0001 1 2 3 4 ****************************************************** 5 6 7 TEXAS LOTTERY COMMISSION 8 MEETING 9 10 APRIL 12, 2004 11 12 13 ****************************************************** 14 15 16 17 BE IT REMEMBERED that the Texas Lottery Commission 18 meeting was held on the 12th day of April, 2004 from 8:34 19 a.m. to 1:40 p.m., before David Bateman, RPR, CSR in and for 20 the State of Texas, reported by machine shorthand, at the 21 Offices of the Texas Lottery Commission, 611 East 6th 22 Street, Austin, Texas 78701, whereupon the following 23 proceedings were had: 24 25 0002 1 A P P E A R A N C E S 2 3 Chairman: 4 Mr. C. Tom Clowe, Jr. 5 6 Commissioners: 7 Mr. James A. Cox, Jr. 8 Mr. Rolando Olvera 9 10 General Counsel: 11 Ms. Kimberly L. Kiplin 12 13 Executive Director: 14 Mr. Reagan E. Greer 15 16 Charitable Bingo Operations Director: 17 Mr. Billy Atkins 18 19 Deputy Executive Director: 20 Mr. Gary Grief 21 22 23 24 25 0003 1 I N D E X 2 PAGE 3 Appearances...................................... 2 4 5 AGENDA ITEMS 6 Item Number 1.................................... 4 Item Number 2.................................... 4 7 Item Number 3.................................... 5 Item Number 4.................................... 12 8 Item Number 5.................................... 15 Item Number 6.................................... 29 9 Item Number 7.................................... 33 Item Number 8.................................... 36 10 Item Number 9.................................... 36 Item Number 10................................... 37 11 Item Number 11................................... 55 Item Number 12................................... 57 12 Item Number 13................................... 58 Item Number 14................................... 60 13 Item Number 15................................... 62 Item Number 16................................... 64 14 Item Number 17................................... 67 Item Number 18................................... 71 15 Item Number 19................................... 73 Item Number 20................................... 86 16 Item Number 21................................... 87 Item Number 22................................... 76 17 Item Number 23................................... 79 Item Number 24................................... 83 18 Item Number 25................................... 85 19 Reporter's Certificate........................... 88 20 21 22 23 24 25 0004 1 AGENDA ITEM NO. 1 2 CHAIRMAN CLOWE: Good morning. It is 8:30 3 a.m., April the 12th, 2004. Commissioner Cox is here. My 4 name is Tom Clowe. Commissioner Olvera is en route and will 5 be here shortly. I'll call this meeting of the Texas 6 Lottery Commission to order. 7 AGENDA ITEM NO. 2 8 CHAIRMAN CLOWE: And we will begin with Item 9 No. 2 on the agenda, consideration of and possible 10 discussion and/or action on a vacancy to the Bingo Advisory 11 Committee. 12 Mr. Atkins? 13 MR. ATKINS: Thank you, Commissioners. This 14 item was placed on your agenda for informational purposes. 15 Virginia Bracket, the chair of the Bingo Advisory Committee, 16 has indicated in writing her intent to resign from the Bingo 17 Advisory Committee. 18 She indicates in her -- in her letter that 19 April 29th, 2004 meeting will be her last meeting. 20 Charitable Bingo Administrative Rule 402.567(D) states that 21 the BAC will select from among its members a presiding 22 officer. 23 Currently Suzanne Taylor serves in the 24 position of vice-chair for the Bingo Advisory Committee. 25 This vacancy will require us to fill another position. 0005 1 Virginia held one of the three charity positions on the BAC. 2 And, as you know, there's currently a vacancy in the 3 conductor/lessor category. And a work group from the BAC 4 has been working to identify candidates to fill that 5 position. 6 Once Virginia's position becomes vacant, 7 we'll also begin the process to advertise that vacancy and 8 seek candidates for that position. I'd be happy to answer 9 any questions you may have. 10 CHAIRMAN CLOWE: So Virginia is going to 11 preside at the meeting on the 29th? 12 MR. ATKINS: That's my understanding, yes, 13 sir. 14 CHAIRMAN CLOWE: I don't believe there are 15 any questions, Billy. 16 MR. ATKINS: All right. 17 AGENDA ITEM NO. 3 18 CHAIRMAN CLOWE: Go on to the next item, 19 consideration of and possible discussion and/or action on a 20 work plan for the Bingo Advisory Committee, please. 21 MR. ATKINS: Commissioners, you have several 22 documents in your notebook relating to this item. The first 23 document should be a copy of the current work plan with the 24 status of each item for the BAC. The next document is a 25 copy of the BAC's chair's report on the February 26th, 2004 0006 1 BAC meeting. 2 I've included these items because there is a 3 list of the items that the BAC is proposing for the coming 4 year's work plan for your consideration. Additionally, I 5 wanted to try and clear up the status of the existing BAC 6 work plan. 7 The BAC chair indicated in her report that 8 six of the nine items on the work plan were accomplished. 9 For purposes of clarification, I wanted to point out that 10 three of the items on the work plan have actually been 11 completed, that is reports have been given and 12 recommendations made to the Advisory Committee. 13 In addition to the three items that are 14 listed on the work plan as being completed, the BAC also 15 conducted a study of the impact of local smoking ordinances, 16 which was done at the request of the Commission, and issued 17 their recommendation on that matter. 18 Another of the items on the work plan, 19 comment on proposed rules, is one that's ongoing in nature. 20 Of the remaining five items on the work plan, the only 21 action that has taken place has been to appoint work groups 22 to study these issues. 23 And of those five items, it's my 24 understanding that only one of those work groups has met, 25 but it has yet to make a report to the BAC. It's the 0007 1 staff's understanding that the BAC is seeking to have those 2 five items remain on the work plan for the coming year, 3 specifically to comment on improvement and status of the 4 bingo industry, comment on proposed rules, review of the 5 operator training program and the study of alternative 6 styles of bingo not currently available in Texas, a review 7 of charitable bingo forms and, finally, to review and/or 8 revise an operations manual. 9 The other two items you have in your notebook 10 relate to one of the issues that the BAC is recommending for 11 inclusion in the upcoming work plan. And it relates to 12 reducing the amount of bond that an organization is required 13 to post in order to obtain a license to conduct charitable 14 bingo. 15 As you know, the purpose of the bond is to 16 protect the State against the nonpayment of prize fees by 17 organizations. The Bingo Enabling Act allows the Division 18 to collect an amount not to exceed three times the amount 19 due according to the license holder's average quarterly 20 report. 21 And currently the Division collects bonds for 22 three times a licensee's estimated quarterly liability 23 because it has been the staff's experience that it can take 24 up to 90 days or more to -- for a final action to be taken 25 against a delinquent licensee. Part of the reason for this 0008 1 request is -- by the BAC is that staff understands that it 2 is because of the cost for bonds for certain organizations. 3 However, also included in your notebook is 4 additional information gathered by another member of the BAC 5 regarding bonding requirements. This information indicates 6 that a 15-thousand-dollar bond, for a financially stable 7 organization, would cost approximately 300 dollars. This is 8 opposed to an organization with weak financials that could 9 be charged up to 50 percent of the bond amount. 10 The staff does not believe that the State 11 should be expected to assume the risk for an organization 12 without the benefit of a bond in place to protect the 13 State's interest. As you know, the Division has been very 14 assertive in protecting the State's interest, as required by 15 state law. 16 The amount of liability still outstanding to 17 the State from charitable bingo for 2003 is approximately 85 18 thousand dollars out of the over 20 million dollars 19 collected. This low amount is due, in part, to the 20 Division's improved enforcement collection activities and 21 the requirement that adequate bonds be posted. 22 Additionally, this is an item that has 23 already been discussed by the BAC at their December 4th, 24 2003 meeting. And it would not be the staff's 25 recommendation to include this item in the BAC's upcoming 0009 1 work plan. 2 Regarding the other three items recommended 3 by the BAC, as indicated in the chair's report of February 4 26, 2004, specifically the mobilization of the bingo 5 industry to get involved in the next legislative session, 6 the advertising of bingo and increasing prize amounts, the 7 staff doesn't have enough information regarding these items 8 to make a recommendation at this time. 9 And I had thought that Virginia Bracket was 10 going to try and attend this meeting, but apparently she was 11 not able to make it. 12 CHAIRMAN CLOWE: Very good, Billy. Any 13 questions? 14 COMMISSIONER COX: So Billy, where does that 15 leave us? I read Mario's report in here. Where does that 16 leave us with respect to the bond? Are you going to make a 17 recommendation in a later meeting or leave it the way it is 18 or... 19 MR. ATKINS: It would be staff's attempt -- 20 it would be staff's intent to leave the bonding requirements 21 as they currently are. 22 COMMISSIONER COX: Is there -- on the lottery 23 side, how does that work? How do -- how do we make sure 24 that people pay us without putting up a bond or do they put 25 up a bond? 0010 1 MS. KIPLIN: Well, let me take a stab at it. 2 And I see Michael Anger, Lottery Operations Division, in the 3 audience, and he can correct me. 4 On the lottery side, we -- we check their 5 credit history. And based on their credit history, we make 6 a determination of what amount of financial security we 7 believe we need to make sure that the State is protected. 8 We don't -- we don't receive it in the form of bonds. 9 Their -- the Bingo Enabling Act requires, I 10 believe, bonds. With bonds, you can, obviously, get 11 involved with a third party and sometimes it can be 12 difficult to claim from a bonding company. So as a result, 13 we require certificates of deposit. 14 And we retain those certificates of deposit 15 in the event we have insufficient funds. We also have a 16 pooled bond fund where there is a -- and I believe it's 17 capped at five million, where if we need to, we can -- and 18 that's pooled by all the retailers pooling into that bond. 19 We can make sure that we are -- we, the State, are 20 protected. 21 COMMISSIONER COX: Billy, I hope that when 22 you consider this thing that you'll look at those kinds 23 of -- and maybe you already have, look at the same kind of 24 alternatives the lottery is using to see. 25 MR. ANGER: This is -- my name is Michael 0011 1 Anger and I'm the Lottery Operations director. And Kim's 2 explanation is largely correct. We do take into account 3 their credit history. The only other thing that I would add 4 is that we also take into account past history with the 5 Commission, as far as transacting business as a licensee. 6 It's frequent that we have licensees come 7 back to us with different businesses. So we'll look back to 8 past history with that licensee, as far as payment. 9 CHAIRMAN CLOWE: And I think we need to 10 understand that collection on the lottery, those accounts 11 are swept weekly, are they not? 12 MR. ANGER: Yes, sir. That's correct. 13 CHAIRMAN CLOWE: What's the collection 14 interval on bingo? 15 MR. ATKINS: Once a calendar quarter. 16 CHAIRMAN CLOWE: So you've got a 90-day 17 period there where collections -- collection receivable 18 amounts can accumulate as opposed to a weekly sweeping on 19 the lottery. That's a big difference, to me. 20 MS. KIPLIN: If I might add, another 21 enforcement difference is that, on the lottery side, we 22 electronically sweep. We also summarily suspend licenses 23 immediately if there's insufficient funds. 24 On the bingo side, it's a -- there is no 25 electronic sweep. There's a payment that's made. And there 0012 1 is not an ability to summarily suspend a license on the 2 bingo side. 3 CHAIRMAN CLOWE: And I want to say something 4 here that's food for thought. I don't think we ought to get 5 into the practice of comparing bingo industry to the lottery 6 industry. The lottery is owned by the State and operated by 7 the State. The bingo industry is private enterprise and is 8 licensed and regulated by the State. 9 And I think those are two very different 10 entities that this commission is charged with a 11 responsibility for. So we must be very careful, I think, 12 not to make comparisons or try to draw those two entities 13 together. 14 Any further discussion? Thank you, Billy. 15 AGENDA ITEM NO. 4 16 CHAIRMAN CLOWE: We're ready then to go to 17 Item No. 4, consideration of and possible discussion and/or 18 action, including proposal, on new rule 16 TAC 402.535 19 relating to debit card transactions. 20 MR. OLDHAM: Good morning, Commissioners. 21 For the record, my name is Kevin Oldham, assistant general 22 counsel here at the Commission. 23 Commissioners, for your consideration this 24 morning, this proposed new rule 16 TAC 402.535 relating to 25 debit card transactions, this rule came out of House Bill 0013 1 2519. Specifically, two provisions of the Occupations Code, 2 Chapter 2001, were revised. 3 2001.451(B-1) was revised -- excuse me -- to 4 allow for fees associated -- funds associated with debit 5 card transactions to be deposited in an organization's bingo 6 bank account no later than 72 hours, which is different from 7 the standard requirement that funds be deposited in the 8 bingo bank account the next business day. 9 And also Section 2001.458(A-11) now 10 identifies debit card transaction fees as an item of expense 11 and an organization may use -- may pay with funds from -- 12 out of bingo. A draft of this rule was presented to the 13 Bingo Advisory Committee on February 26, 2004. 14 A discussion followed and the Bingo Advisory 15 Committee recommended that the Commission vote to publish 16 the new rule with some changes in the Texas Register for 17 public comment. Those changes were made. The rule is very 18 limited. 19 It defines certain terms used in connection 20 with the debit card transaction and it identifies the 21 records an organization would need to maintain so they could 22 substantiate compliance with the act and the commission 23 rules if they do, indeed, accept debit cards at the bingo 24 hall. 25 I'd be happy to answer any questions. The 0014 1 staff does recommend that the Commission vote to publish the 2 new rule 16 TAC 402.535 relating to debit cards in the Texas 3 Register for public comment for a period of 30 days. 4 CHAIRMAN CLOWE: Billy, do you have anything 5 to add? 6 MR. ATKINS: No, sir. I don't. 7 CHAIRMAN CLOWE: Any questions? 8 I move the recommendation of the staff be 9 adopted. 10 COMMISSIONER COX: Second. 11 CHAIRMAN CLOWE: All in favor, please say 12 aye. 13 COMMISSIONER COX: Aye. 14 CHAIRMAN CLOWE: Aye. 15 Opposed, no. 16 Mr. Fenoglio, you got up just a little bit 17 late there. 18 MR. FENOGLIO: We support the publication for 19 comment, Mr. Chairman. 20 CHAIRMAN CLOWE: All right. Identify 21 yourself. 22 MR. FENOGLIO: For the record, my name is 23 Steven Fenoglio. And I will give a witness affirmation 24 form. And I have a short comment on the next proposed rule. 25 Thank you. 0015 1 CHAIRMAN CLOWE: Stay seated, if you will, 2 because we're going to take that up. 3 AGENDA ITEM NO. 5 4 CHAIRMAN CLOWE: The next item is No. 5, 5 consideration of and possible discussion and/or action, 6 including proposal, on new rule 16 TAC 402.602 relating to 7 unit accounting. 8 Mr. Oldham? 9 MR. OLDHAM: Thank you, Mr. Commissioner. At 10 the December 4, 2003 Bingo Advisory Committee meeting, a 11 draft of this rule was presented -- actually, with several 12 talking points, was presented. And during that meeting, the 13 Bingo Advisory Committee received comment from the industry 14 and engaged in dialog with commission staff. 15 Several issues were identified during that 16 meeting. Specifically, it was noted that the rule should 17 allow a conductor/lessor, which is a member of a unit, to 18 separate rental income from gross receipts of the unit. 19 It was also stated that the unit accounting 20 rule should reflect the intent of House Bill 2519 by 21 reducing the reporting requirements of licensees and the 22 number of accounts that Charitable Bingo Operations Division 23 is responsible for auditing. 24 A working group was comprised. And that 25 working group met in January and discussed the talking 0016 1 points. Subsequent to that meeting, a draft of the rule was 2 formulated and was recirculated to members of the working 3 group. And that draft was again presented at the Bingo 4 Advisory Committee on February 26, 2004. 5 A discussion followed and the Bingo Advisory 6 Committee recommended that the Commission vote to publish 7 the new rule with some changes in the Texas Register for 8 public comment. The proposed rule defines certain terms 9 used in connection with unit accounting. It provides 10 notification and identification requirements so that the 11 Commission may know which licensees are operating as a unit. 12 In addition, the proposed rule identifies the 13 appropriate use of bingo proceeds by a unit, the types of 14 transactions involving bingo equipment and supplies in which 15 a unit may engage, and the recordkeeping requirements of 16 each account. 17 I would like to bring to your attention one 18 small change in the draft that's in your commission 19 notebooks. In the preamble where we talk about the 20 statutory authority for the rule, previously the preamble 21 provided that Sections 2001.451 through 2001.459 provided 22 the statutory basis for this rule. That was incorrect. 23 And now the rule provides -- I mean the 24 preamble provides that it's 2001.431 through 2001.439. That 25 is the correct statutory reference. 0017 1 There is one remaining issue, which I'm sure 2 Mr. Fenoglio would like to discuss. The staff does 3 recommend that that issue be taken up during the public 4 comment phase. And the staff is also prepared to have a 5 public hearing on the rule to hear from the industry on that 6 particular issue. 7 In specific -- specifically, it has do with 8 the bingo bank account and how that is used in connection 9 with unit transactions, whether or not an organization is 10 required to maintain an individual bingo bank account when 11 it's member of a unit or whether the unit can just 12 distribute proceeds directly to the organization into their 13 general account. 14 And so there's some statutory interpretation 15 that needs to be done there, but we're willing to work with 16 the industry and look at that during the comment period. 17 Other than that, the staff does recommend 18 that the Commission vote to publish the new rule 16 TAC 19 402.602 relating to unit accounting in the Texas Register 20 for public comment for a period of 30 days. And I'll be 21 happy to answer any questions the commissioners might have. 22 CHAIRMAN CLOWE: Okay. 23 MR. ATKINS: Commissioners, as you know, unit 24 accounting is a very big issue and it's a very significant 25 change to the way bingo has been conducted and accounted for 0018 1 in the state of Texas. And I appreciate all of the work 2 that all of the parties have -- have put into this. 3 And we're prepared to continue to move 4 forward to address any remaining issues and come up with an 5 acceptable rule for all of the parties. 6 CHAIRMAN CLOWE: Mr. Fenoglio? 7 MR. FENOGLIO: Thank you. For the record, my 8 name is Steven Fenoglio. And I will give a witness 9 affirmation form. I'm also speaking on behalf of Steve 10 Bresnen with the Bingo Interest Group. 11 We support the publication for public 12 comment. There is one issue that we've not come to full 13 agreement with the staff on. And before I address that, I 14 want to let y'all know how hard the industry, the BAC 15 members, and your staff have worked to get to this point. 16 The rule started out as, I believe, about 17 eight pages of rulemaking language. And we've managed to 18 narrow the issues and simplify the rules so that hopefully, 19 when it's adopted, the charity -- it will be easier from the 20 charity standpoint. 21 I do want to point out there are some 22 charities that already started conducting unit operations 23 under the change in law. The law was changed to make -- or 24 the law was effective September 1 of '03. And I believe 25 there are about eight or so bingo halls that have already 0019 1 notified the Commission and are conducting unit operations 2 and achieving significant savings as a result therein and 3 efficiencies. 4 The one change that still had eluded 5 unanimity of agreement is subparagraph G1. And we do -- and 6 I have spoken with counsel. We do want to have a public 7 comment on this issue to fully flush out the issue. 8 But the issue, in a nutshell is, once the 9 funds are in the unit's bank account and they're ready for 10 distribution on a quarterly basis or regular basis, if you 11 will, where do the funds go? 12 And the staff have commented that they want 13 the funds to go to an individual unit's or individual 14 charity member unit own bingo bank account. We believe one 15 of the intent of the issue was to be able to avoid the -- 16 let's say there are five charities conducting unit 17 operations at a particular hall -- having those charities to 18 maintain five separate bingo accounts, if they do not want 19 to do so. 20 And we believe the law would allow that 21 distribution from the unit's bank account to the individual 22 general fund accounts of the individual charities. The way 23 the language is drafted today, it must go from the unit's 24 bank account to each individual charity's bank -- bingo bank 25 account and then there to distribution. 0020 1 We'd like to give the flexibility to the 2 charities. There are some charities who want to eliminate 3 those individual bingo bank accounts and, in many cases, 4 significant banking charges to maintain that account. And 5 that's the issue we want to flush out. 6 But we've achieved 99 percent unanimity 7 within the industry and with the staff to protect the 8 public, protect the charity. And we'll be looking forward 9 to having that discussion. And hopefully in six weeks or 10 two months when we come back, everyone will be on the same 11 page. 12 I'll be happy to answer any questions. 13 CHAIRMAN CLOWE: Commissioner? 14 COMMISSIONER COX: No. 15 CHAIRMAN CLOWE: Steve, I have two questions. 16 First, in regard to the comments you just made specifically 17 about the bank account. 18 MR. FENOGLIO: Yes? 19 CHAIRMAN CLOWE: That follows on the back 20 end, following the expenses? 21 MR. FENOGLIO: Yes. 22 CHAIRMAN CLOWE: What is -- 23 MR. FENOGLIO: The bingo expenses. 24 CHAIRMAN CLOWE: What's the perception of the 25 front end regarding bingo expenses? Will the unit manager 0021 1 incur those on behalf of the unit, the way you have the rule 2 laid out currently? 3 MR. FENOGLIO: Well, either the unit manager, 4 if, in fact, there is a licensed unit manager operating and 5 if not, yes. The charities themselves operating as the unit 6 would pay those expenses first, yes, sir. 7 The revenues would come to one account. The 8 expenses would be paid from that one account. It would be 9 billed -- for example, the distributor would bill instead of 10 five, it would bill one account. 11 CHAIRMAN CLOWE: So there's the benefit of 12 the unit? 13 MR. FENOGLIO: Yes. 14 CHAIRMAN CLOWE: And you have unanimity on 15 that aspect? 16 MR. FENOGLIO: We do. 17 CHAIRMAN CLOWE: It's just where you're going 18 to park the funds that you're trying to -- 19 MR. FENOGLIO: Yes. 20 CHAIRMAN CLOWE: -- work out some agreement? 21 MR. FENOGLIO: Yes. 22 CHAIRMAN CLOWE: And then in a more general 23 sense, in a utopian way, give us your articulation of what 24 this rule will allow the bingo operators and charities to 25 achieve in the way of good results. 0022 1 MR. FENOGLIO: Sure. First, there will be 2 greater efficiencies because there won't have to be five 3 separate checks written in the case of five charities that 4 form a unit. It can be, as you know, up to seven charities 5 that form a unit and conduct at one location. 6 First, there would be a simplification in the 7 number of checks that are written and efficiencies therein. 8 Currently, if you have -- and an average hall will have 9 eight employees, say. Each of those employees, under 10 current law absent unit accounting, receives five different 11 paychecks with accompanying withholding. And you can see 12 the paperwork. 13 Under unit accounting, they would receive one 14 paycheck with accompanying savings of paperwork and 15 efficiency. By the same -- and every invoice, that's the 16 case. There are five checks cut for a light bill, five 17 checks cut for a security payment, if you will, five checks 18 for a distributor. 19 And, of course, the distributor has to bill 20 five different charities. Under this -- under unit 21 accounting, the simplification: You're reducing certain 22 paperwork up to 80 percent, which is a significant savings. 23 The other big savings is: The way it works 24 absent unit accounting, typically -- there's always one or 25 two sessions that are the absolute best of a 14-session per 0023 1 week call. And those are usually on the weekends. 2 There are some sessions where they're 3 terrible, and those are typically Mondays or Tuesdays, in 4 which they actually lose money on that hall, which shouldn't 5 surprise anyone. Any restaurant or retail establishment 6 will not actually make -- even if the business is overall a 7 profit, every day is not a profitable day. 8 Nonetheless, you can't close on those days 9 because then you'll lose, in the long run, sales because 10 they won't show up on the good nights. Under the current 11 regime, you shift those charities around, if you will. 12 Let's say the VFW post in Dallas, Texas, a particular post, 13 has the Saturday night -- two Saturday night sessions and 14 one Friday night session which might be the best. 15 They'll rotate those around on a monthly 16 basis to -- and then that VFW post would go to, let's say, 17 Monday/Tuesday. 18 CHAIRMAN CLOWE: And who would be making that 19 decision? 20 MR. FENOGLIO: The charities, in connection 21 with the commercial lessor. 22 CHAIRMAN CLOWE: With the lessor? 23 MR. FENOGLIO: Yes. 24 CHAIRMAN CLOWE: Okay. 25 MR. FENOGLIO: And so you get the idea that 0024 1 there's always this paperwork shuffle going on, which is a 2 cost to the staff and a tremendous cost to the charities. 3 Plus, there's -- in some halls, there's a reluctance -- if 4 you've got the best times, reluctance to give it up. And 5 that causes friction among the charities. 6 With the unit accounting, you ignore or 7 eliminate all of those type of scheduling problems. And 8 it's -- the staff will tell you, occasionally either 9 paperwork gets lost or they make an incorrect time or date 10 on a licensing matter. You eliminate all of those headaches 11 and problems. And that's the other big -- big savings. 12 CHAIRMAN CLOWE: Therein lies the 13 justification for this? 14 MR. FENOGLIO: Yes, sir. 15 CHAIRMAN CLOWE: And are your clients at this 16 point in time seeing the achievement of the goal in the 17 consideration of this rule in moving to unit accounting? 18 MR. FENOGLIO: Yes. 19 CHAIRMAN CLOWE: Did I understand you to say 20 that some of the halls are conducting unit accounting now? 21 MR. FENOGLIO: Yes. 22 CHAIRMAN CLOWE: How are they doing that if 23 there's no rule from the Commission? 24 MR. FENOGLIO: Well, there are some -- well, 25 number one, the law did change and it was effective 0025 1 September 1. And there are some rules, if you will, in the 2 statute that govern the operation of a unit absent a rule a 3 licensee is -- since the law is changed, the licensee has 4 available the opportunity to take advantage of that change 5 in law. 6 It's possible, Mr. Chairman, after the rule 7 is effective, that some of those unit operations may have to 8 change some of their procedures. And at least the ones that 9 I counsel recognize that fact. But nonetheless, they wanted 10 to go ahead and start achieving the significant savings that 11 we've talked about and efficiencies. 12 CHAIRMAN CLOWE: Billy, have you got a 13 comment on that? Is that -- is your staff involved in that 14 in any way or how is that working from your standpoint? 15 MR. ATKINS: As -- as best that we know, 16 these organizations began operating as a unit at the first 17 of the year. So really we don't know if there's been enough 18 time for them to be in operation for us to really make a 19 judgment on it. But we do know of at least, I think, three 20 halls that have formed a unit. 21 CHAIRMAN CLOWE: It strikes me as an 22 interesting situation. I understand the law is in place. 23 It's effective and it just -- I want to understand -- 24 MR. FENOGLIO: Sure. 25 CHAIRMAN CLOWE: -- where we are on this. 0026 1 MR. FENOGLIO: And let me say, at least in 2 one of the halls down in the Houston area, we talk -- we had 3 many informal discussions with staff about how they would 4 like to see the unit accounting operate. 5 As a matter of fact, I had lengthy 6 discussions with Phil Sanderson a couple of times. And they 7 had some -- the staff, even though there wasn't a rule in 8 place, had some, I thought, very good suggestions about 9 that. Ultimately, though, the charities decided they wanted 10 to take advantage of those efficiencies. 11 I should point out there's one unknown out 12 here. And it's not a known or an unknown that y'all can 13 solve. And that is an IRS tax issue that arose. And there 14 is now pending before the Internal Revenue Service a request 15 for an informal ruling. 16 Basically, the issue, if you think about it, 17 is the law of unintended consequences and whether the intent 18 of this legislation will be allowed to be fully implemented 19 by federal law. If you'll recall back -- I don't believe 20 actually either one of you -- I know you weren't here, 21 Chairman Mr. Cox. 22 When the IRS announced a new ruling on the 23 use of instant bingo pull-tabs, if you will, and how that 24 affected a 501(C) organization's tax status, basically in 25 the late '80s, the IRS or -- I'm sorry -- the mid-90s, the 0027 1 IRS announced that, as far -- pull-tab bingo was not, for 2 the purposes of IRS, considered bingo. 3 And so you had -- it affected their UBIT, 4 unrelated business income tax. And so they had to have an 5 offset of the expenses related -- directly related to the 6 sale of pull-tabs with the revenues from pull-tabs. And the 7 staff was helpful in letting -- getting the charities to 8 understand that change. 9 Well, that same type of premise, when you 10 move from a particular charity conducting its own bingo 11 operations, to a charity being a part of a group 12 conducting -- now it's true, under the current law, that the 13 charities are still responsible for conducting that bingo. 14 But how will the IRS look at that issue? 15 We don't know. This has never been tried and 16 we've -- the staff and I have spent hours with IRS auditors 17 and others. And they -- the IRS had suggested and we agreed 18 that we need a -- we hope to have a rules of the road from 19 the IRS perspective, if you will, within about -- within no 20 more than two months on this issue. 21 And there are a number of other related 22 issues, as you might imagine, relating to, for example, 23 withholding of payroll taxes since the unit is doing this, 24 not a particular charity. It got to be a little more 25 complicated from the IRS and federal law perspective than 0028 1 some of us intended. 2 But nonetheless, we hope that we'll have 3 those rules of the road, as well as this rule, in place very 4 soon. 5 MR. ATKINS: And along the lines of the issue 6 that Mr. Fenoglio is talking about with the IRS, that's what 7 prompted us to include in the rule in subsection A the 8 language "Nothing in this rule shall be construed as a grant 9 of authority or waiver of responsibility under federal law, 10 including tax law or other state law" because there is still 11 that unknown out there. 12 And we at least want to make sure the 13 organizations are aware of it before they decided to move 14 forward. 15 CHAIRMAN CLOWE: Okay. Any other questions? 16 Nothing? Thank you. 17 I move the adoption of the staff 18 recommendation. Is there a second? 19 COMMISSIONER COX: Second. 20 CHAIRMAN CLOWE: All in favor, please say 21 aye. 22 COMMISSIONER COX: Aye. 23 CHAIRMAN CLOWE: Aye. 24 Opposed, no. 25 The vote is two-zero in favor. 0029 1 Thank you, sir. 2 MR. OLDHAM: Thank you. 3 AGENDA ITEM NO. 6 4 CHAIRMAN CLOWE: Next is Item No. 6, report, 5 possible discussion and/or action on lottery sales and 6 trends. 7 MR. DIVENEY: Good morning, Commissioners. 8 I'm Lee Deviney, Financial Administration director. 9 You should have a packet with the sales 10 memos. It's separate from your notebook. I sat it on your 11 table for you this morning. 12 In the packet, you'll find three summary 13 memos dated today with summaries of recent lottery sales and 14 trends. The first memo indicates that sales through April 15 10th amount to $2.028 billion, which is a 5.3 percent 16 increase over fiscal year 2003 sales of $1.9 billion for the 17 same time period. 18 The fiscal year 2004 weekly sales average is 19 $63.4 million, compared to 2003 weekly sales average of 20 $60.2 million dollars to date. 21 The second memo describes fiscal year 2004 22 sales by product compared to fiscal year 2003 sales for the 23 same time period. 24 And the third memo compares sales for the 25 last two full weeks ending April 10th, 2004 and April 3rd, 0030 1 2003. Total lottery sales increased by 3.6 percent, led by 2 Mega Millions, whose sales increased by one million dollars 3 over the prior week. 4 MR. GREER: Mr. Chairman? 5 CHAIRMAN CLOWE: Yes, sir. 6 MR. GREER: There are a couple of issues that 7 I want to put out on the table that will come up in our 8 on-line segment specific to Lotto Texas and Texas Two Step. 9 I just wanted to draw that to your attention as you review 10 these numbers. 11 CHAIRMAN CLOWE: Okay. I have a couple of 12 questions. You want to deal with them when you get to that? 13 MR. GREER: I think the information is more 14 thorough and gives you a broad overview on those specific 15 games, but I'll be glad to answer anything. 16 CHAIRMAN CLOWE: Well, I'd rather, I guess, 17 wait and hear your presentation. I see that the instants in 18 the second page of this document that Lee has given us are 19 increasing nicely. Lotto Texas, for fiscal year to fiscal 20 year, shows a 35-percent reduction, if I'm -- is that the 21 way you compute the migration? 22 MR. GREER: Are you looking on -- 23 CHAIRMAN CLOWE: Lotto Texas. 24 MR. GREER: Second sheet? 25 CHAIRMAN CLOWE: Yeah. I think it's a 0031 1 35-percent difference from $244 million. 2 MR. GREER: Yeah. Liz will get into that in 3 a minute. I'm not comfortable with that figure you're 4 throwing out, the 35-percent figure. But we'll -- let me 5 show you the chart and show you exactly. 6 CHAIRMAN CLOWE: Okay. That's an area that I 7 want to hear you talk about. Also, in a general statement 8 about sales being up 5.3 percent, in a Dallas Morning News 9 article that I read this last week, there was comment on the 10 consideration of video lottery terminals. 11 MR. GREER: Yes, sir. 12 CHAIRMAN CLOWE: And the general comment 13 about the lottery was: Lottery sales are down. 14 And the message is not getting out that 15 lottery sales are up. And I'm sorry I didn't bring that 16 article or send it to you. I can go back, I think, and find 17 it or maybe our communications group can find it. 18 I don't know who the reporter is who wrote 19 that, but we ought to try to help people who want to 20 understand where the lottery is, understand that lottery 21 sales are up 5.3 percent. Instants are up. Lotto Texas is 22 down. Cash 5 is down. Texas Two Step is down. 23 And Mega Millions is a new game that's here 24 in this fiscal year compared to this period that we're 25 looking at for last fiscal period. 0032 1 MR. GREER: Yes, sir. 2 CHAIRMAN CLOWE: We need to get that 3 explanation out as effectively as we can. 4 MR. GREER: I'm aware of that. And Media 5 Relations was going to contact that reporter specifically 6 because that was incorrect information. I'm frustrated when 7 I read stuff like that because, obviously, I'm very pleased 8 with a hundred million plus increase that we've seen in 9 sales overall, which is really the bottom line of what my 10 focus is. 11 Specifically, you look at a shift, you know, 12 away from maybe Lotto Texas or Texas Two Step. But overall, 13 Mega Millions has increased the enthusiasm in playing the 14 games in Texas again. And I continue to work hard on 15 getting that message out. 16 Thank you for bringing that to my attention. 17 CHAIRMAN CLOWE: I think it's just a constant 18 effort that's required. And what, I believe, is in those 19 individual's minds is the Lotto Texas sales. 20 MR. GREER: That is it. 21 CHAIRMAN CLOWE: And, you know, we're looking 22 at that and we're concerned about it. We continue to deal 23 with it. But the overall picture is very positive. 24 MR. GREER: It's very positive. And you're 25 right. I mean, a lot of people associate Lotto Texas as the 0033 1 Texas Lottery. And when you look at the fact, as far as 2 percentages of what that is, which is less than generally 10 3 percent of our sales, that's unfortunate and something that 4 we'll continue to work on. 5 CHAIRMAN CLOWE: Okay. So we're going to 6 hear some more on that? 7 MR. GREER: Yes, sir. 8 CHAIRMAN CLOWE: Anything further, Mr. 9 Deviney? 10 MR. DEVINEY: Not unless you have some 11 questions. 12 CHAIRMAN CLOWE: I believe there are none. 13 AGENDA ITEM NO. 7 14 CHAIRMAN CLOWE: We're ready to go then to 15 Item 7, report, possible discussion and/or action on HUB 16 and/or minority business participation. 17 MR. DEVINEY: Yes, sir. Under tab seven of 18 your notebook, Joyce Bertolacini, the Commission's 19 Historically Underutilized Business coordinator, is here 20 with me to summarize the lottery monthly HUB and minority 21 business participation activity reports. 22 CHAIRMAN CLOWE: Good morning. 23 MS. BERTOLACINI: Good morning, 24 Commissioners. For the record, my name is Joyce Bertolacini 25 and I'm the agency's Historically Underutilized Business 0034 1 coordinator. 2 I'm here to report on items related to our 3 HUB and/or minority business participation today. Included 4 in your notebook is the commission's monthly HUB minority 5 contracting activity report, which includes all fiscal year 6 2004 expenditures from September 1st of 2003 through 7 February 29th of 2004. 8 Our total qualifying expenditures for this 9 period were 71.5 million dollars and our estimated HUB 10 utilization was 23.2 million dollars, which equates to 32.5 11 percent. 12 Also, please note that the Texas Building and 13 Procurement Commission will be releasing their semiannual 14 statewide HUB report on April the 15th. The report will 15 assess HUB utilization for the first six months of fiscal 16 year 2004. And I hope to have an analysis to present to you 17 at your May meeting. 18 And finally, we have one new mentor/protege 19 relationship to announce today. The mentor company is 20 Davila, Buschhorn & Associates and the protege company is 21 Don Robnett, CPA. 22 This relationship actually replaces a 23 previous relationship that Davila Buschhorn had with a 24 company called Financial Management Partnership -- I'm 25 sorry -- Financial Management Partners, Incorporated. And 0035 1 that was mutually decided to terminate due to a change in 2 the business focus that the protege company had. However, I 3 wanted to let you know that Financial Management Partners, 4 Incorporated is continuing to provide subcontracting 5 services to Davila Buschhorn. 6 And unless you have any questions, that's all 7 I have for you today. 8 CHAIRMAN CLOWE: What are the total mentor 9 relationship numbers? 10 MS. BERTOLACINI: Right now we currently have 11 five mentor/protege relationships. However, I should point 12 out that, at the end of this month, I believe four of those 13 will be expiring. 14 So I will then be putting forth a new effort 15 to recruit both mentors and proteges to participate in our 16 program. And I hope to have an event in the month of June 17 or possibly early July to not only put forth our HUB 18 initiatives but also our mentor/protege program. 19 CHAIRMAN CLOWE: I think we'd like to see you 20 do that because, as I recall, in order to create these, we 21 put some effort into it and really helped people understand 22 what the responsibility and the undertaking was. 23 People -- entities, they're not just going to 24 drift in and say "I want to do this." We've got to coach 25 them and we've got to educate them on the responsibility and 0036 1 the undertaking. And we ought to devote that energy to 2 keeping this program going. And I think it will pay off for 3 us in the long run to have these kinds of excellent numbers 4 that we enjoy in this commission. 5 MS. BERTOLACINI: Yes, sir. We'll be doing 6 whatever we can to try to get the mentor companies that are 7 currently participating to continue and to bring in new 8 protege companies to work with them. 9 CHAIRMAN CLOWE: Good. Any other questions? 10 COMMISSIONER COX: No. 11 CHAIRMAN CLOWE: Thank you. 12 MS. BERTOLACINI: Thank you. 13 CHAIRMAN CLOWE: Thank you, Lee. 14 AGENDA ITEM NO. 8 15 CHAIRMAN CLOWE: Next, Item No. 8, report, 16 possible discussion and/or action on the agency's contracts. 17 MR. DEVINEY: Commissioners, tab eight 18 includes the weekly status report on Lottery Commission 19 contracts having a value of 25 thousand dollars or more. 20 Either I or representatives of any administrative division 21 can answer a question if you have one. 22 CHAIRMAN CLOWE: Any questions? 23 COMMISSIONER COX: No. 24 CHAIRMAN CLOWE: Thank you. 25 AGENDA ITEM NO. 9 0037 1 CHAIRMAN CLOWE: Next is Item No. 9, report, 2 possible discussion and/or action on the agency's financial 3 status. 4 MR. DIVENEY: Commissioners, under tab nine, 5 agency financial status, you'll find the summary object of 6 expense budget reports for Lottery Operations and the 7 Charitable Bingo Division for the period beginning September 8 1 through March 31st of this year. 9 Next you'll find the report on transfers made 10 to Foundation School Fund and allocations of unclaimed 11 lottery prize money. The April transfer to Foundation 12 School Fund will amount to 78.70 million dollars. 13 Finally, you'll find a report of lottery 14 revenues, expenditures and transfers for fiscal year 1992 to 15 date. Total transfers to this date amounted to 11.3 billion 16 dollars through March of this year. 17 I'll be pleased to answer any questions that 18 you may have. 19 CHAIRMAN CLOWE: I don't believe there are 20 any. Thank you. 21 AGENDA ITEM NO. 10 22 CHAIRMAN CLOWE: Next is Item No. 10, report, 23 possible discussion and/or action on the commission's 24 on-line lottery games. 25 MR. TIRLONI: Good morning, Commissioners. 0038 1 For the record, my name is Robert Tirloni. I am the on-line 2 product manager for the Texas Lottery. 3 MS. JAMBOR: Good morning, Commissioners. 4 For the record, my name is Liz Jambor. I am the marketing 5 research manager for the Texas Lottery. 6 MR. TIRLONI: We're back this month, 7 Commissioners, so that we can continue to provide you with 8 updated information regarding the Mega Millions game and its 9 impact on the existing Texas Lottery games. 10 To give you a quick update, the $230 million 11 advertised jackpot, which ended up being a $239 million 12 actual jackpot after all sales were tallied for that 13 drawing, for the Friday 2/20 drawing, was claimed in 14 Virginia on Thursday, April 1st. 15 I bring that to your attention because there 16 was a great deal of speculation and concern that that 17 jackpot prize could potentially go unclaimed due to the long 18 length of time that transpired between the time the ticket 19 was actually sold and the amount of time before the Virginia 20 Lottery had any contact with someone appearing to be the 21 claimant for that prize. So that prize was claimed on the 22 1st of April. 23 We just completed a roll cycle that ended on 24 Friday. That roll cycle began on Tuesday, February 24th. 25 The jackpot ticket, which was worth an advertised amount of 0039 1 105 million dollars, was sold in Maryland. And so for 2 tomorrow night, we are back at a starting jackpot of 10 3 million dollars. 4 To give you a quick summary, this is through 5 the week that ended this past Saturday, April 10th. Total 6 Mega Millions sales in Texas totaled over 97.3 million 7 dollars. The Megaplier sales in Texas totaled over 25.2 8 million, giving us a total of over 122.5 million dollars. 9 And again, that is since Mega Millions started in Texas in 10 early December. 11 Quick update on the amount of winners: This 12 is through the Friday drawing. We've had 34 second-tier 13 winners in Texas. That is the $175,000 prize. For those 34 14 winners, five have megaplied their prize. And then we've 15 had over -- we've had 167 third-tier winners in Texas. That 16 is a $5,000 prize. We've had 47 of those winners megaply 17 their prize. So 47 have either -- have won anywhere from 10 18 thousand to 20 thousand dollars, depending on the Megaplier 19 number selected for that particular drawing. 20 This is a chart of the Texas Mega Million and 21 the Texas Megaplier sales. This is pretty typical of what 22 we've seen in the past. This is through the drawing on 23 Friday for the $105 million advertised jackpot. You can see 24 that we have built a loyal following of regular players in 25 the early part of the roll cycle. 0040 1 What we're noticing is -- and there are some 2 charts later on that also show this -- that Mega Millions 3 seems to be a triple digit jackpot game in Texas. What I 4 mean by that is that we start to see noticeable growth once 5 we get up around the 75, 80 -- this is a $90 million 6 drawing. And you can see a steeper slope between the $90 to 7 the $105 million drawing. And, of course, we would have 8 anticipated that growth to continue if the jackpot ticket 9 had not been sold. 10 Megaplier sales remain constant. We have 11 seen, during this roll cycle and during past roll cycles, 12 though, as the jackpot climbs and gets up to that triple 13 digit jackpot, that players begin to take that dollar that 14 they might normally spend on the Megaplier feature and they 15 actually spend it on the base game. 16 So in other words, instead of trying to 17 increase their non-jackpot prize, they're taking that dollar 18 and actually trying to win the Mega Millions advertised 19 jackpot amount. 20 This is the trending of the Megaplier sales. 21 Megaplier is accounting for 20.6 percent of sales. Again, 22 this is what we have been seeing. The percentage has gone 23 anywhere from 20 to 22 percent since the game started. The 24 original projection for Megaplier sales was 20 percent. 25 This chart shows Lotto Texas and Mega Million 0041 1 jackpot amounts. This was that $230 million Mega Millions 2 roll cycle that I referred to. We had a very quick, short 3 roll cycle that went from 10 to 12 to 20 and then, as I 4 referred to a little while ago, the $105 million roll cycle 5 that started in late February and just ended this past 6 Friday. 7 And these are our Lotto Texas roll cycles 8 going all the way back through November. And this is the 9 current Lotto Texas roll cycle that we're in. And we're 10 currently at a $26 million jackpot for the Wednesday 11 drawing. 12 The most impressive thing on this chart is we 13 can see the power of 11 states pooling their jackpot -- 14 pooling their money for the jackpot prize. And we can see 15 how rapid that jackpot growth takes place on the Mega 16 Millions game. 17 This next slide, I've been showing at 18 previous meetings. This is for the roll cycle, again, that 19 just ended on Friday. You will notice that, because the 20 drawing did take place on Friday and we finalized our 21 presentation last night, we're still waiting for all of the 22 states' sales to come in from the Friday drawing. 23 But I wanted to paint the picture of what 24 happened through the roll cycle. Again, no big change from 25 what we've seen during previous roll cycles. New York 0042 1 always tends to lead the pack on Mega Millions sales. The 2 good news is Texas, at the lower levels, is in second place, 3 so to speak. When we get up to around the $60 to $70 4 million mark, we start to be -- we start to get edged out a 5 little by New Jersey. 6 But we're still right in third place, in 7 terms of sales. And I looked back last night at the 8 previous roll cycles. And if I were to predict or project 9 out what we would see here, New Jersey would still be in the 10 lead and then Texas would group very closely with 11 Illinois -- I'm sorry -- with Michigan and Ohio. 12 I refer to that $230 million roll cycle and I 13 showed this slide in the last commission meeting. And 14 Commissioner Cox, you had a question about this slide. So 15 this is a follow-up. This was the slide that showed each -- 16 each states' draw sales for that entire roll cycle. 17 And Texas was -- had over 45.6 million 18 dollars for that entire cycle. Of course, again, New York 19 leads the pack, so to speak. And you had asked if we had 20 looked at this based on per capita sales. And so we did 21 that. 22 Interesting thing is, New York has the most 23 sales. But New Jersey leads in per capita sales with six 24 dollars and 11 cents. Texas is down here at 2.06. Looking 25 at these numbers, we would attribute -- we attribute this to 0043 1 a certain number -- a few factors. 2 Texas has been in the game for four months 3 since December. Lotto Texas, as you'll see in the next few 4 slides, is remaining strong. Again, Mega Millions is -- 5 seeing as the triple digit jackpot game starts to spike when 6 we get around that hundred million dollar mark, and Lotto 7 Texas is still one of the strongest Lotto games in the 8 country at this point in time. 9 Once all the sales are final for this roll 10 cycle that was just completed on Friday, I'll update this 11 slide and the previous slide and I'll present it next month 12 so that we can continue to track and monitor not only the 13 total sales, but the per capita sales by state. 14 MS. JAMBOR: As we've done in past commission 15 meetings, we like to continue monitoring the impact of the 16 Mega Millions on the current game mix. What we're seeing 17 right now is a sales shift of approximately 26 percent for 18 Lotto Texas comparing the first 32 weeks of FY '03 to the 19 first 32 weeks of FY '04. 20 However, when you look at this on the big 21 picture, same time period, first 32 weeks of each year, 22 we're seeing that we've got an overall increase in our 23 on-line games of 3.8 percent and an overall increase in 24 total sales of 5.6 percent. 25 Now if we look in a little narrower scope of 0044 1 the first 19 weeks of Mega Millions compared to the 19 weeks 2 prior to the start of Mega Millions, we see that we've got a 3 3.75 percent decrease in Lotto Texas sales. But again, when 4 we look at the bigger picture, the overall game mix, we've 5 got over a 30-percent increase in our on-line games and 6 almost 23-percent increase in total sales for the 19 weeks 7 since Mega Millions has started. 8 MR. GREER: Can you stop for a second? 9 MS. JAMBOR: I sure can. 10 MR. GREER: Specifically, that goes back to 11 the point that you had brought up a few minutes ago. And 12 Mr. Chairman, this is what I focused on. You know, I look 13 at a picture that's bright and I look specifically as what 14 it's doing to Lotto Texas. And Lotto Texas continues to be 15 strong and you can see those numbers supported with these 16 charts. 17 MS. JAMBOR: This chart we've shown in 18 previous commission meetings. And it's -- it shows the 19 pattern of weekly sales for Mega Millions and Lotto Texas. 20 And one of the things I really want to show, because it 21 helps support the strength of Lotto Texas, is what happened 22 in this past week. 23 We had Lotto Texas having jackpots of 21 and 24 24 million, Mega Millions having jackpots of 90 and 105 25 million. And we have sales that are relatively the same. 0045 1 And what we see here is that players are still remaining 2 loyal to Lotto Texas. And the difference between the two 3 games, as Robert had indicated before, is that people really 4 do view Mega Millions as that bigger jackpot, that triple 5 jackpot -- triple digit jackpot game. 6 And as -- as Reagan had just indicated, we 7 look at the overall picture. More dollars are being 8 generated by the Texas Lottery with the inclusion of Mega 9 Millions, which means more lottery dollars are being 10 generated for the State. 11 The one thing I want to add in this meeting 12 was: Let's talk about the players. Players are still 13 remaining loyal to Lotto Texas. This -- this slide shows 14 the pattern of past four-week participation for our players. 15 And when we look at past four-week participation, we're 16 really talking about our core players, those players that 17 are in the game. 18 And as you can see, we've got an increase 19 across the three months of quarter two for participation in 20 Lotto Texas. This -- this bar indicates past four-week 21 play, which would have been January. And so we saw the -- 22 this is the impact of that $70 million jackpot for Lotto 23 Texas. 24 We also see the impact of the $230 million 25 jackpot for Mega Millions because we've got a little 0046 1 decrease here for Megaplier, as Robert had shared earlier, 2 that we see a shifting of dollars over to the Mega Millions 3 as that jackpot gets higher. And that's -- that's indicated 4 from the player reports here. 5 Just to make one note why there's no blue bar 6 for Mega Millions and Megaplier is because we didn't have 7 Mega Millions in November and the December question is asked 8 about the past four weeks. 9 We also then see past year play. And these 10 numbers really have not changed that much if you go back a 11 year ago and look at whether people are reporting more, the 12 same or less. So we're still seeing fairly consistent play 13 in Lotto Texas. 14 What the sales show us is that people are 15 moving some of their dollars away from Lotto Texas. So we 16 still have that loyal Lotto Texas player base. We still 17 have approximately 47 percent of Texans who played Lotto 18 Texas in the past year. We have approximately 27 percent of 19 Texans that have played Lotto Texas in the past four weeks. 20 And again, these numbers are fairly consistent. 21 We have 22 percent of Texans that have played 22 Mega Millions in the past four weeks. And interestingly, 23 when asked -- for those players that have spent less on 24 Lotto Texas, when asked why they've spent less on Lotto 25 Texas, only two percent of them report their increased -- 0047 1 their play is on Mega Millions. 2 So they may be shifting their money. It may 3 not be as conscious a move as they're aware of. But again, 4 Mega Millions is not the game that is taking over Lotto 5 Texas. 6 MR. TIRLONI: In summary, Commissioners, 7 Lotto Texas continues to maintain a loyal player basis, 8 We've just seen in weekly sales comparisons with Mega 9 Millions. We're going to continue monitoring the sales 10 shift between Lotto Texas and Mega Millions as the jackpot 11 levels vary. And we'll be back to report to you for the 12 next few commission meetings. 13 I want to make one other note. We do -- we 14 do and we are continuing to promote both games through 15 numerous venues in our advertising and our metro traffic 16 reads. Gtech sales staff has been emphasizing the Mega 17 Millions and Megaplier game during this past quarter to the 18 retail base. 19 And starting this week, we are running a 20 Lotto Texas clerk promotion to emphasize that game. So we 21 are focused on all our games in addition to focusing on our 22 two big jackpot games. 23 We'll be happy to answer any questions that 24 you may have. 25 CHAIRMAN CLOWE: I'd like for the record to 0048 1 reflect that Commissioner Olvera was able to be here at 9:29 2 and that was during Dr. Jambor's presentation. I did not 3 want to interrupt you. 4 And Commissioners, do you have any questions? 5 MR. GREER: Robert, specifically, because as 6 I've been out on the speaking circuit and visiting with 7 retailers, etcetera, I want you to talk a little bit about 8 the roll cycle on Lotto Texas and reinforce the two factors 9 that we really focus on on that first. 10 And then, specifically, I want to talk a 11 little bit more about another point on Mega Millions. So 12 would you address that issue? 13 MR. TIRLONI: The roll cycle for Lotto? The 14 two big things -- and I think we talked about these briefly 15 last month. One of the -- one of the big factors that's 16 impacting the Lotto Texas roll cycle is the -- is the 17 interest rate. 18 The interest rate factor that we obtain -- 19 the jackpot that we advertised is a 25-year annuity. So the 20 amount that we advertise is directly impacted by the 21 interest rate factor. And the lower rates have been 22 hampering our -- our roll amounts on that game. 23 If we go back and look at past interest rate 24 factors, we find much higher rates. And because of that, we 25 see that our roll amounts back then -- and I'm going back a 0049 1 year or two -- our roll -- our roll amounts were much 2 greater. We were able to roll the jackpot in much greater 3 increments. 4 So that is having a big impact on the Lotto 5 game right now. And the retailers are aware of that. We've 6 tried to get that message out to the retailers during some 7 of our Links meetings and during some our retailer Advisory 8 Committee meetings that that is part of the issue with -- 9 with the Lotto rolls. 10 And -- and the retailers that have been 11 selling Lotto or the lottery for a long time, they have a 12 pretty decent understanding of that and they're aware of 13 that. And I believe, from talking to retailers, there is a 14 lot of support for the Lotto Texas game as it is right now. 15 We've made a lot of changes to our on-line 16 product mix over the past three or four years. And I think 17 right now they're in a position of holding, so to speak. We 18 made a change in May. And I think they're -- from what I've 19 heard from the retailers, another type of change right now 20 would cause confusion not only for retailers, but mainly for 21 the players, as well. 22 So I think they're in a holding pattern with 23 Lotto. They understand how the game and why the game is 24 rolling the way it is. And I believe that they are 25 supporting it, as the players are, because it is the 0050 1 in-state game. 2 MR. GREER: And Lee, if you'd step up to the 3 mic briefly. One of the things that I'm also focused on is 4 the education aspect of Mega Millions and the fact that 5 there's still -- a lot of players aren't sure, you know, 6 what percentage the State receives. 7 So when you look at a Mega Millions 8 percentage, would you, you know, break that down based on 9 the game and the Megaplier? 10 MR. DEVINEY: Well, it's third -- for Mega 11 Millions, it's -- 38 percent is the State's share. 12 Estimated State's share varies just a little bit. Megaplier 13 is more like 46 percent is the State share. 14 MR. GREER: And I reinforce that point to 15 people. They have a perception that it's not correct. The 16 fact is the State, from the Lottery's perspective is making, 17 you know, good percentages. I'm really pleased with that. 18 And when I educate people on that, they're much more 19 receptive to the whole aspect of what the game is doing to 20 the Lottery, as a whole. 21 The other thing that I think is worth noting 22 is the fact that, like in the drawing we had the other 23 night, there are a number of winning tickets that are being 24 sold, 88,825 specifically in the state of Texas the other 25 night. 0051 1 There's a lot of people that are really 2 excited about this game. We are building a loyal player 3 base there. We promised that we'd bring higher jackpots. 4 That's what they're looking for. And Liz alluded to that a 5 moment ago in her comments. They get excited around 75 6 million like they get excited around 20 million on Lotto 7 Texas. 8 And, you know, they're looking for a higher 9 jackpot. We're delivering. If you look over the four 10 months that we've been in, specifically, and we've had, you 11 know, a number of record levels. I find even a complacency 12 among players now, as I'm out there. 13 You look back at Lotto Texas. The all-time 14 high was 85 million. Now they're like, oh, we're holding 15 out for the 75 hundred million (sic) mark. So, you know, 16 there's a new player out there. There's some excitement. 17 There's winning tickets being sold. 18 And I continue to be pleased with the 19 progress that we're making in this game. 20 CHAIRMAN CLOWE: Be a little more definitive 21 about that 88-thousand-winner statement you made, Reagan. 22 Clarify what night that was and what caused that, in your 23 opinion. 24 MR. GREER: Well, it was the $105 million 25 Friday draw, most recent draw. And it was 88,825. 0052 1 Specifically, it just reinforces the number of people are 2 playing and the fact that winning tickets were being sold. 3 A lot of them were megaplying. 4 CHAIRMAN CLOWE: So on that drawing, there 5 were 88,825 players who won something? 6 MR. GREER: Well, they had a winning ticket. 7 We'll see if they come forward or not. We hope they will 8 because, obviously, that's an aspect that we love to do, 9 which is, you know, pay prizes. 10 On Lotto Texas, as a comparison, on Saturday 11 night, we had 65,925 winning tickets sold. So, you know, 12 both games are performing, as they stated. Winning tickets 13 are being sold. There's an excitement level there across 14 the board for all games as a result of coming into Mega 15 Millions. 16 And again, I look at the big picture. And 17 the big picture is very bright. 18 CHAIRMAN CLOWE: And yet the instant tickets 19 continue to out-distance sales increase the on-line games. 20 MR. GREER: You know, they do. And what I 21 found, in talking to retailers, is that instant tickets 22 remain steady, if not go up, because there -- a lot of new 23 games that have come out and different prize levels. The 24 20-dollar games continue to do exceptionally well because 25 there's higher prize payout and all the things that go with 0053 1 that. So instant tickets will continue to be a key element 2 of our success. 3 And, in fact, we're looking at some things 4 that we're going to do over the summer months that I think 5 you'll be, you know, real excited about that I'll be telling 6 about as those games roll out over the coming months. 7 MR. TIRLONI: If I -- if I could just add one 8 thing. I just recently read something in an industry 9 newsletter that I think talks -- I think it explains the 10 difference between the instant and the on-line product. 11 And how they refer to the on-line product in 12 the retail location is that it's very often the invisible 13 product. You're very often marketing the invisible product 14 in the retail store. Because when you walk in, a good 15 retailer's going to have a large number of instant ticket 16 dispensers. And a good retailer is going to have all of 17 those instant ticket dispensers filled with tickets. 18 The on-line products, if they don't have 19 their on-line terminal front and center on the counter, 20 there's nothing the player sees when they walk in. So you 21 can walk in and see 40 or 50 bins filled with very colorful 22 instant tickets at varying price points. And if the -- if 23 the retailer doesn't have the on-line terminal positioned 24 prominently in that store, it's just not there when you walk 25 in. 0054 1 It's not staring you in the face when you're 2 standing at that counter making other purchases. And I 3 thought that was an interesting way to discuss the 4 differences between the two product lines. 5 CHAIRMAN CLOWE: In that regard, Robert, what 6 impact are the SSTs going to have? 7 MR. TIRLONI: We're hoping the SSTs, being in 8 our high-volume grocery store locations, are going to give 9 us greater visibility. We've had some success recently just 10 this past week with one of our large corporate accounts. 11 Randalls has told us that they are interested 12 in working with us to produce floor graphics that would 13 actually lead people from the door to the SST location. So 14 we feel that that's a step forward. And if Randalls does 15 that, we may be able to convince some of our other large 16 corporate chains to participate in those types of efforts, 17 as well. 18 CHAIRMAN CLOWE: So that would make that more 19 visible, and following your comment, moves in that 20 direction? 21 MR. TIRLONI: Yes, sir. That's correct. 22 Plus I think the -- the look of the SST and the way you 23 purchase the tickets, it gives people a very hands-on type 24 of experience in making that purchase. 25 You know, people are very -- are getting more 0055 1 and more familiar with that type of technology. When you go 2 to the airport, most of the time now you generate your 3 boarding pass and all of your documents yourself by using a 4 touch screen to do that. The SST is very similar to that. 5 People that are very comfortable with 6 technology should find it entertaining to use. And I think 7 the prominent location in the corporate chains or in the 8 corporate grocery store locations should help, as well. 9 CHAIRMAN CLOWE: Yeah. I finally learned how 10 to check myself out in the grocery store. It took a dozen 11 tries, but they were very patient. 12 MR. GREER: And Mr. Chairman, we will be 13 addressing the Texas Two Step scenario because there has 14 been a larger shift in that game because of the, you know, 15 competing aspect of Texas Two Step and Mega Millions. 16 But I'm comfortable in where Lotto Texas is 17 performing and continue to appreciate the fact that there's 18 a loyal player base that enjoy playing Lotto Texas on 19 Wednesday and Saturdays and see no reason to make any 20 changes to that game. 21 CHAIRMAN CLOWE: Any question? 22 Thank you, Robert and Dr. Jambor. 23 AGENDA ITEM NO. 11 24 CHAIRMAN CLOWE: Next item is No. 11, report, 25 possible discussion and/or action on lottery advertising and 0056 1 promotions, Steve Martin. Has Steve been introduced? 2 MR. GREER: He hasn't. And I'd like to do 3 that, Mr. Chairman. This is our new Marketing director's 4 first outing before you here today. During an extensive 5 interview process, he rose to the top of the heap. 6 We're pleased that he's on board. He comes 7 to us with two degrees from UT in radio, TV and advertising 8 marketing scenario, 14 years experience in the public and 9 private sector, has certainly hit the ground running over 10 the last couple of weeks and we're glad to have him on the 11 team. 12 CHAIRMAN CLOWE: Good. Steve, we're glad 13 you're here. 14 MR. MARTIN: Good morning. Good to be here, 15 Commissioners. As Reagan put it, when I first came on 16 board, it's like drinking from a fire hydrant but we're 17 turning that down a little bit, but glad to be here. 18 I wanted to -- for the record, I'm Steve 19 Martin, the new marketing director for the Texas Lottery 20 Commission. I wanted to give you an update on lottery 21 advertising and promotions. 22 The Winners campaign featuring winners across 23 the state for the general market has -- beginning on the 24 week of April 19th and will run through the week of May 3rd 25 for the general market. Mega Millions campaign for minority 0057 1 markets began on April 5th, the week of April 5th and will 2 run through the week of April 19th. 3 Marketing will be participating in five 4 promotional events for the month of April. Most notably, 5 the Poteet Strawberry Festival, which we were at last 6 weekend, and got a little rain, I think, but I think it was 7 a good event. 8 And I'm here for any questions and I've met 9 Commissioner Cox and Chairman Clowe and look forward to 10 meeting you, Commissioner Olvera. 11 COMMISSIONER OLVERA: Thank you, Mr. Martin. 12 MR. MARTIN: And I'm open for questions. 13 CHAIRMAN CLOWE: Any questions? Steve, we're 14 happy that you're here and look forward to seeing your 15 efforts produce good results. 16 MR. MARTIN: Thank you. And I'm looking 17 forward to it. And we're going to have some good stuff 18 going. 19 CHAIRMAN CLOWE: Great. Thank you very much. 20 MR. MARTIN: Thank you. 21 AGENDA ITEM NO. 12 22 CHAIRMAN CLOWE: Next is Item No. 12, report, 23 possible discussion and/or action on the 78th Legislature 24 and/or implementation of legislation affecting the Texas 25 Lottery Commission, Ms. Trevino. 0058 1 Good morning, Nelda. 2 MS. TREVINO: Good morning, Commissioners. 3 For the record, I'm Nelda Trevino, the director of 4 Governmental Affairs. And I have a very brief report with 5 regards to the 78th Legislature. 6 The House Committee on Licensing and 7 Administrative Procedures chaired by Representative Kino 8 Flores held a hearing on April the 6th. The authorization 9 of video lottery terminals was one of the agenda items and 10 the agency was asked to be in attendance as a resource at 11 that committee hearing. 12 And this concludes my report on this agenda 13 item and I'll be happy to answer any questions. 14 CHAIRMAN CLOWE: The staff was not called on 15 to give comments, as I understand it? 16 MS. TREVINO: That's correct, Commissioner. 17 There was no questions asked to the agency. 18 CHAIRMAN CLOWE: Any questions? 19 COMMISSIONER COX: No. 20 CHAIRMAN CLOWE: Thank you, ma'am. 21 AGENDA ITEM NO. 13 22 CHAIRMAN CLOWE: Next is Item 13, the report, 23 possible discussion and/or action on the Sunset process 24 involving the agency, Ms. Trevino. 25 MS. TREVINO: Commissioners, the Sunset has 0059 1 completed its limited purpose review to evaluate the 2 appropriateness of its 2002 recommendations regarding the 3 agency. It is my understanding the Sunset staff anticipates 4 issuing their report around April the 19th. Copies will be 5 provided to the Commission and the staff also intends to 6 provide a copy of the report to each member of the Bingo 7 Advisory Committee. 8 The report will be posted on the Sunset 9 Advisory Commission's Web site and we will also work to have 10 the report posted on our agency Web site, also. Once we 11 receive the report, we will have two to three weeks to 12 submit our official response. 13 The Sunset Advisory Commission will then meet 14 to hear public testimony on the agency and the 15 recommendations made by the Sunset staff. The meeting for 16 public testimony is currently scheduled for May the 18th and 17 May the 19th. I would also like to report that meetings 18 continue to take place for the executive director and the 19 director of Charitable Bingo to meet with the individual 20 members of the Sunset Advisory Commission. 21 On behalf of the agency staff, we would like 22 to thank the Sunset Commission staff, particularly the 23 project team, Karen Latta and Chloe Lieberknecht, for their 24 professionalism during this process. 25 This concludes my report and I'll be happy to 0060 1 answer any questions. 2 CHAIRMAN CLOWE: Are there any questions? 3 Thank you, ma'am. 4 MS. TREVINO: Thank you. 5 AGENDA ITEM NO. 14 6 CHAIRMAN CLOWE: Next is Item No. 14, a 7 consideration of and possible discussion and/or action on 8 the agency's business plan, Mr. Anger? 9 MR. ANGER: Good morning, Mr. Chairman and 10 Commissioners. For the record, my name is Michael Anger and 11 I'm the Lottery Operations director. I'm here this morning 12 to give you a brief report on the status meeting. 13 Since my last report, Dr. Cadenhead's 14 consulting team has concluded individual interviews with 15 executive management, division directors, key agency staff 16 and yourselves. The information gathered in those 17 interviews became the basis for discussions that took place 18 in three one-day-long planning sessions to talk about the 19 long-range -- the long-range plan for the agency during the 20 month of March. 21 The session centered around finding key 22 agency objectives, strategies, and action plans for the next 23 three fiscal years. The agency's vision, mission and values 24 were the basis of these efforts. In the coming weeks, I 25 will be coordinating efforts with agency staff and Dr. 0061 1 Cadenhead's planning team to fully develop the information 2 obtained in these meetings. 3 Work is beginning on the business plan and 4 will continue concurrently with the development of the final 5 long-range plan, which will ultimately become the 6 centerpiece of the agency's business plan. I will continue 7 to coordinate work efforts with Karen Blizzard, the agency's 8 strategic plan project manager. 9 And this concludes my report. I'd be glad to 10 answer any questions or hear any comment that you have. 11 CHAIRMAN CLOWE: Any questions? 12 MR. GREER: I'd like to make just a general 13 statement to thank Mike for coordinating those long-day 14 one-day -- three one-day meetings that we had on long-range 15 planning. It was very productive. I think a lot of good 16 things are going to come out of that for the overall good of 17 the agency and look forward to pulling that together and 18 bringing it to you in a report soon. 19 CHAIRMAN CLOWE: And I want to say I sat in 20 on two of them. I think that you picked a good facilitator 21 and I think the interaction is meaningful. It has value. 22 And we anticipate good results coming from that effort. I 23 was glad to see the interaction between the members of the 24 staff. I think that's a necessary ingredient. 25 MR. ANGER: I think we're all very excited 0062 1 about the project and I appreciate your comments, Chairman. 2 CHAIRMAN CLOWE: Great. Thank you, sir. 3 We're going to take a 10-minute break now. 4 We'll come back right at 10 o'clock. 5 (Recess from 9:50 a.m. to 10:05 a.m.) 6 AGENDA ITEM NO. 15 7 CHAIRMAN CLOWE: We'll come back to order. 8 We are now ready to take up Item No. 15, report, possible 9 discussion and/or action on the agency's strategic plan. 10 Mr. -- Mr. Grief, are you going to handle this? 11 MR. GRIEF: Actually, Mr. Chairman, 12 Ms. Blizzard will address this item for you. 13 MS. BLIZZARD: Good morning, Commissioners. 14 For the record, I'm Karen Blizzard, senior editor for the 15 Texas Lottery Commission. I'm here today to give a report 16 on the development of the agency's strategic plan for 17 2005-2009. 18 Progress continues on the external/internal 19 assessment. I attended two of the long-range planning 20 meetings that Mike Anger briefed you on earlier and will be 21 working with him and agency staff to incorporate information 22 from those sessions into the assessment section. 23 Earlier this month, the Financial Division 24 submitted the agency's requested budget structure and 25 performance measure revisions to the Governor's Office of 0063 1 Budget Planning and Policy and the Legislative Budget Board. 2 Financial Administration director, Lee Deviney, is here to 3 present information about those revisions. 4 That concludes my report to the update and 5 I'll be happy to answer any questions. 6 MR. DEVINEY: Good morning, Commissioners. 7 I'm Lee Deviney, again, Financial Administration director. 8 On your table, I've -- there are two documents. They're 9 color-coded tables. Commissioner Cox, I think it's 10 underneath the Mega Millions presentation. 11 This is a summary document that was put 12 together for your benefit. It describes the -- one of the 13 steps in the strategic planning process that's required, 14 which is presenting requested changes to the agency's budget 15 structure, to the LBB and the Governor's Office of Budget 16 and Planning. 17 We had individual meetings with both offices 18 and gained some input from those offices as to what we might 19 do to our budget structure to make it more transparent to 20 provide greater detail for decision makers. And the top 21 sheet, the -- if you'll look at the left-hand column, that's 22 our current budget structure. It says FY 04-05 budget 23 structure. 24 The middle column is the proposed fiscal year 25 2006/2007 budget structure. And the -- the lines are a map 0064 1 so that the items of appropriation in our current structure, 2 you can map them to where they would fall on this proposed 3 new structure. 4 And the proposed new structure has been 5 presented to the LBB and the Governor's Office of Budget and 6 Planning. They have not responded to us. It's not time 7 yet. And this may not be where we ultimately land, but this 8 is a proposal that we presented them based on -- on what 9 they told us and having some conversations with them. 10 The -- the items in blue, I highlighted in 11 blue just to reflect -- those are agency functions that 12 occur mostly in the field, things like claim centers and 13 auditing. The items in green are major contractual 14 obligations that are unique to state Lottery Operations. 15 And then the one item in red is the retailer bonus program. 16 We believe also that this structure will 17 provide better alignment with the current business 18 operations and identify and make transparent the major 19 contracts that the -- that are necessary to operate the 20 state lottery. 21 Do you have any questions? 22 CHAIRMAN CLOWE: Are there any questions? 23 I don't believe so. Thank you. 24 AGENDA ITEM NO. 16 25 CHAIRMAN CLOWE: Next is Item 16, 0065 1 consideration of and possible discussion and/or action, 2 including adoption, on amendments to 16 TAC 403.401, 3 relating to the use of commission vehicles. 4 MS. KIPLIN: Commissioners, if you'll recall, 5 at an earlier meeting we voted to propose amendments to this 6 particular rule for public comment to the Texas Register. 7 That -- that Register publication was December 12th, 2003. 8 Commission did not receive any comments to that proposal. 9 And staff is requesting today that you vote 10 to approve and adopt the amendments to rule 16 Texas 11 Administrative Code Section 403.401 relating to the use of 12 commission's vehicles. This is an outcome of the agency's 13 rule review of chapter 401 and the recognition on the 14 staff's part that there were changes that were necessary to 15 this rule. And so that was the point of the rulemaking. 16 I'd be happy to answer any questions that you 17 may have. 18 CHAIRMAN CLOWE: Are there any questions? 19 Is there motion? 20 I move the adoption of this proposed rule. 21 Is there a second? 22 COMMISSIONER OLVERA: Second. 23 CHAIRMAN CLOWE: All in favor, please say 24 aye. 25 COMMISSIONER OLVERA: Aye. 0066 1 CHAIRMAN CLOWE: Aye. 2 COMMISSIONER COX: Aye. 3 CHAIRMAN CLOWE: Opposed, no. 4 The vote is three-zero in favor. 5 MS. KIPLIN: Commissioners, your -- I'm 6 passing to you an order. Just in taking a look at it, I 7 noticed that there was a typo in it. It's clear where the 8 typo is. It's not on the signature page and I'll correct it 9 after your signature. It's a -- it's a word that needed to 10 come out. 11 CHAIRMAN CLOWE: Commissioners, are you 12 comfortable with signing this or do you want a corrected 13 order brought to us later? 14 COMMISSIONER COX: It's paper-clipped 15 together. 16 CHAIRMAN CLOWE: Are you okay with it? 17 COMMISSIONER OLVERA: Sure. 18 MR. GREER: Mr. Chairman, while y'all are 19 signing that, I need to make a statement or would like to 20 make a statement, if you're comfortable with that. 21 CHAIRMAN CLOWE: Regarding this? 22 MR. GREER: Not regarding this, but in the 23 future upcoming item in reference to Texas Two Step. 24 CHAIRMAN CLOWE: All right. Let me announce 25 the item that you want to make a comment on, Reagan. That 0067 1 would be No. 17 on the agenda? 2 MR. GREER: Yes, sir. 3 AGENDA ITEM NO. 17 4 CHAIRMAN CLOWE: Consideration of, possible 5 discussion and/or action, including adoption, on amendments 6 to 16 TAC 401.312, relating to Texas Two Step on-line game. 7 MS. KIPLIN: Commissioners, if you'll recall, 8 in an earlier commissioner meeting you voted to propose 9 amendments to this particular rule. And those -- that 10 proposal was published in the February 13th, 2004 issue of 11 the Texas Register. The commission did not receive comment 12 on the rule. 13 The purpose of the rules was to provide -- 14 pardon me -- purpose of the amendments was to provide 15 flexibility to change the draw schedule, including the draw 16 days, without undergoing a rule change. 17 Staff does recommend your adoption of these 18 amendments to that rule at this time. 19 MR. GREER: I'll wait until after you 20 deliberate. 21 CHAIRMAN CLOWE: Well, do you want to make a 22 comment that will help us? 23 MR. GREER: Specifically, as you look through 24 the reports that we've been giving in reference to the 25 effect of Mega Millions on our different games, Texas Two 0068 1 Step has taken a significant shift of sales. And from our 2 perspective, it's because it's competing with these higher 3 jackpot levels. 4 And we'd like to give it its own night. And 5 that's basically what we're looking at in this whole 6 scenario, just to remind you of the fact that we have been 7 monitoring it. And we're uncomfortable leaving it on the 8 same night to compete with Mega Millions. 9 CHAIRMAN CLOWE: So you want to move it from 10 Tuesday and Friday nights? 11 MR. GREER: Well, we're going to -- we're 12 looking at the flexibility that this will give in a number 13 of things, but Monday/Thursday nights, specifically. Once 14 you've deliberated, I will make a statement toward that. 15 MS. KIPLIN: I think deliberated and taken 16 action. 17 MR. GREER: Right. 18 CHAIRMAN CLOWE: Okay. Do you have any 19 questions? 20 COMMISSIONER OLVERA: No. I think that's in 21 line with what we discussed the last time they issued the 22 reports. 23 MR. GREER: Yeah. We've touched on it for a 24 couple of weeks and this is the formality. 25 MS. KIPLIN: But the rule amendment does not 0069 1 specifically change the days from the existing draw days to 2 specific other draw days. It gives the flexibility to allow 3 for the change in the draw schedule without having to 4 undergo a rule change. 5 In other words, it's removing that level of 6 specificity. It is putting a requirement that there be 7 prior advanced notice of the change in the draw schedule. 8 CHAIRMAN CLOWE: Okay. Any questions, 9 Commissioner Cox? 10 COMMISSIONER COX: No. 11 CHAIRMAN CLOWE: So what you want then is a 12 motion to approve this amendment; is that correct? 13 MS. KIPLIN: That's right, a motion to adopt 14 the amendments to the Texas Two Step rule. 15 CHAIRMAN CLOWE: Is there a motion? 16 COMMISSIONER OLVERA: So move to adopt said 17 amendment. 18 CHAIRMAN CLOWE: Second. 19 All in favor, please say aye. 20 COMMISSIONER COX: Aye. 21 CHAIRMAN CLOWE: Aye. 22 COMMISSIONER OLVERA: Aye. 23 CHAIRMAN CLOWE: Opposed, no. 24 The vote is three-zero in favor. 25 MR. GREER: Commissioners, based on your 0070 1 vote, which we discussed briefly, I'm prepared to announce 2 that the agency will be moving ahead with a day change for 3 Texas Two Step, specifically oriented toward the comments 4 that were just made on our drawings of the game. 5 The Texas Two Step drawings will move to 6 Mondays and Thursdays effective June 26. The last Friday 7 drawing will be on June 25th. We've been monitoring the 8 progress of the Texas Two Step game since we joined Mega 9 Millions in December. And we feel that moving Texas Two 10 Step will prevent the game from having to compete directly 11 with a multimillion dollar jackpot game and it will be the 12 only jackpot style game available to players on Mondays and 13 Thursdays. 14 Robert Tirloni, our on-line product manager, 15 has been coordinating primarily efforts with Gtech to look 16 at the necessary aspects of software modifications required 17 to make this change. After today, we will proceed with 18 those efforts and will work with Gtech marketing and sales 19 staff and our advertising agency in order to provide our 20 retailers and the public with notice and information about 21 this change to the drawing schedule. 22 In addition, we will file a notice in the 23 Texas Register and the Texas Lottery Web site to provide 24 information about this change via the public information 25 page. We'll also put out press releases that will be issued 0071 1 in the hopes that the media will assist us in notifying the 2 public. 3 Also, I -- as I have stated earlier, I 4 continue to look for input from the public and the 5 retailers. There is a loyal player base to Texas Two Step 6 that, I think, will embrace this change. The retailers are 7 in agreement of that. And I think it will be a positive 8 thing for the game overall. 9 And thank you for taking this action today. 10 CHAIRMAN CLOWE: Thank you. 11 AGENDA ITEM NO. 18 12 CHAIRMAN CLOWE: Next is Item No. 18, 13 consideration of, possible discussion and/or action, 14 including proposal, on amendments to 16 TAC 401.362, 15 relating to retailer's financial responsibility for lottery 16 tickets received, for winning lottery tickets paid and for 17 lottery-related property, Mr. Anger? 18 MS. KIPLIN: Commissioners, Mr. Chairman, I 19 mentioned to you that the staff would request a 20 consideration of passing this item. We do have a document 21 that is in the process of being drafted and we would like to 22 bring this up to you-all for your consideration. Maybe 23 even -- I think -- Mr. Anger has a few remarks he'd like to 24 make about the purpose of this particular rulemaking. 25 CHAIRMAN CLOWE: So the purpose of this item 0072 1 today being on the agenda is for discussion only and the 2 Commission's not being asked to take any action? 3 MS. KIPLIN: That's correct. 4 CHAIRMAN CLOWE: Mr. Anger? 5 MR. ANGER: For the record, my name is 6 Michael Anger. I'm the Lottery Operations director. 7 Commissioners, the current rule that we have in place, 8 401.362, related to retailer's financial responsibility for 9 lottery tickets, is in place with regard to stolen, lost and 10 damaged tickets that -- that are in the possession of the 11 retailer and subsequently end up in some -- one of those 12 conditions. 13 Our current rule calls for those tickets that 14 are in an active status, tickets that are for sale to the 15 public and that are available for validations, to be settled 16 against that retailer's account upon reporting the event 17 that's taken place at their location, a theft or loss. And 18 what happens is there's a subsequent financial transaction 19 that the agency takes to settle those against the retailer's 20 account and, in a sense, charge the retailer for those 21 tickets. 22 This creates a large financial transaction, 23 in many cases, against their account in a one-week period of 24 time. Because we're dealing with many small businesses and 25 licensees, that can have a significant impact. In short, 0073 1 what we're seeing is is the retailers have this financial 2 burden. And subsequent to that, there is often a loss or 3 drop in lottery sales at those locations. 4 So we take a loss, as well. The retailer 5 takes a loss for the theft and then we see a loss in ongoing 6 lottery sales, enthusiasm for our products, and in some 7 cases, where the business cannot make the payments that they 8 owe to the agency and those licenses are ultimately 9 forfeited by those licensees. 10 So we're going to be proposing a rule that we 11 believe addresses that and, you know, mitigates that 12 circumstance for the retailers when they -- they suffer 13 these events. And we believe it will also help continue 14 helping lottery sales at those locations. 15 CHAIRMAN CLOWE: Any questions or comments? 16 COMMISSIONER COX: No. 17 MR. ANGER: Thank you. 18 CHAIRMAN CLOWE: Thank you. 19 AGENDA ITEM NO. 19 20 CHAIRMAN CLOWE: Next I want to announce Item 21 19 and then make a comment about it. It is consideration 22 of, possible discussion and/or action on the lottery 23 operator contract, including approval of an amendment to the 24 lottery operator contract and/or whether the negotiation of 25 the lottery operator's contract in an open meeting would 0074 1 have a detrimental effect on the Commission's position in 2 negotiations of the lottery operator contract. 3 Commissioners, Ridgely Bennett has a contract 4 amendment for us to discuss. And as I understand it, 5 Counselor, we have the right to go into executive session on 6 this if the Commission so desires. And that's the reason 7 it's noticed up the way it is. 8 My hope is that we can discuss this in the 9 open conference, but the commissioners have the option as to 10 what they want to do. So at this point, I'd ask for a 11 discussion about whether we're going to discuss this in the 12 open meeting and if you're comfortable with that and what's 13 your pleasure. 14 COMMISSIONER COX: I'm comfortable. 15 CHAIRMAN CLOWE: Commissioner Cox is 16 indicating he's comfortable. You are, too? 17 COMMISSIONER OLVERA: I've reviewed the 18 amendment. I have no problem with it. 19 CHAIRMAN CLOWE: All right. Very good. 20 MR. BENNETT: Thank you, Commissioners. For 21 the record, my name is Ridgely Bennett. I'm the deputy 22 general counsel of the Texas Lottery Commission. The 23 purpose of the amendment before you is to allow for a 24 self-service terminal implementation program. The 25 implementation program will occur between the months of 0075 1 August -- excuse me -- April through August. 2 And during the implementation program, a 3 Gtech sales representative will be stationed at each SST 4 retailer for one to two hours per visit, with a minimum of 5 four visits during the first two weeks following the initial 6 installation of the -- of the SST. The sales representative 7 will educate players in the use of the SST, answer questions 8 about the Texas Lottery and specific games and provide 9 instructions where needed. 10 Following the initial two-week installation 11 period, a sales representative will visit each SST location 12 on a weekly basis throughout the SST implementation program. 13 During the SST implementation period, Gtech sales 14 representatives will only be required to visit retailers 15 that have averaged instant sales of less than two thousand 16 dollars per week once per month rather than every two weeks 17 as currently required by the contract for most retailers. 18 Gtech will provide written notice to each of 19 the affected -- approximately 6500 affected retailers prior 20 to the implementation of the reduced visits and will explain 21 the modified visit schedule, its duration, instructions for 22 contacting Gtech sales district office if assistance is 23 required outside of the visit schedule and identification of 24 the appropriate Procall representative for instant ticket 25 orders. 0076 1 And I'll be happy to answer any questions if 2 you have any. Also with me is Mr. Michael Anger to answer 3 any questions regarding the matter. 4 CHAIRMAN CLOWE: Are there any questions? 5 Is there a motion? 6 COMMISSIONER COX: Is the motion that we 7 would approve -- 8 MR. BENNETT: Approve the executive director 9 entering into the amendment. 10 COMMISSIONER COX: So move. 11 CHAIRMAN CLOWE: Second? 12 COMMISSIONER OLVERA: Second. 13 CHAIRMAN CLOWE: All in favor, please say 14 aye. 15 COMMISSIONER OLVERA: Aye. 16 CHAIRMAN CLOWE: Aye. 17 COMMISSIONER COX: Aye. 18 CHAIRMAN CLOWE: Opposed, no. 19 The vote is three-zero in favor. 20 Thank you, gentlemen. 21 MR. BENNETT: Thank you, Commissioners. 22 AGENDA ITEM NO. 22 23 CHAIRMAN CLOWE: Commissioners, with your 24 permission, I'd like to move to Item No. 22 on the agenda 25 and complete the public portion of the agenda before we go 0077 1 into executive session. 2 And if you're in agreement with that, we'll 3 move to Item No. 22 on the agenda, which is consideration of 4 the status and possible entry of orders in cases identified 5 by the letter A through N. 6 Counselor, will you help us with those? 7 MS. KIPLIN: Yes, I'd be happy to. 8 Commissioners, if I could, I'd like to focus your attention 9 on the letters A through J. Those are all contested cases 10 that were conducted over at the State Office of 11 Administrative Hearings. They're all lottery cases. 12 In each one of those, the administrative law 13 judge issued findings and conclusions in which the licensee 14 had insufficient funds available at the time that the 15 Lottery swept the account. And each one of those cases, the 16 order -- proposed order is to revoke those licenses. 17 The staff does support that and would request 18 that you-all vote to adopt the findings and conclusions of 19 the administrative law judge and enter the order accordingly 20 in each of these cases. 21 CHAIRMAN CLOWE: Is there any discussion? 22 Questions? So move. 23 COMMISSIONER OLVERA: Second. 24 CHAIRMAN CLOWE: All in favor, please say 25 aye. 0078 1 COMMISSIONER COX: Aye. 2 COMMISSIONER OLVERA: Aye. 3 CHAIRMAN CLOWE: Aye. 4 MS. KIPLIN: Commissioners, if I could 5 address your -- 6 CHAIRMAN CLOWE: Wait. Wait just a minute. 7 MS. KIPLIN: Okay. 8 CHAIRMAN CLOWE: Did you vote, Commissioner 9 Olvera? I'm sorry. I didn't hear. 10 COMMISSIONER OLVERA: Yes, sir. 11 CHAIRMAN CLOWE: Okay. The vote is 12 three-zero in favor. And that motion covers cases 13 identified by the letter A through J. 14 MS. KIPLIN: Yes, A through J. 15 CHAIRMAN CLOWE: Okay. 16 MS. KIPLIN: Commissioners, the remaining 17 cases, those are letters K, L, N as in N -- pardon me -- N. 18 Those are all bingo licensing cases. These are agreed 19 orders. The violation in each of these cases was a failure 20 to clearly identify the licensee on advertisements. 21 The staff is recommending that the Commission 22 do vote to approve the orders. And the remedial efforts 23 will be that they will adopt procedures to ensure that there 24 is either an officer -- pardon me -- that there is an 25 officer and primary operator that will review and sign all 0079 1 requests for advertising to ensure that level of review and 2 then also to undergo -- current officers and operators to 3 undergo bingo training through the bingo training program. 4 At this time, staff does request that you-all 5 adopt these review orders. 6 CHAIRMAN CLOWE: Are there any questions or 7 comments? 8 So move. 9 COMMISSIONER COX: Second. 10 CHAIRMAN CLOWE: All in favor, please say 11 aye. 12 COMMISSIONER OLVERA: Aye. 13 COMMISSIONER COX: Aye. 14 CHAIRMAN CLOWE: Aye. 15 Opposed, no. 16 The vote is three-zero in favor. 17 AGENDA ITEM NO. 23 18 CHAIRMAN CLOWE: Now we'll take up Item 23, 19 report by the executive director and/or possible discussion 20 and/or action on the agency's operational status, FTE status 21 and retailer forums, Mr. Greer. 22 MR. GREER: Mr. Chairman and Commissioners, 23 just a brief update with what's been going on with me over 24 the last month since our last meeting. 25 We talked briefly a moment ago about the Mega 0080 1 Millions game and how it continues to perform. Robert went 2 into detail on the layout of winners that were a part of the 3 Friday drawing and the fact that there was a winner in 4 Maryland. Our current jackpot amount is 10 million. We've 5 rolled back and continue to see a high level of enthusiasm 6 developing in that game. 7 I did attend a Mega Millions directors 8 meeting in Baltimore on March the 26th and also wanted you 9 to be aware that I will be attending a follow-up Mega 10 Millions meeting in Sacramento, California in late April. 11 We've reached an important milestone this 12 month, which was a $6 billion transfer mark to the 13 Foundation School Fund. We had a press conference about 14 that and want to continue to make people aware of the fact 15 that the money does go to the Foundation School Fund since 16 1997. And that six-billion mark is certainly something to 17 be proud of. 18 Another interesting thing that shook out over 19 the last few days is that we have been identified in La 20 Fleurs Magazine for our sales of 2003 as the 10th largest 21 lottery in the world. I think it's interesting to note who 22 the top nine are above us. 23 Number one is Spain; two, Japan; three, 24 France; four, Italy; five, the UK; number six is the New 25 York Lottery; number seven, Massachusetts; number eight, the 0081 1 Republic of Korea; number nine, Italy; and number 10, the 2 Texas Lottery. 3 We held a successful legislative briefing on 4 March the 11 at the Capitol. It was well attended. A lot 5 of questions were asked by representatives of the various 6 legislators and senators. 7 We did talk a moment ago about finishing up 8 our business plan for long-range development. And I'm 9 looking forward to bringing that report to you. The last 10 meeting was held on March 31st. And, again, I want to thank 11 the staff for their work in putting all that together. 12 We continue to act as a VLT, video lottery, 13 resource to the different branches of government and did 14 attend a licensing and administrative hearing, which Nelda 15 mentioned, on April the 6th. 16 I had a brief meeting through -- with proper 17 oversight and clearance with the Gtech board of directors 18 last week. Went well. Had an opportunity to exchange some 19 issues with them and they -- I had issues that they 20 discussed with me, as well. It was productive. 21 I continue to be on the speaking circuit. I 22 spoke in Fredericksburg to the Gillespie County Board of 23 Realtors recently, as well as the North Austin Rotary Club, 24 was in Houston last week presenting a $500,000 bonus check 25 to a happy retailer down there at a Corner Stop Store in 0082 1 reference to the $70 million jackpot drawing recently. 2 I continue to reinforce the fact that our 3 retailer bonuses are very strong. And that was the fifth 4 time in lottery history that we've given out that size of a 5 retailer bonus. In comparison, I noted that when the state 6 of Virginia sold the $239 million ticket a few weeks back, 7 their retailer received a $25,000 bonus. 8 So I'm very proud of the fact that we do 9 recognize retailers in this way and was pleased to be done 10 personally to thank the retailer and hand his him ceremonial 11 check. 12 I wanted to recognize Kristina Tirloni, who 13 recently won an award from the Texas Public Relations 14 Association for her technical article entered that was 15 entitled "Texas Lottery Automates Winning Numbers." We're 16 pleased to be recognized by that group. 17 We are part of the Governor's Texas Roundup. 18 There's a Lotto Fit Team here within our midst. 119 19 employees are participating in that program and it's been a 20 good way to remind employees the importance of staying in 21 shape as a part of their daily routines. 22 I also wanted to report to you, in reference 23 to our -- the amendment a moment ago to the contract that 24 there are currently 77 SSTs that are installed around the 25 state. The first three were deployed on April the 1st, 0083 1 testing the software and installation and what goes on with 2 that, I personally feel that ambassador program will be 3 beneficial to rolling out SSTs. 4 I was sharing with one of the other 5 commissioners earlier that the managers, specifically at the 6 retail establishments, have liked the fact that there's 7 somebody there that can answer all their staff's questions 8 and begin to implement this whole new process of where we're 9 going with the self-service terminals. 10 I also wanted to let you know, as a 11 follow-up, that over 4,000 programmable signs are now 12 installed and that we expect completion in June of that 13 programmable sign element, as well as the fact that we will 14 continue to deploy SSTs, around 70 to 75 per week, now 15 through August to get that up and running around the state 16 and we'll stay involved in that process. 17 Our theme this month is nine competencies of 18 an exceptional organization. We are an exceptional 19 organization in my estimation and we'll continue to strive 20 to reach new heights within the Texas Lottery. 21 And thank you, again, for the privilege of 22 being the executive director of this organization. 23 CHAIRMAN CLOWE: Thank you, Reagan. Any 24 questions or comments? 25 AGENDA ITEM NO. 24 0084 1 CHAIRMAN CLOWE: Then we'll go to the next 2 item, No. 14 -- 24, report by the Charitable Bingo 3 Operations director and possible discussion and/or action on 4 the Charitable Bingo Operations Division's activities, Mr. 5 Atkins. 6 MR. ATKINS: Thank you, Commissioners. As an 7 update to my report, we have filled the Houston audit 8 position. That individual started today. 9 The next Advisory Committee meeting is still 10 tentatively scheduled for Thursday, April 29th. You have in 11 my report an allocation on fourth quarter 2003 allocations 12 to local jurisdictions. And you'll see in there an almost 13 five-percent increase in allocations. 14 This, again, we attribute to the increase in 15 pull-tab sales. So that is also benefitting local 16 jurisdictions. I sent each of you also individually a copy 17 of the NAGRA brochure for the upcoming San Antonio 18 conference and I hope you got that. 19 Behind the list of newspaper articles is a 20 new report that we're putting together for you. It replaces 21 a pending graph that you used to get from us that just 22 showed licensing activity. The new report that you will be 23 receiving will be covering the six weeks immediately prior 24 to when we prepared the notebook for you and will include 25 some key components from all three sections -- audit, 0085 1 licensing and accounting services -- in addition instead of 2 just the one licensing graph that you used to have. So when 3 you get that, if you have any questions about any of that 4 information, I'll be happy to address that for you. 5 The one news article that I did want to point 6 out to you is something that we found -- it's dated March 7 24th and it's actually an advertisement for a manager 8 position with the Gala Group. The Gala Group is a bingo 9 operator, one of the larger bingo operators in the United 10 Kingdom. 11 And what it was that we found interesting 12 about this report, if you recall back to the demographic 13 survey that we did on bingo players in Texas, reading from 14 this advertisement, this is what they have to say about 15 bingo in the United Kingdom: Bingo isn't what it used to 16 be. The entire industry has reinvented itself and it is now 17 recognized as a thriving and growing business, for most new 18 players are aged between 24 and 35. 19 So if you see, they have a somewhat different 20 demographic than what we were showing in our study that we 21 presented to you several meetings ago. And that's all I 22 have and would be happy to answer any questions. 23 CHAIRMAN CLOWE: Thank you, Billy. Are there 24 any questions or comments? I believe not. Thank you. 25 AGENDA ITEM NO. 25 0086 1 CHAIRMAN CLOWE: Is there anyone wishing to 2 make public comment to the Commission at this time under 3 Item No. 25? I believe not. 4 AGENDA ITEM NO. 20 5 CHAIRMAN CLOWE: Commissioners, with your 6 permission, at this time I will move that the Texas Lottery 7 Commission go into executive session to deliberate the 8 duties and evaluation of the Executive Director and/or 9 Deputy Executive Director, Internal Audit Director and 10 Charitable Bingo Operations Director pursuant to Section 11 551.074 of the Texas Government Code, to deliberate the 12 duties of General Counsel and Security Director pursuant to 13 Section 551.074 of the Texas Government Code, to receive 14 legal advice regarding pending or contemplated litigation 15 and/or to receive legal advice pursuant to Section 16 551.071(1)(A) or (B) of the Texas Government Code and/or to 17 receive legal advice pursuant to Section 551.071(2) of the 18 Texas Government Code including, but not limited to, Patsy 19 Henry versus Texas Lottery Commission, Sandy Surber et al. 20 versus GTECH Corporation, Linda Cloud versus Mike McKinney 21 et al, Bruce versus Texas Lottery Commission et al., James 22 T. Jongebloed versus Texas Lottery Commission, employment 23 law, personnel law, procurement and contract law, 24 evidentiary and procedural law and general government law. 25 Is there a second? 0087 1 COMMISSIONER COX: Second. 2 CHAIRMAN CLOWE: All in favor, please say 3 aye. 4 COMMISSIONER OLVERA: Aye. 5 COMMISSIONER COX: Aye. 6 CHAIRMAN CLOWE: Aye. 7 The vote is three-zero. 8 The Texas Lottery Commission will go into 9 executive session. The time is 10:35. Today is April the 10 12th, 2004. 11 (Executive Session from 12 10:39 a.m. to 1:39 p.m.) 13 AGENDA ITEM NO. 21 14 CHAIRMAN CLOWE: The commission will come 15 back to order. The time is 1:35. Is there any action to be 16 taken as a result of executive session? I believe not. 17 Is there any other business to come before 18 the Commission? Understanding there is none, this 19 Commission is adjourned at 1:36 p.m. 20 Thank you-all very much. 21 (Meeting adjourned at 1:40 p.m.) 22 23 24 25 0088 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, David Bateman, RPR, Certified Shorthand 7 Reporter in and for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing before 9 the TEXAS LOTTERY COMMISSION as hereinafter set out, that I 10 did, in shorthand, report said proceedings, and that the 11 above and foregoing typewritten pages contain a full, true, 12 and correct computer-aided transcription of my shorthand 13 notes taken on said occasion. 14 15 Witness my hand this the 19th day of April, 2004. 16 17 18 19 ___________________________________ 20 David Bateman, RPR, Texas CSR #7578 Expiration Date: 12/31/05 21 Wright Watson STEN-TEL Firm Registration No. 225 22 1801 North Lamar Boulevard Mezzanine Level 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 030423DPB