0001 1 ****************************************************** 2 BEFORE THE 3 4 TEXAS LOTTERY COMMISSION 5 6 AUSTIN, TEXAS 7 8 AUGUST 28, 1999 9 ****************************************************** 10 11 BE IT REMEMBERED that the above-entitled matter 12 came on for hearing on the 28TH day of AUGUST, 1999, 13 beginning at 10:00 a.m., and ending at 3:45 p.m., at 14 the TEXAS LOTTERY COMMISSION, 611 East Sixth Street, 15 Austin, Texas, and the following proceedings were 16 stenographically reported by Leslie P. Boerger. 17 18 APPEARANCES 19 CHAIR HARRIET E. MIERS 20 COMMISSIONER C. TOM CLOWE, JR. 21 COMMISSIONER ANTHONY J. SADBERRY 22 MS. KIMBERLY L. KIPLIN, GENERAL COUNSEL 23 MS. LINDA CLOUD, EXECUTIVE DIRECTOR 24 MR. BILLY ATKINS, CHARITABLE BINGO 25 OPERATIONS DIRECTOR 0002 1 CHAIR MIERS: Okay. I believe 2 everybody is here and we are ready to call the Texas 3 Lottery Commission meeting for August 28th, 1999, to 4 order. All of the Commissioners are here. We 5 appreciate everyone's being willing to meet on a 6 Saturday. We had some urgency in our consideration of 7 certain issues, and this was the only time the 8 Commissioners could meet jointly, which we needed to 9 do that, of course. 10 So I would, at this time, take up the 11 first item on our agenda: The review, possible 12 discussion, and/or action on lottery sales and trends 13 including new games concepts. Linda? 14 MS. CLOUD: Okay. Toni and Pam are 15 here to make this presentation; to start it off 16 anyway. 17 MS. SMITH: Good morning, 18 Commissioners. For the record I'm Toni Smith, 19 Marketing Director for the Texas Lottery Commission. 20 MS. UDALL: And I'm Pam Udall, On-line 21 Product Manager for the Texas Lottery Commission. 22 MS. SMITH: To briefly review, sales of 23 total FY '99 sales to date are 2,509,424,810. This is 24 down 17.30 percent from the FY '98 total sales to date 25 of 3,034,218,278. The FY '99 weekly sales average is 0003 1 49,204,408, and this again reflects a 17 percent 2 decline from '98 sales average of 59,494,476. 3 CHAIR MIERS: Okay. I guess -- and you 4 may have further comment, Linda -- but in trying to 5 determine whether we can see a difference in the 6 instant tickets with the introduction of new games 7 with higher prize payouts, Toni, what is your comment 8 about that subject? 9 MS. SMITH: We've been working 10 diligently to review where we are with our inventory 11 and to answer that same question and see where we are. 12 We've actually introduced more games in the past few 13 months than we've ever done, or that any state has 14 ever done, to try to build up that inventory. 15 And I met yesterday with GTECH, and we 16 reviewed sales based on the last 12-weeks' inventory 17 of all games. We've categorized those games by the 18 more current games, what we call our base or core 19 games, and then the other mature games that were 20 selling out. 21 And I think that in that comparison, 22 what we found is that the more mature games that were 23 at a lower prize payout are what are selling out until 24 we get that inventory built up. The new games are 25 selling. The higher prize payout games are selling, 0004 1 but we're seeing a loss in those older games falling 2 out. 3 I think that the good news for us is 4 that that was our plan two years ago; that we manage 5 that inventory in a way that if we were to get the 6 prize payout back we would not have a warehouse of 7 many of the lower prize payout games. So we're still 8 feeling the effects, though, of the loss of numbers of 9 games. 10 So we're working very diligently with 11 Sci-Games on -- we're still in our emergency 12 procurement, actually, to replenish that inventory, 13 and they've done a really god job of helping us get 14 there. So we're excited about the schedule that we 15 have, and GTECH and I both know that we will see a 16 better increase in the next couple of years. 17 CHAIR MIERS: Okay. Any other comments 18 or perception, Linda? 19 MS. CLOUD: Yes. We are seeing, based 20 on the new games that we have put out there, that the 21 number of tickets that are being sold have increased 22 considerably, and the dollar -- where we're seeing 23 kind of a -- the reason our dollars aren't as high as 24 our ticket sales is that it's affecting -- most of 25 those games are $1 tickets, not $2 tickets. 0005 1 So the players are wanting to see new 2 faces on tickets, and they are buying the games that 3 they're -- that are the $1 games, and we are seeing 4 increased ticket sales. But it's not -- our dollars 5 aren't there yet. 6 CHAIR MIERS: Will we be introducing 7 additional $2 games -- 8 MS. CLOUD: Yes. 9 CHAIR MIERS: -- for example, and that 10 will again impact us positively? 11 MS. CLOUD: Right. We have two, $2 12 games coming out in September. 13 MS. SMITH: Right. 14 MS. CLOUD: So they will be introduced 15 here within the next few weeks, and that will help in 16 that respect. 17 CHAIR MIERS: And the -- while we are 18 down compared to fiscal '98, we are not down as much 19 as had originally been anticipated. 20 MS. CLOUD: That's correct. 21 CHAIR MIERS: Okay. Anything else? 22 MS. CLOUD: Under the new game concept, 23 and looking at our on-line game rule that we're 24 proposing today, I would like for Pam to walk the 25 Commissioners through what this game represents so 0006 1 that you have a clear understanding of what we're 2 proposing in the rule, and she's here to do that for 3 you now. 4 CHAIR MIERS: Okay. 5 MS. UDALL: I'm also going to have René 6 assist me in running the Powerpoint presentation for 7 you. Okay. 8 I'm going to go ahead and show you a 9 day and basically -- I'm going to talk about our 10 current Lotto Texas game and what kind of spending and 11 participation we've had with our current game. And 12 then I'm going to go into what we're proposing to do 13 to our current game and how that's going to look and 14 how that would impact the players, and how the players 15 would play the game and how we would do the drawings. 16 And then I'm also going to talk about 17 benefits and kind of give you a summary of what I'm 18 proposing. And then Toni Smith is going to follow 19 this with some focus group research findings. So I'm 20 going to take a few minutes to explain the game, and 21 hopefully you'll like what you're going to see. 22 Our current game, right now, makes up 23 28 percent of the market share. It's -- we launched 24 this Lotto Texas in November in 1992. 25 We launched a game -- go to 50 numbers. 0007 1 Players are to pick six numbers out of 50. We would 2 draw six numbers through Wednesday and Saturday night, 3 and players could win by matching three, four, five, 4 and six numbers. And we've had this game now for 5 seven years, and we've had -- everybody has loved this 6 game. It's been a great game for Texas. 7 In fact, when people refer to the Texas 8 Lottery, they refer to us as Lotto. It's kind of our 9 flagship product, and we find that when we advertise 10 Lotto, it impacts all products. So I spend a lot of 11 time promoting Lotto Texas on all of our billboards, 12 TV, radio, and our players have been great ambassadors 13 for us. So we're just going to go out there and talk 14 about their winning experience. 15 Ever since we launched this game, 16 though, I have gotten volumes and volumes of letters 17 from players. Every time I go out to a town hall 18 meeting or talk to anyone out in the public, what they 19 always say is, "I love Lotto Texas, but, you know, 20 that $3 prize is just not a winning experience." They 21 don't like winning $3. And over the course of the 22 last few years, we have spent a lot of energy trying 23 to improve that $3 prize. 24 But in order to improve that $3 prize 25 to even make it a $5 prize, that would greatly impact 0008 1 our jackpot prize. So instead of advertising 2 $4 million as a starting jackpot, we would have to 3 advertise maybe two or three, because it could cost me 4 $2 million a week to increase that from three to five, 5 and I would have to take that from my jackpot prize. 6 The odds and the percentage that my -- or, my 7 percentage payout just wouldn't allow me to do that. 8 So some of the answers that I've come 9 up with over the last few years is Cash 5, because 10 players can match (sic) $25 for matching three numbers 11 out of five. And also we had the Texas Million game 12 that gave them a $10 prize. So that was kind of 13 answers to those players who wanted lower tier prizes. 14 We've also thought over the years, 15 especially since 1996, we're seeing player apathy. 16 And what we're seeing is our player participation and 17 spending has decreased. 18 And a couple of things happened in 19 1996. That was the year that we took the biggest hit. 20 That was the year the interest rates fell, and, of 21 course, for -- it's good news for consumers when the 22 interest rates are low, but for us, when we're trying 23 to increase our jackpot, the interest rates 24 dramatically impact us. When we have a low interest 25 rate, we need higher sales in order to give players 0009 1 what they're used to. 2 And we saw too, in 1996, and up from -- 3 to today is that we have jackpots lower than 4 $10 million 55 percent of the time. Before that time 5 period we went up to 20, 25 million in four rolls, and 6 we could do that much easier. Since that day, you 7 know, we rarely see a $25 million jackpot. It takes 8 me six rolls. And this year, for instance -- so far 9 this year I've been under $10 million 61 percent of 10 the time. 11 And, you know, players love our game, 12 but it's very, very predictable. It goes four, seven, 13 ten, gets hit; four, seven, ten gets hit; four, seven; 14 four, seven; and, you know, players just aren't 15 excited. Right now, today, when my jackpot is at 16 4 million, my sales are about 4.8; that's about the 17 average. When I see a $15 million jackpot, my sales 18 double. 19 So, you know, players come in. You 20 know, I've got -- about 30 percent of our players come 21 in at four and seven. The other 70 percent come in 22 with jackpots above 15 million. So what I'm trying to 23 do is I want to see more of the players come into the 24 game and make sure that they're having fun with this 25 game. And that's what we're seeing. 0010 1 And that kind of comes into the 2 players' -- they increase their spending when jackpot 3 levels increase, too. We have some players that don't 4 play every jackpot, but we have some players that no 5 matter what they only will play when the jackpot is 15 6 million or when it's 20 million or when it's 30 7 million. Everybody has that little level when they'll 8 come into the game. 9 The other thing we've seen over the 10 years is that at one time players would put $5 into 11 the game every, you know, Wednesday and Saturday. 12 What we're seeing now is they're still playing, but 13 not as much. Maybe $3; maybe $1. 14 And over the last two years what we've 15 experienced is increased competition. We now have 16 Power Ball in New Mexico and Louisiana, and, of 17 course, Power Ball has odds of one in 80 million. But 18 we lose a lot of our players to those bordering states 19 so they can go over and play the Power Ball game. So 20 we're seeing more and more competition along our 21 borders. 22 So with these reasons we have really, 23 for the last two years, been kind of trying to figure 24 out what we can do to give our players what they want. 25 Players want, you know, bigger prizes in the lower 0011 1 tiers. They want to see -- you know, they want to go 2 play at higher jackpots. There's a lot of players who 3 just want to play for a million, but a lot of players 4 won't come into the game until a higher jackpot. And 5 so what we're trying to do is give our players what 6 they want. And so that's what we're going to do in 7 proposing this new game. And the new game -- 8 MR. CLOWE: Before you go into that -- 9 MS. UDALL: Yes, sir. 10 MR. CLOWE: -- would you give me just a 11 little more explanation on your correlation between 12 the interest rate increase in '96 and the effect that 13 it has on the game? I don't think I've got enough 14 information on that -- 15 MS. UDALL: Okay. On that -- basically 16 for us to -- the interest rates come into play when 17 we're doing a jackpot estimation. So when I advertise 18 a $4 million jackpot, usually my sales are about half 19 that; about 2 million. Then over a 25-year period 20 when I buy my annuity, that interest factor comes into 21 play. 22 MR. CLOWE: So it's related to the 23 annuity aspect of it. 24 MS. UDALL: Oh, extremely so. Yes. 25 MR. CLOWE: That's the only 0012 1 relationship. 2 MS. UDALL: Exactly. 3 MR. CLOWE: All right. That's what I 4 wanted to hear. 5 MS. UDALL: We'll move on to the 6 proposed new game. 7 So what we're proposing, in order to 8 meet these issues, is we're proposing a change of 9 game -- well, actually, in these games all we're doing 10 to it is adding four more balls. So instead of having 11 a six of 50, we're increasing the matrix from six -- 12 up to six of 54. 13 We're also adding a bonus ball. So 14 what we're going to do is we're going to draw six 15 numbers, and then in addition to our six numbers we're 16 going to draw a seventh number. And by doing that it 17 would give our players four more prize tiers. They 18 have four more opportunities to win additional prizes. 19 So we're adding four more prize tiers 20 with additional money into the game, and it also 21 improves the overall odds of winning a prize. Right 22 now, with our current game, the overall odds are one 23 in 57. With this new game it would be one in 43. So 24 the overall winning experience would increase. 25 The payout would be the same. Lotto 0013 1 Texas pays out 50 percent today. It would remain the 2 same. It would be the same prize. 3 Right now our players get one play for 4 a dollar. They would still get one play for a dollar, 5 but it's much more added value for that one dollar. 6 There are going to be four more prize 7 tiers. And I'll show you what -- this is kind of the 8 theoretical prize structure, and it's kind of 9 detailed, and all of that, so I'm going to make it 10 much simpler by moving to the next slide here. And 11 this -- it simplifies it. 12 Basically what I'm saying here is the 13 players would still play the same that they do today. 14 They're still going to win money by matching three, 15 four, five, and six numbers. And the prize -- the $3 16 prize is going to go to $5, and then those other 17 prizes, the 25 and the 1,000, are the pari-mutuel 18 prizes. And by doing this we hope to have an average 19 jackpot of about 15.1 million. Today our average 20 jackpot is 19.1 million. So that's going to increase 21 our overall winning jackpot experience. 22 MS. CLOUD: Pam, that's nine. You said 23 19. The average -- 24 MS. UDALL: Oh, excuse me. The average 25 jackpot today is 9.1. But it's going to -- our 0014 1 winning jackpot experience will increase to 15.1 2 million. And with the bonus ball -- and when we do 3 the bonus ball, that will give us four more prize 4 tiers. So we're going to go ahead and give our 5 players four more ways they can win. 6 If they match two numbers, plus the 7 bonus ball, they win $5. And how this works is we're 8 going to have a drawing -- go ahead and go to the next 9 slide. We're going to have a drawing, and in the 10 drawing we're going to have 54 balls in that drawing 11 chamber. 12 Nothing changes for the player, and I 13 really want to emphasize this. The player goes into 14 the store. They pick six numbers just like they're 15 doing today. The only thing that's going to be 16 different is, on their play board they're going to 17 have, you know, 51, 52, 53, 54. But the play board is 18 going to -- the play slip is going to look just the 19 same. So all they've got to do is pick six numbers 20 like they're doing today. 21 And when we do it, that's what the 22 playing ticket will look like. It'll have six numbers 23 on it, and that's what the player will see. 24 When the Lottery does their drawing 25 we're going to pick six numbers, just like we do 0015 1 today, but in addition we're going to draw a bonus 2 ball. We're going to call that the bonus ball. 3 That's our seventh number. 4 And then players can win by matching 5 all -- if they match all six numbers, like they do 6 today, they'll win the jackpot prize just like they do 7 today. The power ball -- excuse me. The bonus 8 ball -- I told you I want to do that. The bonus ball 9 does not impact the jackpot prize, so the players will 10 still win the jackpot prize they do today by matching 11 the first six numbers. The bonus ball only impacts 12 the lower tiered prizes, and that's how we can have 13 four more tiers of prizes. 14 MR. CLOWE: So if they choose five of 15 the winning numbers -- okay. I got it. With the 16 bonus ball, that would still be one of the six if they 17 win it. 18 MS. CLOUD: Not considered for the 19 jackpot. 20 MS. UDALL: No. 21 MS. CLOUD: The jackpot is -- the bonus 22 ball does not apply to the jackpot prize; only to the 23 lower levels. 24 MR. CLOWE: So if the bonus ball comes 25 up in their numbers and they've got, say, a 52 they've 0016 1 chosen and 51 is the bonus ball, they have not won the 2 lottery. 3 MS. UDALL: Exactly. This is the -- 4 here's an example. This is a jackpot prize. Here are 5 the numbers the player picked right here. We drew 6 those same numbers. The first six numbers that we 7 drew are the same numbers the player selected. 8 Then we had the bonus ball, 40, and 9 since they match the first six numbers that we drew, 10 they've won the jackpot prize. The bonus ball does 11 not impact the jackpot prize at all. 12 MR. CLOWE: Okay. 13 MS. UDALL: Just like it is today. 14 MR. CLOWE: I want to go back and say 15 my example again: If in the sixth number that you 16 have there in your illustration -- 17 MS. UDALL: The 51. 18 MR. CLOWE: -- they chose 52, and the 19 bonus ball was 51 instead of 40, they have not won 20 the Lotto. 21 MS. UDALL: They have not won the 22 Lotto. In fact, that's our next slide. Let's move on 23 to the next slide. We'll have an example of that. 24 For instance, if they pick five 25 numbers -- they match the first five numbers, just 0017 1 like you were saying, Mr. Clowe, they match the first 2 five numbers -- 3 MS. MCCOY: The previous one. Right? 4 MS. UDALL: Yeah. There it is. When 5 they match the first five numbers and the bonus ball, 6 then they win $10,000. So they'll still win a prize, 7 but it won't be the jackpot prize. The player, in 8 essence, is winning. They're matching six numbers 9 here, but they're matching five of the first six plus 10 the bonus ball, and that gives them a $10,000 prize. 11 So they're still winning a substantial excellent 12 prizes, but it's not the jackpot prize. 13 The jackpot prize -- we wanted to make 14 sure the jackpot prize remains just like it was today 15 so we wouldn't create confusion for the players. The 16 bonus ball only comes into play with the lower tiered 17 prizes. So it helps players when they match five, 18 four, three, and two. That's when it comes into play. 19 And I'll go through these other ones. I think it'll 20 become much more clearer. 21 MR. CLOWE: I think as you approach 22 this, that aspect of the bonus ball explanation is 23 very important to keep it a very high priority in your 24 mind. I think that's going to be something that you 25 really need to make an extra effort, if the 0018 1 Commissioners approve this, to communicate to the 2 players. 3 MS. UDALL: That the bonus ball only 4 comes into play at the lower tiered prizes and not 5 with the jackpot -- 6 MS. CLOUD: That's the purpose of the 7 first chart that we showed you where the bonus ball -- 8 where the prize levels with the bonus ball is not 9 impacted by the first six numbers that were drawn. 10 MR. CLOWE: I understand. And I 11 understand that -- you know, the illustration is there 12 and you go over it, but I think this is a very 13 important aspect. 14 MS. CLOUD: I agree. 15 MR. CLOWE: And I think players need 16 to -- if the Commissioners approve this, I think the 17 players need to be educated on this one because I can 18 foresee an instance where somebody gets six numbers, 19 one of which includes the bonus ball: "I've won the 20 Lotto." 21 MS. CLOUD: Well, we thought about that 22 also, so we understand what you're saying. 23 CHAIR MIERS: Do you have a comment? 24 MR. SADBERRY: Now, if I understand 25 correctly, for the player who does win the Lottery by 0019 1 picking the six, and they also pick the bonus ball, 2 they get nothing for the bonus ball. 3 MS. UDALL: The thing -- the player 4 only picks six numbers. So they play -- they don't 5 play -- they don't pick the bonus ball. The only way 6 the bonus ball comes into play in this game is in the 7 drawing. 8 MR. SADBERRY: Right. 9 MS. UDALL: So the player goes in. 10 They pick six numbers. So they're just picking six 11 numbers. They're not picking seven numbers. They're 12 just picking six. We draw six numbers plus the bonus 13 ball. So the drawing will have seven numbers. 14 What that bonus ball does is it gives 15 our players four more opportunities to win additional 16 prizes, but it doesn't come into play for the jackpot 17 prize; only in the other lower tiered prizes. But the 18 player will not have to pick anything but six numbers. 19 Now, some players think of Power Ball, 20 and in Power Ball there's two separate drawing 21 chambers and two separate drawings, and they're 22 picking numbers out of one chamber and then the Power 23 Ball number. This not like that. This is one drawing 24 chamber with 54 numbers in it, and we draw six numbers 25 out of those 54 numbers. Out of the remaining 48 we 0020 1 choose the bonus ball. I'll go through this and 2 hopefully that will be more -- 3 MS. CLOUD: Pam, what -- 4 CHAIR MIERS: Linda, let me just 5 address a couple of comments. One, once six balls 6 have been drawn, then Lotto is over in terms of that 7 draw. So someone could have, in this example, 13, 22, 8 25, 33, and 37 and they're disappointed because they 9 got five balls but they didn't get the sixth. So as 10 the game is played today, that player would just get 11 the prize that you get for picking five out of seven. 12 MS. CLOUD: Right. 13 CHAIR MIERS: Or, five out of six. 14 MS. UDALL: Yes. 15 CHAIR MIERS: And what is that today? 16 MS. CLOUD: Around $1,500. 17 MS. UDALL: Yeah. When the player 18 matches five numbers today, they get around $1,500. 19 CHAIR MIERS: Okay. But assume now 20 that they -- instead of picking 51, this particular 21 player had picked 40. So the player was able to pick 22 five of the Lotto balls plus the bonus ball. Now, do 23 they get what they would have gotten under the Lotto 24 game as it is today? The 1,500? 25 MS. UDALL: No, they don't. 0021 1 CHAIR MIERS: They only get what now 2 is -- 3 MS. UDALL: If they get -- if that 4 scenario came up, they would win $1,000. Let's go 5 back to that first slide that shows the different -- 6 go back one more, René. All right. One more. There 7 it is. 8 This is how it works. Like, right now 9 our player here -- this is how it's played today. If 10 the player matches all six numbers, they win the 11 jackpot. If they match five numbers, they win around 12 $1,500. That prize would just drop a little bit. 13 These are pari-mutuel prizes. 14 CHAIR MIERS: Well, why does it say 15 $1,000 and you're saying $1,500? 16 MS. CLOUD: This is on the proposed new 17 game, not the game that -- 18 MS UDALL: This is the proposed new 19 game. Today they win about 1,500 or around there. 20 CHAIR MIERS: Okay. Well, that's what 21 I'm asking. Under the game as played today, that 22 person who picks five Lotto balls would get $1,500. 23 MS. UDALL: Around that. It ranges 24 from -- 25 CHAIR MIERS: Around that. Now, under 0022 1 the new proposed game they would get a smaller prize 2 unless they match the bonus ball -- 3 MS. UDALL: Exactly. 4 CHAIR MIERS: -- in which case then 5 they get 10,000. 6 MS. UDALL: Exactly. 7 CHAIR MIERS: So I think what is very 8 important from a big picture standpoint is: Does the 9 Lottery or the State get any more money as a result of 10 the way the changes have been engineered for the new 11 game, or is all the same money paid out, it's just 12 paid out in a more attractive configuration? 13 MS. UDALL: Basically let me try to 14 answer that. Right now on every dollar we make -- or, 15 for every sale in Lotto Texas ticket, we give a 38 16 percent goal to the State. So on this game, we're 17 hoping -- we're seeing -- we're hoping to have greater 18 sales as a result of this game, because the average 19 jackpot -- the average winning jackpot will go from 20 9.1 million to 15 point -- 21 CHAIR MIERS: Don't change anything. 22 Just assume everything is the same. Does the State or 23 the Lottery, are they keeping more as a result of 24 making these changes? Are they paying out the same 25 amounts -- 0023 1 MS. UDALL: Just the same. 2 CHAIR MIERS: -- just in a different 3 configuration -- 4 MS. UDALL: Exactly. Exactly. 5 CHAIR MIERS: -- that we think is more 6 attractive to the players? 7 MS. UDALL: We're still paying out -- 8 I'm sorry. I misunderstood your first question. 9 We're paying out 50 percent -- 10 MS. CLOUD: And the only effect on the 11 revenue would be from increased sales -- 12 MS. UDALL: Yes. Increased. 13 MS. CLOUD: -- based on the jackpot. 14 MS. UDALL: It's still a 50 percent 15 payout game; that we're still paying out 50 percent. 16 MR. CLOWE: The percentage stays the 17 same -- 18 MS. CLOUD: Right. 19 MR. CLOWE: -- but the dollars would 20 increase by a virtue of increased sales. 21 MS. CLOUD: Yes. The payout is the 22 same. 23 MS. UDALL: We're still paying out 50 24 percent, we're just -- to your point, just giving the 25 players more winning experiences. You know, just 0024 1 changing the prize structure so that we can allow -- 2 give our players four more lower prize tiers, so we 3 can give them a $5 prize for matching three numbers, 4 and a $5 prize for matching two plus the bonus ball, 5 and also we're throwing in three more prize tiers. 6 What we want to do is we want to create 7 more winning experiences for our players. Because one 8 thing -- we have some very, very loyal players, but 9 they go in and they don't play -- you know, they don't 10 win every time they go in. They don't win -- they may 11 play a month and not win a prize, and we want to make 12 sure that we have those players winning something at 13 the lower tiers so we can keep them in the game. 14 CHAIR MIERS: So the motivation for 15 designing and making the changes is to provide the 16 player a different, more attractive experience, and as 17 a result, because it's different, because it's more 18 exciting, the hope is the sales will be higher and 19 then it'll be win/win. 20 MS. UDALL: Exactly. Now let's go on 21 to, like -- our players -- I mean, when we launch a 22 game, it goes out -- it stays out there forever. 23 Like, the instant product, we're putting two new games 24 out every month, or every couple of weeks even. With 25 the on-line games we put a game out there and it's the 0025 1 same game. 2 And so we're -- you know, what you need 3 to do with the on-line games is create awareness and 4 create excitement to give them -- the player something 5 else to play for. And this is very, very standard in 6 the industry. Some states will change their game 7 three or four times in an 18-month period sometimes. 8 We have not made any changes to our 9 Lotto Texas game except for 1997. We gave our players 10 the ability to pick how they want their jackpot prize 11 paid to them. And that's the only change we've made 12 to the game. And that did impact our sales. We saw a 13 four percent increase that year as a result. 14 It gives the chance to kind of relaunch 15 the game again, talk about the game again, talk about 16 the excitement of the game. Right now we can talk 17 about our winners, but we can't -- you know, we don't 18 have enough to give them. 19 And I know that our players want that 20 $5 experience. They have been asking for that for 21 seven years now, and I want to go -- to say we've 22 heard you. We're giving you what you want. We've 23 heard you say you want lower tiered prizes and bigger 24 prizes. 25 CHAIR MIERS: And I have another 0026 1 question that's a play, really, off of what 2 Commissioner Clowe asked, and that is: The worst 3 thing that can happen with respect to this game is 4 confusion. So do we have sufficient funds at this 5 point in time when we are lunching these changes, at a 6 time when we have sufficient funds to do the 7 advertising and the communication that needs to be 8 done to make sure people aren't confused? 9 MS. CLOUD: Yes, we do. And we are 10 anticipating -- we have the advertising company right 11 now working on ideas if we go in this direction. 12 MR. SADBERRY: I have a question. 13 What's your database for what -- have other states 14 done this? Is there any experience that you can turn 15 to to show that you will get the desired results if 16 this thing is approved? 17 MS. UDALL: States are always, you 18 know, enhancing games and changing games, and every 19 state is a little bit different. Recently this has 20 been implemented -- a similar enhancement has been 21 implemented in New York. We know the power of the 22 bonus ball works very, very well because Power Ball is 23 a great example of adding -- what a bonus ball can do 24 to your game. 25 This is not like Hardball, but you're 0027 1 giving the players, you know, extra prize tiers. The 2 daily game gives the players, you know, multi-prize 3 tiers. It gives the players -- it just looks like so 4 much more value for your dollar, and that's what we're 5 trying to do. 6 So there's quite a bit of history in 7 the industry as far as when you add a bonus ball or 8 add different prize tiers to a game and when you 9 give -- when you make your Lotto games have higher and 10 lower tiered prizes. 11 You know, it's funny. What we also 12 find, too, in the industry is players want bigger 13 jackpots. I mean, they may say they just want to win 14 $1 million, but their spending habits don't really 15 illustrate that. They don't play when the jackpot is 16 at four or seven. What they want is a 15 or $20 17 million jackpot. 18 And they think nothing of the Power 19 Ball game that has odds of one in 80 million or the 20 Big Game with odds of one in 76 million. The odds are 21 one in 76 million. So the odds of this game, to do 22 this, would be 1 in 26 million. So the odds really 23 aren't even that high at the jackpot level. 24 But, yeah, the players like the big 25 jackpot, and that's what they want. That's what gets 0028 1 them excited. That's what brings them out to the 2 stores. And we also hope it will help our retailers, 3 too, because that will get more players back in their 4 stores for them. 5 MR. CLOWE: Would you go back a slide 6 for a question, please? 7 MS. UDALL: Okay. Which one would you 8 like to look at? Two? 9 MR. CLOWE: Right. 10 MS. UDALL: Okay. Is it this one? 11 MR. CLOWE: No. Where you were. 12 MS. UDALL: Okay. 13 MR. CLOWE: I want to make sure I 14 understand this: The addition of the four balls 15 increases the odds required to win the full six ball 16 selections. 17 MS. UDALL: It impacts the jackpot 18 prize. 19 MR. CLOWE: Only the jackpot. 20 Increasing the odds from, what, about one in 17 21 million to one in 23 or 24 million? 22 MS. UDALL: Our current odds right now 23 are about one in 15.8 million, and that would 24 increase, so one in 25.8 million. 25 MR. CLOWE: So that's the impact of the 0029 1 addition of the four balls. 2 MS. UDALL: Uh-huh. 3 MR. CLOWE: The addition of the bonus 4 ball then decreases the odds of winning -- or, I 5 shouldn't say that -- increases the odds of winning 6 only at the lower levels. Those are the mechanics of 7 the basic change of the addition of four balls and the 8 addition of the bonus ball. Am I understanding that 9 correctly? 10 MS. UDALL: What we're -- with this 11 game enhancement what we're doing is we're making -- 12 the odds of winning the jackpot prize increase, but 13 the odds of winning a prize overall in the game 14 improves. So -- 15 MR. CLOWE: I understand that. But 16 this is mechanically how it's done. 17 MS UDALL: Exactly. 18 MR. CLOWE: And we're sure of those 19 mechanics. 20 MS. UDALL: Yes. Yes. Yeah. In order 21 to give the players what they want as far as higher -- 22 you know, more cash on lower tiered prizes and bigger 23 cash prizes and to -- you know, how -- winning the 24 jackpot experience around $15 million, this is what it 25 takes to make that happen. 0030 1 MR. CLOWE: Thank you. 2 MS. UDALL: So I think it can be 3 really, really exciting. And with your point, 4 providing the players understand they've only got to 5 pick six numbers and that the bonus ball gives them 6 four additional prize tiers, they need to hear the 7 whole picture. They need to have the whole picture. 8 They just can't -- they just hear -- you know, that 9 we've changed the matrix from six in 50 to six in 54, 10 that's not going to make them excited. They need to 11 hear about the bonus ball and the prize tiers and all 12 of the -- the whole picture makes them excited. 13 And let's go ahead and skip through the 14 ways to the winning experience. We've kind of talked 15 about that. And let's go back and I want to talk 16 about the benefits, kind of the overall advantages, 17 and kind of sum it up. 18 Here's again this is what -- I think 19 what's really going to get our players excited is this 20 prize two here. When they match two numbers plus that 21 bonus ball, they'll win another $5. Because right now 22 just having those two, $5 tiers will help us create 23 additional winners in each drawing. 24 Right now we have about 279,000 people 25 who win each Wednesday and Saturday. This is going to 0031 1 improve those winners. We're going to have about -- 2 over 600,000 people who will win prizes both 3 Wednesdays and Saturdays. We're doubling the number 4 of winners which will create -- really that's what our 5 players want. They want to win. And that's what 6 we're trying to do here. 7 We'll go to the next -- and that kind 8 of sums it up again, and how -- the prize divisions. 9 And here's to your point, the changes. The top prize 10 odds change from 15.8 to 25.8. The overall odds of 11 winning go from one in 57 -- they improve. It was 12 only one in 43. 13 Right now our prize in our current 14 game -- you know, four prize divisions, that will 15 improve around eight now. The lower tiered prizes of 16 our current game are $3 to $1,500; what our players 17 are winning right now in the lower tiered prizes. 18 That will increase from $5 to $10,000. They're going 19 to have a wider range of lower tiered prizes. And the 20 average winners per draw is going to increase. 21 And then just to sum this up real 22 quickly, the benefits of doing this is we're giving 23 our players more chances to win a prize, more money in 24 the lower tiered prizes, it doubles the number of 25 winners, it increases the average winning jackpot from 0032 1 9.1 million to 15.1, and it gives us something to talk 2 about Lotto Texas again. And our players, for $1, are 3 getting eight more ways they can win. 4 So like I say, providing we can 5 communicate this and that everybody sees the big 6 picture here, I think it can be very successful. And 7 that's it. Thank you. Is there anymore questions 8 that I can... 9 CHAIR MIERS: Any other questions? 10 MR. CLOWE: Yes. What are the 11 negatives to this? What are people who are opposed to 12 this type of change in the game saying? What should 13 we be concerned about? 14 MS. UDALL: I think the number one 15 thing that we're going to hear is when you tell 16 players that you're going to change the matrix from 17 six of 50 to six of 54, they're all going to go, "Oh, 18 my gosh. You're making it harder for me to win." And 19 that's -- I think you're going to hear that. However, 20 when you talk about the bonus ball and you talk about 21 the additional prize tiers and the overall odds, and 22 the $5 prize especially, then they go, "Oh, that 23 sounds great." 24 But I think -- you know, people are 25 resistant to change. You know, I think that's, you 0033 1 know, the one thing we need to be prepared for. We 2 need to make sure that they're comfortable with the 3 change and they understand the change because human 4 nature is just that way. They don't like change. 5 MR. CLOWE: And the feedback you got 6 from your focus groups supports this change. 7 MS. UDALL: And I think that would be a 8 great segue into what Toni was going to say. 9 MS. SMITH: Yes. 10 MR. CLOWE: So you'll talk about that? 11 MS. SMITH: Yes, sir. I am. And I've 12 handed out a copy to the Commissioners. We conducted 13 player research with Trend Home Research in Dallas, 14 San Antonio, and Amarillo, and I'll briefly cover the 15 conclusions that they found from that meeting with our 16 players. 17 MR. CLOWE: What's the document that we 18 should be looking at? 19 MS. SMITH: It looks like -- it starts 20 out -- 21 MR. CLOWE: Got it. 22 MS. SMITH: The revised six of 54 Lotto 23 Texas with an extra ball appears to have the potential 24 to generate increases in Lotto Texas sales among 25 frequent as well as less frequent or lapsed players. 0034 1 Virtually all players indicate that they will play the 2 new game, and many will be excited enough about 3 playing the new game to play more often and buy more 4 tickets. 5 Almost all that project increase 6 spending on the new Lotto think they will play with 7 incremental dollars. Even players who prefer the 8 current Lotto Texas will play the new game if it 9 replaces Lotto Texas. 10 The extra ball was able to overcome 11 players' objections to the lower odds due to the 54 12 numbers and generate interest in playing. This game 13 generated strong interest in trial primarily because 14 of the extra ball, which is associated with more 15 chances to win, and more fun and excitement in the 16 game. Although the game may not motivate players to 17 spend or play more on a rational level because of the 18 odds, the excitement of a new game, the extra ball, 19 and larger jackpot amounts should initiate increased 20 interest in spending in Lotto Texas, possibly more 21 even than the players anticipated projected. 22 When the players asked about and talked 23 about the odds, they are thinking of the odds of 24 winning the jackpot, not the odds of winning just 25 anything. The concept of having more winners win 0035 1 something is, however, quite appealing to most because 2 it gives them a reason to play as well as potentially 3 providing a reason to continue to play, if they win 4 anything. You know, if they as least win something in 5 playing the new game. The primary benefit of the new 6 Lotto Texas is having more chances to win using the 7 extra ball. 8 Directly linked to this benefit is the 9 increased appeal, excitement, and fun which drawing an 10 extra ball contributes to the game. The secondary 11 benefit is the higher prize amounts for lower level 12 prizes, particularly the $10,000 for matching five 13 plus the extra ball. 14 Based on comments and noted confusion 15 during the groups, the following would be 16 recommended -- and just briefly to go through this: 17 Not to talk about the benefits of average winning 18 jackpot amounts in the advertising, that that could be 19 confusing to the players; provide clear instructions 20 and explanations of how to play the game in a brochure 21 at the point of sale with the retailers and clerks; 22 and the point that seemed to be most important to 23 clarify to avoid confusion are select only six 24 numbers, not seven; that the extra ball does not help 25 you win the jackpot amount, which we discussed 0036 1 earlier, but only at lower prize levels; clearly 2 delineate and highlight which number is the extra 3 ball, such as circling it, and they suggested symbols 4 like a Texana symbol or a star, cowboy hat or boot, 5 and that the cost remains $1 to play. 6 I think that's something that even in 7 Pam's discussion -- we found it important the players 8 get these added features and it doesn't cost them any 9 more to play than they had been playing Lotto Texas. 10 And that all balls, the original six plus the extra, 11 are drawn from the same container. 12 So these -- this is information that 13 we'll take into consideration in our advertising and 14 the information that we put out there to our players. 15 Are there any further questions about the research 16 or... 17 CHAIR MIERS: Well, I take it that the 18 decision is -- if the rule is considered and approved 19 would be to call these -- the game as operated under 20 the new rules, what? 21 MS. CLOUD: We were not going to change 22 the name of the game. We may refer to it in the 23 advertising as the new Lotto game for a period of 24 time. But it seems the players have ownership in 25 Lotto Texas, and they don't want to see the name 0037 1 changed. So we had considered just making it up front 2 a -- and advertise it as the new Lotto Texas game. 3 CHAIR MIERS: Let me ask a timing 4 question, because you have brought this forward to the 5 Commission for its consideration and yet we are in the 6 middle of obviously what we talked about earlier, 7 which is increasing the payout on our instant ticket 8 games. Speak to why this was the right time to do 9 something else different. Why not wait six months so 10 that we can settle in and get clarity on the higher 11 payout and the instants? 12 MS. CLOUD: Pam, do you want to address 13 some of that, and then I can... 14 MS. UDALL: Sure. I think that one of 15 the biggest benefits of doing this right now is that 16 it will get players back into the game. It's a strong 17 game. Our players do play the game. It's a very 18 strong product, however, we are losing player-ship in 19 the lower levels. 20 And I have promoted the $4 million 21 jackpot message quite heavily this last year, and even 22 though people apparently got that message, it hasn't 23 had the same result as producing more sales. However, 24 the sales are very stable at the four and seven. 25 But one thing our players are saying -- 0038 1 and this might help the instant product -- is that 2 they want to have more winning experiences. And with 3 the $5 -- two, $5 tiers in the prize, that should 4 create more turn in the store, and it's doubling the 5 number of winners for both Wednesday and Saturday 6 nights' drawing. 7 We're just giving more people that 8 winning experience. And that, in turn, can help our 9 instant product because a lot of our Lotto players 10 also play instant products as well. So it would kind 11 of help, maybe, players realize there are winning 12 experiences out there. 13 MS. CLOUD: The other thing we have to 14 look at, too, is the fact that because of our player 15 base -- in monitoring this as we've been doing, the 16 $4 million level being the concern that players are -- 17 we're losing players at that level. We would have to 18 face eventually, and probably in the very near future, 19 decreasing the minimum jackpot, at the rate we're 20 going, so that we don't have to go into the reserve to 21 pay the $4 million. 22 CHAIR MIERS: That's a good point. 23 MS. CLOUD: And that would be more of a 24 discouragement to our players than what we're 25 proposing here, I think. 0039 1 CHAIR MIERS: Well, then, I think 2 certainly to my observation we have promoted what it 3 means to win $4 million as much as we can possibly do 4 so, and it hasn't had the obvious desired increase. 5 MR. SADBERRY: People just refuse to 6 believe it's a lot of money. 7 MS. UDALL: In the focus groups, 8 everybody knows that commercial and they can all 9 parrot that back to you. 10 MS. CLOUD: Yeah. So it's obviously 11 getting out there. And on the same thing, if we were 12 to have to cut back to the $3 million minimum, that 13 will have an effect in the rollover, the jackpot, 14 which would even be less than what it is now. So that 15 had the long -- you know, that is kind of like a 16 downhill effect all the way across the board if we go 17 that way, and that's something that I did not want to 18 have to do if we could help it. 19 CHAIR MIERS: Okay. Kim, do you want 20 to tell us where we are procedurally? 21 MS. KIPLIN: Yes. Procedurally what is 22 before you on your agenda today is the consideration 23 for proposed amendments to the Lotto Texas rule. 24 Should the Commission vote to approve the proposal, 25 the proposed amendments would be filed consistent with 0040 1 the Texas Register, the form and style will be filed 2 with the Secretary of State's office, Texas Register 3 Division, for publication in the Texas Register 4 publication. 5 The deadlines for rule making for 6 inclusion in a subsequent Register publication are 7 noon on Monday. So if we were to be able to file by 8 Monday noon the rule would be published, and if I'm 9 not mistaken it would be the September 10th Register. 10 There is a minimum 30-day public 11 comment period that begins -- that clock begins with 12 the date -- or, from the date of publication. This 13 rule would be ripe for adoption for the Commission's 14 consideration for adoption after that 30-day clock has 15 run, so if you roughly -- say October 11th. Comments 16 will be received during the comment period and will be 17 considered by the agency, and it will be the people 18 that have been working on the proposed amendments I 19 imagine. 20 I think -- my recommendation, I have 21 spoken with Ms. Cloud, the Executive Director, is to 22 notice up a rule making comment hearing to invite the 23 public to come who wish to propose or offer comment in 24 an oral fashion to do so. And I would include it in 25 the preamble, which it's not now, but I would include 0041 1 it in the preamble, and then also a separate notice, 2 and would like to put it on the Texas Lottery's web 3 site to try to provide ample notice of the rule making 4 comment hearing. Certainly comment in written form is 5 very much invited, and I will be the key person for 6 that comment. 7 And that's part of the required 8 preamble to a proposed rule making, and it is included 9 in there. Once the comment comes in, the agency will 10 review the comment, will either make changes 11 consistent with the comment for those comments that 12 the agency agrees with, or will explain -- or will 13 provide reasons why the agency disagrees with a 14 particular comment. All of that will be part of the 15 preamble, our required preamble, at the time the rule 16 is before the Commission for adoption. 17 I'll be happy to answer any questions 18 in the event I left something out procedurally. It is 19 not before the Commission today for adoption. It is 20 before the Commission to actually initiate the rule 21 making, to begin the rule making process and to invoke 22 public comments. 23 MR. CLOWE: I'm ready to go forward. 24 MS. KIPLIN: Well, Commissioner 25 Sadberry, I'm sorry. Did you have any comment? 0042 1 MR. SADBERRY: Well, no, I agree. I 2 think I understand it. I think you have thought it 3 through. You have obviously noted the possibility of 4 some negative perception, and we know there's risk 5 involved where you have that possibility, yet you have 6 addressed it. You've done your research, 7 marketing-wise, and even with that risk in mind feel 8 that it would be good for the State, for the players, 9 and the Lottery Commission to go forward. There's 10 risk inherent in what we do, but it seems like -- I 11 believe it's outweighed, from what I've heard, by the 12 potential benefit which is, I think, what we need to 13 get by. 14 I think your suggestion of the public 15 comment session is helpful to alleviate any negative 16 perception. Certainly if we do move forward, the 17 notion that should go with that message is the public 18 will get a chance to speak before we act finally. 19 There's certainly, in my mind, no reason not to move 20 forward now with the notion of proposing the rule 21 given the opportunity of the public to speak, which I 22 think is what's valuable here. With that, I agree. 23 It seems like something good to move forward on. 24 MS. KIPLIN: I would, if I could, just 25 lay out -- and I know this is a little bit down the 0043 1 order of the agenda, but if I could just lay out the 2 proposed rule making. You've heard today from the 3 staff the -- I guess the main emphasis for the rule 4 making, and I want to summarize what the proposed 5 amendments do. 6 They change the way Lotto Texas is 7 played by adding four additional prize categories, 8 four additional balls, and a seventh number which will 9 be used in the additional prize categories. The 10 proposed amendments also delete the specific time of 11 the Lotto Texas drawings in order to provide 12 flexibility to the Lottery to assist the Lottery in 13 having the live drawings broadcast and aired by 14 television stations in Texas. 15 The side note is that it's my 16 understanding that we are having some difficulty. 17 While the drawings are put from the satellite, we are 18 having some difficulty in having television stations 19 actually key in on the satellite and broadcast the 20 live drawings. 21 Consistent with that particular 22 amendment, another proposed amendment provides 23 discretion to the Executive Director to change the 24 draw break time. Currently the draw break time is 25 9:45 to 10:00 p.m., at which time no Lotto Texas 0044 1 tickets can be sold. Dependent upon what the staff 2 gleans in terms of the more viable time to air the 3 live drawings, there may be a need to modify or shift 4 a bit the draw break time. That's something that has 5 not been decided at this point, and I think will 6 require considerable thought should that occur. All 7 this does is provide the Executive Director the 8 flexibility to change it if necessary. It does not 9 change the current draw break time now. 10 CHAIR MIERS: Well that, Kim and Linda, 11 to me is a huge issue in terms of confusing the 12 public, to add that dimension to this, as to when the 13 drawings would occur or when they can and can't buy 14 tickets. We're just asking people to understand too 15 much it seems to me. I have a very negative response 16 to tampering with that consistency in this process. 17 MS. CLOUD: It is not my intent, and 18 that was added into the rule when they were 19 considering the possibility of changing the time of 20 the airing of the draw. It is real important to us 21 because of the complaints that we're getting that our 22 players aren't seeing the actual drawing. We are 23 making a real effort right now to find out why and to 24 try to persuade the television stations to air our 25 entire drawing. And in order to do that, we may have 0045 1 to get maybe a few minutes away from the 10:00 o'clock 2 news time to get them aired either before or a little 3 after. 4 But it is not my intent to change the 5 draw break. And I think that was just added in there 6 for the purpose of the necessity to have to shift it 7 if we needed to, but that is a big change, and that is 8 not something I intend to do. 9 CHAIR MIERS: Well, so when we're 10 talking about varying the time of the actual draw to 11 get more stations to pick it up, it seems like the 12 stations that are willing to pick it up when it's now 13 shown, if you change it you're going to lose them 14 potentially. So what would be the view as to the 15 optimum time to get the most coverage? Is there some 16 evidence of that? 17 MS. SMITH: Pam can address that. 18 There's been some -- 19 MS. UDALL: I know what you're talking 20 about. Currently, and since 1992, our drawings have 21 been held or have been -- basically as it said in the 22 rule, we're going to hold the drawing at 9:59 p.m. 23 That worked really great initially because that was 24 local time. 25 Over the course of the last six years, 0046 1 that time is now network time. So ABC, CBS, NBC, they 2 all own that time, and it doesn't go to local time 3 until after the 10:00 o'clock break. And so even 4 though the stations may want to air the drawings at 5 9:59 and they get the satellite free, they're unable 6 to. 7 So if we can adjust the drawing time to 8 maybe 10:01 or 10:15, or sometime between 10:00 and 9 10:30 news time, that's local time, that might 10 encourage and it also would help more of the stations 11 access our drawing and air it. There's a lot of 12 stations out there who want to air the drawings, but 13 they can't because that 9:59 is not their time. They 14 can't own that time. They can tape it and broadcast 15 it later, but it's not a live drawing. 16 And so what we're trying to do is give 17 them -- kind of research the topic right now. We're 18 in the process of researching that, finding out what 19 would be a good time for all the different stations 20 across the state, and then find a time that fits for 21 everybody's needs. So that's what we're trying to do 22 at this point, and we don't know what that exact time 23 is. We just know it is between 10:00 and 10:30. 24 CHAIR MIERS: Well, so is it true that 25 if -- and I have no idea whether this is accurate or 0047 1 not. But if, in fact, the optimum time turned out to 2 be 10:15, so instead of people being used to seeing 3 the drawing at 10:00 and they start seeing it at 10:15 4 and we somehow make that switch successfully, would 5 the blackout time just be from 9:45 to 10:15, for 15 6 minutes longer, or -- 7 MS. UDALL: No. 8 MS. CLOUD: No. It would stay the 9 same. And I would prefer to take that out of the rule 10 as well, so I've asked Kim to delete that. 11 CHAIR MIERS: Well, what would happen 12 during the 15 minutes where the -- there is an 13 opportunity to buy tickets, if I understood the 14 blackout time, and the time when you make the drawing? 15 MS. CLOUD: The tickets purchased after 16 the draw break would be for the next week -- next 17 draw, not for this draw. You would cut -- at the draw 18 break you cut off the sales for the current draw. So 19 any tickets purchased after the draw break would be 20 for the following drawing, not for the current 21 drawing. 22 CHAIR MIERS: And people would 23 understand that? 24 MS. CLOUD: They do -- they understand 25 that. Yes. 0048 1 CHAIR MIERS: Because right now, if I 2 was understanding it, the draw break and the drawing 3 are somewhat simultaneous. 4 MS. UDALL: How the draw break works is 5 we need 14 minutes in order to shut down sales, run 6 the tapes before we do the drawing, and close the game 7 down. So as long as you have 14 minutes to get the 8 tapes, we look at sales, and do the drawing, we need 9 that window. So our draw break starts at 9:45 today 10 and our drawing is held at 9:59, at the end of that 11 14-minute window. And that's what we try to work with 12 is kind of that 14-minute window. 13 CHAIR MIERS: But now, if I went into a 14 store and bought a ticket, the ability to buy a ticket 15 for the next drawing would only exist once the drawing 16 for the previous drawing had already occurred. Right? 17 MS. UDALL: Yes. Today when you go 18 into the store, say it's Wednesday night, at -- after 19 this -- we don't sell any tickets between 9:45 and 20 9:59. At 10:00 o'clock we start selling tickets 21 again, and that's for the next drawing. 22 CHAIR MIERS: Right. But at 10:00 23 o'clock you've already done the drawing. So now we're 24 going to create a window while there isn't a drawing, 25 but you can buy tickets, but those tickets are for the 0049 1 next drawing. That's confusing. 2 MS. SMITH: And I think what was 3 proposed there is that if the draw time itself were 4 changed to a different time, the draw break would move 5 along with that. It's just that we would need that 14 6 minutes prior to the drawing time whenever it is. It 7 would not lengthen the period of time that the draw 8 break would occur. It would have to move along with 9 the new time of the drawing. 10 CHAIR MIERS: Right. Which is just 11 adding more new information and the necessity for 12 greater understanding of the playing public. Right? 13 MS. SMITH: Yes, ma'am. I agree. I 14 think our thought was that if we're going to spend the 15 advertising dollars to tell players about the 16 enhancements to the game, and if we could make these 17 changes happen, you know, by that time or be able to 18 tell them that, then it would be part of the whole 19 change of the new Lotto; that now more people can see 20 the Lotto because it could be more aired -- picked up 21 more by more stations because it's on there multiple 22 times. 23 CHAIR MIERS: But if people aren't 24 watching and don't see the ads and they're accustomed 25 to going and buying a ticket at 10:00 o'clock at 0050 1 night, they're going to go in and be told, "You can't 2 because that's the blackout time. You have to wait 14 3 minutes." 4 MS. KIPLIN: If I could direct your 5 attention. The exact language we are talking about is 6 on the third page from the last, it's on paren two, 7 and it's the underlined sentence. It should be the 8 third page from the last. Okay? It's paren two, 9 it'll be the underlined sentence that begins: 10 "However, the Executive Director may, at his or her 11 discretion, change the draw break time." 12 I think I heard, just a minute ago, the 13 Executive Director's desire to remove that language 14 from what the staff would like to propose today to 15 you -- and if I'm wrong, tell me. 16 MS. CLOUD: No. That's correct. 17 MS. KIPLIN: So if the Commission, one, 18 votes to propose the rule, then the staffs would like 19 to have the proposed amendments that are voted to 20 propose for publication not include this new language. 21 And so I would remove this from that which will be 22 proposed for public comment in the Register. 23 CHAIR MIERS: Okay. But if we do that, 24 then -- all right. I understand the tension. The 25 tension is between adding still yet a new element 0051 1 versus being able to get the benefit of more live 2 broadcasts on television stations. 3 MS. CLOUD: What we could do is change 4 our direction on that a little bit and just have -- 5 work with the television stations for maybe a 6 delayed -- not a live-time but a delayed broadcast if 7 they would air the draw versus having it live. 8 Just airing the drawing is very 9 important to the players. They think we put numbers 10 on the screen. They don't know for sure without 11 seeing those numbers drawn that they are the -- in 12 fact the real numbers. 13 And that's some of the complaints we 14 were getting. We received a really strong letter last 15 week that went to a Congressman, that came to us, that 16 we were playing games; that we were not providing the 17 right numbers. Well, you know, we need the players to 18 see that drawing. 19 And so we can work around this another 20 way, without changing the time of the draw or the draw 21 break, and we can take this totally out of this rule 22 and make sure that we go about it differently. With 23 these television stations that are only airing our 24 drawn numbers, have them -- work with them maybe to 25 air a delayed time of the drawing. That's why we have 0052 1 a broadcast manager on board now, and he is doing 2 research on this, as we speak, as to what's the best 3 way to go about getting this done. 4 CHAIR MIERS: Well, I raise the 5 concern. I don't mean to -- 6 MS. CLOUD: No. And I don't disagree 7 with you bringing it up in the light that you did. I 8 agree with what you're saying, and I would rather take 9 it out of the rule. 10 CHAIR MIERS: Okay. 11 MS. KIPLIN: The last category of the 12 proposed amendments are simply cleanup changes to 13 eliminate obsolete language and typographical errors 14 from previous rule makings in the Lotto Texas rule. 15 Just to give you an example of one of the obsolete -- 16 one obsolete language is language that suggests -- and 17 it's kind of buried so I'll just read it to you. It 18 has to do with the cash value option, and it says 19 exactly: "The Executive Director shall, in his or her 20 sole discretion, establish the implementation date of 21 the cash value option." That's obsolete language now. 22 The rule -- the game does provide for 23 the cash value option. It was added at a time where 24 we didn't know when the rule would take effect, so we 25 didn't know when we would actually kick off the cash 0053 1 value option. 2 And so that's the kind of obsolete 3 language that's contained within this category of 4 proposed amendments. And so with that, if you-all 5 have no further questions, the staff does respectfully 6 request the Commission vote to approve publication of 7 the proposed amendments for the 30-day public comment 8 period in the Texas Register. 9 CHAIR MIERS: Okay. I'll ask if 10 there's a motion? 11 MR. CLOWE: So moved. 12 MR. SADBERRY: Second. 13 CHAIR MIERS: All those in favor say, 14 aye. 15 MR. CLOWE: Aye. 16 MR. SADBERRY: Aye. 17 CHAIR MIERS: Aye. The vote will be 18 three to zero. The publication of the proposed rule 19 will be authorized. 20 MS. KIPLIN: That's with the 21 understanding, you know, that that particular sentence 22 that we've been discussing, that was at issue, will be 23 deleted and not be part of what is proposed as an 24 amendment. 25 MR. SADBERRY: And you're going to add 0054 1 in the preamble -- 2 MS. KIPLIN: Yes, I am. 3 MR. SADBERRY: -- the public comment. 4 MS. KIPLIN: Right. The public comment 5 ruling. Yes, I will. 6 CHAIR MIERS: Okay. 7 MR. CLOWE: I'd like to make a comment 8 about the public comment. I think the results of your 9 focus meetings are -- is excellent, and I'd like to 10 draw your attention to the question that the Chair 11 asked, which I think is key, about the basics of the 12 game. And I liked the question I asked about the 13 person who names five and then gets the bonus ball for 14 the sixth and thinks they've won the Lotto. 15 And then, generically, this is a great 16 opportunity for you to hear from the public, and, you 17 know, this is something that we need to listen to when 18 these comments come in. I know you're enthusiastic 19 about the changes, I can see that, but here's a chance 20 to hear what people don't like about it. 21 I'm pleased that we've already gotten 22 one letter that's been handed to us this morning as a 23 result of an article in a newspaper, with comments 24 that are made about the changes, and I would urge you 25 to listen to those very carefully and to be even- 0055 1 handed about receiving those and not just, "Well," you 2 know, "we know what we're doing." Let's listen to our 3 players and to the public very, very carefully during 4 this period. 5 MS. SMITH: We agree, sir. 6 CHAIR MIERS: Okay. And I believe it 7 would be appropriate at this time to take up item 8 number 10, which is our Executive Session matters. 9 And I would move to, at this time, that we go into 10 Executive Session, at 11:03, to deliberate the duties 11 and evaluation of the Executive Director pursuant to 12 Section 551.074 of the Texas Government Code; the 13 duties and evaluation of the Internal Auditor pursuant 14 to 551.074 of the Texas Government Code; as well as 15 the duties and evaluation of the Charitable Bingo 16 Operations Director pursuant to Section 551.074 of the 17 Texas Government Code; and to deliberate the duties of 18 the General Counsel pursuant to Section 551.074 of the 19 Texas Government Code; and to receive legal advice 20 regarding pending or contemplated litigation and/or to 21 receive legal advice pursuant to 551.071(1)(A) or (B) 22 of the Texas Government Code; and to receive legal 23 advice pursuant to Section 551.071(2) of the Texas 24 Government Code, including the items that are listed 25 under 10E in our agenda. 0056 1 MR. CLOWE: Second. 2 MS. KIPLIN: I need a vote. 3 CHAIR MIERS: All those in favor, aye. 4 MR. SADBERRY: Aye. 5 MR. CLOWE: Aye. 6 CHAIR MIERS: Aye. 7 MS. KIPLIN: The time is 11:04 a.m., 8 August 28th, 1999. 9 (Executive Session) 10 CHAIR MIERS: Are we on the tape? 11 MS. KIPLIN: Yes. 12 CHAIR MIERS: Great. Thanks. Okay. 13 We will be -- let the record reflect that we are 14 coming out of Executive Session at 3:34, and we can 15 return to the items on our agenda. 16 I'll call on Ridgely only if there is 17 something specific to report on the lottery operator 18 consultant procurement and lottery operator 19 procurement. 20 MR. BENNETT: Commissioners, there's 21 nothing that requires the immediate attention of the 22 Commission today. We do have a tentative draft 23 scheduled to be advanced that is available for your 24 review if you would like to see that, or if you would 25 like to go over that, but there's nothing specific 0057 1 that has to be taken up today. 2 CHAIR MIERS: Has that been distributed 3 to the Commissioners? 4 MR. BENNETT: I have it here. I can 5 do that right now. 6 CHAIR MIERS: Why don't we take that, 7 Ridgely. Anything else you feel that needs to be 8 brought to the Commission's attention? 9 MR. BENNETT: Not at this time. 10 CHAIR MIERS: Okay. And you're not 11 asking for any approval or action on these dates, just 12 information available to us? 13 MR. BENNETT: That's correct. 14 CHAIR MIERS: Questions for Ridgely? 15 MR. CLOWE: No. Thank you. 16 CHAIR MIERS: No? Thank you. 17 MR. BENNETT: Thank you. 18 CHAIR MIERS: Ms. McLeod, we have the 19 written report available to us on the current status 20 of the audit reports relating to the Texas Lottery. 21 Ms. McLeod, do you have anything to add beyond your 22 written report? 23 MS. MCLEOD: No. I believe it's all 24 contained in the report. We've got three findings 25 left with the State Auditor's office on the management 0058 1 control of the Lottery Commission. Two of those 2 action items were due at the end of this month. I 3 believe for practical purposes it would be better to 4 move them to October, November as indicated in the 5 report, and the other one that has a February year 6 2000 implementation date I believe is on track and 7 will be implemented at least by that date. 8 CHAIR MIERS: Any questions for 9 Ms. McLeod? 10 MR. CLOWE: None. 11 CHAIR MIERS: Okay. Status report, 12 possible discussion, and/or action on the agency's 13 minority business participation. I know Ms. Hawkins 14 had to leave due to illness. We hope she feels 15 better. Anything -- 16 MS. CLOUD: Outside of the information 17 provided you in your packet, the last meeting we 18 talked about procedure versus policy, and I think what 19 we have decided is that this really needs to be more 20 of a procedure. And I'll let Kim respond to that for 21 the Commission. 22 MS. KIPLIN: Commissioners, if you 23 recall, at the last Commission meeting you were 24 presented with information regarding the agency's 25 procedures on minority HUB participation and were 0059 1 asked to vote on what was characterized as a minority 2 participation policy by having an official sign-off 3 sheet. I expressed reservations at that time and 4 asked to have an opportunity to review the documents 5 that were before you. 6 It's my opinion that the document, 7 executive division policy, is really a summary of 8 State law and information that's contained in the 9 minority participation report, which you approve and 10 you adopt, and the strategic plan, which you approve 11 and you adopt. So with that I don't believe there is 12 any legal reason or need to have you sign off on an 13 official sign-off sheet or a Commission order adopting 14 the particular document that was presented to you, and 15 have recommended to the Executive Director that it be 16 considered to be procedure and not a policy since it 17 really just tracks State law. And that's the nutshell 18 of what I had to offer today on that matter. 19 MS. CLOUD: And I was told, before 20 Loretta left, that we do have a meeting set up with 21 GSC to discover the way we're reporting the lottery 22 operator minority -- 23 CHAIR MIERS: To discuss? 24 MS. CLOUD: To discuss that on the 9th 25 of September. 0060 1 CHAIR MIERS: Right. Okay. Well, this 2 remains an area of high interest, as you know, for the 3 Commission, so we appreciate the effort, examining 4 where we are and what can we can do better. 5 And we'll move now to item number 6 eight. Ms. Morris. 7 MS. MORRIS: Commissioners, this is the 8 item for the proposed rule 401.312 regarding the 9 conversion of the lottery prizes. At this time, 10 Commissioners, the staff would recommend that this 11 rule be withdrawn. It may be next Commission meeting 12 we are here with another form of a proposed rule 13 regarding the ability to offer the conversion to the 14 lottery players, but at least at this time that we 15 would request that this procedure, this rule making 16 procedure, be stopped at this moment by withdrawing 17 the proposed rule. 18 CHAIR MIERS: Okay. I don't think it 19 requires action by the Commission. We'll just not 20 take any action, and if you -- the staff has further 21 recommendations with respect to recommending a rule 22 with respect to acceleration of lottery prizes, you 23 will bring that forward at the next Commission 24 meeting. 25 MS. MORRIS: Yes, ma'am. 0061 1 MS. KIPLIN: Commissioners, we'll file 2 the necessary notice with the Texas Register to 3 withdraw this rule making. 4 CHAIR MIERS: Okay. Thank you, 5 Ms. Morris. 6 Our next item is the consideration of 7 and possible action on the classification of the 8 Charitable Bingo Operations Director and/or Internal 9 Auditor's position based on Schedule B Classified 10 Positions and associated Salary Schedule B, Article 11 IX, General Appropriations Act, 76th Legislature, 12 Regular Session. As we understand it, the State law 13 requires us now to place our employees into 14 classifications consistent with those that are 15 available to us, and I call on Mr. Richardson. 16 MR. RICHARDSON: For the record this is 17 Jim Richardson. 18 Effective September 1, 1999, changes 19 will occur to the State Classifications Plan. Among 20 the changes made were the deletions of several 21 classified positions. Two classified positions 22 deleted that are subjects of this agenda item are the 23 classifications of the positions of the Commission's 24 Internal Auditor and the Charitable Bingo Operations 25 Director. 0062 1 I have reviewed the manual conversion 2 recommendations provided to the Commission by the 3 State Classification Office and the new Classification 4 Schedule and the State Classification Job 5 Descriptions. Therefore, I recommend the best fit for 6 the position of Internal Auditor, based upon the 7 duties and responsibilities currently being performed, 8 is a Director III, pay group B19 of the Classification 9 Salary Schedule, with no changes to the salary. 10 CHAIR MIERS: Okay. Let me pause there 11 and ask the Commissioners if they have any questions 12 with respect to that particular position, or whether 13 it is your desire to take action on that 14 recommendation. 15 MR. CLOWE: Yes. I'll move adoption. 16 MR. SADBERRY: Second. 17 CHAIR MIERS: Will you state again, for 18 the record, Mr. Richardson, the recommendation? 19 MR. RICHARDSON: Yes. I recommend the 20 best fit for the position of Internal Auditor, based 21 upon the duties and responsibility currently being 22 performed, is a Director III, pay group B19 of the 23 Classification Salary Schedule, with no change in her 24 salary. 25 CHAIR MIERS: Okay. And that's the 0063 1 motion and second. All those in favor say, aye. 2 MR. CLOWE: Aye. 3 MR. SADBERRY: Aye. 4 CHAIR MIERS: Aye. And that will be 5 the action of the Commission. 6 MR. RICHARDSON: Okay. The best fit 7 for the position of the Charitable Bingo Operations 8 Director, based upon the duties and responsibilities 9 currently being performed, is a Director III, pay 10 group B19 of the Classification Salary Schedule, with 11 no change in his salary. 12 CHAIR MIERS: Okay. And is there a 13 motion on that recommendation? 14 MR. CLOWE: So moved. 15 MR. SADBERRY: Second. 16 MR. RICHARDSON: Based on the language 17 of Senate Bill 174, I believe these personnel actions 18 are best characterized as reclassifications. 19 CHAIR MIERS: All right. So if we 20 approve both -- I'll call for the vote on the motion 21 with respect to the Bingo Operations Director. All 22 those in favor say, aye. 23 MR. SADBERRY: Aye. 24 MR. CLOWE: Aye. 25 CHAIR MIERS: Aye. So the vote will be 0064 1 three to zero. Anything else? 2 MR. RICHARDSON: No. 3 MS. KIPLIN: Just for paperwork. There 4 are two documents, personnel action forms, that 5 consistent with the vote of the Commission the Chair 6 will sign on behalf of the Commission. 7 CHAIR MIERS: Okay. All right. 8 Anything else on that item? I take it not. Thank 9 you, sir. 10 We now have the reports respectively of 11 the Executive Director and Charitable Bingo Operations 12 Director. Anything specific to add at this time, 13 Linda? 14 MS. CLOUD: Do you want to take time 15 today to see the tape that we're taking to NASPL and 16 then pass on what -- the rest you have in your books, 17 or do you want to pass on that today? 18 CHAIR MIERS: I think we would like to 19 see it at the next meeting. 20 MS. CLOUD: Okay. 21 CHAIR MIERS: Anything in your report 22 that we need to highlight? 23 MS. CLOUD: The only thing -- we have a 24 retailer forum in El Paso on September 14th. That 25 will be beginning at 2:00 p.m., and it will be a day 0065 1 trip for staff, so we will be going and coming to that 2 one in one day. And that is the next retailer town 3 hall meeting. 4 Our transfer on August 16th to the 5 Foundation School Fund was $76,662,894 giving us a 6 cumulative transfer to date of $7,082,337,668. So 7 that's the real highlights of my executive report. 8 CHAIR MIERS: Okay. Thank you very 9 much. Billy? 10 MR. ATKINS: Well, in addition to my 11 report, we do have an advisory committee meeting 12 scheduled for Tuesday the 31st. We mailed out copies 13 of the recodified Bingo Enabling Act, as well as the 14 rule that was adopted at the last Commission on the 15 license fee increase, to all licensees earlier this 16 week so they'll have it well in advance of the 17 effective date. 18 And, finally, I handed each of you a 19 copy of this article earlier today which was good news 20 for us in the Bingo Division. It basically says, 21 based on a 13-year study by Harvard University, 22 they've determined that in senior citizens, 65 years 23 or older, playing Bingo is as beneficial to them 24 health-wise as regular exercise. So the Bingo 25 Division is going to take credit for the good health 0066 1 of all Texans. 2 CHAIR MIERS: I assume you don't want 3 the Commissioners to comment on that. 4 MR. CLOWE: I wouldn't comment on that 5 for anything. 6 CHAIR MIERS: Thank you, Billy. And I 7 hope you will convey the wishes of the Commission to 8 the chair of your advisory committee -- 9 MR. ATKINS: I will. 10 CHAIR MIERS: -- for a return to health 11 soon. And are there any other items to come before 12 the Commission? 13 MR. CLOWE: Move for adjournment. 14 MR. SADBERRY: Second. 15 CHAIR MIERS: Then we will stand in 16 adjournment. 17 (Proceedings concluded) 18 19 20 21 22 23 24 25 0067 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, LESLIE P. BOERGER, Certified Court 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the 31st day of 17 August, 1999. 18 19 20 _________________________________ LESLIE P. BOERGER, Texas CSR 5839 21 Expiration Date: 12/31/2000 1609 Shoal Creek Boulevard 22 Suite 201 Austin, Texas 78701 23 (512) 474-4363 24 25 JOB NO. 990828LPB