1 1 2 3 4 5 6 *************************************************** 7 8 TEXAS LOTTERY COMMISSION 9 MEETING 10 11 April 26, 2001 12 *************************************************** 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 26TH day of 20 APRIL, 2001, beginning at 8:32 a.m. and ending at 21 1:41 p.m., before Suzanne T. Lane, RPR, CSR in and 22 for the State of Texas, reported by machine 23 shorthand, at the Offices of the Texas Lottery 24 Commission, 611 East Sixth Street, Austin, Texas, 25 whereupon the following proceedings were had: WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 1 APPEARANCES 2 Chairman: 3 Mr. C. Tom Clowe, Jr. 4 Commissioners: Ms. Elizabeth D. Whitaker 5 Mr. Walter H. Criner, Sr. 6 General Counsel: Ms. Kimberly L. Kiplin 7 Executive Director: 8 Ms. Linda Cloud 9 Charitable Bingo Operations Director: Mr. Billy Atkins 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: Good morning. It 2 is 8:32 on April the 26th, 2001. I'd like to call 3 this meeting of the Texas Lottery Commission to 4 order. My name is Tom Clowe, and Commissioner 5 Whitaker and Commissioner Criner are present, so we 6 have the full commission present. 7 I'd like to begin by noting that 8 Governor Perry has appointed Commissioner Whitaker 9 and Commissioner Criner to serve as Lottery 10 Commissioners, and they have been confirmed by the 11 Senate and are now sitting commissioners. 12 Commissioner Whitaker, we're very 13 happy to have you confirmed and serving on the 14 Commission. Do you have any comments you'd like to 15 make? 16 COMMISSIONER WHITAKER: Well, I'm 17 delighted to be back. 18 CHAIRMAN CLOWE: Very good. 19 Commissioner Criner is a new 20 commissioner. Walter Criner is from Houston, 21 Texas. He has a long and distinguished business 22 and public service career, and of course, we're 23 very happy to have him as a sitting commissioner. 24 Commissioner, would you like to make 25 a comment? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 TEXAS LOTTERY COMMISSION - 4-26-01 1 COMMISSIONER CRINER: It's real nice 2 to be here, Mr. Chairman. I've been -- I came to 3 meet the Commission during my appointment process. 4 I was given some information, and when I returned 5 to my office, it was six -- three boxes. 6 COMMISSIONER WHITAKER: That's all? 7 COMMISSIONER CRINER: My secretary 8 said we bought a new file cabinet for three boxes, 9 and two days later, we got two more boxes. I've 10 been doing a lot of reading and trying to 11 understand the operations of the lottery. So I'm 12 happy to be here. 13 I'm glad that Betsy and I made it 14 through our grueling hearing process altogether. 15 And so I look forward to serving the State of Texas 16 again in another position, with great pleasure and 17 honor. I've really enjoyed meeting the staff. I 18 think we have a very professional staff that does 19 things right, and our executive director just kind 20 exemplifies that. I'd just like to start off by 21 saying that. 22 MS. CLOUD: Thank you. 23 COMMISSIONER CRINER: I appreciate 24 Governor Perry offering me this appointment. As 25 most of you know, he is a very close, personal WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 TEXAS LOTTERY COMMISSION - 4-26-01 1 friend. And I like the way he offered it to me. 2 He just kind of called and said, "There is 3 something we want to offer you. Bye." They tell 4 you about it when they call. And then when they 5 called, I said "What?" And here I am, so... 6 CHAIRMAN CLOWE: Good. 7 COMMISSIONER CRINER: I'm just happy 8 to be here, Mr. Chairman. 9 CHAIRMAN CLOWE: Well, thank you. 10 We're happy to have you. 11 I'd like to now move to the next 12 item, operations and activities of the Commission. 13 And this is, to a certain extent, redundant based 14 on some comments that I made when I became the 15 chair of the Committee in the last year. And I 16 would tell you that I'll make a threat that this 17 may be a reoccurring thing from time to time. 18 And I think it is appropriate now 19 that we have two commissioners that have been 20 confirmed. And this commission is, to a certain 21 extent, a fairly new commission. And that is a 22 reminder to all of us that are associated with the 23 Texas Lottery Commission of the esteem and the 24 trust that we hold each other in, in this agency, 25 and that same trust which is placed in us by the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 TEXAS LOTTERY COMMISSION - 4-26-01 1 people of the State of Texas. 2 This commission, in my opinion, is 3 somewhat unique, in that it is a government agency 4 on the one hand; and on the other, an enterprise, a 5 commercial enterprise on the order and magnitude of 6 three to three and a half billion dollars a year. 7 We deal with controversial issues very frequently, 8 and we are under constant scrutiny. 9 Since I have become a commissioner 10 and have enjoyed my service here, the one claim 11 that I have been able to make is that there is 12 honesty and integrity at this commission which is 13 unquestionable. We may do things from time to time 14 that are unpopular or popular, and we may make 15 people happy or unhappy from time to time. 16 There are some people who don't like 17 any kind of organized gambling in the state and, as 18 we know, are opposed to the operations of this 19 agency. But to my knowledge, there has never been 20 a claim that there is not honesty and integrity -- 21 which is unquestioned -- as a result of this 22 commission's activity. 23 That is the responsibility of every 24 one of us, all employees of the Lottery Commission. 25 Whether you are based here in Austin or any of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 TEXAS LOTTERY COMMISSION - 4-26-01 1 our regional offices, no matter what your position 2 is, you took that pledge and you took that 3 responsibility when you became associated. 4 And I would like to -- as I say, it 5 may be redundant -- restate, that to me, that is 6 the paramount obligation that all of us have here. 7 We can never take a shortcut. We can never fail to 8 do the right thing and to disclose facts which are 9 germane to this commission's operation in the daily 10 activities that we are involved in in our each 11 individual jobs. 12 I hope that you will be reminded of 13 those comments I made a year ago. Take this to 14 heart, and pass it on to others in your divisions, 15 people who are not here today and maybe won't read 16 this transcript, and see as to it that this is a 17 current and living policy within this commission. 18 Having said that, I would like to 19 thank each of you for the great job that you are 20 doing and that you continue to do. I continue to 21 spend time here and in other places in the state as 22 part of my responsibilities at the Commission. I 23 was here earlier this week at a division directors 24 meeting, unannounced, and sat in for a little over 25 an hour and watched the protocol as it involves WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 TEXAS LOTTERY COMMISSION - 4-26-01 1 dealing with everyday problems and projects here at 2 the Commission. 3 I'm very impressed with the 4 leadership and the dedication that I see in this 5 agency. And on behalf of all three commissioners, 6 I want to express our thanks and appreciation for 7 the good job that you-all continue to do. Having 8 said that -- and thank you for your attention -- 9 I'd like to now deviate from the agenda just a 10 little bit. 11 We have a public witness here this 12 morning who would like to appear. We have looked 13 forward to the appearance of Mr. Cohen, who is the 14 CEO of GTECH, and he has been able to come today 15 and, as you know, has assumed that position fairly 16 recently. His name Howard S. Cohen. 17 And we would like to call on you at 18 this point, Mr. Cohen, and invite you to address 19 the Commission, if you will. 20 MR. COHEN: Good morning. 21 COMMISSIONER WHITAKER: Good 22 morning. 23 MR. COHEN: I'd like to thank you 24 for giving me some time this morning to greet the 25 Commission and talk a little bit about myself and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 TEXAS LOTTERY COMMISSION - 4-26-01 1 GTECH. Similar to some of the commissioners here, 2 I am new to the lottery business and new to GTECH, 3 but I'm very excited about the opportunity, and I'm 4 excited about the opportunity to really have a 5 chance to speak a little bit about our company and 6 myself with both of you -- or all three of you, 7 excuse me. 8 Before I start, I haven't been to 9 Texas that many times -- in the last couple of 10 months, but it is great to be in the State of 11 Texas, and certainly in Austin. And there is a lot 12 of tradition between our company and yours -- your 13 state, as it relates to the lottery. And I'm 14 really proud now to be a part of that organization 15 and commitment going forward. 16 I thought maybe I'd spend just a few 17 minutes and talk a little bit about myself as a new 18 member of the GTECH team. As a new CEO, I really 19 don't come from the lottery or any of the 20 associated businesses. My background has been in 21 technology and technology businesses throughout my 22 life. I really got my start early on with the 23 Xerox Corporation back in 1969. 24 And since that time, I've been in 25 many different kinds of companies, everything from WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 TEXAS LOTTERY COMMISSION - 4-26-01 1 telecommunications to business products and 2 printing systems. I've also been in the 3 semiconductor business. Recently, I have been in 4 the mail messaging and imaging business with 5 Bell & Howell as the CEO. I have also been in the 6 systems integration business as a CEO of a company 7 called PEAK Technologies, in Columbia, Maryland. 8 I've moved around the country a lot. I've been in 9 many different cities, and I've had many different 10 experiences throughout all of my career. 11 I think what's interesting to note 12 is that I've always been in a business-to-business 13 type of an arrangement. I've also been in 14 businesses that have always had service as either a 15 primary or a very important component of its 16 business, the service of dealing with its customers 17 and its end users to ensure that there was good 18 customer satisfaction and good quality of product 19 and service to the constituencies that we served. 20 Many of the businesses that I have 21 been in have also served the government or state 22 constituencies, so I am familiar with that and very 23 comfortable in that environment. And as I said, 24 I've been in many different kinds of businesses, 25 all of which have been businesses that have been WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 TEXAS LOTTERY COMMISSION - 4-26-01 1 profitable, have been successful. 2 And it was interesting to listen to 3 your comments, because one of the things, I think, 4 if you were to do some checking on Howard S. Cohen, 5 as far as what kind of an individual he is, I think 6 they would tell you that Howard has been a good 7 businessman, he's been fair and honest. 8 And one of the things they would 9 probably say to you is he's sort of a Boy Scout. 10 So when you talk about honesty and integrity, 11 honesty and integrity would certainly be 12 characteristics that you would hear about me as you 13 would do any research as it relates to the kinds of 14 things and the kinds of decisions and the actions 15 that I may have taken in running fairly large 16 businesses around the United States. 17 I joined GTECH six weeks ago, so 18 I've got as many boxes as you do, Commissioner. 19 And I'm also trying to read up on our company and 20 what it does and what it doesn't do and how it 21 acts. 22 But one thing that I would start -- 23 that I've already seen about the company is that it 24 has a tremendous commitment to its customers. And 25 I read the transcripts that were from the last WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 TEXAS LOTTERY COMMISSION - 4-26-01 1 commission meeting when Bruce Turner was here, the 2 chairman. And there was a nice compliment that was 3 given to Larry King and his staff and to how he 4 handles our assignment down here with the group. 5 And I had an opportunity to 6 go to our world conference, which is a 7 once-a-year -- a once-every-two-year occurrence 8 where a lot of leaders from our customers around 9 the world join us and we have a lot of our own 10 employees there. And we talk about technology and 11 we talk about the future of GTECH. We talk a 12 little bit about, you know, what is happening in 13 the industry. 14 But the one thing that was very 15 interesting and made me feel very good about our 16 business and really reinforced why I think I'm very 17 happy to be here, is that our company serves its 18 customers and has a tremendous relationship with 19 its customers that goes really almost beyond a 20 business relationship. 21 We are there; we tend to go the 22 extra mile. We really want to support and do the 23 right thing by its customer base. And I really saw 24 that kind of commitment, that kind of relationship, 25 and it made me feel real good about joining this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 TEXAS LOTTERY COMMISSION - 4-26-01 1 company. 2 Now, there are a lot of reasons you 3 join a corporation. Everyone talks about maybe the 4 position and maybe financial rewards. But at some 5 point in your life, they are important, but they 6 change. And they change because I think you have a 7 little more experience, you have a little more 8 maturity. And so when you look at a business that 9 you want to join, there are some other criteria 10 that can become as important, or more important, as 11 the reasons why you would join a business. 12 And so when I joined GTECH, I was 13 looking for certain criteria that really fit the 14 things that I'm looking for and what I hope that I 15 would be able to provide some value to. And the 16 first thing that was important to me is I wanted to 17 join a company that had good cash flow and actually 18 was making money. 19 And you're smiling, but there's a 20 lot of businesses that I had been -- either talked 21 to or had investigated over the years that had a 22 tremendous -- either promise or opportunity at the 23 top line that they were going to have a lot of 24 revenue, but maybe the business model never had 25 anything to do with making money or really WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 TEXAS LOTTERY COMMISSION - 4-26-01 1 sustainability or consistency in the market. 2 And my experience has been that I'd 3 rather be with maybe an old-fashioned kind of 4 company, a value company, one that is profitable 5 over the period of years and has that consistency 6 and sustainability. And so I looked at GTECH as a 7 very solid and formidable company to join. 8 I also wanted to join a company that 9 was in a technology and was a technology leader. 10 And there's a lot of companies that may be 11 successful, but the sustainability of a company 12 over a period of years is that it has to have some 13 leadership in a particular niche or market. 14 And I look at GTECH. GTECH has 15 tremendous capabilities and transaction management, 16 professional services, and program management 17 around the world; and has a core technology that is 18 strong and substantial and certainly is a market 19 leader in the industries that we serve. And that 20 was very important to me. 21 I also wanted to be in a business 22 that serves a customer base and has a relationship 23 with its customers. And I guess that was sort of a 24 personal thing, and that is that I enjoy being in a 25 business where there's customers; I enjoy being in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 TEXAS LOTTERY COMMISSION - 4-26-01 1 a business where there is a relationship; and I 2 enjoy being in a business where there is a 3 dialogue, consistent dialogue with its customer 4 base. And I looked at GTECH, and to me, it fit 5 those kinds of criteria and was one that I was very 6 interested in. 7 Also, investigating companies, 8 because my background has been in multiple 9 businesses in a leadership role, I wanted to make 10 sure that the management team was one that I felt 11 comfortable with, that I could relate to, and that 12 I could hopefully provide leadership and guidance 13 over a period of years. 14 And so before I took the job, I went 15 to the management team of GTECH, not just the board 16 of directors -- which I did interview with each and 17 every one -- but I also asked to interview the 18 senior staff, which we call the CLC in our company; 19 not to necessarily have a grilling interview with 20 them so I could find out if they're best in class, 21 but more to find out what their thoughts were and 22 how they thought about customer base and how they 23 thought about the job they were in what they 24 thought about the company, and was this a group of 25 individuals that I could feel comfortable with and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 TEXAS LOTTERY COMMISSION - 4-26-01 1 motivate and lead in the future. 2 And after interviewing with these 3 people, I walked away saying it has a tremendous 4 management team; a tremendous management team that, 5 especially under some diversity in the past, has 6 really elevated itself to another level of success 7 and performance. 8 And now that I've been with the 9 company for six weeks, I would tell you that I'm 10 even more impressed with the team that we have, not 11 just in Providence, Rhode Island, but around the 12 world. It's a very strong, very knowledgeable, 13 very technical, but very committed organization to 14 its own people and to our customer base. 15 And lastly, you want to join a 16 company where, hopefully, you provide some value 17 added. And when I think of myself and my 18 experiences, I think that I can bring that type of 19 leadership and direction to the company. 20 I certainly would agree with you 21 that honesty and integrity and doing the right 22 thing are very important to how we should operate 23 our company. And I believe that with the team that 24 I have, in the core competency that our company 25 has, that we will continue to be a very successful WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 TEXAS LOTTERY COMMISSION - 4-26-01 1 and very important company, not just in the space 2 that we're in today, but potentially in other areas 3 as we grow as a company. 4 Lastly, I'd like maybe just to spend 5 a little bit and talk about maybe what's important 6 to me as an individual. And it's not hard for me 7 to talk about this, because every place I go within 8 GTECH, I talk about this with our own organization. 9 And what's important to me -- and I hope you would 10 agree with me is important to any company or any 11 executive in a company -- is that I want to work 12 for and I want the value of our company to be one 13 where we're respected, that we are a respected 14 company by our competitors as a tough and 15 formidable competitor, but one that's professional 16 and honest, and also one that shows leadership in 17 the industry so that we're the ones to watch; we're 18 the ones that people will follow and try to 19 emulate. 20 I want to have a company that's 21 respected by its customers, that we give 22 first-class, best-in-class service and respect to 23 our customers; that we provide the highest in 24 technology, the best in customer service and 25 satisfaction; and that we ensure that when we're WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 TEXAS LOTTERY COMMISSION - 4-26-01 1 making decisions, we're making decisions for the 2 right reason. 3 And there is an adage, there in an 4 expression and a formula that I think that I've 5 tried to already impress on our organization within 6 GTECH; that is, when one makes a decision, one 7 should make a decision first for the customer, 8 second for the company, and third for yourself. 9 It's when you reverse that order that you really 10 make a very poor decision. 11 But when you're thinking first about 12 the customer, then the company, and then yourself, 13 you may disagree or challenge that decision, but 14 the judgment is there that you need to have, so 15 that people like a Larry King, the people that work 16 in this area, can make the right decisions for its 17 customer base. 18 I want to have a company that's 19 respected by its employees; that we're a good 20 employer, that we provide good wages and benefits, 21 and that we have the kind of momentum so that 22 people feel good about themselves when they come to 23 work. They feel good about the kind of company 24 they work for, so they would want their sons, their 25 neighbors, their daughters, their relatives -- when WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 TEXAS LOTTERY COMMISSION - 4-26-01 1 they go to a party or they're on the golf course 2 and someone says who do you work for, I want them 3 to be proud. I want them to be proud of the 4 company they work for because that gives you the 5 kind of workforce that's motivated and really cares 6 about doing the right things. 7 And I want us to be a company that's 8 respected by its shareholders; that we're giving 9 them, as valued shareholders, an excellent return 10 on their investment, that we're properly investing 11 their capital, that we're improving the company so 12 that their investments will be protected long term, 13 and that we use our resources appropriately and 14 we're not mismanaging, either internally or 15 externally, their money. Because the truth is, I 16 work for the shareholders, as every employee in 17 this company works for the shareholders. And they 18 should be proud of that, and they should be 19 respectful of that at all times. 20 So maybe that tells you just a 21 little bit about me as an individual and some of 22 the things that are important to me and hopefully 23 will be important. I know they will be important 24 to our company. I'm proud to be part of the 25 company today, and I'm proud that I'll be here, I'm WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 TEXAS LOTTERY COMMISSION - 4-26-01 1 sure, for a long time and we'll have a great 2 relationship with the great State of Texas. 3 You have been one of our more 4 successful locations, and we'll emulate some of the 5 projects and programs in the Texas model here. 6 We've had a long relationship here, and my 7 understanding is it's been mostly good. We always 8 have a hiccup or two, or there's always something 9 in the road that you have to go around. 10 But I'm looking forward to a long 11 and successful relationship, as we are, as you 12 said, Mr. Chairman, in a controversial area. But 13 the net result is it provides for education and it 14 provides for the social well good for the people of 15 the great State of Texas. And I'm looking forward 16 to spending some time down here and working with 17 all of you. 18 So thank you for giving me the time 19 to speak to you. And hopefully, if there's any 20 questions, I'll be happy to answer them. 21 CHAIRMAN CLOWE: Good. And you are 22 open to questions? 23 MR. COHEN: Absolutely. 24 CHAIRMAN CLOWE: Commissioner 25 Whitaker? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 TEXAS LOTTERY COMMISSION - 4-26-01 1 COMMISSIONER WHITAKER: Thank you 2 for coming. I hope you'll come again and won't be 3 a stranger. 4 I assume from your comments that you 5 are versed in some of the controversies that 6 have -- we've dealt with in the past, and that you 7 will be weighing that in any future dealings with 8 the lottery. And I appreciate your comments. 9 MR. COHEN: Well, thank you very 10 much. 11 CHAIRMAN CLOWE: I also want to 12 thank you again for coming, Mr. Cohen. 13 A lot of your comments were about 14 yourself. Do you mind if I ask you a few questions 15 about that area? 16 MR. COHEN: Certainly. Please do. 17 CHAIRMAN CLOWE: Did you assume a 18 board position when you came to GTECH? 19 MR. COHEN: Absolutely. I'm a 20 member of the board, and I report to the board of 21 directors as a whole, yes. 22 CHAIRMAN CLOWE: Is there an 23 executive committee made up of board members? 24 MR. COHEN: Yes, there is. 25 CHAIRMAN CLOWE: Are you a member of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 TEXAS LOTTERY COMMISSION - 4-26-01 1 the executive committee? 2 MR. COHEN: Yes, I am. 3 CHAIRMAN CLOWE: Good. And did you 4 come with an employment contract, or are you at 5 will at GTECH? 6 MR. COHEN: No. I came with an 7 employment contract. I would tell you that my 8 employment contract is probably very different than 9 the previous senior managements' employee 10 contracts. I think that -- and certainly it's 11 public record -- but my employment contract is fair 12 and provides for appropriate remuneration, but also 13 is consistent with my management team. So there is 14 no discrepancy between how I might be evaluated and 15 my team would be evaluated, and certainly it is on 16 pay per performance and shareholder value. 17 CHAIRMAN CLOWE: And is there a term 18 on that? 19 MR. COHEN: It's a three-year term. 20 CHAIRMAN CLOWE: A three-year term? 21 MR. COHEN: Uh-huh. 22 CHAIRMAN CLOWE: So you've come, as 23 I think you've told us, for a career move. This is 24 not a turn-around or a short-term employment 25 relationship, in your mind? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 TEXAS LOTTERY COMMISSION - 4-26-01 1 MR. COHEN: Absolutely not. I have 2 gone into companies that have been underperforming 3 in the past, with a responsibility to the 4 shareholders to find shareholder value. This is 5 not the case, which is one of the reasons why I'm 6 sort of very excited about this job. 7 I've actually -- I think this 8 morning, I should hear a phone call that I bought a 9 house. And my wife is going to be pretty happy. 10 It's a pretty nice one in Providence. So -- no, 11 I'm moving to Providence. I'm looking -- this is a 12 long-term assignment. This is not a company that 13 is in a turn-around situation. 14 As I mentioned, it has excellent 15 cash flows, great profitability. We will have an 16 excellent year this year, and our prospects for the 17 future are outstanding. I just hope that I can 18 provide the value to improve it even above the 19 expectations that we have in our company. 20 CHAIRMAN CLOWE: You just answered 21 my next question. I wanted to know if you were 22 going to be residents there in the home office. 23 And that's a yes. 24 MR. COHEN: August 1st, if the house 25 is agreed on today -- that's interesting; I should WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 TEXAS LOTTERY COMMISSION - 4-26-01 1 get a phone call later on today -- I will be moving 2 there, closing on July 1st, moving on August 1st to 3 Providence. Yes. 4 CHAIRMAN CLOWE: Great. 5 MR. COHEN: I think that's 6 important, by the way, Mr. Chairman, that the CEO 7 of a company not just provide the leadership, but 8 also make a commitment to the community, to the 9 environment, and to the employees of that area. So 10 my wife and I will be an active participant in the 11 Rhode Island community and hopefully be able to 12 provide some support to programs within that area. 13 CHAIRMAN CLOWE: I agree in that. 14 Well, I might just tell you that we 15 think the position of lottery operator is a very, 16 very important position to this commission and to 17 the people of Texas. It's a very large contract; 18 as you know, the largest this commission deals 19 with. We value the performance of the lottery 20 operator highly and hold that position accountable. 21 And if ever in the future, there is 22 a question that comes to your mind or your staff's 23 mind about issues in the State of Texas, we want 24 you to be urged to communicate with us quickly and 25 completely. We are very happy with the performance WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 TEXAS LOTTERY COMMISSION - 4-26-01 1 of our executive director and the staff here, and 2 we rely on her tremendously. 3 So if at any time in the future you 4 have any questions about issues that you think may 5 be of concern to us, please err on the side of 6 disclosure and communication, as opposed to the 7 other side. 8 You'll find, as you come to Texas 9 more often, that Texans are different. Sometimes 10 that's good, and sometimes that's not so good. But 11 we are different. And we hold ourselves, as I 12 commented earlier, to a very high standard. I want 13 to get in a Texas brag in to you -- and you'll have 14 to get accustomed to this -- every day in Austin is 15 just like today, weatherwise. It's never too hot 16 here, and it's never too cold. Kind of like 17 Camelot, you know. 18 And you've heard these brags about 19 tall Texans. I want you to know that 20 Commissioner Criner and I think that your height is 21 just right. You fit into our mold. 22 We thank you, Mr. Cohen, for being 23 here. 24 MR. COHEN: Well, thank you, and I 25 appreciate that guidance. I'll certainly take that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 TEXAS LOTTERY COMMISSION - 4-26-01 1 to heart. You have my commitment that we will 2 always be forthright in communicating to you in a 3 professional and expedient manner. 4 As it relates to our height, we're 5 not short; everyone else is just taller. 6 CHAIRMAN CLOWE: Good things come in 7 small packages. 8 MR. COHEN: Thank you very much for 9 having me here today. 10 CHAIRMAN CLOWE: Our pleasure. 11 Now I'd like to move on to the next 12 item on our agenda, and that would be Item 4. 13 Kim, would you take us into the 14 discussion and/or action on Texas ethics laws, 15 please. 16 MS. KIPLIN: Yes, I will. I've 17 asked Sarah Woelk, who is with the Texas Ethics 18 Commission, to come over and spend a bit of time 19 talking about ethics laws generally, and those that 20 are applicable to the Texas Lottery Commission. As 21 you know, we ask Sarah to come over from time to 22 time, but most importantly, when we have a new 23 commissioner appointed. And I'm going to turn it 24 over to Sarah. 25 And if you don't mind, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 TEXAS LOTTERY COMMISSION - 4-26-01 1 Commissioner Clowe, I've also asked Diane Morris to 2 talk a bit about the Texas Open Meetings Act and 3 the Public Information Act, which is the next item. 4 So I see that the two of them have teamed up, and 5 we'll probably segue into that. 6 CHAIRMAN CLOWE: Sarah, we're happy 7 to see you. 8 MS. WOELK: Thank you. I was happy 9 to come over here. 10 I think the reason that Kim always 11 wants me to come is to tell you to unlearn what you 12 know from your previous state positions. The 13 Ethics Commission administers and enforces laws 14 that apply to state officers and employees 15 generally, and those do apply to you; however, 16 those laws are, to some extent, trumped by stricter 17 laws that apply to you. 18 So Kim always wants me to point out 19 that if you hear me talk somewhere else, ignore 20 what I say. It doesn't relieve you from these 21 strict rules. Kim is always running up to me, 22 reminding me to single out the Lottery Commission 23 members and tell them that the things I've said 24 aren't true for them. 25 You are subject to some of the laws WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 TEXAS LOTTERY COMMISSION - 4-26-01 1 that state officers are subject to. You have to 2 file an annual personal financial statement, which 3 you have already done this year. And you will have 4 to do that every year. And I think Kim will hound 5 you. 6 COMMISSIONER CRINER: I've been 7 doing that so long now -- 8 MS. WOELK: Yeah. You're an old 9 hand at that, so that's not new to you. You can 10 always call up and ask for -- if you need help 11 filling it out. You're an expert, so you know what 12 you're doing. 13 The other -- one area of the law 14 that is different for you is the gift law. If you 15 served in other state positions, you've probably 16 heard there is a $50 threshold for accepting a 17 gift, so don't worry about trinkets or small items. 18 The lottery statutes have a very strict gift 19 regulation. And on page 7 of the guide, it sets it 20 out specifically. 21 In general, you can't take any gift 22 of any value from someone regulated by the lottery 23 or who does business with the lottery or someone 24 who has won $600 or more from the lottery in the 25 last two years. And unlike the gift law that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 TEXAS LOTTERY COMMISSION - 4-26-01 1 applies generally, this gift law stays with you for 2 two years after you leave here. 3 So the gift law that applies to most 4 state officers allows some flexibility in social 5 situations with the people you regulate. But you 6 are subject to a very, very strict rule that 7 applies to a beverage or a coffee cup or anything 8 else provided by someone that is on the list of 9 prohibited sources. 10 You are subject to the standard 11 honorarium law, which is that if you are asked to 12 speak, because of your position here, you cannot 13 take an honorarium. You may take a food and 14 transportation allowance in connection with that, 15 unless, in your case, it's from one of the people 16 that's regulated by the lottery, who are most 17 likely the people who will want to hear you talk. 18 So again, you're going to have to live a very 19 frugal world in regard to that. 20 The other general area of ethics law 21 is misuse of -- you are all used to this very 22 strict rule. Right? It's no fun here. 23 MR. ATKINS: It's a thrill a minute. 24 MS. WOELK: -- misuse of government 25 resources. That rule is the same. Lottery WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 TEXAS LOTTERY COMMISSION - 4-26-01 1 Commission resources are to be used for Lottery 2 Commission business. As Commissioners, you're not 3 really here day to day to be in a position to 4 misuse a lot of the physical resources that are 5 here. 6 One thing that is good news is the 7 law does allow you to keep frequent flyer miles 8 that you earn in connection with state business. 9 So you can do that. 10 The other area of the law, which is 11 the same as for others in office, is you can't use 12 agency resources to try to affect the outcome of 13 legislation. As an unpaid board member, you're 14 free to use your personal time to talk to members 15 of the legislature. You can't send staff over 16 there to try to be persuasive. They can go over 17 there and provide information, but that's -- I'm 18 sure, with your background in government, you're 19 familiar with those limits. 20 There is a revolving door law that 21 applies to you when you leave here. Hopefully, 22 that won't be for a while. So just remember, when 23 you go, to find out what you can't do when you 24 leave here. 25 You probably have heard the bad news WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 TEXAS LOTTERY COMMISSION - 4-26-01 1 that you can't play the lottery as a commissioner. 2 Did anyone tell you that? 3 COMMISSIONER CRINER: Well, I didn't 4 know how to play it in the first place. Now that 5 I've learned, I can't wait to play it. 6 MS. KIPLIN: That won't be while 7 he's a commissioner. 8 MS. WOELK: Kim always makes it a 9 point to make me believe I'm not allowed to play it 10 either, although I'm not on this commission. But 11 she thinks it would be very embarrassing if I win 12 the lottery some day, with the amount of time I 13 spend here. 14 That rule also applies to a parent, 15 child, sibling, or spouse who lives in your 16 household. So if your family members want to play 17 the lottery, they need to find a new place to live. 18 They can't play as long as they're living with you. 19 COMMISSIONER CRINER: I live alone. 20 MS. WOELK: And then one other 21 area -- this is specifically applicable to you -- 22 is there are strict limits on your political 23 activity. You, in this position, can't go out and 24 stump for your friends who may be politicians. I 25 know that there is at least one attorney general WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 TEXAS LOTTERY COMMISSION - 4-26-01 1 opinion on what that means as a practical matter. 2 That's not something the Ethics Commission can 3 issue an opinion about; it is something the 4 attorney general could. But Kim has had some 5 experience with helping people resolve those 6 questions. 7 But you clearly can't have 8 fundraisers in your home. You can't write a 9 fundraising letter for a candidate. So if you are 10 going to be politically active, you should probably 11 talk to Kim or Diane first. 12 And then also, Diane may want to 13 take to you about the agency-wide ethics training 14 that Diane has sort of taken over. It's agency 15 policies that -- they're out there. 16 So I'm done, unless you have any 17 questions of me. You told me to go fast, so... 18 MS. MORRIS: Right. You hit the 19 high points. 20 MS. WOELK: Right. Yeah. 21 CHAIRMAN CLOWE: Well done, Sarah. 22 Thank you. 23 MS. MORRIS: I'm Diane Morris. I'm 24 an assistant general counsel. 25 Commissioners, it gives me a good WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 TEXAS LOTTERY COMMISSION - 4-26-01 1 time today -- with the new commissioner -- but it 2 gives me a good time to basically prove to the 3 employees of this agency that you are living by the 4 same standards that, in fact, a couple of years 5 ago, the commissioners imposed on all employees of 6 this agency. 7 MS. WOELK: So they have to listen 8 to us for about two hours. 9 MS. MORRIS: Yeah. We do it every 10 two hours. 11 Linda Cloud and Billy Atkins have, 12 together, imposed ethics standards on all employees 13 in this agency. And I sit in a room for two hours. 14 We talk about examples. We talk about coffee, 15 coffee cups, free coffee. 16 You had your own coffee mug. They 17 just poured coffee in it. To the GTECH vendor 18 employees -- in my world, they're called vendor 19 employees -- we talk about can you accept gifts 20 from vendor employees. 21 We talk at length of the policy of 22 the agency -- as set by Linda and Billy for their 23 employees -- is that from the major vendors, we do 24 not accept any gifts whatsoever. And that's coffee 25 poured into your own mug. You don't accept a ride WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 TEXAS LOTTERY COMMISSION - 4-26-01 1 to places or share rides or share things like that. 2 Our own employees are told that any 3 meetings with major vendors must be documented. If 4 that means an entry in your DayTimer, so be it. 5 There is no socialization with vendor employees. 6 I had a call last night. Somebody 7 wanted to know: If we had a vendor employee that 8 they would like to invite to the agency -- some 9 agency -- something is happening here for a party, 10 somebody is having a baby or somebody is getting -- 11 I don't know what it is; somebody is having 12 something good. 13 And I want you to know that the 14 agency standard to protect our integrity, to be 15 beyond the question -- the question posed to me was 16 can this employee, who is a vendor employee -- and 17 that would mean even these people that are here for 18 five or six months, rubbing shoulders with us in 19 this building, but they're not our employees -- can 20 they come to the party, can they bring a gift, can 21 they bring food. The answer is no, no, and no. 22 And if they have a hard time about 23 it, tell them to come talk to me. They already 24 know the answer. They know that we do not 25 socialize with vendor employees. It may seem so WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 TEXAS LOTTERY COMMISSION - 4-26-01 1 strict. But it's a standard that -- as Linda and 2 Billy have wrestled with -- it can be applied 3 evenly, fairly, and frankly understood. It may not 4 be agreed with, but it's their standard they have 5 set. 6 We talked about when you go to 7 meetings and professional meetings, when you go to 8 seminars, and there is a hospitality room put on by 9 a potential vendor or even a current vendor, can 10 our employees go to that hospitality room at 7:00 11 at night and knock down a few beers. No. No, they 12 can't. 13 After about two hours of meeting, 14 most people leave very irritated. But that's okay. 15 The point is, I'm happy to tell you that we do 16 annual ethics training. We have constant training 17 about every two months. One of the employees in HR 18 keeps track of the time; when was your last -- when 19 was your year -- we bring people into the training. 20 We try to at least give up-to-date examples of our 21 training, issues that have arisen. 22 There is an ethics committee here. 23 The Ethics Committee is composed of Linda Cloud; 24 Jim Richardson, the HR director; and Kim Kiplin, 25 our general counsel. Questions regarding any WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 TEXAS LOTTERY COMMISSION - 4-26-01 1 ethics issues, we encourage employees to disclose 2 it. I always say to employees, "You'd be amazed at 3 what we are not worried about and what we are 4 worried about." It's hard, in that sense 5 sometimes, to apply the thinking. And they're free 6 to ask the questions. 7 I get E-mail, I get questions under 8 my door, I get questions on the voice mail. We get 9 people that come up to talk to us. The Ethics 10 Committee meets about every four weeks. They have 11 an agenda where they usually go through about five 12 or six questions that employees have asked, and 13 they respond back in E-mail. 14 They're starting to establish a more 15 formalized bank, if you will, of the answers so 16 that they can stay consistent and they can see 17 trends and they can see are we being too aggressive 18 or are we just being silly on this. 19 But this agency has drilled down to 20 each employee the demand that the ethics of each 21 employee be -- we are all responsible for each 22 other. 23 CHAIRMAN CLOWE: Very good. Thank 24 you, Diane. 25 MS. KIPLIN: One thing that I would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 TEXAS LOTTERY COMMISSION - 4-26-01 1 probably just correct is it is -- actually, the 2 deputy executive director is on the Ethics 3 Committee, not the executive director. But we make 4 sure that she is aware, obviously, of the positions 5 that the Ethics Committee has taken. 6 CHAIRMAN CLOWE: Good. 7 Any questions for Sarah or Diane? 8 Thank you very much. And Sarah, 9 it's always a pleasure to have you visit us. 10 MS. WOELK: Well, thank you. I hear 11 from Kim frequently. The ethics business is very 12 active over here, so... 13 CHAIRMAN CLOWE: And we want to keep 14 it that way. 15 MS. WOELK: Always a new or bizarre 16 question. 17 CHAIRMAN CLOWE: All right. Thank 18 you for coming over. 19 MS. WOELK: Thank you. 20 MS. CLOUD: I hope you're 21 documenting this, Sarah. 22 MS. WOELK: I am. 23 CHAIRMAN CLOWE: Diane, do you have 24 something further for us? 25 MS. MORRIS: Yes, sir, I think your WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 TEXAS LOTTERY COMMISSION - 4-26-01 1 next agenda item. 2 CHAIRMAN CLOWE: Right. 3 MS. MORRIS: General discussion on 4 open meetings and open records laws. 5 CHAIRMAN CLOWE: Yes, please. 6 MS. MORRIS: Thankfully, I think 7 most of what I am going to say is well known. It's 8 so well know, it's -- I know that the Office of the 9 Attorney General has done a great job on educating 10 board members of the open records law and the open 11 meetings law. To remove any doubt and to state the 12 obvious, we are a governmental agency. We are 13 subject to the open records law and the open 14 meetings law. 15 Insofar as we are concerned here on 16 the open records law, I also like to say, for the 17 benefit of the new commissioners, that -- 18 Commissioner Criner, if you ever call me and say, 19 "I need this right now, I need it today, I need it 20 tomorrow," there is probably one good excuse I can 21 give you, that I would ask you to please let me 22 have some time before I have to respond to that 23 issue that you have raised. And it would be, 24 "Mr. Criner, I'm working on an open records 25 response. It's due in ten days. I can't get back WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 TEXAS LOTTERY COMMISSION - 4-26-01 1 to you today. It's due tomorrow. Ten days is up." 2 One of the things I like to tell our 3 commissioners, because most Open Records Requests 4 really do not reach you but you may hear about in 5 passing, insofar as any staff member may say to 6 you, "We're swamped right now." This agency 7 responds to many, many Open Records Requests. They 8 can take hours. They can take hours of searching 9 for responsive documents to ensure ourselves that 10 we are giving a request to every scrap of paper 11 they want. 12 So mainly, for you-all's purposes, 13 if you ever get an E-mail from me, or, really, a 14 telephone call from me, saying, "I'm going to be 15 faxing you this Open Records Request that we got 16 in, and I want to know if you have any responsive 17 documents," you need to make a reasonable search. 18 And what that means is you need to look around your 19 documents that you have, as a commissioner, and 20 tell me if you have any responsive documents. And 21 then you need to send them to me. 22 If we ever think there is any reason 23 to claim an exception to the Open Records Act, we 24 seek an AG's opinion. We follow the process. We 25 don't make our own decisions here. We have ten WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 TEXAS LOTTERY COMMISSION - 4-26-01 1 days, and we follow the process set in the law. 2 We do Open Records Requests to the 3 Office of the Attorney General. We have an 4 exception in our law that allows for the security 5 and integrity issues of the lottery to be excepted 6 from disclosure. It seems rather obvious. 7 But we do have people that, every so 8 often, request information that, if divulged -- and 9 divulged to one is divulged to the public -- would 10 threaten the integrity and the security of the 11 lottery. So you may hear that. 12 Because we also have certified peace 13 officers and we do law enforcement efforts, you may 14 hear that we filed an Open Records Request because 15 there is a pending investigation, a security 16 investigation. Certainly, what is at risk is not 17 really -- not -- more than just the officers 18 themselves and where they are, but the case itself 19 is at risk. Our officers are certified peace 20 officers, and they are in situations that may put 21 them at risk if it's divulged what they're doing, 22 what they're looking at, at that moment. 23 Beyond that, we have an internal 24 audit department, and so you may hear some days 25 that we have sought to protect our internal audit WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 TEXAS LOTTERY COMMISSION - 4-26-01 1 documents. That is certainly authorized by law, 2 and when the attorney general has received those 3 requests, they have approved that exception. 4 Of course, in litigation, you may 5 hear that when we have litigation documents or 6 attorney/client, we would protect those. And the 7 attorney general, when we send them over, they 8 agree and they are protected. 9 So as an overview, that is generally 10 what is protected by law. Specifically as to just 11 prize winners, as to lottery prize winners, their 12 address is protected. Every so often, you may see 13 something about lottery prize winners. Their names 14 are not protected, but their addresses are. And 15 that's specifically in the law. 16 I'm going to shift to open meetings. 17 Open meetings, of course, applies. It's far more 18 difficult for a board of three people. Two of you 19 would be a quorum. And a meeting of any quorum has 20 got to be noticed. 21 This last legislative session, or 22 even prior to it, has met with new challenges 23 because there was an attorney general opinion that 24 said that even when two or more commissioners 25 attend a legislative session, that has to be a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 TEXAS LOTTERY COMMISSION - 4-26-01 1 posted meeting. We can't possibly predict when and 2 what you would be called over at a moment's time. 3 We struggle with that. Hopefully, the law will be 4 changed this time around. 5 But understand that sometimes, with 6 constraints of posting, and the time ahead of time 7 to post, is difficult. It's difficult to add items 8 to an agenda after the agenda has been posted. So 9 if you get an agenda and all of a sudden you're 10 looking it and say, "Where is that item? I've 11 asked three items to be put on that agenda," it may 12 not be on the agenda. And we can't add things as 13 an emergency, if you will, unless it is an 14 emergency. 15 Unfortunately, our error and our 16 negligence, our stupidity, whatever it is, our loss 17 of remembering to put your item on an agenda, does 18 not account for an emergency. It's a hard thing, 19 but we will, of course, be honest with you and say 20 we forgot. But that doesn't mean it gets to be put 21 on at late notice. 22 We have very few emergency meetings 23 here at the Texas Lottery. We handle emergency 24 meetings with great carefulness. We have had them, 25 and the times that we have had them, it has been WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 TEXAS LOTTERY COMMISSION - 4-26-01 1 carefully considered and legal advice has been 2 sought. And only those times that we have felt 3 more than amply supported a reason for an emergency 4 meeting do we ever have emergency meetings. 5 Our statute talks about regular 6 meetings throughout the year. I know we had a 7 prior commissioner who thought when it said six 8 times a year that that was the only times we met. 9 Well, the Commission meets about once a month. 10 As far as our open meetings, we have 11 executive sessions. You will see that -- on those 12 issues on your open meetings, those are the ones 13 that are statutorily authorized. They're in the 14 Open Meetings Act. They have been also very 15 carefully considered. 16 I don't think I have any more on 17 open meetings. You may -- I also finally say, 18 please understand that it's not personal, frankly. 19 I know, and the chairman knows, it is not personal. 20 If Ms. Kiplin looks over at him and says, "I don't 21 think this is on the agenda. Where is this on the 22 agenda," and when topics come up -- and -- but more 23 than that, the commissioner looks over to the 24 general counsel, saying, "Is this on the agenda? 25 Can we talk about an issue?" WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 TEXAS LOTTERY COMMISSION - 4-26-01 1 This agency very openly questions to 2 make sure we stay within the confines of the Open 3 Meetings Act, and it's certainly no reflection on 4 the person asking or answering the question. We 5 are very careful. 6 CHAIRMAN CLOWE: Diane, I want to 7 make a point that I don't think you've covered; and 8 that is, there is an opportunity for commissioners 9 to be present at an event such as an industry 10 convention, where one or two or three might be 11 making a speech. For example -- 12 MS. MORRIS: That's right -- 13 CHAIRMAN CLOWE: -- tomorrow, at 14 Lieutenant Governor Bullock's memorial museum 15 event, I intend to attend that function. And If I 16 see Commissioner Whitaker or Commissioner Criner 17 there, I don't have to leave? 18 MS. MORRIS: No, sir. In fact, you 19 can say hello to them. 20 CHAIRMAN CLOWE: I can say hello to 21 them? 22 MS. MORRIS: You can say hello to 23 them. 24 CHAIRMAN CLOWE: And that's it? 25 MS. MORRIS: And that's correct, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 TEXAS LOTTERY COMMISSION - 4-26-01 1 sir. You can. 2 CHAIRMAN CLOWE: And I think that's 3 an important point to be made, because the 4 commissioners will see each other from time to time 5 under those circumstances. 6 MS. MORRIS: Yes, sir. 7 MS. KIPLIN: Let me, just for the 8 record, put in the exact exception. 9 CHAIRMAN CLOWE: I wish you would. 10 MS. KIPLIN: It really has to do 11 with the definition of what is a meeting or a 12 gathering, because if you don't have a quorum, then 13 you don't have a meeting. And there is also the 14 deliberation of -- the term does not include the 15 gathering of a quorum of a governmental body at a 16 social function unrelated to the public business as 17 conducted by the body, or the attendance by a 18 quorum of a governmental body at a regional, state, 19 or national convention or workshop. 20 If formal action is not taken in any 21 discussion of public business, it is incidental to 22 the social function, convention, or workshop. 23 So that's the reference. I think 24 it's on point. I would say that it's -- it does 25 create a potential for a fact situation if you have WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 TEXAS LOTTERY COMMISSION - 4-26-01 1 a discussion with somebody who is also a commission 2 member because it invites the question "what are 3 you talking about." And if it's public business, 4 was it incidental. 5 CHAIRMAN CLOWE: Yeah. Well, I 6 think it's important that we make that known and 7 that we understand that, and that we are very 8 careful about it as we are careful about other 9 issues. And I may see one of them tomorrow. I 10 don't want to -- 11 COMMISSIONER WHITAKER: You will. 12 CHAIRMAN CLOWE: -- create a 13 problem. 14 Okay. Any questions for Diane? 15 Thank you very much. 16 MS. KIPLIN: Thanks for the 17 disclosure. 18 CHAIRMAN CLOWE: Don't think it was 19 unintentional. 20 We have now covered all of the 21 agenda items up to No. 7. And we covered the 22 appearance of Mr. Cohen under the lottery operator 23 item on the agenda. There is nothing further 24 there, is there? 25 MS. KIPLIN: No. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: Then, Toni, will 2 you come forward and you and Linda report to us on 3 lottery sales and trends, please. And you have a 4 guest this morning, I see. 5 MS. SMITH: Good morning, 6 Commissioners. For the record, I'm Toni Smith, 7 marketing director for the Texas Lottery 8 Commission. And Robert is with me this morning. 9 Along with my usual update, I'd like to give some 10 updates on our new games that sort of, if we may, 11 carry over into the next agenda item also. 12 CHAIRMAN CLOWE: Good. 13 MS. SMITH: Let's take a look at 14 sales. Fiscal year to date, total sales for the 15 week ending 4-21 are $1,910,226,351. This is up 16 11.80 percent from last year's total sales to date 17 of $1,708,563,996. 18 To look at the year to date at a 19 weekly average, we are, for fiscal year '01, at 20 $56,183,127. Again, this reflects an 11.8 increase 21 from fiscal year 2000's sales -- weekly average 22 sales of $50,251,882. 23 To look at year-to-date sales 24 comparison by product for the same week ending 25 4-21-01, just a glance at instants, we are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 TEXAS LOTTERY COMMISSION - 4-26-01 1 currently at $1,135,359,899. This a 7.34 percent 2 increase over last year's year-to-date for instant 3 tickets of $1,057,674,465. 4 And let's take a look at Lotto Texas 5 year to date. We are currently at $515,153,844. 6 This is a 34.46 percent increase over last year's 7 year to date for Lotto of $383,115,144. 8 And then our next report is just 9 sort of to look at a closer snapshot of this past 10 week compared to the week before. And just to 11 briefly talk about instants, we ended the week with 12 $32,043,662. And that was a 1.04 percent increase 13 from last week. 14 And Lotto Texas was at $14,000,959, 15 and that was a 26.81 percent over $11,041,037 from 16 the week before. And basically, the overall 17 increase was contributed to the Lotto Texas 18 jackpot. 19 Our next report is a report that 20 shows where we are since the matrix change. We've 21 continued to track, and we're now at a 40-week 22 period. If we glance at before and after the Lotto 23 Texas matric change, in the 40-week period since 24 the matric change took place on July 6, 2000, we 25 have been hit 13 times, meaning we've had WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 TEXAS LOTTERY COMMISSION - 4-26-01 1 13 winners during that time period. In the 40 2 weeks prior to the matrix change, we were hit 3 26 times, so we -- it's been half of the number of 4 times that we've been hit since the matrix change. 5 So again, it's still proving that it's working for 6 us. 7 CHAIRMAN CLOWE: This doesn't 8 include the winning jackpot last night, does it? 9 MS. SMITH: No, sir. This is only 10 up through last week, ending last week. So it 11 would be actually 14 if you include last night's 12 winner. 13 I'm going turn it over to Robert to 14 share with you some other updates and some things 15 about Texas Tuesday. 16 CHAIRMAN CLOWE: Any questions of 17 Toni? 18 MR. TIRLONI: For the record, I'm 19 Robert Tirloni. I am the on-line product manager 20 in the lottery's marketing division. Good morning, 21 Commissioners. 22 CHAIRMAN CLOWE: Good morning. 23 MR. TIRLONI: To follow up on what 24 Toni just discussed, I've provided another memo, 25 which is a comparison between the projected draw WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 TEXAS LOTTERY COMMISSION - 4-26-01 1 pattern for the Lotto Texas 6 of 54 matrix. It's a 2 comparison between the projected draw pattern and 3 what we've actually seen during the past 80 draws 4 or the past nine months since we made the change. 5 This is through the week ending 4-21, which was 6 last Saturday. 7 The projected draw pattern shows 8 that we should have approximately ten hits between 9 the $4 million to $11 million jackpot range; 10 approximately eight hits between the $16 million to 11 $29 million jackpot range; four hits between the 12 $37 million to $67 million range; and then one hit 13 between the $95 million to $136 million range. 14 That would give us total number of hits of 23. 15 And I've provided an actual draw 16 pattern, like I said, over the past 80 draws. 17 This, again, does not include the $4 million 18 6 of 6 ticket that was sold in Quinland for last 19 night's draw. 20 As you can see, currently for the 21 $4 million to $11 million range, we've had three 22 hits; the 16 to 29, we've had four; the 37 to 67, 23 we've had five. And we did have our record jackpot 24 of $85 million. That $85 million jackpot did not 25 fit into one of the predetermined categories that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 TEXAS LOTTERY COMMISSION - 4-26-01 1 were projected, so we put that one off in its own. 2 And we're waiting for a jackpot between the 3 $95 million to $136 million dollar range. We're 4 hoping we can get to that before 104 draws is up. 5 So as of right now, we've had -- if 6 we include last night, we've had 14 hits in the 7 past 81 draws. 8 If you have any questions about 9 that, I'd be happy to answer them. 10 MS. CLOUD: Commissioners, I wanted 11 this particular chart provided to you because I 12 wanted you to be able to track what we said would 13 be the projections versus what's actually 14 happening. But we're pretty close. 15 CHAIRMAN CLOWE: The indication is 16 that, in fact, we haven't had the hits that were 17 projected; that we're under that. 18 MR. TIRLONI: That seems to be 19 correct, yes, sir. And we will begin providing 20 this to you at each commission meeting per Linda's 21 request so you can continue to see this 22 information. 23 I also have an update for you, 24 Commissioners, on our new on-line game, Texas Two 25 Step. I've provided you with a memo and an update WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 TEXAS LOTTERY COMMISSION - 4-26-01 1 on that as well. The last time I talked to you 2 about Two Step was in February, when the Commission 3 adopted the rule. Since then, a lot has happened. 4 I kind of provided you a brief 5 outline at that time, and we have a lot more 6 concrete information now that we're only about two 7 weeks away from game launch. On the update page, 8 I've listed some dates at the top, and I'll just 9 quickly run through them with you if that's okay. 10 May 11th, we will have our last 11 Texas Million drawing. On May 13th, our Texas Two 12 Step game launches. Sales begin at 6:00 a.m. on 13 that Sunday. 14 May 18th, the following week, is a 15 busy day for us, Commissioners. We are sending out 16 over one million direct mail coupons to residences 17 here in Texas. That coupon will be an offer for a 18 player -- if they purchase a $1 Texas Two Step 19 ticket, they can take that coupon into a retail 20 location and they can get a free scratch-off ticket 21 with that purchase. 22 Also on May 18th, customer 23 appreciation days are being held in every GTECH 24 sales district. And all of those customer 25 appreciation days will have radio remotes and radio WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 TEXAS LOTTERY COMMISSION - 4-26-01 1 promotions tied in with them. May 18th is also the 2 day of our first Texas Two Step drawing, which will 3 take place at 9:59 p.m. 4 And we are having a very special 5 game kickoff in Pasadena, Texas at the Pasadena 6 Strawberry Festival. That should be an exciting 7 event for us. That was already a planned promotion 8 where we were going to be selling tickets, and we 9 approached the organizers of that event with our 10 idea about a dance contest, and they were very 11 accommodating and very glad to have us do that 12 there. 13 We are also going to air the first 14 Texas Two Step drawing at that event after the 15 dance contest so attendees at that event will be 16 able to watch the first drawing live at that event. 17 CHAIRMAN CLOWE: What do you mean 18 when you say "air"? 19 MR. TIRLONI: We're going to have a 20 satellite downlink. 21 CHAIRMAN CLOWE: A realtime 22 downlink? 23 MR. TIRLONI: Yes, sir. That's 24 correct. And there will be a large-screen 25 television so the people that participated in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 TEXAS LOTTERY COMMISSION - 4-26-01 1 contest, and for people that are watching the 2 contest, will be able to stand there and watch the 3 drawing. 4 CHAIRMAN CLOWE: Are you trying to 5 get some interest from the television stations to 6 pick that up? 7 MR. ELKINS: Yes, sir. 8 CHAIRMAN CLOWE: Are you getting any 9 response at this time? 10 MS. KIPLIN: Keith, can you come 11 forward so we can get you on the record? 12 MS. CLOUD: Robert, how about 13 telling them a little bit about the dance contest 14 and the prizes we're offering. 15 MR. TIRLONI: We've been able to 16 work with one of the radio stations that's 17 associated with the event, and we have some great 18 prizes, Commissioners, that we're going to be 19 giving away. 20 There will be 20 couples that will 21 enter the contest. We have four prizes. The grand 22 prize is going to be a trip to Tampa, Florida. 23 Included in that trip is air fare -- round trip air 24 fare to Tampa, hotel accommodations, transportation 25 and tickets to a Brooks and Dunn concert; that's a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 TEXAS LOTTERY COMMISSION - 4-26-01 1 country group, and they have just started a tour. 2 And that will be our grand prize. 3 We are also going to have three 4 other prizes. Justin Boots has agreed to provide 5 gift certificates for boots. We also have gift 6 certificates to Cavender's, which is a local 7 country western store in the Pasadena area. And 8 we're also going to be giving scratch-off tickets 9 away as prizes to the winning couples that enter 10 the contest. 11 MR. ELKINS: Commissioners, good 12 morning. For the record, my name is Keith Elkins. 13 I'm the communications director. 14 On the media side, what we have 15 planned, we have made arrangements to have the live 16 drawings downlinked, as Linda mentioned, at the 17 site; big-screen TVs, mobile satellite links. We 18 will be inviting the local media to cover the 19 event. We've been putting out the appropriate 20 advisories. 21 In the next weeks leading up to the 22 first drawing, we plan to do a video news release 23 on the first Texas Two Step commercials about the 24 games. We went down and shot production of that. 25 We'll be sharing that with the media as well. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 TEXAS LOTTERY COMMISSION - 4-26-01 1 We will be contacting the local 2 Houston media, since Pasadena is the closest venue 3 to them, to try to get them to cover it to show the 4 interest in the live drawings. And then we will 5 also revisit the issue with the local media after 6 that about carrying our drawings live. That's 7 where we are with Texas Two Step. 8 And we are also continuing our 9 efforts in trying to get more TV stations to carry 10 the drawings live. We have revised some of our 11 figures earlier, about -- that we have more 12 stations carrying us now than what we previously 13 thought. But we're still not at the levels that we 14 would like. 15 We have some recommendations that 16 we'll be making to the executive director fairly 17 quickly on that to see if we can do a few things 18 internally that will get us up to almost a hundred 19 percent, at least one station in every market 20 carrying the drawings live. And I think we can get 21 that. 22 CHAIRMAN CLOWE: Now, the drawing is 23 going to be done here in Austin at the studio? 24 MR. TIRLONI: Yes, sir, that's 25 correct. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: You're going to 2 have the big screens in Pasadena. Is that right? 3 MR. TIRLONI: That's correct. 4 CHAIRMAN CLOWE: And just refresh 5 our memory about the machines and the Two Step so 6 that we'll understand that. 7 MR. TIRLONI: The machines have been 8 delivered here to Austin. They have gone through 9 initial testing. We are awaiting some feedback 10 from our independent statistical consultant, Randy 11 Eubank, at this time. If more tests are necessary, 12 they will take place -- I believe in the next two 13 weeks. 14 The machines are currently being 15 housed at the lottery warehouse, and they are 16 scheduled to be moved to the drawings studio on 17 May 7th. And after that, there will be rehearsal 18 time so that the people at the studio can get the 19 lighting and so on with the backdrops. They can 20 get all of that set up for the first drawing on the 21 18th. 22 We have purchased three drawing 23 machines for the Texas Two Step game. The machine 24 has a dual chamber because this is a bonus-ball 25 style game. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: Say that again. 2 MR. TIRLONI: It's a bonus-ball 3 style game, so the machine will have -- 4 CHAIRMAN CLOWE: Bonus ball. And 5 that's the way you describe it? 6 MR. TIRLONI: Yes. We describe it 7 as a bonus-ball style game. And the machine has 8 two separate chambers. The first set of 35 numbers 9 mixes in the left side of the chamber, and those 10 are white ping-pong balls. The numbers are 11 imprinted in black. The right side of the chamber 12 mixes the 35 bonus balls. Those are red ping-pong 13 balls, and the numbers are imprinted in white. 14 We select 4 out of 35 from the first 15 set, and then we select one bonus ball number from 16 the second set. 17 MR. ELKINS: Mr. Chairman, for the 18 record, last night we issued a video news release 19 on the testing of the new Two Step game machines. 20 CHAIRMAN CLOWE: Great. 21 MR. TIRLONI: On May 21st, our 22 lottery sales representatives are going to begin 23 in-store promotions for Texas Two Step. Every 24 sales rep will complete one in-store promotion for 25 a six-week period. So in total, we should have WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 TEXAS LOTTERY COMMISSION - 4-26-01 1 about 800 in-store promotions that will take place 2 between May and -- May 21st and the end of June. 3 In addition to that -- and I'll just 4 skip down -- from May through September, our 5 lottery promotions team will be focusing on 6 promoting Texas Two Step at all the selling events 7 we attend: fairs and festivals, rodeos, lottery 8 promotional nights. And we will be conducting 9 player education activities at local malls in the 10 Austin area. 11 And just for your information, on 12 May 22nd is the second Texas Two Step drawing. 13 That is a Tuesday night, Commissioners. And after 14 that Tuesday night, the 22nd, that is when our 15 regular Tuesday-Friday draw schedule begins. The 16 first week of sales -- we do start sales on Sunday 17 the 13th. We sell through that entire week -- 18 skipping that Tuesday -- the first draw will be on 19 Friday. And then that following week, we begin our 20 regular Tuesday-Friday draw schedule. 21 I've also provided you with some 22 materials that we've produced and that our ad 23 agency has produced for the Texas Two Step game. 24 You have a how-to-play brochure that we've 25 produced. And I'll just quickly let you know what WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 TEXAS LOTTERY COMMISSION - 4-26-01 1 is inside of that. 2 We have two pieces that have been 3 very successful for us on our Pick 3 game, so we've 4 gone ahead and produced them for our Two Step game. 5 We have a smaller piece, which is a wallet card, 6 and then we have a bigger size piece -- they're 7 identical except for size -- and we call that our 8 playslip size grid. And these two pieces are very 9 good pieces in terms of educating players and 10 retailers as to how the Two Step game plays. This 11 grid is also in the how-to-play brochure for 12 players. 13 I've provided you with examples of 14 the clerk stickers that we have produced. There is 15 a test Texas Two Step ticket -- it is a void 16 ticket -- also for you to see. And there is an 17 example of the Texas Two Step playslip. 18 And I've provided a breakdown of 19 when those pieces were being distributed by our 20 sales representatives. This current cycle, which 21 ends tomorrow, they have been distributing the 22 how-to-play brochures, the grid cards, the 23 stickers. 24 New on-line ticket stock is also 25 being distributed at this time. The keypad inserts WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 TEXAS LOTTERY COMMISSION - 4-26-01 1 for the on-line terminals have been distributed. 2 And we are beginning to remove Texas Million 3 point-of-sale pieces from all of our retail 4 locations. 5 And then in the very last phase, 6 April 30th through May 11th -- that phase begins 7 Monday -- we will be distributing play station 8 inserts, mini-billboards for the play station, 9 header cards for the play stations, terminal 10 toppers, the wallet-size grid that I provided you. 11 Playslips will be going out. We 12 will have jackpot signage in stores that will affix 13 to the on-line terminal, and those signs will be 14 able to promote the Lotto Texas jackpot in addition 15 to the Texas Two Step jackpot. And of course, 16 we'll continue to distribute any other necessary 17 pieces from earlier sales cycles. 18 I'd be happy to answer any questions 19 you have about Two Step. And in closing, I'd like 20 to say that we have had a lot of positive feedback 21 from our sales representatives and from our 22 district sales management staff, and everybody 23 seems to be very excited and eager about the start 24 of Two Step. And of course, on the lottery side, 25 we're looking forward to a very successful game WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 TEXAS LOTTERY COMMISSION - 4-26-01 1 launch on the 13th of May. 2 CHAIRMAN CLOWE: Any questions? 3 COMMISSIONER WHITAKER: I think this 4 is self-evident, but the minimum prize is $5. 5 Correct? 6 MR. TIRLONI: That's correct. 7 COMMISSIONER WHITAKER: You can 8 never get a break-even prize? 9 MR. TIRLONI: That's correct. There 10 are no break-even prizes. 11 CHAIRMAN CLOWE: And that needed 12 clarification. 13 MR. TIRLONI: That $5 and that $7 14 prize, the two low tiers on this game, are 15 guaranteed prizes, as is the $5 guaranteed prize on 16 Lotto for the 3 of 6. 17 MR. ELKINS: Commissioners, I might 18 add, on the media side, we are also currently 19 working on several hundred media kits that we are 20 putting together, getting ready to mail out to all 21 of the various media, print and electronic. I will 22 try to get each of you a copy of those. 23 In addition to that, we will be 24 contacting -- going a little bit beyond what we 25 normally do, we'll be contacting some of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 TEXAS LOTTERY COMMISSION - 4-26-01 1 electronic media about the possibility of either 2 radio talk shows or TV talk shows to not only 3 promote this game, but all the games in Texas. 4 COMMISSIONER WHITAKER: Okay. 5 CHAIRMAN CLOWE: Very interesting. 6 It's a nice promotional job. You are to be 7 congratulated. You've covered many of the aspects 8 of information and promotion as well. The sample 9 ticket you gave us is for $10. 10 MR. TIRLONI: Yes, sir. That would 11 be -- that would be -- the example that they have 12 provided on this test ticket would be a multidraw 13 ticket. It's good for more than one draw. So this 14 game does have the multidraw function as our other 15 on-line games do. 16 CHAIRMAN CLOWE: And what's the 17 minimum required purchase? 18 MR. TIRLONI: $1. 19 CHAIRMAN CLOWE: $1, Lotto -- 20 MR. TIRLONI: It's a $1 ticket, yes. 21 CHAIRMAN CLOWE: And then odds and 22 prize categories are on the back of the multichoice 23 forms. I find that very interesting; the $5 24 guaranteed, then the $7 for one of the white balls 25 in the bonus balls. Those odds are not very high. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 TEXAS LOTTERY COMMISSION - 4-26-01 1 MR. TIRLONI: No, they're not. And 2 the odds of winning the overall prize, 3 Commissioner, are very good odds as well. The odds 4 of winning the overall prize or the jackpot prize 5 are 1 in 1.8 million. The odds of winning the 6 overall prize on the Texas Million game were almost 7 double that, 1 in 3.9 million, or almost 1 in 8 4 million. 9 MS. CLOUD: This is a good game. 10 I'm personally very excited about this game. I 11 think it's going to do very well. The commercials 12 are very good. I'm sorry we don't have them to 13 show you today -- we had them in rough cut -- but 14 hopefully at the next meeting, we'll be able to 15 share those. They're at a Texas Two Step dance 16 hall, and they're talking about how to play Texas 17 Two Step while they're dancing. So it's really a 18 good commercial to teach people how to play. 19 Some of the promotions that we are 20 doing right after the kickoff of the game are going 21 to be just that -- how to teach people to play -- 22 the promotions that the districts are going to have 23 in their district in their retailer locations. 24 MR. TIRLONI: And, Commissioners, if 25 I can add, we've kept that whole -- the name of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 TEXAS LOTTERY COMMISSION - 4-26-01 1 game really provides an -- it's instrumental in 2 teaching people how to play. The fact that it's 3 called Two Step -- there are two steps to play, and 4 we've used that throughout a lot of our POS pieces 5 that we'll be distributing. 6 Step one is to choose your 4 numbers 7 from 35. Step two is to choose your 1 bonus ball 8 number from 35. So the name of the game itself has 9 provided us with -- 10 COMMISSIONER WHITAKER: I really 11 like that. That's nice. 12 MR. TIRLONI: Linda can take the 13 credit for the name of the game. She chose that. 14 MS. CLOUD: It wasn't hard. 15 MR. TIRLONI: It has been very 16 instrumental for us and a very good promotional 17 opportunity for us to teach our retailers and our 18 players how to play this new on-line game. 19 MS. CLOUD: I think this game -- we 20 found out in our research that Texans like games 21 with Texas themes. So I think this has probably 22 got the best Texas theme that we could put out to 23 the world. And I think it's going to be very 24 successful. I might be wrong, but I don't feel 25 like I'm wrong. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: Very good. Any 2 other questions or comments? 3 Thank you both. 4 Do you have anything for us on the 5 next item, Toni? 6 MS. SMITH: Just briefly, on 7 advertising, the Texas Two Step general market TV 8 and radio will begin to air on May 14th. And then 9 our minority market also starts at the same time. 10 And as Linda said, they both will have that theme 11 of how you do a Texas Two Step. 12 We're also doing polywrap bags in 13 newspapers in the major markets: San Antonio, 14 Fort Worth, Dallas, Austin, and Houston. And that 15 will run on May 27th and May 28th. We'll do a 16 half-page newspaper ad to support Two Step in over 17 150 papers statewide. 18 And then our scratch ticket coin 19 campaign, the third spot, titled "Bank," will begin 20 to air on April 30th. We are also testing 8-sheet 21 billboards with our minority market in Houston, San 22 Antonio, and Dallas. 23 That's all I have. 24 CHAIRMAN CLOWE: And just on that 25 last comment, billboard minority marketing -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 TEXAS LOTTERY COMMISSION - 4-26-01 1 MS. SMITH: Yes. And what they are, 2 they're the smaller, more of a neighborhood-type 3 billboard. You may see them -- say, for example, 4 just across the road over here. It's more of a 5 grassroots approach. Sometimes they are owned by 6 one of the businesses in that neighborhood. And 7 it's a smaller, 8-sheet -- sheets of paper that go 8 up on the billboard. 9 It was proposed to us by the King 10 Group, and we're testing that. We think it might 11 be a really good, sort of grassroots approach to 12 get into some of the areas that we normally -- you 13 know, that people aren't seeing, you know, the 14 large billboards, the jackpot billboards, that we 15 can promote whichever products we want in that type 16 of a neighbourhood atmosphere. 17 MS. CLOUD: And we're doing that in 18 all markets. 19 CHAIRMAN CLOWE: And we're being 20 careful about the offensive aspect of -- 21 MS. SMITH: Yes, sir. 22 CHAIRMAN CLOWE: -- that kind of 23 advertising that other lotteries have gotten into 24 difficulties -- 25 MS. SMITH: We're very careful about WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 68 TEXAS LOTTERY COMMISSION - 4-26-01 1 that. 2 CHAIRMAN CLOWE: All right. 3 MS. SMITH: We have a long list of 4 sensitivities that we share with both of our 5 agencies. 6 CHAIRMAN CLOWE: I'm glad the King 7 Group is leading in that, and I'm sure they're 8 aware of those concerns. 9 MS. SMITH: They are. 10 CHAIRMAN CLOWE: Good. 11 MS. CLOUD: Commissioners, I'd like 12 to add to this topic on the print media criteria. 13 As you know, we have been involved in looking at 14 the requirements that we set out for our 15 subcontractors and our print media market. We have 16 finally come to a conclusion on that. We have 17 decided that we are going to accept the USPS audits 18 as the audits for our rural-type newspapers who 19 seem to be the majority in that category. 20 We have worked -- Kim and I have 21 worked through a consultant that came in here and 22 laid out some of the criteria that at first did not 23 think that was sufficient for us. But now, since 24 he actually viewed the videotape of the meeting 25 that I had with our print media and heard the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 69 TEXAS LOTTERY COMMISSION - 4-26-01 1 testimony from the post office individual that was 2 in charge of that, he has agreed with us that we 3 could accept the USPS audits as a legitimate audit 4 for our print media. 5 We have notified our advertising 6 agencies to notify the subcontractors to be aware 7 that that is acceptable. We have also gone back -- 8 Nelda has notified all of our leaders who had 9 inquired about our decision in that, and we're 10 moving forward now to -- with a set program for our 11 audits, and we feel comfortable with that. 12 CHAIRMAN CLOWE: Very good. I like 13 the way you made that decision. I think to bring 14 in the people who were interested and concerned 15 about it and have the meetings you did, measuring 16 their input, and then making the decision, is the 17 right way to go on that. 18 MS. CLOUD: They were impressive. 19 They were able to convince us that they were doing 20 what we needed them to do. 21 CHAIRMAN CLOWE: Very good. 22 COMMISSIONER CRINER: Mr. Chairman, 23 may I -- 24 CHAIRMAN CLOWE: Yes. 25 COMMISSIONER CRINER: How do people WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 70 TEXAS LOTTERY COMMISSION - 4-26-01 1 learn how to play these games? And that's just a 2 question of ignorance. I didn't know how to play 3 them until I found out I was going to be on this 4 commission. And I was, like, wow, that's kind of 5 neat; now I understand why they play. 6 But how does just an average 7 citizen -- we advertise Texas Two Step, you walk in 8 a retailer, and all of a sudden there are eight or 9 nine games in front of them, or four or five games 10 in front of them. And it seems like the local guy 11 who knows how to play them runs in and pushes you 12 out of the way and -- because he knows how to play 13 the game. 14 So is there a book they can order 15 from us or something that says here are all the 16 games, how you play them, and how you win, or 17 whatever -- you know, just really how you play the 18 game. 19 MS. SMITH: In each licensed 20 retailer, there is what we call a play station. 21 And it's sort of a little point-of-sale piece. 22 It's small. It's, like, a little counter-like 23 space. And it also has a box that has placement 24 for us to put pieces of point of sale. And there 25 are little slots for our brochures. So we produce, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 71 TEXAS LOTTERY COMMISSION - 4-26-01 1 like you saw this morning, a how-to-play brochure. 2 We have an all-products brochure that does have 3 each of our current games. And in the next 4 version, we'll have Texas Two Step included. 5 But you can go to that play station, 6 pick up the brochure, learn how to play, fill out 7 your playslip right there. And then on a new game 8 like this, our effort is to do the in-store 9 promotions where the LSRs are out there, or, you 10 know, our efforts in our own -- at the fairs and 11 festivals. Like the state fair, that would be our 12 focus for three weeks long, with people from all 13 over the state how to play. But the play station 14 is usually the best source for that. And most good 15 retailers don't mind taking the time to explain it 16 to you because it's to their advantage, too, to 17 help you learn how to play. 18 COMMISSIONER CRINER: I got as far 19 the play station, and I was intimidated because 20 everybody was grabbing everything and I didn't know 21 what to grab. 22 MS. SMITH: Well, if you'd like, 23 I'll teach you how to play. 24 COMMISSIONER CRINER: No, that's all 25 right. Now that I know how to play, I can't play. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 72 TEXAS LOTTERY COMMISSION - 4-26-01 1 Thank you very much. 2 MS. SMITH: You're welcome. 3 CHAIRMAN CLOWE: Thank you, Toni and 4 Robert. 5 MR. TIRLONI: Thank you. 6 CHAIRMAN CLOWE: We're now to 7 Item 9, report, possible discussion and/or action 8 on the lottery operator procurement and/or lottery 9 consultant. 10 Linda? 11 MS. CLOUD: Ridgely is going to make 12 this report, Commissioners. 13 MR. BENNETT: Good morning, 14 Commissioners. For the record, my name is Ridgely 15 Bennett. I'm the deputy general counsel of the 16 Texas Lottery Commission. On the status of the 17 lottery operations and services RFP, we have 18 received letters of intent. We have conducted a 19 preproposal conference relating to HUB 20 participation. And currently, we're working on 21 drafting responses to written questions. The 22 progress is good, and we are currently right on 23 schedule. 24 If you have any questions, I'd be 25 happy to answer them at this time. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 73 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: Any questions? 2 Thank you, Ridgely. 3 MR. BENNETT: Thank you. 4 CHAIRMAN CLOWE: Next item. Item 10 5 is a report of the internal auditor, Debra McLeod. 6 Good morning, Debra. 7 MS. MCLEOD: Good morning, 8 Commissioners. Under this agenda item, I'm to also 9 report on the state auditors. Currently, we have 10 no state audit going on at the Lottery Commission, 11 either on the lottery operations or the bingo 12 division. That's not to say that the state auditor 13 is not present. They're currently working under 14 our contract that we have with the Commission, and 15 they're providing consulting services to executive 16 management. The status is that they're reviewing 17 lottery operations, financial and marketing 18 divisions. 19 With regard to an internal audit, 20 we're currently working on two audits. The first 21 one is game plan verification. In the past, I 22 provided testimony to the legislature and publicly 23 to the commissioners in prior commission meetings 24 regarding the audit issues related to player 25 perception, vendor compliance, and revenue to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 74 TEXAS LOTTERY COMMISSION - 4-26-01 1 state. 2 We're now formulating our responses 3 to management, and in that format, we're 4 collaborating with management in providing this 5 response. After both management and internal audit 6 finalize our responses, Linda and I will then share 7 our responses with the Commission. 8 The second audit is bingo 9 compliance. We're in the planning and scoping 10 phase. I have met with Billy and his management 11 team. We've started the planning phase. The next 12 step will be developing an audit program and then 13 begin the field work. 14 In addition to the audit projects 15 that we have started, we also project managing 16 three separate areas. One is the security audit. 17 Under the Texas Lottery Statute, we're required 18 every two years to have a security audit. And in 19 that phase, we've hired PricewaterhouseCoopers to 20 come in and provide those services. They finished 21 their report in December 2000. Linda has asked 22 them to come back now and do a follow-up audit, and 23 that's what they're currently working on. 24 By way of a meeting yesterday, we 25 learned that they completed their fieldwork and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 75 TEXAS LOTTERY COMMISSION - 4-26-01 1 they are now scheduling an exit conference in which 2 they will go over their findings with both GTECH 3 and with executive management. Upon receiving 4 those findings, they will issue a report, and it 5 will be a public document. 6 And my understanding, Linda, we're 7 going to do the same that we did before, a 8 confidential and a public document. 9 Other project management issues we 10 work with is on the drawing audit. I continue to 11 coordinate with Mike Pitcock, who is the security 12 director, over the drawing audit team. Presently, 13 the project management of the financial audit has 14 been moved back to management. So I'm no longer 15 working on that one. 16 So that's the status of where we 17 are. 18 CHAIRMAN CLOWE: Very good. 19 Any questions? 20 COMMISSIONER WHITAKER: Thank you, 21 Debra. 22 CHAIRMAN CLOWE: Thank you very 23 much. 24 Now we're ready for Item No. 11, 25 report on the production studio procurement. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 76 TEXAS LOTTERY COMMISSION - 4-26-01 1 MS. CLOUD: Commissioners, I'll let 2 Ridgely report on this one. 3 CHAIRMAN CLOWE: All right. Very 4 good. 5 MR. BENNETT: Once again, for the 6 record, my name is Ridgely Bennett. I'm the deputy 7 general counsel. 8 Regarding Item No. 11, we have named 9 M&S Works as the apparent successful proposer on 10 that RFP. And I believe that we are in a position 11 where we will be able to sign a contract in the 12 very near future. And Linda may want to update on 13 the progress of the contract issue. 14 MS. CLOUD: Commissioners, we are 15 awaiting the outcome of our capitol budget issue 16 with our production studio, and we have -- we had 17 our conference hearing, as you know, this week. 18 We still have some problems on the 19 Senate side with explaining to a particular leader 20 the outcome of the RFP before we can move forward, 21 but this has made this item a pending item for 22 them, with the understanding they need to come back 23 as soon as possible with the item. 24 So we are still just waiting for -- 25 to know whether we can get the capitol budget in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 77 TEXAS LOTTERY COMMISSION - 4-26-01 1 order to purchase equipment. If not, M&S is still 2 the successful proposer, and we have made it clear 3 that we would move forward with M&S Works on this 4 issue; we just wouldn't buy the equipment. 5 CHAIRMAN CLOWE: Now, so that we'll 6 all understand the timing on this, you certainly 7 can't make any decision on purchasing equipment 8 until the capitol issue is determined. But are you 9 moving ahead with bringing the production studio 10 in-house? 11 MS. CLOUD: Yes. 12 CHAIRMAN CLOWE: And what is the 13 timing on that? 14 MS. CLOUD: We'll be ready before 15 the end of the contract, August 31st. We're going 16 to be up and tested and running and ready to go. 17 Vince is doing what he needs to do in our winner's 18 area. He is incorporating some of the improvements 19 over there with changes we're making in the claim 20 center as well. And that, I'm told, is on 21 schedule, so that will start in July, and the 22 studio will be ready in time is what I'm being 23 told. 24 CHAIRMAN CLOWE: So the timing, 25 insofar as the capitol issue determination, is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 78 TEXAS LOTTERY COMMISSION - 4-26-01 1 good, with your plan to move it and to be in 2 production by the end of the current contract? 3 MS. CLOUD: Yes, sir. And -- 4 CHAIRMAN CLOWE: It all fits 5 together. 6 MS. CLOUD: But we do need to move 7 forward, and I have made this known to our leaders 8 because of the timing for the vendor who has been 9 awarded -- not awarded a contract as yet, but the 10 apparent successful proposer, in order for him to 11 have time to purchase the equipment and have it 12 delivered on schedule. 13 CHAIRMAN CLOWE: And Nelda hasn't 14 come forward and made her report yet. But I'm 15 going to ask her, when she does, if there is no 16 doubt in her mind about the clarity in the 17 leadership's mind about this plan and understanding 18 that the studio is coming in-house. 19 MS. CLOUD: I'll let Nelda answer 20 that for you, since she'd had the direct contact. 21 CHAIRMAN CLOWE: Okay. Very good. 22 MS. CLOUD: Okay. 23 CHAIRMAN CLOWE: You had a question? 24 COMMISSIONER CRINER: Yes, sir, just 25 one question about the studio. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 79 TEXAS LOTTERY COMMISSION - 4-26-01 1 I think I've been pretty well 2 briefed on that, and I understand it. But I have 3 just one more question: When we get the studio on 4 board, the thought in the back of my head is that 5 there is going to be some dead time where it's not 6 being used all the time. 7 MS. CLOUD: This studio -- is Keith 8 in the room? 9 Keith, why don't you come up and 10 explain this better. 11 MR. ELKINS: For the record, Keith 12 Elkins, communications director. 13 Your question is about dead time at 14 the studio? 15 COMMISSIONER CRINER: Yes. I think 16 it's a very good deal and will save us money and 17 all that stuff. But there seems to be a pocket of 18 space when it's just sitting there, and so I'd like 19 you to clarify that we're going to fill that pocket 20 of empty space. 21 MR. ELKINS: Your question is 22 actually one of the very reasons that we wanted to 23 bring the studio in-house, because the time that we 24 really need a broadcast studio for drawings begins 25 at 7:00 at night and goes to approximately 10:30. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 80 TEXAS LOTTERY COMMISSION - 4-26-01 1 A lot of the existing facilities here in town that 2 do not bid on our contracts, that's usually after 3 their normal working hours and it would incur 4 additional costs for them to be bidding on our 5 contract. 6 For us, the advantage would be -- we 7 will need that, but during the daytime hours when 8 the studio is not being used, it would also be of 9 benefit to our drawings team, when they do testing 10 on the machines or if they need to clean the 11 materials or whatever, that they don't have to go 12 off-site to do that; it would be here at this 13 building. 14 As far as the TV equipment that is 15 in the studio, it would be advantageous to us to 16 have that here. If we had winners that came in and 17 we wanted to videotape their conference and put it 18 out live on the satellite, we could do that. If we 19 wanted to hold news conferences and provide those 20 services, that would all be located centrally here 21 in this agency. Or, if we had some reason to do 22 some sort of a satellite feed to our field offices 23 or something else, we would have that availability 24 as well. 25 We would not be using the TV WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 81 TEXAS LOTTERY COMMISSION - 4-26-01 1 facility full time. We did explore, during the 2 process of bringing this in-house, possibly 3 partnering with some other agencies so that they 4 might be able to use the studio during the daytime 5 hours and we would be able to use it at nighttime. 6 Unfortunately, we were not able to find a suitable 7 agency that would benefit. We can continue 8 exploring that option if we do find that we have a 9 lot of time that we don't have anything. 10 But I think that it's important to 11 clear up one thing, and that -- because there has 12 been some confusion. We are not talking about a 13 full-fledged TV production facility as we have 14 currently. We are talking more of a limited-use 15 facility, utilizing robotic cameras, primarily 16 planned for airing our live drawings. 17 We will have some capabilities -- 18 like I mentioned, if we wanted to do a news 19 conference or some sort of a satellite feed. But 20 there are a lot of production facilities that we -- 21 services that we will not have in this facility 22 that we do have access to now in our current vendor 23 but we don't utilize. 24 COMMISSIONER CRINER: Would it be 25 reasonable to think that this is kind of like a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 82 TEXAS LOTTERY COMMISSION - 4-26-01 1 mini-process studio center? 2 MR. ELKINS: That's a very good, 3 accurate description. It will be providing 4 broadcast-quality services of our drawings. If you 5 wanted to come into the proposed facility to do 6 more elaborate production, we would not be able to 7 do that at this time. It has been designed in such 8 a way that if you should ever want to get to that, 9 we could expand, with minimal impact. But that 10 service would not be available now. 11 COMMISSIONER CRINER: So the cost 12 savings is a fact, that we don't have to pay for 13 the elaborate facility with all the bells and 14 whistles; we are just getting a facility that has 15 the bells and whistles we need? 16 MR. ELKINS: Exactly. Our needs -- 17 we have the latest advances that have made the 18 robotic cameras such that they can be controlled by 19 computer. What we are doing every night is putting 20 out a high quality broadcast program. But I -- 21 from a TV background, I would say it doesn't 22 require a lot of creativity. The same shots take 23 place every night, the same length of the shots; if 24 you want to show a close-up of the balls that are 25 being selected, you want to show a wide shot, make WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 83 TEXAS LOTTERY COMMISSION - 4-26-01 1 sure that nobody is tampering with machines, that 2 type of thing. But it's the same thing, day in and 3 day out. Currently, we are paying for manpower to 4 be doing that type of thing. 5 Under the proposed arrangement, we 6 would have cameras that would be controlled by 7 computer, with one person operating those, and 8 there would be a predetermined computer program 9 that would automatically tell those cameras, if you 10 had a five-second shot, zoom in; or a ten-second 11 shot. That sort of thing. And it would be 12 consistent every night. 13 MS. CLOUD: I'd like for Mike to 14 come up and talk about the real important part of 15 the studio to me, which is having our equipment in 16 a secured environment that we control. 17 MR. PITCOCK: That's very correct. 18 And the facility we have over there is not that it 19 isn't a secured environment at this facility we 20 have, but yet it's not our facility. So we have to 21 have in-house, in the building, alarm systems that 22 are extra to what we will have here that we've 23 already got in place. We've got one of the finest 24 security systems in the state of the art that's in 25 the City of Austin right now, at this building. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 84 TEXAS LOTTERY COMMISSION - 4-26-01 1 But yet that's not our building over there. 2 And also, one of the things that 3 Keith touched on, but it's very important -- so 4 you'll know -- the wear and tear on these 5 machines -- if you look at a Lotto machine, it's a 6 large instrument. And we're going to have the 7 ability to have these machines left out and not 8 have to move them back and forth into a vault area. 9 That reduces the wear and tear on 10 the machines, and it helps us because it's one of 11 those -- every night when we start over there, we 12 start with a clean slate, empty floor. And if we 13 can keep from having to move these machines around, 14 as large as they are, it helps the machines and it 15 helps our people in wear and tear also, because 16 that process is labor intensive at times, you know, 17 when they are having to get -- you know, on Friday 18 nights, the three machines, three different sets of 19 equipment out and set it up from the start and then 20 take it completely down at the end of that and put 21 it up. 22 So I think that -- you know, to 23 answer your question, they're going to have the 24 ability to do other events because the machines -- 25 one of the key things of having it in-house is the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 85 TEXAS LOTTERY COMMISSION - 4-26-01 1 ability to leave our equipment set up and out where 2 we can, you know, not have to move it back and 3 forth. 4 COMMISSIONER CRINER: Thank you very 5 much. 6 CHAIRMAN CLOWE: That was 7 Commander Mike Pitcock, the head of security, that 8 made those remarks. 9 Thank you, Mike. 10 Anything further? 11 MR. PITCOCK: Thank you. 12 CHAIRMAN CLOWE: Anything further, 13 Ridgely? 14 MR. BENNETT: I have nothing 15 further. I'll be happy to answer any questions you 16 may have. 17 CHAIRMAN CLOWE: Linda, anything 18 further? 19 MS. CLOUD: No, sir, not on the 20 studio. 21 CHAIRMAN CLOWE: Thank you for your 22 questions, Commissioner Criner. 23 Next is Item 12, the financial audit 24 services contract. 25 Ridgely, I believe this is your WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 86 TEXAS LOTTERY COMMISSION - 4-26-01 1 subject as well. 2 MR. BENNETT: I believe Linda would 3 like to -- 4 MS. CLOUD: Yes. 5 Commissioners, as you know, we bring 6 these major contracts that we have coming up for 7 expiration back to the Commission with a 8 recommendation as to how we feel about either 9 extending the contract or going out for bid, and 10 getting the commissioners' feeling on that. 11 On the financial audit contract, my 12 recommendation is that we go out for bid. And we 13 need to do that right away. So if the 14 commissioners agree, then that's the direction I'll 15 take on that. 16 CHAIRMAN CLOWE: Does this require a 17 policy decision? 18 MS. CLOUD: No, it doesn't. Kim 19 might can explain this. 20 This was a requirement from the 21 commissioners some time back. It was their desire 22 to be a part of our major contract procurement. 23 MS. KIPLIN: Commissioners, at the 24 beginning of the creation of the Lottery 25 Commission, one of the earlier meetings, the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 87 TEXAS LOTTERY COMMISSION - 4-26-01 1 Commission at that time identified several 2 contracts -- those that were then characterized as 3 the major contracts -- that the Commission wanted a 4 more active involvement in, in terms of decision 5 making in specifically whether to go out to bid or 6 whether to extend the contract. 7 Your direct question is does it 8 require a policy vote. I think in the past, there 9 has been a vote by the Commission, but it's been to 10 authorize the executive director to either go out 11 to bid or to extend the contract because it fell 12 within the scope of those contracts identified as 13 major contracts. 14 CHAIRMAN CLOWE: What is the scope 15 of this contract? 16 MS. CLOUD: This is the financial 17 audit that we do on an annual basis that we present 18 as our audited financial statement back to the 19 legislature, and for our own purposes as well. 20 CHAIRMAN CLOWE: When was this done 21 last? 22 MS. CLOUD: Last year. 23 CHAIRMAN CLOWE: Who did it? 24 MS. CLOUD: McConnell & Jones. 25 MS. KIPLIN: Out of Houston, Texas. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 88 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: You're asking for a 2 resolution now? 3 MS. CLOUD: I'd like to go out for 4 bid on this contract again. 5 CHAIRMAN CLOWE: Is there a motion? 6 COMMISSIONER WHITAKER: So moved. 7 COMMISSIONER CRINER: Second. 8 CHAIRMAN CLOWE: It's moved and 9 seconded that the executive director be authorized 10 to, what, issue an RFP? 11 MS. CLOUD: Right. 12 CHAIRMAN CLOWE: -- for a financial 13 services contract -- audit services contract. 14 All in favor, say aye; opposed, no. 15 The vote is 3-0 in favor. 16 Anything further on this subject? 17 MS. CLOUD: Not on that one. 18 The next item, Commissioners, is our 19 drawings audit. And I would like to extend this 20 contract instead of going out for bid. 21 CHAIRMAN CLOWE: What would be the 22 term of the extension? 23 MS. CLOUD: One year. This is the 24 audit team that is at our drawings studio, and they 25 are a minority firm. They have done an excellent WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 89 TEXAS LOTTERY COMMISSION - 4-26-01 1 job for us, and I see no reason not to extend. 2 CHAIRMAN CLOWE: And who is that? 3 MR. BENNETT: Davila & Schubert? 4 MR. PITCOCK: Schaubhut. 5 MR. BENNETT: They've changed names 6 on us three times since we've set out the contract. 7 CHAIRMAN CLOWE: Be sure we get 8 their name right. 9 MR. PITCOCK: Davila & Schaubhut. 10 CHAIRMAN CLOWE: Where are they 11 based? 12 MR. PITCOCK: Here in Austin, Texas. 13 They're a company that is an offshoot of the 14 Pricewaterhouse group that actually did our audit 15 from the start of it. They broke off away from 16 Pricewaterhouse. They were actually a 17 subcontractor. Now they do our audit. 18 They have done an excellent job. I 19 have to echo that. We have had very few problems. 20 They're very intense, I would call it, with their 21 audit process. And I think that's, again, 22 protecting that integrity level that they do the 23 job and do it correctly. So I speak very highly 24 that they have done an excellent job for us. 25 CHAIRMAN CLOWE: How many people do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 90 TEXAS LOTTERY COMMISSION - 4-26-01 1 they have there every night? 2 MR. PITCOCK: They have one auditor. 3 And then on occasion, they'll have an audit 4 supervisor that comes in and monitors. They've 5 had, just recently, a new auditor that they've 6 brought in. And the supervisor was there to train 7 that auditor before they are actually allowed to do 8 it by themselves. 9 CHAIRMAN CLOWE: How many do they 10 have trained, Mike? 11 MR. PITCOCK: I don't know the exact 12 number, but -- 13 MS. CLOUD: Six. They rotate six 14 auditors. 15 CHAIRMAN CLOWE: So it's not the 16 same person every night. 17 MS. CLOUD: Right. 18 CHAIRMAN CLOWE: But we have one of 19 those six that is trained -- 20 MR. PITCOCK: Yes. 21 CHAIRMAN CLOWE: -- every night. 22 MR. PITCOCK: And some of the 23 people, again, have been there since startup as far 24 as doing this process. They're very knowledgeable 25 of this process and have done excellent work. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 91 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: Any other 2 questions? 3 COMMISSIONER WHITAKER: No. 4 So move. 5 COMMISSIONER CRINER: Second. 6 CHAIRMAN CLOWE: Is a motion 7 required on this? 8 MS. KIPLIN: I think to give the 9 executive director the direction on the authority 10 to extend the contract. 11 CHAIRMAN CLOWE: Great. 12 It's moved and seconded that the 13 authorization be given to the executive director to 14 extend the contract. 15 All in favor, say aye; opposed, no. 16 The vote is 3-0 in favor. 17 Anything further, Linda, before we 18 go to Nelda's item? 19 MS. CLOUD: No, sir. 20 CHAIRMAN CLOWE: I think we're down 21 to Item 14, report and discussion and/or action on 22 77th Legislature, including the agency's 23 legislative proposals. 24 Nelda? 25 MS. TREVINO: Good morning, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 92 TEXAS LOTTERY COMMISSION - 4-26-01 1 Commissioners. 2 For the record, I am Nelda Trevino, 3 the director of the governmental affairs 4 department. 5 CHAIRMAN CLOWE: You're going to be 6 by yourself this morning? 7 MS. TREVINO: I've got Colin right 8 here behind me. 9 CHAIRMAN CLOWE: Okay. And Melissa 10 was here. I was happy to see her back -- 11 MS. TREVINO: Yes. 12 CHAIRMAN CLOWE: -- but she has left 13 the meeting room now. 14 MS. TREVINO: She has gone up to 15 monitor the House. We do have a bill that's 16 meeting considered on the House floor today, so we 17 want to be sure that we don't miss that. 18 CHAIRMAN CLOWE: All right. In her 19 absence, the Commissioners are happy to see her 20 back at work, and I understand she and the baby are 21 doing very well. 22 MS. TREVINO: Yes, sir, they are. 23 And we'll be sure and relay that to her. 24 CHAIRMAN CLOWE: Good. 25 MS. TREVINO: Very briefly, I do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 93 TEXAS LOTTERY COMMISSION - 4-26-01 1 want to provide to you the status on several bills 2 since the last commission meeting. We did provide 3 you with an updated tracking report, so you should 4 have that in front of you. 5 The way the report is laid out, on 6 the first couple of pages, we've identified bills 7 that have a more direct impact on either the 8 lottery or bingo. And those are some of the bills 9 that I want to talk about today. 10 In regard to Senate Bill 1, the 11 general appropriations bill, as Linda mentioned 12 earlier yesterday, we did go before a conference 13 committee to have our agency's budget considered. 14 The amendment that was added on on the House floor 15 when the budget was being considered in regards to 16 the marketing, research, and promotion strategy of 17 reducing that funding item by a million dollars for 18 each biennium, was deleted by the conference 19 committee. So we were happy to see that actually 20 take place. 21 The issue relating to the capitol 22 budget expenditure for the drawings and production 23 studios Linda mentioned is still a pending item 24 before the conference committee. And there are 25 some follow-up meetings that we're going to be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 94 TEXAS LOTTERY COMMISSION - 4-26-01 1 doing based on the discussion that took place 2 yesterday, and we will keep you posted on the 3 developments of those meetings. 4 Commissioner Clowe, I know you asked 5 a question earlier in regards to the understanding 6 that some of these people might have in regards to 7 our plans with the drawings and broadcast studio. 8 And I would say that it's -- in my opinion, that 9 the people we have had direct communication with, I 10 feel confident that they understand the direction 11 we would be going in, regardless whether -- 12 regardless of the approval on the capitol budget 13 expenditure. 14 CHAIRMAN CLOWE: That's very 15 important, I think, as a matter of perception of 16 this agency's communication with the leadership. 17 And I know I've asked that question before, and 18 it's very important, I think, to this commission, 19 that we be perceived as saying what we're going to 20 do and clarifying that so that all questions are 21 answered and there is a complete understanding of 22 what our intentions are. 23 MS. TREVINO: Absolutely. And 24 again, in these follow-up meetings that we will be 25 having, we will certainly be emphasizing that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 95 TEXAS LOTTERY COMMISSION - 4-26-01 1 point. 2 In regards to some of the bills that 3 are on the tracking report, House Bill 965, this 4 was part of the agency's legislative package. This 5 is a bill by Representative Dunham. This is 6 relating to the eligibility requirements for an 7 applicant for a lottery retailer license. 8 This bill was considered by the full 9 House earlier this week, and I'm happy to report 10 that it was voted out favorably from the House. 11 Senator Armbruster has agreed to pick up the bill 12 as the Senate response on the Senate side, so we'll 13 be waiting for a committee hearing to be scheduled 14 on the Senate side. 15 House Bill 1730, this is also part 16 of the agency's legislative package. This is by 17 Representative Tony Goolsby. This is relating to 18 the surveillance vehicle used in our enforcement 19 functions being exempt from the transportation code 20 requirement that the vehicle have the agency's name 21 on the vehicle. 22 This bill is the bill that I was 23 talking about earlier that Melissa went to go and 24 monitor. It is being considered by the full House 25 today. Because the companion bill, Senate Bill 817 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 96 TEXAS LOTTERY COMMISSION - 4-26-01 1 by Senator Armbruster, has already passed the 2 Senate, Representative Goolsby is going to be 3 laying out the Senate bill for the full House's 4 consideration. And again, we hope that that bill 5 will be voted out favorably from the full House. 6 The House Licensing and 7 Administrative Procedures Committee has taken 8 action on several bingo-related bills, including 9 some of those that were part of the agency's 10 legislative package. One of them is House 11 Bill 2119, that would -- that is the bill that 12 would authorize a progressive bingo game. This 13 bill, again, was considered by the committee and 14 was voted favorably from that committee. 15 House Bill 2578, which is also part 16 of the agency's legislative package, this is 17 relating to subpoena and investigative authority 18 for the regulation of bingo. This bill was also 19 considered by the House Licensing Committee and was 20 voted favorably from that committee. 21 House Bill 2629 was considered by 22 the House Licensing Committee yesterday. This 23 would authorize certain community bingo games. The 24 bill was left pending, and I should note that Billy 25 Atkins has attended these committee hearings and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 97 TEXAS LOTTERY COMMISSION - 4-26-01 1 has been a resource witness on each of these bingo 2 bills. 3 And I would like to note that 4 Chairman Wilson had some very flattering comments 5 to make about the direction bingo has taken, and he 6 stated that publicly yesterday at the committee 7 hearing. 8 Billy, I don't know if you have 9 anything that you want to add to that. But again, 10 I just wanted to note that, because he did state it 11 publicly, and we certainly appreciated his 12 comments. 13 House Bill 3234, this is also part 14 of the agency's legislative package. This is a 15 bill that includes some of the clean-up language 16 that had been recommended by the staff. It also 17 includes the 40 percent -- elimination of the 18 40 percent requirement on electronic cardminding 19 devices and the elimination of the 5 percent prize 20 fee on prizes less than $5. This bill was voted 21 out favorably from the committee as substituted. 22 And the bill, as it has been substituted, basically 23 incorporates language that is included in House 24 Bill 3255. And this would authorize 25 multiorganizational bingo by the use of automated WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 98 TEXAS LOTTERY COMMISSION - 4-26-01 1 bingo services. And again, this bill was voted out 2 favorably from committee last week. 3 In regards to two procurement bills, 4 House Bill 3186 and Senate Bill 1366, these bills 5 relate to the preference to Texas bidders on 6 procurements. The House State Affairs Committee 7 and the Senate State Affairs Committee heard these 8 bills earlier this week. Both committees left the 9 bills pending. 10 House Bill 2530. This is a bill 11 that relates to sweepstakes and was not originally 12 on our list of bills that we were tracking, but we 13 have added it to the bills that we are tracking. 14 The full House considered this bill on Wednesday of 15 this week, and an amendment was adopted to prohibit 16 8-liner machines in the state, with the exception 17 of a facility operated by a nonprofit veterans 18 organization. Senate Bill -- 19 CHAIRMAN CLOWE: On that, Nelda, 20 there is quite a bit about that process in the news 21 right now. Have we been called on in any way as a 22 resource in that activity? 23 MS. TREVINO: No, sir, not at all. 24 CHAIRMAN CLOWE: Okay. Thank you. 25 MS. TREVINO: Senate Bill 390, this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 99 TEXAS LOTTERY COMMISSION - 4-26-01 1 is also part of the agency's legislative package. 2 This is a bill that would allow for an exception to 3 the Open Meetings Act to allow the commissioners 4 for discussion and deliberation in regards to a 5 contract with a lottery operator. This bill has 6 been voted out of the Senate and is scheduled to be 7 heard in the House State Affairs Committee on 8 Monday. 9 And lastly, Senate Bill 1720. This 10 is a bill that would eliminate the 40 percent 11 requirement on bingo electronic cardminding 12 devices. This bill was also heard in the Senate 13 State Affairs Committee this week and was voted out 14 favorably. 15 Those are the bills that I wanted to 16 highlight for you today. I'm happy to answer any 17 questions that you might have. 18 CHAIRMAN CLOWE: Any questions? 19 COMMISSIONER WHITAKER: No. I 20 wanted to make a comment, though. 21 I wanted to note publicly that the 22 confirmation process, I thought, went very 23 smoothly. And I wanted to thank you and Colin for 24 your good guidance and your help in making that 25 happen. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 100 TEXAS LOTTERY COMMISSION - 4-26-01 1 MS. TREVINO: We're very happy to 2 assist, and we're delighted that it all went very 3 well for both you and Mr. Criner. 4 COMMISSIONER CRINER: I don't know 5 how to survive without Betsy. Some of the 6 questions they asked were -- you've -- as we've 7 been sitting here -- a few times to answer -- 8 COMMISSIONER WHITAKER: Well, we got 9 some very good help. 10 COMMISSIONER CRINER: Thank you. 11 MS. TREVINO: Thank you. 12 MR. ATKINS: Mr. Chairman? 13 CHAIRMAN CLOWE: Yes, sir. 14 MR. ATKINS: I just want to follow 15 up. I believe -- and Nelda will correct me if I'm 16 wrong -- that so far, all of the proposals that 17 have been put forth by the agency as they relate to 18 bingo, with the exception of Representative 19 Goolsby's bills, as they relate to the play of 20 bingo through pull tabs and the summary suspension, 21 have been heard and acted on by committee. 22 And I just kind of wanted to follow 23 up on what Commissioner Whitaker was saying; that 24 in my experience in bingo, bingo legislation has 25 gone further, easier, than it has in any other WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 101 TEXAS LOTTERY COMMISSION - 4-26-01 1 previous session. And I think that's due, again, 2 in large part to the efforts that Nelda and Colin 3 have made. She mentioned that I have been 4 available as a resource at those hearings, but 5 again -- because of their work. You know, I've 6 unfortunately been a very useless third wheel. 7 MS. TREVINO: I'm not so sure about 8 that. 9 CHAIRMAN CLOWE: We're all aware of 10 the excellent job that you-all do and appreciate it 11 very much. 12 MS. TREVINO: Thank you. We 13 appreciate that. Thanks. 14 CHAIRMAN CLOWE: Very good. 15 I think we're now to Item 15. 16 And Kim, this is your subject on 17 rules. 18 MS. KIPLIN: Commissioners, as you 19 will recall, you-all voted to propose rule making 20 in the Subchapter E on retailer rules in the form 21 of proposed amendments, proposed repeal, and 22 proposal of a new rule. Those -- that proposed tax 23 was published in the March 9th, 2001 issue of the 24 Texas Register. The 30-day public comment period, 25 minimum 30-day public comment period, has expired. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 102 TEXAS LOTTERY COMMISSION - 4-26-01 1 The rule making is ripe for your adoption, for 2 consideration of your adoption. No comments were 3 received. 4 As you will recall, this was a 5 by-product of the agency's rule review, which is 6 required by law. The purpose of the rule making on 7 Subchapter E was to make the rules consistent with 8 the existing law and to clarify current agency 9 practices and procedures relating to these 10 particular rules. 11 It was also to eliminate language 12 that was redundant to language located in the State 13 Lottery Act or other commission rules. And at this 14 point, the staff does recommend adoption of this 15 rule making. 16 CHAIRMAN CLOWE: Is there a time 17 critical on this issue? 18 MS. KIPLIN: The rule review, there 19 was time critical. There is not time critical on 20 this rule making except to say that the agency must 21 act within 180 days, within six months, of when it 22 files its proposal. 23 CHAIRMAN CLOWE: This is 24 Commissioner Criner's first meeting, and I'd like 25 to extend the courtesy of passing this if you would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 103 TEXAS LOTTERY COMMISSION - 4-26-01 1 be more comfortable with that; or, if you're ready 2 to go forward, we can ask for a motion. What would 3 your pleasure be on this? 4 COMMISSIONER CRINER: Go forward. 5 CHAIRMAN CLOWE: Very good. 6 Is there a motion? 7 COMMISSIONER WHITAKER: Yes. So 8 moved. 9 COMMISSIONER CRINER: Second. 10 CHAIRMAN CLOWE: Moved and seconded 11 to adopt these rules. 12 All in favor, say aye; opposed, no. 13 The vote is 3-0 in favor. 14 MS. KIPLIN: Commissioners, I have 15 an order prepared for your signature that is 16 consistent with the document you had in your 17 notebook. 18 CHAIRMAN CLOWE: And now, Kim, I 19 think Item 16 is yours as well. 20 MS. KIPLIN: Yes. Commissioners, 21 this is the first time of the rule making on 22 Subchapter D regarding the game rules. Once again, 23 the main purpose for proposing the amendments to 24 particular rules that are identified in the open 25 meetings notice and repeal of a rule and the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 104 TEXAS LOTTERY COMMISSION - 4-26-01 1 addition of three new rules, primarily has been 2 because of the by-product of the rule review 3 process. 4 As I said in the earlier item, the 5 purpose of these proposed amendments is to make the 6 rules consistent with existing law and clarify 7 existing agency practices and procedures relating 8 to the game rules. 9 I will mention that there are 10 additional proposed amendments that are not 11 necessarily part of the rule review process. Those 12 are two game rules, the Lotto Texas and the Texas 13 Two Step rules. And it does relate to the 14 advertised jackpot, and it makes it clear that the 15 Commission is going to pay the advertised jackpot. 16 It addresses what occurs if there is an underage or 17 an overage regarding what is advertised with the 18 jackpot. 19 I would like to identify for you 20 three changes that have been made to this package 21 since the time that you received your package. And 22 two of the changes address how a high-tiered claim 23 is to be made to the Commission and how the 24 Commission shall pay. And those are both in 25 Rule 401.302 and Rule 401.304. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 105 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: And point us to 2 that -- 3 MS. KIPLIN: Yes. 4 CHAIRMAN CLOWE: -- would you, 5 please. In the package that we were given this 6 morning, have you got a page reference? 7 MS. KIPLIN: Well, there are no 8 pages on this because this is in registered format. 9 But I will -- let's see if I can't count -- 10 COMMISSIONER CRINER: You 11 highlighted everything with an underline. Right? 12 MS. KIPLIN: Yes. This will be new 13 language. 14 The first change you will find is 15 401.302 (F) (2). It's on the ninth page of your 16 package. 17 CHAIRMAN CLOWE: Starting with the 18 first page of the rules? 19 MS. KIPLIN: Yes. Yes, sir. 20 CHAIRMAN CLOWE: All right. I think 21 we're there. Is the first, No. 5, "if a person," 22 on that page? 23 MS. KIPLIN: It's 401.42 -- let me 24 just come over. If I might approach you-all, it 25 might be easier. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 106 TEXAS LOTTERY COMMISSION - 4-26-01 1 CHAIRMAN CLOWE: Yeah. 2 MS. KIPLIN: The change is to make 3 it consistent where it will read "upon validation 4 of the ticket as a winning ticket, the Commission 5 shall pay the claimant the amount due in accordance 6 with Commission procedures." 7 That is new language. That language 8 does not now currently exist in 401.302 (F) (2). 9 That language -- the purpose of that language is to 10 make it consistent with, one, the Commission's 11 practice, but also to make it consistent with 12 existing language that's in 401.304 (D) (4). 13 And that language, that is current 14 language, is being amended to make both of these 15 consistent: one, on how we pay instant games, 16 which is 401.302, and then also on how we pay on 17 on-line games, which is 401.304 (D) (4). 18 Those are two changes that were not 19 in the package that was overnighted to the 20 Commission on Monday, because those changes were 21 made just on further review to make sure that we're 22 presenting the best package we can to the 23 Commissioners. 24 CHAIRMAN CLOWE: And again, state 25 the substance of those changes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 107 TEXAS LOTTERY COMMISSION - 4-26-01 1 MS. KIPLIN: Okay. On 401.304, if 2 you adopt the language ultimately, it will read 3 "upon validation of the ticket as a winning ticket, 4 the Commission shall pay the claim in the amount 5 due in accordance with Commission procedures." 6 That's to address the flexibility in 7 terms of potential direct deposit; and then, of 8 course, the wiring and, of course, the payment by 9 check. So there are different methods that we use. 10 The last change is in the 11 assignability rule, which is 401.309 (E) (1). 12 There was language that will be new language, and 13 some of that language was not included in the 14 package that you obtained. And that language on 15 (E) (1) reads "the prize winner or assignee of a 16 prize winner must submit to the Commission an 17 original, notarized affidavit executed by the prize 18 winner." 19 The language that was not in your 20 package which is now there is "assignee of the 21 prize winner," that phrase, to make it consistent 22 with the beginning part. "Providing an original 23 release and identification" is how it ends. 24 Those are the three changes that 25 were not part of your rule-making package, and the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 108 TEXAS LOTTERY COMMISSION - 4-26-01 1 other changes are as they are in the package you 2 received. 3 Commissioners, at this time, the 4 staff does recommend that you vote to propose this 5 rule-making package for public comment in the Texas 6 Register for the minimum 30-day public comment 7 period. 8 We'll be glad to answer any 9 questions. I will tell you that this process has 10 been a very long, very tedious process; first, the 11 rule review to determine what rules needed to be 12 readopted, recognizing that changes would need to 13 be made; what rules we needed to repeal because we 14 no longer need them -- they're not consistent with 15 agency practice or the law has changed. 16 There has been a lot of staff effort 17 that has been put into this, and I want to 18 recognize those divisions. The marketing division, 19 the lottery operations division, the security 20 division, the information technologies division, 21 and the financial division have played a very 22 significant part in a very long and, at times, 23 painstaking process to arrive at language. 24 But I think it's a good package. 25 And at this time, we do recommend that you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 109 TEXAS LOTTERY COMMISSION - 4-26-01 1 authorize proposal for the 30-day public comment 2 period. And there are people within the audience, 3 if you have substantive questions that I cannot 4 address, that I'm sure will be glad to address your 5 questions. 6 CHAIRMAN CLOWE: Any questions? 7 COMMISSIONER WHITAKER: No 8 questions. And I'll make a motion in favor of 9 staff recommendation. 10 COMMISSIONER CRINER: I'll second 11 that. 12 CHAIRMAN CLOWE: Motion is made and 13 seconded to authorize the publishing in these 14 rules. All in favor, say aye; opposed, no. 15 The vote is 3-0 in favor. 16 And thank you, Kim, for going over 17 the changes which have occurred since we received 18 our packages so that we're up to date. 19 COMMISSIONER CRINER: May I ask a 20 general question? 21 CHAIRMAN CLOWE: Certainly. 22 COMMISSIONER CRINER: Is there -- 23 and this is a question basically of ignorance -- 24 would there be any reason why, or could we, or is 25 it good business -- just all of the above -- to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 110 TEXAS LOTTERY COMMISSION - 4-26-01 1 have retailers or participants talk to us about 2 these rule changes? When we advertise it in the 3 Registry, does that give them an opportunity to 4 comment? 5 MS. KIPLIN: Yes, it does. That's 6 the purpose of the public comment period. It is to 7 invite comment. This is a wide-open process. I 8 would love to have comment. For those that want 9 to, we will take a look at the comment and we will 10 see whether we ought to make changes. 11 I will say -- and I appreciate you 12 bringing it up, because I did forget one point -- 13 we actually did receive correspondence from a group 14 that said, "You know, the way that you identify 15 your payment, the cash value option, on Lotto Texas 16 isn't this clear." Because really, what we're 17 paying is the net present cash value. And they 18 suggested -- this group said, "Why don't you use 19 that phrase, 'net present cash value.'" 20 We took a look at it and said, "You 21 know, you're right. That is a good change." That 22 is part of this rule-making package. So that 23 change was predicated based on a comment received 24 by the agency. 25 But this goes into the Texas WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 111 TEXAS LOTTERY COMMISSION - 4-26-01 1 Register for public comment. It's obviously a part 2 of today's open meeting. This transcript goes up 3 on our Website. And I believe that in the past, we 4 have put these rule-making packages on our Website. 5 But I'll check to make sure that we do that, and 6 we'll make them available for anyone who wants 7 them. 8 COMMISSIONER CRINER: Thank you. 9 CHAIRMAN CLOWE: Very good. 10 I'd like to deviate from the agenda 11 at this time to ask if there is any public comment 12 before I move that the Commission move into 13 Executive Session. 14 Hearing none, at this time I move 15 the Texas Lottery Commission go into Executive 16 Session to deliberate the duties and evaluation of 17 the executive director, internal auditor, and 18 charitable bingo operations director pursuant to 19 Section 551.074 of the Texas Government Code. 20 To deliberate the duties of the 21 general counsel and security director pursuant to 22 Section 551.074 of the Texas Government Code. 23 To receive legal advice 24 regarding pending or contemplated litigation 25 and/or to receive legal advice pursuant to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 112 TEXAS LOTTERY COMMISSION - 4-26-01 1 Section 551.071 (1) (A) or (B) of the Texas 2 Government Code and/or to receive legal advice 3 pursuant to Section 551.071 (2) of the Texas 4 Government Code, including but not limited to: 5 State of Texas versus Ysleta Del Sur 6 Pueblo; 7 Matter involving the Department of 8 Justice pursuit of a complaint regarding the 9 Americans with Disabilities Act; 10 Matter involving Request for Open 11 Records Decision in attorney general's Open Records 12 file No. 119718-98 relating to request for 13 information in connection with the lottery operator 14 audit; 15 Matter involving brokerage 16 arrangements insofar as HUB/minority participation 17 is concerned; 18 Contract regarding the charitable 19 bingo system; 20 Request for attorney general opinion 21 in connection with the Commission's authority to 22 approve secondary components of cardminding 23 devices; employment law, personnel law, procurement 24 contract law, and general government law. 25 Is there a second? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 113 TEXAS LOTTERY COMMISSION - 4-26-01 1 COMMISSIONER WHITAKER: Second. 2 CHAIRMAN CLOWE: All in favor, say 3 aye. 4 The vote is 3-0 in favor. 5 The Texas Lottery Commission will go 6 into Executive Session. The time is 10:40 -- I beg 7 your pardon, 10:35 a.m. Today is April 26, 2001. 8 (EXECUTIVE SESSION.) 9 CHAIRMAN CLOWE: The Texas Lottery 10 Commission is out of Executive Session. The time 11 is 1:04 p.m. Is there any action to be taken as a 12 result of Executive Session? 13 I don't believe there is. 14 Are there any motions? 15 COMMISSIONER WHITAKER: Yes, 16 Mr. Chair. I make a motion to approve the 17 evaluation of the internal auditor. 18 CHAIRMAN CLOWE: I'll second that. 19 All in favor, say aye. 20 COMMISSIONER CRINER: I'd like to 21 abstain, Mr. Chair. 22 CHAIRMAN CLOWE: Let the record 23 reflect there are two aye votes, and one abstaining 24 on the part of Commissioner Criner. The vote is 25 2-0 in favor. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 114 TEXAS LOTTERY COMMISSION - 4-26-01 1 Are there any further motions? 2 If not, we'll move to the next item 3 on the agenda. 4 MS. KIPLIN: Commissioners, I've got 5 the evaluation that I'd like to present to you for 6 your two signatures. 7 CHAIRMAN CLOWE: Bring it on. 8 And we'll go to Item No. 19, Kim, 9 which is the consideration of the status of 10 possible entry of orders. 11 MS. KIPLIN: Commissioners, in your 12 notebook, you have several contested case 13 proceedings that have been noticed up for your 14 consideration, the possible entry of the order. 15 And then you also have a proposed agreed order. 16 The staff at this time would like to 17 pass that item on the proposed agreed order, and 18 that is case No. 2001-220, the Air Force Sergeants 19 Association Chapter 1056. That case is not, in the 20 staff's view, ready for your consideration, and 21 they would like to pass that. 22 CHAIRMAN CLOWE: Hearing no 23 objection, we'll pass that. 24 MS. KIPLIN: Okay. Going to the 25 contested case proceedings that are enumerated and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 115 TEXAS LOTTERY COMMISSION - 4-26-01 1 identified on the open meetings notice, and those 2 are A through M, a good many of them -- and I'm 3 starting with A, the Shaali, Inc. case, through the 4 Merito Food Mart case -- are lottery cases. 5 These are all cases that are 6 presented for your consideration for adoption of a 7 proposed order submitted by the State Office of 8 Administrative Hearings Administrative Law Judge. 9 All of these cases but the Merito Food Mart case 10 are recommendations for revocation based on 11 insufficient funds being available at the time that 12 the lottery swept the account; in other words, 13 these retailers owe us money. 14 The other case, the Merito Food Mart 15 case, is a criminal history matter. It's a 16 president who has got a criminal history. And 17 there is also a proposed recommendation on 18 revocation on that case. 19 Staff would request that you would 20 make a motion and approve the entry of the orders 21 in those cases. And I don't know if you want to do 22 that at this time or go right into the bingo cases. 23 CHAIRMAN CLOWE: Are there any 24 questions on this recommendation? 25 Is there a motion? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 116 TEXAS LOTTERY COMMISSION - 4-26-01 1 COMMISSIONER CRINER: So moved. 2 COMMISSIONER WHITAKER: Second. 3 CHAIRMAN CLOWE: All in favor, say 4 aye; opposed, no. 5 The vote is 3-0 in favor. 6 MS. KIPLIN: May I present these 7 cases, starting with Commissioner Criner, for 8 signature? 9 Commissioners, you have two cases on 10 the Military Order of Cooties District 3 and the 11 Military Order of the Cooties District 3 Auxiliary. 12 Those are decision cases that are before you for 13 revocation, and they have to do with failure -- in 14 large part, a failure to timely pay prize fees. 15 Associated with the Military Order of the Cooties 16 District 3 Auxiliary is also a failure to post an 17 additional bond. The staff would recommend at this 18 time that you enter the order that's been proposed 19 by the ALJ. 20 The Church Evangelistic Services 21 case is an application license denial, and it's for 22 multiple violations of the Bingo Enabling Act. And 23 those are set out in the Proposal for Decision that 24 was provided to you in your commissioner notebook. 25 The other two cases, I wanted to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 117 TEXAS LOTTERY COMMISSION - 4-26-01 1 spend just a little bit of time by way of 2 background. So I didn't know if you wanted to hold 3 up on these and make a motion all at one time or -- 4 CHAIRMAN CLOWE: Why don't we go 5 ahead and hear the two cases -- or did you want to 6 talk about it and see if we can do it at one time? 7 MS. KIPLIN: Okay. The next two 8 cases, K and L, on your open meetings notice -- and 9 the names of the respondents are Dance Et Vous and 10 Minor Considerations, Inc. -- as you will recall, 11 for Commissioners Clowe and Whitaker, these cases 12 were before you previous to this commission 13 meeting. You did enter an order that denied the 14 renewal applications for both of these cases, as I 15 understand it and as I recall. And it was before 16 you for consideration of a motion for a rehearing 17 in both of these cases. 18 At that time, the Commission did 19 grant the motions for rehearing in these cases, and 20 you did remand it back to the State Office of 21 Administrative Hearings for the taking of 22 additional evidence. 23 Those hearings were held. 24 Additional evidence was taken. Counsel was 25 present -- and that was the counsel that was here WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 118 TEXAS LOTTERY COMMISSION - 4-26-01 1 representing the respondents. And so argument of 2 Counsel was also included. 3 Proposals for Decision -- and I want 4 to specifically go to some of the matters -- I 5 think, as you will recall, at the motion for a 6 hearing time, there was criticism by Counsel for 7 Respondent that, really, the respondent had been 8 thrown into the bingo activities and really hadn't 9 been provided sufficient training by the bingo 10 division. 11 I think that the discussion of both 12 of these Proposals for Decision indicates that 13 there was ample training that was provided prior to 14 the respondent even being licensed. I think the 15 State Office of Administrative Hearings has 16 indicated that there were numerous and serious 17 violations in both of these cases and based their 18 recommendation in terms of renewal application 19 denial based on the totality of the facts that were 20 included in the record. 21 I do believe that the respondent was 22 represented adequately by counsel. I think that 23 was another criticism, that the first cases that 24 were heard over there, that the respondent was 25 pro se. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 119 TEXAS LOTTERY COMMISSION - 4-26-01 1 So with that in mind -- and I don't 2 know if the bingo director has anything he'd like 3 to add -- 4 MR. ATKINS: (Shakes head.) 5 MS. KIPLIN: -- but staff does 6 recommend at this time that you do enter the orders 7 that have been proposed by the State Office of 8 Administrative Hearings Administrative Law Judges. 9 I will tell you that these proposals 10 are adverse to the respondent, and they do 11 recommend denial of the renewal application, 12 renewal license application. No exceptions were 13 filed by Counsel in these cases, and Counsel was 14 served with these Proposals for Decision. 15 COMMISSIONER WHITAKER: And not here 16 today. 17 MS. KIPLIN: And not here today. 18 And I will say, counsel -- the commission meeting 19 is today because the assistant general counsel, 20 Kaye Schultz -- she is not here today; she's out of 21 the country -- did contact him. And he, as far as 22 I know -- my understanding is Counsel does not 23 intend to contest this any further. 24 COMMISSIONER WHITAKER: Well, I will 25 move for the adoption of the recommendation of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 120 TEXAS LOTTERY COMMISSION - 4-26-01 1 staff -- 2 CHAIRMAN CLOWE: Of the -- 3 COMMISSIONER WHITAKER: -- of the 4 ALJ, yes. 5 COMMISSIONER CRINER: Second. 6 CHAIRMAN CLOWE: And second the 7 motion. 8 All in favor, say aye; opposed, no. 9 The vote is 3-0 in favor. 10 Does that conclude the cases you 11 have, Counselor? 12 MS. KIPLIN: Yes, it does. 13 CHAIRMAN CLOWE: Anything further? 14 MS. KIPLIN: No. 15 CHAIRMAN CLOWE: Linda, I think 16 we're ready to have your report, please. 17 MS. CLOUD: Commissioners, on 18 April 13th, we transferred to the Foundation School 19 Fund $84,681,420. As you know, this is about -- 20 considerably -- several million dollars higher than 21 normal. This is the result of our big jackpot. 22 Normally, it's in the neighborhood of $50 million 23 or $60 million when we transfer back. So we're 24 real proud to say that that shows how much our 25 jackpot has given back to the State of Texas. If WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 121 TEXAS LOTTERY COMMISSION - 4-26-01 1 you don't -- on the -- let me go ahead and do the 2 HR report, and then I'll ask Robert to come up for 3 the HUB report. We have 309 active FTEs -- 4 COMMISSIONER CRINER: May I ask just 5 a quick question? 6 MS. CLOUD: Yes, sir. 7 COMMISSIONER CRINER: We just gave 8 all that money to education. Did we have a dance, 9 a party? I mean, did we give education over 10 here -- because people constantly stop and ask 11 where does this money go. Did we, you know... 12 MS. CLOUD: Commissioner, you're -- 13 you're just before finding out how hard it is not 14 to be able to say where the money goes. That is 15 our most asked question. 16 COMMISSIONER CRINER: I've memorized 17 that brochure you gave me. I can almost tell you 18 the actual memo -- 19 MS. CLOUD: Yeah. 20 COMMISSIONER CRINER: -- but if we 21 gave general education $84 million, did we not 22 seize the opportunity as a positive... 23 MS. CLOUD: We are not allowed to 24 advertise the fact that the money goes to 25 education, and only because it is part of a huge WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 122 TEXAS LOTTERY COMMISSION - 4-26-01 1 budget that we only contribute a very small amount, 2 so... 3 COMMISSIONER CRINER: Please excuse 4 me. 5 MS. CLOUD: That's okay. We would 6 very much like to do that. 7 The FTEs 309, active FTEs. We have 8 22 vacant positions. There are four positions of 9 the 22 that are in the selection/acceptance 10 pending. We have 13 recruiting, screening, and 11 interviewing. We have one position being processed 12 for posting at this time, and we have four vacant 13 positions with no HR activity at this time. 14 At this time, on your report that's 15 in your booklets, Jim has added information at the 16 bottom as to what our recruiting efforts are. And 17 this will give you a detail of what HR is doing to 18 try to get our message out that we have open 19 positions and employment opportunities here at the 20 Lottery. And now -- 21 CHAIRMAN CLOWE: Before you leave 22 this, Linda -- 23 MS. CLOUD: Okay. 24 CHAIRMAN CLOWE: -- where are you on 25 the IT director? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 123 TEXAS LOTTERY COMMISSION - 4-26-01 1 MS. CLOUD: Patsy? 2 CHAIRMAN CLOWE: You can come up, 3 too, if you want to. 4 MS. HENRY: Good afternoon. My name 5 is Patsy Henry. I'm the deputy executive director. 6 The IT position interviews are 7 almost complete. We have one more interview to 8 conduct next week that has been rescheduled. And 9 then we're prepared to recommend a smaller group 10 for Linda and, I believe, Jim, to do a second tier 11 of interviews on approximately six or seven people. 12 And then I think after that, we'll be ready to make 13 an offer. 14 CHAIRMAN CLOWE: How long has this 15 process been going on? 16 MS. HENRY: We first posted the 17 opening in December when Robert Bell informed us 18 that he was going to be retiring and had selected 19 his retirement date. We started getting 20 applications in earnest -- we really started 21 getting a good number of applications in February. 22 It was really slow up until that point. And then 23 we got -- let's see, what is our total, Jim? 24 You're not sure? 25 I think we've gotten in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 124 TEXAS LOTTERY COMMISSION - 4-26-01 1 neighborhood of 70 applications for the IT 2 position, and most of those have come in within the 3 last 60 days. 4 CHAIRMAN CLOWE: Is that a problem, 5 where people are making applications for employment 6 and we go through this process that takes 60 to -- 7 sounds like 120 days, and -- you know, do they 8 drift away from us and go somewhere else? 9 MS. HENRY: Well, this group has 10 not. It has not drifted. And in our interviews, 11 we have asked them to keep us apprised of their 12 search efforts and if their status changes or if 13 they choose to withdraw. And we have not heard 14 from anyone that we've interviewed that they wish 15 to withdraw. We have heard from some of the 16 applicants that changed their mind before they were 17 contacted. But for the most part, I think the 18 market is to our advantage right now, and they're 19 waiting to hear from us. 20 MS. CLOUD: I think we have received 21 a group of applicants in the last few weeks -- 22 probably has a lot to do with a lot of the dot-com 23 companies reducing their force -- that have been 24 little bit higher qualified for this particular 25 position. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 125 TEXAS LOTTERY COMMISSION - 4-26-01 1 We're not only looking for someone 2 who is experienced in all the areas we need them to 3 be experienced in based on IT director; they need 4 to be good managers to manage this division, and 5 they need to have some vision as to where we're 6 going with the lottery and with the vendors. 7 CHAIRMAN CLOWE: Well, two comments 8 come to mind. 9 First of all, I would think we would 10 do everything we could to expedite the process and 11 not keep job hopefuls waiting any longer than it is 12 absolutely necessary to qualify them and to vet 13 them and make a decision. If it takes us four 14 months from the time we close the postings, I would 15 say that's probably too long. And we ought to do 16 everything that we can to give people answers about 17 potential employment prior to that length of time. 18 In this case, it appears the market 19 may have rolled a little bit in our favor. But the 20 concern I have about that is, if we take somebody 21 in who has been the subject of a reduction in force 22 who is overqualified and is using this position as 23 a stopover, then when the market firms up, which I 24 think it will, we may not have a long-term 25 employee. And I'm sure the committee is taking WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 126 TEXAS LOTTERY COMMISSION - 4-26-01 1 that into consideration, thinking long term in its 2 employment goals. 3 MS. HENRY: We are. And I think the 4 length of time that this has been posted, it is -- 5 it has been posted as open until filled, so we 6 didn't have an ending date to close it off. But 7 the other thing was that when we weren't getting 8 very many applications in, we started adjusting our 9 approach to posting it and to informing the market 10 that was out there of its availability. 11 And I think our most successful 12 response, in terms of volume, came when we did a 13 direct E-mail to members of the Texas Association 14 of State Supported Computer Centers. Those were 15 people that have state experience. Many of them 16 are managers and directors within other state 17 agencies. 18 We got a lot of response to that, 19 not necessarily just individuals who are already 20 placed within other state agencies, but the word 21 got out through those individuals to other folks 22 who had been at those state agencies in managerial 23 positions but had not been aware of the position. 24 So we sort of adapted our 25 recruitment methods in order to increase our pool, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 127 TEXAS LOTTERY COMMISSION - 4-26-01 1 and I think that made a really big difference. 2 CHAIRMAN CLOWE: Okay. 3 Anything you want to add? 4 MR. RICHARDSON: Yes. I have a 5 couple of comments. I'm Jim Richardson, the human 6 resources director. 7 Three comments. One is, it's pretty 8 normal for our positions to run about 60 to 90 9 days. In the normal, best-world situation, it 10 takes about 35 working days for us to fill a 11 position. That's ten days of posting, ten days of 12 background investigation, ten days of interviewing 13 and scheduling, things of that nature. 14 And then, one of the things we do to 15 offset losing applicants after we do selections, we 16 send out a letter to them, a very carefully crafted 17 letter that says, "You have been selected as one of 18 the top candidates. Please don't go get another 19 job while we're doing your background 20 investigation." 21 So those are things we are doing to 22 try to offset some of the... 23 CHAIRMAN CLOWE: Ha, ha, ha. 24 MR. RICHARDSON: Right. 25 CHAIRMAN CLOWE: Put some money WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 128 TEXAS LOTTERY COMMISSION - 4-26-01 1 behind that, and we can -- 2 MR. RICHARDSON: Right. 3 MS. CLOUD: And the other one that 4 concerns me is the assistant director position 5 we've had open for almost a year in financial 6 administration. We've not been able to fill that 7 one. 8 CHAIRMAN CLOWE: That was my next 9 area of -- 10 MR. RICHARDSON: Well, and we're 11 just -- 12 CHAIRMAN CLOWE: Before we leave 13 this, you have a wonderful resource now, 14 Commissioner Criner. This is his bailiwick. And 15 not that I'm suggesting you ask him who to hire, 16 but this is his field of expertise, so you ought to 17 call on him for policy and advice. 18 MS. HENRY: We did let him know that 19 we had that position there if he knew of any good, 20 qualified candidates. And we will tap him in the 21 future. 22 CHAIRMAN CLOWE: Well, it goes 23 beyond that. It goes beyond that. 24 MS. HENRY: I know. 25 CHAIRMAN CLOWE: Okay. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 129 TEXAS LOTTERY COMMISSION - 4-26-01 1 MR. RICHARDSON: One of the things 2 we're doing for the financial division in general 3 is that this Saturday, we're going to be hosting 4 our second job fair. It is basically characterized 5 as a financial job fair. 6 And we've done some heavy 7 recruiting, to include sending out personal 8 invitations to about 680 individuals in state 9 government at other agencies. We've sent them all 10 of the postings that are open and an invitation to 11 come to the job fair. So we're doing some pretty 12 heavy recruiting for all of those financial 13 positions. 14 CHAIRMAN CLOWE: Bart, I'd like to 15 hear from you. You spoke to us at the last 16 meeting. How short are you, and how much 17 outsourcing are you having to do? 18 MR. SANCHEZ: Good afternoon, 19 Commissioners. My name is Bart Sanchez. I'm the 20 financial administration director. 21 As of right now, I have six 22 vacancies, and most of them are at the top level. 23 Financial managers, budget supervisors, senior 24 accountants and, of course, the assistant director. 25 But I'm pretty -- I'm cautiously WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 130 TEXAS LOTTERY COMMISSION - 4-26-01 1 optimistic, as I sit here right now, that with the 2 market downturn, I see more turnout of more 3 qualified, high-caliber applicants than we've had. 4 And we're conducting the screening right now. And 5 I think hopefully, with this job fair, I'll 6 hopefully see more. 7 And as of right now, I have about 8 six and a half temporary contractors that about 9 half of them are looking for permanent positions. 10 So, you know, that's going to help me. Hopefully, 11 I won't have to wait for the 60 to 90 or 120 days 12 before I start offering some offers on these 13 positions. 14 CHAIRMAN CLOWE: So you have five 15 positions open now? 16 MR. SANCHEZ: I have six. 17 CHAIRMAN CLOWE: Six. And it looks 18 like, on this document I have, four of them are 19 senior positions. 20 MR. SANCHEZ: Correct. 21 CHAIRMAN CLOWE: Well, I urge you to 22 work on that. We're going to keep asking you about 23 it. 24 MR. SANCHEZ: I understand that. 25 CHAIRMAN CLOWE: And I hope your job WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 131 TEXAS LOTTERY COMMISSION - 4-26-01 1 fair is successful. 2 MR. RICHARDSON: I think it is. The 3 last time, we had pretty good success. This time, 4 we've done quite a bit more advertising and 5 targeted financial people across the State of 6 Texas. At the last job fair, which was on 7 November 11th, we actually had about 89 applicants 8 show up. We received 69 applications, and we hired 9 two people from that job fair that day. 10 MS. HENRY: But only two of those 11 applications were for financial positions. 12 CHAIRMAN CLOWE: It's been a tough, 13 tough labor market, and Austin has been a very 14 tough place to hire good people. But I think we've 15 got a combination of benefits, stability, and 16 growth that you're going to have to sell. 17 MR. RICHARDSON: Well, you know, 18 from the dot-coms or the people that I've spoken to 19 that have been laid off, the key they're looking 20 for now is stability. Having been laid off scares 21 them. It's the first time it's ever happened to 22 them, and it's a scary thing. 23 CHAIRMAN CLOWE: It is. And there 24 is some reality coming not only to those folks, but 25 to the stock market and some other things. But -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 132 TEXAS LOTTERY COMMISSION - 4-26-01 1 COMMISSIONER WHITAKER: That already 2 came. 3 CHAIRMAN CLOWE: Sorry about that. 4 But you need to take that into 5 account now as you go through your hiring practice 6 and find that person that's going to be a long-term 7 employee that wants to be associated with a 8 government agency and is the right chemistry fit 9 into this organization, because turnover is very 10 expensive and very hurtful to an organization. 11 It's what you're going through right now, Bart. 12 MR. SANCHEZ: Yes, sir. 13 CHAIRMAN CLOWE: And I can't help 14 but think -- I know Chuck is doing a great job as 15 acting director of IT, but a temporary director is 16 not the same as, "This is the person who is the 17 director, and this person is going to reorganize 18 and put everybody in the right spot and go 19 forward." 20 There is a need for permanency, I 21 think, in that kind of situation. So I want you to 22 understand the commissioners are interested in this 23 and are focused on it, and we're going to keep 24 asking you about it. 25 MR. RICHARDSON: Well, It remains to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 133 TEXAS LOTTERY COMMISSION - 4-26-01 1 be a priority of ours, and I think we're going to 2 do real well with the job fair. 3 CHAIRMAN CLOWE: Good. I appreciate 4 it. 5 MR. RICHARDSON: That's from 9:00 to 6 3:00 if anybody wants to stop by. 7 CHAIRMAN CLOWE: Sounds good to me. 8 Anything else? 9 COMMISSIONER WHITAKER: Huh-uh. 10 CHAIRMAN CLOWE: Thank you very 11 much. 12 Go ahead, Linda. 13 MS. CLOUD: Robert, do you want to 14 come up? Robert has his HUB report. 15 MR. HALL: Good evening, 16 Commissioners. For the record, my name is Robert 17 Hall, the director of minority development. 18 I have provided you, in your 19 documentation, the report for our minority 20 participation, which indicates our overall 21 utilization is 10.82 percent. And I also have 22 provided for your review and discussion today a 23 copy of a memorandum from myself to you, the 24 commissioners, Executive Director Ms. Cloud, our 25 bingo director, and also Ms. Henry, in regards to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 134 TEXAS LOTTERY COMMISSION - 4-26-01 1 the statewide semiannual HUB report and analysis of 2 total expenditures for the first six months of the 3 year. 4 In addition, I've included one other 5 document, which relates to our efforts to 6 participate in the state agency on the HUB 7 discussion group. And we are doing that, and we've 8 received a response from the General Services 9 Commission to support that effort on behalf of the 10 Lottery Commission. They have an opportunity to 11 review the information. 12 And I'll be happy to answer any 13 questions you may have. 14 COMMISSIONER CRINER: Mr. Hall? 15 MR. HALL: Yes, sir. 16 COMMISSIONER CRINER: What's our 17 objective for HUB participation? And this is the 18 question I have: We're at 10.8. What are we 19 trying to get to? 20 MR. HALL: Well, there are two 21 goals. I don't really have a main objective for 22 the overall percentile. We want to increase from 23 where we were previously. A study in the 24 historical perspective in terms of the statewide 25 percentages -- and can we turn to our report? I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 135 TEXAS LOTTERY COMMISSION - 4-26-01 1 hope I can answer your question. 2 COMMISSIONER CRINER: I've gone 3 through all your reports. 4 MR. HALL: You have? 5 COMMISSIONER CRINER: Yes. I know 6 you, see, so I make sure I've read all these 7 reports. 8 MR. HALL: There is one report with 9 a memorandum dated April 19th, and it is a 10 comparison -- there's three reports, and one report 11 identifies the statewide goals, and it's a 12 statement of procurement goals. Are you there, 13 sir? 14 COMMISSIONER CRINER: Yes, sir. 15 MR. HALL: And with those specific 16 goals in the HUB report, we are trying to meet or 17 exceed the actual goal -- if you look at heavy 18 construction; it's the first category -- 19 11.9 percent. 20 Now, we don't have any strategies in 21 the area of construction, but we do in the area of 22 special trade and professional services and other 23 services and commodities. We are, by all means, 24 trying to meet or exceed those goals in accordance 25 with HUB rules when it comes to statewide WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 136 TEXAS LOTTERY COMMISSION - 4-26-01 1 participation. And when it comes to the lottery, 2 we have adopted those same goals for our own 3 minority participation guidelines. 4 COMMISSIONER CRINER: Okay. That 5 answers my question. 6 There is one thing I'd like to share 7 with you. Being a HUB vendor myself, I've always 8 been concerned -- you know, who really cares if you 9 provide quality service. So consequently, with one 10 of my customers, we decided that HUB vendors ought 11 to grow and become prime vendors; and how do you do 12 that. 13 And so I was part of that 14 development process, and it was just kind of a 15 discussion over a napkin, how you bring HUBs in. 16 It's nice to be a HUB, but the concept is, when do 17 you become a prime. 18 MR. HALL: Right. 19 COMMISSIONER CRINER: And so 20 everybody that I'm involved with today -- since we 21 did it, it worked, we know it worked -- is -- 22 okay -- we have HUBs. You don't need to be a HUB 23 all your life. So how do you become a prime. 24 MR. HALL: Right. 25 COMMISSIONER CRINER: And putting WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 137 TEXAS LOTTERY COMMISSION - 4-26-01 1 programs together that help the subs -- the HUBs 2 not be so much subs in the future, but become 3 primes. It turns out to be just a wonderful 4 win-win for everyone. 5 And when we did it, the prime says, 6 "You mean I'm going to teach Criner how to be my 7 competition?" And we said "No. You're going to be 8 Criner's sub." And it just kind of took care of 9 everything. 10 And there were places that my 11 company could go and bid on business that they 12 wouldn't even think about or they had no idea it 13 was there, and they could become my sub. So it's a 14 very good relationship, if you think about it. 15 MR. HALL: Right. 16 COMMISSIONER CRINER: And a lot of 17 times, the primes will say, "You know, I've always 18 got to stick this HUB on the end of this to make it 19 work." Well, it's not that way. You know, it's a 20 win-win situation for everybody, and sometimes you 21 have to educate those folks who are not educated 22 about it, why it really works. 23 And if you can show -- help the 24 primes understand that having HUB with you today, 25 they may beat us up tomorrow with the HUB. But WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 138 TEXAS LOTTERY COMMISSION - 4-26-01 1 you've got to develop that kind of developmental 2 process for that HUB to grow. And they just need 3 to use all of the resources that the state has to 4 offer: economic development, comptroller's office, 5 all those people that you and I know together -- 6 MR. HALL: Right. 7 COMMISSIONER CRINER: -- to help you 8 help them grow, because they don't know. 9 And I was telling Linda and 10 Mr. Chairman that one of my greatest pleasures was 11 to go to Paris; not just to go to Paris to visit, 12 not to go to Paris to do business, but to go to 13 Paris to represent the State of Texas and learn 14 that the Paris Chamber of Commerce had 4,200 15 employees, it had six universities, and bragged 16 about the fact that if you go through their 17 program, you are a successful business in Paris. 18 And we don't think like that here in 19 America with our Chambers of Commerce and our 20 business groups. And if you really think about it, 21 they teach you how to fill out all the right forms 22 the right way, how to manage your money, how to 23 manage your cash flow -- 24 MR. HALL: Right. 25 COMMISSIONER CRINER: -- they put WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 139 TEXAS LOTTERY COMMISSION - 4-26-01 1 you in touch with the right banks, the whole nine 2 yards, enrolling through one of their different 3 universities. And they're located around the Paris 4 area. 5 So it's just a -- we brought that 6 concept back with us, and we used it in some areas. 7 And by being a vendor myself, I can take it to some 8 of my customers and say, "Yeah, I'm a HUB. But 9 look what I can be if you work with me." 10 And so I've talked to Linda about 11 this, and I'm just bringing it up publicly that it 12 would be one heck of a program with the agency in 13 terms of trying to reach its goals and objectives, 14 to stand up and say that some of our HUBs from the 15 beginning are now primes. 16 MR. HALL: Right. 17 MS. CLOUD: And a prime example of 18 that is our drawing team, our drawing auditors. 19 They had -- they were a HUB subcontractor for 20 PricewaterhouseCoopers, and now they have the 21 contract. 22 COMMISSIONER CRINER: I think it 23 adds some real belief in the HUB program when HUBs 24 become primes. It makes everybody believe and lets 25 everybody just kind of enjoy the whole thing. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 140 TEXAS LOTTERY COMMISSION - 4-26-01 1 MR. HALL: Well, one of the things 2 that we're learning -- first of all, let me say 3 that we definitely would welcome any comments and 4 feedback you have to what we're developing in terms 5 of the Lottery Commission. 6 Secondly, we agree with your 7 concept. In terms of -- we've already had one 8 meeting with the Xerox Corporation, who came in to 9 talk with us about the aspect of trying to increase 10 HUB utilization. And we talked to them, which we 11 had mentioned before -- a mentor/protege, which is 12 a statutory requirement of bringing in HUBs to meet 13 with subcontractors and also meet with primes, who 14 would be the mentors; and the development of 15 long-term relationships, where they can find some 16 way of providing financial assistance or any type 17 of development that they need to so they can assist 18 them in growing to an area where they can be 19 comfortable being a prime contractor. 20 And in addition to that, we want to 21 identify with the prime contractors that we already 22 have, any HUB subcontractors that potentially are 23 doing good work for you. We'd like to know who 24 they are. 25 And we just found an example from WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 141 TEXAS LOTTERY COMMISSION - 4-26-01 1 our HUB reporting initiative. There was one 2 subcontractor from one of our primary vendors who 3 was a second-tier HUB vendor who is receiving over 4 a million dollars in subcontracting. And we did 5 not know that, and we are trying to assist that 6 vendor in becoming HUB certified -- or recertified, 7 I should say. 8 And with that effort, we're trying 9 to see if we want to talk to those type of vendors 10 and see if there is an opportunity for them to 11 become prime contractors or initiate an area where 12 they can be in an area to bid on some of our prime 13 contracts. 14 MS. CLOUD: That's part of what has 15 happened to us, is some of these subs have become 16 primes, but then they're not HUBs anymore and we 17 can't count their dollars. 18 COMMISSIONER CRINER: Yeah, it's a 19 two-way sword, but, you know, everybody wins out of 20 it. 21 CHAIRMAN CLOWE: That's a nice 22 problem to have. 23 MS. CLOUD: Yeah. 24 CHAIRMAN CLOWE: We're about to pass 25 to Robert. I see those letters are in your section WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 142 TEXAS LOTTERY COMMISSION - 4-26-01 1 of the book. Are we now waiting on a next response 2 about that? 3 MR. HALL: I think so. 4 MS. KIPLIN: Yes. 5 CHAIRMAN CLOWE: Okay. Very good. 6 Anything further? 7 MR. HALL: No, sir. And I'll be -- 8 if there are no other questions, I'll be happy to 9 give you an update. 10 CHAIRMAN CLOWE: Any further 11 questions? 12 Thank you. 13 MR. HALL: Thank you. 14 MS. CLOUD: Commissioners, on our 15 retailer town hall meetings, we have a town hall 16 meeting next week in Irving. The next day, several 17 of us are going on up to Lubbock. I think we've 18 told you before about us working -- being requested 19 to work with Texas Tech students on developing 20 advertising. 21 CHAIRMAN CLOWE: You're kind of 22 going on out to Lubbock, aren't you? 23 MS. CLOUD: On out to Lubbock, or on 24 down to Lubbock. What did I say, down to Lubbock? 25 CHAIRMAN CLOWE: Lubbock -- it's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 143 TEXAS LOTTERY COMMISSION - 4-26-01 1 going to be Lubbock, Oklahoma. 2 MS. CLOUD: Okay. Well, out to 3 Lubbock, over to Lubbock. Okay. Well, I didn't 4 have my map in my mind, I guess. 5 But we're working with Texas Tech 6 students. We've allowed them -- as a project, as 7 an educational project -- to come up with 8 advertising campaigns. And we gave them a 9 beneficiary campaign, which we know we won't have a 10 real hard time using. But we were interested in 11 seeing what they could come up with. And they have 12 their project completion, and we're to go judge it 13 for them on that day. 14 So I think there are six different 15 campaigns that we're going to be looking at. 16 Toni's staff will be the judges, and I'll be there 17 just to watch and support. But this has been a fun 18 project for all of us to participate in, and I will 19 let you know at the next meeting how it turned out. 20 CHAIRMAN CLOWE: We need to hear 21 that. 22 MS. CLOUD: Right. Yeah. 23 And that completes my report. 24 CHAIRMAN CLOWE: Any questions for 25 Linda? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 144 TEXAS LOTTERY COMMISSION - 4-26-01 1 Thank you. 2 Billy, are you ready to give us your 3 report? 4 MR. ATKINS: I am, Commissioners. 5 I'm happy to report that if 6 everything stays the course, as of Monday, 7 April 30th, the division will be fully staffed. 8 We'll have the vacancies that we've had -- the 9 audit positions in Dallas filled and those people 10 on board, and we're very excited about that. 11 We continue with our operator 12 training program. We started our fourth phase this 13 month and are continuing with that. 14 The last thing that I wanted to draw 15 your attention to is the different bingo articles 16 in the book; draw your attention to some of those 17 to make sure Commissioners Whitaker and Criner are 18 aware of this. 19 There is a brewing controversy in 20 the City of Lubbock regarding a proposed complete 21 nonsmoking ordinance in the City of Lubbock. And 22 Virginia Bracket, the vice chair of the bingo 23 advisory committee, is from Lubbock and has been in 24 contact with me in order to get some statistics, 25 et cetera, as our bingo operators in the Lubbock WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 145 TEXAS LOTTERY COMMISSION - 4-26-01 1 area are very concerned. So we continue to monitor 2 that. 3 And finally, I have included a 4 newspaper article as well as legislation from 5 California. California is considering statewide 6 oversight of bingo, giving that authority to the 7 California Gaming Commission. Currently, bingo in 8 California is regulated on a local option basis. 9 So this would create a structure, we think, similar 10 to what we have here in Texas, where all games 11 would be regulated by one agency. 12 And one of the things that we 13 discussed in the past is, states such as California 14 and Florida are governed on a local option basis. 15 So those are states -- for instance, the lottery 16 normally looks to those states for comparisons, but 17 we're not able to, since they're regulated on a 18 local basis. 19 And that's all I have for my report. 20 CHAIRMAN CLOWE: Billy, has 21 Commissioner Criner had the PowerPoint presentation 22 that you gave the Commission prior to his joining 23 us, on bingo operator training? 24 MR. ATKINS: He -- no. He hasn't 25 had the specific PowerPoint presentation that we WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 146 TEXAS LOTTERY COMMISSION - 4-26-01 1 gave on our training efforts. We did spend an 2 afternoon with Commissioner Criner. I gave him a 3 broad overview of all the -- 4 CHAIRMAN CLOWE: I'm sure you gave 5 him a very good briefing. But I think that's one 6 of the things that comes up in a repetitious manner 7 about bingo operations, and it will stand him in 8 good stead if you would just give him a hard copy 9 and give him a little explanation of that training 10 program. 11 I think it's excellent. I think 12 Commissioner Whitaker and I were impressed by it, 13 and it would put him in, I think, a good position 14 when people talk to him about bingo operations or 15 when it's necessary -- as he has begun today to 16 vote on bingo issues -- where that compliance is a 17 factor. 18 MR. ATKINS: Okay. 19 CHAIRMAN CLOWE: That was a good job 20 and a good presentation, and I'd like to see him 21 have that. 22 Any questions for Billy? 23 We've come to the end of the formal 24 agenda. Is there any other matter to come before 25 the Commission before we adjourn? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 147 TEXAS LOTTERY COMMISSION - 4-26-01 1 We stand adjourned, then, at 19 2 minutes until 2:00. Thank you all very much. 3 (Proceeding concluded.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 148 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SUZANNE T. LANE, Certified Court 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter 10 set out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the _______ 17 day of ______________, 2001. 18 19 20 SUZANNE T. LANE 21 Texas CSR No. 6992 Expiration Date: 12/31/01 22 1609 Shoal Creek Boulevard Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 010426STL WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363