MR. FENOGLIO: Yes, Mr. Chairman, 21 Commissioner Cox, good morning. 22 My name is Stephen Fenoglio. I'm an 23 attorney in Austin representing over 950 charitable business 24 organizations. We support the publication for comment. 25 We've still got a little -- a few concerns that we think 0035 1 we'll be able to work out with Mr. -- I started to say 2 Mr. Atkins -- with Mr. Sanderson and Mr. Oldham, and we 3 appreciate the staff working with us on this. The only 4 issue is really a bond issue, and we think we can work 5 through our -- our comments and concerns. Thank you. 6 CHAIRMAN CLOWE: Thank you, sir. 7 Move the adoption of the rule for 8 publishing for comment. 9 COMMISSIONER COX: Second. 10 CHAIRMAN CLOWE: All in favor, please say 11 aye. 12 THE COMMISSIONERS: Aye. 13 CHAIRMAN CLOWE: Opposed? No. 14 The vote is 2-0 in favor. 15 CHAIRMAN CLOWE: Next the Item Number IV, 16 consideration of and possible discussion and/or action, 17 including proposal on new rule 16 TAC 402.598 relating to 18 the use of net proceeds for charitable purposes. 19 Mr. Oldham. 20 MR. OLDHAM: Thank you, Mr. Chairman. This 21 rule also comes out of House Bill 2519 relating to changes 22 in -- in the -- in the language to the statute there. This 23 draft is a little bit older. It goes back to June 19th, 24 2003, when the first draft of the rule was presented to the 25 Bingo Advisory Committee. At that time they appointed a 0036 1 subcommittee to work with the working group both staff and 2 industry. The working group met several times during the 3 summer months and the draft of the rules was presented again 4 to the Bingo Advisory Committee in August of 2003. At that 5 time the Bingo Advisory Committee determined that the rule 6 needed further work or further discussion, and so the rule 7 was worked on by the working group. And then it was 8 presented again at the December 4th, 2003, Bingo Advisory 9 Committee meeting. At that time there were still some -- 10 some -- some changes that they wanted to -- they wanted to 11 make, but they went ahead and recommended that the 12 commission vote to publish the rule with their recommended 13 changes in the Texas Register for public comment. 14 I'll point out some of the things that were 15 discussed at the Bingo Advisory Committee. There were some 16 language issues. They felt that certain language needed to 17 be deleted because it impacted the clarity of the rule. 18 There was also some discussion that the omission of -- 19 that -- that certain name forms from the IRS were so old 20 that maybe organizations would have a problem garnering or 21 obtaining those forms in order to comply with the rule. So 22 the rule was basically changed to allow for an organization 23 to prove their tax exempt status with the numerous 24 documents, whether it be certified organizational documents, 25 IRS forms and that -- that's listed in the rule. 0037 1 After these changes were made, the rules 2 were circulated again to the members of the working group. 3 And I believe that staff and -- and the working group have 4 come to a certain consensus. There might be a few things, 5 but we believe we can work those out during the comment 6 period. 7 At this time the staff does recommend that 8 the commission vote to publish the new rule 16 TAC 402.598, 9 charitable use of proceeds, in the Texas Register for public 10 comment for a period of 30 days. I'll be happy to answer 11 any questions from the staff's point of view. 12 CHAIRMAN CLOWE: Mr. Sanderson. 13 MR. SANDERSON: Chairman, the only thing I 14 would like to add is this rule really started before 2519. 15 It was as a result of the Sunset recommendations a couple of 16 years ago. And when 2519 passed, then, of course, the 17 rule -- the content of the rule changed to incorporate 2519, 18 so it's the result of two activities actually, the Sunset 19 recommendation to clarify use of proceeds and also the 2519 20 House Bill. 21 CHAIRMAN CLOWE: Mr. Fenoglio. 22 MR. FENOGLIO: Yes, Mr. Chairman. For the 23 record, my name is Stephen Fenoglio. We support the 24 publication for comment. We have come a very long way due 25 in large part to the work of Ms. Kiplin, Mr. Oldham, and 0038 1 Phil Sanderson, and Billy Atkins. And there's one minor 2 issue to be resolved, and we -- we believe worth resolving 3 and bring back a rule that everyone can salute. Thank you. 4 CHAIRMAN CLOWE: I think this is an 5 important rule. And you will be commenting in the comment 6 period on behalf of your clients? 7 MR. FENOGLIO: Yes, Mr. Chairman, I will. 8 CHAIRMAN CLOWE: You feel that we really 9 have gotten to the meat of the nut now on this issue and 10 this is going to help the bingo operators, the charities in 11 this area with a clear definition. 12 MR. FENOGLIO: Yes, we do. And to that 13 extent, we've noticed there's a bingo advisory opinion 14 request pending that if this rule were in effect, would, I 15 believe, clarify the issue simply and clearly. 16 CHAIRMAN CLOWE: Well, I think this is a 17 real step forward, then. 18 MR. FENOGLIO: We do too. 19 CHAIRMAN CLOWE: Great. 20 Move that the commission publish this rule 21 for comment. 22 COMMISSIONER COX: Second. 23 CHAIRMAN CLOWE: All in favor, please say 24 aye. 25 THE COMMISSIONERS: Aye. 0039 1 CHAIRMAN CLOWE: Opposed? No. 2 The vote is 2-0 in favor. 3 Thank you, Mr. Oldham. 4 Next item, Number V, consideration of and 5 possible discussion and/or action relating to the 6 continuation of the Bingo Advisory Committee. 7 Mr. Sanderson. 8 MR. SANDERSON: Chairman Clowe and 9 Commissioner Cox, in your notebook you have an evaluation of 10 the Bingo Advisory Committee. At the January 30th meeting 11 of the Texas Lottery Commission, you requested that the 12 staff develop a report that you can use to evaluate the 13 effectiveness of the Bingo Advisory Committee. The report 14 in your notebook contains the description of the statutory 15 requirements of the Bingo Advisory Committee and the BAC 16 membership. 17 Additionally, the report contains the 18 status of different elements contained in the work plan and 19 the cost associated with the Bingo Advisory Committee. 20 Further, the report contains an evaluation of the Bingo 21 Advisory Committee by a representative from the bingo 22 industry and the chair of the B -- BAC. 23 At this time the staff asks the commission 24 to evaluate the effectiveness of the BAC, and if 25 appropriate, vote to extend the BAC for a period beyond the 0040 1 March 6th, 2004, which is currently in the rule. I'll be 2 glad to answer any other questions you might have. 3 CHAIRMAN CLOWE: Commissioner Cox. 4 COMMISSIONER COX: The -- it looks as 5 though the information that we needed to make our decision 6 is here, and I see some positive things here, some comment 7 that we get that the committee is worth continuing. I'm 8 encouraged by the minutes of the meeting this time, which I 9 was unable to attend, but I see that a nominating committee 10 has been named. And it's comprised of two members who have 11 been very active and a new member who appears to be very 12 promising. So I -- Mr. Chairman, I'm encouraged by what I 13 see here. 14 CHAIRMAN CLOWE: I am too. 15 Mr. Fenoglio, I believe you registered your 16 appearance for a comment on this item. Would you like to 17 comment at this time? 18 MR. FENOGLIO: Only briefly, Mr. Chairman. 19 I had sent a letter to Mr. Atkins and the Chair on behalf of 20 the clients supporting the continuation. And we believe it 21 has been -- and developed to be very effective in large part 22 by the commissioners getting involved and helping give some 23 direction. And we would support a continuation of the BAC. 24 Thank you. 25 CHAIRMAN CLOWE: And I believe the 0041 1 commission has received a letter from Mr. Jeff Tippins, an 2 attorney from Game Tech International in regard to this 3 subject. 4 Counselor, how is that treated as a part of 5 this record? 6 MS. KIPLIN: I think it is a part of the 7 record. It was submitted in -- in reaction to this item, 8 entered on the agenda for your consideration action today. 9 Each of you should have received a copy of that letter. I 10 believe the lawyer with Clark Thomas is in the audience. I 11 don't know if he wishes to address the commission or whether 12 you had received an affirmation form. 13 He has it in his hands, I see. He -- he 14 may wish to -- to comment, but I -- I do think it's -- the 15 record -- the letter will be made a part of the record and, 16 of course, any comment he wants to make. 17 CHAIRMAN CLOWE: So it is part of the 18 record. 19 If you would like to make a comment, you're 20 welcome to do so at this time. 21 MR. TIPPINS: Thank you, Mr. Chairman. 22 Good morning, Commissioners. 23 For the record, my name is Jeff Tippins. 24 I'm here representing Game Tech International. And we -- 25 we -- as we discussed, I filed a letter yesterday urging you 0042 1 to extend the committee. And we would just like to -- we 2 would like to re-urge you here today, I'm free voicing our 3 support for the committee. We believe that it serves an 4 important function, important advisory role, and sufficient 5 means by which the public bingo industry participants and 6 the commission can communicate and collaborate on -- on 7 things that affect -- on things affecting the bingo industry 8 and language in the industry. And that's all I have to 9 say. I would be happy to answer any questions you might 10 have. 11 CHAIRMAN CLOWE: Thank you, sir. I don't 12 believe Ms. Brackett is in the audience. Am I correct in 13 that? She's the chair of the Bingo Advisory Committee, and 14 she is not here this morning. 15 I would like to comment that I agree with 16 Commissioner Cox. I think that there has been progress made 17 in the development of this group. And the great part of it 18 has been through his efforts in meeting with staff and 19 interested members of the bingo industry and his 20 participation at the Bingo Advisory Committee meetings. I 21 tried to do my part, and I think that Commissioner Olvera 22 will as he has that opportunity. 23 I want to say that I'm in favor of 24 continuing the committee, but I want simply to encourage the 25 committee to focus on industry problems and to see itself as 0043 1 an advisory group to the commission. And I think the staff 2 has helped them channel their efforts in that direction. 3 There are issues, as I see it as one commissioner, that 4 relate to industry problems. And in my personal view, the 5 Bingo Advisory Committee is not the forum or the venue for 6 industry problems to be worked out. That's outside of 7 purview of the BAC activities. And I'm hopeful that the 8 bingo industry will deal with those problems which are real 9 and significant in the erosion of markets and the 10 development of opportunities to enhance their activities to 11 the benefit of the charities but deal with that outside of 12 the venue of the BAC. 13 I know Commissioner Cox will continue to 14 work with those representatives of the industry, and I 15 certainly pledge my intent to do the same. I feel 16 Commissioner Olvera will as well. So with that said, I'm 17 going to move that the Bingo Advisory Committee be, what, 18 Counselor, extended for one year? 19 MS. KIPLIN: Well, the first -- I would 20 like to do it in two steps, if you don't mind. Under the 21 rule, the commission must affirmatively vote to continue the 22 Bingo Advisory Committee in existence, and so that's what's 23 required. 24 The next step by this other statute is to 25 determine a date. And I -- I guess if y'all don't mind, we 0044 1 can take the rule up at the same time as this so we can do 2 it in two steps right now. 3 CHAIRMAN CLOWE: So you want two motions? 4 MS. KIPLIN: Yes, I would like two motions. 5 One -- 6 CHAIRMAN CLOWE: First would be to 7 continue, the second would be to set an ending date. 8 MS. KIPLIN: To set a date and which will 9 be a rule-making. So you need -- what I'm looking for is 10 that -- the second action that you are proposing a rule 11 amendment to amend the rule to the subsequent date. 12 CHAIRMAN CLOWE: Okay. what's your 13 pleasure, Commissioner Cox? 14 COMMISSIONER COX: As to the date? 15 CHAIRMAN CLOWE: I think that's the real 16 issue that we're focusing on now. 17 COMMISSIONER COX: Do you -- do you think 18 that one year is an appropriate period of time? 19 CHAIRMAN CLOWE: Well, that's kind of what 20 I would like to discuss with you. You know, I don't want to 21 put a short leash on it. 22 COMMISSIONER COX: Right. 23 CHAIRMAN CLOWE: And, yet, I don't want to 24 put such a long ending date that people go back to sleep. 25 COMMISSIONER COX: Right. 0045 1 CHAIRMAN CLOWE: And so I would like the 2 benefit of your wisdom. 3 COMMISSIONER COX: Well, I -- I think that 4 the -- they meet quarterly. That would give them an 5 opportunity to have four meetings before we reconsider. 6 They had appointed a nominating committee, and we've given 7 them a chance to get a new slate of officers in place and 8 get some experience in their roles. And I think a year to 9 six months would be a reasonable period of time. 10 CHAIRMAN CLOWE: And you would be happy to 11 look at it again in that period of time? 12 COMMISSIONER COX: You bet. 13 CHAIRMAN CLOWE: Phil, what's your reaction 14 to that? 15 MR. SANDERSON: Sir, initially my reaction 16 was one year also until -- until March the 6th. After some 17 other conversations and -- and thinking about March the 6th 18 of 2005 being right in the middle of the legislative 19 session, we thought maybe going a little bit further like, 20 say, it's the end of August for -- which would coincide with 21 the end of the fiscal year, and it might also look at 22 starting a process of anything that may come out of the 23 legislature. 24 CHAIRMAN CLOWE: And we're up for Sunset in 25 that legislative session. 0046 1 MR. SANDERSON: Yes, sir. 2 CHAIRMAN CLOWE: There could be something 3 that could come out of the Sunset review that we might need 4 to consider. 5 MR. SANDERSON: Yes, sir. 6 COMMISSIONER COX: That's a sound 7 recommendation. 8 MS. KIPLIN: I concur. Mr. Sanderson and I 9 had an opportunity to visit about this issue with the issue 10 of the date before the commission meeting. I also had a 11 chance to visit with Mr. Fenoglio. The other part of it is 12 that because the date goes into the rule, it will next go 13 up, you'll have to do another rule-making. So it -- it 14 would be helpful if there any issues that come out of a 15 bill, it would be helpful to pick it all up at one time. 16 And that's why I support the end of the fiscal year. 17 CHAIRMAN CLOWE: Mr. Fenoglio, do you have 18 any comments on that? 19 MR. FENOGLIO: For the record, Stephen 20 Fenoglio. 21 Yes, Ms. Kiplin and I did have that 22 discussion, and we support an abolished 3105 termination. 23 That dovetails nicely with the Sunset process. Thank you. 24 CHAIRMAN CLOWE: Thank you, sir. 25 Mr. Tippins, do you have a comment? 0047 1 MR. TIPPINS: No, Mr. Chairman, we don't. 2 CHAIRMAN CLOWE: Okay. Is there a motion? 3 COMMISSIONER COX: Well, Kim, you asked for 4 two motions. 5 MS. KIPLIN: Yes. I would like to -- one, 6 a clear that you are voting to continue the Bingo Advisory 7 Committee in existence. 8 COMMISSIONER COX: Okay. And I move for 9 the motion. 10 CHAIRMAN CLOWE: Second. 11 All in favor please say aye. 12 THE COMMISSIONERS: Aye. 13 CHAIRMAN CLOWE: Opposed? No. 14 The vote 2-0 in favor. 15 MS. KIPLIN: The second one is to propose a 16 rule amendment to the Bingo Advisory Committee rule, which 17 is 16 Texas Administrative Code 402.567 to change the dates 18 for the committee to be abolished of -- of 8-31-04 -- I 19 mean, pardon me -- '05. 20 COMMISSIONER COX: So moved. 21 CHAIRMAN CLOWE: Second. All in favor, 22 please say aye. 23 THE COMMISSIONERS: Aye. 24 CHAIRMAN CLOWE: Opposed? No. 25 The vote is 2-0 in favor. 0048 1 MS. KIPLIN: We'll publish that for a 2 30-day public comment period. 3 CHAIRMAN CLOWE: Next is Item Number VI, 4 consideration of and possible discussion and/or action -- 5 I beg your pardon? 6 MS. KIPLIN: I think this is the rule- 7 making. Am I -- am I wrong on that on Item VI? I think we 8 just did that. We can combined them together. 9 CHAIRMAN CLOWE: Okay. So we -- we covered 10 VI. You've done that as well? 11 MS. KIPLIN: Yes, sir. 12 CHAIRMAN CLOWE: In the two motions? 13 Great. Thank you. 14 Next, Item VII, report by the Bingo 15 Advisory Committee Chairman, possible discussion and/or 16 action regarding the Bingo Advisory Committee's activities, 17 including the February 26th, 2004 committee meeting. 18 Mr. Sanderson, are you going to make that 19 report? 20 MR. SANDERSON: Commissioners, in your 21 notebook is a memo from the Chair Virginia Brackett 22 outlining the activities of the meeting of February 26th. 23 I'll be glad to answer any questions if you have any 24 questions concerning her report. 25 COMMISSIONER COX: I don't think so. 0049 1 CHAIRMAN CLOWE: I have none either. 2 Both Commissioner Cox and I were taken away 3 from that meeting and were not able to attend. 4 And you don't have anything to add, 5 Mr. Sanderson? 6 MR. SANDERSON: There's nothing else that I 7 have to add that's not included in her report, no, sir. 8 CHAIRMAN CLOWE: Thank you very much. 9 Next, Item VIII, report possible discussion 10 on the calendar year 2003 fourth quarter and/or calendar 11 year 2003 bingo financial information and statistics. 12 Mr. Sanderson. 13 MR. SANDERSON: Commissioners, in your 14 notebook today is the yearly quarterly comparisons of the 15 bingo activities comparing the calendar year 2003 to 16 calendar year 2002, then also making the comparisons for the 17 same quarter of 2002 and 2003 and then the comparison of the 18 previous quarter of 2000 -- the third quarter of 2003 with 19 the fourth quarter of 2003. 20 For the year, the total bingo sales are up 21 2.7 percent with the biggest being at the instant or pull- 22 tab bingo sales up 44.9 percent. Regular prizes or total 23 prizes are up four percent. Distributions are down 6.6 24 percent. Attendance is down four and a half percent, and 25 the expenses are up one and a quarter percent. 0050 1 For the comparison of the same quarter, the 2 fourth quarter, for 2002 to 2003, the total sales for the 3 quarter are up 1.86 percent with instant being 44.8 4 percent. And then the prizes are up three percent. 5 Distributions are down eight percent. Expenses are down 2.7 6 percent, and the attendance is down nine percent. And from 7 the third quarter to the fourth quarter, the difference in 8 sales is down 2.6 percent. Prizes are down 2.5 percent. 9 Distributions are down six percent, and expenses are down 10 four percent, with attendance being down eight percent. 11 And I'll be glad to answer any questions 12 you have concerning the information on the statistics. 13 COMMISSIONER COX: Phil, one of the things 14 I've heard from the members of the Bingo Advisory Committee 15 is that the prohibition on smoking in certain of the venues, 16 particularly, I think, Dallas have had a significant impact 17 on attendance. Were -- does the decline in attendance that 18 you see here relate to any -- that factor or any factor like 19 that? Is it pronounced in particular places as opposed to 20 overall or -- 21 MR. SANDERSON: We've not seen anything 22 that would -- that would indicate that the overall decline 23 in attendance is a result of the smoking bans. The Bingo 24 Advisory Committee did form a subcommittee to research the 25 smoking ordinances. And when they came back with their 0051 1 results of their research, what they indicated was that the 2 smoking ordinances, it was difficult to determine whether or 3 not they had an effect because in some areas sales and 4 attendance did go up and in some areas sales and attendance 5 did go down. 6 COMMISSIONER COX: Really? 7 MR. SANDERSON: And so they -- it was an 8 inconclusive result. The Dallas area, I do believe, was 9 hit -- has been hit harder than some of the other areas that 10 had the smoking bans. We're looking at trying to get the 11 information together for the Dallas and the Plano and the 12 Irving metroplex area to see if there are indications of 13 increases outside of the city of Dallas and decreases in the 14 city of Dallas. And we're still putting those numbers 15 together right now. 16 The attendance is probably more going 17 down. Average spend is going up a little bit, which means 18 that when they're playing, they're spending a little bit 19 more. And, additionally, the number of actual bingo 20 occasions has decreased a little bit. So when you lose one 21 occasion, you lose 200 people that have gone to that bingo 22 occasion. 23 COMMISSIONER COX: Okay. Now, the 24 occasions, that's part of the next thing I was going to ask 25 about and that's capacity. Has overall capacity declined, 0052 1 and I think you just said the number of occasions has 2 decreased, which is a measure of capacity. Number of halls 3 is another. Is -- where -- where does that stand? 4 MR. SANDERSON: The number of locations has 5 decreased over those the last several years. I believe the 6 last count is somewhere around 650 -- 650 bingo locations. 7 At one point it was up around 730. 8 CHAIRMAN CLOWE: Phil, I want to make it 9 clear that my understanding is this is not our business. We 10 don't control this. This is the bingo industry's business. 11 And these numbers are the result of that business activity. 12 And I invite your comment and -- and, Steve, yours as well. 13 I'm somewhat struck by the fact that sales are up, prizes 14 awarded are up, and charitable distributions are down on a 15 year-to-year basis and on a fourth quarter year-to-year 16 basis, as well. It seems to me as a business person that if 17 sales are up, the contributions to charities ought to be up, 18 as well. Could you help me understand these numbers? 19 MR. FENOGLIO: I'll take a stab, 20 Mr. Chairman. For the record, my name is Stephen Fenoglio. 21 I have not seen the latest reports that 22 Phil has, although, he has shared with us some draft 23 reports. I'm sure as numbers have come in, they've changed 24 somewhat. First and foremost, you have to understand that 25 the -- the product mix that's occurring. And you will 0053 1 recall, Mr. Chairman, that you helped adopt a new rule on 2 pull-tabs. And there has been a dramatic increase in pull- 3 tab sales statewide, and then, within a hall, it has 4 increased in certain instances, 20 to 40 percent. Those 5 pull-tab sales are at a higher prize rate and so while it's 6 true your sales are going up, as Phil had indicated, the 7 prizes are going up as well, which also, since you're paying 8 out more in prizes, then your prize fees are going up, as 9 well. 10 So your bottom line is, you may not be as 11 flush with money, even though your sales have come up at 12 least for that short period of time. On the -- and -- and 13 that may -- that in some sense is an explanation for the 14 diverse nature of sales going up but a -- if you look at 15 distribution as a profit sense, the profit may be down. 16 Although the distribution side, as Mr. Sanderson can explain 17 in greater detail, and we talked about it in this Sunset, 18 what a charity actually distributes is not their true profit 19 because the charitable distribution formula does not allow 20 them to distribute all of the, quote, profits from 21 charitable bingo at a particular time. And, in fact, we 22 learned that there are significant sums of money that 23 charities have held back to -- for working capital, if you 24 will. All -- 25 CHAIRMAN CLOWE: Now, you're saying 0054 1 charities, but you don't really mean charities, do you? 2 Isn't it -- 3 MR. FENOGLIO: Well, licensed authorized 4 organizations, yes. 5 CHAIRMAN CLOWE: Okay. Because the 6 charities are the recipient. 7 MR. FENOGLIO: Correct. Correct. 8 And you -- 9 COMMISSIONER COX: Mr. -- 10 MR. FENOGLIO: Yes? 11 COMMISSIONER COX: Mr. Chairman, if I 12 could, I did a -- some back of the envelope computations 13 here, and if these numbers are -- if this is done right, I 14 took the sales and subtracted the prizes and the expenses, 15 and that would yield in 2002, 98.2 million and only 98 16 point -- 95.9 million in 2003, so the prizes and expenses in 17 combination are up by more than the sales are up. 18 CHAIRMAN CLOWE: That's how it figures. 19 MR. FENOGLIO: And to that extent, we -- we 20 believe, though, that all in all, the -- the charitable 21 bingo industry is better off with that new product mix 22 because we believe we would have seen a larger erosion of 23 the customer base but for that -- those new and exciting 24 product mixings. 25 Turning back to just one thing on the 0055 1 smoking ordinance, I have -- and analyzed a number of halls' 2 data, and I'll be happy to share that with Mr. Atkins. This 3 issue on the smoking ordinance has come up, as you may 4 recall, in the City of Austin. It came up in the City of 5 Abilene. And we did some hard numbers crunching, comparing 6 several halls from before the smoking ordinance and then 7 after, in Dallas, and the numbers are down dramatically in 8 those halls. 9 Now, that may not mean that Dallas County 10 numbers are down because, Commissioner Cox, as you probably 11 know from your the earlier survey about -- or from survey 12 data we presented, about 35 -- 65 to 75 percent of your 13 customer base in the typical hall is an avid smoker. And so 14 if they can't smoke in Dallas, they may drive an extra ten 15 minutes to, say, Richardson or Grand Prairie and play bingo 16 there. But the halls in Dallas, I don't believe there's any 17 question, are very ill right now. There have been some 18 halls that have closed. And the people I have spoken to 19 blame, in large part, on the smoking ordinance because if 20 your average mix is included using the number 200 customers, 21 if you lose ten percent of your customer base because they 22 choose to drive an extra ten minutes to smoke, that last ten 23 percent may have been your profit margin. And so they're 24 now either right at the -- their cost of revenues, equal, or 25 below. 0056 1 And so -- but we'll be happy to provide 2 that specific data. And I know that when -- when the staff 3 gets it, they -- they are typically looking at larger 4 trends, and we'll be happy to provide that data to them. 5 COMMISSIONER COX: Well, one other thought 6 too, Phil, your 2003 numbers end when? 7 MR. SANDERSON: December 31st. 8 COMMISSIONER COX: Okay. Well, the smoking 9 ban was in effect I think in January of '03. 10 MR. SANDERSON: It was March -- 11 COMMISSIONER COX: March 1st. 12 MR. SANDERSON: March 1st. 13 COMMISSIONER COX: March 1. Okay. Well, 14 it was most of the year anyways. 15 MR. FENOGLIO: And we -- we've shown on a 16 quarterly data six months' worth of data, before the 17 ordinance was in effect and after it's in effect, and that's 18 the type of data we developed and -- and can show, again, 19 before the ordinance was in effect, with the ordinance in 20 effect, and the numbers are down on hall -- in halls in 21 Dallas, Texas. Now, again, they may be up outside of 22 Dallas, Texas, but within the Dallas County area. Thank 23 you. 24 COMMISSIONER COX: Thank you. 25 CHAIRMAN CLOWE: I think this is going to 0057 1 be a subject of the Sunset Review, and we should be aware 2 that it's going to come out of those hearings and probably 3 result in a recommendation similar to that or something like 4 that which came out last time. Remember that was 5 considerably discussed at one of the commission meetings. 6 My recollection is that the commission took a position 7 different than the Sunset recommendation, and we should make 8 the Sunset staff aware of these numbers and afford them the 9 opportunity to look at this and be involved in it so they'll 10 be most knowledgeable as they approach it again for an 11 additional year. 12 MR. SANDERSON: Yes, sir. And I -- I would 13 like to add in answer to your -- I believe it was your first 14 question about the -- our -- our business, so to speak, and 15 it's -- it is -- we try to provide them with the opportunity 16 to -- to make money through bingo as a fund-raising 17 activity. And the information that we have here is -- is 18 based on their practices and their advertising and how they 19 promote the games internally. 20 CHAIRMAN CLOWE: I think it's important to 21 state that from time to time because we have had requests 22 from members of the industry to help that and to, for 23 example, at times spend money to advertise for them. And 24 under the Bingo Enabling Act, that's not the scope of our 25 activities. We need to be careful, in that sense, to be a 0058 1 part of an environment that supports the industry as we 2 regulate it, but we are not in the same position with the 3 bingo industry that we are with the lottery. 4 MR. SANDERSON: Yes, sir. That is 5 correct. And then also Commissioner Cox, I'm sure he was 6 looking at the numbers, I -- that's -- I was kind of doing 7 the same thing and I had done it before, that the -- the 8 adjusted gross, which is the gross receipts minus the 9 prizes, just those alone, was actually about a million to a 10 million and a half down because the increase in prizes are 11 increasing at a greater percentage than the increase in 12 sales are. 13 CHAIRMAN CLOWE: You've got to be awfully 14 quick to get ahead of Commissioner Cox. 15 Very good. 16 COMMISSIONER COX: You are awfully kind, 17 Mr. Chairman. 18 CHAIRMAN CLOWE: Thank you. Next is 19 Item X, report possible discussion on -- and/or action on 20 the lottery -- oh, lottery sales. We're going to get to 21 lottery. Okay. 22 MR. DEVINEY: Good morning, Commissioners. 23 I'm Lee Deviney, financial administration director. 24 I've just passed out a few memos that would 25 go under tab ten of your notebook regarding lottery sales. 0059 1 The first memo indicates that fiscal year 2004 unaudited 2 sales through February 28th amount to $1.626 billion, which 3 is a 5.3 percent increase over fiscal year 2003 sales of 4 $1.544 billion for the same time period. Sales by product 5 group are led by instant ticket sales which exceeded the one 6 billion-dollar mark of fiscal year 2004 during the month of 7 February. The second memo describes sales by product group 8 compared to fiscal year 2003 sales over a comparable time 9 period, and the third memo compared sales for the last two 10 full weeks ending February 28 and February 21st, 2004. 11 Total lottery sales decreased by 18.3 12 percent, which reflects reduced online and other products 13 sales we had during the regular Mega Million's 230 million- 14 dollar jackpot was hit, and we also had a hit on Lottery 15 Texas during the second week. 16 Marketing staff will provide a more 17 detailed report under tab 13 regarding online sales and 18 trends later in this meeting. And I will be pleased to 19 answer any questions that you may have at this time. 20 CHAIRMAN CLOWE: Thank you, Lee. I don't 21 believe there are any questions. 22 Item Number XI, report, possible discussion 23 and/on action on HUB and/or minority business participation. 24 MR. DEVINEY: Yes, sir. Commissioners, 25 under tab 11, Joyce Bertolacini, the commission's HUB 0060 1 coordinator will provide the lottery's monthly HUB and 2 minority business participation report. 3 CHAIRMAN CLOWE: Good morning. 4 MS. BERTOLACINI: Good morning, 5 Commissioners. For the record, my name Joyce Bertolacini 6 and I'm the agency's Historically Underutilized Business 7 coordinator and I'm here to report on just a small number of 8 items regarding our HUB and minority business participation. 9 In your notebook today you should have the 10 TLC's monthly HUB and minority contracting activity report, 11 which includes all fiscal year 2004 expenditures paid from 12 September 1st of 2003 through January 31st of 2004. Our 13 total qualifying expenditures for this period were $55.9 14 million, and our estimated HUB expenditures were $18.9 15 million which equates to 33.8 percent. 16 I also wanted to point out to you today 17 that we're currently preparing data to be submitted to the 18 Texas Building and Procurement Commission for inclusion in 19 the semiannual statewide HUB report. This report will be 20 issued in mid April and will assess HUB utilization for the 21 first six months of fiscal year 2004. I have no further 22 updates at this time, but I would be happy to answer any 23 questions that you have. 24 CHAIRMAN CLOWE: We're extremely pleased 25 with the continuing progress that we're making in this 0061 1 area. We're very supportive of your efforts, and we wish to 2 encourage you along these lines. Anything the commissioners 3 can do to be supportive, please call on us. 4 MS. BERTOLACINI: Thank you, Chairman. 5 CHAIRMAN CLOWE: Next item is Number XII, 6 report possible discussions and/or action on the agency's 7 contracts. 8 Mr. Deviney. 9 MR. DEVINEY: Commissioners, if you would 10 refer to tab 12, which includes the weekly status report on 11 Lottery Commission contracts having an estimated value of 12 $25,000 or more. If you have any questions, either I or a 13 representative of the administrative division are available. 14 CHAIRMAN CLOWE: Do you have any questions, 15 Commissioner? 16 COMMISSIONER COX: No questions. 17 Thank, Mr. Deviney. Next is Item XIII, 18 report, possible discussion on the action -- and/or action 19 on the agency's financial status. 20 MR. DEVINEY: Commissioners, under tab 13 21 entitled the agency's financial status you will find the 22 agency's budget summary and expense budget reports from 23 lottery operations in the charitable bingo division for the 24 fiscal year through January 31, 2004. Budgets are tracking 25 as expected, and there are no significant variances. 0062 1 Next, behind the yellow divider page, you 2 will find a report on transfers of the agency foundation 3 school fund and allocations of unclaimed prize money. The 4 January transfer of the foundation school fund amounted to 5 $86.4 million. Finally, you'll find the report of lottery 6 revenues, expenditures, and transfers from fiscal year 2000, 7 1992 to date. If you will note, I believe I brought this up 8 at the last meeting, the total transfers to the state broke 9 the 11 billion-dollar mark in December. 10 This concludes financial administration 11 reports, and I'll be available to answer any questions that 12 you may have. Thank you. 13 CHAIRMAN CLOWE: Thank you, Mr. Deviney. 14 MR. GREER: Mr. Chairman. 15 CHAIRMAN CLOWE: Sir? 16 MR. GREER: I would like to mention that 17 we're anticipating the foundation school fund to cross the 18 six billion-dollar mark on the 15th transfer, and I'll be 19 bringing you up-to-date on that specifically next meeting. 20 CHAIRMAN CLOWE: Very good. 21 Next on Item XIV, report, possible 22 discussion and/or action on the commission's online lottery 23 games. 24 Mr. Tirloni. 25 MR. TIRLONI: Good morning, Commissioners. 0063 1 For the record, my name is Robert Tirloni. I am the online 2 product manager for the Texas Lottery. 3 MS. JAMBOR: Good morning. For the record, 4 I am Liz Jambor. I'm the marketing research manager for the 5 Texas Lottery Commission. 6 MR. TIRLONI: Commissioners, we are back 7 this month so that we can continue to provide you with an 8 update on the Mega Millions game in Texas and how Mega 9 Millions has impacted online product sales and lottery sales 10 in general. 11 Thanks to Mega Millions, February was an 12 exciting month at the Lottery. When we last met on 13 January 30th, the advertised jackpot was $73 million. The 14 jackpot continued to roll almost through the end of the 15 month of February, up until February 20th, when we reached 16 an advertised jackpot of $230 million. That jackpot was 17 actually increased twice -- or the -- the jackpot amount was 18 bumped twice. It went from 215 million to 222 million 19 dollars on Thursday, the 19th. And then during the Friday 20 morning jackpot estimation call, the directors of the Mega 21 Millions group decided to bump up the jackpot once again 22 from 222 million to 230 million. There was a winning ticket 23 sold that night in Virginia. And after all the sales were 24 totaled, that jackpot actually totaled $239 million. 25 Just for a frame of reference, if that 0064 1 jackpot had rolled, it was going to be advertised at 290 2 million and that was a very conservative roll. And we would 3 have anticipated, probably as of Monday morning after some 4 sales were analyzed over the weekend, another bump up at 5 that time, probably to over $300 million. 6 MR. GREER: I would mention at this point 7 that the winner has not stepped up yet on the 239-dollar 8 million victory. We are still monitoring that with the 9 state of Virginia. 10 MR. TIRLONI: Just to give you an overview, 11 since we started in the Mega Millions game in early December 12 through the week ending last Saturday, February 28th, Texas 13 Mega Millions sales total over $73.4 million. Our Megaplier 14 sales -- and again, that's Texas only Megaplier sales -- 15 total over $18.8 million for a total of over $92.2 million 16 since we started with the Mega Millions game. 17 I'll give you a quick summary of the number 18 of winners we've had in Texas. We have had 31 second tier 19 prize winners. That is the 175,000-dollar prize level. 20 Four of those prizes were Megaplied. Three were worth 21 $700,000. One was worth 350,000, and we have also had a 125 22 third tier winners. That's the 5,000-dollar prize. Thirty- 23 four of those winners Megaplied their purchase. And in 24 total, since we have started with Mega Millions, we have 25 created over 2.2 million winners in Texas. And we have paid 0065 1 out over $21 million in prizes since we started with the 2 game. 3 This next chart -- or this next slide 4 charts Mega Millions and Megaplier sales. There is a couple 5 of point of -- points of interest. You see pretty 6 consistent sales as we start on the jackpot cycle that 7 started in early January, at the 10 million-dollar mark. We 8 see very consistent Mega Millions sales. Up until we reach 9 this point, as you see as we start to get to this point, 10 we're approaching the magical, so to speak, triple digit 11 jackpot amounts. And then we see very strong sales growth 12 that continues all the way up until we reach the 230 13 million-dollar jackpot amount. 14 Commissioners, I think for the first time 15 since we joined Mega Millions, we have experienced jackpot 16 fever, so to speak, with this game. We received a lot of 17 publicity and a lot of press when we first launched the game 18 in Texas. But for the first time, the jackpot in February 19 seemed to catch everybody's attention. Phones were ringing 20 off the hook. The e-mails were coming in fast and furious, 21 and we had a lot of retailers very excited about that 22 jackpot, a lot of players excited. 23 Another point worth noting is the sales for 24 Megaplier, this was for the 177 million-dollar jackpot on 25 that Tuesday, and then again the 230 million-dollar jackpot 0066 1 on that Friday. And the sales for Megaplier that week 2 totaled over $3.1 million. So Megaplier actually outsold 3 our Cash Five game that week. 4 We've been updating you on -- on how 5 Megaplier is doing, and Megaplier is 20 percent of the 6 sales. We've noticed that as the jackpot climbs, Megaplier 7 sales also climb, but the percentage of -- but Megaplier as 8 a percentage of overall sales does decrease a little bit as 9 the jackpot reaches these very high levels. And from 10 talking to retailers and from talking to our sales force, 11 what appears to happen is when the jackpot gets up into the 12 high 100 million-dollar range and close to that 200 million- 13 dollar range, players that might ordinarily spend a dollar 14 on Megaplier when the jackpot would be, say, ten or 12, they 15 take that dollar and, when it's 200 million, they don't 16 spend it on Megaplier. They are putting it towards the 17 actual base game. 18 CHAIRMAN CLOWE: Because the amount they 19 can win is limited on the Megaplier option. 20 MR. TIRLONI: That's correct. That's 21 correct. By spending the dollar on Megaplier, they have a 22 chance of increasing their nonjackpot prize winnings. And I 23 think most players would probably think at that point, with 24 the 200 million-dollar jackpot at stake, they -- they 25 would -- some of them choose to put that dollar towards the 0067 1 jackpot prize instead of increasing some of their other 2 prize levels. 3 This next slide charts -- this next slide 4 charts Lotto Texas and Mega Million jackpot amounts. And 5 this is another very interesting slide. You can see this is 6 where we started, at $10 million in early January. And you 7 can see the very rapid growth that Mega Millions takes all 8 the way up to the 230 million-dollar jackpot level. This 9 was a Lotto Texas growth cycle that started at $4 million 10 back in November. And you can see its growth is very 11 gradual. And, of course, this is the difference between one 12 state building a jackpot and then 11 states building a 13 jackpot. 14 After the 230 million-dollar jackpot win in 15 Virginia, we, of course, went back down to ten million. You 16 see there's an overlap in Lotto Texas' and Mega Million's 17 jackpots were -- were very close in range and Mega Millions 18 went from ten to 12 to 20, and there was a winner in Ohio on 19 Tuesday. And so Lotto and Mega Millions are once again in 20 pretty close range at this point in time. 21 COMMISSIONER COX: Robert. 22 MR. TIRLONI: Yes, sir. 23 COMMISSIONER COX: Are you going to talk 24 about what the sales look like on the two games when the 25 jackpots are on the same level? 0068 1 MR. TIRLONI: Yes, sir. On a later slide. 2 CHAIRMAN CLOWE: Good. 3 MR. TIRLONI: And we -- we couldn't 4 leave -- we wouldn't leave that out. 5 I just wanted to give you an idea. I 6 shared this slide with you last month, but this now takes us 7 all the way through that entire roll cycle from the ten 8 million-dollar draw all the way through 230 million-dollar 9 draw. 10 Once again, the sort of pink colored boxes 11 are New York. The -- this blue color is Texas. And you can 12 see, Texas is right behind New York, as we progress through 13 the roll cycle. New Jersey starts to come in right around 14 in here, and we tend to cluster in this group here with New 15 Jersey, Illinois, and we're very close with Georgia and 16 Michigan. And then some of smaller states tend to cluster 17 down here. And I've got a subsequent slide that will -- 18 because they all kind of overlap there, I think this slide 19 paints a better picture. 20 This is the draw sales by states for the 21 entire roll cycle, from the ten million-dollar jackpot all 22 the way up through the 230 million-dollar jackpot. Once 23 again, you see New York is -- is pretty far in the lead; 24 however, we're very -- we're very happy with our performance 25 through this roll cycle. Texas is fourth, only behind New 0069 1 York, New Jersey, and Illinois. And I went back and looked 2 at when those states joined Mega Millions. Illinois has 3 been in the game since '96, since when it first started. 4 New Jersey has been in the game since '99. So to -- out of 5 11 states, being in fourth for that roll cycle, I think 6 it's -- I think it's very promising. I think it's very good 7 news for us in Texas. Another point I'd make is that during 8 this roll, from ten to 230 million, we did have a Lotto 9 jackpot that was climbing, that built all the way up to 70 10 million also. So if that had not been happening, we may 11 have even realized higher sales. 12 COMMISSIONER COX: Robert. 13 MR. TIRLONI: Yes, sir. 14 COMMISSIONER COX: Have you looked at those 15 on a per capita basis? 16 MR. TIRLONI: No, we have not yet. We can 17 certainly do that and send it to you or we can prepare for 18 the next meeting, if you'd like. 19 COMMISSIONER COX: It looks like per 20 capita, we might be as well positioned as we are overall, 21 but it's hard to tell because I don't know the populations 22 for all those states. 23 MR. TIRLONI: We can certainly do that. 24 COMMISSIONER COX: Yes. 25 MR. TIRLONI: And I can send it to you if 0070 1 you like. 2 MR. GREER: Why -- why don't we include 3 that in the next month's overview as well. That would be 4 interesting. 5 MR. TIRLONI: Absolutely. 6 MS. JAMBOR: With all the excitement of 7 Mega Millions, we need to continue monitoring our current 8 games to make sure that they remain healthy games. What we 9 see in a 26-week comparison of FY '03 and FY '04 is a 19 10 percent sales shift in Lotto Texas. The good news about 11 this is that it -- it remains under our projected amounts of 12 sales shift for Lotto Texas. 13 This graph shows the -- shows the sales by 14 jackpot amount for Lotto Texas and Mega Millions. And as 15 you can see, Lotto Texas, again, as Robert had indicated 16 it's slow, steady climb. Mega Millions with a little bit 17 more of an exponential type of climb; however, at higher 18 level jackpots for Mega Millions we're still seeing good 19 strong sales for Lotto Texas. And this is really most 20 evident in this last week on the slide here. Lotto Texas 21 had a jackpot of 12 million and was hit and returned to $4 22 million. Mega Millions had a jackpot of 10 million and 12 23 million; however, the sales for Lotto Texas were higher for 24 that week. So we're still seeing that Lotto Texas is a 25 strong healthy in-state game. 0071 1 The other thing we're seeing is -- is the 2 difference that -- that people may be attributing to the two 3 games. And Robert indicated this with his reference to the 4 fever at triple digit games. Mega Millions gets more 5 exciting as it moves closer to a 100 million whereas Lotto 6 Texas maintains it's core player base at the lower levels. 7 Okay. What this -- what this -- what this 8 indicates, then, is that regardless of where our sales are 9 going, we're still generating higher sales. And we can see 10 this in this slide. When we compare again the first 26 11 weeks of FY '03 to FY '04, we see that our online games, all 12 games included, is showing a 6.7 percent increase over the 13 same time period of last year. And the total sales are 14 experiencing a 5.6 percent increase. So although we may 15 have shown a sales shift for Lotto Texas, overall sales are 16 increasing. 17 When we look specifically at the time 18 period pre and post Mega Millions, which is 13 weeks on 19 either side of the game start, we see that online games have 20 increased 48 percent with our total games increasing a 21 little over 26 percent. So, again, it's showing that Mega 22 Millions was a -- was a good game for Texas. 23 One of the deciding factors, when deciding 24 which multi-state game to go with, was the impact that a 25 game would have on border retailers. So in order to follow 0072 1 up with that, what we did was look at retailers' sales pre 2 and post Mega Millions to see if there was anything going on 3 with our border retailers with the inclusion of Mega 4 Millions. So what we did is group retailers into one of 5 four categories. There are interior retailers, meaning they 6 are at least three counties in away from a border. There 7 are neutral retailers, which means they fall somewhere 8 between the border and that three-county mark. There are 9 border retailers bordering a lottery state, and there are 10 border retailers bordering a nonlottery state or nonlottery 11 area. 12 We then took those four groups and looked 13 at the individual games and the changes in sales pre and 14 post Mega Millions. The first point to make is that all 15 four groups saw an increase in sales pre and post Mega 16 Millions. The statistically significant finding is that the 17 retailers bordering lottery states saw significant percent 18 increases in -- in total lottery sales. And retailers 19 bordering nonlottery states saw significant percent 20 increases in Lotto Texas sales. So, again, all retailers in 21 these four groups were experiencing sales; however, our 22 border retailers saw a statistically significant percent 23 increases in their sales. In the time period that we're 24 looking at, we saw a high jackpot for Lotto Texas and we saw 25 two high jackpots for Mega Millions, which indicates that 0073 1 high jackpots continue to draw sales from the bordering 2 areas of Texas. 3 MR. TIRLONI: In summary, Commissioners, 4 from our analysis, we -- we see that Lotto Texas is 5 continuing to maintain a loyal player base as seen by sales 6 at the lower level jackpots. 7 MS. JAMBOR: And as of today, we will 8 continue to monitor any sales shift between Lotto Texas and 9 Mega Millions to assure that games remain healthy. 10 If you have any questions, we'll be happy 11 to answer them. 12 CHAIRMAN CLOWE: Good work. We really 13 appreciate this constant examination of these games as they 14 develop. And we would like to be kept up to date as you are 15 doing. 16 And, Reagan, you'll be owing us a 17 six-months' progress report on items that we discussed when 18 we approved Mega Millions. 19 MR. GREER: In reference to that 20 specifically, I will be going to a Mega Millions meeting at 21 the end of the month. I will give you a progress in two 22 significant points that we made. And I'll bring y'all up to 23 speed at that time. 24 CHAIRMAN CLOWE: Okay. Good. Thank you 25 both very much. 0074 1 MS. JAMBOR: You're welcome. 2 CHAIRMAN CLOWE: Next is Item XV, report, 3 possible discussion and/or action on lottery advertising and 4 promotions. 5 Good morning. 6 MS. ERICKSON: Good morning, Commissioners. 7 For the record, Toni Erickson, acting marketing director. 8 Included in your notebook is an update on the lottery 9 advertising and promotion. On Sunday, we just wrapped up 10 the most recent Mega Millions advertising campaign. We're 11 going to launch a winner's awareness campaign the week of 12 March 15th, which will run through April the 4th. 13 I have nothing else to report. I would be 14 happy to take any questions. 15 CHAIRMAN CLOWE: Thank you very much. 16 MS. SMITH: Thank you. 17 CHAIRMAN CLOWE: Next is Item XVI, report, 18 possible discussion and/or action on the 78th Legislature 19 and/or implementation of legislation affecting the Texas 20 Lottery Commission. 21 Good Morning. 22 MS. TREVINO: Good morning, Commissioners. 23 For the record, I'm Nelda Trevino, the governmental affairs 24 director, and I have a very brief report today with regard 25 to the 78th Legislature. 0075 1 For some time now the agency has taken the 2 initiative to hold periodic legislative briefings as a way 3 of providing updates to various -- on various agency matters 4 to members of our oversight committees. And included in 5 your notebook today we have a copy of the agenda for our 6 next legislative briefing that we have scheduled for next 7 week on March the 11th. 8 Additionally, the African American 9 legislative summit was recently held here in Austin. Colin 10 Haza attended the conference and Joyce Bertolacini and 11 Leslie Delvige represented the agency at the spot -- spot 12 bid fair that was held in conjunction with the summit. This 13 concludes my report on this agenda item, and I'll be happy 14 to answer any questions that you might have. 15 CHAIRMAN CLOWE: Where is that legislative 16 briefing going to be? 17 MS. TREVINO: Mr. Chairman, it is in the 18 capital -- in capital extension and it is in room... 19 MS. KIPLIN: E2.010. 20 MS. TREVINO: I think it's noted on the 21 agenda. 22 CHAIRMAN CLOWE: At what time? 23 MS. TREVINO: It will be at 10:00 o'clock 24 in room E2.010. 25 CHAIRMAN CLOWE: I'll try to attend that if 0076 1 it's possible. We also have the first strategic planning 2 meeting. Is it on the 10th? 3 MS. TREVINO: For the long range plan 4 meeting? 5 CHAIRMAN CLOWE: Uh-huh. 6 MS. TREVINO: I believe it is on the 10th. 7 CHAIRMAN CLOWE: Well, I wanted to go by 8 and -- and visit that. 9 Commissioner Cox, are -- are you planning 10 on putting in an appearance on that strategic planning 11 meeting? 12 COMMISSIONER COX: Well, I hadn't figured 13 out which ones I was going to try to go to. I thought I 14 would give you first shot and then go from there. 15 CHAIRMAN CLOWE: Well, I'm going to try to 16 just be there as much as I can. And I reckon if you're 17 there when I get there, I'll leave or vice versa. We'll 18 avoid each other, but I think it's great that either one of 19 us, or both, can drop in for as much as possible. I will 20 inform Nelda if I'm going to make the legislative briefing 21 on the 11th. If you'd like to go, feel free and say so, and 22 I'll defer to you. 23 COMMISSIONER COX: I'll try to back you up 24 if you can't make it. 25 CHAIRMAN CLOWE: Okay. We will -- we'll 0077 1 let Nelda know what our plans are. 2 MS. TREVINO: Very good. 3 CHAIRMAN CLOWE: I think it's important to 4 have a commissioner present as much as possible at those 5 legislative briefings, and then for our benefit to 6 participate in the planning. 7 Have you had an interview with the people 8 who are conducting the planning operation? 9 COMMISSIONER COX: Yes, I have. 10 CHAIRMAN CLOWE: And I have too, so 11 we're -- that's good. I don't know whether Commissioner 12 Olvera has done that or not. Has he? 13 MR. GREER: He's going to do a conference 14 call, I believe, on the 16th. 15 CHAIRMAN CLOWE: Great. 16 MS. TREVINO: That's with the Sunset -- 17 MR. GREER: Sunset. 18 MS. TREVINO: -- staff, Commissioner. I 19 don't know about the long range planning. 20 CHAIRMAN CLOWE: And, Commissioner Cox, 21 have you met with the Sunset staff. 22 COMMISSIONER COX: Yes, I have. 23 CHAIRMAN CLOWE: Great. So we're getting a 24 high level of participation there. 25 COMMISSIONER COX: Good. 0078 1 CHAIRMAN CLOWE: Thank you, Nelda. The 2 next item I think is yours as well. That's report, possible 3 discussion or action on the Sunset process involving the 4 agency. 5 MS. TREVINO: Commissioners, the Sunset 6 staff continues it's limited purpose for you to evaluate the 7 appropriateness of its 2002 recommendations regarding 8 agency. The Sunset staff has held several meetings with 9 agency staff and, as you indicated, also with individual 10 commissioners. And we have responded to their request for 11 information. They anticipate issuing their report mid to 12 late April at which time the agency will have the 13 opportunity to provide a written response to their staff 14 report. Meetings are also being scheduled for the executive 15 director and the charitable bingo director to meet with the 16 individual members of the Sunset Commission. 17 One last item, Billy Atkins asked me to 18 check with the commission regarding any direction that the 19 commission may have regarding input that the commission may 20 be seeking from the Bingo Advisory Committee, once the 21 Sunset staff report is issued. And so any feedback that the 22 commission has on that matter, I know Billy and other staff 23 would appreciate. 24 This concludes my report, and I'll be happy 25 to answer any questions. 0079 1 CHAIRMAN CLOWE: Thank you very much. 2 MR. GREER: Mr. Chairman, I'd add that we 3 are continuing to coordinate with the -- with Commissioner 4 Olvera in reference to these meetings. And Nelda has done a 5 great job in keeping all of you individually apprised of 6 what's happening. 7 CHAIRMAN CLOWE: Great. Next is Item 8 XVIII, consideration of and possible discussion and/or 9 action on the agency's business plan. 10 Mr. Grief. 11 MR. GRIEF: Good morning, Commissioners. 12 I'm making this report this morning for Michael Anger, our 13 project manager for the agency's business plan. He's out of 14 the office this week. 15 As you know, the agency has entered into a 16 contract with Doctor Gary Cadenhead from the University of 17 Texas for long range and business planning consulting 18 services. And Doctor Cadenhead and his team, as you 19 mentioned, Mr. Chairman, are in the process of doing 20 individual interviews with commissioners and key agency 21 staff and management. Those individual interviews should be 22 concluded within this week. And three day long group 23 planning sessions, which are scheduled for March 10th, March 24 26th, and March 31st, have been scheduled. In those 25 planning sessions we are going to begin formalizing the 0080 1 agency's long range plans, which will then tie into and 2 become a key component of the agency's business plan. 3 And that concludes the report this 4 morning. I would be happy to any questions that you have. 5 CHAIRMAN CLOWE: Thank you, Mr. Grief. I 6 failed to recognize Ms. Latta, who is in the audience here, 7 from Sunset. She's the person in charge of our review. 8 Do you have anything to add to what 9 Nelda -- thank you very much. 10 Next is Item XIX, report, possible 11 discussion on the -- or action on the agency's strategic 12 plan. 13 Anything further there, Gary? 14 MR. GRIEF: Yes, sir. Ms. Karen Blizzard 15 will come forward and give you a brief report. 16 CHAIRMAN CLOWE: Good morning. 17 MS. BLIZZARD: Good morning, 18 Commissioners. For the record, my name is Karen Blizzard. 19 I'm the senior editor at the Texas Lottery Commission. I'm 20 here today to give you a report on the development of the 21 agency's strategic plan for 2005-2009. The financial 22 division is currently in the process of coordinating 23 division updates to the agency performance measures. And I 24 am working with division staff to compile the 25 external/internal assessment. 0081 1 And that's all I have today, and I'll be 2 happy to answer any questions. 3 COMMISSIONER COX: I do have a question. 4 CHAIRMAN CLOWE: Oh, good. 5 COMMISSIONER COX: And, Ms. Blizzard, I 6 don't know whether this is for you or Reagan or Gary, but 7 we're talking about business plans, long range plans and 8 strategic plans and to me those terms are synonymous. But I 9 know that in this particular setting they're not 10 synonymous. The one that you're talking about is one that's 11 required by statute. Is that correct? 12 MS. BLIZZARD: That's correct. 13 COMMISSIONER COX: And the others that Gary 14 reported on are ones that we have chosen to implement 15 because they're good business -- or to develop because 16 they're good business. 17 MS. BLIZZARD: And I believe the -- 18 COMMISSIONER COX: And because it's -- 19 MS. BLIZZARD: -- Sunset -- 20 COMMISSIONER COX: Right. 21 MS. BLIZZARD: -- Commission was suggesting 22 that. 23 COMMISSIONER COX: And because they thought 24 it was good business. 25 MS. BLIZZARD: Right. 0082 1 COMMISSIONER COX: Are -- just assure me 2 that we're not duplicating effort here, that this is a 3 streamlined deal and we're doing things just once and -- 4 MR. GREER: Yeah. It's been a -- a great 5 opportunity to coordinate, to create an environment where we 6 can utilize both plans in a positive way and there is a 7 total coordination of the process. I think Gary touched on 8 this as well. 9 MR. GRIEF: Let -- let me say a couple of 10 things about that because, one, I want to compliment Karen 11 who is doing a great job. There's a lot of work involved in 12 putting together the agency's strategic plan. Mike Anger 13 and Karen are working in close coordination. And Karen is 14 aware of every meeting that takes place. In fact, I owe 15 Karen a response on some questions she has about how we're 16 going to integrate some of these day long sessions that 17 we're going to have in March with the development of the 18 strategic plan. Can we overlap some questions. Can we add 19 some questions that are required by statute for the 20 strategic plan, et cetera. 21 So the answer to your question, 22 Commissioner, yes, we're in very close coordination on the 23 development of these two documents. 24 COMMISSIONER COX: So we're not only going 25 to have when we're through this process an excellent new 0083 1 document on our business plan, we're going to have a better 2 strategic planning because of that. 3 MR. GREER: Yes, sir. That's the plan. 4 CHAIRMAN CLOWE: Good plan. Thank you, 5 Commissioner. Now, with your agreement, we'll have a 6 10-minute recess. 7 COMMISSIONER COX: Yes, sir. 8 CHAIRMAN CLOWE: And I would like to say 9 that it will my intention to complete the public agenda 10 prior to going into executive session, when we return in 10 11 minutes. 12 Thank you, ma'am. 13 MS. BLIZZARD: Thank you. 14 (Recess.) 15 CHAIRMAN CLOWE: The commission will come 16 back to order. The time is 10:39. 17 We will now take up Item Number XX, 18 consideration of and possible discussion and/or action, 19 including adoption, on new rule TAC 401.369 relating to 20 self-service terminals. 21 General counsel. 22 MS. KIPLIN: Commissioners, at an earlier 23 meeting you-all voted to propose this new rule for public 24 comment in the Texas Register for a 30-day public comment 25 period. That text was published in the January 2nd, 2004, 0084 1 issue of the register for that comment period. 2 We did receive comment from one commenter. 3 That comment is summarized in your document you have before 4 you today, and the agency's response is attached. The staff 5 is recommending that you vote to adopt this rule, but with 6 changes to the text from the way it was published in the 7 register for public comment. And the change specifically 8 was to delete the proposed rule's text of subsection F, 9 revise subsection G to clarify that each self-service 10 terminal installed at a retailer location will be equipped 11 with a remote shut-off device and then to renumber the 12 subsections accordingly. 13 The changes were made in response to the 14 comment expressing concern about the ability of minors to 15 purchase tickets from the self-service terminal and also to 16 clarify the agency's position regarding providing a remote 17 shut-off device for each self-service terminal. The rule 18 sets out the conditions that are imposed on a retailer in 19 the event a retailer chooses to have a self-service terminal 20 at its location. 21 The comment on the minor issue had to do 22 with the obligations imposed on a retailer by law to 23 prohibit the selling of a ticket to -- to a minor and also 24 the minor purchasing a ticket. As I understand it, 25 Mr. Greer is here to help me with this. There will be both 0085 1 a placement criteria, and that has to do with what retailers 2 will get with these self-service terminals because we don't 3 have self-service terminals for each retailer. And then 4 there's also a -- that's the selection -- pardon me -- the 5 selection criteria of a retailer. And there's also -- will 6 be the placement criteria, which has to do where within a 7 location will the self-service terminal be placed. That 8 will be the lottery's criteria that will be provided to 9 GTECH, our lottery operator, who will then be placing these 10 terminals on behalf of the lottery in these retail 11 locations. 12 The rule makes it very clear that once it's 13 placed, that's where it stays. It is our -- it is our 14 approval alone that will allow the terminal to be moved. In 15 the -- in the case where a retailer might relocate that, 16 once it's brought to our attention, then the appropriate 17 action will occur against the retailer. It could very well 18 be a warning letter, but if it's redundant, then it will 19 subject their license to disparate action. And, frankly, 20 that's the point of this rule. The point of this rule is to 21 create the requirements and conditions that are imposed on a 22 retailer. So this -- because we have a licensing 23 relationship with that retailer, it's by rules that we -- we 24 monitor and enforce the retailer's conduct. 25 With regard to the placement criteria, the 0086 1 commenter I -- I think wanted the rule to be very clear 2 about what that would be in each location. And for a 3 thousand different unique locations, that's pretty 4 difficult. The general rule of thumb will be three pronged. 5 One is that it will be in a high -- high traffic area. It 6 will be in an area where there is a line of visibility with 7 the retail employees, and it will be placed where kids or 8 minors will not be gathering, as a general rule. 9 And with that, I'll be glad to answer any 10 comments. The staff is recommending that we do adopt this 11 rule with the changes that were previously mentioned. 12 Mr. Greer is here, as well as, I believe, people from the 13 marketing department who are the client division 14 representative of this rule. 15 COMMISSIONER COX: This rule relates 16 strictly to retailers. Now, I -- I think I remember that we 17 were looking at other locations than retailers, such as 18 airport businesses. 19 MR. GREER: Right. 20 COMMISSIONER COX: But this one wouldn't 21 cover an airport location. It would just cover something 22 that's in a retail store. 23 MR. GREER: Well, it would depend if the -- 24 a airport was represented through a retailer, it would be 25 the same, you know, type scenario. And the whole situation 0087 1 on -- on the airport would be really attributable to what 2 we're doing now with the retailers, so I think it would 3 apply to that. 4 COMMISSIONER COX: Well, I think if a 5 retailer is someone who has a premises that is under that 6 retailer's control. 7 MR. GREER: You want me to give a 8 definition? 9 COMMISSIONER COX: And let me go ahead with 10 my concern because it may be that you can address it right 11 away. 12 MR. GREER: Okay. 13 COMMISSIONER COX: My concern is who's 14 going to shut off the thing if a minor tries to use it in 15 the airport. 16 MR. GREER: Right. 17 MS. KIPLIN: If I could address that, 18 unless you are the lottery operator or the Lottery 19 Commission, a person must hold a license to be able to sell 20 our tickets, regardless of whether it's through a self- 21 service terminal, through an instant ticket vending machine, 22 or a person-to-person transaction. And so there will be -- 23 and with regard to an airport or in any other kind of venue, 24 there must be a location that meets the conditions out of 25 the State Lottery Act in our rules and there must be a 0088 1 person who may -- who can satisfy the eligibility 2 requirements in the State Lottery Act in our rules so that 3 that person at that location is licensed. So -- 4 COMMISSIONER COX: So the licensee would 5 likely be a gift shop -- 6 MS. KIPLIN: Right. 7 COMMISSIONER COX: -- or the barbecue place 8 or the like, as opposed to the airport authority itself. 9 MR. GREER: At this point, that's where 10 we're -- we're focused. There's -- there's nothing worked 11 out with any airport right now. It's just an idea that 12 we're, you know, looking at some of the larger airports. 13 But they would fall under the same regulation as any other 14 retailer would. And we're confident that we can, you know, 15 work through that. 16 In reference to being a little more 17 specific on the scenario that we're talking about, as far as 18 the cutoff, the device has been tested up to a range of 100 19 feet. But the majority of grocery store chains and 20 individuals that we've talked to in reference to that will 21 have it in like their business center area where the, you 22 know, customer friendly sort of a situation where they have 23 other types of venues like that like an ITBM, currently 24 where they can get cash out of an ATM or something like that 25 around the business center area. 0089 1 Frank Coniglio will be coordinating with 2 GTECH as those things go in. We're going to have a -- you 3 know, help for where that location would -- would be in each 4 retailer's working establishment. 5 The area about minors is -- is another big 6 deal because if you've been in a grocery store that have the 7 little things with a -- I don't know what you call it, but 8 it's a drop down thing. It would not be by that. 9 COMMISSIONER COX: Like the animals? 10 MR. GREER: Yeah. Like an animal machine. 11 The retail store will basically be 12 coordinating with us and with GTECH, and we work as a team, 13 a unit, to come up with the places acceptable, because they 14 don't want to get into any negative scenario there any worse 15 than we want them to. So all of us working together and 16 trying to ensure that this will not be an issue. The ITBM 17 scenario will give us some experience in that venue, and 18 we'll be following that experience as to avoid any further 19 problems. 20 CHAIRMAN CLOWE: Anything further? 21 MR. GREER: No, sir. 22 CHAIRMAN CLOWE: Now, your cutoff device is 23 hard wired or electronic? 24 MS. KIPLIN: It's wireless. 25 MR. GREER: It's wireless. 0090 1 CHAIRMAN CLOWE: Wireless. You say the 2 machine is going to be placed by us in a certain place. How 3 do we make that determination? 4 MR. GREER: Well, actually it will be the 5 grocery store, whoever it is that we work with, working with 6 Frank who will represent the lottery, working with GTECH, 7 and everyone coming together which is to feel comfortable 8 that it's going in a location that is proper. 9 CHAIRMAN CLOWE: So we're going to 10 participate in every decision -- 11 MR. GREER: Yes. 12 CHAIRMAN CLOWE: -- relating to the 13 location of the machine. 14 MR. GREER: Right. 15 MS. KIPLIN: It won't just be the lottery 16 participating by -- by this rule. It is our decision. 17 CHAIRMAN CLOWE: We're going to make the 18 determination where every one goes. How do we know it's 19 going to stay there? 20 MS. KIPLIN: GTECH makes visits at the 21 stores or retail locations, and we're looking to them to be 22 able to monitor that and communicate with us if a -- a self- 23 service terminal has been moved. Likewise, if we receive 24 complaints, those will go to the security division as they 25 have in the past, and those will be investigated. 0091 1 CHAIRMAN CLOWE: So it's not going to be 2 bolted down? 3 MR. GREER: It will be bolted down. 4 CHAIRMAN CLOWE: It will be bolted down? 5 MR. GREER: It will be bolted down, right? 6 MR. RIVERA: In certain cases, not in all 7 cases. 8 CHAIRMAN CLOWE: Come up for the record and 9 identify yourself and give us the answer to that question, 10 please, sir. 11 MR. RIVERA: Good morning, Commissioners. 12 For the record, my name is Ramone Rivera, the account 13 general manager for GTECH. 14 And, specifically, in answer to your 15 question, specifically, there have been some retailers who 16 have requested that the self-service terminals be bolted to 17 the floor. That's primarily in a -- in a convenience store 18 environment, and none of -- as far as I'm aware, none of our 19 grocery store retailers have requested that -- that feature. 20 CHAIRMAN CLOWE: So the answer is some will 21 and some will not. 22 MR. RIVERA: Yes, sir. 23 MR. GREER: Yes, sir. 24 CHAIRMAN CLOWE: And there was a discussion 25 in the comments and in the preamble about comparing the sale 0092 1 of lottery tickets to alcohol and tobacco products. Could 2 you expand on that? 3 MS. KIPLIN: Yes. I would be happy to. 4 The commenter indicated that they wanted the lottery to 5 require ID be presented -- identification be presented prior 6 to the sale of a lottery ticket just like in -- I think it 7 was beer or cigarettes was the -- was the analogy or 8 comparison. 9 I -- I talked to the general counsel of the 10 Texas Alcoholic Beverage Commission to determine what their 11 requirements are, and there is no requirement for there to 12 be a presentation of identification prior to the sale of 13 alcohol. 14 Now, as I understand it, it's a boot strap 15 out of Federal law into Texas law. There is a requirement 16 on tobacco. The State Lottery Act is silent on that matter, 17 and so it's really -- I guess it would be just up to the 18 discretion of the commission whether the commission would 19 like to impose that requirement on a retailer. What the 20 State Lottery Act requires -- actually what the State 21 Lottery Act prohibits is the sale to a minor or the purchase 22 by a minor. The identification issue I -- I can see in 23 terms of a retailer employee on a person-to-person 24 transaction, but even likewise with alcohol, I think they go 25 on judging what they think the age is. And in some of the 0093 1 stores -- as store policy in a grocery store, I think some 2 of them said that if you look like you're under 30. 3 With regard to the self-service terminal or 4 any machine that a ticket can be purchased from the -- it's 5 not a fail safe solution to require identification because a 6 minor could get an adult identification and -- and swipe 7 it if the technology exists, so it's not -- that's not a 8 fail safe solution. Anytime there -- there is a statute 9 that's been created, in my view, that prohibits conduct, 10 it's very difficult to absolutely prohibit that conduct. 11 You can certainly impose sanctions for violations of that 12 particular statute, but I think -- at least the staff's 13 position is that we're going to rely on our retailers. 14 Their -- their training in these convenience stores goes 15 beyond the selling of a lottery ticket. It goes into the 16 tobacco, and it goes into the alcohol issues. And if they 17 believe that they've got a minor issue, they can certainly 18 request identification just like they could for alcohol. 19 CHAIRMAN CLOWE: Which is what we do now 20 and have done since the inception of the lottery. 21 MS. KIPLIN: Yes. As I understand it, and 22 I will defer to others to correct me if I'm wrong on that 23 point. 24 MR. GREER: And I -- I just had another 25 point that there -- there is technologies that are out there 0094 1 that we'll continue to look at. California, for instance -- 2 I believe it's California -- swipes your driver's license, 3 and, you know, there's an issue with that from the 4 legislative perspective and otherwise from the privacy 5 look. There's also the opportunity to get somebody else's, 6 you know, driver's license and go swipe it and do the same 7 thing. So we're continuing to be aggressive in watching 8 what's taking place across the country, specifically on this 9 minor issue. There is an issue, and there is no real easy 10 answer. It's just going to be a coordinated training, 11 security, and integrity concept that we're going to have to 12 look at. 13 MS. KIPLIN: Part -- part of the rule does 14 require the retailers to be trained on using the self- 15 service terminals, and that training will address these 16 kinds of issues. 17 CHAIRMAN CLOWE: And, Ramone, does GTECH 18 have experience with these machines in other venues? 19 MR. RIVERA: Yes, sir, we do. Now, the 20 particular machine that we're going to deploy in Texas is 21 a -- is a brand-new machine. And that has recently been 22 deployed in California, and that started this -- this 23 last -- this last winter. So from the standpoint of this 24 particular machine, it's relatively new to our product 25 offering. 0095 1 If you were to look historically, 2 California is probably the pioneer in self-service. They 3 had an earlier version of the machine and have had that -- 4 that machine or self-service machines in place for at least 5 eight years, to my knowledge, Commissioner. 6 CHAIRMAN CLOWE: What is the difference in 7 this machine and the self-service instant ticket machine, 8 philosophically? 9 MR. RIVERA: If I could answer that 10 question, sir. Currently the self-service offering that we 11 have in Texas applies only to instant ticket games. Those 12 are the ITBMs that you currently -- if you walk to into a 13 grocery store, Kroger's, for example, you'll see a machine 14 where you press a button and an instant ticket will come 15 out. 16 CHAIRMAN CLOWE: You got to put your dollar 17 in first. 18 MR. RIVERA: Your dollar in. Yeah. Oh, 19 absolutely. You got to put your dollar in, of course. 20 Preferably -- preferably $20. 21 The -- the new product that -- that we're 22 looking at to deploy in Texas allows you to purchase an 23 online ticket. And so now the -- the citizens of Texas are 24 afforded an opportunity on their own to purchase any product 25 that the Texas Lottery offers. 0096 1 CHAIRMAN CLOWE: But they're two different 2 machines. 3 MR. RIVERA: Yes, sir. 4 CHAIRMAN CLOWE: Now, is there a remote 5 cutoff on the instant ticket machines? 6 MR. RIVERA: Yes, sir. It's the same 7 technology, essentially, for the self-service machine that 8 we've been using for the ITBM since we've had ITM -- ITBMs 9 deployed in Texas, which is from a very -- very early stage. 10 CHAIRMAN CLOWE: So it's the same wireless 11 technology? 12 MR. RIVERA: Yes, sir. 13 CHAIRMAN CLOWE: And are those machines 14 bolted down in some cases and not in some cases? 15 MR. RIVERA: No, sir. I -- I don't believe 16 we have any ITBMs bolted down. 17 CHAIRMAN CLOWE: Let's talk about ticket 18 verification. 19 MR. RIVERA: Yes, sir. 20 CHAIRMAN CLOWE: That is possible with this 21 new machine. Is that correct? 22 MR. RIVERA: Yes, sir. The new self- 23 service terminal has -- has a feature in it where someone 24 who has a ticket can place it under an infrared scanner and 25 it will tell that person whether that ticket is a winner or 0097 1 not. It won't give the prize amount. It'll only say 2 you're -- it's a winner. 3 CHAIRMAN CLOWE: So the LED won't say, 4 you're a winner, Cedar Park, or something like that? 5 MR. RIVERA: Yes, sir. That's correct. 6 MS. KIPLIN: But -- but -- 7 CHAIRMAN CLOWE: A hundred thousand dollars 8 won't come pouring out of the machine. 9 MR. RIVERA: No, sir. No. No. No. No, 10 sir. No. 11 MS. KIPLIN: Correct me if I'm wrong -- 12 CHAIRMAN CLOWE: That would make me 13 uncomfortable. 14 MR. RIVERA: Right. 15 MS. KIPLIN: Correct me if I'm wrong, 16 Mr. Rivera, but the -- the distinction is that it will -- 17 it's a feature for the player to -- to determine whether 18 it's potentially a winner, but it is not the determination 19 that that ticket is a winner because it still needs to be -- 20 to be presented and validated with the swiping of the bar 21 code to go through the system. 22 CHAIRMAN CLOWE: It goes through the 23 terminal. 24 MR. RIVERA: Yes, sir. It -- it would have 25 to be -- that -- that ticket -- the self-service terminal 0098 1 will tell you whether it's a winner or not. Then the player 2 is going -- or the citizen is required to go to -- to a 3 terminal at that retail location. And at that point, that 4 ticket is validated through the terminal and through the 5 system. It's determined that it's a winner or not and the 6 amount of winnings. 7 CHAIRMAN CLOWE: That's the validation. 8 MR. RIVERA: That's the validation, yes, 9 sir. 10 CHAIRMAN CLOWE: So if I buy a ticket in 11 San Saba, Texas, and I'm in Austin and I walk by one of 12 these machines, I've got the ticket in my pocket. I can 13 pull it out and ask that machine to verify it, even though 14 that machine didn't sell me the ticket. It will tell me 15 that I'm a winner or not a winner. Then I have to go 16 through the final verification and the election process, no 17 matter where I'm at. 18 MR. RIVERA: That's very good, sir. It 19 took me about six months to learn that process, but you did 20 it in this meeting. But that's exactly correct. 21 CHAIRMAN CLOWE: You probably get paid 22 more. 23 MS. KIPLIN: If -- if I could say 24 interlineate this for legal reasons. We've been 25 characterizing it as a winner, but under our rules it is not 0099 1 a winner until that ticket is validated according to the 2 processing procedure set out in the rules and the statutes. 3 CHAIRMAN CLOWE: I understand it's -- 4 what's the term that's applied to folks that come here with 5 the winning ticket? 6 MR. GRIEF: Prospective winner. 7 CHAIRMAN CLOWE: Prospective. I thought 8 there was a one word. 9 MS. KIPLIN: Claimant. 10 CHAIRMAN CLOWE: Claimant. That's it. 11 MR. GREER: Claimant. 12 MR. GRIEF: Mr. Chairman, could I ask 13 Mr. Rivera one other question that I think might give 14 another distinction. 15 CHAIRMAN CLOWE: Certainly. 16 MR. GRIEF: Ramone, could you talk about 17 the difference between the instant ticket vending machines 18 and on the online self-service terminal -- terminals as it 19 relates to how they're connected or not connected to the 20 lottery network. 21 MR. RIVERA: Thank you, Gary. That's a 22 very good distinction. 23 Currently the ITBMs are stand-alone 24 machines and -- and they're -- what I -- what I mean by 25 stand-alone machines, they are not connected in anyway to 0100 1 the central system that determines sales and -- and 2 validations, so when you -- when a -- when a person 3 purchases a ticket from a -- from a vending machine the -- 4 the only -- the only way that we know that that -- that 5 purchase has been made is if that person either goes and 6 validates that ticket or by sight we see that the bins are 7 empty in that machine or it needs service. 8 The self-service terminals, the online 9 self-service terminals, on the other hand, are connected to 10 the machine, and it provides us the same visibility with 11 respect to that machine that we currently have with our 12 online terminals. So we can see at -- at the central 13 system -- and when I say we, I mean GTECH as well as the 14 Texas Lottery -- exactly what is going with that machine at 15 all times. 16 MR. GREER: I've got a few points too that 17 I would kind of dub into that. As we've talked about this 18 and we have a machine over here in the claims center. A 19 number of people have come through, and, you know, we've had 20 an opportunity to walk them through the process. Really 21 there's three -- well, there's four key elements. The 22 convenience is a huge aspect of it. Anyone who wants to 23 play the lottery doesn't have to get out of their car then, 24 you know, if it's in some of these venues like a grocery 25 store. They're just kind of on their way out to the car so 0101 1 they -- the players like the convenience aspect. 2 The efficiency, and Ramone touched on 3 that. By being able to have a different reporting system, 4 an opportunity to continue to track, you know, these things, 5 there is information on there that the retailer can use as 6 far as reporting. There's also video training on the 7 machine for the retailer so if they have a jam or if there's 8 a question or an issue, the technology exists now to help 9 them through the process. And then the convenience aspect 10 that also goes up. They don't check your ticket, and she 11 touched on that. It's a huge thing. There's a lot of 12 people that, you know, go up to the counter. They're taking 13 the time of the individual that's working behind the counter 14 that could be doing something else more profitable for the 15 firm is to be able to swipe the ticket. I think it's a very 16 positive thing. 17 And players are more technologically 18 conscious now. There's a comfort level from, you know, 19 other situations that are out there. Like if you're looking 20 at getting information on a hotel or a car dealership, 21 rental car dealership or whatever it is, they are 22 comfortable in looking for ways that technology can improve 23 how their playing experience goes. So those are just some 24 points I wanted to throw out there as well. 25 CHAIRMAN CLOWE: I thought it was 0102 1 interesting that Mr. Bickell spoke this morning about just 2 jumping over computers and going to cell phones. You know, 3 and I'm -- I'm exposed to some people currently that are 4 walking around with these Blackberries and they can just do 5 anything that a computer and a cell phone can do, and I'm 6 just wondering if that's not, you know, where we're all 7 headed. 8 MR. GREER: Well, certainly there's 9 technologies that are out there that we continue to monitor, 10 and there will be Federal and state legislation that will 11 help us make those decisions as we go through that. 12 CHAIRMAN CLOWE: Well, you know, you came 13 to us about these machines. You amended the GTECH contract 14 with our approval. You got the machines coming along, and 15 this is the commission's rule for the implementation of 16 these machine. And I think this is a good discussion so 17 that we understand what the expectations are and what the 18 concerns are. It's good to have the comment period. We've 19 got meaningful and thoughtful comments that I wanted to 20 discuss and understand what your program is. 21 And I'm ready to act on this if you are, 22 Commissioner. 23 COMMISSIONER COX: One more question. 24 CHAIRMAN CLOWE: Certainly. 25 COMMISSIONER COX: Reagan or Ramone, I'm 0103 1 still at the airport. Okay. And I've gone into this 2 barbecue place and I've put my dollar in the SST, and it's 3 right at drawing time and I've got a winner. Where do I go 4 to get my money? 5 MR. RIVERA: The -- the foundation of an 6 airport -- and we believe is that there has to be a retailer 7 in that airport which can validate that. So and that extent 8 it's not total self-service. These aren't machines that are 9 going to sit out there to do everything, including pay out, 10 pay out winners. So to -- to that extent, there will always 11 need to be a retailer available where someone who wins a 12 prize is able to go and validate that ticket and collect 13 their prizes. 14 COMMISSIONER COX: So the barbecue place is 15 going to have to have a big blue guy up there to validate 16 and then he's going to have to have a cash fund capable of 17 paying up to $600 or whatever the amount is. 18 MR. RIVERA: Yes, sir. The -- the barbecue 19 place will have to undergo all the scrutiny that any 20 prospective retailer would go through with respect to 21 licensing and setting up the appropriate bank accounts and 22 we would also have to have the equipment available that 23 would be provided to that retailer to validate that ticket 24 to determine whether it's a -- there's a prize associated 25 with that ticket and then pay out the prize. 0104 1 COMMISSIONER COX: Now, is that the same 2 piece of equipment that a convenience store would have or is 3 it a much smaller piece of equipment? 4 MR. RIVERA: We -- we -- we believe that in 5 an airport environment the retailer could have a choice 6 of -- of the equipment that they have. It could be the 7 large ISIS terminal which you currently see in a convenience 8 store today. That's a fully functional terminal that sells 9 all products -- I mean, all online products. An airport 10 owner, since the majority of their sales would ostensibly 11 come from the self-service machines, might have a smaller 12 terminal, which we call will the GTECH validation terminal, 13 or GVT, where all they do is validate tickets. So it's 14 pretty much up to the retailer how they want to structure 15 their business. 16 COMMISSIONER COX: So if he doesn't have 17 much counter space and just really wants to sell through the 18 SST -- 19 MR. RIVERA: Yes, sir. 20 COMMISSIONER COX: -- then he can. 21 MR. RIVERA: A much smaller footprint that 22 only validates tickets. Yes, sir. 23 MS. KIPLIN: Okay. If I could add to that, 24 I want to make clearer -- and tell me if I'm wrong -- but 25 just because that ticket may be purchased using a self- 0105 1 service terminal does not mean that that ticket is required 2 to be validated at that retail location. It could be -- it 3 could be presented and validated at any of the -- any retail 4 location or other venues. 5 COMMISSIONER COX: I was more concerned 6 about the guy who's got to catch his flight who's never 7 coming back to Texas. 8 MS. KIPLIN: I know. I just wanted to make 9 that clear on the record. And then that -- of course, 10 that's only those that need to be licensed to sell. You 11 never know what the future holds, but -- but the State 12 Lottery Act does not require, for example, the commission be 13 licensed to sell its tickets or the lottery operator to sell 14 its tickets. We have a contractual relationship where our 15 vendors are -- have to meet the same eligibility 16 requirements as a licensee so... 17 MR. GREER: And, Commissioner, I just want 18 to reinforce you. As we move forward in any type of 19 negotiation with any airport -- and right now we -- we've 20 put feelers out have and we have had some meetings, but 21 nothing has come about. There are a number of issues 22 that -- including the legislators in the process and being 23 sure that, you know, we've vetted a number of issues that 24 I'll be keeping each of you apprised of individually as we 25 get into this uncharted water. There is interest there, but 0106 1 we are not any further along than that at this point. 2 CHAIRMAN CLOWE: See, I'm still in the 3 barbecue place here in the airport. Now, what -- refresh my 4 memory on the prohibition of selling lottery tickets that's 5 relative to -- to alcoholic beverages. 6 MS. KIPLIN: That restriction still exists 7 in the State Lottery Act. So if it's a location that has a 8 particular permit or a license that's been issued by the 9 Texas Alcoholic Beverage Commission, that particular 10 location cannot be licensed. It is a prohibited location. 11 There are opportunities through -- and I know that Texas 12 Alcoholic Beverage Commission -- well, I should say that 13 I -- I'm aware of facts from conversations several years 14 ago. But they look at locations and are in a position of 15 possibly redlining out certain areas or redlining in certain 16 areas. It really -- it really depends on the way the 17 application for the -- the alcohol permit is filed and what 18 that location is doing. 19 So for example, a bowling alley. A bowling 20 alley may have a -- an area that has been redlined for the 21 sale of alcohol. Of course, for on premise consumption, you 22 can't leave that area. But other parts of the bowling alley 23 are not under that particular redline location and so they 24 would be eligible, you know, to sell lottery tickets. 25 CHAIRMAN CLOWE: So that applies -- is 0107 1 clearly applicable to mixed drinks, so when you buy a single 2 bottle of beer in a retail store, correct me if I don't 3 understand the law, you cannot open that bottle in the store 4 and walk out with it. They're not licensed for on premises 5 consumption. You must take the single or the six pack off 6 of the premises before you open it and consume it. That's 7 why it's legal to have lottery sales in convenience stores 8 that sell packaged goods. 9 MS. KIPLIN: Yes, sir. That's correct. 10 The type of permit that a lottery licensee would hold from 11 the Texas Alcoholic Beverage Commission is not the type of 12 permit or license that is -- is prohibited by virtue of the 13 State Lottery Act provisions. 14 CHAIRMAN CLOWE: So that's applicable in 15 airports, bus stations, anywhere, grocery stores, what have 16 you? 17 MR. RIVERA: Yes, sir. 18 MR. GREER: We think it's going to be 19 someone in the -- in the gift venue or a convenience store 20 oriented venue in the airport that's going to, you know, 21 step up on something like this. 22 MR. RIVERA: And newsstands in particular. 23 MR. GREER: Newsstands, something like 24 that. 25 CHAIRMAN CLOWE: All online games are 0108 1 available through these machines. 2 MR. GREER: Right. 3 MR. RIVERA: Yes, sir. 4 CHAIRMAN CLOWE: And you'll report those 5 statistics to us individually? Will you have that 6 capability? 7 MR. RIVERA: Yes, sir, we will. 8 CHAIRMAN CLOWE: Okay. We want to see 9 that. 10 MR. RIVERA: Very well. 11 CHAIRMAN CLOWE: Any further questions? 12 Move the adoption of the rule. 13 COMMISSIONER COX: Second. 14 CHAIRMAN CLOWE: All in favor, please say 15 aye. 16 THE COMMISSIONERS: Aye. 17 CHAIRMAN CLOWE: Opposed? No. 18 The vote is 2-0 in favor. 19 MS. KIPLIN: Commissioners, I have an 20 order. 21 CHAIRMAN CLOWE: Next, we'll be moving to 22 Item Number XIV, consideration of the status and possible 23 entry of orders covered in letters A through C. 24 Ms. Kiplin, will you help us with that? 25 MS. KIPLIN: Yes, sir. We have a 0109 1 relatively small docket today. These are all proposals for 2 decisions from the State Office of Administrative Hearings 3 against lottery retailers. In each of these cases it was 4 for the insufficient funds at the time that we swept the 5 account. Staff does recommend that you sign an order that 6 does adopt the administrative law judge's findings and 7 conclusions. 8 CHAIRMAN CLOWE: And that's Alameda Food 9 Mart, Yoli's Mini Store, and EK Mobil, correct? 10 MS. KIPLIN: Yes, sir. 11 CHAIRMAN CLOWE: Move the adoption of these 12 orders. 13 COMMISSIONER COX: Second. 14 CHAIRMAN CLOWE: All in favor, please say 15 aye. 16 THE COMMISSIONERS: Aye. 17 CHAIRMAN CLOWE: Opposed? No. 18 The vote is 2-0 in favor. 19 Next Item XXV, report by the executive 20 director and/or possible discussion and/or action to the 21 agency's operational status, FTE status, and retailer 22 forums. 23 Mr. Greer. 24 MR. GREER: Yes, sir. I have a number of 25 things under my report that I want to put on the record. As 0110 1 you are aware because we talked on an individual basis, we 2 have hired a new marketing director. His name is Steve 3 Martin. He will start on March the 22nd. He brings 16 4 years of experience to the table along with two degrees from 5 The University of Texas, one in advertising, one in radio 6 and TV. He has worked with state government for four years 7 as well so he'll bring a private and public perspective to 8 our marketing arena, which I am excited about. He is 9 currently the marketing director of consumer protection at a 10 public utility commission. We'll be introducing you to him 11 and moving forward on that in the coming weeks. 12 Next week is going to be play responsibly 13 week. We'll be promoting playing responsibly, which is a 14 campaign that we kicked off in September. And I'm going to 15 do some press releases. We'll also do some retailer 16 oriented things to -- have some stickers and thing likes 17 that will remind players and retailers the significance of 18 playing responsibly. The contributing to the foundation 19 school fund method, as we discussed in the past, has been 20 placed on our online tickets. We're in the process of 21 working it into the instant ticket a small message that will 22 just reaffirm the fact that we are raising money through the 23 lottery for the foundation school fund. 24 We are also coordinating with the secretary 25 of state's office on a voting program to remind people of 0111 1 the significance of voting and have enjoyed working with 2 their office on that project. 3 We mentioned earlier that we are -- will be 4 taking place -- taking part in and being there on the long 5 range planning, business planning situations that will be 6 taking place in the coming weeks, coordinated through Doctor 7 Cadenhead. Mike Anger has done a great job on that, as well 8 as Gary, and we're looking forward to what's coming out of 9 that business plan as we touched on earlier. 10 We welcomed a retailer advisory committee 11 group here in February. It was a well attended meeting to 12 get input from retailers. I want you to be aware of that. 13 Nelda is coordinating meetings that I am 14 participating in, as well as Billy, in reference to the 15 Sunset committee members, legislative committee members. 16 And we had our first meeting with Representative Vicky Truit 17 in her capital office a few weeks ago. Ed Robinson, who is 18 here today, and Janice Wheless -- I believe is how you 19 pronounce her name -- have been coordinating with us on 20 varying issues considering budget, planning, and policy. 21 We're working with them and pleased to be able to do that. 22 I recently attended a workshop, resolving 23 conflict. I wanted you to know that that was a part of our 24 ongoing training here within the agency. It was well 25 attended. It was presented by the workers assistance 0112 1 program group. We had a good discussion on that and 2 continue to look for training opportunities that we can 3 bring to organizations and Gary and I will be participating 4 in that as possible. 5 We're continuing to meet -- continuing to 6 meet and discuss issues and possible innovations as a part 7 of the study that is continuing and being conducted by 8 Doctors Jered and Huff from The University of Texas. We 9 have had a lot of winner activity here lately, which has 10 been fun. And a Lotto Texas ticket that was sold Saturday, 11 January 31st, in Houston, that winner stepped forward. We 12 also had some winners that are getting ready to come forward 13 that hit Lotto Texas in Arlington. It was group from a GM 14 plant there that's gotten a lot of press. And they'll be 15 stepping forward in the coming weeks. It looks like they 16 went cash value option on a 12 million-dollar jackpot. 17 There will be a check for $8 million. They are currently 18 seeking legal advice. And Sylvia Walseins is coordinating 19 with them. I had two million-dollar spectacular winner that 20 came in. They are our first winner on that game that we 21 kicked off a while back. A woman out of Fort Wort who came 22 in very happy to receive her two million-dollar check from 23 me the other day. 24 We are taking place, taking part in, and 25 taking place soon will be a run in the governor's Texas 0113 1 roundup. It's a project that the governor has been talking 2 about. We accepted the governor's invitation to participate 3 in that. It's about -- it's really improving the health of 4 state employees by incorporating physical activity into 5 their daily lives. And Jami Dudley out of our HR group and 6 Jennifer Harper have taken that project on as team leaders. 7 Our team name -- you'll love this -- is lotto fit. I like 8 that. And we're going to be doing some things around here 9 over the next month to be a part of that Texas roundup 10 initiative project out of the governor's office. 11 I continue to be very proud of our 12 organization and certainly part of that was in receiving two 13 recent awards that I wanted you to be aware of. One was two 14 Tully Awards that we got for a promotional video, one for 15 corporate image and one for public relations. And I want to 16 recognize Philip and Glenn for their good work on the video. 17 Robert Tirloni represented the agency at a 18 recent conference in Memphis, Tennessee, a Smart Idea 19 conference, and we one an award on Megaplier. We talked a 20 lot about the Megaplier. It was an agency award I was proud 21 to receive from the Public Gaming Research Institute, and it 22 was given in Memphis at the Smart-Tech 2004 conference held 23 recently. Megaplier is getting a lot of attention around 24 the country, including around the world right now. 25 Our thoughts for the month were about a 0114 1 fish philosophy, and I think you've seen the -- the video 2 and some other things that we did about that. I wanted to 3 reinforce that we talked about in our staff meeting in 4 February that being a part of something that can jump start 5 activity in reference to playing is a good thing. Certainly 6 here in the lottery, we talk a lot about playing games and 7 that was appropriate. Making people's day, lifting other 8 person's spirits is significant. Being there and fully 9 present when you're with an individually is important. 10 Choosing your attitude is important. That was our theme in 11 February. 12 In March I know we focused on spring 13 cleaning. It's our midyear point on our fiscal year, so 14 I've really pushed relooking at our goals for the year and 15 where we are and how we're doing on that as we spring 16 forward into, you know, the second half of our fiscal year. 17 Staff, directors, and executive team have all looked at our 18 midyear goals and moving forward, continuing with four 19 things that I laid out at the beginning of my first year, 20 which was teamwork, communication, the image of the lottery, 21 and revenue. 22 We continue to act as a resource to the 23 legislature and leaders of our state in reference to the 24 video lottery terminal issue that continues to be out there, 25 and I wanted you to be aware of that. 0115 1 And lastly, I wanted to thank you as I have 2 completed my first year of service here as the executive 3 director of the Texas Lottery. I want to thank you for your 4 support and for your guidance as we move through that 5 process. And as I begin my second year, I will continue to 6 remain focused on the four issues that we just talked about 7 and other things that are moving into our purview on a daily 8 basis. It's been a great opportunity, and I'm honor to 9 serve as executive director. Thank you. 10 CHAIRMAN CLOWE: Any comments, Commissioner 11 Cox? 12 When is Mr. Martin going to join the 13 lottery? 14 MR. GREER: March 22nd. 15 CHAIRMAN CLOWE: March 22nd. So we'll meet 16 him at our April meeting. 17 MR. GREER: Yes, sir. 18 CHAIRMAN CLOWE: Very good. We 19 congratulate you on your first year here and appreciate the 20 hard work and effort that's gone into that time, and I'm 21 prohibited from saying anything else. 22 MR. GREER: Thank you, sir. 23 CHAIRMAN CLOWE: I got a remote cutoff, 24 wireless. 25 Item Number XXVI, report to the 0116 1 charitable -- by the Charitable Bingo Operations Director 2 and possible discussion and/or action on the Charitable 3 Bingo operations and the division's activities. 4 Ms. Sanderson, the assistant director. 5 MR. SANDERSON: Chairman Clowe and 6 Commissioner Cox, in your notebook is the memo from Billy on 7 the Charitable Bingo activities. Just to bring up you up to 8 date on some of the information that's in there, the job 9 posting for the Houston office has been sent over to the HR 10 division to begin the background investigation on the 11 potential applicant. 12 The Bingo Advisory Committee did meet on 13 Tuesday -- Thursday the 26th. Their next scheduled meeting 14 is tentatively set for April the 29th at 10:00 o'clock. 15 It's the last Thursday in April. Allocations were scheduled 16 to run on the 27th of February. That did run. There were 17 85 checks that were mailed and 79 received theirs by direct 18 deposit. We'll have a full report at the next commission 19 meeting on the totals for allocations. 20 The upcoming conferences and training 21 programs, we worked with the American Legion Midwinter 22 Conference and gave a seminar back on January the 29th. 23 There is also -- Bingo World is scheduled Las Vegas next 24 week, March 9th through the 11th. 25 And at this time that concludes my report 0117 1 and I'll be glad to answer any questions you may have. 2 CHAIRMAN CLOWE: Thank you, Phil. 3 Is there anyone wishing to make comment to 4 the commission at this time? 5 Commissioner, may I move we go into 6 executive session? 7 COMMISSIONER COX: Certainly. 8 CHAIRMAN CLOWE: At this time I move that 9 the Texas Lottery Commission go into executive session to 10 deliberate the duties and evaluation of the executive 11 director and/or executive director, internal audit director 12 and Charitable Bingo operations director pursuant to section 13 551.074 of the Texas Government Code; to deliberate the 14 duties of the general counsel and security director pursuant 15 to section 551.074 of the Texas Government Code; to receive 16 legal advice regarding pending and/or contemplated 17 litigation and/or to receive legal advice pursuant to 18 section 551.071, paren, one, closed paren, paren, A, closed 19 paren, or, paren, B, closed paren, of the Texas Government 20 Code and/or to receive legal advice pursuant to section 21 551.071, paren, two, closed paren, of the Texas Government 22 Code, including but not limited to Patsy Henry versus Texas 23 Lottery Commission; Sandy Surber, et al, versus GTECH 24 Corporation; Linda Cloud versus Mike McKinney, et al; Bruce 25 Suza versus Texas Lottery Commission, et al; James T. 0118 1 Jongebloed versus Texas Lottery Commission; employment law, 2 personnel law, procurement and contract law, evidentiary and 3 procedural law and general government law. 4 Is there a second? 5 COMMISSIONER COX: Second. 6 CHAIRMAN CLOWE: All in favor, please say 7 aye. 8 THE COMMISSIONERS: Aye. 9 The vote is 2-0 in favor. 10 The Texas Lottery Commission will go into 11 executive session. The time is 11:20 a.m. Today is March 12 the 5th, 2004. Thank you. 13 (Recess.) 14 CHAIRMAN CLOWE: The Texas Lottery 15 Commission will come out of executive session. The time is 16 12:41 -- 12:40 p.m. 17 Beg your pardon? 18 MS. KIPLIN: 12:50. 19 CHAIRMAN CLOWE: 12:50 -- thank you -- p.m. 20 Is there any action to be taken as a result of the executive 21 session? 22 I believe not. Therefore, we will move to 23 an item on our public agenda which we passed over which is 24 Item Number XXI, report, possible discussion and/or action 25 on the classification study on the internal audit director 0119 1 position. 2 Mr. Richardson. 3 MR. RICHARDSON: Good afternoon, 4 Commissioners. For the record, my name is Jim Richardson 5 and I'm the human resources director for the Texas Lottery 6 Commission. 7 Human resources conducted a classification 8 study of the internal audit director position currently 9 occupied by Ms. Catherine Melvin. Based on that 10 classification study, human resources recommends that this 11 position be reclassified as a director 4B-20 from it's 12 current clarification of a director 3B-19, effective today 13 and also that the accompanying job description be approved. 14 CHAIRMAN CLOWE: Any questions? 15 COMMISSIONER COX: No, sir. 16 CHAIRMAN CLOWE: Move the adoption of 17 the -- 18 MS. KIPLIN: The adoption is 19 recommendation. 20 CHAIRMAN CLOWE: The recommendation. And 21 you can formulate that into a motion? 22 MS. KIPLIN: You just did. Move the 23 adoption of staff's recommendation regarding the 24 reclassification of the position and the resulting job 25 description too. 0120 1 CHAIRMAN CLOWE: Very good. 2 COMMISSIONER COX: Second. 3 CHAIRMAN CLOWE: All in favor, say aye. 4 THE COMMISSIONERS: Aye. 5 CHAIRMAN CLOWE: Opposed? No. 6 The vote is 2-0 in favor. 7 CHAIRMAN CLOWE: Do you have an order for 8 us to sign? 9 MS. KIPLIN: No order. He has a job 10 description that he -- you can sign off on, Mr. Chairman, to 11 represent that actually happen. 12 CHAIRMAN CLOWE: Okay. Is there any other 13 business to come before the Texas Lottery Commission at this 14 time? 15 Then we are adjourned. Thank you-all very 16 much. 17 (Concluded at 12:49 p.m.) 18 19 20 21 22 23 24 25 0121 1 CHANGES 2 PAGE LINE CHANGE REASON 3 ____________________________________________________________ 4 ____________________________________________________________ 5 ____________________________________________________________ 6 ____________________________________________________________ 7 ____________________________________________________________ 8 ____________________________________________________________ 9 ____________________________________________________________ 10 ____________________________________________________________ 11 ____________________________________________________________ 12 ____________________________________________________________ 13 ____________________________________________________________ 14 ____________________________________________________________ 15 ____________________________________________________________ 16 ____________________________________________________________ 17 ____________________________________________________________ 18 ____________________________________________________________ 19 ____________________________________________________________ 20 ____________________________________________________________ 21 ____________________________________________________________ 22 ____________________________________________________________ 23 ____________________________________________________________ 24 ____________________________________________________________ 25 ____________________________________________________________ 0122 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SHELLEY N. JONES, Certified Shorthand 7 Reporter in and for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing before 9 the TEXAS LOTTERY COMMISSION as hereinafter set out, that I 10 did, in shorthand, report said proceedings, and that the 11 above and foregoing typewritten pages contain a full, true, 12 and correct computer-aided transcription of my shorthand 13 notes taken on said occasion. 14 15 Witness my hand on this 18th day of March, 16 2004. 17 18 19 ________________________________ Shelley N. Jones, RPR, CSR #8058 20 Expiration Date: 12/31/04 Firm Registration #225 21 1801 North Lamar Boulevard Mezzanine Level 22 Austin, Texas 78701 (512) 474-4363 23 24 JOB NO. 040305SNJ 25