0001 1 2 3 4 * * * * * * * * * * * * * * * * * * * * * * * * * * * 5 6 TEXAS LOTTERY COMMISSION 7 MEETING 8 9 MARCH 29, 2006 10 11 * * * * * * * * * * * * * * * * * * * * * * * * * * * 12 13 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 29TH of MARCH, 21 2006, from 8:30 a.m. to 4:21 p.m., before Shelley N. 22 Jones, RPR, CSR in and for the State of Texas, 23 reported by machine shorthand, at the Offices of the 24 Texas Lottery Commission, 611 East 6th Street, Austin, 25 Texas, whereupon the following proceedings were had: 0002 1 APPEARANCES 2 3 Commissioners: Chairman Tom C. Clowe, Jr. 4 Commissioner James Cox 5 General Counsel: Ms. Kimberly L. Kiplin 6 Acting Executive Director: 7 Mr. Anthony J. Sadberry 8 Charitable Bingo Director: Mr. Billy Atkins 9 10 11 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.................................... 8 Call to order 7 ITEM NUMBER II................................... 11 8 Report, possible discussion and/or action on 4th quarter and calendar 9 year 2005 bingo conductor information 10 ITEM NUMBER III............................ PASSED Consideration of and possible 11 discussion and/or action, including adoption, on new rules 16 TAC 402.706 12 and/or 402.707 relating to Standard Administrative Penalty Guideline and 13 Expedited Administrative Penalty Guideline 14 ITEM NUMBER IV................................... 23 15 Consideration of and possible discussion and/or action relating 16 to the continuation of the Bingo Advisory Committee 17 ITEM NUMBER V.................................... 31 18 Consideration of and possible discussion and/or action, including 19 proposal, on amendments to 16 TAC 402.102 relating to the Bingo 20 Advisory Committee 21 ITEM NUMBER VI................................... 8 Consideration of and possible 22 discussion and/or action, including adoption, on amendments to 16 TAC 23 402.600 relating to the Bingo Reports 24 ITEM NUMBER VII.................................. 33 Consideration of and possible 25 discussion and/or action on the Bingo Advisory Committee work plan 0004 1 AGENDA ITEMS, CONTINUED 2 ITEM NUMBER VIII................................. 64 Report, possible discussion and/or 3 action on lottery sales and revenue, game performance, new game 4 opportunities and trends 5 ITEM NUMBER IX................................... 80 Report, possible discussion and/or 6 action on the agency's financial status 7 ITEM NUMBER X.................................... 81 8 Report, possible discussion and/or action on Bingo indirect and 9 administrative expenses 10 ITEM NUMBER XI................................... 36 Report, possible discussion and/or 11 action on the procurement of advertising services and/or 12 amendment, including extension of the existing contract 13 ITEM NUMBER XII.................................. 38 14 Report, possible discussion and/or action on the procurement of market 15 research services and/or extension of the existing contract 16 ITEM NUMBER XIII................................. 41 17 Report, possible discussion and/or action on the procurement of instant 18 ticket vending machines and/or extension of the existing contract 19 ITEM NUMBER XIV.................................. 43 20 Report, possible discussion and/or action on broadcast and production 21 services related to drawings 22 ITEM NUMBER XV................................... 62 Report, possible discussion and/or 23 action on the Mega Millions game and/or contract 24 25 0005 1 AGENDA ITEMS, CONTINUED 2 ITEM NUMBER XVI.................................. 139 Report, possible discussion and/or 3 action on GTECH Corporation 4 ITEM NUMBER XVII................................. 139 Consideration of and possible 5 discussion and/or action on the lottery operator contract, including 6 whether the negotiation of the lottery operator's contract in an 7 open meeting would have a detrimental effect on the Commission's position 8 in negotiations of the lottery operator contract 9 ITEM NUMBER XVIII................................ 86 10 Report, possible discussion and/or action on lottery advertising and 11 promotion 12 ITEM NUMBER XIX.................................. 87 Report, possible discussion and/or 13 action on HUB and/or minority business participation, including the 14 agency's Mentor Protégé program and/or approval of the agency's FY 2005 15 Minority Business Participation Report 16 ITEM NUMBER XX................................... 91 Report, possible discussion and/or 17 action on the agency's contracts 18 ITEM NUMBER XXI.................................. 97 Report, possible discussion and/or 19 action on the 79th Legislature 20 ITEM NUMBER XXII................................. 94 Report, possible discussion and/or 21 action on the agency's strategic plan for 2007-2011 22 ITEM NUMBER XXIII................................ 122 23 Report, possible discussion and/or action on the agency's Survey of 24 Organizational Excellence 25 0006 1 AGENDA ITEMS, CONTINUED 2 ITEM NUMBER XXIV................................. 106 Consideration of and possible 3 discussion and/or action on external and internal audits and/or reviews 4 relating to the Texas Lottery Commission and/or on the Internal Audit 5 Department's activities 6 ITEM NUMBER XXV.................................. 112 Consideration of and possible 7 discussion and/or action on Texas Lottery Commission meetings 8 ITEM NUMBER XXVI................................. 116 9 Consideration of and possible discussion and/or action the 10 appointment and employment of an Executive Director 11 ITEM NUMBER XXVII..............................105,144 12 Executive session: 13 To receive legal advice pursuant to Section 551.071(2) of the Texas 14 Government Code regarding employment law, personnel law, procurement and 15 contract law, evidentiary and procedural law, Bingo Enabling Act, 16 and general government law, and lottery operations and services contract 17 ITEM NUMBER XXVIII.............................106,145 18 Return to open session for further deliberation and possible action on 19 any matter discussed in Executive session 20 ITEM NUMBER XXIX................................. 108 21 Consideration of the status and Possible entry of orders in: 22 A. Case No. 2006-922 - VFW Post 5073 23 B. Case No. 2006-576 - Primary Home Care Services of South Texas, Inc. 24 C. Case No. 2006-578 - VFW Post 880 Raymond C. Paul 25 0007 1 AGENDA ITEMS, CONTINUED 2 ITEM NUMBER XXX.................................. 116 Report by the Acting Executive 3 Director and/or possible discussion and/or action on the agency's 4 operational status, and FTE status 5 ITEM NUMBER XXXI................................. 119 Report by the Charitable Bingo 6 Operations Director and possible discussion and/or action on the 7 Charitable Bingo Division's activities 8 ITEM NUMBER XXXII................................ 122 Public Comment 9 ITEM NUMBER XXXIII............................... 145 10 Adjournment 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0008 1 March 29, 2006 2 Bingo Advisory Committee Meeting 3 CHAIRMAN CLOWE: Good morning. It's 4 8:30 a.m., March the 29th, 2006. Commissioner Cox is 5 here. My name is Tom Clowe. 6 We call this meeting of the Texas 7 Lottery Commission to order. 8 Commissioner, with your permission, I 9 would like to take a couple of items out of order on 10 the agenda. 11 COMMISSIONER COX: Of course. 12 CHAIRMAN CLOWE: I mention first Item 13 III, consideration and possible discussion and/or 14 action, including adoption, on new rules 16 T.A.C. 15 402.706 and/or 402.707. We'll pass that item at this 16 time. 17 Next, we'll take Item Number VI, 18 consideration of and possible discussion and/or 19 action, including adoption, on amendments to 16 T.A.C. 20 402.600 in relating to bingo reports. 21 Ms. Joseph, good morning. 22 MS. JOSEPH: Good morning, 23 Commissioners. My name is Sandra Joseph. I'm with 24 the general counsel, for the record. 25 Before you is a draft order adopting an 0009 1 amendment to Bingo Rule 16 T.A.C. Section 402.600, 2 pertaining to bingo reports. The staff recommends 3 changes to the rule as proposed. The only change 4 would be to a legal citation in which there appears an 5 error. We have corrected that for the proposed order 6 that's before you. 7 It's anticipated that adoption of this 8 amendment would reduce the number of revocations and 9 denials due to failure to timely prize -- pay prize 10 fees and rental taxes because it would provide a grace 11 period between the due date and the date a jeopardy 12 determination becomes final. 13 Furthermore, these changes provide that 14 if a determination were requested, the commission 15 could consider facts developed at a hearing. All 16 comments received were in favor of the rule; 17 therefore, the staff recommends the commission sign 18 the order adopting the amendment to Rule 402.600. 19 COMMISSIONER COX: No questions or 20 comments. 21 COMMISSIONER CLOWE: Mr. Atkins, any 22 comment questions or comments? 23 MR. ATKINS: No, sir. The staff agrees 24 with Ms. Joseph's recommendations. 25 CHAIRMAN CLOWE: Mr. Fenoglio, you have 0010 1 filed an appearance form. Do you wish to comment? 2 MR. FENOGLIO: Briefly, Your Honor. In 3 the past Commissioner Cox has asked in a situation 4 where a charity has untimely filed but paid everything 5 and the State of Texas or the Lottery Commission is 6 out any effort or money, could the commission take 7 some action short of mandatory revocation. This would 8 give you the maximum flexibility is why we petition 9 for a rule making. We worked with staff, and we think 10 it gives you the maximum flexibility, consider all the 11 circumstances. 12 And we recommend approval. And this is 13 the shortest comment I've ever made. Thank you. 14 MS. KIPLIN: And, Mr. Chairman -- 15 COMMISSIONER CLOWE: And we are 16 appreciative of that. Thank you. 17 MS. KIPLIN: -- what -- what I would 18 say is this rule is before you for consideration as an 19 option. And I think the comment that Mr. Fenoglio put 20 on the record is incorporated and not new comments for 21 purposes of your rule making matter. 22 MR. FENOGLIO: That is entirely 23 correct. 24 COMMISSIONER CLOWE: Thank you. 25 Anything further, Commissioner Cox? 0011 1 COMMISSIONER CLOWE: Sandy. 2 MS. JOSEPH: I have the order. 3 COMMISSIONER CLOWE: Do you have the 4 order? 5 MS. JOSEPH: Yes, I do. 6 COMMISSIONER CLOWE: All in favor 7 please say aye. 8 THE COMMISSIONERS: Aye. 9 COMMISSIONER CLOWE: Opposed, no. 10 The vote is two-zero in favor. 11 Next we'll go to Item II, report 12 possible discussion and/or action on the quarter and 13 calendar year 2005 bingo conductor information. 14 Mr. Sanderson. 15 MR. SANDERSON: Good morning, 16 Commissioners. For the record, my name is Phil 17 Sanderson, assistant director of the charitable bingo 18 operations division. 19 As previously stated by the members of 20 the office of the controller and the previous slides 21 of presentations that we've done. We've analyzed the 22 information for the years 2001 to 2005 for gross 23 receipts, prizes, net revenues, expenses, and reported 24 charitable distributions. 25 We have continued further analysis and 0012 1 the staff completed it on a quarterly basis for gross 2 receipts, attendance, occasions, and conductor 3 reporting. As shown in this graph, gross receipts for 4 any given year continue to be the highest in the first 5 quarter. The gross receipts of 2005 are the highest 6 each quarter of this five-year period. 7 Additionally this is the first time 8 since 2002 that the fourth quarter gross receipts have 9 exceeded the third quarter gross receipts. Gross 10 receipts are the highest during this five-year period 11 for 2005. In fact, they are the highest since 1995. 12 The average amount spent by player has continually 13 increased over the past five years. During the fourth 14 quarter of 2005, the average player spend was $32.75. 15 Attendance is also the highest normally 16 in the first quarter of each year. But, however, 17 unlike gross receipts, 2005 is the lowest reported 18 attendance during this five-year period. Like gross 19 receipts and attendance, the average number of players 20 per occasion is normally the highest in the first 21 quarter. It continues to decrease throughout the year 22 where fourth quarter for 2005, the average attendance 23 was 136.1 per occasion. 24 The number of occasions has been 25 decreasing relatively each quarter over the past five 0013 1 years. For each particular year, the first three 2 quarters remain fairly constant; and then the fourth 3 quarter there is normally a decrease in the occasions 4 conducted. However, the number of occasions that each 5 conductor conducts remain fairly constant on a 6 quarterly basis. This number ranges between 24 and 26 7 occasions per conductor on a quarterly basis. 8 The number of conductors reporting 9 tends to increase throughout the year in each 10 quarter. However, as you can see in this chart, the 11 first quarter of the subsequent years is always less 12 than the fourth quarter of the previous year. 13 This slide is going to show an analysis 14 of gross receipts and attendance. As gross receipts 15 increases and attendance decreased, the average player 16 spend tends to increase. The number of occasions 17 continues to decline as well as the number of players 18 per occasion. However, the average number of 19 occasions per conductor remains fairly constant as the 20 number of conductors reporting each year continues to 21 decrease. 22 To kind of analyze it, you've got fewer 23 conductors that are conducting the same number of 24 occasions resulting in total occasions declining. 25 There are fewer individuals attending fewer 0014 1 occasions. Resulting in a decline of average 2 attendants per occasion; however, the individuals that 3 are attending are spending more per occasion resulting 4 in an increase in gross receipts. 5 Now for some information reported in 6 the fourth quarter. Prize pay outs for regular bingo 7 in the fourth quarter was 75.5 percent. And the prize 8 pay out percentages for instant bingo was 73.2 9 percent. 10 This chart indicates disbursements 11 other than prizes as a percentage of gross receipts. 12 The highest being rent payments at 6 percent; followed 13 by salaries for callers, cashiers, and ushers at 5.9 14 percent; charitable distributions at 4.5 percent; 15 lease payments to distributors, 3.1 percent; and the 16 remainder of other expenses all are under 2 percent. 17 This pie chart is a graphical 18 indication of what percent each expense is as it 19 relates to total expenses, one again, not including 20 prize pay out. Salaries for janitorial, callers, 21 cashier, ushers, security, legal, and accounting 22 account for almost 55 percent of the total expenses. 23 And when you include rent payments, the amount 24 represents over 92 percent of total expenses. 25 Commissioner Cox, I believe at the last 0015 1 meeting that we discussed the third quarter 2 information, you asked to see something on average 3 attendance per occasion. And we indicated that in the 4 previous slide that was shown to you, but now I would 5 like to give you some additional information on 6 averages per occasion. 7 The average net receipts, which is 8 gross receipts minus prizes, per occasion has been 9 increasing since 2002. Total expenses per occasion 10 has been increasing as well. Now, here's the net 11 revenue or net proceeds per occasion. This is the 12 amount that the organization should have available on 13 a -- on a quarterly or a yearly basis to distribute 14 for their charitable purposes. And this is the 15 average charitable distribution as reported; so, it 16 was fairly consistent with their net revenue for that 17 year. And then here's your average attendants per 18 occasion which has decreased from almost 152 persons 19 per occassion in 2001 to just over 139 per occasion in 20 2005. 21 We did another analysis and compared 22 1994 information to 2006. The one reason why we chose 23 1994 is if you'll look, gross receipts in 1994 were 24 633,000,000; gross receipts in 2005 were 634,000,000. 25 Prize pay outs for 1994 was 471.7 million, and in 2005 0016 1 it was 471,000,000. So we felt like it was a very 2 good comparison for these two years since their gross 3 receipts and their prizes were almost identical. 4 As you can see conductor reporting has 5 decreased 24 percent from 1900 to 1446. The number of 6 occasions has decreased 21 percent. Attendance has 7 decreased almost 40 percent. Your gross receipts and 8 prizes were fairly the same. Rent payments to your 9 commercial lessors is fairly, you know, consistent. 10 Mortgage payments have gone up and I 11 believe most of that is primarily due to the new 12 report that we have in 2005. More people are showing 13 that as an expense instead of other -- under other 14 expense like they had previously. And your total 15 expenses has increased 17.8 percent from 113,000,000 16 to 133,000,000. 17 So consequently the charitable 18 distributions, even though you've got the same gross 19 receipts and the same prize pay outs, as gone from 20 48,000,000 in 1994 to 30,000,000 in 2005; as well as 21 the required distributions which is based on the 22 calculation, 35 percent calculation. In 1994 the 23 required distribution was 19,000,000; wherein 2005 the 24 required distribution was just a little over 25 10,000,000. 0017 1 Player spend has increased from $18 to 2 $31 per person, and the number of players per occasion 3 has dropped from 187 to 136 per occasion. 4 COMMISSIONER COX: Yeah. Let's -- 5 COMMISSIONER CLOWE: Yes. 6 COMMISSIONER COX: -- let's talk about 7 that for a minute, Phil. 8 CHAIRMAN CLOWE: After you, please. 9 COMMISSIONER COX: Okay. Phil, I'm 10 looking at rent payments which you said was one of the 11 principal expenses, and that's quiet. I've seen total 12 expenses up by 20,000,000. The other big element you 13 said was salaries. So that must mean that salaries 14 are up by about 20,000,000. 15 MR. SANDERSON: In 1994 other expenses 16 was just one line item on the report. In 2005 was the 17 first full year that we captured information in more 18 detail on other expenses. So I -- I can't really say 19 the salaries have gone up 20,000,000. That's -- since 20 it accounts for almost 65 percent of the expenses -- 21 COMMISSIONER COX: And since rent is 22 flat, and that gets you up over 90 percent. 23 MR. SANDERSON: I would say that 24 it's -- it's probably a good indication that salaries 25 have gone up. Yes, sir. 0018 1 COMMISSIONER COX: Okay. So that -- 2 I'm just going to guess for a minute at what inflation 3 might be. We're looking at a twelve-year period here. 4 MR. SANDERSON: Yes, sir. 5 CHAIRMAN CLOWE: Exactly. 6 COMMISSIONER COX: Let's say 3 percent 7 inflation compounded, that's going to be about half or 8 a little lower. So if gross receipts had kept up with 9 inflation, it would be up by about 50 percent. I'm 10 guessing. And since they're flat, well, that tells us 11 a little something there. 12 Now what else do we observe from this 13 other than just reading the numbers? 14 MR. SANDERSON: Well, and I think 15 you've got almost 500 fewer conductors conducting. 16 COMMISSIONER COX: Okay. Now is that a 17 healthy consolidation, or has that declined? 18 MR. SANDERSON: In my mind it's 19 probably declined. 20 COMMISSIONER COX: Okay. So was -- 21 there could have been a time early on when a lot of 22 weak conductors were out there and they were marginal 23 and weren't really bringing much to the party, just 24 inflated that number. And now they've dropped off and 25 we have a lot of strong conductors, but you don't 0019 1 think that's the story we're seeing. 2 MR. SANDERSON: It's -- it partially is 3 because I believe if you look, the players are 4 spending more this year than they did in 1994. And so 5 I think the organizations that are conducted today are 6 probably having a little bit better net revenue which 7 on a previous -- earlier slide showed how the net 8 revenue had been going up gradually over the last five 9 years. 10 COMMISSIONER COX: You know, I'm not 11 seeing up here -- 12 MR. ATKINS: Commissioner Cox. 13 COMMISSIONER COX: Yes. 14 MR. ATKINS: May I jump in real quick. 15 I just want to follow up on that last conversation we 16 were having. I don't know that we've really done as 17 thorough an analysis as I would like for us to before 18 we say -- before we respond fully to your question as 19 to: Is that a straight decline, or is it 20 consolidation. 21 I agree with Phil. I think it's a 22 little of both, but I would like for us to look at it 23 a little more and see if we can come back to you 24 and -- and give you a response as to an actual 25 percentage because I do think we have a greater 0020 1 tendency to see organizations cease conducting shortly 2 after starting as opposed to those organizations that 3 have been conducting a number of years. 4 So I would like to, with your 5 permission, have us look at that a little further and 6 come back with you hopefully with some more 7 information on it. 8 COMMISSIONER COX: Thank you. That's 9 all. 10 CHAIRMAN CLOWE: I think Commissioner 11 Cox is right on target in the part of coming back to 12 us. 13 Phil, would you have someone who is 14 involved in accounting more deeply than probably 15 anybody in your division, maybe Kathy Pyka, go back 16 and compute based on -- what do you recommend, C.P.I.? 17 COMMISSIONER COX: That would be as 18 good as any. 19 CHAIRMAN CLOWE: And get an actual rate 20 of inflation so we can see what these 2005 dollars 21 really are compared to '94. I think it would make the 22 comparisons more extreme. Commissioner Cox was right 23 on target, I think, in focusing on that. I would like 24 to get it a little more exact if you would. 25 MR. SANDERSON: Yes, sir. 0021 1 That concludes the end of -- of my 2 presentation. You have a couple of charts in your 3 notebook that give more detail on 2005 and fourth 4 quarter information. I'll be glad to any questions on 5 that or any other questions you have. 6 MR. ATKINS: You also have, 7 Commissioners, in your notebook a memo that was 8 prepared by the controller's office on the information 9 that's in the notebook. 10 CHAIRMAN CLOWE: I think I would like 11 to make a couple of generalizations at this point. 12 And, Commissioner Cox, I invite you to 13 make your comments as well. 14 I think what your report shows us, 15 Phil, is what we have been seeing over the past few 16 years, discussing with members of the industry and 17 with the Bingo Advisory Committee. I think the 18 commissioner are very much aware that in the bingo 19 industry we have a deteriorating market in that we 20 have fewer people playing at fewer halls and they are 21 spending more money per occasion and there are fewer 22 occasions as well. And that is typical of a maturing 23 player field that is not being attracted by innovative 24 and attractive games brought about by change. 25 It's somewhat similar I think to that 0022 1 issue we are dealing with in some of our own line 2 games as well as in the lottery. And it is not this 3 commission's role to address those marketing problems 4 but rather to be aware of them and to serve as a 5 resource to the industry in our regulatory role. And 6 we are aware of this situation. We are not oblivious 7 to it. We are very attuned to it. 8 Mr. Commissioner Cox has spent a lot of 9 time looking at this, attending BAC meeting, talking 10 to members of the industry as well as I. So this 11 doesn't come as a surprise to us at all. 12 Commissioner Cox, would you add 13 anything to that? 14 COMMISSIONER COX: No, I would not. 15 CHAIRMAN CLOWE: Billy, do you have any 16 comment in that regard? 17 MR. ATKINS: I don't. Mr. Chairman, 18 these are numbers, as you know, we look at very 19 closely. We also provide these same presentations to 20 the Bingo Advisory Committee. And as you know, 21 Commissioner Cox had requested that the BAC look at 22 these figures and add a little more comment. He did 23 have an opportunity at the last meeting to be present 24 for part of that. I think you also might have too, 25 Commissioner Clowe. 0023 1 So, again, we'll continue to monitor 2 this and as we become aware of, you know, possible 3 solutions that occur elsewhere within the industry 4 we'll, of course, bring those forward to the 5 commission and to the advisory committee for their 6 consideration. 7 CHAIRMAN CLOWE: Thank you. 8 Thank you, Phil. 9 MR. SANDERSON: Thank you. 10 CHAIRMAN CLOWE: Next Item IV, 11 consideration of, possible discussion and/or action 12 relating to the continuation of the Bingo Advisory 13 Committee. 14 Mr. Atkins. 15 MR. ATKINS: Commissioners, the Bingo 16 Advisory Committee will expire through operation of 17 law unless the commission votes to amend the existing 18 BAC rule which is 402.102 which schedules the BAC for 19 dissolution of August 31st of this year. We wanted to 20 go ahead and put this item on the agenda so that the 21 commission could begin their consideration regarding 22 the evaluation of the Bingo Advisory Committee. 23 And what I have included in your 24 notebook is samples of what we have provided to you in 25 the past as you've gone through this evaluation 0024 1 process. And I am open to, if there are any, 2 additional suggestions or recommendations that you 3 have. I would like to let the commission know that in 4 my opinion the current Bingo Advisory Committee has 5 probably been the most effective of any in the past 6 BACs, and I think this is due in large part to the 7 efforts that each of you have made to attend all of 8 their meetings as well as the joint commission 9 meeting, BAC meeting that was held in December, '04, I 10 believe. 11 I think that your involvement has 12 really helped the Bingo Advisory Committee to focus 13 and better understand exactly what your expect -- 14 expectations of them are. There have been several 15 recent projects I know that they have helped that you 16 had an opportunity to provide valuable comment to the 17 staff through the licensee perspective. I think those 18 both fall under, Mr. Chairman as you were referring 19 to, the agency serving as a resource. And they 20 include a media guide and the operations manual, both 21 of which have been finalized and published to the 22 division's website available to all licensees. They 23 also provided useful comments on the redesign of the 24 division's website itself and comments on the Bingo 25 Bulletin. 0025 1 I also think that this advisory 2 committee has heard you in the terms that you just 3 talked about, Mr. Chairman. And that is the role of 4 the Lottery Commission regarding the bingo versus the 5 lottery. And I think that for the most part, they 6 understand the commission's role in regulating bingo 7 versus promoting the lottery. Although at this last 8 meeting, I think there was a limited back sliding; but 9 at the same time, to the committee's credit, I think 10 they caught themselves, refocused themselves, and 11 addressed the issue before them. 12 The one area where I think still needs 13 development relates to their comments on the rules as 14 they are being developed. Specifically I still don't 15 know if the advisory committee has clear understanding 16 as to the purpose of the rules and the benefit to 17 providing thoughtful, meaningful comment to those 18 rules during -- during those -- during the rule 19 development period. 20 So I think all in all with the one 21 exception that I mentioned as it relates to rule 22 development, I think that this advisory has done very 23 well. 24 CHAIRMAN CLOWE: Billy, I'm in 25 agreement with what you said. And I think that the 0026 1 members of the committee themselves get a great deal 2 of credit because they have been true in their 3 attendance at the meetings. I think some of the 4 people who have come on the committee have been very 5 resourceful, and my sense is in agreement to your 6 comments. 7 For our information, what is the status 8 of the nominating process at this time regarding the 9 vacancies that exist? 10 MR. ATKINS: The advisory committee has 11 reviewed the nominations that were submitted, and they 12 have made three recommendations that have been 13 submitted to the enforcement division for background 14 investigations. And we are awaiting those 15 backgrounds. 16 CHAIRMAN CLOWE: So that process is 17 working, and you have nominees that are in process? 18 MR. ATKINS: We do. And once those 19 nominees have been vetted, we'll, of course, schedule 20 an opportunity for each of you individually to meet 21 with those individuals and discuss with them again 22 your expectations of the committee and the individual 23 members. 24 CHAIRMAN CLOWE: Commissioner Cox, my 25 sense is that the committee has really been more 0027 1 active more recently within this year than we extended 2 them than in our last action, and I'm inclined to do 3 whatever you would like to do in regard to this 4 extension. We are noticed for action today, if you 5 are so inclined. 6 My inclination would be to give them an 7 early on positive signal, but I would like to hear 8 what your thoughts are about continuation for another 9 year. How -- how do you feel about that? 10 COMMISSIONER COX: Well, I think that 11 if we were to pull the plug at this point, we would 12 look pretty silly because they're doing a better job 13 than they've ever done before. 14 CHAIRMAN CLOWE: So would you be 15 amenable to a motion extending the committee for 16 another year? 17 COMMISSIONER COX: I would be pleased 18 to make that motion. 19 CHAIRMAN CLOWE: Please, sir. 20 COMMISSIONER COX: I move that we ought 21 to extend the term of the Bingo Advisory Committee 22 through 8/31, '07. 23 CHAIRMAN CLOWE: I second the motion. 24 All in favor please say aye. 25 THE COMMISSIONERS: Aye. 0028 1 CHAIRMAN CLOWE: Opposed. No. 2 The vote is two-zero in favor. 3 Thank you, Billy. 4 COMMISSIONER COX: May I have an answer 5 to a follow-up question -- 6 CHAIRMAN CLOWE: Yes, sir. 7 COMMISSIONER COX: -- I have for Billy. 8 Billy, you mentioned an educational 9 process regarding rules. Give me a little more on 10 that, if you will. 11 MR. ATKINS: We have over the years, 12 Commissioner Cox, attempted to find the most effective 13 way to involve the advisory committee in the 14 development of rules that the staff puts forward for 15 your consideration. 16 Very briefly through the history, what 17 the staff used to do is they would present the rule to 18 the advisory committee once and essentially say, here 19 it is, our intent is to take it to the commission at 20 their next meeting. And I think that the committee 21 members at the time felt that they didn't really have 22 the opportunity to read, digest, understand, and make 23 meaningful comment to the rule. 24 So we subsequently made a proposal that 25 not dissimilar to, say, way -- the way the legislature 0029 1 works, whereas the rule was brought to the advisory 2 committee at least two different times. The initial 3 presentation was laid out to the advisory committee. 4 Then subsequently at their next meeting they were 5 asked to make their comments with the understanding 6 that the staff would then take the rule to the 7 advisory -- to the commission. 8 I think that that would have worked 9 better particularly when the advisory committee was 10 meeting on a monthly basis. They are not meeting now 11 on a monthly basis. Plus, what we found out is that 12 we weren't always able to again receive that comment 13 during that interval between the two presentations. 14 So then we looked to forming what we 15 called work groups; that is, we would go to the 16 advisory committee, inform them of our intent to 17 propose a rule or provide them with a draft that we 18 had developed, asked them to work independently from 19 the advisory committee, and bring comments back to the 20 advisory committee to subsequently go to the 21 commission. 22 Again, I don't think that we were 23 finding that we were getting a lot of movement. So 24 subsequently what we have done, I believe in 25 consultation with general counsel, the general 0030 1 counsel's office is essentially taking the lead on the 2 rule-making process. And we are still requesting 3 advisory committee members or members of the general 4 public, if they are so interested, to serve on work 5 groups and provide comment to the staff during the 6 development period. 7 That's the process that we really just 8 started, Commissioner Cox. And we post on our website 9 those rules that are under informal consideration as 10 well as the agency staff members, the BAC members, 11 that are serving on that work group along with contact 12 information in case other members of the general 13 public want to comment during this period. 14 COMMISSIONER COX: Billy, I -- I 15 consider rules to be the backbone of the regulatory 16 environment. And I think our rule-making process is 17 far too slow and far too cumbersome. And I think that 18 we need to start with a blank sheet of paper and 19 decide to whom we should expose these things other 20 than to during the required exposure period, if 21 anyone. 22 The standard rule-making process, as I 23 understand it, is staff develops a proposal. It is 24 exposed. The public has an opportunity to comment, 25 and then the commissioners vote. I would like to see 0031 1 us consider finding a way to follow that model while 2 at the same time encouraging participation from the 3 industry within that time frame. 4 MR. ATKINS: During the public comment 5 period? 6 COMMISSIONER COX: If -- if we're -- if 7 we're talking about -- let's say three months is the 8 average time for staff to develop a proposed rule. 9 Then during that three months, without extending it a 10 day, try to get industry involved and recognizing that 11 they are going to have another opportunity to comment 12 after the rule is exposed. Because I think it's 13 incumbent upon us to get the rules out there, 14 particularly guidance for these operators as to how 15 their business can be operated within a safe harbor. 16 It's -- that's the most important thing I think we are 17 doing right now, and we need to speed it up. 18 Thank you, Mr. Chairman. 19 CHAIRMAN CLOWE: Yes, sir. 20 Next, Item Number V, consideration of 21 possible discussion and/or action, including proposal, 22 on amendments to 16 T.A.C. 402.102, relating to Bingo 23 Advisory Committee. 24 Ms. Joseph. 25 MS. JOSEPH: Yes. Again, I'm Sandy 0032 1 Joseph with the general counsel. 2 In accordance with your vote on the 3 previous item, we have prepared for you a draft notice 4 of proposed rule-making that would publish notice of 5 the fact that we have -- are intending to extend the 6 BAC until 2007. 7 I have prepared for you a T-bar memo to 8 indicate your approval of publication. The notice 9 also includes notice of public hearing to be hold on 10 the proposed rule at 11:00 a.m. on April 19th to 11 recommend that you authorize the staff to publish 12 notice of the proposed rule. 13 COMMISSIONER COX: So moved. 14 CHAIRMAN CLOWE: All -- second. 15 All in favor please say aye. 16 THE COMMISSIONERS: Aye. 17 CHAIRMAN CLOWE: Opposed, no. 18 The vote is two-zero in favor. 19 MR. ATKINS: Mr. Chairman, if I could. 20 I've been advised that the April 19th date -- is that 21 correct -- is also a date when a commission meeting is 22 tentatively scheduled. 23 COMMISSIONER CLOWE: That's correct. 24 MS. JOSEPH: Yes. I mistake that. I 25 believe we have selected another date. So disregard 0033 1 the April 19th. We'll pick a date that it -- I'm sure 2 it will be acceptable and will not conflict. 3 CHAIRMAN CLOWE: Very good. 4 Next. Ms. Taylor is not here. Is -- 5 COMMISSIONER COX: She was here. 6 COMMISSIONER CLOWE: Oh, has she 7 arrived? 8 MR. ATKINS: She's here. 9 COMMISSIONER CLOWE: Good. 10 Next, Item Number VII, consideration 11 of, possible discussion and/or action on the Bingo 12 Advisory Committee's work plan. 13 Ms. Taylor. Good morning, Suzanne. I 14 didn't see you back there. 15 MS. TAYLOR: Good morning. 16 Good morning, Commissioners. My name 17 is Suzanne Taylor. I'm chairman of the BAC. I gave 18 you the draft work plan that the committee had worked 19 on. It's pretty similar to what we worked on this 20 last year. We left off a couple of items like the 21 working on the Bingo web site, and there was one other 22 item. But a lot of this work plan is the -- is 23 identical to the work plan that we had been using in 24 the preceding year. 25 The one item that we did add also was 0034 1 the -- adding the implementation of -- which we had a 2 work group that's working on that right now. And 3 other than that, it's very similar to the previous 4 work plans. 5 MR. ATKINS: Commissioners, I didn't 6 have the opportunity to get it to her beforehand, but 7 I wanted Ms. Taylor to have the chance to see the memo 8 I provided to you. And as she mentioned, it 9 essentially identifies those items on the 2005 plan 10 that are not on the 2006 plan because, as she 11 mentioned, those were items that the advisory 12 committee has addressed and -- and deemed them to be 13 complete. 14 CHAIRMAN CLOWE: Any comments? 15 COMMISSIONER COX: No, sir. 16 MS. TAYLOR: We didn't know if there 17 were additional items that you would like added to our 18 work plan, also. 19 CHAIRMAN CLOWE: I think not at this 20 time although we reserve the right to call your 21 attention to things as they develop. 22 Ms. Taylor, I -- I'm sorry I didn't see 23 you in the audience earlier. Did you hear the 24 discussion about the functions of the BAC and the 25 comments that Commissioner Cox and I made? 0035 1 MS. TAYLOR: Yes, sir, I did. 2 CHAIRMAN CLOWE: I -- I would then like 3 for you to take that to the BAC and consider that a 4 vote of confidence, a pat on the back, as it were, on 5 the one hand but on the other strong urging to 6 continue to be proactive as an advisory group to the 7 commission and play the role that we have spent so 8 much time, I think over the last two years, forming 9 and developing with not only the joint BAC commission 10 meeting but with the outside counseling, I guess we 11 might call it or work plan that we developed with the 12 help of a lady from the controller's office. 13 I think we really made strides, and we 14 have a -- a really performing group, and we would like 15 to see that performance enhanced on. Will you take 16 that message back, please? 17 MS. TAYLOR: Absolutely. 18 CHAIRMAN CLOWE: Very good. Is there 19 anything further, Commissioner? 20 COMMISSIONER COX: No, sir. 21 Thank you for being here, Suzanne. 22 MS. TAYLOR: Thank you. 23 CHAIRMAN CLOWE: The next three items, 24 Mr. Sadberry, involve Ms. Pyka. And I believe she is 25 involved in other activities. 0036 1 MR. SADBERRY: That is correct, 2 Mr. Chairman. 3 CHAIRMAN CLOWE: Is that correct? 4 MR. SADBERRY: That is correct. 5 COMMISSIONER CLOWE: So we will pass 6 those then for the time being and go to Item Number 7 XI, report possible discussion and/or action on the 8 procurement of advertising services and/or amendment 9 including extension of the existing contract. 10 Mr. Anger, good morning. 11 MR. ANGER: Good morning, Chairman and 12 Commissioner. For the record, my name is Michael 13 Anger; and I'm the lottery operations director. 14 Commissioners, this agenda item is a 15 follow-up on my report from last month's meeting 16 regarding the staff's intent to extend the advertising 17 services contract with DBD Dallas through August 31st. 18 I wanted to inform you that DBD Dallas 19 has signed and returned the amendment to the agency at 20 this time, and we are in the process of reviewing and 21 finalizing this document. 22 That concludes my report. I would be 23 happy to answer any questions that you would have. 24 COMMISSIONER COX: Michael, are you on 25 schedule with the revised schedule for issuing the RFP 0037 1 and writing a new contract? 2 MR. ANGER: Yes, sir. We -- we've 3 amended the schedule, and we're in the process of -- 4 of that amendment on the schedule for the RFP, but we 5 are on track and everything is in order as far as that 6 process. 7 COMMISSIONER COX: Thank you. 8 CHAIRMAN CLOWE: Michael, I would like 9 to comment on the latest advertisements for television 10 that I have been sent on the DVDs. I think that they 11 are right on track. They're in good taste, and they 12 utilize what I think is probably the richest source of 13 interest on behalf of the playing public and that is 14 our winners. 15 I think that has been a topic that for 16 the time that I've been reviewing the advertising is 17 the most attractive and reaches out to players in a 18 realistic and well balanced way. I am very pleased 19 with that aspect of the current advertising campaign, 20 and I want to just send that signal back as a focus 21 that I think is very productive and one that is the 22 least objectionable on behalf of all the people in the 23 State of Texas regardless of what their position on 24 legalized gaming is. 25 MR. ANGER: Thank you very much, sir. 0038 1 CHAIRMAN CLOWE: Then we go on to Item 2 Number XII, report possible discussion and/or action 3 on the procurement of marketing and research services 4 and on the extension of the existing contract. 5 Mr. Jackson. Good morning, Tom. 6 MR. JACKSON: Good morning, 7 Commissioner and Chairman. 8 For the record, my name is Tom 9 Jackson. I am the purchasing and contracts manager 10 for the agency. The current contract extension with 11 Ipsos-Reid Corporation for market research services 12 expires on August 31st of this year. There are two 13 one-year options remaining. I have received an 14 approved memorandum of dedication to exercise the 15 second rule option to extend the contract period 16 effective September 1st, 2006, through August 31st, 17 2007. 18 Are there any questions? 19 COMMISSIONER COX: Let me see if I can 20 count these up. Now, were -- was there originally a 21 contract for three extensions and we've already 22 extended it once and now we're extending it a second 23 time and there is a third one remaining? 24 MR. JACKSON: That is correct. 25 COMMISSIONER COX: Okay. Tom, let's 0039 1 just go back to basics for a minute here. Help me 2 remember why we have an -- a short initial term. What 3 was the initial term of this contract? 4 MR. JACKSON: The initial term was 5 9/29/04 through 8/31/05. 6 COMMISSIONER COX: Okay. So one year. 7 MR. JACKSON: Yes. 8 COMMISSIONER COX: A little over. 9 With all these extensions to it, would 10 we -- what's the advantage of doing one year with 11 three extensions as opposed to doing four years or two 12 years with a two-year extension? 13 MR. JACKSON: Sir, it depends on if 14 this was the first time we've done business with 15 Ipsos-Reid Corporation, we may want to see the first 16 year, how they perform, how they -- 17 COMMISSIONER COX: Right. 18 MR. JACKSON: -- how they operate. 19 Give us three one-year extension options to -- with 20 the option -- if -- if they do a good job and we're 21 pleased with them, then we have the options to 22 continue on. 23 The -- the negative part of that, a 24 one-year extension may not provide us with as good of 25 a price. If they had a locked in four-year contract, 0040 1 for instance, it may provide a little bit better 2 pricing. There are pros -- pros and cons ultimately 3 on that. 4 COMMISSIONER COX: Okay. That's where 5 I was going. Now, let's say we had a four-year 6 contract, and we got the better pricing. 7 MR. JACKSON: Yes, sir. 8 COMMISSIONER COX: We can terminate 9 that contract, can't we? 10 MR. JACKSON: Yes, sir. 11 COMMISSIONER COX: Convenience of the 12 State of Texas. 13 MR. JACKSON: It depends on how the 14 contract is written, but normally we put a 30-day out 15 clause in there or a finding out clause they are 16 subject to in there. 17 COMMISSIONER COX: Well, I ask you to 18 consider particularly when you've got a vendor that 19 had worked well with us for years, but even if you 20 don't, looking at the longer term contract and getting 21 the better pricing and recognizing that we have the 22 ability to terminate for the convenience of the State 23 of Texas or be sure that we have that ability and go 24 from there. 25 MR. JACKSON: Yes, sir. 0041 1 CHAIRMAN CLOWE: Very good. Thank you. 2 Next Item XIII, report possible 3 discussion and/or action on the procurement of instant 4 ticket vending machines and our extension of the 5 existing contract. 6 Mr. Anger. 7 MR. ANGER: Good morning again, 8 Commissioners. 9 Once again, for the record, my name is 10 Michael Anger, and I'm the lottery operations 11 director. I would like to provide you with a brief 12 update this morning on the agency's instant ticket 13 vending machine contract. 14 Commissioners, the agency entered into 15 with interlet -- Interlott Technologies for these 16 instant ticket vending machines beginning on September 17 3rd, 2003. Interlott Technologies was acquired by 18 GTECH Corporate -- Corporation, and the commission was 19 notified of this action via certificate of ownership 20 and merger effective December 28th, 2003. 21 The contract is an initial three-year 22 term with two one-year renewal options. The current 23 contract term expires on September 1st, 2006. It is 24 one of the commission's major contracts, and I wanted 25 to make you aware that the staff has evaluated the 0042 1 services being provided under this contract and has 2 recommended that the first one-year renewal option 3 beginning September 2nd, 2006, and running through 4 September 1st, 2007, be exercised. 5 And I would be happy to answer any 6 questions that you have or concerns. 7 COMMISSIONER COX: Michael, have you 8 ran a cost benefit analysis on the instant ticket 9 vending machines. 10 MR. ANGER: We -- we've analyzed those, 11 and we've submitted a memo of justification in 12 accordance with the -- the analysis that's required. 13 COMMISSIONER COX: Would -- would it 14 inconvenience you if I asked that this be delayed for 15 a month while I look at that? 16 MR. ANGER: Would be happy to do that, 17 sir. 18 COMMISSIONER COX: Okay. 19 CHAIRMAN CLOWE: And -- and would you 20 have the same comments about the term of the contract 21 that you made with Tom Jackson -- 22 COMMISSIONER COX: Yes, sir. 23 COMMISSIONER CLOWE: -- this morning? 24 COMMISSIONER COX: I think that -- that 25 as a general comment is the way that we should be 0043 1 looking at whether -- you know, whether people that do 2 that kind of thing every day find that to be a good 3 idea or not is another thing, but I -- I would like 4 for a period at least to be able to look at that. 5 MR. ANGER: Very good. Thank you. 6 CHAIRMAN CLOWE: Thank you, Michael. 7 Next Item Number XIV report possible 8 discussion on action -- or -- and/or action on 9 broadcast and production services related to drawings. 10 Ms. McCullough. And -- and -- 11 MS. KRYSTOPHER: Suzanne -- 12 COMMISSIONER COX: -- you have Suzanne 13 with you. Do you have anybody else? 14 MS. MCCULLOUGH: No, Commissioner. 15 CHAIRMAN CLOWE: The two of you. All 16 right. 17 MS. MCCULLOUGH: Commissioners, we have 18 an updated presentation. One second while we load it. 19 CHAIRMAN CLOWE: I thought you had a 20 group. Her title is just very long. 21 MS. MCCULLOUGH: Good morning, 22 Commissioners. 23 For the record -- 24 CHAIRMAN CLOWE: Did they give you a 25 title instead of a salary? 0044 1 MS. MCCULLOUGH: I'm fine with the 2 length of my title. 3 Good morning, Commissioners. 4 For the record, my name is Chelsea 5 McCullough, and I'm the creative coordinator for the 6 Texas Lottery Commission. To my left is Suzanne 7 Krystopher, financial planning and performance 8 coordinator. 9 The purpose of this presentation is to 10 review previously submitted information in conjunction 11 with the recent surveys in order to present options 12 and recommendations for the consideration with regard 13 to the Texas Lottery's -- to the broadcast of Texas 14 Lottery drawings. 15 According to a recent player tracking 16 survey, players reporter that they utilize several 17 methods to obtain winning numbers, with the most 18 frequent being television, followed by retailers and 19 newspapers. 20 Commissioners, you'll notice that 21 percentages outlined here do not add up to 100 22 percent, and this is because in the survey players 23 were able to provide multiple responses. 24 With regard to television viewing, 25 players reported that they overwhelmingly consumed 0045 1 late night television to check their winning Texas 2 Lottery numbers, which is in keeping with the draw 3 times and broadcast which is at 10:00 and 12:00 p.m. 4 This slide, Commissioners, is a review 5 of information that was presented in the previous 6 commission meeting. As you may remember, a survey was 7 conducted of television stations to examine the 8 coverage of winning results. The survey revealed that 9 the coverage of the winning number's scrolls and 10 slates were very high, but the coverage of the actual 11 ball drawings was low. Drawing coverage is higher 12 during high jackpots when interest is heightened. And 13 it should also be noted that drawings take a subtle 14 air time while it's chosen, the number sites can be 15 easily worked into the newscast. 16 Also as -- as a result of the same 17 survey, about 50 percent of television stations 18 reported that they posted winning results and/or links 19 to the Texas Lottery on their websites. The estimated 20 media value of the drawings, scrolls, slates, and the 21 web presence was approximately 8.1 million. And these 22 slides were prepared and submitted by the Award Group 23 which is the media viewing service for DDB Dallas. 24 CHAIRMAN CLOWE: Well, wait a minute. 25 Go back to that please, Chelsea. 0046 1 MS. MCCULLOUGH: Sure. 2 CHAIRMAN CLOWE: Give us a little 3 further explanation about that. Is that the value as 4 if we had to buy it? 5 MS. MCCULLOUGH: That's what I 6 understand, sir. The -- the -- the value of each of 7 those time slots is if we had to buy it, then this 8 would be the value of it. And we have DDB here who 9 can provide additional information if you would like 10 more of an explanation on it. 11 CHAIRMAN CLOWE: Well, my sense of what 12 you're saying is that that is the value of what we 13 were given as if we had to purchase it at commercial 14 rates. 15 MS. MCCULLOUGH: You could say that. 16 If we were to go out and purchase it at commercial 17 rates, there could be some sort of negotiation with 18 stations. So it's hard to make that statement for 19 sure. 20 CHAIRMAN CLOWE: So how do we arrive at 21 the dollar amount then? 22 MS. MCCULLOUGH: This is the value of 23 the lenght of the time for the -- for the live 24 drawings, two-minute live drawings a scroll. And so 25 they were assigned a value based on the rating for 0047 1 that air time. 2 CHAIRMAN CLOWE: At what rate? 3 MS. MCCULLOUGH: At -- at the -- at the 4 rate of the commercial time. 5 CHAIRMAN CLOWE: Okay. Unnegotiated 6 rate. 7 MS. MCCULLOUGH: Unnegotiated, yeah. 8 CHAIRMAN CLOWE: What we would call in 9 the hotel business, the rack rate. 10 MS. MCCULLOUGH: That's a perfect way 11 to -- 12 COMMISSIONER CLOWE: Okay. 13 MS. MCCULLOUGH: -- explain it. Yes, 14 sir. 15 CHAIRMAN CLOWE: Now, what is scrolls 16 and slates? 17 MS. MCCULLOUGH: The scrolls is the 18 winning numbers that actually scroll across the TV 19 screen. It doesn't take up dedicated air time. It 20 may be during a newscast or during the weather 21 report. It may say Texas Lottery winning jackpot 22 numbers for Lotto Texas, for example. And it will 23 show those actual numbers. 24 The slates are -- you may have seen 25 it's actual -- a -- a graphical depiction. And 0048 1 sometimes we provide those. The -- the lottery puts 2 those together and provides them through the -- 3 through the satellite. And sometimes TV stations use 4 those, and sometimes they take those numbers and adapt 5 them to a design that they create. But it's -- it's 6 basically a flash across the TV screen that shows the 7 winning numbers for those. And it usually takes up 8 two to three seconds of air time. 9 CHAIRMAN CLOWE: That's an interesting 10 number. 11 COMMISSIONER COX: It is. 12 CHAIRMAN CLOWE: $8 million dollars 13 that we're not having to pay for with as little 14 coverage as we get for live drawings. 15 COMMISSIONER COX: Yes. 16 CHAIRMAN CLOWE: And scrolls and 17 slates, I -- I miss those on my television set. It 18 seems to be the largest part of it. I -- I've been 19 sent to the web links so I'm familiar with that on the 20 internet. And, you know, we -- we have not been 21 really successful, in my opinion, in getting the 22 broader live coverages. Although, I think it's 23 important to have live drawings. I never had any idea 24 that it would be over $8 million, you know, just for 25 the first asking price. 0049 1 COMMISSIONER COX: That's -- how much 2 do we spend on -- other than bill boards? 3 MS. MCCULLOUGH: I'm sorry. I don't 4 understand the question. 5 COMMISSIONER COX: For this kind of 6 media, what do we spend each year? 7 MS. MCCULLOUGH: On television 8 advertising? 9 COMMISSIONER COX: Uh-huh. And web 10 links, et cetera. 11 MS. MCCULLOUGH: Well, there's -- 12 there's not an expenditure for web links, per se. 13 COMMISSIONER COX: Yeah. 14 MS. MCCULLOUGH: We purchase television 15 advertising. I believe -- gosh, I don't -- I don't 16 remember the number right off the top of my head for 17 '04, '05. 18 COMMISSIONER COX: It looks like 19 Michael does. 20 MR. ANGER: Commissioner, I may be able 21 to answer that question. And -- and this actually 22 stems from the Chairman's question when we presented 23 the results at the previous commission meeting about 24 the level of coverage that we were receiving for the 25 live drawings broadcast. I -- I think the number that 0050 1 answers your question is the cost for our broadcast 2 and production services for the drawings, and that 3 contract annually is approximately $1.5 million. 4 COMMISSIONER COX: No. No. My 5 question is -- 6 MR. ANGER: That's for creating and 7 pushing this out via satellite so that it's available 8 for these newscast, to make this information available 9 to the general public. 10 COMMISSIONER COX: No. That wasn't my 11 question at all. 12 MR. ANGER: Oh, okay. 13 COMMISSIONER COX: We spend 14 30-something million on advertising, if you will. 15 Part of that is bill boards. Part of it is 16 commercialized. Part of it is this, that, and the 17 other, especially this kind of stuff. 18 MR. ANGER: Broadcast? We spend no 19 portion of our advertising by -- for broadcast -- 20 COMMISSIONER COX: No, no, no. 21 MR. ANGER: -- drawings. 22 COMMISSIONER COX: I'm still not 23 communicating. How much do we spend on television 24 advertising? 25 MR. ANGER: In other words, what we -- 0051 1 CHAIRMAN CLOWE: The DDBs -- 2 MR. ANGER: Yes, sir. It -- 3 COMMISSIONER CLOWE: -- that -- that I 4 commented on earlier. I think that's where 5 Commissioner Cox is. 6 MR. ANGER: The total media by... 7 MS. MCCULLOUGH: Yeah. 10,000,000 -- 8 COMMISSIONER COX: Okay -- 9 MR. ANGER: Yes -- 10 COMMISSIONER COX: -- for Lotto Texas. 11 So there's the one what I'm looking for. We're 12 getting -- we're spending ten and getting eight free 13 of the same kind of stuff. 14 MR. ANGER: Yes, sir. 15 COMMISSIONER COX: So it sure looks 16 like it's worth while pursuing more of this and trying 17 to get that mix even stronger. Now how do we do that, 18 I don't know. 19 Maybe that's where you're going to go 20 next, Chelsea. 21 MR. ANGER: I think we do have some 22 information as far as that's concerned about some 23 outreach efforts that staff are going to recommend. 24 CHAIRMAN CLOWE: Well, I think it's 25 important. Commissioner Cox, you just commented that 0052 1 we spend 30 some-odd million annually. This number is 2 25 percent of that. 3 COMMISSIONER COX: Exactly. 4 CHAIRMAN CLOWE: That we can put on top 5 of that that we're not spending any of the state's 6 dollars to receive it because there is an interest 7 among the media for this information to be 8 disseminated to the players, to the public. 9 And I -- and I Commissioner Cox is 10 right on target. We ought to be focusing on this. 11 See, it's the first time I've seen this number and, I 12 think it's very significant. 13 MS. MCCULLOUGH: We agree. And with 14 regard -- 15 CHAIRMAN CLOWE: And, Chelsea, I -- 16 just let me just make a statement. We -- we have -- 17 in the past, we have worked hard to give the 18 information to those who were interested about why we 19 think the studio and the production of the drawings is 20 important. And there have been legislative committee 21 inquiries in that regard. Why are you doing this? 22 Why do you have those facilities? What's important 23 about this? 24 We have always talked about just the 25 number of stations that carry the drawings. We have 0053 1 never had -- well, you changed it -- but we've never 2 had the -- that slide, that information to give the 3 people who are inquiring. I think this is really 4 important. 5 MS. MCCULLOUGH: Yeah. And basically 6 what the Award Group is -- is -- did was went back and 7 based on the report of the stations, saying, this is 8 what we covered. We -- we submitted this many live 9 drawings. We provided scrolls and slates this many 10 times, and the value was put together of what we 11 actually received. 12 CHAIRMAN CLOWE: And you feel pretty 13 good about this being a solid number? 14 MS. MCCULLOUGH: Yes, sir. 15 CHAIRMAN CLOWE: Okay. 16 MS. MCCULLOUGH: With regard to the 17 money bar actually put into broadcasting the drawings, 18 that equals 1.5 million annually. As you can see, 19 compared against the estimated media value, those were 20 certainly turned on the best. 21 CHAIRMAN CLOWE: So spending a million 22 and a half to produce it and another ten million as 23 far as the estimate to get that out, and those 24 drawings are part of it, but they are not all of it. 25 I guess, they are -- they are a small part of it. 0054 1 COMMISSIONER COX: It looks to me like 2 that's a pretty good cost benefit analysis right 3 there. 4 CHAIRMAN CLOWE: Spend a million and a 5 half and get -- 6 COMMISSIONER COX: Indeed. 7 COMMISSIONER CLOWE: -- every penny -- 8 COMMISSIONER COX: Yeah. 9 Now, Chelsea, maybe you ought to 10 address that split. But as to the content on what's 11 going up on the drawing, are we using professional 12 help to be sure that we are maximizing the promotional 13 benefit of that little bit of time that we get, or are 14 we just doing a dull drawing, here's the CPAs, and 15 here's the drawings and da-da-da-da-da. 16 MS. MCCULLOUGH: To -- to my knowledge, 17 it's my understanding, I think they do an excellent 18 job and that all the talent that they hire is 19 professional and every single second of that drawing 20 is maximized. 21 COMMISSIONER COX: Okay. So we are 22 professionally designing that by the second to 23 maximize the promotional benefit. 24 MS. MCCULLOUGH: Yes, sir. 25 CHAIRMAN CLOWE: I'm not sure I agree 0055 1 with that. I -- I understand your answer, and I'm not 2 saying you're giving a wrong answer, but it -- I think 3 Commissioner asked for an opinion and you gave him 4 yours. And -- and mine would not say we're doing 5 everything we can. 6 I think that Gary Grief during his time 7 as acting executive director exposed us, if I remember 8 correctly, to some animated drawings that were more 9 creative than what we do and I think there -- he 10 linked that in my recollection, anyway, with random 11 number generators, which made it more controversial 12 and I think the commission indicated to a certain 13 extent that it desired to stay with live drawings and 14 not entertain the idea of random number generators; 15 although, he wanted to be aware of that process. 16 But my opinion, Commissioner Cox, would 17 be that we ought to be constantly looking at this and 18 being as innovative and creative as we can. I think 19 we made a great step forward when we moved the studio 20 from the off site location on site and went to 21 stationary cameras and went to some degree of 22 animation, but I would like us to take Commissioner 23 Cox's question and re-examine that answer and see what 24 more we could do in light of the return that we are 25 getting for this million and a half that we're 0056 1 spending. 2 MS. MCCULLOUGH: Certainly. I guess I 3 should qualify my -- my comment then. In my -- 4 CHAIRMAN CLOWE: Well, you gave him 5 your opinion, and that's valuable. 6 MS. MCCULLOUGH: Yeah. I agree and in 7 the confined of the time that we have and -- and what 8 we're currently doing I think that the staff is 9 maximizing every opportunity. But it's exciting to 10 look at new things that we could do and examine. 11 CHAIRMAN CLOWE: Well, you know, we had 12 the big ball that would bounce towards you and -- and 13 that was very innovative, but that's old now. And I 14 think stuff gets old in the players' minds. You have 15 to be creative. You have to be innovative. That's 16 what people who are spending discretionary dollars 17 want. That's what we see in every product 18 merchandising. So I think his question is very 19 important at this point in time. 20 COMMISSIONER COX: And let -- let me -- 21 thank you, Mr. Chairman. I -- you have taken it a 22 step further. I had forgotten about the ball coming 23 towards you and that kind of thing. But I wonder 24 whether we shouldn't be designing this thing as a 25 series. You know, sometimes we look at our ads and we 0057 1 know that this one is going to come first and this one 2 is logically going to follow it and this one is 3 logically going to follow that. Maybe they build 4 suspense. Maybe they build variety, all of those 5 things actually that -- that you do for us that help 6 us keep our ads interesting. 7 Well, here we've got people giving us 8 8.1 million dollars' worth of time. And if it were 9 more interesting, we would get more benefit from just 10 the people watching that but I wonder if we might also 11 attract additional stations, say, hey, you know that 12 used to be dumb stuff the lottery was putting out 13 there, but now it's funny. I think we're pulling it 14 through. They're saying we want it. It's neat stuff. 15 My kids -- we go to the UT ball game, 16 and they enjoy the dot race more than they enjoy the 17 ball game. Well, that used to be the case. I think 18 the ball game is better now, but let's -- let's make 19 the dot race really interesting. 20 MS. MCCULLOUGH: That's exciting, and 21 certainly we can do it. 22 Should we go forward. 23 CHAIRMAN CLOWE: I think we've run 24 out. Anything further? 25 MS. MCCULLOUGH: Yes, sir. 0058 1 We actually reached out to other state 2 lotteries to examine their practices with regard to 3 securing air time for drawings. Seven other states in 4 addition to Texas followed the same method that Texas 5 does which is to not pay for drawings coverage. 6 CHAIRMAN CLOWE: Do you know what other 7 states those seven are? 8 MS. MCCULLOUGH: Yes, sir. One 9 second. The following states do not guarantee that 10 their drawings are broadcast by offering payment which 11 are Indiana, Kansas, Maine, South Dakota, Washington, 12 and Wisconsin. 13 CHAIRMAN CLOWE: None of the big 14 states. 15 COMMISSIONER COX: So all the big 16 states are paid. 17 MS. MCCULLOUGH: Commissioners, we 18 looked specifically at California. That might provide 19 some insight. 20 COMMISSIONER COX: Yeah. 21 MS. MCCULLOUGH: All the states utilize 22 a different strategy, but we -- we paid attention to 23 California specifically simply because it's closest to 24 Texas in terms of the square miles as well as DMAs. 25 Texas has 20 DMAs, and California has 12. 0059 1 COMMISSIONER COX: Help me remember 2 what a DMA is Chelsea. 3 MS. MCCULLOUGH: Designated market 4 area. 5 CHAIRMAN CLOWE: I question that 6 comparison Chelsea because California is new. They 7 are just getting started, and they are not as big as 8 we are in terms of dollars. I don't know why you 9 settled on square miles. Gosh, there are a lot of 10 states that have a lot of miles and few people. I 11 would like to see you look at big states: New York, 12 Massachusetts, and Florida. 13 MS. MCCULLOUGH: We can certainly do 14 that. We -- we received a copy of the RFP that New 15 York uses to secure drawings. We have share some 16 information about that and perhaps we can put a report 17 together on all those states if you want me too. 18 CHAIRMAN CLOWE: Okay. 19 MS. MCCULLOUGH: So there are several 20 options with regard to the -- the Texas Lottery 21 strategy. The first one is to continue broadcast. 22 The second is to provide winning results not through 23 broadcast but through less expensive methods, such as 24 the ESL or wire service. The third option may be to 25 continue the current practice and then rely on 0060 1 drawings being broadcast during piqued interest times. 2 CHAIRMAN CLOWE: Well, you say there 3 are options. Are we facing a decision regarding 4 making one of those choices, or is that just play -- 5 think pieces? 6 MS. MCCULLOUGH: I believe they are 7 think pieces. I don't think that there is anything 8 formal on the record for those either. 9 CHAIRMAN CLOWE: Because I don't think 10 the commissioners have any sense of imminent changes 11 that we want to make at this time. 12 COMMISSIONER COX: Oh, here's -- here's 13 some -- maybe this is where she's -- 14 MR. ANGER: And -- 15 COMMISSIONER COX: -- going with this. 16 MR. ANGER: -- Chairman, I might be 17 able to add something to that. One of the issues 18 that -- that came up -- we made this presentation back 19 in the fall where we reported that the live television 20 coverage of the actual ball drawings wasn't as high as 21 what we would like to see it be. 22 At the same time we were updating you 23 on entering into a new contract agreement with M&S 24 Works for broadcast and production services. And so 25 it was a discussion that ensued where we talked about 0061 1 that contract costing more than we were getting value 2 for that money. And so part part of the analysis that 3 the staff put together here was looking at that -- 4 that money with regards to broadcast and production 5 and comparing it to what value it appears we're 6 getting out of the marketplace as far as that 7 concerned so... 8 CHAIRMAN CLOWE: That's great. I like 9 that. Okay. I've got it focused now. 10 MS. MCCULLOUGH: So in terms of staff 11 recommendations, the first recommendation is to 12 continue to broadcast our drawings; secondly, do not 13 promise market exclusivity guaranteed portions of our 14 advertising budget nor purchase air time for drawings 15 out right. The third recommendation, which I think 16 goes to -- responding back to the questions that you 17 asked us earlier about the -- the media value is to 18 conduct an outreach campaign to increase station 19 participation to air winning numbers, scrolls, and 20 screens, as well as our number drawings as well as the 21 numbers and the links to the station's website. And 22 we will do that in conjunction with our media 23 relations team. 24 COMMISSIONER COX: And add -- add to 25 that to increase the marketing value or the 0062 1 entertainment value to the maximum extent possible 2 using professional help as necessary. 3 MS. MCCULLOUGH: Absolutely. 4 CHAIRMAN CLOWE: Great. Thank you-all 5 very much. 6 MS. MCCULLOUGH: Thank you. 7 COMMISSIONER COX: Pardon me. I didn't 8 mean professional help. I meant outside professional 9 help as necessary. 10 CHAIRMAN CLOWE: Anything further, 11 Chelsea? 12 MS. MCCULLOUGH: No, sir. That 13 concludes our presentation. 14 CHAIRMAN CLOWE: Thank you. Let's take 15 a short break of about 10 minutes now, please. 16 (Recess.) 17 CHAIRMAN CLOWE: We'll come back to 18 order and take up Item Number XV on the agenda, report 19 possible discussion and/or action on the Mega Millions 20 games and/or contract. 21 Mr. Grief. 22 MR. GRIEF: Good morning, 23 Commissioners. 24 For the record, my name is Gary Grief. 25 I'm the deputy executive director for the Texas 0063 1 Lottery Commission, and I have no updates to report to 2 you on this matter, Mr. Chairman. 3 CHAIRMAN CLOWE: They still haven't 4 agreed to let us join Powerball? 5 MR. GRIEF: They have not. 6 COMMISSIONER CLOWE: And you continue 7 to work on that? 8 MR. GRIEF: I continue to work on it, 9 yes, sir. 10 COMMISSIONER CLOWE: Good. 11 COMMISSIONER COX: Do you -- do you 12 continue to believe that there's nothing in our 13 contract that prohibits our joining Powerball, 14 relating to Mega Millions. 15 MR. GRIEF: I continue to believe that. 16 COMMISSIONER COX: Does anyone share 17 that belief outside this state? 18 MR. GRIEF: I wouldn't -- wouldn't know 19 the answer to that question. 20 COMMISSIONER COX: Is there any 21 indication that anybody out there agrees? 22 MR. GRIEF: I've heard no one 23 specifically tell me that they don't believe our 24 contracts allows for it. I think it's more of our 25 opinion is that you shouldn't join. 0064 1 COMMISSIONER COX: Okay. 2 CHAIRMAN CLOWE: And, Gary, maybe this 3 is a question I'll ask the general counsel. 4 The legislation that was passed enabled 5 us to join the Mega Millions or to apply to Powerball 6 as well, would it not? 7 MS. KIPLIN: Yes, Mr. Chairman, it 8 would. We have the authority to join either game or 9 games. 10 CHAIRMAN CLOWE: So we are not asking 11 for something we can't have. 12 MS. KIPLIN: That is correct. 13 Something that -- for which we would not have 14 authority. 15 CHAIRMAN CLOWE: Okay. Very good. 16 Anything further, Commissioner? 17 COMMISSIONER COX: No. 18 CHAIRMAN CLOWE: Thank you, Gary. 19 We go back to Item Number VIII then, 20 report possible discussion and/or action on lottery 21 sales and revenue, game performance, new game 22 opportunities, and trends. 23 Ms. Pyka. Mr. Tirloni. 24 MS. PYKA: Good morning, 25 Commissioners. My name is Kathy Pyka. I'm the 0065 1 controller for the Lottery Commission. 2 COMMISSIONER CLOWE: Is your mike on? 3 MS. PYKA: Yes, it is. 4 With me is Robert Tirloni, products 5 manager. 6 Our first chart we have here this 7 morning reflects revenue from sales, and that 8 represents that through the weekend of March 18, 2006. 9 This report reflects 29 weeks, consisted of 2006 10 activity, total sales through this 29-week period 11 amounts to 2.1 billion, while estimated revenue for 12 the state for this period was 34.9 million. 13 Of fiscal year 2000 sales -- six sales, 14 do reflect an 81.3 million increase over fiscal year 15 2005 sales. That average represents a 3.9 percent 16 increase in comparison to the 514.6 million figure for 17 the same period in fiscal year 2005. 18 Prize expenses, the percent of sales 19 was 62.7 percent for this period, and it was the exact 20 same percent as the same time period in fiscal year 21 2005. 22 Our next slide provides you with fiscal 23 year 2006 year-to-date sales by game. It says on this 24 slide 35.2 percent of sales or 1.6 billion was from 25 instant tickets; 7.6 percent of sales or 160.3 million 0066 1 for Pick Three; followed by 6.5 percent of sales and 2 136.9 million from Lotto Texas; and finally 5.9 3 percent of sales, 124.2 million for Mega Millions. 4 And the next slide provides us the 5 graphical presentation -- 6 CHAIRMAN CLOWE: Give us -- give us 7 just a minute back on that slide, Kathy. 8 MS. PYKA: Yes. 9 CHAIRMAN CLOWE: Instant tickets 10 continue to grow. 11 COMMISSIONER COX: I see that. 12 COMMISSIONER CLOWE: Okay. 13 MS. PYKA: Instant tickets increased 14 about 77 million over the same time period for fiscal 15 year 2005. 16 CHAIRMAN CLOWE: We would never 17 maintain the sales if we didn't have the instant 18 tickets as successful as they are. We're not -- we're 19 losing on the online side of it and gaining on the 20 instant tickets. And I guess you -- the odds against 21 exactly the same numbers for the two years you 22 mentioned are almost like winning the lottery, aren't 23 they? 24 MS. PYKA: Right. 25 CHAIRMAN CLOWE: Matching on those 0067 1 percentages exactly. 2 MS. PYKA: I mean -- 3 CHAIRMAN CLOWE: In the prior slide. 4 MS. PYKA: On pay out, when you look at 5 the prize pay out on the prior slide, the instant 6 ticket prize pay our for last fiscal year was 67.09 as 7 compared to 67.02 for fiscal year 2006. Whereas, on 8 the online prize pay out, we're looking at 49.86 last 9 year and 49.59 this year. In the end prize pay out is 10 still 62.7 for the two years. 11 CHAIRMAN CLOWE: That's what I'm 12 saying. 13 MS. PYKA: Right. 14 CHAIRMAN CLOWE: That you hit that, but 15 you changed the mix but you hit exactly the same 16 percentages. 17 MS. PYKA: That is correct, 18 Mr. Chairman. 19 CHAIRMAN CLOWE: Thank you. 20 MS. PYKA: And again our next slide 21 will be a graphical presentation of our 2.1 billion in 22 sales. 23 And I will let Robert continue. 24 MR. TIRLONI: Good morning, 25 Commissioners. 0068 1 For the record, my name is Robert 2 Tirloni. I am the products manager for the 3 commission. 4 As Kathy said this is next slide is a 5 graphical representation of the instant sales you were 6 just discussing showing -- showing the sales by prize 7 point. The five dollar prize point continues to be 8 the strongest prize point for us, followed by the two 9 dollar, and then very closely by the ten dollar. We 10 continue to have some very strong ten dollar prize 11 points, one of those being our World Poker Tour game. 12 Another strong ten dollar game for us right now is our 13 Set For Life game, which is an annuity game. 14 After the ten dollar prize point, the 15 next prize point in terms of sales is the one dollar. 16 CHAIRMAN CLOWE: What's the pay out on 17 the five dollar? 18 MR. TIRLONI: The five dollar is 68 19 percent. 20 CHAIRMAN CLOWE: Is it the highest pay 21 out? 22 MR. TIRLONI: No, sir, not at all. The 23 30 dollar is the highest pay out. That's 72.5. 24 CHAIRMAN CLOWE: Four percent 25 difference. 0069 1 MR. TIRLONI: Yes, sir. Four and a 2 half. Four, four and a half percent. 3 COMMISSIONER COX: Robert. 4 MR. TIRLONI: Yes, sir. 5 CHAIRMAN CLOWE: I look at 20 dollars, 6 and I see 8.4 percent. 30 dollars, 4.8. But then 25, 7 a dip between those. I would suspect it to be a 8 little more linear. Is that a punch for the number of 9 games that are out there? 10 MR. TIRLONI: Yeah. 11 COMMISSIONER COX: There are fewer 12 25-dollar games than there are 30 or 20. 13 MR. TIRLONI: Yes. Actually what we 14 have done is we are -- there are 25-dollar games that 15 have been out there in the past with this fiscal year, 16 still available. But we are not currently printing or 17 producing 25-dollar prize point games. 18 And the -- the reason we did that -- 19 CHAIRMAN CLOWE: Can't sell them if you 20 don't print them. 21 COMMISSIONER COX: There you go. 22 MR. TIRLONI: Well, and the -- the 23 reason we did that was to kind of differentiate 24 between the 20 and the 30-dollar prize point, to give 25 us room in between those two prize points to 0070 1 differentiate the games based on top prize, based on 2 pay out, and to kind of give some breathing room 3 between those two. We kind of felt that the 25-dollar 4 prize point was almost a blurring between the 20 and 5 the 30 in the player's mind. 6 COMMISSIONER COX: There's not a 7 25-dollar bill is there? 8 MR. TIRLONI: There's not. 9 COMMISSIONER COX: And, of course, 10 there's not a 30-dollar bill either. 11 MR. TIRLONI: There's not a 30 either. 12 COMMISSIONER COX: What is the highest 13 denomination ticket that's out there in the United 14 States? 15 MR. TIRLONI: $30. To my knowledge 16 $30. 17 COMMISSIONER COX: Nobody -- no -- no 18 state has gone beyond? 19 MR. TIRLONI: Not that I know of, no. 20 COMMISSIONER COX: Interesting. How 21 soon do you think a state will go beyond? 22 MR. TIRLONI: I don't know. We are 23 currently looking into potential for higher than that 24 based on research that we're conducting through Ipsos- 25 Reid. 0071 1 COMMISSIONER COX: Well, one thing that 2 the casinos have learned with the slot machines is 3 there doesn't seem to be a highest denomination. 4 There's an appetite for whatever denomination you put 5 out. 6 MR. TIRLONI: I have been told in 7 retailer meetings that I have attended that there are 8 retailers -- and it -- it's regional, not every 9 retailer feels that they can sell more than a 30 10 dollar. But there are retailers who have conveyed to 11 me that they could definitely sell a ticket that was a 12 higher prize point than $30. 13 CHAIRMAN CLOWE: So if you were to want 14 to play a 50-dollar slot machine, you would buy a 15 50-dollar coin. 16 COMMISSIONER COX: 50-dollar token. 17 COMMISSIONER CLOWE: Token. 18 COMMISSIONER COX: Yes, you would. 19 CHAIRMAN CLOWE: That would fit into. 20 COMMISSIONER COX: Exactly. 21 CHAIRMAN CLOWE: That's interesting. 22 COMMISSIONER COX: And you make those 23 real nice tokens so people want to take them home. 24 CHAIRMAN CLOWE: Yeah. Give them as 25 gifts. 0072 1 COMMISSIONER COX: Yes. 2 MR. TIRLONI: And we're continuing to 3 do that research that I mentioned a few moments ago, 4 working with the administration division, their 5 research work group, and, as I said, Ipsos-Reid, we've 6 gone through one or two phases. We're -- we're 7 getting close to coming into the final phase, and we 8 should have a report for you-all in the next few 9 months about that. 10 COMMISSIONER COX: Excellent. 11 MR. TIRLONI: I have an update for both 12 of you on the Lotto Texas game launch. 13 Just a week ago today we started the 14 multi-draw countdown on the game. That was last week 15 March 22nd. As of right now, there are eight drawings 16 remaining for the current game. That includes 17 tonight's drawing. 18 As we continue to wind down the multi- 19 draw countdown, it will take us to the last drawing, 20 which will be on Saturday, April 22nd, and when the 21 system comes up on Sunday morning, April 23rd, at 22 6:00 a.m., we will be selling Lotto Texas for the six 23 of 54 game matrix that was approved last month. And 24 then the first drawing will be on Wednesday, April 25 26th. 0073 1 I will tell you that play slips have 2 been printed by GTECH. They are being distributed. 3 Point-of-sale has been printed and distributed, and we 4 are completely on track for that Sunday, April 23rd 5 sales launch date. 6 And in a later agenda item, Chelsea 7 will be talking and giving you some information about 8 the advertising compain that will be used to support 9 this game launch. 10 COMMISSIONER COX: Okay. Robert, did I 11 hear you say that sales start at 6:00 a.m. on April 12 23rd. 13 MR. TIRLONI: That's correct. 14 COMMISSIONER COX: So between 15 10:00 p.m. on Saturday and 8:00 p.m. on Sunday, nobody 16 is going to be able to buy a Lotto Texas ticket? 17 MR. TIRLONI: Typically what happens on 18 a regular drawing, like for example tonight, when we 19 go to draw break before the drawing, you won't be able 20 to buy tickets for Lotto from 10:00 to 10:15. And 21 then system comes back up and you can purchase tickets 22 from 10:15 until midnight when the system goes down. 23 On -- on Saturday, April 22nd, it will 24 be a little different because the new game is starting 25 the next day. Once we go to draw break on Saturday, 0074 1 April 22nd, you will not be able to buy tickets until 2 6:00 a.m. the next morning. 3 COMMISSIONER COX: Okay. Now you talk 4 about what normally happens and you say it goes back 5 online from 10:15 to 12:00, and then it's shut down 6 for a period of time. 7 MR. TIRLONI: It's -- the -- the online 8 system is shut down from midnight until 6:00 a.m. 9 COMMISSIONER COX: So all we're losing 10 is the hour and 45 minutes from 10:15 to 12:00 11 o'clock? 12 MR. TIRLONI: On Sunday the 22nd, yes. 13 COMMISSIONER COX: On Saturday, the 14 22nd. 15 MR. TIRLONI: I'm sorry. On Saturday 16 the 22nd, yes. 17 COMMISSIONER COX: Okay. 18 MR. TIRLONI: And the reason we're not 19 coming back up at 10:15 is because we will have -- 20 that will have been the last drawing, and the software 21 download for the new game will take place over night 22 Saturday the 22nd into Sunday morning the 23rd. 23 COMMISSIONER COX: Okay. Now, as -- is 24 it typically the case that one can buy for several 25 drawings at once? 0075 1 MR. TIRLONI: Absolutely. 2 COMMISSIONER COX: And so we're not -- 3 there are no advance sales right now? 4 MR. TIRLONI: You can advance up to 5 eight drawings right now. 6 COMMISSIONER COX: But you can't 7 advance into the new matrix? 8 MR. TIRLONI: No, sir, you cannot. 9 COMMISSIONER COX: So we can probably 10 expect sales for the first couple of these to be off a 11 little bit. 12 MR. TIRLONI: A little bit. The first 13 drawing for Wednesday, April 26th, will absolutely no 14 advance sales. 15 Usually typically what happens is once 16 we start a new game, players -- because I think the 17 multi-draw feature which is the advance play feature 18 is -- I -- I think that's appealing to players and a 19 convenience actually for players. Once you get into 20 the new matrix or the new game people will start -- 21 will pick up on that feature again and start playing 22 that. So by the second and third drawing, we should 23 see that those advance sales will actually come back 24 up. 25 COMMISSIONER COX: Okay. 0076 1 MR. TIRLONI: This concludes our 2 portion of the presentation regarding sales and game 3 performance, Commissioners; but Director Sadberry has 4 some information for you from the Ipsos-Reid monthly 5 tracking studies. 6 MR. SADBERRY: Commissioners, good 7 morning. 8 For the record, my name Anthony 9 Sadberry, acting executive director. I have for you 10 this morning the latest survey information from Ipsos- 11 Reid relating to the public perception of the Texas 12 Lottery. This information was compiled in the month 13 of February. 14 The first slide addresses the 15 question: How would you describe your overall opinion 16 of the Texas Lottery. As shown, the percentage of 17 negative responses to this question remained the same 18 from January to February of 37 percent. And positive 19 responses decreases from 43 percent to 41 percent over 20 the same time period. Neutral responses increased two 21 percent from 20 percent to 22 percent. 22 The second slide addresses the 23 statement: The Texas Lottery is operated fairly and 24 honestly. From January to February the percentage of 25 respondents who disagreed with this statement 0077 1 decreased significantly from 36 percent to 30 percent 2 while those who agree with the statement increased 3 slightly from 52 percent to 53 percent. Those neutral 4 with the statement increased from 12 percent to 17 5 percent. 6 I will continue to provide you with 7 this information on a monthly base, and I will be 8 happy to answer any questions. 9 COMMISSIONER COX: Anthony, which of 10 those two measures would you consider most important 11 or more important? 12 MR. SADBERRY: Well, the -- actually in 13 fairness and honesty, the public perception, in my 14 judgment, is of major importance. The opinion 15 question, of course, is in subjective mode in the 16 matter of a person of what they might be looking for 17 and that could vary. 18 We don't have the underlying data which 19 would be more helpful to me if I were to be given that 20 as to what factors that may have been considered in 21 the overall opinion of the Texas Lottery, as that 22 could be one subjective obviously but also a 23 divergence and not necessarily a constant. 24 The integrity of the lottery from its 25 inception, in my opinion, has been the hallmark of 0078 1 ours that surpasses all other considerations. If I 2 had to choose one personally that you've asked that's 3 of importance to me, in this capacity or other 4 otherwise, it would be that. And that is, of course, 5 where the disagreement on the -- the question was 6 positive of fairness and honesty in the operation of 7 the lottery showed a significant decrease. That's 8 of -- that's of great importance to me. 9 COMMISSIONER COX: Well, I agree with 10 you completely. The first one it seems is -- really 11 has nothing to do with the job we're doing. It might 12 be someone who just doesn't think the lottery is a 13 good idea. Whereas this one to me is very important. 14 And, Anthony, I wonder what we can 15 learn from that 30 percent who disagree as to why they 16 disagree. 17 MR. SADBERRY: I would -- I mean, I 18 would be interested in knowing, and I would make it a 19 priority, if you wish -- and it would be one of mine 20 for my own initiative -- to determine if the survey 21 source can delve into those areas and give us not just 22 a -- a quantification, a numerical quantification on 23 the -- on response -- and I'm seeing some affirmative 24 nods -- but actually suggestions as if they can 25 capture that kind of data or if they can analyze on 0079 1 their own and provide us that kind of data, that's -- 2 that would be helpful. Because that -- that guide is 3 to the point where what we might be able to do is 4 address that sector, which is important, because we -- 5 we don't want to take for granted that further 6 improvement could not be made. If we -- we know the 7 reasons, we can at least analyze those and address 8 those and see if we can cause an even greater decrease 9 which would be optimum for us. 10 COMMISSIONER COX: I would sure love to 11 know what they -- what their concerns are. 12 MR. SADBERRY: I would certainly agree 13 with that, and that -- that appears to me -- and -- 14 and even necessarily will be required if it's 15 available to us. 16 MR. TIRLONI: And all -- I -- I -- if 17 you wish, I can liaison with them too to see what we 18 can extract from that and report back next month. 19 CHAIRMAN CLOWE: Anything further? 20 COMMISSIONER COX: No, sir. 21 COMMISSIONER CLOWE: Okay. 22 MR. TIRLONI: That's all we have on 23 that, Commissioners. 24 CHAIRMAN CLOWE: Does that conclude 25 what you want to tell us under Item Number VIII? 0080 1 MS. PYKA: Yes, it does. 2 MR. TIRLONI: Yes, sir, it does. 3 CHAIRMAN CLOWE: Then we'll go on to 4 Number IX on the agenda, report possible discussion 5 and/or action on the agency's financial status. 6 MS. PYKA: Thank you, Mr. Chairman. 7 For the record, again, my name is Kathy 8 Pyka, controller for the Lottery Commission. 9 Item IX includes information on our 10 agency's financial status. Our first report was the 11 transfers and allocations to the Foundation School 12 Fund, the allocation of unclaimed prizes as of March 13 of 2002. 14 Four transfers for this month amounted 15 to 519.5 million. This represents a two percent -- or 16 2.2 percent increase over the total amount transferred 17 in March of 2005. 18 The second page of your notebook 19 reflects the detailed information of the monthly 20 transfers. Of the 519.5 million-dollar transfer to 21 this date, 492.1 million was the amount transferred to 22 the Foundation School Fund with the balance of 27.4 23 million transferred from unclaimed lottery prizes. 24 The last document before the pink 25 divider provides you a report of lottery sales, 0081 1 expenditures, and transfers for fiscal year 1992 to 2 date. Total cash based transfers to the Foundation 3 School Fund through March of this year totaled 492.1 4 million with a cumulative transfer to the Foundation 5 School Fund of 8.1 billion during this time frame. 6 And then finally behind the pink 7 divider, I provided you an undate on our fiscal year 8 2006 method of finance summary for this period ending 9 March -- February 28th of 2006. 10 Our Lottery Commission budget funded by 11 the G.R. dedicated account is 182.3 million for fiscal 12 year 2006. Of this amount we have expended 43.3 13 percent through the first six months. And our bingo 14 operations budget funded by general revenue was 13.5 15 million. And as of February 28th we had expended 49.1 16 percent of their operating budget. 17 Commissioners, this does conclude my 18 presentation. I'll be happy to answer any questions. 19 CHAIRMAN CLOWE: Thank you. 20 Next we'll take Item Number X, report 21 possible discussion and/or on bingo indirect and 22 administrative expenses. 23 MS. PYKA: Good morning, Commissioners. 24 Again, for the record, Kathy Pyka, 25 controller for the Lottery Commission. 0082 1 This morning I will be providing you 2 information regarding the Commission's current 3 practice of funding bingo indirect and administrative 4 expenses from the G.R. dedicated lottery account 5 referred to as the state lottery account. 6 Presently bingo indirect and overhead 7 administrative expenses were expensed to lottery 8 strategies and paid from the proceeds of lottery sales 9 or the G.R. dedicated lottery account as opposed to 10 being an expense to bingo strategies and paid for with 11 the general revenue fund. 12 Government code section 466.355 13 provides that money in the G.R. dedicated lottery 14 account my only be used for the specific purposes 15 outlined within this section. Pursuant to this 16 section, one purpose is the payment of cost incurred 17 in the operation and administration of the lottery. 18 As we look at this provision it appears to limit the 19 state lottery account to lottery operations rather 20 than Lottery Commission operations. 21 I wanted to note that the lottery 22 proceeds for indirect and administrative costs does 23 date back several years. In 1998 the commission 24 included a request within a fiscal year 2000, 2001 25 legislative appropriation request, to report -- revise 0083 1 a rider in our appropriations bill to allow for the 2 funding of the regulation of bingo through the sale of 3 lottery tickets. 4 The modification for this rider back 5 back in 2000, 2001 was contingent on the past 6 legislation, specifically an amendment to the State 7 Lottery Act, which would authorize money in the state 8 lottery account to use -- be used to pay for certain 9 costs incurred in the administration and regulation of 10 bingo. This proposed rider was not adopted during the 11 76th legislative session. 12 And that moves us to fiscal year 2003. 13 At that point in time, the decision was made to 14 discontinue charging bingo for indirected overhead 15 expenses and fund those by the G.R. dedicated lottery 16 account. This decision was documented numerous times, 17 first in the fiscal year 2004, 2005 legislative 18 appropriation request, in which the commission 19 requested a proposal the bingo division funded by G.R. 20 should not be charged for indirect costs in 2005, 21 2005. 22 Commission staff members further 23 testified before the house appropriations general 24 government committee as well as the Senate finance 25 committee that either the commission had submitted its 0084 1 revised budget outlining this practice to meet the 2 12.5 percent budget reduction and noting again that 3 the Lottery Commission discontinued charging bingo for 4 indirect support services. 5 And the next change was in the fiscal 6 year 2006, 2007 legislative appropriation request. 7 And this is where we reflect discontinuation of 8 charging lease space cost to bingo and funding these 9 costs to the lottery account. Again there is 10 documentation located within the fiscal year 2006, 11 2007 legislative appropriation request that we stated 12 in order to meet the base line budget reduction 13 required of all state agencies, certain bingo overhead 14 costs would be funded out of the G.R. dedicated 15 lottery account. 16 Once again the commission did testify 17 before the budget oversight agency as well as house 18 appropriation and Senate finance during the 79th 19 legislative session noting the movement of equal -- 20 these costs to the G.R. dedicated lottery account. A 21 follow up note, with all the providers listed with the 22 budget oversight agencies, noting that there would be 23 an amendment to required to section 466.355 to clarify 24 the agency's authority to provide certain 25 administrative support to the agency from the lottery 0085 1 account noting these bingo costs. 2 Commissioners, this concludes our 3 presentation. I would be happy to answer any 4 questions. 5 CHAIRMAN CLOWE: Commissioner Cox, I 6 asked that Kathy give us this report at this time on 7 this item and had it placed on the agenda because this 8 situation, as she has reported to us, extends back to 9 the time when Chair Miers, Commissioner Sadberry, and 10 Clowe were sitting on this board. And we have been 11 very, in my opinion, open and straightforward about 12 dealing with this practice, which is what I would come 13 to call it. It is a practice that only legislation 14 can remedy, as I see it, and we have adopted what we 15 thought was the best practice dating back to the board 16 formation that I mentioned, carrying it forward. We 17 have consistently testified to the legislature and 18 made it part of public record that this was our 19 practice that we had adopted. 20 But Kathy Pyka has come in and has done 21 an excellent job of documenting practices. She called 22 this to the commissioners' attention in a memorandum 23 that you and I both received. 24 COMMISSIONER COX: Yes. 25 CHAIRMAN CLOWE: And it was a fresh 0086 1 look which we want her to be taking in all of our 2 practices, and I want it covered in this meeting again 3 so that it's put out in the public and there is no 4 question about what our practice is. And we're open 5 to any instruction that the proper authority might 6 give us. And we are asking, as we have in the past, 7 for direction from the correct legislative body as to 8 a better way to handle these -- these funds. 9 Very good. Thank you, Kathy. 10 MS. PYKA: Thank you. 11 CHAIRMAN CLOWE: Next we'll go to Item 12 Number XVIII report possible discussion and/or action 13 on the lottery advertising and promotions. 14 Ms. McCullough. 15 MS. MCCULLOUGH: Good morning, 16 Commissioners. Good morning, Commissioners. 17 For the record, my name is Chelsea 18 McCullough, creative coordinator for the Texas Lottery 19 Commission. 20 As Robert Tirloni mentioned in his 21 report earlier, the next advertising campaign schedule 22 will support the Lotto Texas matrix change. In a 23 general market television teaser campaign will begin 24 on April 10th. And the general and ethnic market full 25 advertising campaign will begin on April 24th to 0087 1 include television, radio, outdoor, print, point-of- 2 sale, and direct mail. In addition, there are a 3 number of lottery races and selling events included in 4 this portion in your memo. 5 And that concludes my presentation. I 6 would be happy to answer any questions you have. 7 CHAIRMAN CLOWE: Thank you, ma'am. 8 MS. MCCULLOUGH: Thank you. 9 COMMISSIONER CLOWE: Next Item XIX, 10 report possible discussion and/or action on HUB and/or 11 minority business participation, including the 12 agency's mentor protégé program and/or approval of the 13 agency's FY 2005 minority business participation 14 report. 15 Mrs. Bertolacini. Oh, Mr. Jackson. 16 MR. JACKSON: Good morning, 17 Commissioners. 18 For the record, my name is Tom Jackson, 19 purchasing and contracts manager for the agency. I 20 will be providing today's HUB report in the absence of 21 Joyce. 22 Included in your notebooks today is the 23 February HUB and minority contracting activity report, 24 which includes all fiscal year 2006 expenditures paid 25 from September 1st, 2005, to February 28th, 2006. Our 0088 1 total qualifying expenditures as of February 28th, 2 2006 were 71.3 million, and our estimated HUB minority 3 utilization was properly 18.7 million, which equates 4 to 26.21 percent. 5 A copy of the commission's finalized 6 fiscal year 2005 minority business participation 7 report is also in your notebook. This report which is 8 required by section 466.107 of the State Lottery Act 9 wants it made available to the governor, lieutenant 10 governor, speaker of the house, members of the 11 legislature. The report requires a formal approval 12 prior to being printed and published on the website, 13 and I have that -- that cover letter ready for your 14 signature this morning. 15 There are no updates on the agency's 16 mentor protégé program at this time. 17 I would be happy to answer any 18 questions. 19 CHAIRMAN CLOWE: Do you have anything, 20 Mr. Sadberry? 21 MR. SADBERRY: Mr. Chairman, I do not 22 unless you have questions to ask of me. I would 23 certainly endorse your -- your consideration if you 24 wish to approve the report and I would just state we 25 have had ongoing means to emphasize the importance to 0089 1 the commissioners and the commission of our activities 2 in this regard and that we will continue to prioritize 3 it. 4 CHAIRMAN CLOWE: Does this require a 5 motion? 6 MS. KIPLIN: Yes, sir, it does. It is 7 a commission action. 8 CHAIRMAN CLOWE: I move we adopt the 9 2005 minority participation form -- participation 10 report presented by Mr. Jackson. 11 COMMISSIONER COX: Second. 12 CHAIRMAN CLOWE: All in favor, please, 13 say aye. 14 THE COMMISSIONERS: Aye. 15 CHAIRMAN CLOWE: Opposed, no. 16 The vote is two-zero. 17 Let me just take a minute to read this 18 right before I sign it. 19 Mr. Cox, have you seen this letter. 20 COMMISSIONER COX: I don't recall that 21 particularly. 22 CHAIRMAN CLOWE: Mr. Jackson, would you 23 give each of us a copy of this letter. 24 In the letter, Commissioner Cox, the 25 comment is during the fiscal year 2005, the agency 0090 1 achieved an overall participation rate of 24 percent 2 in its minority, slash, Historical Underutilized 3 Business contracting activity. 4 This represents a slight decrease from 5 fiscal year 2004; however, total payments made to 6 minority owned businesses were, paren, not including 7 minority women. I don't think that's right. Close 8 paren. Women are not a minority, in my opinion. Then 9 increase -- 10 COMMISSIONER COX: I think that's 11 supportable by statistics. 12 CHAIRMAN CLOWE: It sure is in my home 13 too. Then increased in the division, the agency 14 surpassed the previous year's all-time high in number 15 of licensed minority retailers. I think that's the 16 succulent facts in this letter. 17 What was our percentage, Tom, if you 18 know, in the prior year? 19 MR. JACKSON: I do not know, sir. I 20 can get that information for you. 21 CHAIRMAN CLOWE: So we dropped. Yeah. 22 I think we would like to have that to refresh our 23 memory. We dropped, this letter says, slightly from 24 '04 and '05, but the total payments increased. So 25 apparently the state's overall payments increased or 0091 1 we wouldn't have decreased in a percentage. 2 MR. JACKSON: Correct. 3 COMMISSIONER COX: But do I correctly 4 recall that of the top 11 agencies, we had the highest 5 percentage? 6 MR. JACKSON: Yes, sir. 7 CHAIRMAN CLOWE: Is that still the 8 same? 9 MR. JACKSON: That's still the same. 10 Yes, sir. 11 CHAIRMAN CLOWE: Okay. Any other 12 comments, Commissioner? 13 COMMISSIONER COX: No, sir. 14 CHAIRMAN CLOWE: Thank you, Tom. 15 Next we'll go on to Item Number XX, 16 report possible discussion and/or action on the 17 agency's contracts. 18 MR. JACKSON: Good morning, 19 Commissioners. 20 Once again for the record, my name is 21 Tom Jackson. I'm the purchasing and contracts manager 22 for the agency. In your notebooks under agenda Item 23 Number XX is the report on prime contracts dated -- 24 updated for your review. If you have any question, I 25 would be happy to respond. 0092 1 COMMISSIONER COX: Tom, I've made this 2 comment before. All of our contracts seem to expire 3 on or around August 31st. The only one on this list 4 that doesn't for a single month period, I think, and 5 that is a seven-month period to enable us to get up to 6 speed on that. 7 MR. JACKSON: That's correct. 8 COMMISSIONER COX: In addition, we've 9 got all these contracts that we were talking about 10 earlier that have a one-year term with three one-year 11 extensions. It looks to me like, one, we're engaging 12 in way too much contracting activity, when we are 13 having to sign these extensions, et cetera, et cetera, 14 instead of just getting a contract for four years and 15 terminating only if the vendor is unsatisfactory; and, 16 secondly, you've got a peak load problem. 17 Is anyone interested in doing anything 18 about that peak load problem? Are you doing something 19 about it, and it's just not obvious? Help me with 20 that. 21 MR. JACKSON: We can take a look at 22 that. One of the reasons -- one of the main reasons, 23 I believe, that we do a short-term, initial term, and 24 then several options with an opportunity to 25 renegotiate or to end it at the same time -- 0093 1 COMMISSIONER COX: Well, we always have 2 an opportunity to renegotiate. 3 MR. JACKSON: We can -- if we wanted to 4 go into, like you indicated earlier, a four-year -- 5 three-year initial term, it's my opinion that we can 6 get a better price if we had longer initial terms. We 7 do have an out clause in there. We will definitely 8 look into that. 9 COMMISSIONER COX: Okay. Well, that 10 one wasn't -- we had already talked about that. 11 MR. JACKSON: Oh. 12 COMMISSIONER COX: Let's talk about why 13 everything expires on August 31st. 14 MR. JACKSON: That's the close of our 15 fiscal year. 16 COMMISSIONER COX: I understand that. 17 MR. JACKSON: And the -- the funding 18 for those are on a biannual basis -- I mean on a -- 19 the -- the two-year term of our -- of our funding from 20 the legislature. So -- so we try not to go past that 21 date. 22 We are bringing new language into our 23 contracts now that we'll have a funding out clause so 24 we can go past that August 31st date. That creates -- 25 the August 31st date creates a problem for us in that 0094 1 we have all of them expiring at the same time. 2 COMMISSIONER COX: Sure. 3 MR. JACKSON: And we are looking into 4 carrying that our further to different lengths of time 5 so we won't have everything ending at the same time. 6 COMMISSIONER COX: Good. Thank you, 7 Tom. 8 CHAIRMAN CLOWE: Thank you, sir. 9 The next Item Number XXII, report 10 possible discussion and/or action on the agency's 11 strategic plan for 2007 through 2011. 12 Mr. Grief. Mr. Elrod. Ms. Pyka. 13 CHAIRMAN CLOWE: Where are we? Okay. 14 MR. GRIEF: Good morning again, 15 Commissioners. 16 For the record, I'm Gary Grief deputy 17 executive director, and I would like to turn it over 18 to Mr. Robert Elrod to give you an update on the 19 progress we've made on the agency's strategic plan. 20 MR. ELROD: Good morning, 21 Commissioners. 22 My name is Robert Elrod. I'm the 23 external communications specialist in the media 24 relations division, and I'm here to give you another 25 quick update on the fiscal year 2007-2011 strategic 0095 1 plan due to the L.B.B. on July the 7th. 2 Since my last update we concluded the 3 first draft of the external/internal assessment 4 section of the plan, and it has been submitted to all 5 of the agency's division directors for their review 6 and approval. The agency which include the agency's 7 five-year workforce plan and HUB plan and SOB summary 8 are currently being drafted. 9 In April the office of the controller 10 will submit the agency's request to budget structure 11 and performance measure of the agency to the 12 governor's office of public planning policy the L.B.B. 13 And I believe Kathy is the one going to provide you 14 some information about those proposal revisions. 15 That's all I have for today unless have 16 you any questions. 17 MS. PYKA: Thank you, Robert. 18 I'm Kathy Pyka, controller for the 19 Lottery Commission. I am seeking your approval 20 according to modify the commission's budget structure 21 for fiscal year 2008 and fiscal year 2009. As you are 22 aware, the strategic plan serves as a starting point 23 for developing the budget structure as we move forward 24 on our biannual budget request and LAR. 25 The division's current strategy budget 0096 1 structure and proposed budget strategy structure is 2 outlined in your notebook as attachment A. We're 3 seeking to make one change on the budget structure and 4 that is the deletion of strategy A15, security field 5 operations. We would like to consolidate the 6 activities of this strategy into A14 security. This 7 proposal is consistent with our current organization 8 structure of the business operations of the agency. 9 The remaining budget structure changes 10 that I am seeking your approval on this morning is 11 revision of performance measures. We are seeking the 12 addition of several performance measures as well as 13 the modification of one of our existing performance 14 measures, and most of those are just simply 15 performance measures and definition changes. 16 I would be happy to answer any 17 questions. 18 CHAIRMAN CLOWE: Oh, boy, did you get 19 off easy. 20 Does this require a motion? 21 MS. PYKA: I am seeking their approval, 22 Kim. 23 MS. KIPLIN: Yes. 24 CHAIRMAN CLOWE: So moved. 25 COMMISSIONER COX: Second. 0097 1 COMMISSIONER CLOWE: All in favor 2 please say aye. 3 THE COMMISSIONERS: Aye. 4 CHAIRMAN CLOWE: Opposed, no. 5 The vote is two-zero in favor. 6 When you skip by a CPA like that with a 7 major change, you -- you've done well. 8 MS. PYKA: Thank you, Mr. Chairman. 9 CHAIRMAN CLOWE: Nelda, we were saving 10 and savoring your report. 11 MS. TREVINO: Are y'all ready for me? 12 COMMISSIONER CLOWE: All right. Come 13 forward please. 14 We'll have -- let's see -- Item XXI 15 report possible discussion and/or action on the 79th 16 legislature. Somehow or another I was just saving 17 you. 18 MS. TREVINO: I heard that. 19 COMMISSIONER CLOWE: Ms. Trevino. 20 MS. TREVINO: Good morning, 21 Commissioners. For the record, I am Nelda Trevino, 22 director of governmental affairs. 23 The first item I'm going to report on 24 relates to the agency legislative briefings. In your 25 notebooks is a copy of the agenda for the briefing 0098 1 that was held on March 22nd. The agency and executive 2 management along with Commissioner Cox were in 3 attendance at our briefing. We had an opportunity to 4 provide some updates on various matters related to the 5 agency, to those individuals in the audience, and to 6 those who may have been monitoring the briefing over 7 the capital broadcast. 8 Additionally, we provided the briefing 9 materials to each of the legislative offices who were 10 unable to attend. Also, in your notebook is a copy of 11 the governor's press release announcing the special 12 session which is scheduled to begin on April 17th. 13 The governor's proclamation stated the agenda for the 14 special session, and allowing the filing of bills to 15 begin is yet to be issued. 16 I will certainly keep you posted on 17 developments on that matter. And that concludes my 18 report. 19 CHAIRMAN CLOWE: Nelda, I'm aware that 20 you had the executive briefing last week and Acting 21 Executive Director Sadberry has briefed me on his 22 comments regarding that and I just want to say that 23 unfortunately I was out of town and unable to attend. 24 I think those are excellent. I think you should 25 continue that program, and they have a beneficial 0099 1 result in keeping members of the legislature and the 2 leadership offices aware of activities here on a 3 regular and recurring basis. So I think those are 4 very important. 5 MS. TREVINO: We agree, Mr. Chairman, 6 and we will certainly continue our practice. 7 COMMISSIONER CLOWE: Very good. 8 COMMISSIONER COX: Mr. Chairman, I did 9 have an opportunity to attend in your absence. 10 CHAIRMAN CLOWE: Wonderful. I -- I 11 didn't want to mention it because I wasn't sure if you 12 were there or not. 13 COMMISSIONER COX: It was a very 14 professional presentation. 15 CHAIRMAN CLOWE: Great. 16 COMMISSIONER COX: And our responses 17 to -- there was a number of questions, and our 18 responses were excellent. 19 CHAIRMAN CLOWE: Wonderful. I would 20 expect that. And I'm so glad that you were able to be 21 there. 22 I want to say one other thing, Nelda, 23 that I think comes under this activity. You mentioned 24 the special session that has been called for April the 25 17th. This comment goes to all members of the 0100 1 commission and are just, at this time, I think 2 appropriate on the agenda. 3 There are issues that the governor will 4 put on the call and will be regarding funding and 5 allocation of monies to school and that subject. It 6 is important to remember and remind all members of 7 this agency that we serve as a resource and are 8 responsive to questions that members of the 9 legislature, members of the leadership group would ask 10 us regarding funding issues. 11 Deputy Executor -- Executive Director 12 Grief was asked some questions by Chairman Flores 13 which he responded to at the licensing committee 14 hearing in Fort Worth some weeks past. And I think he 15 was very careful to state in those comments that he 16 was being responsive to Chairman Flores and Chairman 17 Guerrin, who conducted that hearing in Chairman 18 Flores's absence. It may very well be possible that 19 members of this committee -- or of this agency are 20 asked by various committee members questions regarding 21 any number of issues that might come up at this 22 special session. 23 And, Executive Director Sadberry, this 24 is your first time to be in the office that you hold 25 in a legislative session, although you have been 0101 1 through it many times as a member of the commission. 2 And it is very intense from time to time, not only on 3 the depth of the questions that we may be asked to 4 respond to but the time limits that we are given to be 5 responsive. 6 And I want to again just refresh 7 everybody's understanding that the members of this 8 agency function as a resource only to the offices that 9 asked them for information and for assistance. Is 10 everybody clear on that, I hope? 11 MR. SADBERRY: Mr. Chairman, thank you 12 for those comments. We are. I might add to your 13 observations specifically regarding the request that 14 was made of Deputy Director Grief at the Fort Worth 15 committee hearing. In addition to Mr. Grief's 16 comments made at the hearing in response to the 17 questions asked and a further response was made by 18 letter with my signature in that letter. And 19 consistent with your views and correctness of our 20 capacity in which we serve, we carefully pointed out 21 in that correspondence that we were acting as a 22 resource and not intending, in so doing, to be 23 authoritative. 24 And we indicated the office, in this 25 particular instance of the attorney general's office, 0102 1 or any instance in which we so serve that we would 2 advocate that the resource capacity is a limitation of 3 our response. But that going directly to your 4 comments, it is our intent to be fully available, 5 responsive, and to recognize the necessity of being 6 timely and complete and consistent in our service in 7 that capacity. So we -- we are available and will do 8 so. 9 CHAIRMAN CLOWE: That gives me a lot of 10 comfort to hear that. 11 Yeah. We are going to take a break. 12 But, Counselor, I want to ask you. I see some high 13 priced lawyers in the audience, and I just wonder if 14 when we return you want to go into executive session 15 so that we may hear from them and cover their 16 subjects. We have some other items that are very 17 important on the public agenda, but if it would be 18 expeditious to cover those items in executive session, 19 I would like to take direction from you at this time. 20 MR. SADBERRY: We think that would be 21 consistent with the staff's position on that, 22 Mr. Chairman, and we would do so and request your 23 consideration. 24 CHAIRMAN CLOWE: All right. Then we're 25 going to take a short break, and I just wonder if we 0103 1 shouldn't go into executive session as far as 2 formality right now, Commissioner, before we take our 3 break. 4 Commissioner, do you want to cover the 5 entire executive session agenda at this time or shall 6 we just cover those portions relative to those items 7 that we have attorneys present here to brief us? 8 What's your -- 9 COMMISSIONER COX: Mr. Chairman -- 10 COMMISSIONER CLOWE: -- pleasure? 11 COMMISSIONER COX: -- that's at your 12 pleasure. 13 CHAIRMAN CLOWE: Commissioner 14 Sadberry -- or pardon me -- Acting Executive Director 15 Sadberry, do you have issues that you want to consider 16 with the commissioners as part of the executive 17 session which deal with Item XVII under our public 18 agenda consideration and possible discussion and/or 19 action on the lottery operator contract including 20 whether negotiation of the lottery operator's contract 21 in an open meeting would have a detrimental effect on 22 the commission's position in negotiations of the 23 lottery operator contract? 24 MR. SADBERRY: Mr. Chairman, at this 25 time I do not. I would not want to foreclose the 0104 1 possibility subject to the commissioner's wishes that 2 we would entertain that later in the day. But I 3 believe we can go into consideration of executive 4 session of other matters, in which legal counsel is 5 available and present, to discuss and give information 6 in the nature. But at this time we would not request 7 the commissioners' consideration of the matters 8 detailed under agenda Item Number XVII. 9 CHAIRMAN CLOWE: All right, Counselor, 10 will a motion to go into the executive session to 11 receive legal advise pursuant to general areas of law 12 be inclusive to cover what you would like to bring 13 before the commissioners at this time? 14 MS. KIPLIN: I think it will. May I 15 have a moment? 16 CHAIRMAN CLOWE: Certainly. 17 MS. KIPLIN: Including legal advice 18 regarding the lottery operator contract. 19 CHAIRMAN CLOWE: All right. And that 20 would include the lottery operations and services 21 contract? 22 MS. KIPLIN: Yes. I'm sorry. 23 CHAIRMAN CLOWE: All right. 24 Commissioner Cox, with your approval 25 then, I'm going to move that we go into executive 0105 1 session to cover limited subjects. Then we'll take a 2 short break. We'll convene in the executive session. 3 We'll deal with the subjects that we are going to move 4 on. Then we will return to the public meeting. 5 For those of you that are on the 6 agenda, you can anticipate we will cover those items, 7 and then we'll go back into executive session later in 8 the day to cover possibly other subjects so everybody 9 knows where we are. 10 Commissioner Cox, with your approval, 11 at this time I move that the Texas Lottery go into 12 executive session to receive legal advice pursuant to 13 Section 551.071, paren, two, close paren, of the Texas 14 Government Code regarding employment law, personnel 15 law, procurement, contract law, evidentiary and 16 procedural law, Bingo Enabling Act, and general 17 government law, and lottery operations and services 18 contract. 19 Is there a second? 20 COMMISSIONER COX: Second. 21 CHAIRMAN CLOWE: All in favor please 22 say aye. 23 THE COMMISSIONERS: Aye. 24 CHAIRMAN CLOWE: The vote is two-zero. 25 The Texas Lottery Commission will go 0106 1 into executive session. The time is 10:35 a.m. Today 2 is March the 29th, 2006. 3 (Executive session.) 4 CHAIRMAN CLOWE: The Texas Lottery 5 Commission is out of executive session. The time is 6 1:17 p.m. Today is March the 29th, 2006. 7 Is there any action to be taken as a 8 result of executive session? If not, let's move on to 9 the next item on our agenda. 10 I believe that is -- Diane, if it's 11 agreeable with you, I think we'll hold your item. 12 What period of time would you foresee your item 13 consuming? 14 MS. MORRIS: My item on the survey of 15 organizational -- 16 CHAIRMAN CLOWE: Yes. 17 MS. MORRIS: -- excellence? I think 18 about 20 minutes. 19 CHAIRMAN CLOWE: Okay. Let's just hold 20 that for the time being if we may. 21 We'll move onto Item XXIV, 22 consideration of possible action -- possible 23 discussion and/or action on the external and internal 24 audits and our reviews relating to the Texas Lottery 25 Commission and/or the internal audit department's 0107 1 activities. 2 MS. MORRIS: I have -- 3 COMMISSIONER CLOWE: Ms. Melvin. 4 MS. MORRIS: I have paged her. 5 MR. GRIEF: Mr. Chairman, I just called 6 her. She's on her way down. 7 COMMISSIONER CLOWE: All right. Let's 8 see. Who is here? 9 MS. KIPLIN: I'll do the orders if you 10 like. 11 MR. ATKINS: I'll get my report. 12 CHAIRMAN CLOWE: Wait a minute. Wait a 13 minute. 14 MS. KIPLIN: I've got the orders. 15 COMMISSIONER CLOWE: We have an order 16 that we need to vote on. Counselor, did you give us 17 an order that needs to come before the commission at 18 this time? 19 MS. KIPLIN: Yes, sir. It's just an 20 action that it has to do with the Bingo Advisory 21 Committee work plan. That -- that actually requires 22 your approval, and so we're looking for a motion to 23 approve that work plan. 24 CHAIRMAN CLOWE: So moved. 25 COMMISSIONER COX: Second. 0108 1 CHAIRMAN CLOWE: All in favor please 2 say aye. 3 THE COMMISSIONERS: Aye. 4 COMMISSIONER CLOWE: Oppposed, no. 5 The vote is two-zero in favor. 6 Is there an order? 7 MS. KIPLIN: No. It's just an action 8 item on the record. 9 CHAIRMAN CLOWE: Action item. Okay. 10 That's fine. 11 MS. KIPLIN: I do have an enforcement 12 order that I would be happy take up, if you wish. 13 CHAIRMAN CLOWE: Are you ready to go 14 forward with those? 15 MS. KIPLIN: Yes, sir. 16 CHAIRMAN CLOWE: Those would be under 17 Item Number XXIV, consideration of the status and 18 possible entry of orders in cases represented by the 19 letters A through C. 20 MS. KIPLIN: Yes, sir. And I -- I see 21 that it's Item Number XXIX. 22 CHAIRMAN CLOWE: I'm sorry. Did I 23 misspoke? 24 MS. KIPLIN: Well, maybe I misheard. 25 But it's Item Number XXIX. 0109 1 CHAIRMAN CLOWE: XXIX it is. I'm in 2 agreement with you. 3 MS. KIPLIN: Commissioners, you have 4 three agreed orders today, no contested case 5 proceedings. These are bingo matters. They -- they 6 have been in your -- they are in your notebook; and 7 they're for different violations of the Bingo Enabling 8 Act, mainly corrective action is part of the agreed 9 orders. And the staff would at this time recommend 10 that you vote to approve these enforcement orders. 11 CHAIRMAN CLOWE: Mr. Atkins, do you 12 have anything to comment on? 13 MR. ATKINS: I do not. 14 CHAIRMAN CLOWE: Commissioner Cox, do 15 you have any comments? 16 COMMISSIONER COX: No, sir. 17 CHAIRMAN CLOWE: So moved. 18 COMMISSIONER COX: Second. 19 COMMISSIONER CLOWE: All in favor 20 please say aye. 21 THE COMMISSIONERS: Aye. 22 CHAIRMAN CLOWE: Opposed, no. 23 The vote is two-zero in favor. 24 We'll sign these orders, and then, 25 Ms. Melvin, we'll call on you please. 0110 1 MS. MELVIN: Good afternoon, 2 Commissioners. I have a very brief update. We would 3 like to provide an update on several external audits 4 of the agency. 5 The very first item I would like to 6 bring before you, the controller's office has 7 concluded their post-payment audit. I have reported 8 on this audit in the previous commission meetings, and 9 I believe this audit began in January, 2005. The 10 final report was issued this month, so it was issued 11 on March 8th. 12 I do have several state auditors office 13 items that I would like to also update you on. First 14 is the security audit. That audit has concluded. 15 Last week we attended a pre-exit meeting of sorts and 16 drafts were shared with management and myself. We 17 anticipate that there might be some more issues that 18 we will still see in draft form before a draft report 19 is shared with the agency. 20 The human resources audit, that is 21 set -- or field work is set to conclude on that audit 22 at the beginning of this week. We will be meeting 23 with the auditor on Friday as part of our every two 24 week status meeting. And we anticipate they may share 25 some issues with us at that time. I can say that no 0111 1 draft issues have been shared with us at this point. 2 The Lotto Texas audit also being 3 conducted by the state auditor's office. The auditors 4 are in very early phases of test work on that audit, 5 and I believe that is pretty much on track. I did 6 hear that likely a report on that might be early June. 7 And then just some recent news. The 8 state auditor's office recently sent communication 9 that confirms their desire to conduct the annual 10 financial audit once again for the Texas Lottery 11 Commission. And if you don't mind, I'll just read a 12 little bit of -- from their letter to me. 13 The state auditor's office wants to 14 maintain a high level of involvement in the work, and 15 they are speaking of the audit. They propose that the 16 Texas Lottery Commission enter into an interagency 17 contract with their office to provide the audit 18 services. They state that they will provide the 19 services by either contracting with an independent 20 audit firm and conducting the engagement or conducting 21 the engagement theirself -- themselves. And this is 22 the arrangement that we had last year, and it worked 23 very well. 24 And then just the last -- this would be 25 the fifth state auditor's office audit, and that is 0112 1 regarding audit and procurement practices here at the 2 Texas Lottery Commission. That hasn't begun yet. 3 We've not received any formal communications on this, 4 but I just had conversations with their office, and 5 certainly in their audit plan, they anticipate that 6 audit beginning in the very near future. 7 Those are all the items of update I 8 had. If you have any questions, I would be happy to 9 answer them. 10 CHAIRMAN CLOWE: Thank you, Catherine. 11 I -- I think you briefed both commissioners in detail 12 prior to this meeting and your report. And we are 13 appreciative of your efforts. 14 MS. MELVIN: Thank you, sir. 15 CHAIRMAN CLOWE: Thank you. 16 Next I would like to take up Item XXV, 17 consideration and possible discussion and/or action on 18 the Texas Lottery Commission meetings. 19 Mr. Sadberry. 20 MR. SADBERRY: Commissioners, again for 21 the record, my name is Anthony Sadberry, acting 22 executive director. 23 At a previous meeting of the 24 commission, a discussion carried regarding the 25 frequency of holding commission meetings. At the 0113 1 request of the commission, staff reviewed all aspects 2 of the issues presented in connection with this 3 matter. 4 Staff recommends the following for your 5 consideration. If the commission approves, the staff 6 is ready to proceed beginning in April with changes in 7 the commission meeting structure and frequency. 8 Generally the changes are to go to two meetings per 9 month. 10 The items for the meetings would be 11 broken out as follows: The first Wednesday would be 12 contested cases, motions for rehearing, agreed orders, 13 administrative rules, bingo discussion, and action 14 items, executive reports, executive session, public 15 comment; the third Wednesday would be lottery 16 discussion and action items, executive session, 17 executive reports, motions for rehearing, public 18 comment. 19 Commissioners, there is a more detailed 20 memorandum that you have been provided that goes into 21 this particular general area but also discussing in 22 specifics some of the items that might be annual by 23 annual and otherwise that would give you greater 24 detail. But in general that's the overview of the 25 recommendation that staff makes to the commission, and 0114 1 we will also tell you that we are ready to move 2 forward with your procurance of this revised format. 3 COMMISSIONER COX: Let's do it. 4 CHAIRMAN CLOWE: Okay. I think 5 Commissioner Cox and I are in agreement that we would 6 like to try this new schedule. I would like to say 7 that for my part, my feeling is that this is an 8 experiment on our part to try to make our meetings as 9 efficient as possible and to deal with matters that 10 come before the commission more timely and not get 11 into an all-day marathon session as we have at some 12 times in the past. 13 And perhaps you've had more experience 14 with that as a commissioner than either one of us, 15 from your days when you were chair and there were many 16 waiting matters before the commission. I understand 17 that those meetings in some cases went on all day and 18 into the next day. 19 MR. SADBERRY: That's true. 20 CHAIRMAN CLOWE: We haven't touched 21 that in our service, but I am mindful. And I just 22 want to mention one more time the fact that we held a 23 public person who wanted to be involved in a case all 24 day long until late in the afternoon and had to deal 25 with that case, and it concerned Commissioner Cox and 0115 1 myself. 2 So we're going to try this, I think, 3 with our schedule in April meeting on the 5th and 4 19th. The published notice is already in effect for 5 the 5th. 6 MR. SADBERRY: That's right. 7 CHAIRMAN CLOWE: And you have made some 8 suggestions as to the schedule. Let's be -- or the 9 agenda. Let's be flexible to the extent that we have 10 to carry over items from a prior meeting, or if we 11 have some hot items, we can carry those forward so the 12 commission can deal with those in a timely way. And 13 that's part of the flexibility and the changing that 14 we may want to do. 15 Additionally, it's only fair to notice 16 that at this time we have two commissioners. 17 Commissioner Cox lives here in Austin. I live a short 18 distance away. We are both happy to give two a 19 month -- two days a month as meeting days. That may 20 not be the case if we are joined by a third 21 commissioner. And at that point in time I think we 22 should review this and see what that person's feelings 23 are. 24 MR. SADBERRY: Mr. Chairman, that is so 25 noted, and we'll take that into account. 0116 1 CHAIRMAN CLOWE: Very good. 2 Is there anyone in the staff that wants 3 to say a word on this? 4 Anything else, Mr. Sadberry? 5 MR. SADBERRY: That concludes that 6 item, Mr. Chairman. 7 CHAIRMAN CLOWE: Next Item XXVI 8 consideration of and possible discussion and/or action 9 on the employment of an executive director. 10 My name is opposite this item on the 11 agenda, and I don't have any new news or additional 12 information to bring before the commission at this 13 time. 14 Then I believe at this time we'll 15 probably go to the acting executive director's report, 16 Item Number XXX, if you're ready, Mr. Sadberry. 17 MR. SADBERRY: I am, Mr. Chairman. 18 Commissioners, again Anthony Sadberry, 19 acting executive director. I wish to bring to your 20 attention certain matters that might be of interest to 21 you with regard to issues that have come before the 22 commission on an ongoing path with respect to the 23 agency and the staff involved in it. 24 I wish to advise you of certain 25 activities that have taken place with respect to the 0117 1 Texas Publishers' Association meeting. This is 2 generally with the minority print media participation 3 in the agency advertising processes. A meeting with 4 this group took place on Friday, March 3rd, 2006, in 5 my office. There were four representatives from their 6 organization present. Toni Wyatt, Akwasi -- Akwasi 7 Evans, Hussien Ali, and Willie Hobdy who is the 8 president of that organization. 9 Several members of the commission staff 10 were also in attendance including -- in addition to 11 myself: Michael Anger, director of lottery 12 operations; Bobby Heith, director of media relations; 13 Andy Marker, deputy general counsel; and Ray Page, 14 advertising and promotion manager. 15 T.P.A. members voiced concerns 16 regarding the audit process as required in the 17 advertising contract. We had thorough discussion of 18 that matter. There were follow-up letters from myself 19 as well as Ray Page sent to them. Media relations is 20 reaching out now to assist in publications -- 21 associated publications regarding the TLC press 22 releases and contact information. 23 We have been invited to attend the 24 T.P.A.'s convention at the end of March at the Hilton 25 at Bergstrom, and we plan to attend. I plan to attend 0118 1 along with Bobby Heith Ray Page. This is a matter of 2 concern to us. We feel we established a good line of 3 communication. We intend to pursue that and keep you 4 advised of the progress at it develops. 5 Another matter is the retailer check 6 presentation that was made in Houston on March 17th, 7 2006. Bobby Heith and I presented Mr. Nguyen with the 8 500,000-dollar ceremonial check for selling the Lotto 9 magic ticket for the February 8th drawing. KTRH Radio 10 was present for the presentation and post presentation 11 interviews were conducted with Mr. Nguyen as well as 12 myself. 13 Following that, Bobby and I visited the 14 Houston claims center. We met with the employees to 15 promote the lottery, so did the staff, as well as the 16 charitable bingo facility and staff. We really wanted 17 to express significant appreciation on behalf of our 18 taking the time and offer to attend and give them an 19 indication of our appreciation for the work that they 20 do and their dedication to the work of this agency. 21 In a like manner, we are planning 22 future opportunities as certain instances are met to 23 visit other claim centers and express the same 24 indication of our appreciation and recognition for the 25 valuable work that they do for the agency. 0119 1 That concludes my report. I'll be 2 happy to answer any questions. 3 CHAIRMAN CLOWE: Thank you, sir. 4 Mr. Atkins, we'll move to Item XXXI, 5 report by the charitable bingo operations director. 6 Please. 7 MR. ATKINS: Thank you, Mr. Chairman. 8 I would like to update the item under 9 the staffing category. That position in the licensing 10 services section has been filled with an internal 11 candidate. We'll, therefore, have a vacancy in our 12 accounting services section, which we will shortly be 13 posting. 14 We also have, as of this morning, 152 15 external users registered with the bingo services 16 center. And I also wanted to draw your attention to 17 the fact that on March 7th, 2006, we added two 18 additional reports to the statewide report function on 19 the bingo services center. And what that essentially 20 does, Commissioners, is make all of the routine 21 information that we get, requests for -- through open 22 records, available on our website. So we are happy to 23 provide that information to our licensees. 24 Something else. My report indicates 25 that the next BAC meeting was tentatively scheduled 0120 1 for May 17th. With your decision to go to two 2 meetings a month, that would have conflicted with the 3 next meeting. So in discussions with Ms. Taylor, we 4 moved those meetings to the second Wednesday. So the 5 next meeting will be May 10th. The August meeting 6 will be on August 9th, and the November meeting will 7 be on November 8th. And we have made those changes 8 and posted it, also, to the agency's website. 9 CHAIRMAN CLOWE: Very good. 10 MR. ATKINS: I included with my report 11 our allocations memo for 2004 as well as the summary 12 of the recent press releases that have been issued in 13 conjunction with the fourth quarter 2005 figures as 14 well as annual 2005 figures. You have had the 15 standard bingo activity report, bingo services center 16 report, and an allocation memo. 17 Very quickly, I wanted to update you on 18 two activities that have occurred nationwide. The 19 first is the Indiana legislature has voted to transfer 20 the regulation of charitable bingo from the Indiana 21 Department of Revenue to the Indiana Gaming 22 Commission. And we will be following that. And also 23 the Indiana Gaming Commission is responsible for the 24 regulation of casinos within the state of Indiana. 25 And they are the department, of course, similar to our 0121 1 comptroller's office. 2 And also recently the state of 3 Wisconsin, the legislature passed a bill authorizing 4 organizations in Wisconsin to conduct progressive 5 bingo games, and I understand the governor has signed 6 that bill. And we've had brief discussions with the 7 regulators in Wisconsin and we'll follow up with them 8 to see if they notice any impact those games have on 9 the operations in the state of Wisconsin. 10 And the last thing I wanted to share 11 with you is that this Saturday is a special birthday. 12 Specifically it's bingo's 12th birthday at the Texas 13 Lottery Commission. And so since it's a Saturday, we 14 are planning have some festivities on Friday. At 15 11:30 the bingo division will be having a luncheon in 16 the courtyard if the weather permits, otherwise, here 17 in this auditorium. And you, of course, are invited 18 to join us. 19 And then at 1:00 o'clock we intend to 20 extend an invitation to the rest of the commission to 21 join us for birthday cake. So I will be sending out a 22 invitation to agency staff later this week and 23 inviting them to that event. 24 CHAIRMAN CLOWE: How nice. Very good. 25 Any comments or questions, 0122 1 Commissioner? 2 COMMISSIONER COX: No, sir. 3 CHAIRMAN CLOWE: Thank you, Billy. 4 Next Item XXXII, public comment. Is 5 there anyone wishing to make comment to the 6 commission? 7 Seeing none, let's move to the long 8 awaited and highly anticipated report, possible 9 discussion and/or action on the agency's survey of 10 organizational excellence. 11 Ms. Morris. 12 MS. MORRIS: Good afternoon. My name 13 is Diane Morris. I'm the director of Human Resources 14 with the Texas Lottery Commission. I'm very happy 15 today to present the results from the survey of 16 organizational excellence. 17 The survey provides the organization 18 leadership information about workforce issues that 19 impact the quality of services ultimately delivered to 20 all customers. This information not only provides 21 information about employees' perceptions of the 22 effectiveness of their own organization but also about 23 employee satisfaction with their employer. 24 The survey was given in December of 25 this past year. The results that were returned show 0123 1 an 83 percent response rate. What that means is 304 2 employees were asked to take the survey. 251 3 responded. The response rate of 83 percent is the 4 highest that our agency has ever had. In past years 5 the responses have been 70 percent, a year ago; two 6 years ago, 63; in 2002, 52; and in the year 2000, 39 7 percent. 8 If you look off -- on this Power Point 9 to the right-hand side, I have a little graphic that 10 would show you compared to other state agencies, 11 compared to other agencies of our same size, compared 12 to other agencies that perform the same type of 13 mission, the regulatory functions -- we'll get into 14 that in a minute -- and frankly compared to all 15 respondents that take the survey, you can see why our 16 83 is well above any of those other numbers. 17 CHAIRMAN CLOWE: And, Diane, in that 18 regard, when did Acting Executive Director Sadberry, 19 come to work? 20 MS. MORRIS: I think his first day was 21 January 17th of 2006. 22 CHAIRMAN CLOWE: So he didn't have 23 anything to do with these results, did he? 24 MS. MORRIS: I would have to ask him 25 that. 0124 1 These results -- 2 MR. SADBERRY: Is that related good 3 will? Mandatory good will. 4 CHAIRMAN CLOWE: Well, it -- it gives 5 you an opportunity to improve on that. 6 MR. SADBERRY: Exactly. 7 MS. MORRIS: I'll go over the basics of 8 the survey. There are three items, if you will, or 9 objects that make up the survey and these words are 10 called items, constructs, and dimensions. Survey 11 items build constructs, and constructs build 12 dimensions. We'll talk more on those. For your 13 information, these results are taken year after year. 14 The same questions are asked so comparisons can be 15 shown from year after on questions, if you will, the 16 items, the constructs, and the dimensions. 17 What are items. Items are descriptions 18 or statements about the organization. The survey asks 19 how strongly the respondent agrees or disagrees with 20 an item. Possible scored responses are strongly 21 agree, agree, neutral, disagree, or strongly 22 disagree. There are 86 survey items. 23 Then constructs. Constructs are 24 designed to broadly profile organization strengths in 25 areas of concerns. Constructs are developed from a 0125 1 group of survey items. Construct scores are 2 calculated by averaging the item scores together. 3 There are 20 constructs. And then there are the five 4 dimensions. Dimensions capture the total work 5 environment. There are five dimensions: work group, 6 accommodations, organizational features, information, 7 and personal. 8 Many constructs including many items 9 make up each dimension. Here they are. Work group. 10 The constructs under work group are supervisor 11 effectiveness, fairness, team effectiveness and 12 diversity, accommodations, fair pay, physical 13 environment, benefits, employment development. 14 Organizational features. The related 15 constructs are change oriented, goal oriented 16 holographic, strategy, and quality. 17 CHAIRMAN CLOWE: What is holographic? 18 MS. MORRIS: Holographic is defined as 19 the ability of the agency, if you -- if you will, to 20 hang together, to understand its mission. 21 CHAIRMAN CLOWE: Thank you. 22 MS. MORRIS: Information is the fourth 23 dimension. It is made up of internal availability and 24 external, personal, job satisfaction, time and stress, 25 burn out, and empowerment. 0126 1 And I will be talking about some of 2 these in more detail for definitions. The Texas 3 Lottery Commission construct scores in our report are 4 shown here as the graphic appears in the report for 5 the agency. And you can see on the left side of the 6 this graph the five dimensions. Down the middle are 7 the constructs and then our scores. 8 The survey looks to the five highest, 9 the five lowest and then -- then, if you will, those 10 scores in between. I would like to note at this point 11 that none of the scores are below 300. We can talk 12 more at scores, but I do want to say The University of 13 Texas defines the scores and describes the score of 14 300, meaning scores above 300 suggest that employees 15 perceive the issue more positively than negatively. 16 Scores of 400 or higher indicate areas of substantial 17 strength. 18 If we had any scores below 300, what 19 scores below 300 mean is that they are you viewed more 20 negatively by employees; and if there were any scores 21 below 200, they would be viewed as a significant 22 concern for an organization. 23 The survey of organizational excellence 24 compares our results this year to other agencies that 25 take the survey and to all other state agencies that 0127 1 take the survey. In a similar size organization it's 2 referred to MAC organizations and mid size agencies. 3 Employees Retirement System is one of the other 4 agencies we are compared to, the Department of 5 Information Resources, the Public Utility Commission, 6 and the General Land Office. Agencies that we are 7 compared to but have similar mission include the Texas 8 Department of Transportation, Texas Department of 9 Housing and Community Affairs, and the Texas Workforce 10 Commission. 11 Here's a graphic that shows our scores 12 compared to scores in our same mission, scores in our 13 same size, and then all respondents. And again, our 14 scores are off to the side in blue. They are at or 15 above the other bench marks. Again 300. And we have 16 no scores 300 or lower. It would be viewed as those 17 items were negatively seen by employees. We have 18 scores 300 and above. Those areas that project that 19 the employees view the area in the division more 20 positively than negatively. 21 Over time, again, it is a good thing. 22 We have the data. We can look back over the years of 23 these same items, constructs, and dimensions. And 24 here is a chart looking back. This looks back to just 25 last year. But what this chart is showing in the same 0128 1 order as the previous chart, the dimensions, the 2 constructs, and then the scores over to the right-hand 3 side, that from last year the difference of all these 4 scores except one that remained the same have all 5 improved. For example, supervisor effectiveness, the 6 first construct, has improved by 17 points. 7 What were our highest scores this 8 year: quality, physical environment, time and stress, 9 job satisfaction, and strategic. For comparison 10 purposes very quickly on these high scores, this chart 11 shows the performance of these high score constructs 12 over the last couple of years. The trends are moving 13 up. 14 Specifically what is quality. Quality 15 is the degree to which quality principles such as 16 customer service and continued improvements are a part 17 of the organization's culture. The items meaning 18 these are the statements that survey participants 19 would have been asked do you strongly agree with, 20 agree with, neutral, disagree, or strongly disagree 21 with. These are the items they would have answered to 22 build the construct of quality: We are known for the 23 quality of service we provide; we are constantly 24 improving our services; we produce high quality work 25 that has a low rate of error; we know who our 0129 1 customers are; we develop services to match our 2 customers' needs; outstanding work is recognized; we 3 have adequate resources to do our jobs. 4 Physical environment. The second 5 construct that was one of the five highest scoring 6 constructs means it reflects the employees perceptions 7 of the total work atmosphere and the degree to which 8 employees believe that it is a safe working 9 environment. The answers to the items would have 10 been: we are -- we have adequate computer resources, 11 hardware, and software; we have sufficient procedures 12 to ensure safety of our employees in the work place; 13 our work place is well maintained; and within my work 14 place there is a feeling of community. 15 The third construct which was the 16 highest scoring is time and stress. This means the 17 extent to which employees feel that job demands are 18 realistic, given time and resource limitations, and if 19 the work environment supports employees in balancing 20 home and work demands. The items answered would have 21 been: The amount of work I am asked to do is 22 reasonable; we have adequate resources to do our job; 23 the environment supports a balance between work and 24 personal life; we balance our focus on both long range 25 and short term goals. 0130 1 The fourth high scoring construct was 2 job satisfaction. This construct is rested in the 3 employees' attitudes about the overall work 4 situation. It looks at the degree to which the 5 employees like their jobs and the total work 6 environment. It focuses on the job itself and the 7 availability of resources to do the job. The items 8 would have been: We are given the opportunity to do 9 our best work; we have adequate resources to do our 10 job; the environment supports a balance between work 11 and personal life; the pace of the work in the 12 organization enables me to do a good job. 13 And the fifth of the highest scoring 14 constructs is strategic. This reflects employees 15 thinking about how the organization responds to 16 external influences that should play a role in 17 defining the organization's mission, vision, services, 18 and products. It includes the ability of the 19 organization to seek out and work with relevant 20 external entities. The items were: We are known for 21 the quality of service we provide; we know who our 22 customers are; we use feedback from those we serve to 23 improve our performance; we work well with other 24 organizations; we work well with our governing bodies, 25 legislature, board, et cetera; we work well with the 0131 1 public; we understand the state, local, national and 2 global issues that impact the organization; I believe 3 I have a good understanding of our mission, vision, 4 strategic plan; I believe we communicate our mission 5 effectively to the public. 6 The mid range constructs, the middle 7 ones: fairness, diversity, benefits, employment 8 development, change oriented, goal oriented, 9 availability, external, burn out, and empowerment. 10 Then the lower area scoring constructs. Those five 11 were: Fair pay, internal communication, holographic, 12 team effectiveness, and supervisor effectiveness. 13 There is a graph of the lower scoring constructs also 14 over the last five years. And even our lower scoring 15 one are showing trends upward over the years. 16 Fair pay. That means, from The 17 University of Texas's definition, the evaluation from 18 the viewpoint of the employees of the competitiveness 19 of the total compensation package. It addresses how 20 well the package holds up when employees compare it to 21 similar jobs in their own communities. The items 22 would have been: People are paid fairly for the work 23 they do; salaries are competitive with similar jobs in 24 the community; my pay -- I'm sorry -- my pay keeps 25 pace with the cost of living. 0132 1 Internal communications. That captures 2 the nature of communication and exchanges within the 3 organization. It addresses the extent to which 4 employees view information exchanges as open and 5 productive. The items responded to would have been: 6 The right information gets to the right people at the 7 right time; work groups receive adequate feedback that 8 helps improve their performance; information and 9 knowledge are shared openly within this -- this 10 organization. 11 Holographic refers to the degree to 12 which all actions of the agency came together and 13 understood by all. It concerns employees perceptions 14 of the consistency of decision making and activities 15 within the organization. The items would have been: 16 The work atmosphere encourages open and honest 17 communication; decision making and control are given 18 to employees doing the actual work; we feel a sense of 19 pride when we tell people that we work for this 20 organization; we feel our efforts count; within my 21 work place there is a feeling of community; an effort 22 is made to get the opinions of people throughout the 23 organization; we know how our work impacts others in 24 the organization. 25 Another one of the lower scoring 0133 1 constructs was team effectiveness. That captures 2 employee perceptions of effectiveness over a work 3 group and extent to which the organizational 4 environment supports appropriate team work among 5 employees. 6 The items would have been: Work groups 7 receive adequate feedback that helps improve their 8 performance; decision making and control are given to 9 employees doing the actual work; there is a basic 10 trust among employees and supervisors; we are 11 efficient; there is a real feeling of teamwork; work 12 groups are actively involved in making work processes 13 more effective. 14 Supervisor effectiveness. This 15 construct provides insight into the nature of 16 supervisory relationships in the organization, 17 including the quality of communications, leadership, 18 thoroughness, and fairness that employees perceive 19 exists between supervisors and them. The items were: 20 We have an opportunity to participate in the goal- 21 setting process; we seem to be working towards the 22 same goals; we are given the opportunity to do our 23 best work; we are given adequate feedback about our 24 performance; supervisors know whether an individual's 25 career goals are compatible with organizational goals; 0134 1 people who challenge the status quo are valued; 2 favoritism, special treatment is not an issue in 3 raises or promotions. 4 At this point these results of the 5 survey of organizational excellence have been shared 6 with all employees of the agency. The results have 7 been placed on the agency's intranet site. There were 8 also results that were reported on division level. 9 Some of the smaller division were combined. Some 10 divisions have just one each. These department level 11 or division level results have also been shared with 12 the review of all employees no matter what division 13 you are in. 14 However for those particular results 15 per the divisions, the management has asked that each 16 division director review the scores for the various 17 reports for either their divisions or for the 18 departments within their divisions. The division 19 directors have been asked, and they have developed 20 action plans that are specifically regarding their own 21 divisions. 22 Some of the division action plans 23 differ; but for the most part, there is a recognition 24 by the divisions that to involve the employees in work 25 groups was a very effective method that was used last 0135 1 year in responding to the survey of organizational 2 excellence. Most of the division plans have been set 3 forth and are also put on the intranet involve the 4 formation of employee work groups to address the 5 specific areas that were brought forward from the 6 divisions in those division surveys. 7 Any additional information, of course, 8 would be that the survey of organizational excellence 9 has a website. You can access the survey itself to 10 look at it. There is more information on the website, 11 more comparisons, and other customers. And, of 12 course, they have other surveys that would otherwise 13 be available to the state agency. 14 At this point this is the end of my 15 Power Point. My final remarks would be that I am so 16 pleased to again report that the employees of the 17 agency, some 83 percent, responded and that our 18 scores, none below the level of 300, are very 19 positive. It is very promising. We still can improve 20 on our lower constructs, and we intend to do so. 21 At this point do you have any 22 questions? 23 COMMISSIONER COX: Mr. Chairman, I'm 24 very impressed. I was -- I was concerned last year 25 when things sort of dipped and they are back up and 0136 1 better than ever. And I think the response rate is 2 remarkable. And I think Director Sadberry is going to 3 be challenged to continue to improve this, but I have 4 faith that he will do it. 5 CHAIRMAN CLOWE: I agree. 6 Diane, what's the level of 7 confidentiality of responses. 8 MS. MORRIS: Well, the firm -- The 9 University of Texas has been asked over and over 10 again: We want to make sure it's confidential. We 11 have in writing from the -- from The University of 12 Texas that the responses are confidential. We do not 13 ask to know, of course, who or what -- who would have 14 said what, but they could not have provided that to us 15 if we wanted to. They continue to assure us that it 16 is confidential. 17 CHAIRMAN CLOWE: So we can assure the 18 employees of this agency that if they will respond, 19 that their response will be confidential and they can 20 say how they honestly feel and there would never be a 21 question of retribution or any action in any way 22 towards any employee for their participation in this 23 survey. 24 MS. MORRIS: Absolutely. In fact, 25 during our last staff meeting when the question was 0137 1 asked of me again, I said, you know, next year The 2 University of Texas researcher has offered to come 3 over and the staff kind of, no, no, that wouldn't be 4 necessary. Absolutely. It is confidential, and there 5 is no retribution. 6 CHAIRMAN CLOWE: I think that it is 7 important as Commissioner Cox has pointed out to 8 appreciate the level of response that we've achieved. 9 83 percent is exemplary. I would challenge 10 Mr. Sadberry to a goal of 95 percent in his first 11 year. 12 MS. MORRIS: Well. Let's go. That's a 13 bet. 14 MR. SADBERRY: He's kidding. 15 CHAIRMAN CLOWE: And at the same time 16 that I would lay that challenge out for 95 percent, I 17 will say that he knows as well as Commissioner Cox and 18 myself that he can't do that by himself, that it takes 19 a team of the employees of this agency to demonstrate 20 by exemplary leadership skills the interest that they 21 have in our approximately 325 employees to get that 22 level of participation. And then once you have that 23 participation, to have the employees not only 24 participate but feel about the organization so that 25 the results are closer to 400 than they are to 300 in 0138 1 the scoring. 2 There is no doubt in my mind that we 3 can reach those levels, and I think the benefit -- the 4 benefactors would be the people of the state of 5 Texas. Any state agency owes it to the state to do 6 the best work, to do excellence and exemplary 7 performance. And I feel that we have a team here now 8 that can demonstrate the kind of leadership that can 9 bring about a 95 percent return and scores closer to 10 400. And I want to tell you and -- and Mr. Sadberry 11 that Commissioner Cox has demonstrated his willingness 12 and his involvement and I want to tell that you I feel 13 the same way, to give our support in any way we can to 14 bring these performance levels up to the highest 15 possible level achieved. We're very pleased, both of 16 us. And we would like to see it only get better. 17 Anything further, Commissioner? 18 COMMISSIONER COX: I would say looking 19 at some specific items and I really hate to do that 20 because I know they are all important. But I was very 21 pleased to see such a high rating on quality because 22 that's certainly one of the things that we are about. 23 One of the middle ground areas that I 24 would particularly like to see higher and I know it's 25 very high on Director Sadberry's list is fairness. 0139 1 And I think in the lower area, communication was 2 something I was a bit surprised about because I -- I 3 perceive we do a wonderful job in that area. But 4 there is -- obviously the work groups will -- are 5 directed toward finding where are we -- where can we 6 improve, and I just want to comment specifically on 7 those three, Mr. Chairman. 8 CHAIRMAN CLOWE: Great. Very succinct 9 comments. 10 Thank you, Diane. 11 Now I would like to return to Item 12 XVII, consideration and possible discussion and/or 13 action on the lottery operator contracts including 14 whether negotiation of the lottery operator's 15 contracts in an open negotiation -- open meeting would 16 have a detrimental effect on the commission's position 17 and negotiations of the lottery operator contract. 18 Director Sadberry, we have statutory 19 authority now, as you are aware, to go into executive 20 session and deliberate about the lottery operator 21 contract. I -- I think you are involved in 22 negotiations. And prior to moving to go back into 23 executive session to discuss matters which the 24 commission is entitled to enter into discussion of an 25 executive session, I would like are you to advise 0140 1 Commissioner Cox and myself as to your feeling in 2 regard to this item. 3 MR. SADBERRY: Thank you, 4 Mr. Chairman. Anthony Sadberry, acting executive 5 director. 6 And I wanted to lay out a general 7 observation for you, if I may, and then specifically 8 address the point you put me to directly. 9 The staff has undertaken negotiations 10 with GTECH relating to a proposed contract amendment. 11 These negotiations -- those negotiations continue. 12 Since the beginning of the commission in 1993 the 13 commission has consistently taken the position that 14 matters relating to key contracts including the 15 lottery operations and services contract are matters 16 about which the commission wants to be kept informed 17 and wants to be able to provide direction to the 18 executive director and staff. 19 Pursuant to the Texas Government Code 20 section 467.030, I understand that the commission has 21 the ability to deliberate the negotiations of the 22 lottery operator's contract in executive session. If 23 the commission determines in writing that an open 24 meeting would have a detrimental effect on the 25 commission's position in negotiations. 0141 1 The open meetings notice posted for 2 today's meeting provides the commission with the 3 ability to convene in a closed meeting to deliberate 4 the negotiations of the lottery operator's contract as 5 well as to receive legal advice regarding the 6 contract. The staff waits the direction of the 7 commission on this matter. 8 Two other issues come to mind regarding 9 this particular contract. First, although the State 10 Lottery Act clearly designates the executive director 11 as having the authority to execute a contract or any 12 amendment relating to the lottery operator. I am 13 mindful of the commission's desire in the past and in 14 the present to be significantly involved in 15 contractual matters involving the lottery operator, 16 even to the point, as I understand it, of including 17 the specific contract language to be used. 18 Secondly, it has also been brought to 19 my attention that there have been recommendations made 20 in the past by staff of the Texas Sunset Commission 21 that the commission be more involved and have 22 increased oversight of Lottery Commission major 23 contracts. And the lottery operations and services 24 contract certainly falls under that classification as 25 it is the largest contract managed by the agency. 0142 1 With that general overview, 2 Mr. Chairman and Commissioner, I would state that you 3 correctly state the significance of this matter and I 4 would use it in -- in recommending it to you for your 5 consideration to be used in situations where it is in 6 my judgment and based upon my recommendation justified 7 based on my understanding of the status of 8 negotiations and the appropriateness to use this 9 specific exception to further the objectives under 10 consideration with regard to such contract and 11 negotiations. 12 It is my considered judgment based upon 13 the advice I have received today as of this point, 14 that should you so desire and should you so find the 15 requisite basis for using this exception that it will 16 be appropriate that you exercise these at this time, 17 and I would be prepared along with staff to assist in 18 your deliberations in that regard. 19 CHAIRMAN CLOWE: Thank you. 20 Any questions? 21 Commissioner Cox, with your permission 22 I'm going to move to go into executive session. 23 At this time I move that the Texas 24 Lottery Commission go into executive session: 25 To deliberate the appointment, 0143 1 employment, evaluation, and other duties of the 2 executive director, acting executive director, and/or 3 deputy executive director. 4 To deliberate the duties and evaluation 5 of the charitable bingo operations director and 6 internal audit director. 7 And to deliberate the duties of the 8 general counsel pursuant to section 551.074 of the 9 Texas Government Code. 10 To receive legal advice regarding 11 pending or contemplated litigation and/or receive 12 legal advice pursuant to section 551.071, paren, one, 13 close paren, paren, A, close paren, or, paren, B, 14 close paren, of the Texas Government Code and/or to 15 receive legal advice pursuant to section 551.071, 16 paren, two, close paren, of the Texas Government Code 17 including but not limiting to: 18 Gametech International versus Greg 19 Abbott, Attorney General of Texas, et al; Gametech 20 International, et al., versus Greg Abbott, et al; 21 Cynthia Suarez versus Texas Lottery Commission; 22 Charles -- Shelton Charles versus Texas Lottery 23 Commission and Gary Grief; 24 Employment law; personnel law; 25 procurement and contract law; evidentiary and 0144 1 procedural law; Bingo Enabling Act; and general 2 government law; lottery operations and services 3 contract; Mega Millions game and/or contract; request 4 for attorney general opinion RQ, dash, 0450, dash, GA. 5 And to deliberate the negotiation of 6 the lottery operator's contract pursuant to section 7 467.030 of the Texas Government Code. 8 Is there a second? 9 COMMISSIONER COX: Second. 10 CHAIRMAN CLOWE: All in favor please 11 say aye. 12 THE COMMISSIONERS: Aye. 13 COMMISSIONER CLOWE: The vote is 14 two-zero. 15 The Texas Lottery Commission will go 16 into executive session. The time is 2:13 p.m. Today 17 is March the 29th, 2006. 18 MS. KIPLIN: Mr. Chairman, part of 19 going into executive session regarding deliberation 20 and negotiation of the lottery operator's contract is 21 to make a written determination. You have moved. You 22 have gone into executive session. I do have that 23 written determination here for you and Commissioner 24 Cox. 25 CHAIRMAN CLOWE: And it is appropriate 0145 1 for us to execute it at this time. 2 MS. KIPLIN: Yes, I do believe so. 3 CHAIRMAN CLOWE: We will do so. 4 MS. KIPLIN: It is consistent with your 5 motion, the second, and the vote. 6 CHAIRMAN CLOWE: Mr. Sadberry, we will 7 ask you to and the appropriate members of the staff to 8 join us in executive session at this time. 9 MR. SADBERRY: Thank you, sir. 10 (Executive session.) 11 CHAIRMAN CLOWE: All right. We're back 12 on the record. The Texas Lottery Commission is out of 13 executive session. The time is 4:58 p.m. Is there 14 any action to be taken as a result of the executive 15 session? 16 If not, I believe we have completed our 17 public agenda. Is there any other business to come 18 before the commission at this time? 19 Commissioner Cox, do you have 20 anything? 21 COMMISSIONER COX: No, sir. 22 CHAIRMAN CLOWE: We are adjourned. 23 Thank you-all very much. 24 (Concluded at 4:58 p.m.) 25 0146 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SHELLEY N. JONES, Certified 7 Shorthand Reporter in and for the State of Texas, do 8 hereby certify that the above-captioned matter came on 9 for hearing before the TEXAS LOTTERY COMMISSION as 10 hereinafter set out, that I did, in shorthand, report 11 said proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this 10th day of 17 April, 2006. 18 19 20 ________________________________ Shelley N. Jones, RPR, CSR #8058 21 Expiration Date: 12/31/06 Firm Registration #225 22 1801 North Lamar Boulevard Mezzanine Level 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 060329SNJ