1 1 2 3 4 5 6 * * * * * * * * * * * * * * * * * 7 8 TEXAS LOTTERY COMMISSION 9 MEETING 10 11 JULY 18, 2000 12 13 * * * * * * * * * * * * * * * * * 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 18TH of JULY, 2000, 21 from 8:30 a.m. to 11:55 a.m., before Brenda J. Wright, 22 RPR, CSR in and for the State of Texas, reported by 23 machine shorthand, at the Offices of the Texas Lottery 24 Commission, West 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 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Ms. Elizabeth D. Whitaker Mr. Anthony J. Sadberry 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Executive Director: Ms. Linda Cloud 9 Charitable Bingo Operations Director: 10 Mr. Billy Atkins 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 1 INDEX 2 3 Appearances...................................... 2 4 AGENDA ITEMS 5 Item Number 7.................................... 4 6 Item Number 14................................... 5 55 7 Item Number 15................................... 6 Item Number 16................................... 10 8 Item Number 18................................... 20 Item Number 19................................... 45 9 Item Number 2.................................... 78 Item Number 4.................................... 83 10 Item Number 5.................................... 84 Item Number 6.................................... 85 11 Item Number 9.................................... 85 Item Number 8.................................... 90 12 Item Number 11................................... 92 Item Number 12................................... 95 13 Item Number 13................................... 96 Item Number 17................................... 101 14 Item Number 22................................... 108 Item Number 23................................... 111 15 Item Number 24................................... 114 16 Reporter's Certificate........................... 115 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 1 CHAIRMAN CLOWE: Good morning. I would 08:47 2 like to call the meeting of the Texas Lottery 08:47 3 Commission for July 18th, 2000 to order. It is 8:34 08:47 4 a.m. My name is C. Tom Clowe, Junior. Thank you all 08:47 5 for being here. I would like to acknowledge 08:47 6 Commissioner Sadberry and Commissioner Whitaker, are 08:47 7 here. We have a full panel of Commissioners. 08:47 8 This morning, because we have a number 08:47 9 of individuals who have traveled to Austin to appear 08:47 10 before the Commission, we're going to take some items 08:47 11 on the agenda out of order. And in beginning, I will 08:47 12 call your attention to item number seven, which is an 08:47 13 important item that we want to deal with first, 08:47 14 consideration of and possible discussion and/or action 08:47 15 on the agency's Strategic Plan for fiscal years 2001 08:47 16 through 2005. 08:47 17 Patsy Henry, will you come forward and 08:47 18 present that. 08:47 19 MS. HENRY: Good morning, Mr. Chairman, 08:47 20 members. My name is Patsy Henry. I'm the deputy 08:47 21 executive director of the Lottery Commission. 08:47 22 The item up for consideration now is 08:47 23 the revised version of the agency's Strategic Plan for 08:47 24 2000-2005. You received a draft with revisions last 08:47 25 week. We incorporated new language with regard to 08:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 1 Internet sales and a paragraph on winners within our 08:47 2 profile of customers. That would be on page ten, for 08:47 3 the Internet gaming implications as an emerging issue. 08:47 4 And on page 21, begins the section on operations, and 08:48 5 the actual addition that we made was on page 23, 08:48 6 Lottery winners. Other than those two additions, 08:48 7 the -- there are no additional changes to those that 08:48 8 we laid out for you at the last meeting. And unless 08:48 9 you have other things that you want to deal with, 08:48 10 regarding this, we would appreciate your adoption of 08:48 11 it. 08:48 12 CHAIRMAN CLOWE: Questions? 08:48 13 Is there a motion. 08:48 14 COMMISSIONER WHITAKER: So moved. 08:48 15 COMMISSIONER SADBERRY: I would second. 08:48 16 CHAIRMAN CLOWE: All in favor of the 08:48 17 adoption of the Strategic Plan of the agency, years 08:48 18 2001 through 2005, please say aye. Opposed, say no. 08:48 19 Let the record reflect that there is a 08:48 20 three-zero adoption. 08:48 21 Thank you, Patsy. 08:48 22 The next item we'll consider is item 08:48 23 number 14, consideration of and possible discussion 08:48 24 and/or possible action, including issuance of a 08:49 25 procurement document or extension of the contract, on 08:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 1 the minority market advertising services contract. 08:49 2 Linda Cloud. 08:49 3 MS. CLOUD: Commissioners, Mr. King was 08:49 4 supposed to be here, and I don't think he has made it 08:49 5 yet. Could we pass this one and take up -- give him 08:49 6 just a little more time? 08:49 7 CHAIRMAN CLOWE: We can and will do 08:49 8 that, Linda, and see if he arrives. Are you ready to 08:49 9 deal with item 15 now? 08:49 10 MS. CLOUD: Oh, yes. General market 08:49 11 advertising. 08:49 12 Commissioners, our contract with 08:49 13 general market advertising would be up for either 08:49 14 extension or go back out for bid August 31st. It's my 08:49 15 recommendation to the Commission that we extend this 08:49 16 contract for another 12-month period. This is the 08:49 17 contract that is now being held by Fogarty & Klein. 08:50 18 And we've been -- we worked well together this year, 08:50 19 and so it would be advantageous to the Commission, I 08:50 20 believe, for us to extend this contract for another 08:50 21 year. 08:50 22 CHAIRMAN CLOWE: Any questions? 08:50 23 COMMISSIONER SADBERRY: Linda, was it a 08:50 24 one-year term? 08:50 25 MS. CLOUD: No, sir. It was -- yes. 08:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 1 Ridgely. Ridgely needs to give the details of this. 08:50 2 MR. BENNETT: Good morning, 08:50 3 Commissioners. For the record, my name is Ridgely 08:50 4 Bennett. I'm the deputy general counsel. 08:50 5 Commissioner Sadberry, in response to 08:50 6 your question, the contract has an initial term of one 08:50 7 year with two one-year options to renew. 08:50 8 COMMISSIONER SADBERRY: Yeah. I left 08:50 9 out, I guess, a major word that was important. Was 08:50 10 the initial term one year. I guess the only question, 08:50 11 perhaps a parenthetical comment, is the -- for the 08:50 12 public's perception and for the Legislature's 08:50 13 perception and our leaders' perception, we have seemed 08:51 14 to come sort of full circle, see if I'm right or wrong 08:51 15 here Linda, where initially it seemed as though we had 08:51 16 a trend of extension, not iron clad, but that seemed 08:51 17 to be the data, empirically speaking, after which we 08:51 18 went to virtually, not automatic, but virtually 08:51 19 assured rebidding at the expiration of the first 08:51 20 primary term, even where extensions were in place. 08:51 21 And now it seems that we are -- your staff and you, 08:51 22 Linda, are exercising discretion or judgment where you 08:51 23 think appropriate not to go to rebid at every point. 08:51 24 Am I generally accurate in my perception there? 08:51 25 MS. CLOUD: Yes, sir. I think we still 08:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 1 need to leave that option there for us to decide to 08:51 2 whether rebid or to extend, but I think on the major 08:51 3 contracts, it is an extreme amount of work for this 08:52 4 agency to -- to work up an RFP and go through the 08:52 5 process. I think it's a lot more beneficial, if a 08:52 6 vendor is doing what we require them to do and are 08:52 7 compliant with the contract, that we look at the 08:52 8 option of extending. And that's what I'm looking at 08:52 9 in this case with Fogarty. The option should be 08:52 10 there. But I think that was -- I think that's another 08:52 11 agenda item that we've got on this Commission today 08:52 12 about me getting guidance from you as to where we want 08:52 13 to go from here, because it is a burden for staff to 08:52 14 have to work up these major contracts annually, go out 08:52 15 for bid, and procure new vendors every year. 08:52 16 COMMISSIONER SADBERRY: Well, I won't 08:53 17 get ahead of the agenda in that respect. I'll ask one 08:53 18 follow-up question if I may, then. Would your 08:53 19 decision or the action of you or your staff on this 08:53 20 matter be affected at all, in your judgment, on what 08:53 21 disposition, if any, is made on the King contract? 08:53 22 MS. CLOUD: Well, the King contract, 08:53 23 and Mr. King was going to address the Commission 08:53 24 today, some of our decision based on the King's 08:53 25 contract and the recommendation that I made at the 08:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 1 last Commission meeting was based on his concern that 08:53 2 the contract was financially not beneficial for him. 08:53 3 And it was a way that we had to look at this contract 08:53 4 and decide whether we wanted to hold a vendor to the 08:53 5 contract terms or rebid. But I think he's going to be 08:53 6 talking to the Commission today when he gets here 08:53 7 about a change in direction on that, so... 08:53 8 COMMISSIONER SADBERRY: Well, I'll wait 08:53 9 for that, also. 08:54 10 MS. CLOUD: Okay. But it -- the 08:54 11 recommendation under different circumstances with the 08:54 12 King Group probably would have been to extend as well. 08:54 13 CHAIRMAN CLOWE: Is action required on 08:54 14 this item? 08:54 15 MS. KIPLIN: I think it would be 08:54 16 because that would be consistent with past Commission 08:54 17 practice regarding major contracts that you all would 08:54 18 like to be involved in the decision whether to extend 08:54 19 or whether to issue a procurement. 08:54 20 CHAIRMAN CLOWE: Is there a motion? 08:54 21 COMMISSIONER SADBERRY: I would so 08:54 22 move. 08:54 23 COMMISSIONER WHITAKER: Second. 08:54 24 CHAIRMAN CLOWE: Moved and seconded to 08:54 25 extend the contract per the request the executive 08:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 1 director. All in favor please say aye. Opposed, no. 08:54 2 The vote is three-zero to approve. 08:54 3 Are you ready on the next item, Linda? 08:54 4 MS. CLOUD: The production studio? 08:54 5 CHAIRMAN CLOWE: Yes. Item number 16. 08:55 6 MS. CLOUD: Yes. Again, we're at a 08:55 7 point with the production studio that we would need to 08:55 8 ask for an extension. However, I want to make the 08:55 9 Commission aware that we are very close to going out 08:55 10 for bid on a production studio environment within our 08:55 11 own -- within the Lottery Commission. So I would like 08:55 12 you to -- to understand that we're working toward 08:55 13 bringing this particular contract in-house. But it 08:55 14 will require us to go out for an extension. Maybe not 08:55 15 for the full 12 months. 08:55 16 MR. BENNETT: Commissioners, the 08:55 17 contract has a term of one year with a one-year 08:55 18 extension. As the executive director has pointed out, 08:55 19 we're in the process of drafting a new RFP. And that 08:55 20 is going to be a time-consuming process because not 08:55 21 only would there have to be an RFP issued, but there 08:55 22 would have to be subsequent performance under a 08:56 23 contract before we could actually bring in the studio 08:56 24 in-house. So we're planning ahead in this case when 08:56 25 we extend the contract to be able to do that type of 08:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 1 thing. 08:56 2 COMMISSIONER SADBERRY: Ridgely or 3 Linda, this would not affect our FTE standing? 08:56 4 MR. BENNETT: I believe the executive 08:56 5 director would have to -- 08:56 6 MS. CLOUD: No. 08:56 7 COMMISSIONER SADBERRY: And it would 08:56 8 not affect any implied or express contract or 08:56 9 understanding we have, to your knowledge, with our 08:56 10 state leaders and the legislature as to what we are 08:56 11 doing in-house and what we are not doing -- 08:56 12 MS. CLOUD: We have been requested by 08:56 13 Mr. Hawkins with the Governor's Budget Board to 08:56 14 present some financial expense numbers. We can't do 08:56 15 this until this bid actually goes out and we get bids 08:56 16 back to know what that cost is going to be, but I 08:56 17 think it's going to be a tremendously big savings to 08:56 18 the State. We're hoping that we can put this -- at 08:56 19 the initial onset, set this studio up in-house for 08:57 20 less than a million dollars, and right now we're 08:57 21 paying a million eight a year on this contract. And 08:57 22 that's part -- that's setup. That's buying equipment, 08:57 23 that's setting it up. 08:57 24 COMMISSIONER SADBERRY: So are you 08:57 25 saying that with the one-year extension right, there 08:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 1 is some provision that is going to be anticipated or 08:57 2 exist in the contract to actually operate less than a 08:57 3 full year on the extension? 08:57 4 MR. BENNETT: It is not in the 08:57 5 contract. The contract states that the Lottery at its 08:57 6 sole option may extend the contract for another 08:57 7 one-year period. It would take an agreement of both 08:57 8 parties to extend for a lesser period. 08:57 9 COMMISSIONER SADBERRY: You're going to 08:57 10 extend for one year? 08:57 11 MS. CLOUD: We will have to extend for 08:57 12 one year, unless we can get the vendor to agree to do 08:57 13 it for less. At least that buys us enough time to get 08:57 14 our -- our bids out, our costs back in, and actual -- 08:57 15 the studio production. 08:58 16 COMMISSIONER SADBERRY: Is it probable 08:58 17 that most of the one year would be used up in the 08:58 18 process of bidding and contracting. 08:58 19 MS. CLOUD: We -- that is hard to say. 08:58 20 The projections we've got is it won't take that long 08:58 21 once the bids are out and we get a legitimate bidder 08:58 22 to help us set this up. But, you know, to be safe, 08:58 23 we've got to have a studio, we don't have an option 08:58 24 about that. So if we have to sign a one-year 08:58 25 contract, we would have to sign it. 08:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 1 MR. BENNETT: And as a point of 08:58 2 clarification, the procurement process itself would 08:58 3 probably take an additional two, two and a half 08:59 4 months, but of course there would have to be 08:59 5 subsequent performance under the contract, the vendor 08:59 6 would have to purchase equipment, install equipment, 08:59 7 and do a number of things. I believe there is even 08:59 8 additional construction that would have to be 08:59 9 completed at the warehouse before we put the studio 08:59 10 in-house. 08:59 11 MS. CLOUD: We're looking at two 08:59 12 alternatives for the location, one is at the warehouse 08:59 13 where we talked about before. Another location would 08:59 14 be right here where our winners' lounge is. We have 08:59 15 run some ideas about putting it there. If we had the 08:59 16 robotic cameras like we're looking at, the space is 08:59 17 not as critical, we don't need as big a space. 08:59 18 COMMISSIONER SADBERRY: Mr. Chairman, I 08:59 19 don't want to belabor this. For purposes of the 08:59 20 record and reporting, and particularly given the 08:59 21 Governor's Office is interested in the cost issue, I 08:59 22 take it would we would be in a position to answer any 08:59 23 questions about the timing on this procurement and why 08:59 24 we are here and needing to exercise this option, given 08:59 25 what we need to do. 09:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 1 MS. CLOUD: Yes, sir. Once the bids 09:00 2 are back, we would have a good time line on how long 09:00 3 it would take. 09:00 4 COMMISSIONER SADBERRY: Maybe I'm not 09:00 5 being clear. Are we able to answer why we're at this 09:00 6 point, going out for bid on this item as opposed to 09:00 7 doing it earlier? 09:00 8 MS. CLOUD: Well, Commissioners, we -- 09:00 9 a couple of years ago, we attempted -- we did a due 09:00 10 diligence study on the studio, we went before both 09:00 11 Budget Boards at that time to attempt to get approval 09:00 12 to go forward with this project. And at that time, we 09:00 13 were saving the State close to a million a year, and 09:00 14 we wasn't looking at robotic cameras. We -- and we 09:00 15 were looking at an FTE issue because it was going to 09:00 16 take more FTEs at the time, and it didn't set well. 09:00 17 And so then we had to go back to the drawing board, 09:00 18 and other lotteries have put this type of studio in 09:00 19 and it's cost effective and it's working well for 09:00 20 them, so we've looked at that. Kentucky has very 09:01 21 similar to what we're looking at. 09:01 22 We're going to put this bid out and 09:01 23 then -- hopefully, within the next week, and we'll get 09:01 24 bids back on it. We'll have -- in the bids, we will 09:01 25 have a pretty good idea of how long it's going to take 09:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 1 to do what we're asking to do and how much money it's 09:01 2 going to take. Then I'm planning to set up meetings 09:01 3 with budget offices and go back with this information 09:01 4 before we move forward. 09:01 5 MR. BENNETT: And Commissioner, the 09:01 6 agency has not sat still during the past year. We 09:01 7 have had staff talk with other lotteries and do due 09:01 8 diligence before coming together to draft an RFP. So 09:01 9 we have a good understanding of what needs to go into 09:01 10 the contract documents. 09:01 11 MS. CLOUD: And we have a well 09:01 12 experienced broadcast manager on board at this time. 09:01 13 So at least we've got the expertise in-house now to go 09:01 14 forward with this. 09:01 15 COMMISSIONER WHITAKER: Linda, are you 09:01 16 saying that you don't think we had the expertise until 09:02 17 recently and there -- 09:02 18 MS. CLOUD: Right. We did not have the 09:02 19 expertise in-house. 09:02 20 COMMISSIONER WHITAKER: Which is why 09:02 21 we're talking about it now as opposed to several 09:02 22 months before? 09:02 23 MR. BENNETT: That's one of the factors 09:02 24 that's gone on. 09:02 25 COMMISSIONER WHITAKER: And what's the 09:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 1 status of discussion with the studio, the folks that 09:02 2 have the contract? 09:02 3 MS. CLOUD: Well, they're not happy 09:02 4 about this. They were not happy about this when we 09:02 5 were heading in this direction the last time. But 09:02 6 it's -- I mean, they're -- they're set up and want to 09:02 7 keep the contract. But they -- they've been the only 09:02 8 one bidding on the contract. Every time we go out for 09:02 9 bid, the price is higher. It's just -- we can just do 09:02 10 it, I think, in house a lot cheaper. 09:02 11 COMMISSIONER SADBERRY: Well, you 09:02 12 triggered my -- I knew there was something, I just 09:02 13 couldn't remember what it was. There was the FTE 09:02 14 issue, I believe, that we faced, because I think this 09:02 15 has been aired before in the legislature. 09:02 16 MS. CLOUD: Right. 09:02 17 COMMISSIONER SADBERRY: And I thought 09:02 18 there was an issue with the FTE, but you solved that. 09:03 19 MS. CLOUD: Right. Well, there was 09:03 20 some discussion in the legislature about Elephant 09:03 21 Productions, and they were questioning the ownership 09:03 22 of their studio. And at that time, we had talked to 09:03 23 probably just the budget offices, I think, so we 09:03 24 really hadn't talked to many of the leaders about 09:03 25 making this kind of change. But in our last 09:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 1 appropriations committee meeting, this was brought up 09:03 2 by Representative Heflin. So -- as to what we were 09:03 3 doing. So I would like to continue moving forward in 09:03 4 trying to look at the option of bringing it in-house. 09:03 5 And by doing that, I mean, get the bids, know what our 09:03 6 exposure is. And then if it's not feasible, we won't 09:03 7 do it. 09:03 8 CHAIRMAN CLOWE: What is the current 09:03 9 expiration date of the contract? 09:04 10 MR. BENNETT: The primary term expires 09:04 11 August 31st, 2000 with a one-year option to extend at 09:04 12 the sole option of the Texas Lottery Commission. 09:04 13 CHAIRMAN CLOWE: And are you 09:04 14 comfortable with the process that you described to us 09:04 15 that's underway that you'll be in a position to deal 09:04 16 with the current vendor in a fair and equitable way 09:04 17 when your numbers come in so that they have time to 09:04 18 deal with us? 09:04 19 MR. BENNETT: Yes. And I would like to 09:04 20 point out the time previous when we did issue an RFP 09:04 21 to bring the studio in-house, they were a bidder. So 09:04 22 they may also be interested in doing that once again. 09:04 23 CHAIRMAN CLOWE: We're talking about 09:04 24 really six weeks, aren't we? 09:04 25 MR. BENNETT: For the extension time, 09:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 1 yes. And we have been in contact with them. They 09:04 2 have to buy satellite time in advance and they're 09:04 3 anxious to find out whether they can go out and buy 09:04 4 their satellite time. 09:04 5 CHAIRMAN CLOWE: This is a pretty 09:04 6 substantive issue and this type of movement is 09:05 7 significant, so we need to be aware of the people 09:05 8 we're dealing with and what their concerns are in a 09:05 9 fair and equitable way, and then those people that 09:05 10 would submit bids and what we would do on our own. 09:05 11 MS. CLOUD: We'll have that option 09:05 12 before the Commission to consider. We also have 09:05 13 videotapes of the Kentucky lottery drawing studio and 09:05 14 the actual draws. Quite a bit different than what 09:05 15 you've seen at our studio here. And we will present 09:05 16 that to the Commission as well. Keith has been 09:05 17 working on that. 09:05 18 COMMISSIONER SADBERRY: If I may, 09:05 19 Mr. Chairman, following up on your comments. I 09:05 20 concur, it's rather substantive. And it also seems, 09:05 21 if I'm on base here, this would be one of the first 09:05 22 opportunities to put into play the rule concerning 09:05 23 determinations of cost and the best interests of the 09:05 24 State of Texas and other factors and considerations. 09:05 25 Are we in a position to exercise that -- from your 09:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 1 staff's standpoint, Linda, to your satisfaction those 09:06 2 priorities and those criteria in evaluating this bid 09:06 3 process? 09:06 4 MS. CLOUD: Yes, sir. It's my opinion 09:06 5 we are. 09:06 6 COMMISSIONER SADBERRY: And the 09:06 7 negotiations that are tantamount to the same? 09:06 8 MR. BENNETT: That would be correct. 09:06 9 CHAIRMAN CLOWE: Very good. And you 09:06 10 would anticipate coming back to us in the meeting in 09:06 11 August with updates and further develops? 09:06 12 MS. CLOUD: We can start keeping you 09:06 13 posted at each meeting as to where we are in the 09:06 14 process. 09:06 15 CHAIRMAN CLOWE: Very good. Thank you, 09:06 16 Linda. I think we're now ready to move to item 18. 09:06 17 MS. KIPLIN: So, Commissioners, for 09:06 18 production studio contract, the Commission does intend 09:06 19 to approve the staff's recommendation to extend the 09:06 20 production studio contract for the last one year? 09:06 21 CHAIRMAN CLOWE: That does require a 09:06 22 motion? 09:06 23 MS. KIPLIN: Yes, I think it does. 09:06 24 CHAIRMAN CLOWE: Motion? 09:06 25 COMMISSIONER SADBERRY: I'll so move, 09:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 1 Mr. Chairman. 09:06 2 COMMISSIONER WHITAKER: Second. 09:07 3 CHAIRMAN CLOWE: Moved and seconded. 09:07 4 All in favor, say aye. Opposed, no. 09:07 5 Let the vote be recorded as three-zero 09:07 6 in favor. 09:07 7 Now we'll move to item 18, report, 09:07 8 possible discussion and/or action on the lottery 09:07 9 operator contract. 09:07 10 Linda, would you like to open this 09:07 11 item? 09:07 12 MS. CLOUD: Yes, Commissioners. As you 09:07 13 know, the staff has been working on getting prepared 09:07 14 to write the RFP for the lottery operator contract. 09:07 15 We are still just this week -- and Ridgely, this is on 09:07 16 the agenda as well -- the consultant has been 09:07 17 procured. 09:07 18 MR. BENNETT: We fully executed the 09:07 19 contract and they are on board. 09:07 20 MS. CLOUD: We'll get them in here to 09:07 21 sit down with us and work out time lines within the 09:07 22 next couple of weeks, hopefully. So -- but we are 09:07 23 diligently working to move forward on the RFP. 09:08 24 Today, we have -- I know there has been 09:08 25 some news about the lottery operator recently and 09:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 1 today we have in our audience here Mr. Calabro from 09:08 2 Gtech corporate. And he is here to answer any 09:08 3 questions the Commissioners might have about the 09:08 4 changes in senior management. 09:08 5 CHAIRMAN CLOWE: Very good. 09:08 6 MS. CLOUD: Or anything else the 09:08 7 Commissioner has. He's got all the answers. 09:08 8 CHAIRMAN CLOWE: Welcome, Mr. Calabro. 09:08 9 Is that correct? 09:08 10 MR. CALABRO: Yes, thank you. 09:08 11 CHAIRMAN CLOWE: Is Mr. King? 12 MR. KING: For the record, I'm Larry 09:08 13 King, the account general manager for Texas. 09:08 14 MR. CALABRO: I'm David Calabro, senior 09:08 15 vice-president global facilities management for Gtech. 09:08 16 CHAIRMAN CLOWE: Very good. Thank you 09:08 17 for coming. We're happy to have you here this 09:08 18 morning. 19 MR. CALABRO: Happy to be here. 09:09 20 CHAIRMAN CLOWE: Would you go forward? 09:09 21 MR. CALABRO: Well, it's not clear to 09:09 22 me what -- what detailed questions you may have, but 09:09 23 let me begin with some general comments. 09:09 24 CHAIRMAN CLOWE: It might help you by 09:09 25 way of saying that what we have been advised is -- of 09:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 1 is reflected in our notebooks, that is, a letter which 09:09 2 was exchanged between your company and this 09:09 3 Commission, a press release which was issued by your 09:09 4 company, and a subsequent press release which was 09:09 5 issued by this Commission. It deals with a problem 09:09 6 relating to the lottery operation in the United 09:09 7 Kingdom, and naturally, we were -- being made aware of 09:09 8 that, were concerned about that issue in regard to 09:09 9 this lottery operation. Subsequent to that, there 09:09 10 were separations of two senior officers from your 09:09 11 company, which were covered in a press release, and we 09:10 12 are interested in that, I think, is the correct word. 09:10 13 And my understanding is that you're here this morning 09:10 14 to comment on any or all of those subjects that you 09:10 15 feel the Commission would like to be made aware of, 09:10 16 and then possibly, if we have questions, you're open 09:10 17 to responding to us. 09:10 18 MR. CALABRO: Absolutely. 09:10 19 CHAIRMAN CLOWE: Thank you. 09:10 20 MR. CALABRO: Let me begin with the 09:10 21 general course of events on, I believe, the 6th of 09:10 22 July, Gtech released a press release that announced 09:10 23 the resignations of our Chairman and Chief Executive 09:10 24 Officer, Mr. O'Connor, and our President and Chief 09:10 25 Operating Officer, Mr. Nowick. Their resignations 09:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 1 were accepted by the board, driven by three factors. 09:10 2 The first factor is that, in the 09:11 3 interest of the shareholders, the board believed that 09:11 4 the company's stock was not performing at a rate of 09:11 5 value that was acceptable. The second component of 09:11 6 the decision was, the company had to restate earnings 09:11 7 in the second quarter, largely for some project cost 09:11 8 overruns, as well as some decisions made by government 09:11 9 customers that we really had little to do with. One 09:11 10 being, the State of Rhode Island had, in passing its 09:11 11 budget, changed the rate for many of the gaming 09:11 12 suppliers in its institutions run by the State. And 09:11 13 it was a -- a downward adjustment that had an impact 09:12 14 on Gtech's dream port facility. 09:12 15 The second was a decision by the 09:12 16 government of Columbia to defer the launch of its new 09:12 17 lottery. Gtech was prepared to launch in early July, 09:12 18 and because of some political and administrative 09:12 19 problems, the government requested that we defer that 09:12 20 launch, probably into the third quarter. 09:12 21 The third issue leading to the 09:12 22 resignations was, Mr. Chairman, as you said, the -- 09:12 23 the issue involving the National Lottery of the United 09:12 24 Kingdom. In 1998, the company failed to disclose a 09:12 25 software problem to the prime contractor, Camelot, and 09:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 1 the -- and therefore, the National Lottery Commission. 09:13 2 That was a decision that the board felt was not only 09:13 3 in error, but it was disappointed in the way the 09:13 4 leadership of the company handled it. Those three 09:13 5 issues, I think, led Mr. O'Connor and Mr. Nowick to 09:13 6 accept accountably. Gtech is a publicly-traded 09:13 7 company, and in order to acknowledge their leadership 09:13 8 accountability, they tendered their resignations to 09:13 9 the board and the board accepted. 09:13 10 Were you to ask -- I don't want to 09:13 11 stave off any questions, but were you to ask on a -- 09:13 12 on balance, which of those three components perhaps 09:13 13 weigh more heavily, I would say that's a board matter. 09:13 14 I personally don't know. I would tell you that the -- 09:13 15 the issue raised by the United Kingdom was one where 09:14 16 we were not going to put our credibility to test with 09:14 17 anyone and it was something very important to the 09:14 18 board and they took the appropriate action. So having 09:14 19 said that, getting to the matter of the UK software 09:14 20 issue itself. In the wake of the recent disclosure. 09:14 21 Gtech has undertaken a global assessment of all of its 09:14 22 jurisdictions to assure that if the problem did exist, 09:14 23 we will not only take the appropriate technical 09:14 24 action, but we will work with the respective 09:14 25 jurisdictions to ensure that we are fully accountable 09:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 1 for any exposure that the lottery may have, and we are 09:14 2 in fact doing that with Texas. 09:15 3 I'm happy to answer any questions that 09:15 4 you may have about that. 09:15 5 CHAIRMAN CLOWE: I'm going to ask the 09:15 6 commissioners if they have questions, but for the 09:15 7 record, I don't believe that you have stated in your 09:15 8 public appearance form what your position with the 09:15 9 company is. Would you tell us what that is, please. 09:15 10 MR. CALABRO: Oh, yes. I'm sorry. I'm 09:15 11 senior vice-president for global facilities 09:15 12 management. Basically, Gtech has two kinds of 09:15 13 operations around the world. One operation is where 09:15 14 the jurisdiction fully outsources lottery operations 09:15 15 to Gtech. And that's my responsibility, such as the 09:15 16 Texas model. We have a number of clients who are also 09:15 17 merely technology purchasers, and they either run 09:15 18 their own lottery or they ask -- they have other ways 09:15 19 to run it. And my colleague, John-Pierre DeBien, is 09:16 20 in charge of the component of the company that 09:16 21 principally sells technology to lottery jurisdictions 09:16 22 and/or private gaming concerns. 09:16 23 CHAIRMAN CLOWE: Thank you. 09:16 24 Commissioners? 09:16 25 COMMISSIONER SADBERRY: Thank you. And WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 1 I think it is good that you're here and we appreciate 09:16 2 that. 09:16 3 MR. CALABRO: My pleasure. 09:16 4 COMMISSIONER SADBERRY: And I take it, 09:16 5 not to probe unreasonably further, but I take it that 09:16 6 by your indication that the decision is a matter of a 09:16 7 board nature, you're not a member of the board? 09:16 8 MR. CALABRO: I am not. 09:16 9 COMMISSIONER SADBERRY: Okay. Do you 09:16 10 have information or points of clarification with 09:16 11 respect to how all of this might in any way impact, 09:16 12 either in the past, as a matter of history, or in the 09:16 13 future through the course of the remaining term of 09:16 14 this contract, the operations in the State of Texas? 09:16 15 MR. CALABRO: I can, with an 09:17 16 unqualified guarantee, suggest to you that our 09:17 17 operational -- our operational approach to any lottery 09:17 18 we have, but especially Texas, will not be affected by 09:17 19 this transition. We will maintain and have maintained 09:17 20 continuity of operations in every jurisdiction that we 09:17 21 have. It -- I may also note that in its decision, the 09:17 22 board appointed W. Bruce Turner as the full-time 09:17 23 Chairman of the company. The company intends to 09:17 24 separate the role and the title of Chairman and Chief 09:17 25 Executive Officer. You may or may not know, 09:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 1 Mr. O'Connor held both titles. Mr. Turner will be the 09:17 2 full-time Chairman of the company and, as a result, 09:17 3 the current corporate leadership team, which accounts 09:17 4 for seven executive officers, are reporting to him 09:17 5 until the search for a CEO is completed. 09:18 6 But we have lost no operational 09:18 7 momentum. We have enough of resources, both human and 09:18 8 technical and financial, to manage our affairs. 09:18 9 In terms of the first part of your 09:18 10 question, regarding our -- our past operations and the 09:18 11 UK problem, we are trying to work as fully and as 09:18 12 cooperatively as we can, with any jurisdiction that 09:18 13 may have issues related to not only that software 09:18 14 problem, but generally any problem that a jurisdiction 09:18 15 may reveal to us that has either occurred for a time 09:18 16 or they've just learned about. We have always been 09:18 17 ready, willing, and able to address any of those 09:18 18 issues, and will remain so. 09:18 19 COMMISSIONER SADBERRY: And again, I 09:19 20 don't in any way intend to be personal here, but how 09:19 21 long have you been affiliated with Gtech? 09:19 22 MR. CALABRO: Let's see. It seems like 09:19 23 longer, but I believe -- 09:19 24 COMMISSIONER SADBERRY: I respect -- 09:19 25 MR. CALABRO: 20 months, I think. 09:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 1 COMMISSIONER SADBERRY: And I have a 09:19 2 reason for asking that, not to be personal. 09:19 3 MR. CALABRO: That's okay. 09:19 4 COMMISSIONER SADBERRY: I am certain, 09:19 5 then, by way of reporting and record review and other 09:19 6 means, you are certainly aware of the history that 09:19 7 Texas has had with Gtech? 09:19 8 MR. CALABRO: Yes, I am. 09:19 9 COMMISSIONER SADBERRY: And you know 09:19 10 what we're dealing with, since you're here, now in 09:19 11 terms of our sales and recent rules, changes in the 09:19 12 games and what have you. At some point in time, there 09:19 13 may have been some question raised about the 09:19 14 partnership, if you will, between our lottery and 09:19 15 Gtech and the maximizing of our efforts for the common 09:19 16 goal of running this game with integrity, which is 09:19 17 very important to us, as well as with efficiency and 09:19 18 maximum profits to the State and fairness to our 09:20 19 players. Do you have an assessment of where we are in 09:20 20 that partnership relationship now, given all of what 09:20 21 you know about the relationship and its history? 09:20 22 MR. CALABRO: I would have to venture 09:20 23 an opinion. 09:20 24 COMMISSIONER SADBERRY: I understand. 09:20 25 MR. CALABRO: And my observation and my 09:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 1 opinion is, since I've been here, we have tried to 09:20 2 maintain as both a -- a high-quality operational 09:20 3 relationship, but also, a highly candid and open 09:20 4 relationship on any issue, with the management of the 09:20 5 company, or with the management of the lottery. I 09:20 6 have instructed and am strident with the local 09:20 7 management of Texas, because of these sensitivities 09:20 8 that you have addressed, that it is imperative that no 09:20 9 issue should be off the table that requires discussion 09:21 10 to any level of detail. And I know that the 09:21 11 corporation is unanimous in supporting me on that 09:21 12 effort. Any time the executive director or any member 09:21 13 of her staff requests cooperation on an issue, the -- 09:21 14 there is only -- the only answer that we do give them 09:21 15 is, how can we help, and we will continue to do that. 09:21 16 I hope the executive director shares my opinion on 09:21 17 that, but... 09:21 18 MS. CLOUD: We've had an enjoyable 09:21 19 working relationship recently. I mean, it's not been 09:21 20 like it has been in the past. So it appears that 09:21 21 Gtech has made a strong effort to try to please or try 09:21 22 to act in a way that it's beneficial to the Lottery. 09:21 23 There is more emphasis on the customer, I think, in 09:21 24 the last couple of years. 09:22 25 CHAIRMAN CLOWE: Commissioner Whitaker? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 1 COMMISSIONER WHITAKER: Yes, I do have 09:22 2 a few questions. 09:22 3 Currently, there is no CEO. Is 09:22 4 Mr. Turner acting as the temporary or stand-in or 09:22 5 interim CEO? 09:22 6 MR. CALABRO: Yes, Commissioner, he is. 09:22 7 COMMISSIONER WHITAKER: In effect. 09:22 8 What is the prognosis as to how likely or when a new 09:22 9 CEO will be found? 09:22 10 MR. CALABRO: I think the best I can do 09:22 11 right now is explain to you the process that the board 09:22 12 anticipates undertaking. I think the board is in the 09:22 13 process of putting a profile together of the type 09:22 14 candidate. That will be followed by interviews with 09:22 15 executive search consultants, and we will probably 09:22 16 request two to three proposals from executive search 09:22 17 consultants, and the board will select one of those 09:22 18 executive search consultants to work with it in that 09:23 19 process. I would tell you that the board informally 09:23 20 has indicated through Mr. Turner that it is not in 09:23 21 a -- in a big hurry because it wants to find the right 09:23 22 person. And the second reason is that the corporate 09:23 23 leadership team has, from almost the beginning of 09:23 24 Mr. O'Connor's tenure, been totally involved in the 09:23 25 development of the strategy, the structuring of the 09:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 1 corporation the way it is, and there was no learning 09:23 2 curve or learning ramp up for the executive officers. 09:23 3 And as Mr. Turner comes up to speed, we don't 09:23 4 anticipate that the search for the CEO has to be at a 09:23 5 break neck speed. We anticipate that they will be 09:23 6 deliberate and find who the board believes will be the 09:23 7 right candidate. 09:24 8 COMMISSIONER WHITAKER: So decoding 09:24 9 that, do you think it will be next year or possibly 09:24 10 this year? 09:24 11 MR. CALABRO: I guess -- again, this is 09:24 12 my speculation. I'm saying that no client should be 09:24 13 concerned if it is -- if six months have gone by and a 09:24 14 selection has not been made. We are trying -- I think 09:24 15 the board would say it is trying to do it as quickly 09:24 16 but also as prudently as possible. 09:24 17 COMMISSIONER WHITAKER: What was the 09:24 18 reason uncovered for why the glitch was not disclosed 09:24 19 to Camelot? 09:24 20 MR. CALABRO: I'm sorry. I didn't hear 09:24 21 the first part. 09:24 22 COMMISSIONER WHITAKER: I understand in 09:24 23 your press release that the glitch in the United 09:24 24 Kingdom was not disclosed to Camelot. What was the 09:24 25 reason uncovered as to why that was not told? 09:24 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 1 MR. CALABRO: It is personally not 09:24 2 clear to me. The United Kingdom -- the National 09:24 3 Lottery Commission is a technology client of Gtech's 09:24 4 and is not in my area of responsibility. I do know 09:24 5 that the board conducted an inquiry of its own and I 09:25 6 personally am not privy to those facts. And I will, 09:25 7 if the Commission requests, I will see if a board 09:25 8 member can contact you with that information. 09:25 9 COMMISSIONER WHITAKER: So the basis of 09:25 10 the board's disappointment is not something you are 09:25 11 personally familiar with? 09:25 12 MR. CALABRO: No, ma'am, it's not. 09:25 13 COMMISSIONER WHITAKER: Also, in the 14 press release, there is a mention that Mr. Turner is 09:25 15 going to conduct a comprehensive value assessment of 09:25 16 Gtech's operations, but the press release continues to 09:25 17 say that the core business is sound. Can you comment 09:25 18 on that? 09:25 19 MR. CALABRO: Yes, ma'am. We have -- 09:25 20 Commissioner, we did -- Gtech is approximately a 1.1 09:25 21 billion dollar company. Approximately 900 million or 09:25 22 so of that revenue is from lottery operations or 09:25 23 technology sales to lottery contracts. That business 09:25 24 is sound and growing. It is -- and it is also one in 09:26 25 which we are heavily investing. We continue to invest 09:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 1 over 140 million dollars a year in research and 09:26 2 development for that core business. We continue to be 09:26 3 awarded substantial contracts by both current and new 09:26 4 jurisdictions, and believe that on both a cash as well 09:26 5 as revenue basis, that that business is sound. 09:26 6 I would say that the -- the process of 09:26 7 reassessing Gtech's assets are in part attributed to 09:26 8 Mr. Turner's own spin up on the company to -- to learn 09:26 9 the detailed aspects of our operations. And at the 09:26 10 same time, apply any operational philosophies that he 09:26 11 may have. 09:27 12 The second, however, is that we have -- 09:27 13 we're going to take a look at assets such as property 09:27 14 and other things that we hold around the world that 09:27 15 may not be adding value to our shareholders. And it 09:27 16 does not imply a -- either a downsizing or any 09:27 17 disinvestment in our core complexes. 09:27 18 COMMISSIONER WHITAKER: Do you see the 09:27 19 restatement of earnings to be a one-time event? 09:27 20 MR. CALABRO: I do. I would say that 09:27 21 the -- the three major components of that restatement, 09:27 22 two of which were actions by jurisdictions that we did 09:27 23 not anticipate, and the cost overruns on project 09:27 24 delivery were principally driven by an unclear set of 09:27 25 requirements, an unclear understanding of the 09:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 1 requirements between our clients and ourselves, and in 09:28 2 the interest of customer satisfaction, we chose to 09:28 3 defer to the clients's wishes and apply the 09:28 4 incremental resources to give them the system that 09:28 5 they expect. 09:28 6 CHAIRMAN CLOWE: I have a few 09:28 7 questions. 09:28 8 Are you aware that this agency sent an 09:28 9 investigator to the corporate home office within the 09:28 10 last couple of weeks, and we had that person on-site 09:28 11 there asking a number of questions about this 09:28 12 situation and the departure and the coming into the 09:28 13 corporation of new individuals? 09:28 14 MR. CALABRO: Mr. Chairman, I'm 09:28 15 aware -- I was made aware a day or so ago that there 09:28 16 was an investigator from the Texas Lottery Commission 09:28 17 working with our head of compliance. 09:28 18 CHAIRMAN CLOWE: That's correct. 09:28 19 MR. CALABRO: Yes. The specifics of 09:28 20 which I was not aware of. 09:29 21 CHAIRMAN CLOWE: I would like to make 09:29 22 you aware that that did occur and there was an 09:29 23 extensive investigation, that this Commission is not 09:29 24 received that report, but we will be receiving it and 09:29 25 we have -- we may have questions regarding that 09:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 1 investigative report at that time. 09:29 2 MR. CALABRO: Uh-huh. 09:29 3 CHAIRMAN CLOWE: We also had a number 09:29 4 of questions relative to the computer problem in the 09:29 5 United Kingdom relating to what we understand to be a 09:29 6 similar problem in Texas in '92 through, I believe, 09:29 7 '94. And you're aware that an audit team was 09:29 8 constructed of Gtech employees and Commission 09:29 9 employees and an audit of that period was conducted by 09:29 10 that team. 09:29 11 MR. CALABRO: Yes, Mr. Chairman, I'm 09:29 12 aware of that. 09:29 13 CHAIRMAN CLOWE: And are you aware that 09:29 14 yesterday the preliminary results of that audit effort 09:29 15 were released? 09:29 16 MR. CALABRO: Yes, I'm Mr. Chairman, 09:29 17 I'm aware of that. 09:30 18 CHAIRMAN CLOWE: And also, this 09:30 19 Commission released a news release regarding that 09:30 20 preliminary audit report under today's date. 09:30 21 MR. CALABRO: Yes, Mr. Chairman, I'm 09:30 22 aware of that. 09:30 23 CHAIRMAN CLOWE: Would you care to 09:30 24 comment on the results of the effort from your 09:30 25 company's standpoint to us? 09:30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 1 MR. CALABRO: Well, first of all, I'm 09:30 2 not a technologist. I don't know that I can add much 09:30 3 value at the bit and byte level regarding the software 09:30 4 problem. What I can tell you is that Gtech staff have 09:30 5 with -- under the -- under the guidance of the Texas 09:30 6 Lottery Commission, scanned the transaction file for 09:30 7 the period in question. I think that that was close 09:30 8 to 725 million transactions that were logged in the 09:30 9 period in question. And we compiled output that 09:30 10 suggested the number of incidents of the problem based 09:31 11 on the search criteria that were used to scan the 09:31 12 data. Throughout the process, that information was 09:31 13 shared with the Texas lottery. And I believe one of 09:31 14 its staff did an analysis that led to the release of 09:31 15 information by the Lottery, I believe, yesterday, or 09:31 16 today. 09:31 17 And Gtech is in the process of 09:31 18 working -- is in the process of finalizing its 09:31 19 analysis of the scans and having them audited by an 09:31 20 independent auditor, and we will also furnish that 09:31 21 information to the Texas Lottery. 09:32 22 CHAIRMAN CLOWE: And your company, I've 09:32 23 been told, is prepared to take whatever action in 09:32 24 regard to the Texas Lottery Commission that the final 09:32 25 results of the audit call for in the way of making 09:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 1 whole parties that might have been damaged in any way 09:32 2 as a result of this activity? 09:32 3 MR. CALABRO: Mr. Chairman, that's 09:32 4 absolutely correct. 09:32 5 CHAIRMAN CLOWE: I'm not going to try 09:32 6 to summarize the audit at this time or comment on the 09:32 7 press release. I think they speak for themselves. 09:32 8 And I would only say in regard to that that I consider 09:32 9 it an open subject which is yet to be fully determined 09:32 10 and acted upon. 09:32 11 I would like to say one thing to you. 09:32 12 First of all, I want to thank you for being here and I 09:32 13 want you to not take anything I'm going to say 09:32 14 personally, but I just met you this morning and 09:32 15 appreciate you coming down here, but I think it's 09:33 16 important for me to say some things to you. And I 09:33 17 hope they come across well-balanced and even-handed as 09:33 18 a message for you to take back to your board, because 09:33 19 there is not a member of your board here and you've 09:33 20 been with the company less than 24 months, if I 09:33 21 understood what you said correctly. 09:33 22 MR. CALABRO: Yes, sir. 09:33 23 CHAIRMAN CLOWE: Your tenure is short. 09:33 24 The relationship with your company is 09:33 25 very important to this Commission. You are a big part 09:33 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 1 of the Lottery of Texas. And the importance of the 09:33 2 fairness and the honesty, the integrity of these games 09:33 3 to this Commission is at the highest level. If your 09:33 4 company were to withhold and had withheld information 09:33 5 from this Lottery Commission, we would consider that a 09:33 6 very serious breach of trust. And when the revelation 09:34 7 of the problems in the United Kingdom were made 09:34 8 public, we became very interested in that, and wanted 09:34 9 to know the kinds of questions that we've asked, the 09:34 10 kind of information that we have pursued, and will 09:34 11 continue to pursue. 09:34 12 Commissioner Sadberry made reference to 09:34 13 the history of your company and the Lottery 09:34 14 Commission. I'm not going to comment on that. It 09:34 15 speaks for itself. But we are responsible to the 09:34 16 people of this state for these games being conducted 09:34 17 in a manner that is exemplary. And in the case of 09:34 18 having some information and not disclosing it, in this 09:34 19 relationship, I consider it the same as not telling 09:34 20 the truth. And I want you to take back to the board 09:35 21 on behalf of myself, and I hope I can speak for the 09:35 22 other two Commissioners, that we feel this is a very 09:35 23 serious thing, and that we want your pledge as you go 09:35 24 through some of the corporate activities which are now 09:35 25 incumbent for you to reform your management team and 09:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 1 go forward in a commercial way to do the things that 09:35 2 need to be done, that you do everything to protect the 09:35 3 commitments that you have made to this Lottery 09:35 4 Commission and help us continue to have one of the 09:35 5 finest operations and the most correct operation of 09:35 6 any of the states in the United States. 09:35 7 As I say, I don't want you to take any 09:35 8 of this personally, but I sure want you to take it 09:35 9 back to your board and to your superiors in Gtech. I 09:36 10 consider this a very serious matter. 09:36 11 MR. CALABRO: Mr. Commissioner, I 09:36 12 can -- Mr. Chairman, I can assure you that we share 09:36 13 your opinions, not only on the seriousness of the 09:36 14 matter, but on ensuring that any and all changes that 09:36 15 we make to enhance both our service to you and the 09:36 16 integrity of the lottery, we will share with you on an 09:36 17 ongoing basis. As Mr. Turner gets out to meet 09:36 18 clients, I can assure you Texas is at the top of his 09:36 19 list. And both he and I, and for that matter, any 09:36 20 member of the board, are fully prepared not only to 09:37 21 all of us personally and professionally internalize 09:37 22 your recent comments, but also, we will keep you 09:37 23 apprised of all of our actions and take whatever 09:37 24 guidance and/or judgment the Commission or the Texas 09:37 25 Lottery may give us. 09:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 1 COMMISSIONER SADBERRY: Mr. Chairman, 09:37 2 if I may. 09:37 3 CHAIRMAN CLOWE: Sure. 09:37 4 COMMISSIONER SADBERRY: So that there 09:37 5 is no question about it. Mr. Chairman, you have 09:37 6 correctly and appropriately spoken with respect to my 09:37 7 attitude on all of what you said, particularly in 09:37 8 regard to the relationship, as I have, in fact, been 09:37 9 privileged, if you will, to have experienced quite 09:37 10 extensive history in that regard and know the efforts 09:37 11 on both parties' behalf it has taken to bring us to 09:38 12 this point. I think from time to time, we need to 09:38 13 look back, if only sufficiently that we keep abreast 09:38 14 of what we have had to deal with and what we have come 09:38 15 through. And perhaps that also, as Mr. Chairman 09:38 16 correctly states, we will let it be a matter of 09:38 17 history, but in going forward, we trust that we have 09:38 18 learned from that experience, and whether it be a 09:38 19 person of recent tenure or a person of longstanding 09:38 20 tenure, we will have the same understanding of the 09:38 21 priorities and the importance of those issues and will 09:38 22 go forward with the type of vigor that embraces them 09:38 23 and address them to the maximum benefit of what we're 09:38 24 all about here. 09:38 25 I looked at our executive director. 09:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 1 She made a point of -- in her assessment of, if you 09:38 2 will, the turnaround and the refocusing on the 09:38 3 relationship being some two years or somewhere in that 09:38 4 time frame. Well, that does put it on your watch and 09:39 5 put it on the watch of others now who will take the 09:39 6 helm, to go forward, that to the extent possible that 09:39 7 there be no more incidents of this nature. We realize 09:39 8 we don't live in a perfect world, but that certainly 09:39 9 upon detection, that there be immediate disclosure and 09:39 10 immediate correction. Those of us who deal in the 09:39 11 legal arena here, we take off our commissioner hats 09:39 12 and other things and understand, even as 09:39 13 Commissioners, what we deal with in our state is a 09:39 14 concept that's deeply embedded in our government, and 09:39 15 that is openness. Open records, open meetings laws, 09:39 16 and general counsels, a requirement of our adherence 09:39 17 to kinds of things all embraces one thing of openness. 09:39 18 Let the public know, let them form their own 09:39 19 conclusions, let the regulators and the administrators 09:39 20 of our agencies know so that they can discharge their 09:39 21 functions so that there may be a question about what 09:39 22 you did to correct the problem, but never a question 09:40 23 about why did we not know about the problem. And I 09:40 24 think, if I understood correctly, that is what our 09:40 25 Chair and even Commissioner Whitaker's questioning was 09:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 1 all about. So that the record is clear, I concur in 09:40 2 that priority. 09:40 3 COMMISSIONER WHITAKER: I could concur 09:40 4 very much with what Chairman Clowe has said. I would 09:40 5 also consider this, as you said, to not be a completed 09:40 6 matter. We are going to be intensely interested in 09:40 7 all the final results of this entire matter. We do 09:40 8 very much appreciate you coming. We do appreciate 09:40 9 your pledge to us of concern about this issue and 09:40 10 about your commitment to the integrity and safety of 09:40 11 the Texas Lottery. 09:40 12 MR. CALABRO: Thank you, Commissioner. 09:40 13 CHAIRMAN CLOWE: Linda, while we're on 09:40 14 this subject, do you have a comment on the audit 09:40 15 results which are preliminary that were released 09:40 16 yesterday? 09:40 17 MS. CLOUD: Commissioners, you have 09:40 18 been given the audit report as well as a copy of the 09:40 19 press release. And for the record, just some of the 09:40 20 highlights that came out of that report, there was no 09:41 21 negative impact on our big three lottery players, our 09:41 22 winners, no negative impact on any Texas -- on Lotto 09:41 23 Texas players. The maximum overcharges was $3.76 each 09:41 24 for 5,035 lottery retailers, which is going to be 09:41 25 reimbursed. Approximately $756.74 in overpayments to 09:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 1 the lottery operator. So based on the information 09:41 2 that is in this report, we feel like -- and one of the 09:41 3 things I will say, that staff and Gtech looked at, 09:41 4 they looked at every transaction that was a duplicate 09:41 5 entry, whether it was a legitimate transaction or 09:41 6 whether it wasn't. And Gtech has taken the 09:41 7 responsibility to include those as part of the 09:41 8 reimbursement process rather than segregate out what 09:42 9 was a legitimate transaction. So I think that this is 09:42 10 very minimal. It's turned out to be 4/10,000ths of 09:42 11 one percent of on-line ticket sales. So I feel very 09:42 12 confident that this report is accurate. We planned, 09:42 13 as well as Gtech plans to have their independent 09:42 14 auditors review the process and the report. We too 09:42 15 plan to have our security auditors, which we're out on 09:42 16 bid for right now, to take this report and review it 09:42 17 as well. The reimbursement to the retailers will, of 09:42 18 course, be made by Gtech, and when that takes place, 09:42 19 then that reduces sales and the Lottery will be 09:42 20 reimbursed at the same time. 09:42 21 CHAIRMAN CLOWE: Very good. 09:42 22 MS. CLOUD: I will say to the 09:42 23 Commission, while we're on this subject, that it's my 09:42 24 goal -- I'm very proud of lottery staff because they 09:43 25 actually -- our systems administrator is the one that 09:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 1 identified this problem back in '94. That's part of 09:43 2 the reason we don't have more transactions than we do 09:43 3 have. And I think we have our staff in place with the 09:43 4 monitoring of the contract and Gtech has always 09:43 5 cooperated when they've been -- they've found 09:43 6 something, they've corrected it. And I will still be 09:43 7 in that capacity and will still be doing our job to 09:43 8 see that these things don't happen. 09:43 9 CHAIRMAN CLOWE: Very good. 09:43 10 Are there any other individuals who 09:43 11 wish to comment on this subject while the Commission 09:43 12 has it on its agenda? Thank you, gentlemen. We 09:43 13 appreciate you being here. 09:43 14 MR. CALABRO: Thank you, Mr. Chairman, 09:43 15 thank you, Commissioners. 09:43 16 CHAIRMAN CLOWE: I would like to 09:44 17 recognize Representative Heflin who is here. He's 09:44 18 Chairman of the House Appropriations Subcommittee. 09:44 19 Thank you, sir, for being here. We appreciate it. 09:44 20 And we will be happy to have any comments from you or 09:44 21 any questions that you might have. 09:44 22 REPRESENTATIVE HEFLIN: I'm just here 09:44 23 as an observer. 09:44 24 CHAIRMAN CLOWE: Thank you for being 09:44 25 here. 09:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 1 I think we're now ready to go to the 09:44 2 next item on the agenda, which is number 19. 09:44 3 Consideration of and possible discussion and/or action 09:44 4 on the proposed acquisition of Scientific Games, 09:44 5 Incorporated by Autotote Corporation. 09:44 6 Linda, would you like to open this 09:44 7 item? 09:44 8 MS. CLOUD: Yes, Commissioners. We 09:44 9 have in our audience Bill Fox from Scientific Games 09:44 10 and Ron Williams from Scientific Games, and I'll ask 09:44 11 them to come up and they will speak to the 09:44 12 acquisition. 09:44 13 CHAIRMAN CLOWE: Would you identify 09:45 14 yourselves for the record, please. 09:45 15 MR. FOX: Yes. My name is Bill Fox. 09:45 16 I'm a senior vice-president and director of government 09:45 17 affairs for Scientific Games. 09:45 18 MR. WILLIAMS: And I'm Ron Williams. 09:45 19 I'm the local account manager here for Scientific 09:45 20 Games. 09:45 21 CHAIRMAN CLOWE: Very good. 09:45 22 MR. FOX: Good morning, Mr. Chairman. 09:45 23 We thought it would be appropriate that we spend a 09:45 24 little time discussing the issue at hand and since 09:45 25 the -- our present agreement with the State of Texas 09:45 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 1 and the Texas Lottery is very, very valuable to our 09:45 2 company, and we want to make sure that the, quote, 09:45 3 Commission and the lottery itself is well informed of 09:45 4 exactly what we're doing here. 09:45 5 You have packets that were given to you 09:45 6 by the director. I think a lot of the information is 09:45 7 in those packets. What I would like to do is just 09:45 8 bring you up to date, which has happened probably in 09:45 9 the last week to ten days. 09:46 10 First of all, the Justice Department 09:46 11 has come back to us and given us the green light to 09:46 12 continue the acquisition. The SEC has given their 09:46 13 approval to continue the process. And as we are 09:46 14 speaking, the proxy vote has been sent out to all the 09:46 15 shareholders and there will be a board of directors 09:46 16 meeting sometime in early August. I think after that 09:46 17 is completed, the only other thing that might delay it 09:46 18 somewhat, and that might be a week to ten days, we 09:46 19 have some regulatory bodies in New Jersey and 09:46 20 Connecticut that have to do a full investigation of 09:46 21 this and give their approval, and we have several 09:46 22 state lottery jurisdictions that, per contract, we 09:46 23 have to get their approval on this acquisition. So 09:46 24 that's really the only thing that could possibly delay 09:46 25 this towards the middle of August. I don't think 09:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 1 it'll last any longer. Probably September 1st. So we 09:46 2 think this will be concluded sometime around September 09:46 3 1st. 09:47 4 And, again, if you have any questions 09:47 5 at all, we would love to answer them. 09:47 6 COMMISSIONER SADBERRY: Let me ask, 09:47 7 Mr. Chairman, and maybe perhaps Linda and Kim. Are 09:47 8 these the speakers that we're going to have on this? 09:47 9 MS. CLOUD: Yes, sir. 09:47 10 COMMISSIONER SADBERRY: So we've heard 09:47 11 everything they have to offer on us. 09:47 12 Again, as you've been in our meeting 09:47 13 previous to this morning, we thank you as well for 09:47 14 being here. I think it's always helpful when people 09:47 15 who do business with our lottery and certainly get the 09:47 16 value of the monies from this state to be earned as 09:47 17 well as the business opportunities will come to us 09:47 18 voluntarily, willingly, and interact with us as 09:47 19 Commissioners with information. That's always helpful 09:47 20 to our functioning and our decision-making capacities. 09:47 21 I understand that the Justice 09:47 22 Department did express some interest in this matter, 09:47 23 but you indicate you have received what you term as 09:47 24 the green light to proceed. 09:48 25 MR. FOX: Yes, we have. 09:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 1 COMMISSIONER SADBERRY: Do you perceive 09:48 2 in that there was anything other than a normal or 09:48 3 routine process of the government? Was there 09:48 4 something, to your knowledge, that was of particular 09:48 5 interest or concern to the government with regard to 09:48 6 this proposed transaction? 09:48 7 MR. FOX: Not that I'm aware of. It 09:48 8 was just routine. 09:48 9 COMMISSIONER SADBERRY: And nothing out 09:48 10 of the ordinary to your knowledge occurred that 09:48 11 despite the green light having been given, we should 09:48 12 keep our eyes on and be aware of to your knowledge? 09:48 13 MR. FOX: No, sir. 09:48 14 COMMISSIONER SADBERRY: I guess the 09:48 15 interest I would have is, are you familiar with the -- 09:48 16 with the procurement process of recent that led to 09:48 17 your company's involvement with this contract? 09:48 18 MR. FOX: I do. I am informed. 09:48 19 COMMISSIONER SADBERRY: And you, of 09:48 20 course, then would know that this Commission spent 09:48 21 some time and effort involved with reviewing the 09:48 22 procurement process and the subsequent challenges or 09:49 23 protests and the appeal process that came about? 09:49 24 MR. FOX: Yes, sir. 09:49 25 COMMISSIONER SADBERRY: Is in your 09:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 1 mind, there any information about this proposed 09:49 2 transaction that existed at any level or within your 09:49 3 company concerning the prospects of this transaction 09:49 4 that could have been disclosed to this Commission, 09:49 5 I'll ask as one part of the question, and perhaps more 09:49 6 pointedly, that should have been disclosed to this 09:49 7 Commission in regard to that process? 09:49 8 MR. FOX: Again, I think I'm pretty 09:49 9 knowledgeable about that period of time and absolutely 09:49 10 no -- no dialogue whatsoever at that point in time. 09:49 11 COMMISSIONER SADBERRY: And while 09:49 12 certainly in Texas we appreciate business enterprise, 09:49 13 the right to do business and certainly embrace that 09:49 14 and as you perhaps know, as obvious from your having 09:49 15 this contract, we are equal minded and progressive in 09:49 16 our contracting attitudes and our State legislature, 09:49 17 of course, puts upon us the priorities we should 09:50 18 follow in that regard. And so as a follow-up 09:50 19 question, I would ask you, you then should know some 09:50 20 of the issues in that process, particularly the 09:50 21 commitments required, in general, the cost issues, the 09:50 22 opportunity for DBA participation and reporting, et 09:50 23 cetera. Is there a certainty that you can bring to us 09:50 24 and give this Commission a comfort level that those 09:50 25 things have been impressed and emphasized and will 09:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 1 continue to be matters of priority, as well as 09:50 2 continuation of functioning under our contract with 09:50 3 whatever might be the successor or ultimate owner of 09:50 4 your company and its contracting rights. 09:50 5 MR. FOX: Again, the -- the acquisition 09:50 6 of Scientific Games by Autotote -- Autotote is in the 09:50 7 lottery industry. So they understand completely 09:50 8 what -- the scrutiny that we go under, what we have to 09:50 9 live up -- the integrity. So, again, this is not a 09:51 10 change. These are two basically companies that are 09:51 11 successful in their own right. Or just -- the term 09:51 12 merge has been -- or merger has been bantered around, 09:51 13 acquisition. It's basically the merge of two 09:51 14 companies becoming one, that's all. This is not a 09:51 15 megamerger. This is not a company coming in and 09:51 16 pirating the other and just wiping them clean and 09:51 17 taking their prime people and building another 09:51 18 company. These are basically two very, very similar 09:51 19 companies that are -- will become one. 09:51 20 COMMISSIONER WHITAKER: Do you see any 09:51 21 advantages to the Texas Lottery as a result of this 09:51 22 acquisition? 09:51 23 MR. FOX: I think that maybe not -- not 09:51 24 at first, not initially. But I think, overall, I 09:51 25 don't think just the Texas Lottery, I think the 09:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 1 lottery industry as a whole will benefit from the -- 09:51 2 from the acquisition. The one -- like I said, you 09:51 3 have Scientific Games who is a leader in the world of 09:51 4 printing lottery tickets. You have Autotote, who is a 09:51 5 world leader in pari-mutuel, and both companies have 09:52 6 on line game technology. I think bringing those 09:52 7 together eventually will, in fact, be beneficial to 09:52 8 the Texas Lottery and the lottery in whole. 09:52 9 COMMISSIONER WHITAKER: Do you see any 09:52 10 downsides to the Texas Lottery because of this? 09:52 11 MR. FOX: None whatsoever. 09:52 12 COMMISSIONER WHITAKER: Have any state 09:52 13 attorneys general looked at this transaction? 09:52 14 MR. FOX: I honestly don't -- again, 09:52 15 there are a few states that have to, by contract, we 09:52 16 have to get their approval. They are, in fact, 09:52 17 looking at it right now, but I don't know if it's 09:52 18 gotten to the attorney general level by any these 09:52 19 states. 09:52 20 COMMISSIONER WHITAKER: You don't know 09:52 21 anything one way or the other? 09:52 22 MR. FOX: No. 09:52 23 COMMISSIONER WHITAKER: And what, in 09:52 24 your opinion, does this do to the competitive 09:52 25 landscape? 09:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 1 MR. FOX: This is somewhat of a biased 09:52 2 opinion, but I think the industry has clamored for 09:52 3 years to have more competition. I think they were 09:52 4 getting that the instant -- even though it's kind of 09:53 5 dwindled over the last couple of years because the 09:53 6 price of the tickets have gone down so considerably, 09:53 7 but the on-line business -- and this is not a cheap 09:53 8 shot at anybody -- there is basically one company that 09:53 9 has been kind of the leader of the pack. And I think 09:53 10 bringing the two companies, both Scientific Games and 09:53 11 Autotote together, I think that will become a much 09:53 12 better competitor for the leader. 09:53 13 CHAIRMAN CLOWE: I have a message for 09:53 14 you, too. 09:53 15 MR. FOX: I'll just talk to Larry King. 09:53 16 CHAIRMAN CLOWE: And again, don't take 09:53 17 it personally. But, you know, Commissioner Sadberry 09:53 18 and I were the two Commissioners who voted on the 09:53 19 decision on the contract. And there were a number of 09:53 20 considerations that went into that, I'm sure numerous 09:53 21 in his mind and I know numerous in mine. And your 09:53 22 company was selected on the basis of a number of 09:54 23 reasons, and now there is going to be change. And you 09:54 24 are the second largest entity with which we deal here 09:54 25 at the Commission, behind the operator. You are very 09:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 1 substantial to this Commission. And, you know, in the 09:54 2 private sector, you have the right to do business and 09:54 3 to merge and acquire and to do whatever you want to 09:54 4 call it in the way of what you're doing. But I have 09:54 5 been an acquirer and an acquiree and, you know, the 09:54 6 first thing they tell me when I'm an acquiree is, 09:54 7 nothing is going to change. And when I'm an acquirer, 09:54 8 oh, nothing is going to change. You're going to love 09:54 9 it, you know. And after the deal gets done, you're 09:54 10 not there yet, but you're apparently headed down that 09:54 11 road, there is always change. And there is going to 09:54 12 be change, I would think, in this transaction, 09:54 13 whatever you choose to call it. 09:54 14 And my message to you, and I wish you 09:55 15 would take it back to your company is, keep your eye 09:55 16 on the ball as far as the Texas Lottery Commission is 09:55 17 concerned. You produce a product for us that is 09:55 18 vitally important. And we deal with it every day and 09:55 19 it's critical that we be successful in the goods and 09:55 20 services that you provide to us. And so as whatever 09:55 21 happens in the way of change takes place, assuming 09:55 22 this transaction is going to occur, keep us on your 09:55 23 radar screen and stay in touch with our people, advise 09:55 24 us of what's going on in your company, and talk to our 09:55 25 people so that we do not get dropped in the process of 09:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 1 whatever is going to happen in the future. We do not 09:55 2 want to have problems occur. And I'm not saying that 09:55 3 they're going to, but diligence will forestall any 09:55 4 development of problems in regard to this Commission. 09:56 5 So we wish you well on the outcome of 09:56 6 this transaction, we thank you for being here to talk 09:56 7 with us today, but keep us close to you as go through 09:56 8 this process and take care of us. And I can assure 09:56 9 you that we will be watching this process and our 09:56 10 standards of performance on your part, I think are 09:56 11 reasonable, but we do expect performance. 09:56 12 MR. FOX: Thank you. Again, I can 09:56 13 assure you that this contract that we have right now 09:56 14 is very, very, very important to the company. And we 09:56 15 will -- every step we take, we'll make sure that 09:56 16 you're being advised appropriately so there will be no 09:56 17 hidden agendas, there will be no hidden information. 09:56 18 Everything that we get, we will pass along to you, 09:56 19 because we, again, cherish the contract in Texas and 09:56 20 we're proud of the work we've done with the Texas 09:56 21 Lottery. 09:56 22 CHAIRMAN CLOWE: Very good. 09:56 23 MR. FOX: Thank you. 09:56 24 CHAIRMAN CLOWE: Thank you, gentlemen. 09:56 25 I believe we are now ready to return to 09:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 1 an item on the agenda, number 14, rather, that we 09:57 2 passed pending the arrival of Mr. King. And I have an 09:57 3 appearance form here for you, Mr. King, and is it your 09:57 4 wife? Would you come forward, please. 09:57 5 Thank you for being here. And Linda, I 09:57 6 would ask you if you would like to open this item. 09:57 7 MS. CLOUD: All right. Commissioners, 09:57 8 at the last Commission meeting, it was the 09:57 9 recommendation of the staff to request that we go out 09:57 10 for bid for a minority advertising contract, and at 09:57 11 that time, Mr. King was not here, and Commissioner 09:57 12 Sadberry requested that we pass the item until the 09:57 13 next meeting and give Mr. King an opportunity to come 09:58 14 before the Commission. 09:58 15 Since that time, I've had a meeting 09:58 16 with Mr. King and -- in Dallas, and we have come to an 09:58 17 understanding and Mr. King is here to talk to the 09:58 18 Commission today about his situation. I'll turn it 09:58 19 over to Mr. King. 09:58 20 MR. KING: Thank you, Linda. 21 My name is Johnny King. I'm President 09:58 22 and Chief Operating Officer of The King Group. 09:58 23 DR. KING: And I'm Dr. Delver King, and 09:58 24 I am Chairman and CEO of The King Group. 09:58 25 MR. KING: First of all, we would thank 09:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 1 you for this opportunity to discuss this minority 09:58 2 contract with you and share some of our critical 09:58 3 learning in the first year that we've had. And I want 09:58 4 to begin by stating that we support, endorse, and laud 09:58 5 the lottery in taking such an unprecedented step as 09:58 6 allowing a minority-owned company the opportunity to 09:58 7 serve as a prime contractor in a major advertising 09:58 8 contract. Our agency has been recognized nationally 09:58 9 for becoming the first minority agency to be awarded a 09:59 10 substantial lottery contract. And the staff is to be 09:59 11 commended for taking such a bold step. We hope that 09:59 12 other state agencies also will take note. 09:59 13 We did not take this assignment 09:59 14 lightly, and we have responded by making a major 09:59 15 commitment of senior level management time on the 09:59 16 account. We have met every single deadline in a 09:59 17 timely fashion. We've met all financial obligations 09:59 18 as it relates to this contract, paying all vendors on 09:59 19 time and/or within lottery guidelines as it relates to 09:59 20 the media vendors. We've produced outstanding 09:59 21 advertising, and I think the staff would agree, and 09:59 22 have had outstanding post-research results. We have 09:59 23 met a full year's assignment in what is going to 09:59 24 actually wind up being eight months. And our goals 10:00 25 have been far beyond what the contract requires. 10:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 1 I would like to say that all of the 10:00 2 major minority subcontract -- or subsegments have been 10:00 3 addressed with this new RFP. Our goal was not to just 10:00 4 look at this as a contractual situation. We wanted to 10:00 5 do things better than they've ever been done before. 10:00 6 And also, to address the minority markets in ways that 10:00 7 they've never been addressed before, we have produced 10:00 8 work in four different languages. We have paid 10:00 9 attention to a strategic approach to taking the 10:00 10 lottery's advertising dollars and communicating to 10:00 11 these subsegments. We've done ads in Spanish, in 10:00 12 Mandarin Chinese, in Vietnamese, and Africana and have 10:00 13 been very, very proud of the way that we've approached 10:01 14 this work. 10:01 15 We've implemented cost savings in our 10:01 16 work, and I think the staff will agree that we've 10:01 17 produced a very large number of ads at a cost, some of 10:01 18 the figures that they are not used to seeing. But 10:01 19 what we've done is taken our experience in working 10:01 20 with smaller budgets and parlayed that into what we 10:01 21 think is added value for the Lottery. Doctor King and 10:01 22 I have made a major investment in our own time in 10:01 23 working with the minority media. This was a personal 10:01 24 goal of ours, was to make sure that for the first 10:01 25 time, that minority-owned media felt like that they 10:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 1 were important to the situation and that they could 10:01 2 get the eyes and ears whenever they desired of the 10:01 3 ownership of the agency. I think that most of them 10:01 4 would attest that we've done a job at that, not 10:01 5 refusing any phone calls. 10:01 6 I guess you might ask, then, you know, 10:01 7 why are we here today? After accepting the assignment 10:01 8 and fulfilling the above, I think that the staff will 10:02 9 agree to the full satisfaction, I asked for and was 10:02 10 granted an audience with the staff to discuss the cost 10:02 11 factors as it relates to this contract, and some of 10:02 12 the critical learning that could only be gained by 10:02 13 actually executing the contract. My wife likes to 10:02 14 refer to the fact that we're the ones standing when 10:02 15 the music stops. So we had to -- we felt it was our 10:02 16 obligation to go over some of the cost factors that 10:02 17 impacted, negatively impacted the financial viability 10:02 18 of the contract. They fell in two areas. One area 10:02 19 was in an area called merchandise. That situation was 10:02 20 quickly rectified by staff and to our -- to both 10:02 21 parties' satisfaction, although it still was a very 10:02 22 costly endeavor on our part in terms of uncompensated 10:02 23 time. 10:02 24 The bigger issue, and the one which is 10:02 25 an ongoing issue, is one which we have coined as the 10:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 1 minority compliance issue. Minority compliance issue. 10:03 2 I want to stress, first of all, that this is not a 10:03 3 problem solely confined to minority media, 10:03 4 minority-owned media. It is pervasive. However, it 10:03 5 is overrepresented in these segments in the case of 10:03 6 this contract. As we began the assignment, we were 10:03 7 made aware of the State Auditor's report on print 10:03 8 media, on general print media, compliance and as 10:03 9 related to the state lottery. We then endeavored to 10:03 10 correct that situation. This was an assignment that 10:03 11 is not traditionally part of the normal way of doing 10:03 12 business. However, it was something that we felt 10:03 13 needed to be done and that we endeavored with the 10:03 14 assistance and working with the staff to take care of. 10:03 15 We made the staff aware, however, of 10:03 16 the cost associated with this, in our meeting. We 10:03 17 reviewed the past procedures which created the 10:04 18 situation. We developed and established -- assisted 10:04 19 in developing and establishing policies and procedures 10:04 20 that would preclude it from happening in the future, 10:04 21 and we created paper trails and implemented systems 10:04 22 that will allow the Lottery to be assured that they 10:04 23 were getting value for the dollar -- for the 10:04 24 taxpayers' dollar that they were investing, 10:04 25 particularly in the advertising area. 10:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 1 We're now proud to say that we have 10:04 2 established books of audits and guidelines in place. 10:04 3 We have done all of the things that we think have been 10:04 4 necessary to ensure you and the State that the 10:04 5 advertising dollars that are being spent in these 10:04 6 mediums are getting the value that they deserve. 10:04 7 After meeting with staff, they 10:05 8 determined that the only way to -- this problem, by 10:05 9 the way, is not a -- a problem that is one that goes 10:05 10 away. It's one that is an ongoing situation. And 10:05 11 after meeting with staff, because it was something 10:05 12 that was unanticipated, they determined that the only 10:05 13 way to deal with the situation was to reissue the RFP. 10:05 14 So that's how we got to that point. And I want to 10:05 15 stress the fact that it was our initiation of the 10:05 16 meeting that caused the staff to ultimately come to 10:05 17 that decision. 10:05 18 Since our last meeting, however, as 10:05 19 Linda said, we've met in Dallas and had a lengthy 10:05 20 meeting. We met with the staff on last Friday and had 10:05 21 long meetings as to how we can move forward on the 10:05 22 situation. And we've also had internal meetings at 10:05 23 our company to see ways that we can both do the job 10:05 24 that we've been assigned to do as well as make the -- 10:05 25 continue to make the contract profitable. 10:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 1 We all -- the bottom line is this: 10:05 2 We've come to the conclusion that we've already done 10:05 3 most of the work. And we have made that investment on 10:06 4 our company's part and we're more than willing to make 10:06 5 that investment in this account and in the State of 10:06 6 Texas. We are very astutely aware of the importance 10:06 7 of this contract and what it means not only for The 10:06 8 King Group, but for other minority vendors as it 10:06 9 relates to doing business in the State of Texas. And 10:06 10 we're more than willing to absorb those costs that 10:06 11 have been associated in getting us to this point. We 10:06 12 have, in our meetings with staff, looked at what needs 10:06 13 to be done on the back side of this to ensure that 10:06 14 this previously existing situation does not ever occur 10:06 15 again and that we are always accountable as it relates 10:06 16 to what we're getting for our dollar value. And we've 10:06 17 come to the conclusion on yesterday with staff that we 10:06 18 can continue this contract under the current contract 10:06 19 guidelines and make it profitable. After all, we've 10:06 20 already done most of the work that we think needs to 10:07 21 be done. Linda agreed and I agreed that we can do so. 10:07 22 And I want to stress that this is under the confines 10:07 23 of the contract as it exists today. Essentially, we 10:07 24 are -- our agency is willing to absorb these 10:07 25 unexpected costs that we've already incurred. And 10:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 1 we're really excited because we think that we've come 10:07 2 a long way in doing something that is very, very 10:07 3 important as relates to the lottery advertising 10:07 4 account, not only in the past, but in the future. 10:07 5 And I want to close by stating that I 10:07 6 want to stress that this is not a solely minority 10:07 7 issue as relates to print compliance. It is somewhat 10:07 8 over represented in what we have to do, based on the 10:07 9 traditional media. I want to stress that it was a 10:07 10 previously existing condition. That we did not 10:07 11 contribute to it, that we essentially inherited it, 10:07 12 and have made every effort to correct it. And you 10:08 13 have our full commitment of our company to ensure you 10:08 14 that not only have we corrected it, that we have put 10:08 15 in process and in place measures to ensure that it'll 10:08 16 never happen again during our watch. We have 10:08 17 accumulated audits, we have made -- we're in the 10:08 18 process of making the final steps that we have to take 10:08 19 in this process, and that is, now that we know what 10:08 20 we're buying and are able to quantify what we're 10:08 21 buying, acid testing that against what we're paying 10:08 22 for those numbers. If I'm talking advertising to you 10:08 23 and it's a little bit confusing, I'll be happy to 10:08 24 break it down. But the bottom line is the fact that 10:08 25 we want to ensure that when you give a dollar to us in 10:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 1 confidence to spend on behalf of the Texas Lottery, 10:08 2 that we're buying and getting the value for that 10:08 3 dollar. And the auditor's report pretty much 10:08 4 reflected the fact that there was some house cleaning 10:08 5 that needed to be done, and essentially that's what 10:09 6 brought us to this point. 10:09 7 And that's all I have to say. If you 10:09 8 have any questions. 10:09 9 COMMISSIONER SADBERRY: Mr. Chairman, 10:09 10 to Mr. King and Doctor King, we certainly thank you 10:09 11 for being here. I believe as I observed you walk in 10:09 12 the door, you may have missed some of this morning's 10:09 13 meeting. And that's not intended as a criticism, but 10:09 14 my point being, you would have seen, and if you review 10:09 15 this transcript, will see that we have received other 10:09 16 people attend meeting -- this meeting today and other 10:09 17 meetings previously, it's always helpful to us to have 10:09 18 the people who are involved in our contracts present 10:09 19 and providing information to us and giving us the 10:09 20 opportunity of interchange. And I only make the point 10:09 21 that we've had representatives from other companies 10:09 22 here today, as have been in previous meetings, and 10:09 23 representatives from other companies have also 10:09 24 attended. So it was in large measure in that spirit 10:09 25 and for that purpose that we as Commissioners thought 10:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 1 it appropriate that should you desire, you be given 10:10 2 this opportunity. And we thank you for having taken 10:10 3 that opportunity and for being here today. 10:10 4 I think it's always helpful that we can 10:10 5 see eye to eye, whether we agree or not, at least 10:10 6 we're in open discussion -- 10:10 7 MR. KING: Right. 10:10 8 COMMISSIONER SADBERRY: -- on these 10:10 9 very important things to us. So thank you and I'm 10:10 10 glad you were able to make it to this meeting. 10:10 11 Equally so, I'm very pleased, if it is 10:10 12 in fact accurate, that you have seemingly worked 10:10 13 through some degree of accord and understanding about 10:10 14 our current situation because that, again, was a high 10:10 15 priority to us as Commissioners that we carefully 10:10 16 consider and fully understand what exactly was your 10:10 17 desire, given you have -- you are the contracting 10:10 18 party with us as opposed to having staff present what 10:10 19 they perceived as your preferences in that regard, to 10:10 20 have you state it to us should you so choose, and I'm 10:11 21 pleased not only that you have chosen to state it, but 10:11 22 that the statement appears to be palatable. 10:11 23 I do understand somewhat of the 10:11 24 historical situation that may have caused our 10:11 25 executive director and her staff to be this creative 10:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 1 and create this contract opportunity in response to 10:11 2 noted problems or situations to address. I applaud 10:11 3 staff in that regard, I applaud your company, I 10:11 4 applaud other companies who have made bids and 10:11 5 participated in it. And while we do know, given it 10:11 6 being a first-time contracting opportunity, one, and 10:11 7 secondly, being created to some extent out of a 10:11 8 problem situation, that certainly could be the 10:11 9 anticipation of unexpected events. 10:11 10 MR. KING: Right. 10:11 11 COMMISSIONER SADBERRY: We know that in 10:11 12 business, I'm sure, not just with the state, but in 10:11 13 all instances, you encounter those things which we 10:12 14 hope to be kept to a minimum. My question to you, 10:12 15 given that backdrop, I've heard you say several times 10:12 16 about -- talk about that problem and talk about some 10:12 17 unanticipated things or some things you refer to as 10:12 18 preexisting conditions. I think I know what you mean 10:12 19 by that. What I want to know and on this record to 10:12 20 have stated is whether you feel in any way, and I'm 10:12 21 not suggesting that you do or that I've heard that you 10:12 22 do, but I want it clear as to whether you feel in any 10:12 23 way there is any information or any representations in 10:12 24 the RFP or with our staff of this lottery that cause 10:12 25 you not to have the full complement of data you feel 10:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 1 was reasonably necessary and appropriate for you to 10:12 2 make your bid presentation on this RFP. 10:12 3 MR. KING: I think that there -- that 10:12 4 certainly, Commissioner, that additional information 10:12 5 could have been provided as it relates to this -- to 10:12 6 the particular component that I'm speaking of. I 10:13 7 don't, however, believe that there was any way that 10:13 8 the staff could have anticipated exactly what it would 10:13 9 take to deal with the situation. To be honest with 10:13 10 you, we are probably one of the largest procurers of 10:13 11 ethnic print media in America, and with that kind of 10:13 12 expertise, there were certain things that we did 10:13 13 encounter that would not be normal in the course of 10:13 14 doing the -- the normal advertising business, that the 10:13 15 staff did point out and we were pretty much aware of. 10:13 16 However, what it would take to deal with this 10:13 17 situation, under the State's guidelines and under the 10:13 18 fact that this is a State agency, could not have been 10:13 19 anticipated, I don't believe, by the staff. I think 10:13 20 that today, if they were to reissue an RFP, that there 10:13 21 would be additional things that would be in it that 10:13 22 would point these things out. But, you know, 10:14 23 unfortunately, there is probably some on-the-job 10:14 24 learning that -- that we both had as relates to doing 10:14 25 this. So I don't think -- there are some things in 10:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 1 life I don't think you can write down and put in it 10:14 2 writing. But you can at least, after this first 10:14 3 round, address in the oral meetings and those kinds of 10:14 4 things -- there are questions that today I would ask 10:14 5 that I would not have asked in an oral prebid meeting. 10:14 6 And I think that the staff is aware today of those 10:14 7 things and would probably initiate those type of 10:14 8 questions and address those type questions. But so 10:14 9 from a standpoint of, did we anticipate things through 10:14 10 this procurement process that we encountered, no. Do 10:14 11 I think that it was done based on anything except a 10:14 12 lack of experience? I think certainly -- and I 10:14 13 applauded the staff many, many times as far -- and 10:14 14 told them many, many times that I think their intent 10:14 15 is in the right place, it's just a matter that these 10:15 16 things had to be experienced. Sometimes things have 10:15 17 to be experienced in order to understand how to do 10:15 18 them. 10:15 19 COMMISSIONER SADBERRY: Linda, is that 10:15 20 a fair assessment of your perception? 10:15 21 MS. CLOUD: Yes. Commissioners, when 10:15 22 we went through the RFP process in the prebid -- I 10:15 23 mean, the presentations that advertising groups made, 10:15 24 I made it perfectly clear the intent of the agency to 10:15 25 hold the award of the contract, whoever that might be, 10:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 68 1 responsible for any lottery dollars spent by the 10:15 2 agency or placed with subcontractors, that they had to 10:15 3 be sure that those subcontractors were in compliance, 10:15 4 with audits, with guidelines that we've set out for 10:15 5 placing our ads. And Mr. King is right. I don't 10:15 6 think anybody, us or the vendor at the time of 10:15 7 bidding, had a clue what kind of manpower it was going 10:16 8 to take in order to accomplish that. And I think 10:16 9 that's where Mr. King under bid on his contract, 10:16 10 possibly. But like he says, I think now he's done the 10:16 11 work, and now it's -- it should rock along pretty 10:16 12 easy. But he's -- he has done a good job, and we have 10:16 13 no complaints about the performance of his contract. 10:16 14 He has done a good job for the agency. It's just that 10:16 15 in the meetings that we've had and his concern about 10:16 16 his financial positioning and the man hours that this 10:16 17 was taking, it was a concern of the staff to leave him 10:16 18 in that position. And so that was the intent for 10:16 19 going back out. 10:16 20 COMMISSIONER SADBERRY: But y'all 10:16 21 feel -- you feel that you can comply with the 10:16 22 contract -- 10:17 23 MR. KING: Right. 10:17 24 COMMISSIONER SADBERRY: -- complete the 10:17 25 terms of the contract, and you're willing to do that. 10:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 69 1 MR. KING: Right. Yes, sir. And 10:17 2 Commissioner, also, I want close by saying that, you 10:17 3 know, a lot of what we've done has been based on our 10:17 4 personal commitment to this contract. And, you know, 10:17 5 we chose to interface with the publishers ourselves, 10:17 6 Doctor King and myself, and do some things, I think, 10:17 7 that is kind of unheard of and unprecedented in this 10:17 8 process. But also, we feel that we have in place 10:17 9 the -- the work that it took to get it in place was 10:17 10 probably the -- about 80 percent of it. We -- I 10:17 11 will -- would like to go on record also in saying that 10:17 12 in our final getting to this conclusion yesterday, we 10:17 13 did ask the staff for specific things in the future 10:17 14 that will help us to -- to cut down on the man hours 10:17 15 in the future. And Linda has agreed to do those 10:17 16 things, such as rapid response to questions from 10:18 17 vendors, if there are questions as far as what the 10:18 18 lottery policy is, getting rapid response as far as it 10:18 19 relates to what the Lottery's position is, so that we 10:18 20 can then not have to entertain so much discussions 10:18 21 from the publishers about their interpretation of it. 10:18 22 So we really worked through those things and that was 10:18 23 a precondition to us going forward with this contract. 10:18 24 So we're comfortable that we can do it under the 10:18 25 current contract with the conditions and agreements 10:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 70 1 that we made with staff. 10:18 2 COMMISSIONER SADBERRY: Now, on that 10:18 3 point, and this will probably be my final question and 10:18 4 comment. And Ridgely, I guess you and Kim might to 10:18 5 listen and see if I say this correctly. I hear you 10:18 6 say things like agreements, things of that nature. 10:18 7 And you talk about what you talked about from 10:18 8 yesterday and what have you. I want to make sure 10:18 9 there is a full and complete understanding about the 10:18 10 State's position. Our Chairman mentioned earlier, I 10:18 11 don't know if you had made it by the time or not, 10:19 12 about the fact that private industry -- the ways of 10:19 13 people in private industry deal day to day -- and we 10:19 14 have to be cognizant of that because we deal with 10:19 15 private industry. The Texas Lottery is highly 10:19 16 privatized. That's a strong feature of our Lottery 10:19 17 that sets us apart from some lotteries. At the same 10:19 18 time, we have state and government laws and 10:19 19 regulations that govern what we can do, particularly 10:19 20 in contracting. So I want to make certain there is an 10:19 21 understanding that the contract is your agreement and 10:19 22 that there are certain constraints that we have as far 10:19 23 as whether we can pay you extra money if you think 10:19 24 there has been an unusual precondition or 10:19 25 unanticipated situation that might equitably explain 10:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 71 1 or justify why it's reasonable in some people's mind 10:19 2 to pay you more, but that by contract and by State law 10:19 3 we can't do that. I just want to make sure that there 10:19 4 is no misunderstanding from something that happened 10:19 5 yesterday -- 10:19 6 MS. CLOUD: Let me explain what 10:19 7 happened yesterday. It was more communication. It 10:20 8 had nothing to do with the contract language. 10:20 9 MR. KING: Exactly. 10:20 10 MS. CLOUD: It had everything to do 10:20 11 with communication between Mr. King and myself on 10:20 12 backing him up when he makes a statement to an 10:20 13 advertising vendor who is not in compliance and he's 10:20 14 not going to place an ad, and I'm going to back him up 10:20 15 because I'm not going to let him place the ad. And 10:20 16 this is going to be a process that we have go through 10:20 17 for a while in order to teach these people that we 10:20 18 mean what we say. This has been a very lax, in 10:20 19 previous years, controls in place, and the 10:20 20 subcontractors are not used to having to adhere to 10:20 21 these kinds of things, and now they are, and it's 10:20 22 causing them heartburn. 10:20 23 MR. KING: What we're saying, 10:20 24 Commission, is that -- the good examples are such 10:20 25 things as, I've dealt in the last two days with one 10:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 72 1 vendor for over eight hours on the policies and 10:20 2 procedures that were reissued -- refined and reissued. 10:20 3 It was -- it's -- those things are subject to 10:21 4 interpretation by our subcontractors. And what I 10:21 5 asked for was such things as, if we need a rapid 10:21 6 response clarification sent out so that we can then 10:21 7 cut these conversations short and those kinds of 10:21 8 things. So they were all perfunctory under the 10:21 9 current contract. 10:21 10 MR. BENNETT: And Commissioner, to 10:21 11 respond to your question. Should the contract be 10:21 12 extended, it would be under the same terns and 10:21 13 conditions as the contract was originally executed. 10:21 14 There would be no amendments to the contract. 10:21 15 COMMISSIONER WHITAKER: Ridgely, what 10:21 16 you're basically saying is, the contract itself has 10:21 17 not been amended in any way. 10:21 18 MR. BENNETT: The contract has not been 10:21 19 amended. The contract does allow for two renewals of 10:21 20 one-year periods, and we would simply be exercising 10:21 21 the Lottery's authority to renew the contract for an 10:21 22 additional year. 10:21 23 COMMISSIONER WHITAKER: And Mr. King 10:21 24 and Doctor King, thank you for coming in. And am I 10:22 25 correct in interpreting what you've said that you 10:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 73 1 believe the staff has treated you fairly and 10:22 2 professionally? 10:22 3 MR. KING: Yes, we have. We have 10:22 4 worked extremely well together. Unfortunately, we 10:22 5 just came to this conclusion, but we are very, very 10:22 6 comfortable. 10:22 7 DR. KING: And I must say that I'm 10:22 8 involved in the day-to-day operations of this account. 10:22 9 I interface with the staff on a daily basis. And even 10:22 10 though we had some conflict regarding the contract, it 10:22 11 was my goal to make sure that this would not in any 10:22 12 way interrupt the daily services of the account, so -- 10:22 13 and I think we can continue in that fashion. 10:22 14 COMMISSIONER WHITAKER: Well, thank you 10:22 15 for those words and thank you for coming. 10:22 16 CHAIRMAN CLOWE: Just one moment, 10:22 17 please. Is there any action requested at this point 10:22 18 in time? 10:22 19 MS. CLOUD: Based on what you've heard 10:22 20 here today, it's my recommendation that we now extend 10:22 21 this contract for one year in lieu of going back out 10:22 22 to bid. 10:22 23 MS. KIPLIN: And consistent with past 10:23 24 Commission practice, I believe that you all would 10:23 25 consider this to be a major contract of the agency, so 10:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 74 1 you would want to take some action with regard to 10:23 2 recommendations before you. 10:23 3 COMMISSIONER SADBERRY: Let me -- I 10:23 4 want to make a motion, but before I make it, I want to 10:23 5 make sure we're clear. Mr. King and Dr. King, you're 10:23 6 saying you not only can comply and continue and 10:23 7 complete the primary term, but you actually are 10:23 8 desirous of an extension should the staff elect to 10:23 9 extend, on the same terms of the contract? 10:23 10 MR. KING: That is correct. 10:23 11 COMMISSIONER SADBERRY: Mr. Chairman, I 10:23 12 would so move. 10:23 13 CHAIRMAN CLOWE: Is there a second? 10:23 14 COMMISSIONER WHITAKER: Second. 10:23 15 CHAIRMAN CLOWE: Moved and seconded. 10:23 16 May I ask a question before we call for 10:23 17 the vote. What is the expiration date on this current 10:23 18 contract? 10:23 19 MR. BENNETT: Commissioner, the 10:23 20 expiration date is August 31st, 2000, with two options 10:23 21 to renew, two one-year options to renew. 10:23 22 CHAIRMAN CLOWE: Very good. 23 Moved and seconded that the contract be 10:23 24 extended. All in favor, please say aye. Opposed, no. 10:23 25 The vote is three-zero in favor. 10:24 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 75 1 Then, is the notice of this agenda item 10:24 2 sufficient for me to ask Doctor and Mr. King about 10:24 3 comments made at a prior meeting relative to minority 10:24 4 print issues? 10:24 5 MS. KIPLIN: Yes. If it's not there 10:24 6 under, I guess, the -- and I think it is sufficient 10:24 7 because it is within the scope of their contract, but 10:24 8 there is also, under item three, on lottery 10:24 9 advertising and promotions, including print media 10:24 10 criteria. 11 I do want to clarify for the record 10:24 12 that your vote was to extend for one of the two 10:24 13 one-year -- 10:24 14 CHAIRMAN CLOWE: That's correct. For 10:24 15 one year. 10:24 16 There was a meeting where we had media 10:24 17 representatives from Houston, and I believe a 10:24 18 gentleman from Austin, and they made comments and we 10:24 19 asked that work be done to reconcile those issues. 10:24 20 And could you give us your impression of where those 10:24 21 issues are at this point in time? 10:24 22 MR. KING: We have addressed, I guess, 10:25 23 both of those issues with the press -- I think one of 10:25 24 the issues were as relates to some of the Lottery 10:25 25 requirements. We have -- the staff has made some 10:25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 76 1 adjustments in the requirements that we -- you know, 10:25 2 being minority vendors ourselves and understanding the 10:25 3 problems and so forth that a small company might go 10:25 4 through, we understood some of the things that were 10:25 5 brought up in the meeting. There are things that are 10:25 6 reasonable and fair and I think the staff did address 10:25 7 those as it relates to the requirements that it took 10:25 8 for us -- and by the way, that was also, Mr. Chairman, 10:25 9 part of the situation that created a lot of work for 10:25 10 us in trying to police those things. So we've met, I 10:25 11 think, a pretty happy medium to maintain the integrity 10:25 12 of what we're buying, but at the same time, put in 10:25 13 place policies and procedures that are palatable for 10:25 14 those vendors. And we work with them on a daily 10:25 15 basis, we talk to them on a daily basis, and to my 10:26 16 knowledge, those things have been pretty much 10:26 17 rectified. 10:26 18 CHAIRMAN CLOWE: Very good. That was 10:26 19 my question. Thank you very much. 10:26 20 There is no need to return now to item 10:26 21 15 based on the action taken on this item, is there? 10:26 22 MS. KIPLIN: I believe you took action. 10:26 23 MS. CLOUD: We took action on that. 10:26 24 CHAIRMAN CLOWE: That's fine. I didn't 10:26 25 recall that we had a motion on that. Thank you. 10:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 77 1 Are there any other individuals who 10:26 2 wish to appear before the Commission on any item on 10:26 3 the agenda at this time? If there are none, I am 10:26 4 going to ask that we move into executive session in 10:26 5 regard to items that need to be handled timely. At 10:26 6 this time, I move the Texas Lottery Commission go into 10:26 7 executive section to deliberate the duties and 10:26 8 evaluations of the Executive Director, Internal 10:26 9 Auditor, and Charitable Bingo Operations Director 10:26 10 pursuant to Section 551.074 of the Texas Government 10:27 11 Code; to deliberate the duties of the General Counsel 10:27 12 and Security Director pursuant to Section 551.074 of 10:27 13 the Texas Government Code; to receive legal advice 10:27 14 regarding pending or contemplated litigation and/or to 10:27 15 receive legal advice pursuant to Section 551.071 (1) 10:27 16 (A) or (B) of the Texas Government Code; and/or to 10:27 17 receive legal advice pursuant to Section 551.071 (2) 10:27 18 of the Texas Government Code, including but not 10:27 19 limited to: T&T Interest, Inc. versus Texas Lottery 10:27 20 Commission, et al; Thomas R. Araiza, Jr. versus Carole 10:27 21 Keeton Rylander, Comptroller of Public Accounts and 10:28 22 Texas Lottery Commission; Matter involving the 10:28 23 Department of Justice pursuit of a complaint regarding 10:28 24 the Americans with Disabilities Act; Matter involving 10:28 25 Request for Open Records Decision in Attorney General 10:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 78 1 Open Records file number 119718-98 relating to request 10:28 2 for information in connection with the lottery 10:28 3 operator; Matter involving Wild Card Cash instant 10:28 4 game; Matter involving employee complaint; Matter 10:28 5 involving agency purchases; Matter involving brokerage 10:28 6 arrangements insofar as HUB/minority business 10:28 7 participation is concerned; Matter involving proposed 10:28 8 acquisition of Scientific Games, Inc. by Autotote 10:28 9 Corporation; employment law, personnel law, 10:28 10 procurement law, and general government law. 10:28 11 That was the motion. Is there a 10:29 12 second? 10:29 13 COMMISSIONER SADBERRY: Second. 10:29 14 CHAIRMAN CLOWE: All in favor, say aye. 10:29 15 The vote is three to zero. The Texas 10:29 16 Lottery Commission will go into executive session. 10:29 17 The time is 10:23 a.m. Today is July 18, 2000. 10:29 18 (Executive session. ) 13:34 19 CHAIRMAN CLOWE: The Texas Lottery 13:34 20 Commission is out of executive session. The time is 13:34 21 now 1:24 p.m. Is there any action to be taken as a 13:34 22 result of executive session? 13:35 23 If not, let's move on to item two on 13:35 24 our agenda report, possible discussion and/or action 13:35 25 on lottery sales and trends. Toni Smith. And Toni, 13:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 79 1 before you begin, I would like to note for the record 13:35 2 that Commissioner Sadberry has left the meeting and is 13:35 3 no longer present, but Commissioner Whitaker and I are 13:35 4 here and a quorum still exists. 13:35 5 Thank you. 13:35 6 MS. SMITH: For the record, I'm Toni 13:35 7 Smith, marketing director of the Texas Lottery 13:35 8 Commission. An overview of sales, total fiscal year 13:35 9 2000 sales to date, are 2,315,605,111. This is up 13:35 10 1.28 percent from the FY '99 total salaries to date of 13:35 11 2,286,317,147. The fiscal year 2000 weekly sales 13:35 12 average is 50,339,241.54. This, again, reflects that 13:36 13 1.28 percent up from FY '99 -- excuse me -- FY '99 13:36 14 sales average of 49,702,546.68. 13:36 15 To take a brief look at year-to-date 13:36 16 sales comparison by products, and we usually focus on 13:36 17 Instants and on Lotto, Instants are up 17 percent for 13:36 18 this -- from this time last year and Lotto Texas is 13:36 19 down 22 percent, 22.76 percent from this time last 13:36 20 year. And as usual, Lotto is relative to the jackpots 13:36 21 in the previous year, but I think the good news is 13:36 22 that Instants are definitely up, and that is what has 13:36 23 gotten us over the line compared to last year's sales. 13:36 24 Any questions? 13:37 25 COMMISSIONER WHITAKER: For the week it 13:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 80 1 was down. Is that correct? For the previous week? 13:37 2 MS. SMITH: You mean, this current week 13:37 3 to the last week, the week before? Week to week or 13:37 4 year to date? 13:37 5 COMMISSIONER WHITAKER: Week to week. 13:37 6 MS. SMITH: The third page, yes. 13:37 7 Overall sales were actually up 6.46 percent. That 13:37 8 would be the third memo in your packets there. But 13:37 9 Lotto Texas -- are you referring to Lotto Texas? 13:37 10 COMMISSIONER WHITAKER: Well, actually, 13:37 11 I'm looking to the -- it's the third page under the 13:37 12 tab. And it says weekly sales, week ending July 8th, 13:37 13 2000. 13:37 14 MS. SMITH: I see. I'm sorry, 13:37 15 Commissioner. You're in the binder and I'm referring 13:37 16 to a memo that I put in front of you this morning that 13:37 17 is more current. 13:37 18 COMMISSIONER WHITAKER: I see. Okay. 13:37 19 Is it your opinion that we're simply seeing weekly 13:37 20 seasonal fluctuations? 13:37 21 MS. SMITH: Yes, ma'am. It's the 13:38 22 beginning of the summer and actually, until after 13:38 23 school starts. You know, people spend their money on 13:38 24 vacations, and then school purchasers, so this is a 13:38 25 seasonal slump that we're in. Although Instants are 13:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 81 1 at least -- they've stayed fairly flat, we didn't drop 13:38 2 down, and we're very excited to have started out our 13:38 3 new Lotto Texas game with a 21 million dollar jackpot. 13:38 4 So hopefully that will get Lotto going in the right 13:38 5 direct as Instants. 13:38 6 CHAIRMAN CLOWE: You started with a 13:38 7 good beginning, didn't you? 13:38 8 MS. SMITH: Yes, we did. 13:38 9 CHAIRMAN CLOWE: Do you have any 13:38 10 feedback for us on what the response to the new game 13:38 11 is starting Sunday so far? 13:38 12 MS. SMITH: Unless Linda has some other 13:38 13 comments, it's been fairly quiet. And, you know, we 13:38 14 had -- people have been vocal through some of the rule 13:38 15 making process of their opinions about not making 13:38 16 changes to Lotto, but we've really not heard anything. 13:38 17 It's been quiet and we're starting out with a good 13:38 18 jackpot. And I didn't really expected to hear too 13:38 19 much. 13:39 20 MS. CLOUD: Each of the media markets, 13:39 21 the newspapers did print the story Sunday about, if 13:39 22 you didn't buy your tickets now, it's going to be 13:39 23 harder to win type of thing. But we haven't had a lot 13:39 24 of response that I'm aware of from the playing public 13:39 25 on the change. The jackpot being at 21 million is 13:39 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 82 1 helpful because now is when the players will start 13:39 2 coming back in. The last 21 million dollar jackpot 13:39 3 that we had, we had to pay some out of reserve to pay 13:39 4 that jackpot. So the sales were -- you know, we're at 13:39 5 a point where we have to see a change. 13:39 6 CHAIRMAN CLOWE: Very good. Thank you. 13:39 7 Toni, I think you have the next item. 13:39 8 MS. SMITH: Yes, sir, I do. Just an 13:39 9 update on advertising. We started airing yesterday 13:39 10 two new TV spots for new Lotto, at our introduction of 13:39 11 the four new balls that we have sent up -- both 13:40 12 upstairs for the Commissioners and for Linda. And 13:40 13 they will run through August 19th. And then we have a 13:40 14 radio campaign there in the same concepts of the 13:40 15 introduction of the new balls that will run through 13:40 16 the end of August. Our scratch-off coin TV campaign 13:40 17 runs through July 29th, and the radio Metro traffic 13:40 18 reads will run through August 6th. And those are both 13:40 19 general market advertising. And then on the minority 13:40 20 market side, we've been promoting Cash 5 and Pick 3, 13:40 21 both through TV, and they started in April and will 13:40 22 also run through August. And then The King Group is 13:40 23 also working on some radio to introduce the new Lotto 13:40 24 game to the minority markets, so they're working on 13:40 25 the specifics on that. So we've got some good 13:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 83 1 advertising out there and covering all the products. 13:40 2 In addition, with the minority for the Cash 5 and Pick 13:40 3 3, it's been a long time since we've done anything to 13:40 4 support those games through advertising, so we're 13:40 5 getting our bases covered, I think. 13:40 6 CHAIRMAN CLOWE: Very good. 13:41 7 MS. SMITH: That's really all I have. 13:41 8 CHAIRMAN CLOWE: Questions? 13:41 9 Thank you, Toni. 13:41 10 Linda, I believe you have the next 13:41 11 item, report, possible discussion and/or action on the 13:41 12 lottery operator audit procurement. 13:41 13 MS. CLOUD: Commissioners, at the last 13:41 14 Commission meeting, we reported that we were waiting 13:41 15 for a response from the State Auditor's Office on one 13:41 16 of the issues pertaining to this audit procurement. 13:41 17 And we have since had response from the State Auditor 13:41 18 and their recommendation is for us to go forward with 13:41 19 this audit. So we're going to request that legal 13:41 20 prepare to go out with the RFP on doing this audit 13:41 21 again. Now, especially, with the situation we're in, 13:41 22 this is probably good timing. 13:41 23 MS. KIPLIN: You know, just to kind of 13:41 24 add to that, Commissioners. I was the one that spoke 13:41 25 with Cindy Reed, and she understands the timing issue 13:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 84 1 with regards to the time on the deliverables, but her 13:42 2 sense is that you won't really know unless you issue 13:42 3 it whether somebody can propose and say that they can 13:42 4 do it within whatever time frame we think we need the 13:42 5 deliverables. And I also did talk to her about the 13:42 6 thresholds on performance bonds and insurance and 13:42 7 didn't really get any sort of feedback in terms of 13:42 8 reasonable or unreasonable. Just, you guys are 13:42 9 probably in a better position to judge that based on 13:42 10 your work. 13:42 11 CHAIRMAN CLOWE: Very good. No 13:42 12 questions, so we'll move on to item five, status 13:42 13 report, possible discussion and/or action on the 13:42 14 financial services audit procurement. 13:42 15 MS. CLOUD: Ridge? 13:42 16 MR. BENNETT: Good afternoon. Once 13:42 17 again, for the record, my name is Ridgely Bennett. 13:42 18 I'm the deputy general counsel. 13:42 19 The evaluation committee has made a 13:42 20 recommendation regarding the financial audit to the 13:42 21 executive director and I believe it's in her office 13:42 22 being reviewed. 13:43 23 MS. CLOUD: And I should be able to 13:43 24 sign off on that, as long as I'm in agreement with the 13:43 25 evaluation committee, today. 13:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 85 1 CHAIRMAN CLOWE: Very good. 13:43 2 MS. CLOUD: Ridgely then can notify the 13:43 3 successful proposal. 13:43 4 CHAIRMAN CLOWE: Anything you want to 13:43 5 point out to us on it? 13:43 6 MR. BENNETT: Nothing further unless 13:43 7 you have any questions. 13:43 8 CHAIRMAN CLOWE: None. Thank you very 13:43 9 much. 13:43 10 Item six relates to consideration of 13:43 11 and possible discussion and/or action on the state 13:43 12 audit report relating to Texas Lottery Commission. 13:43 13 And Deborah McCloud has informed me that that material 13:43 14 is in the notebook. And Deborah, you have no further 13:43 15 comments? 13:43 16 MS. McCLOUD: No, sir, I don't. 13:43 17 CHAIRMAN CLOWE: Thank you very much. 13:43 18 We have concluded items seven, eight, and now we're 13:43 19 ready to deal with item nine, consideration of and 13:43 20 possible discussion and/or action, including proposal, 13:43 21 on new rules relating to procedures for resolving 13:44 22 certain breach of contract claims. And this will be 13:44 23 Ridgely, I believe. 13:44 24 MS. KIPLIN: Actually, that is me. I'm 13:44 25 sorry. Commissioners, my understanding is that you 13:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 86 1 have not taken up the consideration of the agency's 13:44 2 legislative appropriations request. I'm happy to go 13:44 3 ahead and present the rules, or if you would like me 13:44 4 to stop and go to that item, I'll be glad to do that, 13:44 5 too. 13:44 6 MS. CLOUD: The LAR, item eight. 13:44 7 COMMISSIONER WHITAKER: You want to do 13:44 8 what? I'm sorry. 13:44 9 MS. KIPLIN: I'll be glad to do 13:44 10 whatever is the desire of the Commission. I'll be 13:44 11 glad to present the rule, and then if you want to take 13:44 12 up the LAR, I have been told you will not take up the 13:44 13 matter until the accord by this committee -- 13:44 14 COMMISSIONER WHITAKER: Oh, I see. 13:44 15 Let's just -- 13:44 16 CHAIRMAN CLOWE: Okay. 13:44 17 MS. KIPLIN: Commissioners, what you 13:44 18 have in your notebook is a draft of several rules that 13:44 19 the staff is requesting that you vote to propose for 13:44 20 publication for public comment in the Texas Register. 13:45 21 By way of background, in the last legislative session 13:45 22 there was a bill that was adopted and passed into law, 13:45 23 it's House Bill 826, that created a procedure for 13:45 24 vendors who believe that there is a breach of contract 13:45 25 by the agency to be able to try to negotiate out that 13:45 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 87 1 breach of contract, and failing the ability to 13:45 2 negotiate out the breach of contract, does give the 13:45 3 vendor the opportunity to request a contested case 13:45 4 proceeding over at the State Office of Administrative 13:45 5 Hearings. The -- the agencies are required to adopt 13:45 6 rules that would implement this legislation. There 13:45 7 was a working group that was put together last year, 13:45 8 spearheaded by the Office of Attorney General and the 13:45 9 Center for Public Policy Dispute Resolution at the 13:45 10 University of Texas School of Law. It consisted of 13:46 11 the representatives of state agencies, legislative 13:46 12 offices, institutions of higher education, and also 13:46 13 included, at the end, representatives of contractors 13:46 14 and vendors that do business with the State. The 13:46 15 purpose of that working group was to create model 13:46 16 rules, and primarily for those agencies that did not 13:46 17 have rule making authority on their own, but also to 13:46 18 try to assist agencies who do have rule making 13:46 19 authority in terms of guidance. The Office of 13:46 20 Attorney General has proposed and adopted their model 13:46 21 rules, and there are a couple of other agencies that 13:46 22 have also gotten rules proposed. I think, in 13:46 23 particular, maybe one that's actually got them 13:46 24 adopted. 13:46 25 What you have in your notebook before 13:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 88 1 you today is generally the model rules that were 13:46 2 adopted by the Office of Attorney General, and I have 13:46 3 looked at a couple of other agencies that are in the 13:46 4 process with regard to their rules, have not modified 13:46 5 them substantively in my view at all from what the 13:46 6 Office of Attorney General had. And really, what 13:47 7 we're asking today is for you to vote to propose these 13:47 8 rules for public comment. We'll get public comment. 13:47 9 If we do, we'll obviously review the public comment 13:47 10 and respond to that comment. 13:47 11 I'll be happy to answer any questions 13:47 12 that you have. 13:47 13 CHAIRMAN CLOWE: Any questions? 13:47 14 I move we adopted the rules for 13:47 15 publication. 13:47 16 MS. KIPLIN: And they'll be published 13:47 17 for a minimum of 30 days. 13:47 18 COMMISSIONER WHITAKER: I'll second. 13:47 19 CHAIRMAN CLOWE: All in favor, say aye. 13:47 13:47 20 Opposed, no. 13:47 21 The vote is passed by a vote of two to 13:47 22 zero. 13:47 23 Let's stay on the legal while we're at 13:47 24 it, and we'll go back to the LAR. And, Ridgely, I 13:47 25 think now we've got you. 13:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 89 1 MR. BENNETT: Thank you. Once again, 13:47 2 for the record, my name is Ridgely Bennett. I'm the 13:47 3 deputy general counsel for the Texas Lottery 13:47 4 Commission. 13:47 5 Commissioners, what you have before you 13:47 6 now is staff's recommendation to propose for public 13:47 7 comment in the Texas Register, new Rule 403.301 13:47 8 relating to historically underutilized businesses. 13:47 9 Pursuant to Section 2161.003 of the Government Code, 13:47 10 State agencies are required to adopt the General 13:48 11 Services Commission's rules relating to historically 13:48 12 underutilized businesses as the agency's own rules. 13:48 13 The proposed new 16 TAC 403.301, if adopted by the 13:48 14 Commission, would fulfill the legislative mandate 13:48 15 required under Section 2161.003 of the Government 13:48 16 Code. 13:48 17 I'll be happy to answer any questions. 13:48 18 COMMISSIONER WHITAKER: Are there any 13:48 19 questions you can think of? 13:48 20 MR. BENNETT: I can't think of any. 13:48 21 The language that you have before you is very similar 13:48 22 to the language that other State agencies are using 13:48 23 and adopting for rules. 13:48 24 CHAIRMAN CLOWE: And you want a motion 13:48 25 from us, don't you? 13:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 90 1 MR. BENNETT: We do request that you 13:48 2 have a motion electing to propose for public comment 13:48 3 new Section 403.301 in the Texas Register for a 13:48 4 minimum of 30 days. 13:49 5 COMMISSIONER WHITAKER: So moved. 13:49 6 CHAIRMAN CLOWE: Second. 7 All in favor say aye. 13:49 8 MS. KIPLIN: Commissioners, I am told 13:49 9 that we need to stop talking for a second so that they 13:49 10 can turn the sound system on and off to correct the 13:49 11 background noise. 13:49 12 (OFF THE RECORD.) 13 CHAIRMAN CLOWE: Back on the record 13:50 14 after an equipment correction. 13:50 15 The vote was, for the record, 13:50 16 three-zero in favor of -- two-zero, pardon me, in 13:50 17 favor of approval. 13:50 18 Ridgely. 13:50 19 MR. BENNETT: For proposal of new 13:50 20 Section 16 -- Title 16, Section 403.301. 13:50 21 CHAIRMAN CLOWE: Thank you. Anything 13:50 22 further? 13:50 23 MR. BENNETT: I have nothing further. 13:50 24 CHAIRMAN CLOWE: Thank you, sir. 25 Now, Nelda and Collin, we're to item 13:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 91 1 number eight, consideration of and possible discussion 13:50 2 and/or action on the agency's Legislative 13:50 3 Appropriations Request. 13:51 4 Is Bart going to help you out? 13:51 5 MS. TREVINO: Bart is going to help me 6 out. 7 Just a very brief update. We just 13:51 8 wanted to let you know that staff is on target in 13:51 9 preparing the Legislative Appropriations Request. As 13:51 10 a reminder, it is due to the appropriate legislative 13:51 11 offices on August the 25th. And so we hope to have a 13:51 12 draft to you all in the next couple of weeks for your 13:51 13 review, and we'll need, again, Commission approval, 13:51 14 hopefully at the August meeting, and we hope that that 13:51 15 can take place prior to the August 25th due date. 13:51 16 CHAIRMAN CLOWE: Very good. 17 Anything to add, Bart? 13:51 18 MR. SANCHEZ: No, sir. 13:51 19 CHAIRMAN CLOWE: Gosh, you got the easy 13:51 20 part, didn't you? Okay. This is advisory in nature 13:51 21 and no action required at this time. 13:51 22 MS. TREVINO: No action required at 13:51 23 this time, that's correct. 13:51 24 CHAIRMAN CLOWE: Thank you both very 13:51 25 much. 13:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 92 1 Mr. Atkins, I believe you have the next 13:51 2 three items, beginning with number 11, 12 and 13. 13:51 3 MR. ATKINS: On number 11, 13:52 4 Commissioners, Bill Manus, the chair of the Bingo 13:52 5 Advisory Committee, has asked me to extend his 13:52 6 apologies to you. He is out of the state and could 13:52 7 not attend today's meeting. However, I have included 13:52 8 in the notebook his written report of the June 13th, 13:52 9 2000 Bingo Advisory Committee meeting and would be 13:52 10 happy to attempt to answer any questions you may have 13:52 11 regarding his report. 13:52 12 COMMISSIONER WHITAKER: Is he expecting 13:52 13 us to vote on something? 13:52 14 MR. ATKINS: Not relating to his 13:52 15 report, no, ma'am. 13:52 16 COMMISSIONER WHITAKER: What is his 13:52 17 expectation as to what we do with his report? 13:52 18 MR. ATKINS: I believe it's just 13:52 19 informative in nature. 13:52 20 COMMISSIONER WHITAKER: Okay. Which 13:52 21 tab is it under? 13:52 22 MR. ATKINS: It's listed as just Bingo 13:52 23 Advisory Committee. 13:52 24 COMMISSIONER WHITAKER: The memo talks 13:52 25 about them adopting motions for recommended action by 13:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 93 1 the Commission. And you're saying that at this point 13:53 2 in time, they're not moving forward with those. Is 13:53 3 that correct? 13:53 4 MR. ATKINS: Commissioner Whitaker, I'm 13:53 5 not exactly sure what the intent of item A is in 13:53 6 presenting that to you. That is an item that the 13:53 7 advisory committee brought forward to the Commission 13:53 8 earlier that the Commission rejected the proposal to 13:53 9 lower the age of workers at bingo halls. The advisory 13:53 10 committee took it up again, and I guess wanted to 13:53 11 bring it back to the Commission with what they 13:53 12 considered to be additional relevant factors that the 13:53 13 Commission may not have had for consideration at the 13:53 14 December meeting, I believe, where it was first 13:53 15 considered by the Commission. I don't know if at this 13:53 16 time they're necessarily requesting the Commission to 13:54 17 take any action. I do know that Bill wanted to, at 13:54 18 the September meeting, have a broader consideration of 13:54 19 any specific legislative changes that the advisory 13:54 20 committee would then be bringing before the Commission 13:54 21 for their consideration. 13:54 22 COMMISSIONER WHITAKER: Okay. 13:54 23 CHAIRMAN CLOWE: Billy, in the spirit 13:54 24 of good communication and, you know, not sending early 13:54 25 signals. I for one continue to have a problem with 13:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 94 1 this issue, and I just -- I've read this and thought 13:54 2 about it, and the idea of putting 16 and 17 year-old 13:54 3 young people in this position is bothersome to me. 13:54 4 And I would just like to -- I'm open to discussion and 13:54 5 be happy to, you know, have Bill or anyone else from 13:54 6 the committee that wants to appear before us discuss 13:54 7 it, but I just, in fairness, I want to say I continue 13:55 8 to have a problem with this. 13:55 9 MS. KIPLIN: Commissioners, I will say 13:55 10 that under the Occupations Code, which is now where 13:55 11 Bingo Enabling Act has been codified, there is a 13:55 12 prohibition, a statutory prohibition for people who 13:55 13 are minors conducting or assisting in the conduct of 13:55 14 bingo. So it would require -- for you all to even 13:55 15 support this, it still would require a legislative 13:55 16 change for there to be any sort of ability for anybody 13:55 17 who is a minor to be conducting or assisting in the 13:55 18 conduct of bingo. 13:55 19 CHAIRMAN CLOWE: So this is not an 13:55 20 issue for us. 13:55 21 MR. ATKINS: It's not an issue unless 13:55 22 they bring it back and ask you to consider making that 13:55 23 proposal to the legislature. And, you know, for the 13:55 24 record, I on behalf of the staff expressed many of the 13:55 25 same concerns at the advisory committee meeting that 13:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 95 1 you did. And, additionally, I believe it would still 13:55 2 be a concern for the security division as far as 13:56 3 conducting the required background investigations on 13:56 4 minors. 13:56 5 CHAIRMAN CLOWE: You know, as a 13:56 6 mattered of public policy, I just don't -- for one, I 13:56 7 can't see this as being something that we would be 13:56 8 entertaining at all. I don't mean to -- 13:56 9 COMMISSIONER WHITAKER: You and I have 13:56 10 had discussions, Billy, but that's my view as well. 13:56 11 And these additional reasons don't really change that 13:56 12 general impression that I have, so... 13:56 13 CHAIRMAN CLOWE: Thank you. 13:56 14 MR. ATKINS: Yes, sir. 13:56 15 CHAIRMAN CLOWE: Anything else on that? 13:56 16 MR. ATKINS: No, sir, not on that item. 13:56 17 CHAIRMAN CLOWE: May we go to 12. 13:56 18 MR. ATKINS: On item 12, Commissioners, 13:56 19 have you before you staff's recommendation for 13:56 20 publication in the Texas Register proposed new Rule 16 13:56 21 TAC 402.550, relating to a Bingo Training Program. 13:56 22 This rule was presented to the Bingo 13:56 23 Advisory Committee for their consideration at their 13:57 24 June 13th meeting. They made some minor and technical 13:57 25 changes that have been incorporated into the rule. 13:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 96 1 And with that, unless you have any specific questions 13:57 2 about the rule, we would recommend publication for 13:57 3 public comment. 13:57 4 CHAIRMAN CLOWE: Any questions? 13:57 5 COMMISSIONER WHITAKER: No. 13:57 6 CHAIRMAN CLOWE: So moved. 13:57 7 COMMISSIONER WHITAKER: Second. 13:57 8 CHAIRMAN CLOWE: All in favor, say aye. 13:57 9 Opposed, no. 13:57 10 The vote is two-zero in favor. 13:57 11 MR. ATKINS: On item 13, Commissioners, 13:57 12 I believe this is a follow-up item to an agenda item 13:57 13 on the last Commission meeting. Before I turn this 13:57 14 over to the general counsel, I will just let you know, 13:57 15 the original matter as it related to the Garland 13:57 16 Chamber of Commerce has been resolved. The taxes have 13:57 17 been paid, the warrant hold has been cleared with the 13:57 18 Comptroller's Office. 13:57 19 CHAIRMAN CLOWE: Very good. 20 MR. ATKINS: And with that, I believe 13:58 21 Kim had some comments relating to this matter. 13:58 22 MS. KIPLIN: Commissioners, what caused 13:58 23 this to be put on the agenda today, was -- I think was 13:58 24 the fact that the open meetings notice at the last 13:58 25 Commission meeting was too narrow to really address 13:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 97 1 this issue in a broader conversation or deliberation 13:58 2 than as it related to the Garland Chamber of Commerce. 13:58 3 And really, I think what was desirous was a 13:58 4 conversation on procedure and process in terms of how 13:58 5 to handle these delinquencies for, in particular, 13:58 6 those entities that are no longer licensed with the 13:58 7 agency or by the agency. The way in which the Garland 13:58 8 matter was handled was direction to the bingo director 13:58 9 to work with the entity, based on the facts and 13:58 10 circumstances in that particular matter, as he felt 13:58 11 was fair and -- I beg your pardon -- in that specific 13:58 12 case. 13:59 13 And at the time, I told you that I 13:59 14 wanted to have an opportunity to visit with the 13:59 15 division chief of the collections division, mainly 13:59 16 just because of I think vacation scheduling, we hadn't 13:59 17 had an opportunity have that meeting. I would think 13:59 18 that we'll be able to do it by way of a conference 13:59 19 call, I would like to think this week, if not next 13:59 20 week. The purpose of that meeting was to ensure that 13:59 21 whatever document we landed on would not be 13:59 22 problematic in the event that the matter needed to be 13:59 23 referred to the AG for collection. And just to make 13:59 24 sure that we were crossing our T's and dotting our 13:59 25 I's, if for no other reason. 13:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 98 1 But it does invite the other, I guess, 13:59 2 more significant discussion, and that is, how to 13:59 3 handle these matters as they arise. Because what we 13:59 4 are finding with these -- at least this one, and my 13:59 5 understanding is we actually did have another one, it 13:59 6 was a volunteer fire department, for a total of two, 13:59 7 they're not licensed with the agency, we don't -- have 13:59 8 not in the past had any contact. I believe the Bingo 14:00 9 Division is putting in procedures in place to at least 14:00 10 try to have a brief annual contact as of notice on the 14:00 11 delinquency, but these entities do have a warrant hold 14:00 12 against them at the Comptroller's Office. So for the 14:00 13 Bingo Division to work out some -- some 14:00 14 mutually-acceptable arrangement with the entity and 14:00 15 then to wait to come to a Commission meeting could 14:00 16 potentially be a month that this entity would be on a 14:00 17 warrant hold. I don't think the Bingo Division 14:00 18 would -- wants to see that kind of a delay, and I'm 14:00 19 relatively certain that the entity would not, because 14:00 20 obviously, it means that there is payment that is not 14:00 21 going to them. 14:00 22 So I think what the Bingo Division 14:00 23 would like is some direction from the Commission as to 14:00 24 the bingo director's ability to try to work these out 14:00 25 in some mutually-agreeable fashion. Of course, if 14:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 99 1 not, then we would have to revisit that issue. And 14:00 2 we're not looking for any sort of general policy in 14:00 3 terms of ranges, well ,if they're -- you know, 14:01 4 they're not delinquent for any longer than X amount, 14:01 5 then you can go ahead and waive penalty and interest. 14:01 6 But, really, I think it would be based on the 14:01 7 individual facts and circumstances of each matter that 14:01 8 is presented. And that's really the purpose of 14:01 9 having -- having notice for today, to be able to have 14:01 10 that broader deliberation. 14:01 11 COMMISSIONER WHITAKER: Would you 14:01 12 oppose any particular types of guidelines or would you 14:01 13 just leave it general? 14:01 14 MS. KIPLIN: My recommendation at this 14:01 15 time is to leave it general. We've had two in, I 14:01 16 don't -- how many years? Four or five? Okay. That 14:01 17 length of time. And I think my recommendation would 14:01 18 be, if we were seeing more of these arise, then we 14:01 19 could kind of fashion a range, and my recommendation 14:01 20 at that time would be to promulgate a rule and have it 14:01 21 as a rule, because we would be affecting people by a 14:01 22 policy that would be established. You could do it 14:02 23 through what is called ad hoc rule making, and I 14:02 24 think, really, that's what we're looking at anyway is 14:02 25 taking them on an individual basis and looking at the 14:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 100 1 individual facts and circumstances that are presented 14:02 2 with each case. And then, if we get enough 14:02 3 experience, I think what we'll see is a natural 14:02 4 development of ranges. I may be wrong, and we can 14:02 5 always revisit it. 14:02 6 COMMISSIONER WHITAKER: That sounds 14:02 7 fine to me. I would just ask that you document it so 14:02 8 that we can learn from it. And as soon as we can 14:02 9 discern a pattern, of course, the underlying rule, of 14:02 10 course, should be to be fair and equitable in the 14:02 11 whole thing, so that's my thoughts. 14:02 12 CHAIRMAN CLOWE: Great. And I think 14:02 13 Billy has exercised good judgment in matters similar 14:02 14 to this in the past. And the only thing I would add 14:02 15 to that is, that if you feel at some point in time you 14:02 16 want some support or assistance from the 14:02 17 Commissioners, certainly, feel free to call on us in 14:02 18 some way. 14:03 19 Do you need a motion on this? Probably 14:03 20 not. 14:03 21 MS. KIPLIN: I don't think so. And, I 14:03 22 think, just general direction. 14:03 23 CHAIRMAN CLOWE: I think you have that. 14:03 24 Very good. 14:03 25 Kim, did you indicate that item 17 was 14:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 101 1 to be passed at this time? 14:03 2 MS. KIPLIN: Let me see what item 17 14:03 3 is. 14:03 4 Well, you know, I better not say. I 14:03 5 don't think anybody has indicated to me it's to be 14:03 6 passed. I think it was an opportunity for the 14:03 7 Commission to have a deliberation with the executive 14:03 8 director about what terms are -- y'all would consider 14:03 9 to be a matter of policy -- 14:03 10 CHAIRMAN CLOWE: That's fine. I 14:03 11 misunderstood a remark that you made earlier. I 14:03 12 assume it was directed perhaps at some other item. 14:03 13 Then we'll take up item 17, 14:03 14 consideration of and possible discussion and/or action 14:03 15 on contract language or terms. 14:03 16 MS. CLOUD: You've got Ridgely on 14:03 17 there. 14:04 18 MS. KIPLIN: It was not intended. It 14:04 19 really is between you and the -- 14:04 20 MS. CLOUD: Commissioners, the reason 14:04 21 we felt a need to have this discussion is to -- for 14:04 22 clarification for staff, in going into the RFP 14:04 23 preparation, and knowing what kind of terms that we 14:04 24 need to put into those contracts, or into those RFPs. 14:04 25 When we come to a contract the size of 14:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 102 1 the lottery operator, which is what we're presently 14:04 2 working on, ideally, the contract term -- ideally, in 14:04 3 my mind, contract term would be a five-year contract 14:04 4 with five one-year extensions. And that way you have 14:04 5 an out in that last five years at each -- at the end 14:04 6 of each year. 14:04 7 The reason for this in going out for 14:04 8 bid, the lottery operator has a major investment to 14:04 9 make in this state to -- to set up operation. And if 14:04 10 we want competition with this RFP, then a new vendor 14:05 11 other than the present vendor that's already set up 14:05 12 and established in the state has got to make a pretty 14:05 13 big investment to come in here and operate the lottery 14:05 14 for the Texas Lottery. So in order to -- instead of 14:05 15 having ten one-year contracts, then the -- the vendors 14:05 16 need some assurance, in order for them to bid and be 14:05 17 competitive, that they're going to hold that contract 14:05 18 for at least five years on the Lottery operator. 14:05 19 Now, other states are doing much longer 14:05 20 than five years. Florida just signed one with AWI for 14:05 21 12 years, and Florida has had AWI since 1987 and no 14:05 22 other vendor has been in there. Other states have ten 14:05 23 years with five one-year extensions, so there is a 14:06 24 whole variety of different terms for these types of 14:06 25 contracts. It has been the -- for the last few years, 14:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 103 1 it has been the practice of the agency to not extend 14:06 2 contracts to go out for bid each year, and that's 14:06 3 become a real burden on the staff to be able to 14:06 4 prepare the contracts, prepare the RFPs, do prebid 14:06 5 conferences, put out -- get the bids in and then award 14:06 6 the contracts. And it's very time consuming for our 14:06 7 legal staff. Ridgely has an awful lot of work that he 14:06 8 has to do in preparation to get these RFPs on the 14:06 9 street. And it doesn't entice anybody to want to do 14:06 10 with us if we're only going to give them a one-year 14:06 11 contract. And it's my concern about this, we're not 14:07 12 getting bidders in some of our RFPs that have gone out 14:07 13 recently. On the financial audit, we only had one 14:07 14 bid. This is very concerning, especially when we look 14:07 15 at -- we've got another, you know, financial audit. 14:07 16 If we want someone to go in and do the audit on the 14:07 17 lottery operator, they're going to have an expense in 14:07 18 going to Rhode Island and doing the kind of work we're 14:07 19 asking them to do. And not that that type of 14:07 20 contract -- that's kind of more of a temporary deal, 14:07 21 one-time deal, but they're still looking to do 14:07 22 business with us. And we need to make it so that 14:07 23 these vendors will think that they do get their 14:07 24 investments back. 14:07 25 I think, from the side of the Instant 14:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 104 1 Ticket procurement, the three-year contract with 14:07 2 two-year renewals, two one-year renewals, is a good 14:07 3 contract. I think our contract with the Instant 14:08 4 Ticket manufacturer at this time is only three years. 14:08 5 And I just -- I think I felt like I needed to explain 14:08 6 this and get some feedback from you as to your 14:08 7 feelings about what kind of terms you want to see on 14:08 8 these contracts. Just like presenting these two today 14:08 9 for a one-year extension, it's going to save us a 14:08 10 tremendous amount of amount and the contractors we've 14:08 11 got in place at the time can do the job and have done 14:08 12 a good job. And that's what you look at what you come 14:08 13 up to that extension period as to what kind of job 14:08 14 they've done for the agency. 14:08 15 So that is basically what I wanted to 14:08 16 lay out on the table and get some direction from you 14:08 17 in looking at this, especially the lottery operator 14:08 18 contract that we're working on now, what kind of terms 14:08 19 do you feel comfortable with in us going forward. 14:08 20 MR. BENNETT: And Commissioners, I 14:09 21 would like to make one point of clarification. I 14:09 22 believe the contract with Instant Ticket vendors is a 14:09 23 three-year contract, and I do not believe that we have 14:09 24 any options to renew that contract. 14:09 25 MS. CLOUD: Well, I said that. I'm 14:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 105 1 sorry. I came back and corrected myself. But that 14:09 2 ideally would be the type of contract where you can -- 14:09 3 the Instant Ticket manufacturer. 14:09 4 CHAIRMAN CLOWE: I just have the 14:09 5 question, is this a blanket recommendation or where 14:09 6 were you headed with it? 14:09 7 MS. CLOUD: It's for discussion only. 14:09 8 It's my understanding this needed to be in an open 14:09 9 meeting and I needed to discuss this with my 14:09 10 Commissioners in an open meeting. And that's all 14:09 11 we're doing here. There is no decision to be made 14:09 12 today. This direction can come at another time, but I 14:09 13 wanted you to give some thought to what we're facing 14:09 14 in trying to get people to bid on our contracts and 14:09 15 where we are today. 14:09 16 COMMISSIONER WHITAKER: I'm not 14:10 17 prepared to give any specifics at this point in time. 14:10 18 I don't know enough about all this process. 14:10 19 MS. CLOUD: Okay. 14:10 20 COMMISSIONER WHITAKER: I will start 14:10 21 thinking about it, though, so... 14:10 22 CHAIRMAN CLOWE: I would add that I 14:10 23 understand your point about getting investments back 14:10 24 from start-up costs and -- and that sort of thing. I 14:10 25 think a lot of it, in my mind, would depend on what 14:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 106 1 contract we're talking about. For example, you 14:10 2 suggested that the Instant Ticket contract is good at 14:10 3 three years. You point out, correctly, that we have 14:10 4 extended two contracts today for another annual 14:10 5 period. And so I think there is some merit to a 14:10 6 longer period of relationship. I do think five years 14:10 7 is a long time. For some reason, my initial response 14:10 8 would be, I'm a little more comfortable with a 14:11 9 three-year period than I might be with a five-year 14:11 10 period, but I think it depends on the contract. 14:11 11 MS. CLOUD: And I would not be 14:11 12 asking -- I would not be recommending a five-year 14:11 13 contract on any contract other than the lottery 14:11 14 operator. And I think to have a three-year contract 14:11 15 on that contract, based on the kind of investment that 14:11 16 has to be made, they're not going to get a return on 14:11 17 their money in three years, and that's not going to 14:11 18 entice them to compete. And right now, we don't have 14:11 19 that many people in the market to compete, and it's 14:11 20 just -- that's a major, major contract, even for the 14:11 21 agency to have to do conversions maybe or -- for one 14:11 22 vendor to another after three years. 14:11 23 CHAIRMAN CLOWE: You mentioned a 14:11 24 12-year contract. Where was that? 14:11 25 MS. CLOUD: That was in Florida. 14:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 107 1 CHAIRMAN CLOWE: Where is California, 14:12 2 New York, and Massachusetts on this? 14:12 3 MS. CLOUD: New York just signed a new 14:12 4 contract. 14:12 5 Ridgely, do you know what the terms 14:12 6 are? 14:12 7 MR. BENNETT: I would be hesitant to 14:12 8 tell you off the top of my head. I would be happy to 14:12 9 look those up for you and report back to you with that 14:12 10 information. 14:12 11 CHAIRMAN CLOWE: Okay. Well, where I 14:12 12 would leave it is that I am responsive to the points 14:12 13 you've made. And I think, as Commissioner Whitaker 14:12 14 said, we need to study this and get some level of 14:12 15 comfort with it. But I think there is merit to a 14:12 16 reasonable period of time. It would be good for all 14:12 17 concerned, the State, the vendor, and we need to have 14:12 18 safeguards there that if performance is not 14:12 19 acceptable, there are escapes. 14:12 20 MS. CLOUD: Well, Kim has got a real 14:12 21 good clause in the lottery operator contract that says 14:12 22 we can get out in 30 days, if necessary. So that 14:13 23 keeps them on their toes. But that -- it's just -- 14:13 24 and these contracts are all different and it doesn't 14:13 25 warrant a longer term for any of them except that one, 14:13 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 108 1 but even on the Instant Ticket side, changing an 14:13 2 Instant Ticket manufacturer is a big deal for us as 14:13 3 well as the vendors. 14:13 4 CHAIRMAN CLOWE: I think this is a good 14:13 5 point to bring up and I appreciate your 14:13 6 foresightedness in doing so. 14:13 7 MS. CLOUD: Okay. We'll have some 14:13 8 information about all the other states and how they -- 14:13 9 what their contract terms are at the next Commission 14:13 10 meeting, and just for informational purposes so you'll 14:13 11 have something else to look at. 14:13 12 CHAIRMAN CLOWE: Very good. 14:13 13 My record keeping indicates we are now 14:13 14 to item 22. 14:13 15 MS. KIPLIN: Mine is the same. 14:13 16 CHAIRMAN CLOWE: We've come to the same 14:14 17 place at the same time. That's good. 14:14 18 MS. KIPLIN: Commissioners, what you 14:14 19 have in your notebook are several proposed -- well, 14:14 20 proposals for decision and companion proposal orders. 14:14 21 Staff's recommendation is that you adopt all the 14:14 22 proposed orders and, as a result, the proposals for 14:14 23 decision. The ones that are lottery-related, the 14:14 24 first one, Minute Mart Food Store, is a criminal 14:14 25 history issue. The remaining lottery PFDs, proposals 14:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 109 1 for decision, are because of insufficient funds. 14:14 2 Red Men Tribe 22 is a bingo licensing 14:14 3 matter and the administrative law judge recommended 14:14 4 revocation, largely in part due to failure to file 14:14 5 prize fees. 6 Dance Et Vous is a -- the second one in 14:14 7 your notebook that's a bingo matter. Ms. Schultz, I 14:14 8 believe, was the lawyer on that. That is an 14:14 9 application denial for failure to comply with various 14:15 10 provisions of the Bingo Enabling Act. 14:15 11 And the last one is an application 14:15 12 denial recommendation for failure to file an 14:15 13 application that was complete and failure to pay the 14:15 14 total application fee. And I believe Ms. Wilkov was 14:15 15 the staff attorney assistant general counsel on that 14:15 16 matter. 14:15 17 With that, I think collectively, we'll 14:15 18 be happy to answer any questions that you may have. 14:15 19 The staff's recommendation is that you adopt the ALJ's 14:15 20 proposal orders. 14:15 21 CHAIRMAN CLOWE: I have a couple of 14:15 22 questions. Where is Red Men 22 Tribe located? 14:15 23 MR. ATKINS: I believe, Mr. Chairman, 14:15 24 they're in the Dallas area. 14:15 25 CHAIRMAN CLOWE: Dallas? 14:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 110 1 MR. ATKINS: Yes, sir. 14:15 2 CHAIRMAN CLOWE: Is that a pretty sure 14:16 3 thing or -- 14:16 4 MR. ATKINS: They are. 14:16 5 MS. SCHULTZ: For the record, 14:16 6 Commissioner, I'm Kaye Schultz, assistant general 14:16 7 counsel. If you look under that tab, on the -- pick 14:16 8 out the cc's on it on the very last lines. It's in 14:16 9 sort of small type, but it indicates their address in 14:16 10 Dallas. 14:16 11 CHAIRMAN CLOWE: Okay. I wanted to 14:16 12 know where they're located. Thank you, Kaye. 14:16 13 And these individual companies and 14:16 14 entities have all received notice and there is no one 14:16 15 here to speak in behalf of any of them? 14:16 16 I move the adoption of the staff 14:16 17 recommendation. 14:16 18 COMMISSIONER WHITAKER: Second. 14:16 19 CHAIRMAN CLOWE: All in favor, say aye. 14:16 20 Opposed, no. 14:16 21 The record should reflect the vote was 14:16 22 two-zero in approval. 14:16 23 MS. KIPLIN: For adopting all of the 14:16 24 proposed orders for all of the cases that were noticed 14:16 25 for today. 14:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 111 1 CHAIRMAN CLOWE: That's correct. And 14:17 2 if you have those orders, we'll sign them now. Thank 14:17 3 you. 14:17 4 I believe we're to item 23, the report 14:17 5 of the executive director. 14:17 6 MS. CLOUD: Okay. On June 20 -- on 14:17 7 June 15th, we transferred to the Foundation School 14:17 8 Fund $65,692,444, giving a total transfers to the 14:17 9 State since inception of $7,082,337,668. 14:17 10 Commissioners, you have your HUB report 14:17 11 in your notebooks for -- actually, from September 1 14:17 12 through May 21st, 2000. This report hasn't changed 14:17 13 since that time. 14:17 14 Under the FTE status, we have 301 14:17 15 active FTEs, we have 30 vacant FTEs. In -- of that 30 14:17 16 vacant, we have six that are in the 14:18 17 selection/acceptance pending. We have 20 positions 14:18 18 that are being recruited, screening or interviewed. 14:18 19 And we have no positions presently being posted. And 14:18 20 we have four vacant positions that have not had any 14:18 21 activity with HRs quite yet. 14:18 22 Under lottery conference -- 14:18 23 CHAIRMAN CLOWE: Under that subject, 14:18 24 Linda, where are you with the search for the director 14:18 25 of minority -- 14:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 112 1 MS. CLOUD: We made an offer -- 14:18 2 CHAIRMAN CLOWE: What's that correct 14:18 3 title? 14:18 4 MS. CLOUD: It's Director of Minority 14:18 5 Development. 14:18 6 CHAIRMAN CLOWE: Development. Thank 14:18 7 you. 14:18 8 MS. CLOUD: We made an offer yesterday. 14:18 9 And the gentleman has not -- he's going to get back 14:18 10 with us today. So I'll whisper his name to you later, 14:18 11 but until he confirms that he's accepted the position, 14:18 12 we'd best not name him here in this meeting. But 14:19 13 we -- 14:19 14 CHAIRMAN CLOWE: But you're -- 14:19 15 MS. CLOUD: Yes. And he is -- has a 14:19 16 very important position where he is, so it may be 14:19 17 about 30 days before he gets on board with us. But -- 14:19 18 if he does accept the position. But that offer has 14:19 19 been made. 14:19 20 CHAIRMAN CLOWE: Well, I hope you're 14:19 21 successful with that. I understand that's an 14:19 22 excellent candidate and you're very hopeful. 14:19 23 MS. CLOUD: Yes. Very much so. 14:19 24 Under lottery conferences, as you well 14:19 25 know, we're getting closer and closer to the national 14:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 113 1 conference in September. David Gail will be here 14:19 2 tomorrow -- or actually he's coming in tonight to meet 14:19 3 with staff, all the different areas of 14:19 4 responsibilities, and make sure -- just get an update 14:19 5 on where we are and what we still have to do. And 14:19 6 he's made a demand for me to take him to County Line 14:19 7 for barbecue tomorrow night, so he can't come to Texas 14:19 8 without going to County Line. 14:20 9 CHAIRMAN CLOWE: A fate worse than 14:20 10 death. 14:20 11 MS. CLOUD: But he will be here 14:20 12 tomorrow. 13 Retailer forums. Thursday, July 27th, 14:20 14 we'll be at the Radisson Hotel in Wichita Falls, and 14:20 15 that will be the first time that we've had a town hall 14:20 16 meeting in Wichita Falls, and so I'm looking forward 14:20 17 to that. 14:20 18 CHAIRMAN CLOWE: And you'll get some 14:20 19 feedback on the 54-ball matrix. 14:20 20 MS. CLOUD: Oh, I'm sure. 14:20 21 CHAIRMAN CLOWE: We'll be eager to hear 22 that. 23 MS. CLOUD: And that's my report. 14:20 24 CHAIRMAN CLOWE: Questions? Thank you, 14:20 25 Linda. 14:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 114 1 Billy, do you have a report for us 14:20 2 under item 24? 14:20 3 MR. ATKINS: The only thing I have to 14:20 4 add to my report by way of information, Commissioners, 14:20 5 is yesterday, July 17th, was the due date for 14:20 6 quarterly reports for the second quarter of 2000, so 14:20 7 we are now in the peak with processing those. 14:21 8 CHAIRMAN CLOWE: Very good. Any 14:21 9 questions? 14:21 10 I believe that completes our formal 14:21 11 agenda. Is there any person here wishing to make any 14:21 12 statements or comments to the Commission while we're 14:21 13 in session? 14:21 14 Seeing none, the Commission will be 14:21 15 adjourned at ten minutes after 2:00 on July the 18th, 14:21 16 2000. Thank you all very much. 14:21 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 115 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, Certified Shorthand 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 set 10 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 21ST day of 17 JULY, 2000. 18 19 20 21 BRENDA J. WRIGHT, RPR, 22 Texas CSR No. 1780 Expiration Date: 12-31-00 23 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 24 (512) 474-4363 25 JOB NO. 000718BJW WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363