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                   TEXAS LOTTERY COMMISSION
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                           MEETING
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 8                      AUGUST 5, 2003  
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18             BE IT REMEMBERED that the TEXAS LOTTERY 
19   COMMISSION meeting was held on the 5TH of AUGUST, 
20   2003, from 8:30 a.m. to 12:05 p.m., before Connie 
21   Jo Ramirez, RPR, CSR in and for the State of Texas, 
22   reported by machine shorthand, at the Offices of 
23   the Texas Lottery Commission, 611 East Sixth 
24   Street, Austin, Texas, whereupon the following 
25   proceedings were had:  
0002
 1                       APPEARANCES
 2   
 3   Chairman:  
                Mr. C. Tom Clowe, Jr. 
 4   
 5   Commissioners:
                Ms. Elizabeth D. Whitaker          
 6              Mr. James A. Cox, Jr.
 7   
     General Counsel:
 8              Ms. Kimberly L. Kiplin
 9   
     Executive Director:
10              Mr. Reagan E. Greer
11   
     Deputy Executive Director:
12              Mr. Gary Grief
13   
     Charitable Bingo Operations Director:
14              Mr. Philip D. Sanderson
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16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0003
 1                          INDEX
 2    
     Appearances...................................... 2                     
 3   
 4   AGENDA ITEMS
 5   Item Number 1.................................   4
     Item Number 2.................................  75
 6   Item Number 3.................................   4
     Item Number 4.................................  80
 7   Item Number 5.................................  89
     Item Number 6.................................  90
 8   Item Number 7.................................  92
     Item Number 8................................. 107
 9   Item Number 9................................. 109 
     Item Number 10................................  93
10   Item Number 11................................  96
     Item Number 12................................ 104
11   Item Number 13................................ 107
     Item Number 14................................ 109 
12    
     Reporter's Certificate........................ 110                   
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14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0004
 1                     AUGUST 5, 2003
 2   
 3                 CHAIRMAN CLOWE:  It is 8:30 a.m., 
 4   August 5, 2003.  Commissioner Whitaker, 
 5   Commissioner Cox are here.  My name is Tom Clowe.  
 6   We'll call this meeting of the Texas Lottery 
 7   Commission to order.  And we're going to go 
 8   immediately to Item three, consideration of and 
 9   possible discussion and/or action on the 
10   Commission's participation in a 
11   multi-jurisdictional lottery games.
12                 Mr. Greer, will you begin this item, 
13   please.
14                 MR. GREER:  Yes, sir.  Good morning, 
15   Commissioners and Mr. Chairman.
16                 As we move forward today, it is my 
17   pleasure to introduce the staff that has 
18   participated with me in coming up with a 
19   recommendation to you today concerning the 
20   multi-jurisdictional games.
21                 Lee Deviney, our financial 
22   administration director; Patty Leo, financial 
23   analyst; Toni Smith, our marketing director; Liz 
24   Jambor, our marketing research manager; and Robert 
25   Tirloni, our on-line manager, will be taking part 
0005
 1   in this presentation today.
 2                 Before we get started, I want to 
 3   thank them publicly for all their work and long 
 4   hours that we've spent in a short time frame coming 
 5   up with what I think you will see as a very good 
 6   product with good information.
 7                 As we move into the presentation this 
 8   morning, this presentation provides an overview of 
 9   the Texas Lottery's decision to support 
10   information and recommendation regarding the 
11   possibility of participating in a 
12   multi-jurisdictional lottery game.
13                 As you're aware, HB 3459 was passed 
14   which authorized the Texas Lottery Commission to 
15   participate in a multi-jurisdictional lottery game.  
16                 This bill amended Chapter 466 of the 
17   Texas Government Code by adding Subchapter J.  
18   Under Subchapter J, Section 466.451, the Texas 
19   Lottery Commission may enter into a written 
20   agreement with one or more other states or other 
21   jurisdictions, including foreign countries, which 
22   provide for the joint participation in the 
23   operation, marketing and promotion of a 
24   multi-jurisdictional game.
25                 From an overview perspective, HB 3459 
0006
 1   is a permissive bill that allows the Texas Lottery 
 2   to participate in a multi-jurisdictional game.
 3                 Our goal in this effort is to make a 
 4   decision that will enhance revenue to the 
 5   Foundation School Fund and result in an agreement 
 6   to enter into one of the multi-jurisdictional 
 7   games.  
 8                 As far as the review process that 
 9   we're going to go into first.  We moved forward 
10   with the review, research and analysis of many 
11   factors that could impact our decision.
12                 It was also important to consider 
13   player interest and a proper fit for the new game 
14   that will complement our current Texas Lottery game 
15   mix.
16                 We invited public comment on the 
17   concept of whether the Texas Lottery Commission 
18   should participate in a multi-jurisdictional  
19   game, and, if so, which one.  The Commission 
20   received over 3300 communications about this issue.
21                 The review process that we're going 
22   to start with this morning will begin with a review 
23   of operating costs, then we'll go into investment 
24   policies, auditing standards, reserve requirements, 
25   the cost benefit analysis, revenue estimate, prize 
0007
 1   liability issues, player research, border analysis, 
 2   impact of moving our Lotto Texas game, population 
 3   of odds ratio, consideration of small consortiums, 
 4   jackpot odds, and a Gtech analysis.
 5                 At this point, I recommend in favor 
 6   of moving forward in joining a multi-jurisdictional 
 7   game and our staff will be moving into their part 
 8   of the presentation.
 9                 MR. DEVINEY:  Good morning, 
10   Commissioners, I'm Lee Deviney, Financial 
11   Administration Director.  Continuing to describe 
12   the staff review process.
13                 Staff received information and has 
14   estimated the operating costs associated with 
15   implementing and operating a multi-jurisdictional 
16   game for -- in Texas.  This review includes review 
17   of the shared operating costs of the games, an 
18   estimation of implementation cost to the Texas 
19   Lottery.
20                 We have reviewed investment policies 
21   for both games with respect to the comfort level 
22   for investment practices, credit worthiness for 
23   investment options, strategies for mitigating 
24   future reinvestment risk, and we have obtained an 
25   understanding of each game's investment structure 
0008
 1   for managing our installment payment winners.
 2                 And we have also gone into a review 
 3   of the auditing standards employed by each game.  
 4   We've reviewed the audit requirements for financial 
 5   operations and their gaming systems.
 6                 We've compared each game's minimum 
 7   requirements for reasonableness.  We have reviewed 
 8   the application of accounting industry standards 
 9   and guidelines as employed by each game.
10                 The next section that we reviewed was 
11   reserve requirements.  Staff has reviewed each 
12   game's requirements for prize reserves, if any.
13                 We have obtained an understanding of 
14   how each individual member lottery or product 
15   groups reserve or plan for liabilities.
16                 The next slide in your packet is a 
17   cost benefit analysis for the executive director's 
18   recommendation.  Staff has prepared an evaluation 
19   and calculation for the predicted revenue streams 
20   and costs related Texas' participation in a 
21   multi-jurisdictional game.  
22                 We have determined the estimated net 
23   impact to the Texas lottery sales and revenues to 
24   the Foundation School Fund.
25                 The review has included the review 
0009
 1   and analysis of various factors that influence 
 2   sales and income to the state, historical 
 3   performance of the games and other lotteries.  
 4   We've estimated per capita sales, we've estimated 
 5   cannibalization rates, draw dates, reviewed the 
 6   matrices, which are the odds of winning and other 
 7   factors, in our determination of revenue estimates.
 8                 Finally, staff has reviewed prize 
 9   liability issues.  This includes the exposure and 
10   remedies that Texas may have with respect to prize 
11   liability in a multi-jurisdictional lottery game.  
12                 MS. JAMBOR:  Good morning, 
13   Commissioners, for the record, I'm Liz Jambor, 
14   marketing research manager for the Texas Lottery.
15                 Continuing on with the review 
16   process, we also included in this review, player 
17   research.  This research was conducted in McAllen 
18   and Dallas to provide us with player preferences as 
19   well as potential cannibalization for each of the 
20   multi-jurisdictional games.  This was conducted 
21   with current Lotto Texas players.
22                 We conducted a border analysis with 
23   data provided by Gtech showing increased sales for 
24   border retailers when Texas experiences larger 
25   jackpots than seen in the border states.  
0010
 1   Specifically, this was done for our Lotto Texas 
 2   jackpots that hit the 85 million and the 75 million 
 3   dollar levels.
 4                 We also looked at the impact of 
 5   moving Lotto Texas; the Lotto Texas draw days.  
 6   Analysis has showed that previous changes to Lotto 
 7   Texas result in short-term declines in sales due to 
 8   the game change.  This is further supported by the 
 9   impact of moving an in-state lotto game as was seen 
10   in Pennsylvania.  Pennsylvania moved their game 
11   from a Wednesday/Saturday draw, to a Tuesday/Friday 
12   draw when they brought on multi-jurisdictional game 
13   and saw greater than anticipated decreases in 
14   sales.
15                 We also looked at a population to 
16   odds ratio.  Adding Texas to either game is going 
17   to increase the population to odds ratio for the 
18   game -- for the game at their present levels.
19                 This increase may impact the 
20   performance of the game.  However, the influx of 
21   sales from Texas may counter that impact by 
22   providing a faster roll cycle, which means that we 
23   can retire jackpot levels more quickly.
24                 We also looked at a consideration of 
25   joining one of the smaller consortiums, such as 
0011
 1   Wild Card or Lotto South, this was not considered a 
 2   viable alternative since many of these smaller 
 3   consortiums have jackpots that start at lower 
 4   levels than Lotto Texas.
 5                 MR. TIRLONI:  Good morning, 
 6   Commissioners, for the record my name is Robert 
 7   Tirloni.  I'm the on-line product manager for the 
 8   Texas Lottery Commission.
 9                 Commissioners, whenever we think 
10   about changing one of our existing games or 
11   proposing a new game, we always solicit the 
12   professional opinion of our independent statistical 
13   consultant, Dr. Randall Eubank.
14                 Dr. Eubank did provide us with a 
15   statistical analysis on the Mega Millions and the 
16   Powerball game.
17                 Gtech has also played a role in the 
18   review process.  As our lottery operator, Gtech is 
19   contractually obligated to provide us with  
20   consulting services, specifically in the areas of 
21   new product development and marketing and sales 
22   initiatives.
23                 Some of the reports and analyses that 
24   they have provided include a multiplier/add-on 
25   feature analysis.  They've provided us with sales 
0012
 1   data, specifically sales by draw, by state, by 
 2   jackpot level, for both games.
 3                 They've provided us with matrix 
 4   change information, how long it would take to 
 5   implement a matrix change, the odds, draw patterns 
 6   and jackpot expectations, for the games as they 
 7   are.  The impact of changing our Lotto Texas draw 
 8   days, and they've provided us with sales 
 9   information on bordering retailers.
10                 MS. SMITH:  Good morning, 
11   Commissioners.  For the record, my name is Toni 
12   Smith and I'm the marketing director for the Texas 
13   Lottery.
14                 So the next step was to look at our 
15   options.  We could either join MUSL Powerball game, 
16   the Mega Millions game, join both games, or create 
17   a new multi-jurisdiction game of our own with other 
18   states.
19                 To look at Powerball and Mega 
20   Millions, presentations were made by Powerball and 
21   Mega Millions at the Lottery in February 2003.
22                 Questions were submitted to both 
23   groups and responses were received, and this was an 
24   ongoing process of retrieving information from both 
25   of the groups.
0013
 1                 Then formal presentations were made 
 2   to the Texas Lottery Commission during the June 
 3   meeting at the Capitol.
 4                 You can see on this slide a 
 5   side-by-side comparison of both the Powerball and 
 6   Mega Millions games.  Both games cost one dollar 
 7   per play.  The Powerball game does offer a one 
 8   dollar Powerplay multiplier feature that does not 
 9   apply to the jackpot, and Liz will explain that a 
10   little further later.
11                 Powerball is drawn on Wednesdays and 
12   Saturdays, while Mega Millions is drawn on Tuesdays 
13   and Fridays.
14                 To take a look at the game Matrix 
15   prize levels, they are very similar.  They both 
16   have a bonus ball feature, which is like our new 
17   format of our Lotto Texas game, Powerball, the 
18   Matrix is a 5 of 53 plus 1 of 42.  Mega Millions is 
19   a 5 of 52, Matrix with a 1 of 52.
20                 The overall odds of winning any prize 
21   in Powerball are 1 in 36, and for Mega Millions, 
22   1 in 43.  The odds of winning the jackpot prize in 
23   the Powerball game are 1 in 120 million.  And for 
24   the Mega Millions game, the odds are 1 in 135 
25   million for winning the jackpot game.
0014
 1                 Powerball offers a payment option of 
 2   30 year installments or a cash value option, while 
 3   Mega Millions offers 26 year installments or a cash 
 4   value option.  Both of these games have a starting 
 5   jackpot of 10 million dollars.
 6                 This slide shows us the total fiscal 
 7   year 2002 sales ranking of the multi-jurisdiction 
 8   game member states.  And this is just to give you a 
 9   list of those states participating in Powerball and 
10   in Mega Millions and their ranking and the source 
11   for this information was from LaFleurs.
12                 I do want to note that North Dakota 
13   is -- was not in Powerball in fiscal year 2002, and 
14   that's why there's not a ranking there, and the 
15   Virgin Islands was not included in that state's 
16   ranking.
17                 Powerball has a member population of 
18   approximately 82.8 million people, and Mega 
19   Millions' population is approximately 95.6 million.
20                 MR. GREER:  Commissioners, at this 
21   point, I want to move into a little more of a 
22   specific realm and we're going to get into some of 
23   the key factors that we gave consideration to as we 
24   moved into the recommendation mode.
25                 We're going to cover the game 
0015
 1   implementation time, the game matrix, player 
 2   research, draw days, per capita sales, 
 3   organizational structure, net revenue impact and 
 4   the risks.  Staff?
 5                 MR. TIRLONI:  Commissioners, the 
 6   first thing we looked at was the game 
 7   implementation time or time line.
 8                 The launch date for a 
 9   multi-jurisdictional game is critical for sales and 
10   therefore revenue generation, and any delay in the 
11   launch of a multi-jurisdictional game obviously 
12   will delay sales and revenue to the state.
13                 As you know, Commissioners, there are 
14   a lot of events that need to take place before we 
15   can launch an on-line game, and in order to make 
16   sure all of those events happen as they need to, we 
17   built a very detailed implementation time line to 
18   make sure that we are on track and on target for a 
19   launch date in the future.
20                 The implementation time line 
21   considers for, in this case, contract negotiation, 
22   the adoption of a game rule, software development 
23   for the current matrix versus software development 
24   for a matrix change, software acceptance testing, 
25   advertising initiatives, the printing of playslips 
0016
 1   and ticket roll stock, and then the subsequent 
 2   distribution of the playslips and roll stock to our 
 3   almost 17,000 retail locations around the state.  
 4   Printing and distribution of how to play materials 
 5   that will assist the public and/or retailers in 
 6   explaining the game.  Media relations initiatives, 
 7   development of our drawings program, and then 
 8   eventually, a game launch.
 9                 The game matrix was also reviewed and 
10   looked at.  The odds of winning the jackpot level 
11   must be at an appropriate level in order to ensure 
12   that jackpots will roll to levels that are 
13   attractive to players.
14                 The game matrix and jackpot odds were 
15   analyzed by Texas Lottery staff, the Lottery's  
16   statistical consultant, Gtech marketing and 
17   statisticians, and representatives from both 
18   multi-jurisdictional games.
19                 The analysis results do not lead to a 
20   matrix change recommendation at this time due to 
21   our implementation needs.
22                 MS. JAMBOR:  As we do with most of 
23   our major game changes or implementations, we 
24   conduct player research.  This research on the  
25   multi-jurisdiction game was conducted to assess 
0017
 1   player acceptance, preference and any potential 
 2   cannibalization related to the multi-jurisdiction 
 3   games.
 4                 We collected quantitative data from 
 5   current Lotto Texas players in regions of the state 
 6   with the highest Lotto Texas sales and regions of 
 7   the state with the highest per capita Lotto Texas 
 8   sales.
 9                 Results from the research show that 
10   both games were favorable with players.  They're 
11   very excited about a multi-state or a 
12   multi-jurisdiction game coming to Texas.  This was 
13   indicated not only in verbal responses but also 
14   indicated an increase in their overall spending.
15                 An additional aspect which was very 
16   interesting and very appealing to the players was 
17   the multiplier feature.  
18                 Generally, the multiplier concept is 
19   designed to increase the winning prize amounts for 
20   an additional wager or cost made by the player.  
21   This could be done by using a random number 
22   generates, generating a multiplier prior to the 
23   drawing of the multi-jurisdiction game that would 
24   apply to specific lower prize levels but not to the 
25   jackpot.  
0018
 1                 MS. LEO:  Good morning, 
 2   Commissioners, my name is Patty Leo and I'm the 
 3   financial analyst in the financial administration 
 4   division.
 5                 Draw days have an impact on 
 6   multi-jurisdiction game sales as well as sales for 
 7   current Texas Lottery on-line games.
 8                 One specific difference between 
 9   Powerball and Mega Millions is the days of the week 
10   on which the drawings are made.
11                 We analyzed any potential sales 
12   differences between Powerball's Wednesday/Saturday 
13   draw days and Mega Millions Tuesday/Friday draw 
14   days.  We also looked at the expected negative 
15   impact on sales for current Texas lottery on-line 
16   games that would have the same draw days as either 
17   of the games.  Lotto Texas being on Powerball's 
18   draw days and Texas Two Step being on Mega 
19   Millions.
20                 Per capita sales an important 
21   determinant of the revenue that Texas would receive 
22   was analyzed in depth.  In order to project the 
23   weekly per capita sales for Texas from either 
24   multi-jurisdictional game, we analyzed historical 
25   sales trends for all features of both games, along 
0019
 1   with the major sales influences, such as historical 
 2   jackpot levels.
 3                 Our analysis narrowed in to look at 
 4   per capita sales performance for just those states 
 5   similar to Texas, particularly those that 
 6   participate or operate their own Lotto-type games.
 7                 We then further scrutinized the sales 
 8   experiences of those states that have recently 
 9   joined a multi-jurisdictional game, like Texas 
10   would be in the position.  We wanted to see if 
11   there were any differences in per capita sales 
12   performances for new states that was to be compared 
13   to the older more established multi-state 
14   participants that have been in the games longer.
15                 MR. DEVINEY:  The next key factor 
16   analyzed was the organizational structure of both 
17   games.  The organizational structures of both games 
18   were analyzed to evaluate risks and compatibility 
19   with Texas Lottery Commission operations and 
20   requirements.
21                 Powerball is run by the Multi-State 
22   Lottery Association, also known as MUSL.  It's a  
23   nonprofit association consisting of 27 lotteries, 
24   26 of which are in the Powerball product group.
25                 The MUSL staff conducts drawings, 
0020
 1   performs central game administration and manages 
 2   central accounting and also payment of installment 
 3   winners from its headquarters in Iowa.
 4                 Mega Millions is a multi-state game 
 5   operated jointly by 10 lotteries.  Party lotteries 
 6   perform game functions and there are standing 
 7   committees, which include Legal, Finance, 
 8   Operations, Marketing and Public Relations.  These 
 9   committees are staffed by representatives of the 
10   member lotteries.  
11                 Another key factor analyzed was the 
12   net revenue impact for the State of Texas.  The 
13   78th Legislature passed House Bill 3459, which 
14   allows the Texas Lottery Commission to participate 
15   in a multi-jurisdictional game for the purpose of 
16   increasing lottery revenue in the State of Texas.
17                 The net revenue impact provides a 
18   reasonable point of comparison between  
19   multi-jurisdictional games and it is also the basis 
20   for determining the positive and negative impact to 
21   the State's finances.
22                 Finally, the last key factor that 
23   we'll discuss with you today is risks to the Texas 
24   Lottery Commission.
25                 Any venture necessarily carries 
0021
 1   risks.  The Lottery Commission staff has analyzed 
 2   legal, financial and operating risks inherent with 
 3   participating in a multi-jurisdictional game.
 4                 The issue before the Commission is 
 5   what level of risk posed by each of the two games 
 6   can be absorbed and/or addressed in such a way that 
 7   the Commission and the State of Texas will benefit 
 8   by participation in a multi-jurisdictional game.
 9                 MR. GREER:  Thank each one of you 
10   very much.
11                 Commissioners, I want to again 
12   express to you my appreciation to the staff for 
13   their hard work on this.  This was a very deep and 
14   very involved process that, as we went through the 
15   initial phases over there at the Capitol and we got 
16   sort of the overview, and I obviously raised a lot 
17   of questions, and this has been a team effort that 
18   I'm very proud of, and I just want to thank you 
19   again publicly for all your work.
20                 At this point, I'd like to make a 
21   recommendation to you.
22                 Commissioners, my recommendation 
23   today is based on the totality of the factors and 
24   information obtained throughout the staff's review.  
25   Specifically, I want to thank the Powerball and 
0022
 1   Mega Millions representatives and the TLC staff for 
 2   the information that I've received.
 3                 I also want to thank the citizens who 
 4   provided public input.  This input assisted me 
 5   during the review process.
 6                 Certain factors I considered as 
 7   critical factors were revenue to the state, 
 8   cannibalization of existing games and the game that 
 9   is the best fit for Texas.  
10                 Based on all the information I've 
11   reviewed, I recommend that the Texas Lottery 
12   Commission participate in the Mega Millions game.
13                 There are two key actions that must 
14   occur for the TLC to participate in the game.
15                 First, we will need to enter into an 
16   agreement with the other states that participate in 
17   the game, and, second, we will need to adopt a game 
18   rule.
19                 At this time, I would like your 
20   authority to enter into, on behalf of the Texas 
21   Lottery Commission, a multi-jurisdictional lottery 
22   game agreement to participate in the Mega Millions 
23   game.  
24                 One factor that I believe must be 
25   included in this agreement, as well as the game 
0023
 1   rule, is the application of a multiplier to certain 
 2   prize levels in the game at the inception of the 
 3   game.
 4                 You've already heard in the 
 5   presentation today about the concept of a 
 6   multiplier, and I believe that the multiplier 
 7   feature is a positive and necessary enhancement to 
 8   the game.  
 9                 If authorized by the Commission, 
10   staff will begin contract negotiations with the 
11   Mega Million states, and if those negotiations 
12   fail, I will come back to you in a commission 
13   meeting and tell you that and make a recommendation 
14   on how to proceed from that point.  
15                 I'm optimistic; however, there are 
16   some things that we still have to do and I'm 
17   confident that we can move into a successful 
18   contract negotiation period with your approval.
19                 At this point, I will be happy to 
20   answer any questions or the staff will be happy to 
21   answer any questions that may have come up during 
22   the presentation.
23                 COMMISSIONER WHITAKER:  Reagan, we've 
24   gone through the analysis of the staff where they 
25   looked at various factors, could you take us 
0024
 1   through those factors and give us your thinking as 
 2   it relates to Mega Millions, please? 
 3                 MR. GREER:  As far as the key factors 
 4   that went into consideration -- you want to put 
 5   that slide up as an overview -- the three that I 
 6   really honed in on as we went through the process, 
 7   again, was the revenue to the state, which is in 
 8   your packet in your back-up material under Section 
 9   5.  There's a cost benefit analysis specifically 
10   that goes into what game will have the best impact 
11   as far as revenue.
12                 Specifically, in that document, there 
13   is a section under the appendix that goes into the 
14   overview of what will be provided if we join Mega 
15   Millions.
16                 With that in mind, the revenue 
17   estimate came out in favor of Mega Millions with 
18   the multiplier enhancement.  
19                 The second thing that I really looked 
20   at was the cannibalization.
21                 Commissioners, as I look through the 
22   input that came in from the public, we have a 
23   strong loyalty and a definite group of players that 
24   really like Lotto Texas.  And when you look at 
25   changing those draw nights and the impact that 
0025
 1   would have, I had to rely on the cost benefit 
 2   analysis again and the aspect of cannibalization  
 3   would occur.
 4                 Obviously with the Powerball scenario 
 5   and the drawings being on the same night, I felt 
 6   that that figure of 33 percent, which is in there, 
 7   versus the 21 percent on Mega Millions had to be 
 8   taken in consideration and that players would 
 9   welcome a new game but they don't really want to 
10   change their current process of playing Lotto Texas 
11   on Wednesday and Saturday.  
12                 And then of all those things, the 
13   third I'd like to go into detail on, specifically 
14   was what is the best fit for the State of Texas.  
15                 When you look, there was a key slide 
16   -- why don't you show that one about -- and the 
17   rankings -- in reference to the different games and 
18   where they rank as far as their volume, what went 
19   through my mind, in all honesty with you, is who 
20   does Texas want to be at the table with.  And Texas 
21   has currently moved from number four to number 
22   three.
23                 With New York, Massachusetts and the 
24   other large states in the Mega Millions game, I 
25   think that from a comparison perspective, it would 
0026
 1   serve the interest of Texans better to be in a game 
 2   with similar type scenarios, such as those 
 3   lotteries can offer.  
 4                 Each of the factors weighed in, I 
 5   will tell you, you know, as you go back to the 
 6   factor slide.  Certainly we asked questions and got 
 7   research and were very conscious of the player 
 8   research that came about, but specifically those 
 9   three factors, in my mind, gave me a comfort level 
10   to come to you today with this recommendation.
11                 COMMISSIONER WHITAKER:  Reagan, 
12   what's your view of the branding power of the  
13   different names, Powerball versus Mega Millions? 
14                 MR. GREER:  Liz might speak to that.  
15   We went into detail in the research development 
16   aspect of this, and why don't you talk about that a 
17   little bit?
18                 MS. JAMBOR:  There is a branding 
19   issue with Powerball, people know that game, and I 
20   think it helps that on either side of us is a 
21   Powerball state, so they're familiar with that 
22   name.  And we even asked players if they -- how 
23   many knew of Mega Millions, that out of the -- in 
24   the qualitative out of the players that we asked, 
25   there were very few that had heard, and even less 
0027
 1   that had played Mega millions.  However, they don't 
 2   really care what the name is.  They want a game 
 3   that's going to bring those big jackpots that they 
 4   think of when they think of a multi-jurisdiction 
 5   game.  
 6                 In all honesty, some players aren't 
 7   even -- don't even call Lotto Texas by its true 
 8   name.  It's the Wednesday, Saturday or it's the 
 9   Quick Pick or it's the Pick Six.  So there is a 
10   branding issue with Powerball, but I think more 
11   importantly, it's a game that's going to bring them 
12   the big jackpots, is what they're looking for. 
13                 MR. GREER:  And part of the thinking 
14   process also went back to our meeting at the 
15   Capitol, which you'll recall that the executive 
16   director from New York came down specifically and 
17   addressed that issue and how they had dealt with it 
18   in New York, and I took that in consideration.
19                 Certainly that whole branding issue 
20   was something we wanted to look at but with the 
21   research backing up what Liz just said and with the 
22   examples that came forth from the other executive 
23   directors that have addressed our group from around 
24   the country, I think that we're going to be fine by 
25   delivering the jackpots that people will be excited 
0028
 1   about playing.
 2                 COMMISSIONER WHITAKER:  I've got 
 3   additional questions but I don't want to hog up the 
 4   floor too much.
 5                 CHAIRMAN CLOWE:  You get another cut.
 6                 COMMISSIONER COX:  Reagan, your folks 
 7   have done an outstanding job in putting this 
 8   information together, providing it to us on a 
 9   timely basis, being available to answer questions 
10   and answering questions, answering follow-up 
11   questions, and I've been very pleased with all the 
12   work you-all have done, not only the quantity of 
13   the work but the quality of the work.
14                 I appreciate the 3,370 Texans that 
15   wrote to us about what their thoughts were.  Their 
16   thoughts were very diverse and many were felt very 
17   strongly on both sides of the number of issues but 
18   it's good to see what those folks said.
19                 The one issue that I have focused in 
20   on is the matrix.  Now, both of these operations 
21   indicated that they had some willingness to 
22   consider a higher matrix but Mega Millions had not 
23   -- and they cited reasons, that they had some 
24   states that were new that were not particularly, 
25   pleased probably isn't the right word, but were 
0029
 1   still a little skeptical about the matrix they're 
 2   operating under now because it had not yet produced 
 3   the high jackpots that they expected, and we know 
 4   about that when we get hit 47 million with 17 
 5   percent coverage, we know that that could happen.  
 6                 The thought, however, of adding a 
 7   population of 22 million people to an existing 
 8   matrix tells me intuitively that there needs to be 
 9   a look at matrix.
10                 And yet I think I find with 
11   Dr. Eubank's letter some support for the idea that 
12   the present matrix is okay if.  And I'm going to 
13   read to you what he says about the present matrix.  
14   He said, "The 300 million dollar jackpots, which 
15   are the kind that we want, appear feasible without 
16   changing the game's odds provided the jackpots are 
17   augmented sufficiently fast, particularly at the 
18   lower levels.
19                 "The past history of jackpot 
20   progressions has been quite conservative and one of 
21   their typical runs would be likely to lag behind 
22   those in my tables by two to three draws."  
23                 What I read from that is that they're 
24   having the same problem that we were having under 
25   our previous rule.  Under our previous rule we 
0030
 1   paid, now correct me if I'm wrong on this, Counsel, 
 2   and Gary, we paid the higher of the advertised 
 3   jackpot or the jackpot based on actual sales.
 4                 And what we found when we were find 
 5   operating that way was that we estimated the 
 6   jackpot too low because we were bending over 
 7   backwards not to sandbag anybody because you have a 
 8   couple of risks:  One is that you will estimate the 
 9   jackpot too low and hurt the State of Texas by 
10   underdescribing the product.  The other is that 
11   you'll overdescribe the product and hurt the 
12   credibility.  
13                 MR. GREER:  Right.
14                 COMMISSIONER COX:  And what we 
15   concluded in that situation was the best thing to 
16   do was to pay the jackpot based on actual sales and 
17   make a strong good faith effort to make the 
18   estimate as good as we possibly could.  
19                 MR. GREER:  Yes, sir.
20                 COMMISSIONER COX:  I hope that in 
21   your discussions with Mega Millions, you'll ask 
22   them to consider making that change to their rule.  
23   It would be great if they could make it 
24   immediately.
25                 I can see why they might have 
0031
 1   concerns about making it immediately, but if they 
 2   don't want to make it immediately, I urge them to 
 3   consider being less conservative in the estimates 
 4   of those jackpots.
 5                 They've had enough experience, and 
 6   particularly with the experience that we would 
 7   bring to the party, there's enough experience at 
 8   the table to make much more accurate estimates of 
 9   the jackpots, and, thus, do what Randy says here, 
10   and that is increasing the jackpot progressions 
11   with the present matrix.
12                 So I guess ideally I'd like to see 
13   them change the rules so that they're paying the 
14   higher paid based on actuals.
15                 Secondly, I'd like to see them, if 
16   they can't do that immediately, plan to do that at 
17   such time as there is another matrix change, and in 
18   the meantime, estimate more realistically what the 
19   jackpots might be.  
20                 MR. GREER:  Yes, sir.  The whole 
21   issue of the matrix was something that Robert 
22   touched on in his presentation but certainly that 
23   we went into depth on in our background research 
24   and analysis of the whole process.
25                 Your concerns were concerns that we 
0032
 1   had as well.  We've expressed those, and basically 
 2   I got a positive feeling that our concerns would be 
 3   listened to and that with us at the table, that 
 4   they would be willing to look at that, you know, we 
 5   do have a lot of great minds that are at work on 
 6   this concept and I'm sure they do as well.  So I 
 7   look forward to carrying your message forward and 
 8   to continuing to monitor that matrix issue.
 9                 Specifically, Robert, do you have 
10   anything you want to add from a matrix perspective, 
11   because you kind of were the point person on that?
12                 MR. TIRLONI:  No, just that the 
13   analysis that was -- that was done by Dr. Eubank 
14   was very thorough.  He's done this type of analysis 
15   before for us on Lotto where he's performed the 
16   roll analysis to come up with a jackpot range that 
17   he thinks is accurate and he's done the same for 
18   both.  Actually he did that for both Mega Millions 
19   and for Powerball.
20                 And his main point was that while 
21   we're injecting the population, added population of 
22   21 million, we will also be injecting sales which 
23   should help the jackpot roll up to higher levels 
24   faster.
25                 So, hopefully, based on what you've 
0033
 1   said, Mr. Commissioner, these added sales from 
 2   Texas, plus a more aggressive approach on the Mega 
 3   Millions group will achieve the objective of higher 
 4   jackpots faster.  
 5                 MR. GREER:  Thank you, Robert.
 6                 CHAIRMAN CLOWE:  May I take a cut?  
 7   Reagan, I want to applaud Commissioner Cox's 
 8   statement of appreciation to you and the staff.
 9                 This is a big, serious decision and I 
10   think you-all have done excellent work.  As well as 
11   the other Commissioners, I followed your efforts 
12   and feel like you've gathered a great deal of 
13   information and we want you to know how much we 
14   appreciate the effort that's gone into this.
15                 You are making the recommendation 
16   here this morning so I assume, but I want to ask 
17   you, that you feel comfortable with the time that 
18   you have had to review this and you don't feel 
19   pressed to the extent that there's anything else 
20   that you would want to look into and examine if you 
21   haven't.
22                 MR. GREER:  We have spent a lot of 
23   hours analyzing.  My comfort level two weeks ago 
24   was not where it is today.
25                 Over the last two weeks, we have 
0034
 1   accumulated the information that brings me to a 
 2   point where I can tell you that I am comfortable 
 3   making this recommendation.
 4                 I feel confident that we have delved 
 5   into the issues, some of which we touched on just a 
 6   moment ago in reference to the matrix and other 
 7   things, that would serve us and I feel good about 
 8   moving forward into the agreement process to 
 9   negotiate what's best for the State of Texas.
10                 CHAIRMAN CLOWE:  And both 
11   organizations have been forthcoming and have 
12   completely answered all the inquiries and the 
13   questions that you've had so that there are no 
14   areas where you could say either group has been 
15   unresponsive? 
16                 MR. GREER:  The responsiveness by 
17   each group has been good.  Certainly there were 
18   times that we went back and wanted to clarify an 
19   answer, or the answer they gave brought out more 
20   questions, but as a whole, to make this 
21   presentation new today, the answers that came forth 
22   from each group were very useful in our 
23   decision-making process.
24                 CHAIRMAN CLOWE:  And at this point, I 
25   want to say that I agree with Commissioner Cox's 
0035
 1   comment about the public input.  I don't know who 
 2   on the staff was responsible for it but those have 
 3   been compiled in a floppy disk, and I assume all 
 4   three Commissioners were furnished with it.
 5                 MR. GREER:  Yes, sir.
 6                 CHAIRMAN CLOWE:  I, for one, have 
 7   gone through these extensively, and I also want to 
 8   express my appreciation to the people who took the 
 9   time to input so that we might hear what they have 
10   to say.
11                 This is the people of Texas' decision 
12   to the extent that it's made by the Commissioners 
13   on the staff recommendation but it must please the 
14   people to be successful.  And to have this kind of 
15   input is very valuable to me as I have studied the 
16   work that you have done and have moved forward with 
17   being prepared to receive your recommendation.  
18                 MR. GREER:  Yes, sir.
19                 CHAIRMAN CLOWE:  I think, personally, 
20   both groups are good groups.  In my mind, it's a 
21   "win win" decision, and whatever decision the 
22   Commission makes, we want to express our 
23   appreciation to these two groups for the care and 
24   the attention they have given our request to be 
25   considered to join.  
0036
 1                 MR. GREER:  Yes, sir.
 2                 CHAIRMAN CLOWE:  Having said that, 
 3   I've got to ask the question, what happened to 
 4   both. 
 5                 MR. GREER:  That was considered, 
 6   certainly, and we did send information to both 
 7   groups requesting them to come back with an answer.  
 8   The Powerball group came forward and was amenable 
 9   to looking at it.  The Mega Millions group came 
10   back and said they were not really wanting to 
11   consider it at this time but did kind of leave the 
12   door open that, you know, we could come to the 
13   table and talk to them about it but they were not 
14   in favor of it.
15                 CHAIRMAN CLOWE:  So they really, at 
16   this time, took that option off the table? 
17                 MR. GREER:  Yes, sir.
18                 CHAIRMAN CLOWE:  I want to be clear 
19   about that because that question is going to be 
20   asked and it attracted some attention and I want to 
21   have everybody understand why that wasn't part of 
22   the option that was given us.
23                 I think Commissioner Cox has very 
24   neatly explored the issue of the prize 
25   identification.
0037
 1                 I'd like to ask Lee, if you can help 
 2   us, talk to us about in Mega Millions, the prize 
 3   reserve fund issue and how you see that in regard 
 4   to our state if we were to join Mega Millions.
 5                 MR. DEVINEY:  The Mega Millions is 
 6   different from Powerball in that since it doesn't 
 7   have a central organization or structure, each 
 8   member lottery is responsible for playing for its 
 9   own reserves.
10                 As we do with the Lotto Texas game, I 
11   would perceive that what we would do is we would 
12   take out a reserve portion of sales to plan for any 
13   contingency or liability in the future.
14                 CHAIRMAN CLOWE:  Do you have an 
15   estimate of that figure at this time?
16                 MR. DEVINEY:  In the cost benefit 
17   analysis, we estimate 1 percent, however, as we get 
18   further into development of implementing a 
19   multi-jurisdictional game, that number may change.  
20   We arrived at a figure that we think is sufficient 
21   to cover any potential liabilities but we plug 
22   1 percent for right now.  Perhaps I shouldn't use 
23   the word "plug," it's actually estimated 1 percent.
24                 CHAIRMAN CLOWE:  And you don't see 
25   any problem with that?
0038
 1                 MR. DEVINEY:  No, sir.  And, you 
 2   know, when -- at the time we implement the game, it 
 3   could be one and a half percent or two percent, but 
 4   at this time we feel that 1 percent is a good 
 5   estimate.
 6                 CHAIRMAN CLOWE:  And then, Reagan, in 
 7   regard to the multiplier, I'd like to hear a little 
 8   bit more about how you view that because it seems 
 9   to me it's a critical part of your decision to 
10   recommend Mega Million as it relates to the 
11   attractiveness of the game to the players and the 
12   resulted revenue to the Commission, pardon me, to 
13   the State through Commission adoption.  Can you 
14   give us a little more detail on that?  
15                 MR. GREER:  Sure.  Let's go to the 
16   multiplier slide.
17                 Certainly one of the things that came 
18   out as we went into the cost benefit analysis stage 
19   was the whole aspect of what the multiplier brings 
20   to the table.
21                 The multiplier in the Powerball 
22   structure has been very successfully and basically 
23   what it allows is, as you can see up there, for you 
24   to add an additional wager and then a random number 
25   generator chooses and in the Powerball game 
0039
 1   specifically it's up to five, two, three, four, 
 2   five.
 3                 What we're looking at, and I think 
 4   that's on the slide, if you're looking for 
 5   something else, the rest of the input will come 
 6   from our comments, but what we're looking at in a 
 7   multiplier-type scenario is that opportunity.
 8                 When you go up and you decide 
 9   that you want to buy a Mega Millions ticket, you 
10   will have an opportunity to place an additional 
11   wager, an additional dollar, we're going to work 
12   through the logistics of that with the Mega 
13   Millions group, but that additional dollar will 
14   allow you to double or triple the amount of the 
15   lower tier prize levels.
16                 As stated in one of the earlier 
17   slides, it does not go towards the jackpot; only 
18   towards the lower prize levels.
19                 COMMISSIONER WHITAKER:  Every prize  
20   level other than the jackpot? 
21                 MR. GREER:  Yes, ma'am.  Every prize 
22   level down the chain.  It could or could not, 
23   right, I mean, it's an optional thing that they 
24   have to spin the wheel.  There's a number generated 
25   that goes into that, or, you know, there's 
0040
 1   different ways that you can come up with what that 
 2   multiplier factor is.  And then from that 
 3   perspective, let's say you will, you know, match 
 4   three numbers and it's a hundred dollar prize, you 
 5   get $300, if it was a three that came up.
 6                 Because the opportunities to win are 
 7   1 in 43, specifically on Mega Millions, it just 
 8   gives a player a better opportunity, with those 
 9   long odds of winning the big jackpot, pretty large, 
10   obviously, larger than our Lotto Texas, you know, 
11   current setting, and people like that.
12                 Liz showed it in her research, the 
13   numbers backed it up, and so when we started 
14   dissecting that whole multiplier aspect, and we 
15   actually took that to the Mega Millions group and 
16   said that this was something that we would like 
17   them to consider, they were favorable toward 
18   considering that.
19                 And with that in mind, gave me a 
20   comfort level that I should recommend to you that 
21   we look at that multiplier in a very serious manner 
22   and that we anticipate rolling that out when we 
23   roll out the game, that people will have an 
24   opportunity to have an additional wager.  Say the 
25   ticket is a buck, for an additional buck, they can 
0041
 1   go into a multiplier mode. 
 2                 CHAIRMAN CLOWE:  So you have a high 
 3   level of confidence, and that function or that 
 4   feature is a substantial part of the basis for your 
 5   recommendation? 
 6                 MR. GREER:  Yes, sir.
 7                 CHAIRMAN CLOWE:  And you got the 
 8   positive response.  What happens if in your 
 9   negotiations Mega Millions says no, like they said 
10   to our question of joining both groups? 
11                 MR. GREER:  Right.  Well, we're 
12   prepared to look at that internally first, and then 
13   if that doesn't work, we'll come back to you with a 
14   report, and, you know, consider other options.
15                 The other aspect that I want to be 
16   sure that I don't leave out when you look at the 
17   numbers on the multiplier is that you add the 
18   multiplier aspect to the cannibalization issue, and 
19   that's what brings forward a more positive result 
20   in favor of Mega Millions on the cost benefit 
21   analysis.
22                 To be honest with you, I mean, Liz is 
23   the one that brought that up in the player 
24   research so why don't you talk about any specifics.  
25   And, Toni, you might address your feelings on that 
0042
 1   as well, because they had a major impact on my 
 2   thinking on this.
 3                 MS. SMITH:  Well, I just wanted to 
 4   add to Reagan's comments that in my many questions 
 5   I asked for both Powerball and Mega Millions, I did 
 6   ask the Mega Millions group had they ever 
 7   considered a multiplier feature, and they had on 
 8   their own in one of their finance meetings back in 
 9   June discussed their desires to do that, and it 
10   seemed to be a general consensus that they would 
11   like to add a multiplier feature and they had 
12   actually two of the member state staff had put 
13   together some different concepts on how a 
14   multiplier could work on the Mega Millions game and 
15   they're going to share that information with us so 
16   that we can see what their thoughts were.  So there 
17   is some enthusiasm on their part to add that 
18   feature to the Mega Millions game.  I'll turn it 
19   over to Liz.  
20                 MS. JAMBOR:  Like I had mentioned 
21   before, the outstanding feature of either of the 
22   games was the multiplier feature.  The players 
23   really liked that they had an opportunity for a 
24   extra dollar or a extra five dollars, whatever 
25   their typical wager is, to double that wager to 
0043
 1   potentially increase their winnings.
 2                 And because of the larger odds for 
 3   this game, that made those lower prize levels more 
 4   attractive, and doubling, tripling those lower 
 5   prize levels, then became even more attractive.
 6                 It's very similar to what we see in 
 7   our Instants research when we put a doubler or a 
 8   tripler on our Instants, players really like that.  
 9   They like that what they feel is an extra 
10   opportunity to win, and it kind of came out in the 
11   same way with these on-line players.  They like 
12   that additional opportunity for winning.
13                 CHAIRMAN CLOWE:  And in that 
14   attractiveness, it increases the revenue to the 
15   state as a result of that?
16                 MS. JAMBOR:  That's correct.
17                 CHAIRMAN CLOWE:  And then, Reagan, I 
18   want to come back to the fact that you have ask us 
19   for approval to negotiate and that is a key factor 
20   in your negotiations? 
21                 MR. GREER:  Yes, sir.
22                 CHAIRMAN CLOWE:  You're not asking us 
23   for permission to make a deal with Mega Millions, 
24   it's more you're asking us for permission to go 
25   forward with negotiation focused on Mega Millions.  
0044
 1   And I think you said you were going to come back 
 2   and report to us in a subsequent meeting.  Do I 
 3   understand that correctly? 
 4                 MR. GREER:  I'll defer to Counsel.
 5                 CHAIRMAN CLOWE:  I see the lawyer 
 6   getting ready so give us some clarification, 
 7   Counsel.
 8                 MS. KIPLIN:  Commissioners, what we 
 9   are asking today is that you do approve the 
10   executive director's ability to enter into on 
11   behalf of the Commission, a game agreement to 
12   participate in Mega Millions game.
13                 You've heard the staff, and in 
14   particular the executive director, indicate as part 
15   of those negotiations what's important to him is 
16   the multiplier but we are looking to the Commission 
17   to be able to approve his ability to enter into the 
18   game agreement.
19                 And if in his judgment the 
20   negotiations are not successful because of that 
21   particular aspect, or another particular aspect, 
22   then he will come back to you-all at a later 
23   commission meeting and say, it was not successful, 
24   and we'll present options.  But we are looking for 
25   a broader authority than one factor to be 
0045
 1   considered, and, in fact, not the negotiation but 
 2   the entering into, the execution.
 3                 CHAIRMAN CLOWE:  That's the point I 
 4   wanted made, that he's not bound by any motion that 
 5   you're asking for from the Commission this morning 
 6   and we're not directing him to make a deal with 
 7   Mega Millions.
 8                 MS. KIPLIN:  No, we're not -- the 
 9   staff is not requesting that the Commission make a 
10   motion that he enter into it because, obviously, 
11   there are parties that are out there that can't 
12   lateral agreement but simply the ability to enter 
13   into the agreement should he believe the 
14   negotiations were successful and serve the interest 
15   of the State and the Texas Lottery Commission.
16                 COMMISSIONER WHITAKER:  May I talk to 
17   that?
18                 CHAIRMAN CLOWE:  Certainly.
19                 COMMISSIONER WHITAKER:  I'm not sure 
20   I'm comfortable with that.  I think I would like a 
21   chance to see the contract.  I don't know.  I'd 
22   like to review it, or at least have the option.
23                 CHAIRMAN CLOWE:  I don't think there 
24   could be any problem with an abundance of caution 
25   in reviewing that contract prior to the execution 
0046
 1   of it.  I'm agreeing with you.
 2                 And I'd like to hear from Reagan as 
 3   to what that kind of an oversight imposes on him by 
 4   way of schedule and a timetable, assuming that the 
 5   Commission could meet promptly to review the 
 6   contract after having given ten days' notice and 
 7   following the APA, how is your feeling about that? 
 8                 MR. GREER:  Well, certainly I'm open 
 9   to, you know, whatever suggestions that give you a 
10   comfort level.
11                 When we're looking at the time frame, 
12   which we've talked about a time implementation 
13   line, my goal in bringing this forward today was 
14   that we could get to the next step, which is 
15   getting toward a rule-making opportunity.  
16                 Certainly I'll defer to Counsel to, 
17   you know, guide me through that process, but I'm 
18   comfortable coming forward back to you with, you 
19   know, whatever we come up with as far as an 
20   agreement.
21                 We started on it with both groups and 
22   looked at the various things that came forward in 
23   the questions, now we're ready to get more 
24   specifically into it, so I'll follow your direction 
25   on that.
0047
 1                 COMMISSIONER WHITAKER:  Or the 
 2   alternative being, Kim, whether we individually 
 3   could look at it and then talk to you and then 
 4   decide if we need the benefit of further discussion 
 5   among the Commissioners.
 6                 I mean, I'm very, very pleased with 
 7   the analysis that's been done.  I think it's very 
 8   thorough.  I think it's looked at all the issues 
 9   we've talked about, but there are, you know, the 
10   negotiations aren't complete yet and this is very 
11   important so -- 
12                 CHAIRMAN CLOWE:  That's why there are 
13   three of us.
14                 COMMISSIONER WHITAKER:  That's right.  
15                 CHAIRMAN CLOWE:  Commissioner Cox, 
16   what's your thought?
17                 COMMISSIONER COX:  I think that I'm 
18   comfortable with what Commissioner Whitaker just 
19   outlined, come to us separately with the contract, 
20   if we feel a need to deliberate, we'll have a 
21   meeting, if we don't, do it individually.
22                 CHAIRMAN CLOWE:  Commissioner 
23   Whitaker is indicating that she's gotten her way.
24                 Are you satisfied with that?
25                 COMMISSIONER WHITAKER:  I'm 
0048
 1   satisfied.  
 2                 MR. GREER:  Mr. Chairman, we have a 
 3   thought.
 4                 MS. KIPLIN:  I do, I do want to go on 
 5   the record and make sure that I have a clear 
 6   understanding and we have clear direction.  Because 
 7   of the Open Meetings Act, you-all would be 
 8   precluded from any deliberations collectively 
 9   unless it was in a public meeting and so to --
10                 CHAIRMAN CLOWE:  And there will be 
11   none.
12                 MS. KIPLIN:  And so to the extent 
13   that we look to individual commissioners, we will 
14   not be saying to one commissioner, "This is how 
15   Commissioner A feels."
16                 CHAIRMAN CLOWE:  That's right.
17                 MS. KIPLIN:  We will receive 
18   individual comments or input and then we will have 
19   to make our best decision as we go forward.
20                 CHAIRMAN CLOWE:  That's right.
21                 MS. KIPLIN:  If in the executive 
22   director's judgment, there is a need to have that 
23   kind of collective deliberation, then we certainly 
24   will come before you in a commission meeting, but 
25   it will preclude, so we would do -- what we would 
0049
 1   normally do which is look to each of you for an 
 2   individual expertise and draw on that but there 
 3   will be no -- no passing of information from one 
 4   commissioner to another.
 5                 CHAIRMAN CLOWE:  That's right, and 
 6   for example, if a commissioner says I'm not 
 7   comfortable with this, then you'd have a clear 
 8   signal that you needed a public meeting and 
 9   deliberation.  
10                 MR. GREER:  Yes, sir, which actually 
11   from my perspective, would be helpful as we move 
12   into an agreement process because each of you has 
13   expertise in varying areas and would bring 
14   different factors to consideration as we move into 
15   a negotiation with the Mega Millions group.
16                 COMMISSIONER WHITAKER:  And I will 
17   say that my concerns are, I just want to look at 
18   all the legal aspects of how it's all balanced and 
19   the final agreement.  I can't help myself.  It's my 
20   background so -- 
21                 MS. KIPLIN:  Well, and I would say 
22   that this would not be a new precedent.  The 
23   lawyers do tend to call on Commissioner Whitaker 
24   and ask her for her opinion and have that ability 
25   to have those kind of discussions and I don't see 
0050
 1   that changing with this particular project.
 2                 It is a particular comfort to the 
 3   legal division and I'm sure --
 4                 COMMISSIONER WHITAKER:  Because you 
 5   and I, Kim, have spoken about the legal aspects of 
 6   what we're anticipating and all the balancing of 
 7   that, and I'm comfortable with where we are but as 
 8   you know there are some issues and it will all need 
 9   to be further negotiated so -- 
10                 MS. KIPLIN:  That's correct.
11                 COMMISSIONER WHITAKER:  Okay.
12                 COMMISSIONER COX:  Would it be  
13   possible, given that scenario, for what -- how much 
14   notice do you have to give on a meeting?
15                 MS. KIPLIN:  It's seven days' notice, 
16   not including the day you notice and the day of the 
17   meeting.
18                 COMMISSIONER COX:  Okay.  So when you 
19   reach that point, the point where you think you 
20   would be ready for a meeting by noticing, and then 
21   we proceed with this scenario, if we don't need a 
22   meeting, we don't have to have it?
23                 COMMISSIONER WHITAKER:  I think 
24   that's a good idea. 
25                 MS. KIPLIN:  That's fine.  
0051
 1                 MR. GREER:  Well, and you know, the 
 2   agreement then will allow us to move into the 
 3   rule-making process, which you will have to 
 4   come back together on and we could discuss issues 
 5   openly in reference to, you know, the two.
 6                 COMMISSIONER WHITAKER:  Okay.
 7                 CHAIRMAN CLOWE:  Okay.  I think 
 8   there's an agreement and satisfaction on that 
 9   issue.
10                 Then, Reagan, let's focus on Mega 
11   Million.  If we join that group, then we are one 
12   state among their group, and as I understand their 
13   voting procedure, we would have one vote? 
14                 MR. GREER:  Yes, sir.  One vote, one 
15   state.
16                 CHAIRMAN CLOWE:  And, you know, Texas 
17   has never done that before.  We have controlled our 
18   destiny and we've run our lottery to suit 
19   ourselves; the people of the state.  And I'd like 
20   to hear you give us some comfort about that 
21   situation.
22                 I think in your analysis of risks, 
23   someone up there on the power point presentation 
24   said when you enter into any agreement, there are 
25   some risks.  And as a Texan, I want some comfort 
0052
 1   about what we're doing dealing with New York and 
 2   Massachusetts and Virginia and Georgia, as an 
 3   equal.  That's, you know, I want some comfort about 
 4   it.  
 5                 MR. GREER:  Well, Mr. Chairman.  This 
 6   is unchartered water for me as well.  I haven't 
 7   done a lot with the northern states but I'm 
 8   confident, you know, based on the fact that we have 
 9   had conversations with different executive 
10   directors that we can build some positive 
11   relationships there and do what is best for the 
12   state in the process.
13                 I mean, obviously, in looking at both 
14   games, there were factors that, you know, were 
15   positives, and we have been pleased with the 
16   responsiveness of both groups, but specifically in 
17   reference to Mega Millions being amenable to the 
18   whole idea of a multiplier.
19                 So I have to say that the structure 
20   of the two groups was a part of the process that 
21   really weighed on my mind as well when we were 
22   talking about the factors.
23                 From a voting capacity, in the 
24   Powerball group, there's really two separate voting 
25   entities.  One is in the MUSL group, they're 
0053
 1   controlled by a board, and we would have one state 
 2   and then a percentage, which would be up to 15 
 3   percent of our per capita, or not our per capita, 
 4   of our sales, in the decision-making process.  
 5   That's one group.
 6                 The Powerball group is a subgroup of 
 7   the MUSL group, and in that particular scenario, 
 8   you have one vote, one state.
 9                 The complexity of that versus the 
10   complexity of going out and building relationships 
11   and alliances with other states that have similar 
12   interests, to me, weighed in Mega Millions' favor.  
13                 I am uncomfortable that other large 
14   states have similar issues that we in Texas have 
15   and that we would be able to come to terms at the 
16   table with them in a positive way.  
17                 The, you know, what Counsel's 
18   pointing out is there's more flexibility, there's 
19   some control issues that were in question when you 
20   talk about boards and different things like that, 
21   that entered into my thinking process, so I have a 
22   comfort level because of the staff that we have in 
23   place and because of their structure being a 
24   committee structure, which reflecting back on the 
25   presentation at the Capitol, that basically is how 
0054
 1   decisions are made within that group.
 2                 Before it gets to the executive 
 3   directors, there is a committee on each of the 
 4   different levels within, you know, lottery 
 5   operations that deal with that issue and then bring 
 6   it to the executive directors of the group.
 7                 They have conference calls on a 
 8   regular basis, you're allowed to express your 
 9   opinion.  But I will assure you prior to making 
10   this that I did talk to a number of executive 
11   directors around the country and feel good that I 
12   can build relationships there that will be in the 
13   best interest of the state.
14                 And basically that's what would have 
15   to happen in both groups, but because of the 
16   flexibility in the Mega Millions structure, I'm 
17   more comfortable that we could, I guess you'd say, 
18   get our way or have our voice be heard, or whatever 
19   you want to call it because both groups certainly 
20   expressed right up front that, and I think this was 
21   a Commissioner Cox term, but that we were a crown 
22   jewel to either game, not only because of our 
23   population but because we have a successful 
24   lottery.  You know, we're the third largest lottery 
25   in North America and they want that player with 
0055
 1   them at the table.
 2                 And I'm confident that with that in 
 3   mind, that they will hear our voice loudly and I'm 
 4   comfortable that we can, you know, deliver on 
 5   things that are best for the state.
 6                 CHAIRMAN CLOWE:  So you would be the 
 7   one to go on board and represent the state and our 
 8   staff would serve on the various committees --
 9                 MR. GREER:  Yes, sir. 
10                 CHAIRMAN CLOWE:  -- I believe there 
11   are five or six standing committees in Mega 
12   Millions, and we would be highly participating in 
13   those activities.  And you feel the culture is such 
14   that our interests would be represented through 
15   your vote and we would be comfortable with the 
16   culture of that organization? 
17                 MR. GREER:  Yes, sir.  And, you know, 
18   and one of the issues is that every state is 
19   different and every state has their own rules and 
20   regulations that, you know, move them forward.
21                 We have to be, you know, respectful 
22   of that, but obviously, we're going to do what is 
23   within the guidelines of the State of Texas.  Open 
24   Records is an example of that.
25                 There were some issues that came 
0056
 1   forward in questioning Mega Millions because they 
 2   had not been responsive to some inquiries by part 
 3   of the citizenry and every state is subject to 
 4   their laws.
 5                 We, in Texas, will follow through 
 6   with what we normally do in regard to Open Records, 
 7   or any other scenario, we'll follow our state laws 
 8   and those guidelines, and when we're looking at our 
 9   agreement and our rule-making capacity, that will 
10   be a part of our thinking process.
11                 CHAIRMAN CLOWE:  Okay.  I'm 
12   comfortable with that and I appreciate it but I 
13   want to prepare ourselves for any eventuality that 
14   might occur where you might come back on some issue 
15   and say, well, we didn't get the votes, it's not 
16   going to be what we wanted it to be.  And that 
17   could happen when you join a group where everybody 
18   has one vote.  We live with that all the time in 
19   this state, but I just want that said, that that 
20   could occur where we don't have the ultimate 
21   control.  I don't see that as a problem but I want 
22   it clearly understood.  
23                 MR. GREER:  Well, it is unique, I 
24   guess is the best word, to look up there on the 
25   board and look at Mega Millions and seeing that we 
0057
 1   would be the eleventh group and then consider that 
 2   we would be in partnership with, you know, states 
 3   that we just normally have not been hanging out 
 4   with.
 5                 So, you know, there's some positive 
 6   things that'll come out of that, some growing 
 7   opportunities, I'm certain, but, moreover, in my 
 8   opinion, in the lottery industry as a whole, 
 9   continuing to develop professionalism and integrity 
10   in the game, making some comparables as far as, you 
11   know, what works in one state.  I think that we've 
12   already begun to look at that in a little different 
13   light, and I'm sure that we're going to built some 
14   alliances that will be to the benefit of the Texas 
15   Lottery players.
16                 CHAIRMAN CLOWE:  And the Mega 
17   Millions group has been in existence for seven 
18   years, is it?
19                 MR. GREER:  1996.  They started out 
20   as the Big Game.  As they added other games, they 
21   changed the name to Mega Millions.  This 
22   multiplier, which I've been calling Megaplier with 
23   the staff that we're looking at, is a new thing for 
24   them and so we're looking --
25                 CHAIRMAN CLOWE:  You need to get that 
0058
 1   copyrighted.
 2                 MR. GREER:  Yeah.  Write that down.
 3                 CHAIRMAN CLOWE:  Hurry.  
 4                 MR. GREER:  The Megaplier.  But what 
 5   we're looking at is, you know, bringing a new game 
 6   to the table, I mean a new aspect of the game to 
 7   the table, and they're responsive to that.  So that 
 8   was a good first start.  Prior to, you know, that 
 9   point and looking at the cost benefit analysis 
10   there were still a number of issues that had to be 
11   resolved, but when that fell into place and we 
12   realized that that was a significant aspect of the 
13   player research and that players would like that 
14   opportunity, and then you look at the 
15   cannibalization, that factor, you know, weighed 
16   into our process in a positive way.
17                 CHAIRMAN CLOWE:  Second cut?
18                 COMMISSIONER WHITAKER:  All right.  
19   What is your thought about the idea of increasing 
20   the annuity from 26 years to 30 years? 
21                 MR. GREER:  The annuity issue, Lee is 
22   going to have to help me on that --
23                 MR. DEVINEY:  Yeah.  
24                 MR. GREER:  -- because we did talk 
25   about that at length.  The current set-up right now 
0059
 1   is 30 years in Powerball; 26 in Mega Millions, and 
 2   I'll let Lee start and then I'll kind of wrap that 
 3   up, but what are some of the issues there?
 4                 MR. DEVINEY:  I think that the key 
 5   issue when you go from a 26 to a 30-year pay-out 
 6   is, how are you going to invest funds in order to 
 7   make those payments in the long years.  And we've 
 8   -- staff has gone and we consulted with the Texas 
 9   State Trust Company, which performs those 
10   investment functions for the Lottery Commission, 
11   and we feel pretty comfortable the safekeeping, the 
12   trust company understands the issue and can plan 
13   for it.
14                 There are several strategies they 
15   employ in order to make sure that if we are 
16   involved in a game with 30-year pay-out that we can 
17   invest funds so that those winners will be paid all 
18   the way out to the end.
19                 COMMISSIONER WHITAKER:  Is that 
20   something you think would be favorably inclined to 
21   do?
22                 MR. GREER:  Well, certainly on the 
23   table and one of the things we're looking at, the 
24   inclination from staff's perspective, you might 
25   share that.  What's your inclination? 
0060
 1                 MR. DEVINEY:  On the -- on doing the 
 2   pay-outs?  I don't think that it really matters as 
 3   long as you have the ability to invest funds for 
 4   any maturity schedule and I think that ability is 
 5   there.
 6                 COMMISSIONER COX:  Commissioner, I 
 7   talked to them about, at some length about this 
 8   issue, and with particular regard to the safety of 
 9   those installments out there beyond the length of 
10   U.S. Treasury.
11                 And I think that the strategy they 
12   have is sound and I further think that if Powerball 
13   is out there competing with Mega Millions for a 
14   30-year annuity and Mega Millions has 26, Mega 
15   Millions is again shooting itself in the foot, I -- 
16   underdescribing the product.
17                 COMMISSIONER WHITAKER:  Because the 
18   impact on the big jackpot is quite significant, 
19   isn't it? 
20                 MR. GREER:  Yes, ma'am.
21                 COMMISSIONER WHITAKER:  If you go to 
22   30 years, you could expect what? 
23                 MR. GREER:  A higher jackpot level 
24   overall.
25                 What did we estimate that to be in 
0061
 1   our research?
 2                 COMMISSIONER WHITAKER:  They say here 
 3   you'd expect 300 million plus each year if you went 
 4   to 30; otherwise you would -- do you agree or 
 5   disagree? 
 6                 MR. GREER:  I'll defer because 
 7   you-all researched that.
 8                 MR. DEVINEY:  The higher jackpot 
 9   levels are going to be more attractive and they're 
10   going to drive, you know, induce more sales.  
11   People get excited and they want to buy more 
12   lottery tickets when the jackpots are higher.
13                 When you have a 30-year pay-out, you 
14   can increase that high jackpot level a little bit 
15   quicker.
16                 COMMISSIONER WHITAKER:  But are you 
17   -- do you agree with their estimates of the type of 
18   jackpots we can expect?
19                 MR. DEVINEY:  I think that's -- I'm 
20   not going -- I'm going to defer that question, if I 
21   can, down the table because I think that's more a 
22   question of probability of how often people are 
23   going to, you know, how often the jackpot is going 
24   to roll.  
25                 MR. GREER:  That was a part of the 
0062
 1   research, and, you know, again, it's one thing 
 2   that we're going to discuss with them up front.  
 3   But, Robert, why don't you and Toni, because I know 
 4   we talked about this at length at numerous 
 5   meetings.
 6                 MR. TIRLONI:  Dr. Eubank's analysis 
 7   leads him to believe that we should see about five 
 8   jackpots that extend into the hundred million 
 9   dollar range or above.
10                 COMMISSIONER WHITAKER:  Per year?
11                 MR. TIRLONI:  Yes, ma'am.
12                 COMMISSIONER WHITAKER:  Okay.
13                 MR. TIRLONI:  And that actually 
14   meshes, or that agrees with the Gtech 
15   statisticians, and, of course, Dr. Eubank's 
16   analysis is done independent of anything that we 
17   get from Gtech, but the Gtech statistician supplied 
18   us with information that we should see for 
19   jackpots, but over 95 million dollars a year with 
20   the current Mega Millions matrix.
21                 So the Gtech statisticians came up 
22   with about four, and our independent statistician 
23   came up with about five jackpots, over a hundred 
24   million dollars in a year.
25                 And then in his letter, Dr. Eubank 
0063
 1   also noted that we would expect to see one run up 
 2   into the approximate 300 million dollar level in a 
 3   year.  He also notes a run up to 400 might be seen 
 4   every two to three years.  And of course that would 
 5   depend on what type of conversations were held in 
 6   the future with the groups about possibly changing 
 7   the matrix down the road, and of course all those 
 8   numbers will change but those are the projections 
 9   at this point.
10                 COMMISSIONER WHITAKER:  Go ahead.  
11                 MR. GREER:  Just another point.  As a 
12   part of the history that we looked at as far as the 
13   game's established jackpot levels, just reflect on 
14   the fact that both have gone way into, one was 383 
15   and one was three -- 
16                 MR. TIRLONI:  Mega Millions has the 
17   record jackpot of 363.  
18                 MR. GREER:  363, and Powerball hit a 
19   high of what, three --
20                 MR. TIRLONI:  They had a three -- 
21   almost 315 million dollar jackpot just in December 
22   of 2002, on Christmas Day, actually.
23                 MR. GREER:  So basically both have 
24   delivered, is what they're telling us, that they're 
25   going to continue to look at things and that was 
0064
 1   one of the issues that they were willing to discuss 
 2   with us further.
 3                 COMMISSIONER WHITAKER:  And it's the 
 4   addition of Texas that would increase the odds of 
 5   it going over 400, Reagan?  Is that -- 
 6                 MR. TIRLONI:  As I said earlier, 
 7   we're injecting population but because as we inject 
 8   that population, we're also injecting sales, the 
 9   thought process is we should be able to roll up to 
10   similar jackpot levels quicker.
11                 COMMISSIONER WHITAKER:  Okay.  Okay.
12                 MR. TIRLONI:  The statisticians 
13   example was on average of Mega Millions was to be 
14   hit after the thirteenth roll, with the injection 
15   of Texas, it might be hit after the tenth roll, but 
16   because you're adding those sales, that by the time 
17   you get to the tenth roll, you should be at a very 
18   similar jackpot level.
19                 COMMISSIONER WHITAKER:  One more 
20   question.  Tell me about the border state analysis.  
21                 MR. GREER:  Well, certainly that was 
22   a part of the thinking process that took place.  
23   When you look at New Mexico and Louisiana being 
24   Powerball states, and through the years there's 
25   been a lot of press, in fact, there was some recent 
0065
 1   press in one of the newspapers specifically about 
 2   people, you know, driving across the border when 
 3   they have those big jackpots and people lined up 
 4   and how many of them were from Texas.  It says two 
 5   things:  One, that there's a high level of 
 6   interest, but, two, that it's something that we can 
 7   give consideration to, and it's one of those kind 
 8   of  intangibles that you've got to look at, because 
 9   my personal feeling is that maybe now people from 
10   Louisiana and New Mexico, and surrounding states 
11   can come over to Texas when we have these big 
12   jackpots and we get some of that money back.
13                 And the second aspect of it is, is 
14   that it gives our players an opportunity, you know, 
15   as well to see things from a border perspective a 
16   little bit differently by giving them an option 
17   here in their own state.
18                 The border analysis is something that 
19   Liz and I had numerous conversations on and both 
20   feel strongly that it will work in our favor with 
21   the Mega Millions group.
22                 Liz, do you want to add anything to 
23   that?
24                 MS. JAMBOR:  Only that I agree with 
25   what you're saying.  We've seen -- when Powerball's 
0066
 1   been high, we see our border retailer sales drop 
 2   off.  When our jackpots are higher, we see our 
 3   border retailer sales increase, so there is an 
 4   impact of having differing jackpots on one side of 
 5   the border or the other.
 6                 CHAIRMAN CLOWE:  Our biggest retailer 
 7   at one time when we had a big jackpot was right up 
 8   on the Oklahoma border, wasn't it?
 9                 MR. TIRLONI:  That's correct.
10                 CHAIRMAN CLOWE:  I seem to remember 
11   long lines up there, so Oklahomans like to play as 
12   well as Louisianans or New Mexicans.
13                 MR. GREER:  We're confident that 
14   surrounding states will be looking at this in a 
15   favorable manner if they are so inclined. 
16                 COMMISSIONER WHITAKER:  I'm finished.
17                 CHAIRMAN CLOWE:  Second cut, 
18   Commissioner Cox.
19                 COMMISSIONER COX:  Okay.  Following 
20   up on Chairman Clowe's question about Texas sharing 
21   its decision-making with other states, this is 
22   going to be an important product in our product mix 
23   and it's going to affect our entire product mix. 
24                 MR. GREER:  Yes, sir.
25                 COMMISSIONER COX:  And those are 
0067
 1   things that you hate to give up control on.  If -- 
 2   I guess the worst case would be that we said, you 
 3   know, you guys are just such that we can't control 
 4   our own destiny the way we must control our own 
 5   destiny to be responsible for people of the State 
 6   of Texas and we're going to have to part company.
 7                 Now, what are the barriers to exit if 
 8   we ever were to get to that unfortunate situation? 
 9                 MR. GREER:  Well, that question was 
10   one that we, you know, posed.  Legal counsel will 
11   have to help me because they looked into, but there 
12   were two different ways we could go.
13                 MS. KIPLIN:  The agreements that 
14   we've reviewed, both, and I'm looking at Andy 
15   Marker, who's the contract lawyer on this project 
16   to keep me straight, but each has a six-month 
17   notice provision to exit the game unless there is a 
18   need because of state law, some law that mandates 
19   getting out earlier, then you can get out.
20                 There needs to be an orderly exit 
21   because there are advanced plays that are sold in 
22   these games.  Some have subscription sales that are 
23   allowed and so forth.  So it's two ways:  One would 
24   be the six-month for each game in an orderly way.  
25   The other one would be if in fact we lost the 
0068
 1   authority, legislative authority, to be in a 
 2   game or that were directed to get out of the game 
 3   by some sort of statutory mandate, then we would 
 4   get out immediately on those.
 5                 And Andy, Mr. Marker, do you have 
 6   anything to add to that?
 7                 MR. MARKER:  No.
 8                 CHAIRMAN CLOWE:  Reagan, the basis of 
 9   your thinking right now is that we enter into a 
10   contract with Mega Millions, other options remain 
11   open to us under the statute that would allow us to 
12   enter into a game, for example, with big states 
13   like California and Florida, in addition to --
14                 MR. GREER:  Yes, sir.
15                 CHAIRMAN CLOWE:  -- what we're 
16   discussing here this morning.  And just for the 
17   record, what is the current Powerball and Mega 
18   Million jackpot status today? 
19                 MR. GREER:  Both stand at 42 million 
20   dollar jackpots today.
21                 CHAIRMAN CLOWE:  Exactly, you say? 
22                 MR. GREER:  (Nods yes.)  Interesting.
23                 CHAIRMAN CLOWE:  That is interesting.  
24   Any other questions?
25                 COMMISSIONER WHITAKER:  No more 
0069
 1   questions.
 2                 COMMISSIONER COX:  I have one more.
 3                 CHAIRMAN CLOWE:  Yes, sir.
 4                 COMMISSIONER COX:  Kim, we've had a 
 5   number of discussions about some of the legal 
 6   aspects of entering into an agreement with other 
 7   states, and, Lee, we've had some discussions of 
 8   financial aspects of sharing liabilities, if you 
 9   will, with other states, and both of you-all have 
10   had discussions, you with the controller of public 
11   accounts, and you with the attorney general, about 
12   some of these issues.  Are there any lingering 
13   concerns that either of you has or that you sense 
14   the controller or the AG has about this 
15   organization states?
16                 MS. KIPLIN:  Let me -- let me take a 
17   stab at it first.
18                 Mr. Marker and I did visit with two 
19   attorneys in the General Counsel Division, the 
20   Deputy Division Chief and the Division Chief, it 
21   was informal.  We did not request a formal opinion 
22   from the attorney general's office.
23                 It was an opportunity for us to, we 
24   wanted to make sure that we've identified all of 
25   the risks that each of these games and their 
0070
 1   structure, organizational structures posed, and 
 2   once identified, determine what would be an 
 3   appropriate way to remedy against any sort of risk 
 4   of protecting, I think that collectively the four 
 5   attorneys that were there did not see anything that 
 6   was lingering.  I think we've identified all the 
 7   areas of risk.  I think we discussed the different 
 8   ways to protect or remedy the financial risks from 
 9   the legal perspective.
10                 Some of those of course will require 
11   operation management of the risk, not just legal 
12   remedies that are available.  And so I didn't hear 
13   anything that gave me any additional pause for 
14   concern at all and did not hear anything that 
15   indicated that there was some risk that was not 
16   already identified and strategies on how to remedy 
17   against that risk.
18                 Mr. Marker, I would invite you to 
19   offer any comments that you have that you feel you 
20   need to.
21                 MR. MARKER:  I have none at this 
22   time.  Thank you.
23                 MR. DEVINEY:  The only thing I would 
24   add to that while I'm thinking through this, we -- 
25   as of this time, we've not identified any absolute 
0071
 1   barriers that are just stoppers.  We feel 
 2   comfortable on those issues that we'll have to 
 3   negotiate through that there's room for negotiation 
 4   and we detect, you know, flexibility on the, you 
 5   know, on the part of the Mega Millions group to 
 6   work with the State of Texas and its laws and rules 
 7   for requirements.
 8                 And then, lastly, in working with 
 9   this group, I feel like that the sorts of risks 
10   that I would personally be concerned about managing 
11   which would be financial risks, that we've got some 
12   local control over -- we can control our destiny to 
13   a pretty high degree.
14                 COMMISSIONER COX:  And in your 
15   negotiation process, Reagan, Counsel, and financial 
16   will both be with you on those negotiations so 
17   they'll have input on this as well? 
18                 MR. GREER:  Yes, sir, we'll put a 
19   team-type concept together on that.  I would like 
20   to acknowledge and thank openly the deputy executive 
21   director, Gary Grief.  He has played a critical 
22   role in this process.
23                 His experience of the lottery has 
24   been very helpful to me personally, and as well as 
25   to the staff and he will be a part of that 
0072
 1   negotiation process that we'll be working together 
 2   as a group to bring these issues and others that we 
 3   have identified into the agreement in the best 
 4   interest of the state.
 5                 COMMISSIONER COX:  That's all I have, 
 6   Mr. Chairman.
 7                 CHAIRMAN CLOWE:  Last question.  This 
 8   is the one to look out for.  
 9                 You have said if the Commission votes 
10   on this and things go well, that you thought this 
11   game could begin in the State of Texas, and I'm not 
12   going to quote you, I'm going to give you a chance, 
13   here's a clean slate.  
14                 MR. GREER:  Based on the information 
15   that we've been able to put together with all 
16   groups, including the implementation process, we 
17   brought the Gtech group on board, obviously they're 
18   going to be a key player in making this roll-out 
19   happen.
20                 We are looking at a late fall, which 
21   would be end of October, early November, roll-out.  
22   And I will keep you up to speed as we move forward 
23   in the months to come and give you an idea of, you 
24   know, anything that may be altering that as we get 
25   into the process, but we've been on full tilt since 
0073
 1   this thing started in June and I don't see that 
 2   changing until we can roll out the first ticket and 
 3   feel comfortable with that late fall estimation.
 4                 CHAIRMAN CLOWE:  And that's a -- 
 5   that's an estimate? 
 6                 MR. GREER:  Yes, sir.
 7                 CHAIRMAN CLOWE:  I think the people 
 8   of the state would want to hear when you think the 
 9   game might be on the street.  
10                 MR. GREER:  Well, the multiplier, for 
11   instance, is something that's just come into the 
12   mix here over the last weeks of consideration, so 
13   that brings another thing to the table that will 
14   have to be a part of our time line, but even with 
15   that, I've had assurances from the staff and 
16   working with Gtech that I'm comfortable stating 
17   that late fall is the time that we can look forward 
18   to the implementation.
19                 CHAIRMAN CLOWE:  Any other questions?
20                 COMMISSIONER COX:  No, sir.
21                 COMMISSIONER WHITAKER:  No.
22                 CHAIRMAN CLOWE:  Do you just happen 
23   to have a motion that you'd like the Commissioners 
24   to consider?
25                 MS. KIPLIN:  Well, yes, I try to do 
0074
 1   the best I can to have in any -- in any forum at 
 2   least a draft order, a proposed order, and this way 
 3   it saves --
 4                 CHAIRMAN CLOWE:  Let us hear it, 
 5   please. 
 6                 MS. KIPLIN:  At this point the staff 
 7   does request that you make a motion to second and 
 8   vote to approve the executive director's ability to 
 9   enter into on behalf of the Texas Lottery 
10   Commission, a multi-jurisdictional lottery game 
11   agreement to participate in the Mega Millions game.
12                 COMMISSIONER WHITAKER:  Subject to 
13   further consent by the Commission if that issue is 
14   posed at the later meeting? 
15                 MS. KIPLIN:  Yes.  And when you say, 
16   "consent by the Commission," that would be if there 
17   were issues that were brought forward by an 
18   individual commissioner --
19                 COMMISSIONER WHITAKER:  Yes.
20                 MS. KIPLIN:  -- that would cause the 
21   executive director, in his judgment, to determine 
22   that an additional Commission meet for action as 
23   required.
24                 COMMISSIONER WHITAKER:  Yes.  So 
25   moved.
0075
 1                 COMMISSIONER COX:  Second.
 2                 CHAIRMAN CLOWE:  All in favor, please 
 3   say aye.
 4                 COMMISSIONER COX:  Aye.
 5                 COMMISSIONER WHITAKER:  Aye.
 6                 CHAIRMAN CLOWE:  Opposed, no.  The 
 7   vote is three-zero in favor.  The Commission will 
 8   recess for fifteen minutes.
 9                 (Break, 9:49 a.m. to 10:24 a.m.)
10                 CHAIRMAN CLOWE:  The Commission is 
11   now back in session.  We're out of recess at 10:24 
12   a.m.
13                 We will go to Item number two on our 
14   agenda:  Consideration of and possible discussion 
15   and/or action, including adoption on repeal of 16 
16   TAC 402.555 relating the card-minding devices, 
17   and/or on new rule 16 TAC 402.555 relating to 
18   card-minding systems.  Mr. Atkins.
19                 MR. ATKINS:  Thank you, 
20   Commissioners.
21                 COMMISSIONER WHITAKER:  Billy, did 
22   you feel left out?
23                 MR. ATKINS:  I think I -- I think I 
24   kind of felt how Gary and Reagan feel sometimes, so 
25   it's a fair trade-off.
0076
 1                 Under this item, Commissioners, the 
 2   staff is going to be asking you to take two 
 3   actions:  The first would be to adopt to repeal the 
 4   existing Charitable Bingo Administrative Rule 555 
 5   relating to card-minding devices without changes.
 6                 This rule is being repealed because 
 7   as the staff worked with the advisory committee and 
 8   industry representatives on this matter, it was 
 9   decided that due to the number and substance of the 
10   changes, it would be less confusing to the public 
11   to repeal the existing rule and propose an entirely 
12   new rule that encompasses the changes discussed.
13                 The Commission voted at your May 29th 
14   meeting to publish the proposed repeal in the Texas 
15   Register for a period of 30 days.  That repeal 
16   appeared in the June 13th issue of the Texas 
17   Register.  There was one comment in opposition to 
18   the proposed repeal.  The staff disagrees with that 
19   comment for reasons that are contained in the 
20   preamble to the proposed repeal.  
21                 The second action that's -- the 
22   second action that staff would recommend today is 
23   the adoption of new Charitable Bingo Administrative 
24   Rule 402.555 relating to card-minding systems with 
25   changes.  This rule will replace the rule that's 
0077
 1   being repealed.  
 2                 The Commission also voted at your 
 3   May 29th meeting to publish the proposed new rule 
 4   in the Texas Register for formal comment for 30 
 5   days.  The proposed repeal was also published in 
 6   the June 13th issue of the Texas Register.
 7                 There were comments received during 
 8   the formal comment period and a summary of the 
 9   comments are contained in the preamble to the 
10   proposed new rule.
11                 Specifically, the changes to the 
12   proposed new rule 402.555, include the deletion of 
13   language in the rule that will comply with House 
14   Bill 2519, 78th Legislature regular session, 
15   relating to the repeal limitation on the use of 
16   card-minding devices but not more than 40 percent 
17   of the individuals attending a Bingo occasion.
18                 As you'll recall from the May 29th 
19   commission meeting, staff expected that these 
20   comments would be made resulting from the 
21   legislation and we believe those comments to be 
22   timely.
23                 Other changes include replacing the 
24   word "quantity" in subsection H2B and H4B with the 
25   word "number."  And, finally, the definitions in 
0078
 1   Subsection A have been placed in alphabetical 
 2   order.
 3                 As you know, Commissioners, in 
 4   addition to the formal comment period and 
 5   publication in the Texas Register as required by 
 6   the APA, this rule has gone through an extensive 
 7   informal comment period.  It was first proposed to 
 8   the advisory committee at their meeting in August 
 9   of 2002.  
10                 The staff would recommend that the 
11   Commission adopt the new administrative rule 
12   402.555 relating to card-minding systems with 
13   changes to the proposed text as published in the 
14   Texas Register.
15                 Again, the staff is asking for two 
16   separate actions under this item.  The first is a 
17   motion and a vote to adopt the repeal of existing 
18   Charitable Bingo administrative rule 402.555 
19   relating to card-minding devices without changes.
20                 The second action would be a motion 
21   to adopt the new administrative rule 402.555 
22   relating to card-minding systems with changes to 
23   the proposed tax as published in the Texas 
24   Register.  And I'd be happy to answer any 
25   questions.
0079
 1                 CHAIRMAN CLOWE:  Any comments, 
 2   Counselor?
 3                 MS. KIPLIN:  No, I think Mr. Atkins 
 4   laid them out.
 5                 CHAIRMAN CLOWE:  Is there a motion?
 6                 COMMISSIONER WHITAKER:  So moved on 
 7   both motions.
 8                 CHAIRMAN CLOWE:  Can we do them both 
 9   at the same time?
10                 MS. KIPLIN:  So long as the -- what 
11   I would prefer is that it's clear that the action 
12   on the repeal is first.
13                 COMMISSIONER WHITAKER:  Okay.  So 
14   moved on the --
15                 CHAIRMAN CLOWE:  She's going to have 
16   her way.
17                 COMMISSIONER WHITAKER:  I know, I'll 
18   give her her way.  It'll move as to the repeal of 
19   the existing rule.
20                 COMMISSIONER COX:  Second.
21                 CHAIRMAN CLOWE:  All in favor, please 
22   say aye.  Aye.
23                 COMMISSIONER COX:  Aye.
24                 COMMISSIONER WHITAKER:  Aye.
25                 CHAIRMAN CLOWE:  All opposed, no.  
0080
 1   The vote is three-zero in favor.
 2                 COMMISSIONER WHITAKER:  Now I'll move 
 3   to the adoption of new rule.
 4                 COMMISSIONER COX:  Second.
 5                 CHAIRMAN CLOWE:  All in favor, please 
 6   say aye.  Aye.
 7                 COMMISSIONER COX:  Aye.
 8                 COMMISSIONER WHITAKER:  Aye.
 9                 CHAIRMAN CLOWE:  Opposed, no.  The 
10   vote is three-zero in favor.
11                 MR. ATKINS:  Thank you, Commissioners.
12                 CHAIRMAN CLOWE:  We'll move on to the 
13   next item on our agenda, which is number four:  
14   Report, possible discussion and/or action on 
15   lottery sales and trends.  Mr. Deviney and 
16   Ms. Smith.
17                 MR. DEVINEY:  Item four of the agenda 
18   is the report on lottery sales and trends and this 
19   morning you should have received updated, three 
20   updated memos.  The first memo is unaudited year, 
21   total sales year to date.  Fiscal year 03 sales  
22   year to date are 2.9 billion dollars, which is a 
23   5.5 increase over fiscal year '02 sales year to 
24   date, which were 2.75 billion dollars.
25                 Also the weekly sales average is 60.4 
0081
 1   million dollars, which is approximately 5.5 percent 
 2   increase over the weekly sales average at this time 
 3   of 57.3 million in '02.
 4                 The other two memos are detailed 
 5   reports, one is the year to date sales comparison 
 6   by lottery product.  And the last memo is weekly 
 7   sales by product.
 8                 COMMISSIONER WHITAKER:  May I ask a 
 9   question?  I forgot what it was.  Oh, yes.  It was, 
10   Reagan -- Reagan, I would like you to comment on, 
11   do you believe that we are catching up on the Lotto 
12   Texas?  Could you talk about that?
13                 MR. GREER:  We're monitoring Lotto 
14   Texas.  The dual-edged sword -- the dual-edged 
15   sword of the 47 million dollar jackpot was, (a), 47 
16   million was very well received across the state as 
17   far as publicity.  It was the highest jackpot in 
18   the state at the time.  Our sales were great and 
19   exceeded our expectations that day.
20                 I was watching very closely the fact 
21   that, you know, sales continue to pick up and we 
22   had participated or anticipated 5.7 million and we 
23   hit 6.6 million that day.
24                 So there's a couple of things that 
25   are coming out of these larger jackpots and the 
0082
 1   dual-edged sword was obviously we got hit, would 
 2   show that the jackpot is winnable.  There was some 
 3   naysayers and some negative comments made up front 
 4   in reference to it was an unwinnable jackpot.  
 5   Well, we've had a 37 million dollar winner and a 47 
 6   million dollar winner, so that's not true.
 7                 And the other aspect of it is we are 
 8   bringing forward more winners.  In the Saturday 
 9   prior to that 47 million dollar hit, we had about 
10   160,000 winners in Lotto Texas.  So players are 
11   beginning to accept the change from the numbers.
12                 We're seeing continued increase in 
13   sales.  Specifically, I was encouraged, and I 
14   follow these things very closely on a daily basis, 
15   I'll assure you, specifically on Lotto Texas, that 
16   a couple of weeks ago when we had a four million 
17   dollar jackpot, we were at 2.1; yesterday we were 
18   almost 2.5, as far as our daily sales on the day of 
19   the drawing.  So that means that a lot of people 
20   either spent more money or more people came to the 
21   table to play at even those lower jackpot levels.
22                 The message continues to be, we did 
23   it to create higher jackpots.  We've averaged 
24   higher jackpots over the last 24 draws.  Robert has 
25   been great at giving me, and Toni, at giving me a 
0083
 1   lot of statistical information, and I believe that 
 2   over the last 24 draws, I remember that we measured 
 3   out at about 40 percent increase overall, so we are 
 4   delivering higher jackpots, which we talked about, 
 5   and then more winners, too, so -- 
 6                 COMMISSIONER WHITAKER:  And higher 
 7   sales? 
 8                 MR. GREER:  And higher sales, yeah.  
 9   The revenue, obviously, is a key consideration.  
10   And when we hit above the 20 million mark, pretty 
11   much just like, you know, we brought forth as far 
12   as the information on making that change, you know, 
13   we saw a continued increase in sales over the last 
14   time, it was 20 million.  And I think we'll 
15   continue to see an acceptance level that will be 
16   positive.  We'll keep it in the mix as we move into 
17   this, you know, multi-jurisdictional game as a part 
18   of our advertising phase of that.
19                 And from my personal perspective, 
20   we're not there yet but we have come a long way, 
21   and players are continuing to, you know, look at 
22   the game and kind of reevaluate and think, well, 
23   you know, maybe I'll go there.  And certainly when 
24   we were in that 47 million mode, things were 
25   looking very positive.
0084
 1                 COMMISSIONER WHITAKER:  A related 
 2   question is Texas Two Step.  Texas Two Step when it 
 3   was first introduced sounded like a very 
 4   interesting game because the amount of money paid 
 5   out was higher than any other game, and therefore 
 6   the odds were better and the level of the prizes 
 7   were not insignificant at all --
 8                 MR. GREER:  Right.
 9                 COMMISSIONER WHITAKER:  -- and I've 
10   been surprised that it hasn't taken off more, and 
11   I'd like you and Toni's view about that.
12                 MR. GREER:  Well, let me start and 
13   then I'll defer to Toni, because I have, number 
14   one, seen a different type of player in Texas Two 
15   Step, and there's a loyal following to that game 
16   even with the declined sales because they like the 
17   way that it's laid out, but we've had a lot of hits 
18   at higher jackpot levels are over a million 
19   dollars.  I can think of at least two or three in 
20   the last few months that I've given million dollar 
21   plus checks to on Texas Two Step.  
22                 The overall sales in comparison to 
23   the year before are not there.  I mean, I want to 
24   say that they're less by maybe -- 
25                 COMMISSIONER WHITAKER:  Ten million.  
0085
 1                 MR. GREER:  -- yeah, it's about like 
 2   17 percent, something like that?
 3                 COMMISSIONER WHITAKER:  Four point 
 4   zero eight. 
 5                 MR. GREER:  Well, I was close.  
 6   Anyway, it's a decrease over the year prior, and I 
 7   think part of that is because we've got a new mix 
 8   of games that are out there as far as the different 
 9   pay-out Cash 5, a lot of them have shifted to that.  
10   The instant ticket product continues to just excel 
11   beyond our expectation.  It's offsetting a lot of 
12   the things that have gone on in the on-line area.  
13   Instant ticket's been great.
14                 So we're monitoring Texas Two Step, 
15   and the reason I wanted to go into a little detail 
16   is just keep that on your thought process, as we 
17   look at moving into a multi-jurisdictional game, 
18   specifically Mega Millions being on a 
19   Tuesday/Friday night, we are definitely going to 
20   reanalyze what's going on with Texas Two Step.  I 
21   think it's delivering, though, as far as sales over 
22   a million dollars a week, right?
23                 MS. SMITH:  Yes.  
24                 MR. GREER:  And certainly that's a 
25   considerable amount of money.  So, Toni, why don't 
0086
 1   you speak from your perspective, but that's kind of 
 2   my thoughts on it.
 3                 MS. SMITH:  I pretty much concur with 
 4   Reagan's comments.
 5                 One of the things that we've 
 6   discussed in the marketing department is, after we 
 7   get through this multi-jurisdiction game is to take 
 8   a good look at the draw dates of Texas Two Step and 
 9   that we might be able to make a change there which 
10   would require a rule-making change, I believe, Kim, 
11   right, to do that, but -- 
12                 MS. KIPLIN:  We're looking at that 
13   issue right now, but based on the language that I 
14   see, my reaction is that it would require rule 
15   change. 
16                 MS. SMITH:  And then if we could move 
17   forward on that, that might complement then our 
18   total on-line game mix.
19                 COMMISSIONER WHITAKER:  But why do 
20   you think it's down, Toni? 
21                 MS. SMITH:  To be honest, it's down 
22   but I think for the way the game was designed and 
23   how it fits into the mix, it still -- sales are 
24   still good and I still think it's a worthy game to 
25   be in the mix.  I think the draw date change may 
0087
 1   help it.
 2                 We have also seen some 
 3   recommendations from Gtech, some other sort of game 
 4   enhancers or sort-term promotionals similar to the 
 5   multiplier feature, that can be played in different 
 6   ways that we might can look at for something like 
 7   that to help the Two Step game.  So I definitely 
 8   think it's still a good game for our mix and we 
 9   just need to look at ways to tweak those sales and 
10   keep it at the same level as our other games with 
11   its performance.  
12                 MR. GREER:  One of the things that 
13   is worth mentioning, stealing part of the thunder 
14   from our report level but it definitely applies to 
15   your question, is from a marketing perspective, I 
16   went up to Dallas, which was last Thursday, maybe?
17                 MS. SMITH:  Yes.
18                 MR. GREER:  I don't know the days but 
19   anyway, it was Thursday, and one of the new 
20   roll-outs on our ad campaign is like a game show, 
21   and a part of the game show is to talk about the 
22   different games and why they might apply to you, 
23   and it's a really neat and well done commercial, 
24   but Texas Two Step was in the mix because there is 
25   a lot of people that specifically identify with 
0088
 1   that game.  So it's not going to, from our side of 
 2   it anyway, be something we're not going to look at 
 3   very closely and that drawing I think may help it.
 4                 COMMISSIONER WHITAKER:  Well, when 
 5   I talk to folks, and I just do my own informal 
 6   research, and of course it's worth what I pay for 
 7   it, but I always say to them, do you realize that 
 8   that's the highest pay-out of any and the odds are 
 9   lower for actually quite significant prizes, and 
10   I've had a number of folks say to me what they want 
11   is something that's not so huge, because they like 
12   that they don't think they're getting to get the 
13   big prize, but the instants are really, you know, 
14   kind of like at the other end and they like 
15   something kind of in the middle, and I wonder if we 
16   ought to reemphasize the marketing on that.
17                 MS. SMITH:  Well, in addition to what 
18   Reagan just mentioned, that we went to a shoot up 
19   in Los Colinas, that is a campaign that our general 
20   marketing advertising agent said the key was put          
21   together and it'll be produced both in English and 
22   in Spanish that highlights all of the on-line 
23   games.
24                 We're also producing a brochure that 
25   shows the benefits of the different games that we 
0089
 1   hope to roll out at the same time for distribution 
 2   to our players and our retailers, along with a 
 3   multi-jurisdiction game so that we would have a 
 4   full complement of information out there to players 
 5   to point out those differences so that maybe if 
 6   they're new to lottery completely, because of 
 7   Powerball or Mega Million games, we can also put in 
 8   their hands a brochure that tells them about our 
 9   other on-line games.
10                 COMMISSIONER WHITAKER:  Okay.
11                 CHAIRMAN CLOWE:  Thank you, Toni, and 
12   Lee.
13                 MS. SMITH:  Thank you, Commissioners.
14                 CHAIRMAN CLOWE:  We'll move on to 
15   Item number five now:  Report, possible discussion 
16   and/or action on the 78th Legislature and/or 
17   implementation of legislation affecting the Texas 
18   Lottery Commission.  Ms. Trevino, good morning.
19                 MS. TREVINO:  Good morning, 
20   Commissioners.  For the record, I'm Nelda Trevino, 
21   the Director of Governmental Affairs.
22                 And in your notebook, you have the 
23   legislative tracking report for the first call 
24   session and the first call session concluded last 
25   Monday, July 28th, and as you will note in your 
0090
 1   report under the six bills that we were tracking,
 2   passed.
 3                 The second called special session was 
 4   also convened on Monday, July the 28th, and the 
 5   governor has added several issues to the call of 
 6   this session.  
 7                 There have been about approximately 
 8   over 40 bills that have been filed thus far.
 9                 At this juncture, there are no bills 
10   that have been filed that directly impact the 
11   Lottery or Charitable Bingo and we continue to 
12   monitor those bills that have been filed, 
13   particularly those that relate to what the 
14   government reorganization issues.
15                 In regards to the agency's  
16   legislative implementation project, I have nothing 
17   new to report from what I stated at our last 
18   commission meeting, and that concludes my report 
19   this morning and I'll be happy to answer any 
20   questions that you might have.
21                 CHAIRMAN CLOWE:  Thank you, Nelda.  
22   Next, Item six:  Report, possible discussion and/or 
23   action on the instant ticket manufacturing and 
24   services emergency procurement.  Mr. Marker. 
25                 MR. MARKER:  Good morning, 
0091
 1   Commissioners.  For the record, my name is Andy 
 2   Marker, Assistant General Counsel for the Texas 
 3   Lottery, here to provide an update on the lottery's 
 4   instant ticket emergency solicitation.  August 1st 
 5   was the deadline for submission of prize 
 6   quotations.  Those quotations have been received 
 7   and distributed to the evaluation committee.
 8                 And I'll be glad to answer any 
 9   questions and provide an update at next month's 
10   commission meeting.
11                 CHAIRMAN CLOWE:  Can you give us an 
12   idea of when you expect a conclusion on that issue?
13                 MR. MARKER:  We hope to finalize the 
14   review and contract negotiation by the first of 
15   September, it coincides with the expiration of the 
16   current agreement.
17                 CHAIRMAN CLOWE:  And what will the 
18   period be for?
19                 MR. MARKER:  The period that's in the 
20   solicitation is a six-month term with an option for 
21   a second six-month term.
22                 CHAIRMAN CLOWE:  So a total -- it 
23   could be a total of twelve months?
24                 MR. MARKER:  Yes, that's correct.
25                 CHAIRMAN CLOWE:  Okay.  Very good.  I 
0092
 1   believe there are no other questions.  Thank you, 
 2   Mr. Marker.
 3                 MR. MARKER:  Thank you.
 4                 CHAIRMAN CLOWE:  Next, Item seven: 
 5   Consideration of and possible discussion and/or 
 6   action, including proposal of a rule review of 16 
 7   TAC Chapter 401, Administration of State Lottery 
 8   Act.  Ms. Kiplin.
 9                 MS. KIPLIN:  Commissioners, in your 
10   notebook, you will have a copy of the statute that 
11   requires an agency review its existing rules 
12   within, not later than the fourth anniversary on 
13   the day on which the rule takes effect and then 
14   every four years after that date.
15                 Chapter 401 was the subject of a rule 
16   review in year 2000, and it concluded in year 2000, 
17   and so to comply with the statute that I just 
18   mentioned, we need to begin a rule review of the 
19   rules that make up Chapter 401, which is the 
20   Administration of the State Lottery Act.
21                 The staff does request at this time 
22   a motion and a vote to notice of its intention to 
23   conduct a rule review on Chapter 401.  I'll be glad 
24   to answer any questions.
25                 CHAIRMAN CLOWE:  Any questions?
0093
 1                 COMMISSIONER WHITAKER:  So moved.
 2                 COMMISSIONER COX:  Second.
 3                 CHAIRMAN CLOWE:  All in favor, please 
 4   say aye.  Aye.
 5                 COMMISSIONER COX:  Aye.
 6                 COMMISSIONER WHITAKER:  Aye.
 7                 CHAIRMAN CLOWE:  Opposed, no.  The 
 8   rule is three-zero in favor.
 9                 Next -- since you have the podium, 
10   Ms. Kiplin, we'll move on to Item number ten:  
11   Consideration of the status and possible entry of 
12   orders in dockets, now we have one docket under A.
13                 Would you take us through that, 
14   please?
15                 MR. KIPLIN:  Yes, Mr. Chairman, I'll 
16   be glad to.  Commissioners, what you have is a 
17   consolidation of two dockets on a Bingo matter, 
18   Texas Lottery Commission versus Spillway, Volunteer 
19   Fire Department.  One document is the subject of a 
20   commercial lessor license held by that entity.  The 
21   other one is a subject of a conductor's license 
22   over that entity. 
23                 They're consolidated for purposes of 
24   the hearing because the issues and the facts are 
25   the same.
0094
 1                 The -- essentially the staff's 
 2   position is that this entity is no longer eligible 
 3   to hold those licenses because they don't meet the 
 4   statutory eligibility requirements in the Bingo 
 5   Enabling Act Occupations Code, Chapter 2001.
 6                 The administrative law judge for the 
 7   State Office of Administrative Hearings did, 
 8   through the findings of fact and conclusions of law 
 9   concur with the staff's position and does recommend 
10   that both these licenses be revoked because the 
11   entity is no longer eligible for those licenses.
12                 Essentially, they're not operating as 
13   a volunteer fire department anymore in that -- that 
14   is an eligibility requirement for this particular 
15   entity.  So the staff recommends that you adopt the 
16   administrative law judge's proposal for a decision 
17   proposed order in this matter.
18                 COMMISSIONER WHITAKER:  So moved.
19                 COMMISSIONER COX:  Second.
20                 CHAIRMAN CLOWE:  Just a minute, I 
21   have a question, if you don't mind.
22                 My reading in this case led me to 
23   believe that their contention was that they were 
24   qualified as a volunteer fire department, but the 
25   facts revealed that they in effect had no contract, 
0095
 1   and therefore, they were simply certified or 
 2   authorized by the state, but they were not  
 3   performing any service or any entity, and the rule 
 4   requires that not only they be qualified but that 
 5   they be providing service.  That's the basis for 
 6   the issue of the order.  Am I correct in that?
 7                 MS. KIPLIN:  Yes.  And, in fact, 
 8   there is a finding of fact that the Respondent no 
 9   longer occupies the fire station from which it once 
10   operated.
11                 CHAIRMAN CLOWE:  Now, are we 
12   consistent in this with prior decisions that the 
13   Commission has made or does this set a precedent?
14                 MS. KIPLIN:  I will defer to 
15   Mr. Atkins and Ms. Wilkov, but my recollection is 
16   this a case of first impression where the agency 
17   comes in and contests the case proceeding.
18                 MR. ATKINS:  And I don't recall, 
19   Mr. Chairman, if there has been a volunteer fire 
20   department in the past that has had these exact 
21   circumstances where they were not performing the 
22   actual functions as a volunteer fire department and 
23   could demonstrate those activities.
24                 CHAIRMAN CLOWE:  Okay.  Very good.  
25   There is a motion made and seconded.  All in favor, 
0096
 1   please say aye.  Aye.
 2                 COMMISSIONER COX:  Aye.
 3                 COMMISSIONER WHITAKER:  Aye.
 4                 CHAIRMAN CLOWE:  Opposed, no.  The 
 5   vote is three-zero in favor.  We'll take a minute 
 6   to sign the order.  And then I'll be calling on 
 7   you, Reagan, for your report.  
 8                 MR. GREER:  Yes, sir.
 9                 CHAIRMAN CLOWE:  Very good.  Item 
10   number eleven:  Report by the Executive Director.  
11   Mr. Greer.  
12                 MR. GREER:  Well, obviously, our 
13   focus over the last few weeks, or two or three 
14   weeks since we met before, has been in reference to 
15   getting us to the recommendation of things where we 
16   came today on the multi-jurisdictional game.
17                 Again, great team work on that 
18   project.  It was a very labor intensive project but 
19   I was very pleased and proud of the product that 
20   came out of the staff and I want to thank them 
21   again for that.
22                 I did want to let you know as a part 
23   of that process, as just sort of a follow-up, that 
24   we had strategized a communication of our 
25   willingness to bring the issue as far as 
0097
 1   recommendation in favor of Mega Millions to you 
 2   today, and that when I made the recommendation and 
 3   you voted on it, once the vote was affirmative, 
 4   that you were giving me the opportunity to move 
 5   ahead.  We did fax a specifically written letter 
 6   from me, personal letter, to Mega Millions and to 
 7   Powerball informing them of, you know, where we 
 8   were going forward at this point and expressing our 
 9   appreciation of both of those groups so that they 
10   wouldn't get blinded-sided by the press or anybody 
11   else with phone calls, which I'm confident they're 
12   getting right now.  So we did that.
13                 We also are sending out an e-mail to 
14   the employees, as well as the Legislature and the 
15   leadership of the state to inform them of what is 
16   taking place, so we are communicating what's 
17   happening over here.  
18                 The instant ticket thing was touched 
19   on a moment ago by Andy and I'm monitoring that.  
20   I've been very pleased with a sweep of products 
21   idea that we're moving forward with as far as a new 
22   plan and instant tickets to continue to get the 
23   word out on that.
24                 We're rolling out a suite of games 
25   and different prize -- at different prize tiers, a 
0098
 1   two dollar, three dollar, seven dollars came out in 
 2   the last couple of days.  Very good response, very 
 3   impressive sales to that idea.  And that actually 
 4   is something that had been talked about for a 
 5   while, I think, but I'm excited about continuing to 
 6   explore ways that we can roll out instant ticket 
 7   products in a more successful manner.
 8                 I went to Dallas last week, not only 
 9   for a retailer forum but also to address an issue 
10   that is taking place up there that's worth 
11   mentioning in reference to the Latin lotto scam has 
12   resurfaced, and specifically an individual in the 
13   Dallas area was affected by that in a negative way.  
14   Had an opportunity to visit with the investigators 
15   and just want to let you know that we're 
16   continuing, as a staff, to make people aware that 
17   that scam is out there and that they need to be 
18   careful.
19                 I was very appreciative of the press, 
20   specifically, who covered the issue in great length 
21   and was very helpful in getting the word out to 
22   people and warning them about that.
23                 Also came back with some good ideas 
24   and good input from the retailers, specifically 
25   there were some issues that are very hot topics 
0099
 1   with them, and that we're going to continue to 
 2   address and monitor.  I'll give you a copy of that 
 3   where I put that together for you so you'll know 
 4   what's taking place on the front lines.  Had a 
 5   great response.  I think we had like 125 retailers 
 6   signed up --
 7                 MS. SMITH:  Close to that.  
 8                 MR. GREER:  -- and then a few more 
 9   people, so that was really good.  I wanted you to 
10   be aware that tomorrow I'll be in Houston for a 
11   check presentation of 370,000 to the retailer that 
12   sold that big ticket not long ago.  I will also be 
13   making a speech to one of the local Chamber of 
14   Commerce groups there.
15                 CHAIRMAN CLOWE:  You mean Eagle 
16   Lake, don't you?
17                 MR. GREER:  Well, actually this 
18   ticket was in Humble, Texas.  It was a 37 million 
19   hit.
20                 CHAIRMAN CLOWE:  Oh, okay. 
21                 MR. GREER:  The Eagle Lake thing has 
22   not all transpired yet, that's still in the works, 
23   but the individual has stepped forward and we're 
24   working through the process on that one.
25                 CHAIRMAN CLOWE:  You know, people who 
0100
 1   live in Humble and Eagle Lake don't like to be said 
 2   that they live in Houston.
 3                 MR. GREER:  I know.  They live in 
 4   Humble.  I was corrected on that yesterday.  Not 
 5   Humble; Humble.
 6                 CHAIRMAN CLOWE:  Humble.
 7                 MR. GREER:  And I'll be in Humble 
 8   tomorrow on an outing that I think will be fun and 
 9   be a good way to visit with some retailers and some 
10   individuals who have worked hard in that Houston 
11   area as a whole.
12                 And lastly, I wanted to mention that 
13   our theme of this month was in remembrance of Bob 
14   Hope.  Thanks for the memories.
15                 We talked yesterday at our staff 
16   meeting about creating positive lasting 
17   impressions, and certainly I think there's an 
18   opportunity there for us to be conscious of the 
19   perception and the impression that the lottery 
20   gives, reinforce that to the staff, and it was well 
21   received, and I'll keep you abreast of those themes 
22   as we move along.  And that was a good one 
23   yesterday.  And other than that, it's been a very 
24   busy and exciting time here at the Lottery.
25                 CHAIRMAN CLOWE:  Any questions?
0101
 1                 COMMISSIONER WHITAKER:  no.
 2                 COMMISSIONER COX:  No.
 3                 CHAIRMAN CLOWE:  Reagan, I'd like to 
 4   ask Commander Pitcock to come up.
 5                 I want to report to you and to the 
 6   Commissioners that on Tuesday of last week, I went 
 7   to Dallas and attended his invitation, Commander 
 8   Pitcock's invitation, his presentation to the Texas 
 9   Sheriff's Association, and he did an excellent job 
10   and made a very informative presentation.
11                 He got one question that was very 
12   interesting, and I would like, Commander, for you 
13   to tell the Commissioners and the staff about that 
14   inquiry that you received and explain how you 
15   answered it because I think it goes to an ongoing 
16   issue with your division and how people wonder 
17   about where we are in enforcement regarding Eight 
18   Liners.  Could you help us with that?
19                 MS. KIPLIN:  Before you answer, I 
20   want to make sure on the record, we're under  
21   operational status of the agency.
22                 COMMANDER PITCOCK:  There were about 
23   20 sheriffs that were in attendance, and the one 
24   sheriff asked the question, he actually made a 
25   statement to start with.  He said that in his 
0102
 1   county, he had taken up an enforcement effort in 
 2   his county to remedy daylight situation and had 
 3   been successful, but in the meantime, a county 
 4   adjoining that county had not undertaken that and 
 5   it seemed like everyone from his county were going 
 6   next door, as he said it, to play the Eight Liner 
 7   machines and he felt that was not only unfair, but 
 8   he says how can that happen because it seemed like 
 9   it would be a statewide approach to enforcement.  
10   And I tried to answer him, it's not that way.
11                 It's usually -- the approach is based 
12   on what the county or district attorney in that  
13   county will allow us to do.  So we approach each 
14   county separately, the 254 counties, and we've 
15   encountered the same problem that he's had.  We've 
16   had counties that will not address that issue and 
17   we presented our cases and we say thank you and we 
18   leave.
19                 We've had other counties that 
20   embrace us and say, yes, we will, you know, present 
21   your cases and go with it.
22                 His concern is that his voters and 
23   his constituents, he kind of said that makes me 
24   look bad because I'm here doing this and enforcing 
25   this, but yet right next door, they're not and all 
0103
 1   the people are going over there to play the 
 2   machines.  And he said that puts me in a kind of a 
 3   political bind, plus my retailers, or my business 
 4   people in my county, aren't gaining that revenue 
 5   that the other counties are doing.
 6                 And I sympathize with him.  I 
 7   couldn't give him the answer to say that it's going 
 8   to get any better.
 9                 I said we've had counties that have 
10   gone into enforcement approaches, and then some 
11   that have gone out of it, and based on the popular 
12   demand as to what they want to happen is that 
13   usually input by the citizens cause, a lot of 
14   times, for these things to change.
15                 We saw that in Dallas County.  We've 
16   seen it in several counties throughout the state, 
17   that public input has a major role in how these 
18   things are enforced.
19                 And we try to -- I tried to inform 
20   him that we're there and we try to do the best we 
21   can, based on all those elements.  And each of us 
22   in law enforcement have to weigh those when we make 
23   decisions on how to do the search warrants.
24                 And I think his -- one of his 
25   concerns, he just couldn't understand why a county 
0104
 1   or a district attorney had that much control, and I 
 2   said, it's their decision.  Ours is to investigate; 
 3   theirs is to adjudicate, and in each respective 
 4   county, the county or the district attorney have 
 5   that say so, whether they accept our cases or not.
 6                 It's not matter of how well you've 
 7   done your investigation or not, it's just a matter 
 8   of their decision and their policy in that 
 9   respective county as to what they do.
10                 CHAIRMAN CLOWE:  Thank you very much.  
11                 MR. GREER:  The Eight Liner issue, 
12   just from my perspective, is something we continue 
13   to monitor, and Commander Pitcock keeps me in tune 
14   of what's going on with that.  It will be something 
15   that we will continue to be bringing to you from an 
16   operational perspective.
17                 CHAIRMAN CLOWE:  Very good.  Thank 
18   you.  Next, Item twelve:  Report by the Charitable 
19   Bingo Operation Director and possible discussion 
20   and/or  action on the Charitable Bingo Operations 
21   Division's activities.  Mr. Atkins.
22                 MR. ATKINS:  Commissioners, the only 
23   thing that I have to add in addition to the report 
24   that's in your notebook, I wanted to give you a 
25   real quick update on our pull tab sales.  As you 
0105
 1   know we've been monitoring this for quite some 
 2   time, or at least since the new rule was adopted 
 3   towards the latter part of last year.
 4                 For the first two quarters of this 
 5   year, as compared to the first two quarters of last 
 6   year, full-time sales are up approximately 15 
 7   million dollars, so we think that's a very positive 
 8   change for the organization.
 9                 COMMISSIONER WHITAKER:  
10   Percentagewise, that's what, Billy?
11                 MR. ATKINS:  I do not recall the 
12   percentage.  I'm sorry, Commissioner Whitaker, but 
13   I just have the wrong numbers.  And the last thing 
14   is -- 
15                 CHAIRMAN CLOWE:  And we want the 
16   percentage.
17                 MR. ATKINS:  We will get you the 
18   percentage.  The last thing is the upcoming 
19   NAGRA conference, which is currently scheduled for 
20   October 19th through the 22nd, in Long Beach, 
21   California, and as that agenda gets finalized, 
22   we'll be providing you with copies of that agenda 
23   should any of you want to be able to attend that 
24   conference.
25                 CHAIRMAN CLOWE:  Are you going?
0106
 1                 MR. ATKINS:  Yes, sir.
 2                 CHAIRMAN CLOWE:  Anyone else on your 
 3   staff?
 4                 MR. ATKINS:  Currently we have 
 5   myself, Phil Sanderson, who has filled -- when I 
 6   became vice president of the organization, Phil 
 7   took my previous position as co-chair of the 
 8   Charitable Gaming Committee.
 9                 And also, since San Antonio is the 
10   location for the conference in the fall of 2000 -- 
11   or, I'm sorry, the spring of 2004, I am going to be 
12   asking Megan Amaud of my staff to go with us also 
13   to Long Beach.  Megan chaired the Lottery's 
14   planning and organization of the national 
15   conference that occurred in Dallas, so she will be 
16   providing us some very valuable assistance as we 
17   assist NAGRA with planning of their conference in 
18   San Antonio.
19                 CHAIRMAN CLOWE:  And you have the 
20   budgetary funding to do that?
21                 MR. ATKINS:  Yes, sir.  This will be 
22   after the beginning of the new fiscal year.
23                 CHAIRMAN CLOWE:  Very good.  Any 
24   questions?
25                 COMMISSIONER WHITAKER:  No.
0107
 1                 COMMISSIONER COX:  No.
 2                 CHAIRMAN CLOWE:  Thank you, Billy.
 3                 Is there anyone wishing to make 
 4   comment to the Commission at this time?
 5                 Commissioners, I'm ready to move we 
 6   go into executive session, if you're ready?
 7                 COMMISSIONER COX:  Yes, sir.
 8                 CHAIRMAN CLOWE:  At this time I'll 
 9   move the Texas Lottery Commission go into executive 
10   session to deliberate the duties of the Executive 
11   Director and/or Deputy Executive Director, internal 
12   audit director, Charitable Bingo Operations 
13   Director, General Counsel, and Security Director, 
14   pursuant to Section 551.074 of the Texas Government 
15   Code;
16                 To receive legal advice regarding 
17   pending or contemplated litigation and/or to 
18   receive legal advice pursuant to Section 551.071, 
19   (1)(A) or (B) of the Texas Government Code and/or 
20   to receive legal advice pursuant to Section 
21   551.071(2) of the Texas Government Code, including 
22   but not limited to:  TPFV Group, Inc. versus Texas 
23   Lottery Commission Retired Sergeant Majors' 
24   Association, et al. versus Texas Lottery 
25   Commission, et al.  Scientific Games and Pollard 
0108
 1   Banknote versus Texas Lottery Commission and Linda 
 2   Cloud, Executive Director;
 3                 Keane versus Texas Lottery 
 4   Commission;
 5                 Patsy Henry versus Texas Lottery 
 6   Commission;
 7                 Ieric Rogers versus Doyle Mitchell, 
 8   et al.;
 9                 Sandy Surber, et al., versus Gtech 
10   Corporation;
11                 Linda Cloud versus Mike McKinney, 
12   et al.;
13                 Robert Kohler versus Texas Lottery 
14   Commission;
15                 Matter involving the Department of 
16   Justice pursuit of a complaint regarding the 
17   Americans with Disabilities Act;
18                 Multi-jurisdiction lottery games.  
19   Contract regarding the Charitable Bingo system, 
20   employment law, personnel law, procurement and 
21   contract law, evidentiary and procedural law, and 
22   general government law.
23                 Is there a second?
24                 COMMISSIONER WHITAKER:  Second.
25                 CHAIRMAN CLOWE:  All in favor, please 
0109
 1   say aye.  Aye.
 2                 COMMISSIONER COX:  Aye.
 3                 COMMISSIONER WHITAKER:  Aye.
 4                 CHAIRMAN CLOWE:  The vote is 
 5   three-zero.  The Texas Lottery Commission will go 
 6   into executive session.  The time is eleven a.m., 
 7   today is August 5, 2003. 
 8                 (Executive Session, 11:00 a.m. 
 9                  to 12:05 p.m.)
10                 CHAIRMAN CLOWE:  The Texas Lottery 
11   Commission is out of executive session.  The time 
12   is twelve -- no, it's -- I have one -- I have 12:05.
13                 COMMISSIONER WHITAKER:  12:05.
14                 CHAIRMAN CLOWE:  12:05 p.m.  Is there 
15   any action to be taken as a result of the executive 
16   session?  If not, we have completed our agenda.  
17   This commission is adjourned.  Thank you, 
18   Commissioners.
19                 
20   
21   
22   
23   
24   
25   
0110
 1                  REPORTER'S CERTIFICATE
 2   
     THE STATE OF TEXAS  )
 3                       )
     COUNTY OF TRAVIS    )
 4   
 5   
 6                 I, CONNIE JO RAMIREZ, Certified 
 7   Shorthand Reporter for the State of Texas, do 
 8   hereby certify that the above-captioned matter came 
 9   on for hearing before the TEXAS LOTTERY COMMISSION 
10   as hereinafter set out, that I did, in shorthand, 
11   report said proceedings, and that the above and 
12   foregoing typewritten pages contain a full, true, 
13   and correct computer-aided transcription of my 
14   shorthand notes taken on said occasion.
15                 Witness my hand on this the 19TH of 
16   AUGUST, 2003.
17   
18   
19                ______________________________________
                  CONNIE JO RAMIREZ, Texas CSR #2484
20                Expiration Date:  12/31/03
                  WRIGHT WATSON STEN-TEL            
21                1609 Shoal Creek Boulevard, Suite 202
                  Austin, Texas  78701
22                (512) 474-4363
23   
24   JOB NO. 030805CJR 
25