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 5   
 6           TEXAS LOTTERY COMMISSION WORK SESSION
 7   
 8                     SEPTEMBER 8, 2004
 9   
10   * * * * * * * * * * * * * * * * * * * * * * * * * * * 
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15   
16             BE IT REMEMBERED that the TEXAS LOTTERY 
17   COMMISSION WORK SESSION was held on the 8th day of 
18   September, 2004, from 1:03 p.m. to 6:08 p.m., before 
19   Shelley N. Jones and Brenda J. Wright, RPR, CSR in and 
20   for the State of Texas, reported by machine shorthand, 
21   at the offices of the Texas Lottery Commission, 611 
22   East 6th Street, Austin, Texas, whereupon the 
23   following proceedings were had: 
24   
25   
0002
 1                        APPEARANCES
 2   Chairman:
              Mr. C. Tom Clowe, Jr. 
 3   Commissioners:
              Mr. James A. Cox, Jr.
 4            Mr. Roland Olvera          
     General Counsel:
 5            Ms. Kimberly Kiplin
     Executive Director:
 6            Mr. Reagan E. Greer
     Deputy Executive Director:
 7            Mr. Gary Grief
     Director, Charitable Bingo Operations Divisions:
 8            Mr. William L. Atkins
     Director, Lottery Operations:
 9            Mr. Michael Anger
     Director, Information Technology:
10            Mr. Michael Fernandez
     Director, Internal Audit:
11            Ms. Catherine Melvin
     Director, Financial Administration:
12            Mr. Lee Deviney
     Director, Media Relations:
13            Mr. Bobby Heith
     Director, Marketing:
14            Mr. Steve Martin
     Director, Human Resources:
15            Mr. Jim Richardson
     Director, Governmental Affairs:
16            Ms. Nelda Trevino
     Marketing Coordinator, On-Line Products:
17            Mr. Robert Tirloni
     Enforcement Division Captain:
18            Mr. Bob Beck
     Consulting Team Leader:
19            Mr. Gary M. Cadenhead, Ph.D.
     Consulting Team Project Manager:
20            Mr. Dan Schmisseur
     Leadership Consultant:
21            Mr. Ron Kessler
22   
23   
24   
25   
0003
 1                           INDEX
 2   APPEARANCES......................................  2
 3   AGENDA ITEMS
 4   ITEM NUMBER I....................................  4
 5   ITEM NUMBER II...................................  4
 6   BUSINESS PLAN OVERVIEW...........................  22
 7   OBJECTIVE #1.....................................  25
          STRATEGY #1.................................  25
 8             ACTION PLAN #1.........................  25
               ACTION PLAN #2.........................  31
 9             ACTION PLAN #3.........................  37
               ACTION PLAN #4.........................  46
10        STRATEGY #2.................................  50
               ACTION PLAN #5.........................  50
11             ACTION PLAN #6.........................  65
     OBJECTIVE #2.....................................  105
12        STRATEGY #3.................................  105
               ACTION PLAN #7.........................  106
13             ACTION PLAN #8.........................  108
               ACTION PLAN #9.........................  112
14             ACTION PLAN #10........................  113
          STRATEGY #4.................................  127
15             ACTION PLAN #11........................  127
               ACTION PLAN #12........................  133
16             ACTION PLAN #13........................  133
               ACTION PLAN #14........................  136
17        STRATEGY #5.................................  145
               ACTION PLAN #15........................  145
18             ACTION PLAN #16........................  147
               ACTION PLAN #17........................  151
19             ACTION PLAN #18........................  161
     OBJECTIVE #3.....................................  168
20        STRATEGY #6.................................  168
               ACTION PLAN #19........................  168
21   OBJECTIVE #4.....................................  183
          STRATEGY #7.................................  184
22             ACTION PLAN #20........................  184
               ACTION PLAN #21........................  195
23             ACTION PLAN #22........................  197
     OBJECTIVE #5.....................................
24        STRATEGY #8.................................  200
               ACTION PLAN #23........................  200
25   
0004
 1                     AGENDA, CONTINUED
 2   ITEM NUMBER III..................................
 3   ITEM NUMBER IV...................................
 4   ITEM NUMBER V....................................
 5   ITEM NUMBER VI................................... 
 6   REPORTERS' CERTIFICATIONS........................  208
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 8   
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25   
0005
 1                     September 8, 2004
 2           Texas Lottery Commission Work Session
 3                 CHAIRMAN CLOWE:  This is the Texas 
 4   Lottery Commission work session.  It is 1:00 o'clock, 
 5   September the 8th, 2004.  The Texas Lottery Commission 
 6   will come to order.
 7                 Commissioner Olvera is here.  
 8   Commissioner Cox is here.  My name is Tom Clowe.
 9                 This meeting of the Lottery Commission 
10   has one item on the agenda.  The item is a work 
11   session to consider and discuss and/or act on the 
12   agency's business plan.  Prior to calling on Reagan 
13   Greer to start us off on this work session, I want to 
14   call on the commissioners to see if they have any 
15   comments to make.
16                 Commissioner Cox.
17                 COMMISSIONER COX:  My microphone is 
18   permanently on.  I -- no, I don't.  I -- I reviewed 
19   this, and I've given few general observations to 
20   Director Greer, but I'm ready to start hearing what 
21   they have to say.
22                 CHAIRMAN CLOWE:  Well, good.
23                 Commissioner Oliver.
24                 COMMISSIONER OLVERA:  Same.  
25                 CHAIRMAN CLOWE:  Thank you-all for 
0006
 1   being here today.  This is a public meeting.  We are 
 2   making a public record, but it is also a work session 
 3   wherein comments, suggestions, arguments are welcome.  
 4   And please express your views about the subject.
 5                 And with that, I'm going to ask Reagan 
 6   to begin the agenda and take us through this program.
 7                 MR. GREER:  Great.  Thank you.  Good 
 8   afternoon, chairman and commissioners.  We have 
 9   prepared a conceptual business plan for your review 
10   and discussion today.  We look forward to getting your 
11   input as we go through the process.  I would like to 
12   reinforce the key word being "conceptual."  I know 
13   this is a starting place for us.  And we've had a good 
14   exchange of dialogue up to this point, and we look 
15   forward to your input today.  We're going to follow 
16   the agenda that is outlined on the screen to give you 
17   an overview of the project, and we're going to walk 
18   through the document with you as a part of that 
19   process.
20                 Just as a little background, you're 
21   aware that the Sunset Commission staff in August of 
22   2002 issued a staff report that recommended that Texas 
23   Lottery Commission develop a comprehensive business 
24   plan.  In support of this recommendation, the agency 
25   embarked on the development of a comprehensive plan 
0007
 1   which we're rolling out today.
 2                 When the Commission's Sunset 
 3   legislation had not passed during the 78th Legislative 
 4   regular session, the agency underwent a follow-up 
 5   review by the Sunset Commission and subsequent issued 
 6   a new commission staff report dated April, 2004, also 
 7   included a recommendation to develop a comprehensive 
 8   business plan that supported the agency's ongoing 
 9   efforts in this area.  The business draft plan that we 
10   will review this morning reflects the combined efforts 
11   of the entire management staff, all from the 
12   Commission, obviously, and numerous commission staff 
13   members as well as included recommendations throughout 
14   the plan in developing the process.
15                 The team began this project with the 
16   development of the overarching agency vision 
17   statement, which you're aware of.  We talked about it 
18   in the past.  And then subsequently evaluated and 
19   revised mission statements of both the Texas Lottery 
20   as well as charitable bingo, that had recently 
21   concluded a similar review to look at their mission 
22   statement.
23                 The Commission's core values are also 
24   defined as a part of that, and that is in our lobby 
25   right now.  So it's kind of an ongoing process.  The 
0008
 1   effort was followed then by work to develop a 
 2   framework or a comprehensive business plan.  With the 
 3   framework in place, the agency sought to improve it 
 4   through the release of a request for proposal for 
 5   long-range and business planning consulting services.  
 6   And they're here today.  And Doctor Gary Cadenhead 
 7   assembled a team of consultants and developed 
 8   successful proposals for the Commission's comment.  We 
 9   will use their consulting services -- excuse me -- as 
10   we move forward.
11                 This contract of services was executed 
12   on February the 9th of this year, and the consulting 
13   team began work with the Commission's staff shortly 
14   thereafter.  Doctor Cadenhead and his team put 
15   together a summary of milestones accomplished during 
16   their time, assisting the staff and facilitating the 
17   project.  And we're reviewing that in a moment.
18                 Before proceeding I want to give you a 
19   brief overview about Doctor Cadenhead and his 
20   background, which is very impressive.  Doctor 
21   Cadenhead is a senior lecturer in entrepreneurship at 
22   the McCombs School of Business, and he's the associate 
23   director of the Herb Kelleher Center for 
24   Entrepreneurship at The University of Texas at Austin.
25                 Since 1992 Doctor Cadenhead has served 
0009
 1   as director of the world-renowned -- I'm going to say 
 2   this wrong in front of him -- is it Moot Corp 
 3   competition?  And that's -- that's a valuable project 
 4   that they've been working on for a while over there, 
 5   and it has been very successful.
 6                 Doctor Cadenhead has been recognized by 
 7   the Kauffman Foundation and the Entrepreneur of the 
 8   Year Institute as one of the top ten entrepreneurship 
 9   educators and as one of the top three directors of the 
10   entrepreneurship program in the United States by the 
11   Entrepreneur Magazine.
12                 Doctor Cadenhead is a CPA licensed in 
13   the State of Texas and has auditing experience with 
14   and Haskins & Sells and also Deloitte & Touche.  He 
15   previously served as the research director for the 
16   Texas Strategic Economic Policy Commission, which 
17   developed the strategic plan for the State of Texas.  
18   Doctor Cadenhead also serves on several boards, and in 
19   July of this year, he became actually the chairman of 
20   the board of Schlotzsky's, Inc., company.  Sandwiches.
21                 Doctor Cadenhead, I'm going to turn 
22   things over to you, as we move through the process.  
23   And I thank you for your work.  You and Dan and Ron 
24   have done a great job in helping us assemble this 
25   project together, and we appreciate what you've done.  
0010
 1                 MR. CADENHEAD:  Thank you, Reagan.
 2                 Commissioners and management, it's a 
 3   pleasure to be with you.  And I want to give you an 
 4   overview of our involvement in this process.  First, 
 5   let me introduce you to the team.
 6                 This is Dan Schmisseur.  Dan is a 
 7   business consultant and has been a number of years at 
 8   Price Waterhouse Coopers.  I'm pleased for Dan, but 
 9   sorry to inform us all that Dan's wife is getting her 
10   doctorate and -- from The University of Texas and is 
11   taking a position with the University of Kansas.  So 
12   she and Dan will be moving to Kansas shortly.  And Dan 
13   has accepted a job at the Kansas Technology Enterprise 
14   Corporation, so he will be taking the Austin model to 
15   Kansas City and growing the -- growing the community 
16   while he's up there.  We are looking at a project that 
17   he can continue to work on in the Austin area and 
18   intend to get him down here frequently.  It will be a 
19   big loss.  
20                 CHAIRMAN CLOWE:  Going to Lawrence.  
21   They have a heck of a basketball team.
22                 MR. SCHMISSEUR:  Now I can get us 
23   tickets.
24                 CHAIRMAN CLOWE:  That's right.  I can 
25   help you with that.
0011
 1                 MR. CADENHEAD:  Dan has particular 
 2   skills in writing among a whole list of skills, and -- 
 3   and he's taken the -- the first step, line of 
 4   responsibility for drafting the document.
 5                 Our other teammate is Ron Kessler.  Ron 
 6   and I go way back to the '80s, and we were both 
 7   involved in doing a strategic plan for the State of 
 8   Texas.  Ron has been a major factor of the Moot Corp 
 9   program.  Each year he's an advisor and a judge.  He 
10   recently left Locke, Lidell & Sapp to launch his own 
11   group, the Ron Kessler Group.
12                 And he does something invaluable for a 
13   number of people, including my students, called the 
14   wisdom cluster.  He assembles a wide group of folks 
15   that give.  Whoever has a problem and wants to present 
16   it to the wisdom cluster, they get feedback on how to 
17   proceed.  We do that in my core seat semester, and he 
18   gives them feedback.  The goal is before they get to 
19   the competition, they get advice on whether they have 
20   a viable project or not.  We have some that take the 
21   advice and improve their project.  We had one last 
22   year that decide their project just didn't make it, so 
23   they changed horses in mid semester got a better horse 
24   and they made the finals.  So it works both ways.
25                 Thank you, Ron.
0012
 1                 CHAIRMAN CLOWE:  Ron, we're glad you're 
 2   here.  Thank you for coming.
 3                 MR. CADENHEAD:  The fourth member of 
 4   our team is Anne Whitte, and she's back attending the 
 5   high school conference.  
 6                 As is traditional in doing strategic 
 7   plans and business plans, we started with the revision 
 8   of the mission statement that had already been well-
 9   developed.  We used a lot of the material that had 
10   been previously developed, and clearly we were not 
11   starting from scratch.  We had going on concurrently 
12   the strategic plan in process.  And then two of my 
13   colleagues at the McCombs School had been working on a 
14   market research study for the lottery, and we were in 
15   communication with them throughout this process and 
16   shared our reports.
17                 My give to the commissioners was 
18   somewhat independently, but it's always good when the 
19   quantitative data supports one's intuition.  And -- 
20   and one of the things that Jarrod's study showed was 
21   that states, where the citizens realize that the money 
22   goes to support education are much more prone to play 
23   the lottery than those states that don't.  As you can 
24   see as we get into it, one of the recommendations for 
25   it is that we make it transparently clear that the 
0013
 1   children in the state of Texas benefit from the 
 2   proceeds of the lottery.
 3                 Let's go to the next one where we have 
 4   the four steps that follow.  As Reagan mentioned, we 
 5   started this process back in -- in February.  And we 
 6   began with interviews with really everybody here in 
 7   the room.  We then took that information and did some 
 8   drafting, and then we, in a three-week period, had 
 9   three days, once each week, meeting with the whole 
10   executive staff and getting more information.  That 
11   then led in March to -- or in April and May to further 
12   drafts which were then vetted.  So this -- this has 
13   been a -- very much an intricate process.  We -- we've 
14   looked at writings.  We've edited them.  We've gone 
15   back, and we think we have it right.
16                 Our role has been to facilitate this 
17   process.  Let me say a little bit about what I mean by 
18   that.  Clearly this is the plan of management, not our 
19   plan.  Our plan has been to set up a mechanism, a 
20   methodology where this plan could evolve.  That's not 
21   saying that we don't own it as well, but it's not our 
22   plan.  It's their plan.  We have really expressed our 
23   views and raised questions anytime we thought that was 
24   appropriate, but it was not our decision to make the 
25   plan.  It's top management's decision to make the 
0014
 1   plan, and that's how it's come out.
 2                 Finally, after we went through enough 
 3   iterations, we -- we have finished the draft we 
 4   present to you today, and that was back in July.  I 
 5   now want to turn it over to my colleague Ron Kessler.
 6                 Ron, do you want to go to the next 
 7   slide?  
 8                 MR. KESSLER:  Okay.  The -- let's see.  
 9   Am I on?
10                 Thanks for this opportunity.  I -- I 
11   just wanted to affirm a little bit, Mr. Chairman and 
12   members of the Commission, that you have an 
13   outstanding staff of people here.  And some of these 
14   guys come from background of CPAs and -- and sort of 
15   left brain.  I'm -- I'm a -- I'm a people kind of 
16   guy.  So I immediately gravitate towards people, and 
17   one of the most exciting times of -- of my spring was 
18   spent sitting across the table getting to know these 
19   people one-on-one.  And from management's point of 
20   view, where you guys are sitting, I would say you have 
21   some -- some real outstanding people.
22                 In fact, the private sector would -- 
23   would enjoy the quality, competence, and character 
24   that is evidenced by many of these people.  And I 
25   won't go any further because I don't want to encourage 
0015
 1   them to go to the private sector.  I want them to stay 
 2   here, but you -- you have assembled some really, 
 3   really outstanding people and I know you're going to 
 4   take full credit for that because that's what you 
 5   spend all of your time doing, right?  
 6                 CHAIRMAN CLOWE:  They're overworked and 
 7   underpaid and we all know it.
 8                 MR. KESSLER:  There you go.
 9                 And when I started looking at this, and 
10   I started, you know, Ron, here's a set of people, and 
11   I said, well, you know, am I going to be in Grief 
12   management, Anger management.  What is going on here, 
13   you know.
14                 CHAIRMAN CLOWE:  You didn't meet the 
15   store.
16                 MR. KESSLER:  So I quickly realized 
17   that Gary Grief has got everything under control, and 
18   there's no Grief management.  And Michael Anger is 
19   anywhere -- or anything but an angry man, so we move 
20   right along today.
21                 We -- we did -- we did start with the 
22   process of looking at a framework.  And one of the -- 
23   one of the things that we tried to weave is what 
24   you'll see on the screen there, are some things that 
25   any great enterprise is looking at.
0016
 1                 Alignment.  Are we aligned.  Are our 
 2   people, their skills, the vision, the mission, the 
 3   core values, are these all in alignment.  And the 
 4   first day I came over here even before these were 
 5   handed out, I went over there to your -- to your board 
 6   and copied down these core values.  And frankly have 
 7   plagiarized from these in some of the other work I've 
 8   done.  Because I think you -- you've assessed some -- 
 9   some really important core values.  And as we did the 
10   interview process, we began to see when we ask, are -- 
11   are -- are the practices of the activities, are they 
12   in align with these core values.  And I would say that 
13   as -- as much as it can, you know, there -- there's 
14   never a hundred percent in this regard, but it's 
15   always a high goal.  It's always a high standard to 
16   say at the end of the day that I've been about my 
17   organization's core values.  And I think that what we 
18   find is that that is also the case.
19                 We also -- at least I, for one, wanted 
20   to make sure that a bunch of consultants weren't 
21   coming in here and forcing ourselves down on other 
22   people.  And so the first time we were together we 
23   went around the room and we asked each other, what are 
24   your expectations, and we got some -- I -- I think 
25   some -- some -- some -- maybe some ice broken about 
0017
 1   the fact.  Nobody said anything bad about Gary or Dan 
 2   or -- or even me.  Of course, I was -- you know, 
 3   I'm -- I'm a target for people saying bad things 
 4   because, after all, I'm a 35-year recovering lawyer, 
 5   you know, but I didn't hear -- I didn't even hear a 
 6   lawyer joke so -- so...
 7                 But we're trying to manage expectations 
 8   here, not only from the standpoint of the internal 
 9   organization but also from the standpoint of -- of the 
10   leadership and then hopefully of the standpoint of the 
11   legislature, so that we know that -- that going 
12   forward people understand that this agency is what it 
13   is.  It's -- it's -- it's -- you know, a lot of people 
14   don't like the fact that there is a lottery in this 
15   state, but that's what we got.  We're doing a noble 
16   goal in funding education and so expectations and 
17   understanding, not only internally but externally, is 
18   very important.
19                 But now the problem thing we were 
20   trying to weave through here is who's the customer.  
21   That's a great question to ask whether you're in the 
22   private sector, public sector, the nonprofit sector.  
23   And I know we kept asking them.  We kept getting good 
24   answers to that.  So the first thing we -- we -- we 
25   did was create a framework of compliance.
0018
 1                 First and foremost the Lottery 
 2   Commission will not exist, will not endure, will not 
 3   achieve anything going forward unless it is in 
 4   compliance with the rules, the laws, and -- and so 
 5   forth.  Its funds, its operations, everything is -- is 
 6   in compliance.  So Kim has a huge job as well as 
 7   others in making sure that, you know, this is -- this 
 8   is Caesar's wife, you know.  You know, it's just got 
 9   to be really, really a good and above work.  I 
10   think -- I think we're -- that that was one of our 
11   frameworks that we wanted to make sure was in -- in 
12   play here.
13                 There -- there are -- there are other 
14   factors, of course, the contracts and industry norms.  
15   But we want -- we want to set the standard.  We want 
16   this to be the top lottery in the -- in the country, 
17   in the world.  And so we were shooting -- shooting the 
18   highest.  The second theme was trust.  And as -- as 
19   all of us know from all of our dealings that there 
20   really is no -- no sine qua non.  There's really 
21   nothing to which else there is more important that 
22   just basic trust.  And we've got to trust not only 
23   each other but we've got to have that trust of the 
24   public in our games, the trust and integrity of Reagan 
25   when he goes out, that, you know, if -- if -- if what 
0019
 1   he has says is absolutely 100 percent supported and 
 2   backed by the facts and then, of course, 
 3   accountability.
 4                 The second one is the -- the 
 5   contributions.  In other words, what are we really in 
 6   the business for.  You know, we're not here -- we -- 
 7   we provide some fun for some folks and we're -- we're 
 8   an entertainment value.  But that's -- that's not our, 
 9   I think, our top value.  Our top value is that -- is 
10   that we're a revenue source for a very important 
11   aspect of -- of Texas which is -- which is education.  
12   So -- so owning our contributions, knowing what it is 
13   what we're doing, being proud of that, holding our 
14   head high, and -- and making sure others know that is 
15   very important.
16                 Our communications is critical.  No 
17   one -- no one does anything in -- in -- in any kind of 
18   interactive way, whether it's at home, nonprofit, 
19   church, business wherever it is, without good -- good 
20   communication.  And so we -- we talked about that and 
21   broke those down into various areas.  So the -- so the 
22   quality of these were on -- were on the table so they 
23   would then lead us to a good path that we would have a 
24   result and a good outcome.  And people are -- are -- 
25   are integral to this.  You don't run any enterprise 
0020
 1   without quality people, and I've already highlighted, 
 2   I think, what you have in the way of top -- top 
 3   people.
 4                 But recognizing that team work, 
 5   professional growth and development, recognition, kind 
 6   of personal responsibility for one's career, if you 
 7   will, so that -- so that people here are not just 
 8   holding down a spot, a salary, but they are here 
 9   because they have a passion for what they do.  They 
10   have a passion for serving others, and they have an 
11   interest in an outcome that's beyond their particular 
12   session or -- or department.  So we -- we were -- were 
13   pleased with -- with that and I think that helped 
14   frame the issues.
15                 Then we -- we went through a little bit 
16   of a planning process, and we had a lot of fun with -- 
17   with these BHAGs.  I see Linda Gregg over here.  
18   Before Collins wrote that book, he had another book in 
19   which he coined his phrase:  big, hairy, audacious, 
20   goals.  And we don't you to think that you're 
21   unrealistic and we're shooting for the moon or 
22   something like that.
23                 But, you know, it's been my experience 
24   in working with people that unless you get them to 
25   stretch a little bit, unless you get them to thinking 
0021
 1   a little bit beyond, maybe that would be what -- what 
 2   the lottery ought to be doing, maybe that is how I 
 3   should be interfacing with my people, maybe I could 
 4   try that once or twice to see if it works with my -- 
 5   with my particular skills or personalities, maybe I 
 6   could introduce two of my cohorts together and let 
 7   them lead and I'll follow them for a while.  You know, 
 8   those kind of stretches is what we're really talking 
 9   about.  And I think we had -- well, I know we had a 
10   big time -- good time with that.  And -- and I think 
11   actually we stretched that.  I think we'll see some 
12   things in here that resulted from the stretch.
13                 A good stretching goal is -- is what 
14   some people call a vision, and that is what is the 
15   preferred future.  You know, the past is behind us.  
16   We -- we may have gotten some nicks along the way 
17   there.  The present is okay, and we're doing the best 
18   we can.  But what is it that we would really prefer to 
19   be about as the Lottery Commission in the next decade 
20   or the rest of this decade, the next ten years out.  
21   What we would we prefer to see.  How can we grow the 
22   revenue.  How can we grow the number of -- of 
23   suppliers.  How can we grow the number of retail 
24   outlets we have.  How can we grow the variety and 
25   the -- and the excitement of the game, those kind -- 
0022
 1   those kinds of things.  And -- and I think that we saw 
 2   a -- a -- a result, a good result, a good process 
 3   going before those.
 4                 And then we went through strategies.  
 5   And then we came up to our action plan.  And we wanted 
 6   to measure action plans realistically.  And so we 
 7   picked a -- a time tested action parameters of SMART, 
 8   and I want -- all of you probably have been around the 
 9   SMART process.  I like being around smart people, 
10   and -- and I like being around smart people when they 
11   enact their -- their smarts through -- through 
12   problems such as specific, measurable, achievable, 
13   realistic, and timely.
14                 So that's kind of a perspective from 
15   where -- where I sat and -- and some of the value that 
16   I see and the process and some of the things I wanted 
17   to comment about this process.
18                 Gary.
19                 MR. CADENHEAD:  Thank you, Ron.  
20   Reagan, we'll turn it back to you.
21                 MR. GREER:  Thank you.
22                 Commissioners, as we move forward into 
23   the plan, it's divided into seven sections.  The first 
24   section contains the executive level summary of the 
25   entire plan.  The second section contains the general 
0023
 1   overview of the Texas Lottery Commission, including a 
 2   brief history of  charitable bingo and the lottery as 
 3   well as an overview of management and an 
 4   organizational structure of the agency, plus the 
 5   Commission's vision, mission, and core values.
 6                 Third section is a market analysis 
 7   containing an overview of general environment for the 
 8   lottery and charitable bingo in Texas, a summary of 
 9   the markets and demographics of the lottery as well as 
10   charitable bingo players, a discussion of the 
11   lottery's current product mix and a discussion of the 
12   competitive environment for both lottery and 
13   charitable bingo.
14                 The next section is the financial 
15   overview section which contains an overview of 
16   charitable bingo and lottery annual operating 
17   budgets.  The lottery is actually represented in two 
18   ways:  the management view outlines the operating 
19   budget by division and represents the internal working 
20   structure of the budget; the transparent view reflects 
21   the lottery's use of outsourcing by identifying the 
22   agency's major contracts with budgetary expenditures 
23   outside of the division budget's plan.
24                 The next section is the business plan, 
25   and the frameworks section identifies five key 
0024
 1   operational areas that reflects the majority of fiscal 
 2   activities conducted within the Commission.  These are 
 3   compliance, trust, contributions and charitable 
 4   proceeds, communications, and people.  And we're going 
 5   to get into each one of those as we move through the 
 6   process.
 7                 The objectives section identifies four 
 8   key agency objectives for the future, developed 
 9   through our planning sessions.  And that's what we're 
10   really going to spend the most time on, these four 
11   objectives.  And then we're going to break them down 
12   into strategies and then from the strategy into an 
13   action plan.
14                 Objective one is to maintain a strong 
15   culture and image of compliance and trust, which Ron 
16   just touched on a moment ago.  And -- and I think an 
17   integral part of our success revolves around people 
18   looking at the lottery in a trustful way and our 
19   reputation depends on that.
20                 Objective two is that we might continue 
21   to look at ways to grow -- grow contributions to the 
22   Foundation School Fund.  Objective three is planned 
23   responses to the emergency -- emergency -- emerging, 
24   not an emergency -- emerging gaming environment that's 
25   out there.  And no emergencies that I'm aware of.  But 
0025
 1   we're looking at other things that are going on with 
 2   the gaming environment and around the agency.  We'll 
 3   get plugged into that.  And the fourth objective is to 
 4   improve the quality, skill, and satisfaction of the 
 5   Texas Lottery Commission staff as a whole.
 6                 The final section of the plan contains 
 7   the eight strategies developed in support of the 
 8   identified objectives and 23 action plans for carrying 
 9   them out.  The snapshot view of the objective 
10   strategies and action plans is provided in an insert 
11   in your Commission notebook today.
12                 And now I'm going to move forward and 
13   I'm going to ask members of the staff to walk through 
14   each of the action plans as we walk through the 
15   strategies.  So we're going to start off today by 
16   moving directly into objective number one, which is to 
17   maintain a strong culture and image of compliance and 
18   trust.  The strategy will be to implement policies and 
19   processes that identify and mitigate risks to the 
20   Texas Lottery Commission.  And we're going to roll 
21   that out with our action plan number one with Mike 
22   Anger.
23                 MR. ANGER:  Commissioners, action plan 
24   one, develop business continuity planning for 
25   potential for business-disrupting events represents 
0026
 1   the agency's recognition that we need to ensure that 
 2   there are no disruptions in lottery and charitable 
 3   bingo related activities.  There are two phases in 
 4   this process:  business resumption and disaster 
 5   recovery and also contingency planning.
 6                 Business resumption planning is -- has 
 7   been a part of the agency activities for several years 
 8   now.  We have a business resumption plan in place.  
 9   However, staff has recognized that we need to go back 
10   and -- and revisit that plan in place and conduct some 
11   business impact analysis to ensure that the risk has 
12   been identified and the tasks continue to be the top 
13   priority risk for the agency today and ensure that we 
14   are putting in place proper activities to ensure that 
15   those mission critical functions are held as a high 
16   priority and that we ensure that if any business-
17   disrupting even occurs, that we can resume activities 
18   as quickly as possible.
19                 The lottery operations division and 
20   also the information technology division has been 
21   tasked with leading up that project.  And there's 
22   currently a group leader and an attorney here in the 
23   agency working on that project.  And over the course 
24   of the fall we intend to finish working with other 
25   divisions here in the agency to redefine this plan and 
0027
 1   update the plan as it exists today.
 2                 We'll also be ensuring that we're in 
 3   compliance with the department of information 
 4   resources' administrative guidelines with regard to 
 5   business continuity, specifically Rule 202.6 and also 
 6   under State guidelines with regard to business 
 7   resumption planning.
 8                 The second phase of our project is 
 9   business contingency which is in area planning and the 
10   fertilization of this process is a little bit new for 
11   the agency.  It's something a little different from 
12   what we've done in the past.  But essentially our 
13   focus is going to be on external environmental factors 
14   and business-disrupting events that affect our 
15   operations but that are not direct impacts to this 
16   agency.  So we're going to be taking some time to try 
17   to identify what those events might be and how the 
18   agency might respond to those types of events in the 
19   future.
20                 Lottery operations, once again, as well 
21   as information technology and internal audit will 
22   participate and lead on that project including 
23   discussions with many divisions of the agency to 
24   identify what those risks might be and how we might be 
25   able to respond to those.  We'll also be  seeking 
0028
 1   external sources for assistance with those.  We will 
 2   be working with the State Office of Risk Management 
 3   and other organizations that might be able to provide 
 4   us with some guidance and assistance in that area.
 5                 The one key point that I wanted to 
 6   bring up with regard to business continuity planning 
 7   is that the agency has to seek a balance.  Business 
 8   resumption activities are often very cost prohibitive 
 9   and expensive, so it's important for us to prioritize 
10   the key risks to the agency and be efficient in the 
11   way that we carry out activities and ensuring that the 
12   risk that we're identifying that we're going to go 
13   forward to and protect them against is a timely 
14   reasonable cost.  We're trying the most cost effective 
15   ways to implement those things.
16                 The agency's internal goal is to fully 
17   complete the phases of this project during the fiscal 
18   year 2005, along with any appropriate training and 
19   follow-up testing activities going along with a review 
20   of our business resumption plans.  And the group 
21   that's been assigned to this task will also been 
22   responsible for scheduling and ongoing updates to the 
23   plan in the future and also continuing discussing it 
24   with the staff in the years to come.
25                 I'll be glad to answer any questions 
0029
 1   that you have.
 2                 CHAIRMAN CLOWE:  Michael, there is a 
 3   case study in progress right now in this regard in the 
 4   state of Florida.  Six million people are without 
 5   power down there, and I talked with an executive today 
 6   of the ADT Corporation.  They have lost their security 
 7   program in the majority of the state.  And I would 
 8   like you to be aware of what's going on down there.  
 9   We have a good relationship with the Florida lottery 
10   and have relied on them for guidance in many 
11   instances.
12                 When they recover, I think it would be 
13   worth while for you to head up a team and visit them 
14   with they can stand it and learn to what extent they 
15   suffered as a result of this two storms and how they 
16   recovered and what the final impact was, not only 
17   their being able to continue business but this 
18   other -- this other six million people that don't have 
19   power.  Their machines probably are without power and 
20   what the impact on them was revenue-wise, because we 
21   can very well have a devastating hurricane and come 
22   into Texas similar to what Florida experienced.
23                 So when the time is right -- and it 
24   will probably be sometime in the future -- I would 
25   like you to include whatever information that we can 
0030
 1   garner from that experience and benefit from it in 
 2   this.
 3                 MR. ANGER:  Absolutely, sir.  We will.
 4                 MR. GREER:  This is the way that we 
 5   had -- had prescribed, anyway, that we were going to 
 6   proceed as how you want to do it.  We talked about 
 7   pausing at the beginning of each action plan.  And 
 8   your point was well taken in reference to some 
 9   examples or issues that come up.  We can do it however 
10   you want to do it and -- before I move on to the 
11   next -- 
12                 CHAIRMAN CLOWE:  The commissioners are 
13   not shy and I would suggest that if you stick your 
14   nose in the wind and move forward.
15                 MR. GREER:  That's what we'll do.
16                 CHAIRMAN CLOWE:  When we want to argue 
17   with you or make the comment, we'll do it.
18                 MR. GREER:  Okay.  Well, that -- I just 
19   wanted to get that out there because our intent was to 
20   follow each action plan and feel free to jump in 
21   obviously anywhere along the way.
22                 A limited filler on this strategy 
23   number one -- actually action plan two, which comes to 
24   us from legal.
25                 Kim Kiplin.
0031
 1                 MS. KIPLIN:  Commissioners, the -- 
 2   action plan two is involving pre-implementing of a 
 3   vendor monitoring program.  It's to -- designed to 
 4   identify, as it says on the screen, potential 
 5   financial or reputation risks that would lead to a 
 6   vendor disruption of their services that would have 
 7   the effect of disrupting our business.  And in 
 8   creating this action plan, I think we recognize that 
 9   the Lottery Commission has lots of contracts.  They 
10   vary in dollar amount and in the scope of goods and 
11   services.  We outsource many of our functions and 
12   activities.
13                 We believe that the ability for the 
14   agency to monitor vendor activity on, frankly, a local 
15   level, not just as it relates to our contract and the 
16   compliance of the vendor on the modifications of that 
17   contract, and that's -- that's different than what 
18   we're talking about here.  That's more contract 
19   compliance.  But as it related to looking at vendor 
20   activity on a local level, it will help us understand, 
21   for one, the marketing is a section behind that 
22   particular vendor, that particular contract.  We think 
23   it will help us position the agency better, better in 
24   the event the vendor is unable to perform because 
25   we'll understand the risks that are associated with 
0032
 1   that particular vendor and hopefully be able to act 
 2   proactively and not reactively.
 3                 And it will also help us in connection 
 4   with each of the procurements in terms of the contract 
 5   terms and requirements, recognizing what -- what is 
 6   occurring locally in terms of the lottery industry and 
 7   the -- and the different contracts and how people are 
 8   pricing those contracts and what the contracts cover 
 9   in terms of scope, we -- we think will help us in the 
10   future.
11                 In terms of moving forward, we are 
12   initially looking at four divisions working together, 
13   not to the exclusion of the other divisions and 
14   certainly we are seeking their input for comment.  But 
15   those four that we identified initially:  the 
16   financial division, the security division, the legal, 
17   and the marketing division.
18                 The marketing division has a couple of 
19   other action plans that they'll lay out for you that 
20   they're the lead on, not to the exclusion of other 
21   divisions.  And there is a link.  We do see the link 
22   and it's to those action plans.  One particular one 
23   I'll raise is the resource center.  There will be a 
24   sharing of information, a need, we believe.  
25                 We want to have this up and running 
0033
 1   within the year.  I would like to take advantage of -- 
 2   of what we think will be a centralization of a 
 3   function or an activity, the site and one FTE 
 4   supporting that -- that will get one FTE -- that will 
 5   research, keep up with, maintain, and notify those 
 6   divisions that need to be notified of vendor activity 
 7   termed throughout the group.
 8                 We think that it's going to require an 
 9   FTE that's more of an analyst type FTE.  When you look 
10   in the financial division, the activity is not, well, 
11   this isn't an exclusive or comprehensive list, but 
12   just by way of example, when you quickly review your 
13   credit reports, one I know particularly, Dun & 
14   Bradstreet reports or other similar sources that are 
15   to review and assess soundness of vendors, litigation 
16   disclosures, information that we can lean on, 
17   litigation support throughout the lottery 
18   jurisdictions, an analysis of media articles, news 
19   articles, and contracts, if any, in other 
20   jurisdictions and any other kinds of regulatory 
21   activities, if any.
22                 We think reviewing the financial 
23   reports that are required to be filed with the 
24   Security and Exchange Commission will be helpful in 
25   terms of trying to understand the financial solvency 
0034
 1   risk associated with it, if any.
 2                 We believe that we will be reviewing 
 3   this program annually and be asking the questions:  
 4   Were we better informed about the activity of the 
 5   vendor; did we ultimately have a better understanding 
 6   of that particular market in business for future 
 7   procurements for us so that we will be able to 
 8   better -- better identify contract terms and missions 
 9   that will protect the interests of the lottery in the 
10   state; and most importantly, are we better positioned 
11   in the event that we had a vendor that is incapable of 
12   performing on their contract.
13                 Hypothetically, one example would be 
14   markers or triggers or events that would be occurring 
15   that one division may know of, another division may 
16   know of, and others, that when put together in one 
17   aggregate location would lead us to conclude this 
18   company is on shaky grade, they may file a bankruptcy; 
19   where are we to perform; if they -- if they file, how 
20   will we perform our services; how are we protecting 
21   our business so that it's not -- that it's not 
22   interruptive but disruptive.
23                 And that's what this action plan is all 
24   about.  I know a couple of you are excited about 
25   pursuing this and doing it more on a proactive level 
0035
 1   and having more central and practical news and 
 2   information.
 3                 I will be glad to answer your 
 4   questions, and I'm sure you -- my colleagues will as 
 5   well.
 6                 CHAIRMAN CLOWE:  Kim, one item that I 
 7   want to specifically mention is the concern that I 
 8   think this Commission has had for some time and that 
 9   is in regard to one particular vendor; and, that is, 
10   the lottery operator.  And this is not in the form of 
11   a complaint or a tangible complaint.  It's simply a 
12   concern regarding good business practice.  And that is 
13   to be so committed to one company that has been the 
14   only vendor in this area since the inception of the 
15   lottery continues to perform, in my opinion, quite at 
16   a very reasonable cost is currently engaged by a nine-
17   year contract and doesn't really seem to have any 
18   other competition in the industry in the world.  And I 
19   say that because at the last bidding no one else chose 
20   to bid against them for our business.
21                 I understand that they are a 
22   corporation that has developed ahead of others, 
23   perhaps in R & D and is ahead and a leader in the 
24   industry.  But as a buyer of their service, it is a 
25   business practice I would like to urge this group to 
0036
 1   look into, being so committed to a single source 
 2   vendor and not having options from other entities.  
 3   We've had discussions -- discussions on this with 
 4   members of the legislature.  There's been an express 
 5   concern.  This Commission has a concern, and we need 
 6   to have alternatives, to identify if there are viable 
 7   alternatives.  And I would just like to raise this 
 8   issue as part of the agenda for this group.
 9                 MS. KIPLIN:  Absolutely, Mr. Chairman.  
10   That -- that is a driver, not the sole driver 
11   certainly, but that is a driver for the creation of a 
12   vendor monitoring program.  It is to ensure that in 
13   time the agency is positioned to protect the interests 
14   of the State and of the lottery.  Concerns I think 
15   that we see are -- are pricing contracts to exclude or 
16   to eliminate competition so that the next -- possibly 
17   the next term, the next go-round there is no 
18   competition.
19                 I think, you know, you're also 
20   concerned about maybe privateering equipment and 
21   information so that there is a technology lock-in or 
22   lock-out -- I've heard it either way.  But that makes 
23   it very difficult to transition to another vendor 
24   later down the line.  And so I -- I think that 
25   those are concerns that we are thinking about and is a 
0037
 1   driver for -- for this particular activity.
 2                 CHAIRMAN CLOWE:  Thank you.
 3                 MR. GREER:  Moving forward in the 
 4   particular conversation about identifying and 
 5   mitigating risk will be action plan three, internal 
 6   audit, which is Catherine Melvin.
 7                 MS. MELVIN:  Thank you.
 8                 Action plan three is assessing the 
 9   cost benefit of the voluntary Sarbanes-Oxley adoption.
10                 Commissioners, in the wake of several 
11   corporate financial scandals, Enron, Tyco, WorldCom 
12   and others, the Sarbanes-Oxley Act of 2002 would be 
13   enacted to improve the accuracy and reliability of 
14   reported financial information.  While intended to 
15   restore investor confidence in the accuracy of 
16   financial information.  It's -- it is both prudent and 
17   advantageous for other organizations to establish 
18   sound internal control structures and management and 
19   monitor that structure proactively.
20                 In looking at other entities that are 
21   not subject and not required to adhere to the 
22   provisions of the act, we find that there is quite a 
23   movement among governmental entities and the nonprofit 
24   sector to adopt, if not the letter of the law, the 
25   spirit of Sarbanes-Oxley.  Internal audit has reached 
0038
 1   out to several peers just in Texas state government to 
 2   find out who has done an informal survey of other 
 3   agencies to find out who else out there is looking at 
 4   these provisions and adopting them.  We're finding an 
 5   increased number of state agencies, internal audit 
 6   shops certainly, that are assisting them that are 
 7   looking into these provisions.  We also contacted 
 8   other internal audit shops at other lotteries, and 
 9   found that the Kentucky Lottery Corporation has looked 
10   at these provisions and is adopting a model that will 
11   work for them.
12                 The controller general of the United 
13   States, David M. Walker, as a sign of the times, 
14   recently changed the name of the General Accounting 
15   Office -- that you may be aware -- from the General 
16   Accounting Office to the General Accountability 
17   Office.  And it sounds like a small change but 
18   actually it's quite significant.  Well, Sarbanes-Oxley 
19   might deal with accountability to the investor.  We're 
20   talking accountability to the taxpayer.
21                 So what are the provisions of Sarbanes-
22   Oxley that would make sense for the Texas Lottery 
23   Commission.  Internal audit has looked at that 
24   intensive act that which has quite a bit of 
25   requirements in there, and some of the things that 
0039
 1   perhaps might be beneficial for us are provisions that 
 2   deal with increased responsibility and oversight by an 
 3   audit committee.  With a three-member commission that 
 4   makes it difficult to have a subcommittee of an audit 
 5   committee in place.  However, there are ways to do 
 6   that.  One method might be to establish formally an 
 7   audit liaison.  Another method might be to say that 
 8   the Commission is also serving as the audit committee, 
 9   and we can file those provisions.
10                 Another requirement under the Sarbanes-
11   Oxley Act that might be beneficial for the Texas 
12   Lottery Commission to adopt are enhanced corporate 
13   governance responsibility including a certification of 
14   a financial report by the executive director and 
15   financial administration director.  And then lastly,  
16   enhanced financial disclosures on who would report on 
17   the effectiveness of internal controls by, again, the 
18   executive director and the financial administration 
19   director.
20                 Now, clearing looking at the provisions 
21   of the act, the most time and labor intensive involved 
22   Section 404 and under 404 is a committed effort on the 
23   part of the management to go through and lay out the 
24   internal control structure in place.  There are other 
25   provisions in the act which ask for an external 
0040
 1   auditor to provide an opinion on the effectiveness of 
 2   those controls.  The business plan gives a draft time 
 3   line to consider.  Part of that is internal audit 
 4   working with legal, financial administration division 
 5   to agree upon what are those provisions that make 
 6   sense for a voluntary adoption.
 7                 The second phase would be for internal 
 8   audit to incorporate those elements into our audit 
 9   plan, and that would be a longer range.  Right now we 
10   do a yearly plan, but we're talking about something 
11   that would go several years out.  However, to be 
12   clear, the adoption the Sarbanes-Oxley Act provision 
13   is clearly a management responsibility.  Internal 
14   audit services as a facilitator for that process and 
15   certainly internal controls is our bag, so to speak.
16                 The last phase of such an adoption 
17   would involve documenting and assessing the internal 
18   controls structure.  And certainly that's a place 
19   where internal audit would assist management in that.  
20   And then I think when you come to the concluding 
21   opinion that could either come from internal audit or 
22   I think we could seek to see how much that might cost 
23   or the external auditor to provide that opinion.  
24   Currently our research is telling us that the cost is 
25   pretty steep for such an opinion.  However, I think we 
0041
 1   might see more and more in governmental and nonprofit 
 2   sector organizations that are looking to do that 
 3   and -- and we might see a change in that.
 4                 That concludes my discussion of this 
 5   action item.  Did you have any questions?  
 6                 CHAIRMAN CLOWE:  What do you think?  
 7                 COMMISSIONER COX:  Well, Catherine, I 
 8   think that's -- we're talking here about voluntary 
 9   adoption of certain provisions.  Yet, within the 
10   framework of, say, Sarbanes-Oxley statement of '99, 
11   it's probably similar, internal auditing, government 
12   auditing, pronouncements.  There's going to be 
13   certainly requirements that we're going to have to go 
14   through with.  It's not going to be all voluntarily as 
15   far as the change, based on a couple of years ago, I 
16   would say.  Now, will those kinds of things come under 
17   the purview of the same undertaking?  
18                 MS. MELVIN:  Yes.  You're -- you're 
19   quite perceptive.  The controller general has also 
20   stated that it's a matter of time before the General 
21   Accountability Office even sets out some requirements 
22   for editing that follow their standards.
23                 You know, it's interesting.  I think 
24   for the first time ever in the last six years or so 
25   Federal law or Federal agencies have only recently 
0042
 1   started having to have financial statements and then 
 2   only more recently have had to have those statements 
 3   audited.  The Department of Defense.  It sounds 
 4   unheard of.  But I think a lot of this is in movement 
 5   to have this type of accountability, looking at, wait 
 6   a minute; can we rely on that financial information 
 7   that's out there; how do we make decisions; or you 
 8   know, how -- how can we rely upon the integrity of the 
 9   numbers that back up those reports.
10                 So certainly that's something that 
11   internal audit does.  I feel that is part of our 
12   charge is to keep our noses in the wind and look for 
13   those requirements as they come down the pike.  The 
14   profession of internal audit have had numerous changes 
15   in our standards and not just standards but just 
16   guidance to deal with our how we assist management in 
17   complying of voluntary compliance as it is now with 
18   these requirements.  But even in the auditing 
19   profession we're seeing some changes.  So, you know, I 
20   would imagine Lee will see some changes coming from 
21   GASB as to how we report things.
22                 CHAIRMAN CLOWE:  I'm a little bit 
23   concerned about the understanding of what we're 
24   talking about here.  I'm currently holding the hand of 
25   a financial officer who's going through Sarbanes-Oxley 
0043
 1   certification.  And, you know, this is a big thing.  
 2   It takes a lot of effort and a lot of time and lot of 
 3   money.  And when you invoke the name Sarbanes-Oxley 
 4   you -- you either are certified under that law or 
 5   you're not.  And if you take some provisions and you 
 6   say, okay, this is adapted to our needs, I wonder if 
 7   the State of Kentucky did that.  That's not Sarbanes-
 8   Oxley.
 9                 And let's have a clear understanding 
10   about what we're talking about here.  If we say we're 
11   going to comply, that is a big deal.  If we do not 
12   comply totally, we haven't complied.  And we shouldn't 
13   use the name because it's not Sarbanes-Oxley.  And 
14   let's be careful about sort of saying, well, we're 
15   going to sort of lift out what we think is appropriate 
16   to us and we're going to comply with that and we're 
17   going to certify.  That's not Sarbanes-Oxley.  So it's 
18   either all the way or it's something else, in my view.
19                 Do you agree or disagree?  
20                 MS. MELVIN:  I do agree.  In fact, The 
21   University of Texas system has used language adopting 
22   the spirit of Sarbanes-Oxley in all of their 
23   publications and all of their reports dealing with the 
24   work that they're doing in this area.  I don't believe 
25   they ever state -- I mean, they use that, you know, 
0044
 1   quote, spirit of Sarbanes-Oxley.
 2                 One challenge is that so many of the 
 3   provisions -- it's not a matter of, you know, 
 4   selecting items that we say we like or don't like.  
 5   Much of it, as you're aware, are items that just 
 6   are -- are not applicable in a governmental 
 7   environment, but I think that's a good point.  And 
 8   perhaps we could come up with a better title rather 
 9   than saying, voluntary Sarbanes-Oxley.  We might just 
10   say enhanced internal control or -- or something like 
11   that would just --
12                 CHAIRMAN CLOWE:  You know, adopting the 
13   spirit of something sounds just like accountability 
14   office sounds good, but it's really what you're 
15   doing.  And let me tell you, if you are a public 
16   corporation and you certify under Sarbanes-Oxley, 
17   there's no spirit and there's not sort of pick and 
18   choose.  And -- and I just want to make that very 
19   clear in my mind, if I'm correct, about what we're 
20   talking about.  And if we're not going to do Sarbanes-
21   Oxley perfectly, I don't think we ought to invoke the 
22   name at all because we're not Sarbanes-Oxley certified 
23   or prescribed.
24                 If we want to improve our accounting 
25   system, if we want to improve our reportability, if we 
0045
 1   want to set a standard of performance that exceeds 
 2   excellence, those are worth while things to do.  The 
 3   spirit of a performance of excellence is there, but 
 4   it's not Sarbanes-Oxley.  So let's be careful of 
 5   trying to sort of get on that bandwagon.  Because if 
 6   we commit to that, it's -- well, frankly, from any 
 7   entity of any size, it's millions of dollars in time 
 8   and effort.
 9                 MS. MELVIN:  I agree.  Your point is 
10   well taken.
11                 COMMISSIONER OLVERA:  Well, and, 
12   Catherine, the chairman also brings up kind of a side 
13   issue, a potential legal issue because there are -- 
14   there are many Federal statutes that once you initiate 
15   a source of conduct under those Federal statutes, then 
16   you're bound by the entire enchilada, as I would say.  
17   So, now, there may be an exemption because we are a 
18   governmental entity in all concepts.  It's something 
19   that needs to be coordinated with the legal counsel as 
20   to what we can pick and choose.
21                 MS. MELVIN:  And -- and, to be fair, 
22   Kim kind of expressed those very concerns.  Initially, 
23   in our work group discussions about invoking the 
24   Sarbanes-Oxley title to this.  So that's a very good 
25   point.
0046
 1                 CHAIRMAN CLOWE:  I'm not going to say 
 2   it.  I'm thinking, Catherine.
 3                 MS. MELVIN:  Okay.  I think I know what 
 4   you're thinking.
 5                 CHAIRMAN CLOWE:  Okay.
 6                 COMMISSIONER COX:  I know I do.
 7                 CHAIRMAN CLOWE:  Yeah, you do.  
 8   Catherine knows too.
 9                 MR. GREER:  Any other issues on plan 
10   three?  
11                 CHAIRMAN CLOWE:  No.
12                 MR. GREER:  We will move forward, then, 
13   to plan four.  That is also an internal audit function 
14   with Catherine Melvin.
15                 MS. MELVIN:  Action plan four is to 
16   develop an independent process for reviewing and 
17   reporting accusations of inappropriate activity.  This 
18   action plan actually ties nicely into the prior action 
19   plan because there's an element within the act that we 
20   were talking about that requires there to be a -- a 
21   method for an organization to receive and review 
22   accusations of inappropriate activity.
23                 So why do we do this.  Integral to our 
24   overall objective of maintaining a culture of 
25   compliance and trust is the ability to have an 
0047
 1   independent, objective, trusted method to receive, 
 2   review, and investigate allegations of inappropriate 
 3   activity.  The -- as I mentioned, the Sarbanes-Oxley 
 4   Act does require there to be procedures that allow for 
 5   that independent process to occur.
 6                 And, also, this is very timely because 
 7   more recently Governor Rick Perry issued Executive 
 8   Order R.P. 36 on July 12th of this year.  And the 
 9   title of this executive order is relating to 
10   preventing, detecting, and eliminating fraud, waste, 
11   and abuse.  The governor's office has taken a very 
12   active and -- or proactive stance relating to fraud 
13   and the executive order talks about the cost and 
14   resources that are drained by fraud.
15                 And he requires state agencies to 
16   establish a program and some of the elements that 
17   he -- asked the agencies to have in place, first of 
18   all, is that each agency must designate a contact 
19   person for fraud prevention and elimination 
20   activities.  Second, is that each -- each agency shall 
21   develop a fraud prevention program.  And they actually 
22   lay out what are the recommended components for 
23   those -- for those fraud programs among state 
24   agencies.  Third, they ask each agency to review their 
25   existing rules, statutes, policies, organizational 
0048
 1   structures, et cetera, to identify any changes needed 
 2   to better detect and fight fraud.  And then finally 
 3   the executive order requires each agency to report 
 4   their actions, to comply with the order by October 
 5   1st, tomorrow basically.
 6                 So this ties in very nicely with this 
 7   action plan that we've been talking about for several 
 8   months now.  We do have -- I don't want to say that 
 9   the Texas Lottery Commission does not have a process 
10   in place.  We do have a process in place.  This action 
11   plan maybe talks about shoring up the process a little 
12   more and maybe identifying more a single point of 
13   contact.  We're proposing internal audit serve as that 
14   central point of contact for allegations of 
15   inappropriate activity.  Because of our organizational 
16   placement, we lend our independence to that process.
17                 Now for any type of allegation 
18   involving members of the internal audit division or 
19   members of the three-member commission, we suggest 
20   probably a direct referral to the state auditor's 
21   office, special investigations unit, some other 
22   process that bypasses agency review.
23                 I think we should make clear what this 
24   action item is talking about is it only addresses 
25   internal allegations; and that is, those involving 
0049
 1   Texas Lottery Commission staff.  It does not address 
 2   allegations of misconduct by licensees.  We have 
 3   processes in place.  Those are handled by the security 
 4   division in tandem, of course, with lottery operations 
 5   and charitable bingo -- charitable bingo operations 
 6   division.  And also allegations of misconduct by 
 7   vendors are not necessarily considered in this 
 8   process.  Those, I envision, are handled more in 
 9   contract compliance, monitoring process.
10                 To develop this action plan more 
11   thoroughly, it certainly would require the joint 
12   effort between legal and internal audit.
13                 Do you have any questions on that 
14   action plan item?  
15                 CHAIRMAN CLOWE:  I would like to add 
16   and I think that you're on the right track and 
17   particularly I think having the internal auditor's 
18   office function in that role is appropriate and I ask 
19   you also to consider designating the one commissioner 
20   to be the person that if an individual feels like 
21   there's a need for an appeal beyond the internal 
22   auditors activity and actions, that commissioner be 
23   designated as the individual that those items be 
24   directed to, not necessarily that they have to be, but 
25   it's an identified individual at the highest level in 
0050
 1   this agency that would be responsive as an ombudsmen 
 2   to anyone that feels it necessary to go to that level.
 3                 It doesn't preclude the other 
 4   commissioners.  It doesn't in any way narrow the 
 5   focus, but it -- it identifies a course of 
 6   communication activity to a person who is -- and so 
 7   often individuals say, I -- I I don't know who to talk 
 8   to; I -- you know, I'm looking for help and I'm -- I'm 
 9   lost.  And if you identify that path and the -- the 
10   person starts down the path early on, many solutions 
11   have been achieved instead of not identifying it.
12                 MS. MELVIN:  Duly noted.
13                 CHAIRMAN CLOWE:  I'm nominating 
14   Commissioner Cox.
15                 MR. GREER:  Any other issues on action 
16   plan four?
17                 We'll move forward and continuing our 
18   objective number one, to maintain a strong culture and 
19   image of compliance and trust, strategy number two is 
20   to implement the transparent operations strategy.  
21   We're going to kick that conversation off with action 
22   plan number five.
23                 Media relations, Bobby Heith.
24                 MR. HEITH:  Commissioners, I will be 
25   speaking on behalf of media relations, governmental 
0051
 1   affairs, marketing and technical divisions regarding 
 2   action plan number five concerning to "Where the money 
 3   goes" public awareness initiative.  And I'm sure that 
 4   the leadership of marketing and governmental affairs 
 5   will support me in my efforts today.
 6                 MS. TREVINO:  Of course.
 7                 MR. HEITH:  Just making sure.  Public 
 8   awareness research conducted by the Commission has 
 9   consistently show that only about one in four Texans 
10   are aware that the lottery revenue goes to the 
11   Foundation School Fund.  And the perception about the 
12   lottery improves significantly when Texans are 
13   informed about where the money goes.
14                 Reports provided to the Commission 
15   indicate that when people in other states with the 
16   lotteries know where the money goes, they are more 
17   likely to participate.  In work sessions preparing for 
18   this plan, there were discussions about many 
19   alternatives on how to convey the message of where the 
20   money goes.  Many were thought to be obtainable.  
21   Others were, as we say, thinking outside the box and 
22   may require more scrutiny by the divisions I 
23   previously mentioned and may even require legislative 
24   approval.
25                 The methods or messages we do decide on 
0052
 1   will be a coordinated effort between those divisions 
 2   with assistance from the legal and information 
 3   technology divisions.  Regardless of what we do, we 
 4   have to recognize that we have basically eight 
 5   audiences as mentioned previously or earlier by Ron.  
 6   Those are customers, legislators, special interest, 
 7   nonpaying public employees, users of financial 
 8   information, education, and I would even add the media 
 9   as the ninth member of that group.
10                 While approximately two thirds of the 
11   members of these groups support our mission, 
12   approximately one third does not and we have to be 
13   aware of their concerns as well.  Subsequent to our 
14   prior meetings some initiatives have already been 
15   implemented such as creating the chalk board, graphic 
16   reading, contributing to the Foundation School Fund, 
17   graphic apples with the same message for distribution 
18   in speaking engagements and personal appearances, a 
19   "Where the money goes" web page that illustrates the 
20   breakdown of a dollar spent on a lottery game, and 
21   updated information on how much has been transferred 
22   to the state.
23                 This complements the point-of-sale 
24   brochure that contains the same graphic and 
25   information.  The graphic of an apple has been placed 
0053
 1   on the Commission website home page with the current 
 2   amount contributed to the Foundation School Fund and 
 3   links to the "Where the money goes" web page.  
 4   Messages are being placed on the back of on-line and 
 5   instant tickets and the "proceeds benefit Texas" tag 
 6   line has been included in the Mega Millions 
 7   advertising.
 8                 Additionally, we will be holding a 
 9   press conference this Friday at 10:00 a.m as to the 
10   fiscal '04 sales and transfers to the state.  This was 
11   a successful event last year receiving coverage in all 
12   of the local media market -- media markets, plus 
13   Dallas, Fort Worth, Houston, and San Antonio.  
14   Reaching the one billion-dollar mark in transfers to 
15   the Foundation School Fund will be stressed in the 
16   news conference as well as the press release.  And we 
17   will continue to include this information in every 
18   speaking engagement and every opportunity.
19                 Other ideas for implementation or 
20   consideration are to create new banner or a head for 
21   the agency's home page; new tag lines and graphics on 
22   all promotional materials; continue to submit articles 
23   to the industry publications; reach out to other state 
24   agencies, specifically T.E.A. for joint participation; 
25   create real-time billboards to show the most current 
0054
 1   contribution amounts to the state; creation of an 
 2   additional point-of-sale material in English and 
 3   Spanish; create new promotional material -- I'm 
 4   sorry -- sale material in English and Spanish; create 
 5   new promotional material; identify the new groups for 
 6   speaking engagements and freshen video news releases 
 7   for at least on a periodic basis after drawings.
 8                 In fact, we put one together for you 
 9   today just for you to see what we can do.  We paid for 
10   a 15-minute satellite window for our drawings.  The 
11   drawings take about five minutes, which leaves us 
12   about ten minutes put up information that may or may 
13   not be picked up by the local stations.  And this is 
14   something we put together just to show you what we can 
15   do.
16                 (Video recording plays.)
17                 MR. HEITH:  Now I would encourage any 
18   division that has any information, we can use this as 
19   a tool for getting information out.  Again -- again, 
20   we have to buy a 15-minute window of satellite time on 
21   draw night and about ten minutes of that is available 
22   for putting up information like this.
23                 As I mentioned previously, several 
24   divisions will be contributing to these new 
25   incentives.  Through surveys we will be able to 
0055
 1   measure the percentage of increase or decrease of 
 2   knowledge of where the money goes.  If any should be 
 3   needed, materials can be updated a reasonable amount 
 4   of time in order to keep the message fresh and by 
 5   frequently conveying our messages of supporting and 
 6   contributing to education, we will create an 
 7   environment of trust with our customers that will 
 8   result in increased utilization of the lottery.  By 
 9   accomplishing this, we can take a giant step in 
10   fulfilling our mission of generating revenue for the 
11   state of Texas and then our message for supporting 
12   education in Texas will become synonymous with the 
13   Texas Lottery.
14                 Any questions?  
15                 CHAIRMAN CLOWE:  Bobby, when you look 
16   at a business, it seems like to me you always want to 
17   see what its strengths and weaknesses are.  And, in my 
18   opinion, this is the greatest strength and the 
19   greatest weakness that the Texas Lottery has.  This 
20   money that goes to the Foundation School Fund since 
21   '97 is a strength that is an untold story.  The 
22   weakness is the story has not been told, for good 
23   reason.  And now it appears to me the barriers are 
24   down and we really have a clear running track more 
25   than at any time in the six years that I have been on 
0056
 1   this board we have to tell this story.  There isn't 
 2   anybody out there that I've identified telling us what 
 3   former members of the house and Senate told us over 
 4   prior periods.
 5                 I think we really ought to focus our 
 6   resources on telling this story.  Doctor Cadenhead 
 7   said that from his study and his work -- and I think 
 8   we would all agree with that -- people feel better 
 9   about knowing that this money goes where it goes.  It 
10   continues to be the number one question, that all of 
11   us when we identify ourselves as associated with the 
12   lottery, people ask.  So I think we ought to really 
13   concentrate our resources on getting this word out in 
14   a thorough complete ongoing manner, so we tell this 
15   story and tell it and tell it and tell it to the point 
16   where the people start coming back to us saying we 
17   know where the money goes.
18                 The timing is very supportive with the 
19   problems the legislature has for funding and 
20   politically the -- the timing is right.  So I -- I 
21   think this ought to be a really big priority in this 
22   business plan.
23                 COMMISSIONER OLVERA:  I agree.
24                 COMMISSIONER COX:  There ought to be a 
25   couple of things that are more specific than that.  I 
0057
 1   saw a reference in that message you had there to 30 
 2   percent of the proceeds going to education.  And I 
 3   want to, again, make the point that the average person 
 4   watching that doesn't know where the other 70 went, 
 5   and I still believe that something like "a hundred 
 6   percent of the net proceeds" or "a hundred percent of 
 7   the profits" is a better, clearer message than 30 
 8   percent.
 9                 Now I know where the other 70 percent 
10   went, and it's -- it's the expenses of operating the 
11   lottery.  But the people who are watching that, by and 
12   large, don't know that.  The other thing that I know 
13   that y'all have worked on and it's certainly beyond 
14   our control and, yet, I think it's worth at least 
15   being sure it's out there for people to see is that 
16   should the leadership find a specific program or 
17   programs narrower than the Foundation School Fund the 
18   proceeds could go to, that that would even provide a 
19   better focus and a greater opportunity for the people 
20   of Texas to identify with our beneficiary.
21                 And I hope that part of what you're 
22   doing is showing them that, for instance, Georgia 
23   tremendously overachieves because they have their 
24   money going into a scholarship program for which any 
25   citizen of Georgia is eligible.  So but those are the 
0058
 1   two points I would like to be sure we have.
 2                 MR. HEITH:  I think your second point 
 3   is well taken with Georgia.  It is easy identifiable 
 4   as to where the money goes.  And that's one of the big 
 5   questions we get constantly, even when we answer it 
 6   with, you know, approximately 30 percent goes to the 
 7   Foundation School Fund.  But, okay, where does it go 
 8   from there.  And since we don't manage the fund, we 
 9   don't have a grasp of where that money goes dollar for 
10   dollar.  They want to transfer -- they want to be able 
11   to trace a dollar from a lottery ticket to a school 
12   book or to a teacher.
13                 And I think one good example is the 
14   reports of sale.  We had a lottery winner in here who 
15   brought his brother who lived in Georgia, and that was 
16   the comment he made was really playing up the Hope -- 
17   I think it's Hope scholarships.  And one of his 
18   daughters was one that completed her education in 
19   Georgia on a Hope scholarship and his youngest 
20   daughter was in college at the time.  And I think it's 
21   easily identifiable that the money from this 
22   lottery -- or -- or that lottery is putting children 
23   through college.
24                 COMMISSIONER COX:  Sure.  And as Gary 
25   has pointed out also, it creates loyal lottery 
0059
 1   customers for life.
 2                 MR. HEITH:  I agree.
 3                 MR. GREER:  And, commissioners, in 
 4   follow up to that, the specification and clarification 
 5   of the message is something that we are still working 
 6   on.  In fact, Nelda and I are meeting with members of 
 7   the legislature to get a buy-in on what they're most 
 8   comfortable with, and I'll bring that comment back to 
 9   you so that we can include their input using the 
10   contributing to the Foundation School Fund that we 
11   have now obviously, but there may be a better message 
12   that can clarify, you know, where we're going with the 
13   money.
14                 And my second point is that we continue 
15   to reach out to T.E.A.  In fact, this morning I got a 
16   call in to Shirley, who is the commissioner of 
17   education, inviting her to our press conference on 
18   Friday.  And I think that they having input in the 
19   process and having a clear understanding of what we do 
20   and we have a clear understanding of what they do with 
21   the fund, it's critical as we move to the next 
22   legislative session.  And so I've begun a dialogue 
23   there.  She's perceptive, and we'll continue to work 
24   on that.  But both your points are well taken on that, 
25   and we are pursuing that.
0060
 1                 CHAIRMAN CLOWE:  I think Commissioner 
 2   Cox is right on target about a hundred percent of all 
 3   profits or whatever the wording is, is more 
 4   definitive.  And you really have to be careful with 
 5   this.  Now, I have concerns about putting a big sign 
 6   on the building.  I understood what you wanted to do 
 7   correctly.  I think that's a little blatant.  That -- 
 8   that's promoting the lottery, and I had in mind, you 
 9   know, a two-story flashing neon sign "Play Lottery."
10                 MR. GREER:  With all the money that 
11   goes through.
12                 CHAIRMAN CLOWE:  Yeah.  And I don't 
13   think -- I don't think that's a good idea, but I think 
14   saying a hundred percent of all the profits go to the 
15   Foundation School Fund and then maybe you could 
16   stretch it and say, and that buys teachers' salaries 
17   and pays for facilities for the schoolchildren of 
18   Texas.  That's taking it to the next level.  We 
19   didn't -- we don't support the scholarship but that's 
20   what the Foundation School Fund does.
21                 And -- and I don't think we've gotten 
22   creative enough on this.  We've -- I've been telling 
23   Reagan for the last year, I think the barriers are 
24   down.  I think you can push into this.  I don't think 
25   you can put a two-story sign on this building.  I am 
0061
 1   not in favor of that, but I am in favor of putting a 
 2   fine point on it like Commissioner Cox recommended.  
 3   And let's push out there.  And -- and let's be a 
 4   little strong in this area and see if we can get our 
 5   message across.
 6                 You know, what we got here is Coca-
 7   Cola.  Nobody else has got it.  We're the only one in 
 8   town.  And I think we are not selling it as hard as we 
 9   can sell it now.  We could do it now.  I think now we 
10   can push.
11                 MR. GREER:  Well, you look at the last 
12   six months.  In the -- in the beginning was the apple 
13   and, you know, like, we put the message out.  
14                 CHAIRMAN CLOWE:  And that's good.  
15   That's good.
16                 MR. GREER:  They remember those.  Now 
17   it's on all the tickets, both on-line and on the back 
18   of our instant tickets.  Interestingly, I can honestly 
19   tell you I've gotten no negative feedback.  And, you 
20   know, that in itself was a powerful ally to get the 
21   message out to see what feedback we would receive.
22                 Now we've begun the pleasant sale 
23   material.  We're looking at tag lines on our ads on 
24   the radio and TV.  And the next step would be kind of 
25   what Bobby rolls out today which is more of a PSA type 
0062
 1   scenario.  When I'm out making speaking engagements -- 
 2   I have two or three coming up here within the next two 
 3   weeks, one tomorrow -- that is one of the things that 
 4   we're going to talk about.  And I'm sometimes 
 5   surprised by their -- part of that 25 percent is 
 6   probative and more of the rest of the room doesn't 
 7   have a clue, you know, where the money goes and we'll 
 8   continue that as far as the getting out the word at 
 9   these speaking engagements.  
10                 CHAIRMAN CLOWE:  Do you think you can 
11   say -- and I would like you to research it before you 
12   answer it -- a hundred percent of the profits goes to 
13   the Foundation School Fund and that money buys 
14   teachers' -- teachers' salaries, school facilities, 
15   pays for air-conditioning bills?  Can you get that 
16   specific?  Don't -- don't answer me now.  Just get an 
17   answer.
18                 MR. GREER:  Well, I -- I was going to 
19   mention that on their web -- on the T.E.A. website, 
20   specifically, they do have a few items listed.  And 
21   that's one of the things I've worked in conjunction 
22   with the T.E.A. on to make sure that they were 
23   comfortable with those.  So that's good.
24                 COMMISSIONER OLVERA:  Reagan and -- and 
25   bobby, I've said these comments before.  I think it is 
0063
 1   a matter of clarifying the message and that I think 
 2   contributing to the Foundation School Fund is too 
 3   general because it implies that we also contribute to 
 4   other entities.  And I would like to -- to see 
 5   something that is more definitive, 100 percent of net 
 6   proceeds, 100 percent of net profits.  I mean, 
 7   whatever the message is, it needs to be able to be 
 8   understood.  And -- and I agree with Jim.  And -- and 
 9   let's get away from the 30 percent.  Let's get away 
10   from the -- from the 30 percent issue.  I think we're 
11   all three unanimous on that.  And just clarify the 
12   message.
13                 MR. GREER:  We've taken cautious steps 
14   because of the past, and I think we've received 
15   positive feedback some was from y'all in reference to 
16   the order in which to continue.
17                 CHAIRMAN CLOWE:  Well, I think we need 
18   to be respectful of those who have that opinion.  And 
19   the point I would like to make about that is those who 
20   are opposed to gambling in this state are not saying, 
21   like they have in the past, we don't want the lottery 
22   to exist.
23                 What I hear them saying is, we don't 
24   want VLTs or we don't want class three casino gaming.  
25   I think the lottery now has an open door where it 
0064
 1   didn't have that door in the past, to tell its story.
 2                 MR. GREER:  I agree.
 3                 CHAIRMAN CLOWE:  And we were told in 
 4   the past not to tell that story.  That's the change.  
 5   That's a see change that I see that's considered.
 6                 MR. GREER:  And that -- we've had a lot 
 7   of conversations about this in our work group, you 
 8   know, as a whole, and that topic continues to be one 
 9   that I think will be kind of a hallmark with where 
10   we're going to go with the business plan and, you 
11   know, certainly into '05 fiscal year making progress.
12                 CHAIRMAN CLOWE:  That could be where 
13   you get the increase in sales that you got in the 
14   closed fiscal year and the future fiscal year.
15                 MR. GREER:  No question.
16                 CHAIRMAN CLOWE:  On top of everything 
17   else that you are doing.
18                 MR. GREER:  I agree.
19                 CHAIRMAN CLOWE:  Yeah.  Let's take a 
20   10-minute break, please.
21                 (Recess.)
22                 CHAIRMAN CLOWE:  All right.  We'll come 
23   back to order, then.
24                 And, Bobby, I think we finished with 
25   your comments.  Do you have anything further, or do 
0065
 1   you want to finish eating your candy bar?
 2                 MR. HEITH:  I have no further comments.
 3                 CHAIRMAN CLOWE:  Okay.
 4                 MR. GREER:  Continuing on strategy 
 5   number two, implementing a transparent operation 
 6   strategy, we'll go to action plan six, which is 
 7   charitable bingo.
 8                 Billy Atkins.
 9                 MR. ATKINS:  Commissioners, the last 
10   item under this strategy of transparency.  The 
11   proposal for the charitable bingo division would be 
12   publication of an annual report.
13                 Many organizations, as you know, 
14   whether public, private, nonprofit, are publishing 
15   their old reports for key constituents.  That can 
16   include shareholders, regulators, parties with a 
17   vested interest in the organization's activity, as 
18   well as the general public.  The purpose of these 
19   annual reports is to report on the status of the 
20   organization in such a manner that a broad spectrum of 
21   users with divergent interests can obtain useful 
22   information.
23                 And there are a number of examples of 
24   reports produced both in the gaming and nonprofit 
25   environment.  Here's one, Commissioner Cox, produced 
0066
 1   by a bunch of your old buddies at the American Gaming 
 2   Association.  There's one produced by the North 
 3   American -- the National Association of Fundraising 
 4   Ticket Manufacturers.  There's examples of other 
 5   charitable bingo -- or charitable gaming operations 
 6   that produce reports.  Here's one from the Michigan 
 7   lottery.  We just happen to receive one the other day 
 8   from the National Center for Responsible Gaming, and 
 9   the Chronicle of Philanthropy, which is a newspaper 
10   for nonprofit organizations, regularly produces 
11   summaries of foundations' annual reports.
12                 This particular issue, Commissioner 
13   Clowe, also contains a number of articles about 
14   nonprofits and Sarbanes-Oxley, but in this they refer 
15   to it as "mirroring corporate Sarbanes-Oxley."
16                 CHAIRMAN CLOWE:  All kinds of verbiage, 
17   isn't it?
18                 MR. ATKINS:  In general, the goal of an 
19   annual report is to inform readers about recent 
20   operating results of the organization and some of the 
21   organizations' strategic initiatives.  We're going to 
22   be talking a little later on today about one of the 
23   initiatives that would be suitable for an annual 
24   report.  While we're preparing annual reports that not 
25   only serve the public interest by providing access, 
0067
 1   quality, and timely information, it also helps to 
 2   educate as well as align management to the 
 3   organization strategy.
 4                 I would like to discuss briefly a few 
 5   of the key constituencies that benefit from an annual 
 6   report on Texas charitable bingo.  A well written 
 7   annual report provides licensees with the big picture 
 8   on bingo activities in Texas such as trends in gross 
 9   receipts, prizes, charitable distributions, and 
10   attendance, the impact of recent legislation or 
11   enacted rules, and a basis for comparisons to other 
12   licensees, as well as regional comparisons.
13                 For example, a licensee might see that 
14   bingo gross receipts are higher in a particular city 
15   and subsequently contact one or more conductors in 
16   that city for either marketing tips or assistance in 
17   promoting their bingo games.
18                 The annual report should be written in 
19   such a manner that a member of the public, who did not 
20   know the industry exists, could read the report and 
21   walk away with a fundamental understanding of the 
22   structure, purpose, and benefits derived from 
23   charitable bingo activities.  Perhaps the person that 
24   reads the annual report would be excited to either 
25   play charitable bingo or encourage an organization to 
0068
 1   apply for a charitable bingo conductor's license.
 2                 Elected officials and other decision 
 3   makers needs financial information that is used to 
 4   make public policy.  An annual report provides an 
 5   opportunity for decision makers to become familiar 
 6   with the mission, purpose, performance, and issues 
 7   that impact or the potential to impact -- or that have 
 8   the potential to impact the work of the organization 
 9   and its constituents.  The annual report provides 
10   critical information to the decision maker, but it 
11   doesn't create overload.
12                 The annual report is a useful tool for 
13   the media.  It provides much of the basic information 
14   as who, what, where, and why that members of the media 
15   constantly seek out when reporting on these types of 
16   activities.
17                 Finally, specific to the charitable 
18   bingo industry, annual reports, particularly those 
19   posted to the regulatory agency websites, provide for 
20   the easy exchange of regulatory and financial 
21   information among jurisdictions.  And financial annual 
22   reports provide a medium for a comparison of the 
23   outcomes of regulatory practices among different 
24   jurisdictions.  Any jurisdictions that regulate 
25   charitable bingo publish annual reports, and we have 
0069
 1   already begun collecting a number of those for review 
 2   and comparison.
 3                 Charitable bingo divisions will 
 4   investigate the cost benefit of preparing an annual 
 5   report based upon reported data and other collected 
 6   information that I previously mentioned.  Internal 
 7   resources will be used in preparing the bingo annual 
 8   report; however, there may be some nominal incremental 
 9   costs for production and/or distribution.  The annual 
10   report would, of course, be made available on the 
11   division's website which may help eliminate some of 
12   the costs for printing and mainly with large numbers 
13   of the report.
14                 The production of the annual report 
15   would involve the following divisions within the 
16   Lottery Commission:  the legal division; operations, 
17   that would be used primarily for the production and 
18   distribution; marketing for the graphic design and 
19   layout; financial administration; and, of course, the 
20   charitable bingo division.
21                 It's anticipated that the benefits of 
22   publishing the annual report will exceed the cost of 
23   production by providing timely information to 
24   constituents, decision makers, and the general public, 
25   and the media.  The success of an annual report would 
0070
 1   be measured by feedback from the end users, the number 
 2   of reports distributed, and the number of times the 
 3   report was accessed on the website.
 4                 As I've mentioned, we've done an 
 5   analysis of other jurisdictions that publish annual 
 6   reports of this type.  So far there appear to be five 
 7   key elements that appear in all of those websites.  
 8   Statistics by activities such as gross receipts, taxes 
 9   paid, et cetera, descriptions of the division, the 
10   types of licensees involved in charitable gaming, 
11   statistics by county or other local jurisdictions, as 
12   well as highlights of any legislative or regulatory 
13   changes.
14                 As you know, we have some experience in 
15   the development and distribution of an annual report.  
16   Specifically, the 20th anniversary report that we 
17   produced in honor of bingo's 20th anniversary.  We can 
18   take from that many of the processes and procedures 
19   that were used to research, write, and develop the 
20   20th year report and apply it to the development of an 
21   annual report.  Given the experience that we obtained 
22   from the 20th year report, we know some of the areas 
23   that we would like to improve.  The -- the staff has 
24   already identified a potential 27 different elements 
25   that would be included in an annual report.  As we go 
0071
 1   through the development process, we believe that that 
 2   would be further defined and -- and quite possibly 
 3   whittled down to just that key information that we 
 4   believe would be a primary interest for out 
 5   constituents.
 6                 And, finally, we believe that the 
 7   development of an annual report would be a very 
 8   opportune time to include the Bingo Advisory 
 9   Committee, receive input from the industry, and also 
10   to assist the BAC in fulfillment of one of their 
11   requirements, which is an annual report on the state 
12   of the bingo industry in Texas.
13                 And I would be happy to answer any 
14   questions that you may have.
15                 COMMISSIONER COX:  Billy, I'm glad you 
16   mentioned that you're going to do a cost benefit 
17   analysis.  And I know it's obvious to you that the 
18   costs are going to be quite easy to identify and the 
19   benefits are going to be quite difficult to identify.  
20   And the costs you're going to know up front, and the 
21   benefits you may not know until you actually have it 
22   out there and it may not turn out to be what you 
23   projected.  It might turn out to be better.  It might 
24   turn out to be worse.  Since it isn't anything that's 
25   mandated, obviously you're going to be real careful 
0072
 1   with this.
 2                 MR. ATKINS:  Yes, sir.  And -- and 
 3   you're entirely correct.  In the case of the 20th 
 4   anniversary report, I think one of the major ways that 
 5   we had to identify its benefit was the number of times 
 6   that we heard the members of the industry reference 
 7   it.  You know, again, we -- I don't know that we had 
 8   gotten any direct feedback from the organizations that 
 9   was necessarily helpful in identifying that benefit, 
10   but we do know that there were a number of occasions, 
11   again, where the information in the report was 
12   referenced by the organizations.
13                 CHAIRMAN CLOWE:  Billy, I am really 
14   concerned about the bingo industry and not 
15   unresponsive to a bingo annual report.  But, quite 
16   frankly, I don't think that addresses the needs of the 
17   industry.  And I think it is incumbent on this 
18   Commission in some way to make an effort to go beyond 
19   where we are now and help the industry see a clear 
20   path for the future.
21                 I've been thinking a lot about this 
22   since you and Kim and I met with the three members of 
23   the bingo industry last week.  And for the benefit of 
24   those that weren't there, I will tell you that we just 
25   had an informal visit with three members of the 
0073
 1   industry who came in and wanted to talk about why they 
 2   weren't doing better and why the Commission wasn't 
 3   helping them.  The conversation ranged to include 
 4   their problems which -- which involved the limits on 
 5   the games and the lack of the ability to link the 
 6   games, and the video lottery terminals, the eight-
 7   liners that are taking revenue away from them.  And I 
 8   think they left understanding, after our conversation 
 9   with them, better what your role is as the director of 
10   the charitable bingo division and what the role of the 
11   auditors is, the enforcement group, and the 
12   Commission, and what their needs and lacking of 
13   unanimity and of the ability to enter into the 
14   development of their own future, better than they were 
15   when they came here.
16                 And I just wonder if we shouldn't think 
17   about employing a tactic that I saw at the Railroad 
18   Commission over the years where the Commission there 
19   invited the oil and gas industry in annually for a 
20   state-of-the-industry meeting, where members of the 
21   industry could tell the Commission -- and that 
22   included the commissioners and the staff -- what their 
23   problems were and what their needs were.  And, you 
24   know, it was a one-on-one direct communication.  It 
25   was unfiltered by representatives, and it was pretty 
0074
 1   blunt.
 2                 The commissioners and the staff had the 
 3   opportunity to not only hear that but to respond to 
 4   the members of the industry which they regulate and 
 5   which they have a responsibility to oversee up to the 
 6   point of regulations, not to provide for economic 
 7   success, which is so much of what we hear in the way 
 8   of questions and why can't we be more economically 
 9   successful.  We're just not -- we're just not getting 
10   the message to the industry.  And the -- and the 
11   industry is not performing the way it should to the 
12   benefit of the charities that derive these 
13   contributions.
14                 We've got an industry that the revenues 
15   are up and the charitable contributions are down.  Now 
16   that's -- that's a wrong sign.  And as business 
17   people, anybody should be alarmed by it.  And I would 
18   like in this business plan, those in your staff and 
19   others who are a part of this effort, beyond what 
20   we've done up to now -- and the BAC just -- you know, 
21   we're -- we're doing everything we can to support and 
22   get input from that group, but that message isn't 
23   getting out through the BAC, in my mind.
24                 So I'm going to offer up the idea of an 
25   annual state-of-the-industry meeting where any and all 
0075
 1   members of the bingo industry come in to a meeting and 
 2   tell the Commission about what their wants and needs 
 3   and problems are and the commissioners and the staff 
 4   respond and have a conversation that might be 
 5   beneficial and might break this log jam, sort of 
 6   people saying, well, we want this to be better, and we 
 7   want you to make it better.  And us saying, we want it 
 8   to be better, but we can't make it better, and trying 
 9   to direct them to where it can be made better.  Just, 
10   we're not doing a very good job of communicating, in 
11   my mind.  And I'm looking for the avenue to get those 
12   points across.
13                 This is in no way a criticism of the 
14   functions of the charitable bingo division.  The 
15   licensing, the education, the operator educational 
16   program, the audit function, are all doing better than 
17   at any time that I've seen them since I've been on 
18   this board.  I'm addressing what I see as a bigger 
19   problem that impacts the future of that entity in 
20   Texas and the charities that it benefits.  And -- and 
21   I think it's incumbent on us.  I -- I would invite the 
22   commissioners to say whether they think we ought to 
23   stick our noses into this or not.
24                 Frankly, I don't think the bingo people 
25   have anyplace else to turn but to us.  And they are 
0076
 1   looking to us for some direction.  And I would like to 
 2   consider responding to it and putting up a big tent 
 3   and saying, let's have this discussion, and inviting 
 4   members in the legislature to come and participate who 
 5   are interested in the bingo operation in this state.  
 6   We just -- we're not cracking the egg the way it is 
 7   right now. 
 8                 Commissioners, what -- what's your 
 9   reaction?
10                 Let's give them a crack, Billy, before 
11   you. 
12                 COMMISSIONER OLVERA:  Well, 
13   Commissioner, it is a touchy subject, Billy, because I 
14   know the bulk of the called complaints -- or I should 
15   say issues that -- that come to me -- from -- from our 
16   bingo folks out in the field are complaints that we 
17   have no control over.  And I think you mentioned that, 
18   Mr. Chairman, issues such as the eight-liners, such as 
19   gambling, Indian gambling.  I mean, all of these 
20   variables and factors that are existent in our society 
21   that are affecting bingo in a negative way, these are 
22   the complaints, the bulk of the complaints that I get, 
23   and they get a very frustrating answer.
24                 So I mean, I can't help you because 
25   I -- I don't have enforcement over eight-liners or 
0077
 1   what have you.  I mean, that's, you know, local 
 2   authority.  And I don't know -- I'm not opposed to 
 3   having a -- an annual summit for these folks to air 
 4   their grievances so that -- that we are receptive 
 5   and -- and know they are there.  On the same token, I 
 6   don't want to increase their frustration by saying, we 
 7   can't help you.  And -- and I don't have the answer to 
 8   that.  But I -- I do sense that the bulk of the 
 9   complaints that I've received are issues that I have 
10   no control over.  
11                 CHAIRMAN CLOWE:  And -- and I think, 
12   Commissioner Olvera, that we need to tell them that.  
13   I don't think that word has gotten out effectively.  I 
14   went to an enforcement officer's convention in Dallas, 
15   with Mike Pitcock and some of his officers.  And there 
16   were a lot sheriffs there, and they posed that same 
17   question.  You know, I've got a county where I don't 
18   allow eight-liners.  And right 15 miles across the 
19   county line, they've got eight-liners and -- and it's 
20   hurting me; it's taking my revenue; it's hurting my 
21   public image.  And Mike stood up in front of those 
22   enforcement officers and told them the truth.  And he 
23   said, boys, you got to get with your county attorney 
24   and your DA, and you got to get with your 
25   legislature.  There's where your solution lies.  
0078
 1   That's the answers that I think are not in the 
 2   industry.
 3                 And -- and when I say, you know, should 
 4   we stick our nose into it, I think that's a better 
 5   thing to do than to sit back and not tell that story 
 6   and be responsive because the problem isn't going 
 7   away.  I'm hearing the same complaints I heard five 
 8   years ago.  And the bingo industry is not doing well.  
 9   It's -- it's not like the lottery.  The lottery is 
10   doing great.  The bingo industry -- you know, there 
11   are some operators that are doing well, but there's a 
12   whole bunch that aren't.  And the legislature came 
13   close, through the Sunset recommendation, if they had 
14   passed their bill, to adopting a rule that would have 
15   put over half of the bingo operators in this state out 
16   of business, if this Commission hadn't brought up that 
17   issue and asked them not to do it.  They still may do 
18   it because they haven't ruled on it.
19                 But we heard very compelling testimony 
20   from small charities, that get just a little bit of 
21   money, about how important that is.  And these folks 
22   who talked with us last week, I don't think they knew 
23   what they were telling us.  But they said we just make 
24   a decision how much we're going to give those 
25   charities every week.  I think that goes on in the 
0079
 1   industry.  And I'm frustrated about not getting the 
 2   word out to these bingo operators and these bingo 
 3   industry people any better than we are.  We've tried 
 4   to do it through the BAC, and our message isn't 
 5   getting out.  And I'm ready to take on a task of 
 6   trying to reach out to these people and help them.  We 
 7   can't help them ourselves.  That's right.  But we can 
 8   put up the signs and say, here's where you got to go.  
 9   I feel it's our responsibility.  And we may get a 
10   bloody nose by doing something like that, but I'm 
11   willing to take the risk.  I guess they could fire me.
12                 COMMISSIONER COX:  Or all of us.
13                 CHAIRMAN CLOWE:  Or all of us.
14                 COMMISSIONER OLVERA:   Since we're 
15   pointing fingers at the -- the legislature, that is a 
16   bloody nose.  That's fine.
17                 CHAIRMAN CLOWE:  What do you think, 
18   Commissioner Cox?  Are you -- you up for something 
19   like this or not?  
20                 COMMISSIONER COX:  One question about 
21   the comparability of this industry in reference to 
22   that, Mr. Chairman, one thing that we have pointed out 
23   continuously to the bingo folks is that they confuse 
24   the forum of the Bingo Advisory Committee with that of 
25   an industry trade association, which they apparently 
0080
 1   don't have.
 2                 CHAIRMAN CLOWE:  That's right.
 3                 COMMISSIONER COX:  Was it trade 
 4   associations within the oil and gas industry that made 
 5   that work, or was it the individual members of the 
 6   industry that made it work?  
 7                 CHAIRMAN CLOWE:  Very astute question.  
 8   And -- and I will give you my impression.  There are 
 9   those who served with me at the Railroad Commission 
10   who might have their own opinion.  It was sort of the 
11   bigs against the littles and they each had their own 
12   associations, but the associations did serve as a 
13   focal point and they channeled those viewpoints 
14   through.  And they got to the Commission.  And the 
15   Commission acted on clear information coming in and 
16   clear information going out.  My ache at this time is 
17   I don't see any information coming in or going out of 
18   the type and kind relative, not to audits, not to 
19   operator education, not the licensing.  That's not 
20   what we're talking about.  We're talking about 
21   economic success and how to benefit the charities of 
22   Texas through better bingo operation.
23                 COMMISSIONER COX:  Well, the -- the 
24   concern I guess that I have about the bingo industry 
25   is that their problems are very concise and very 
0081
 1   clear, as best I can tell.  After one briefing by 
 2   Billy and his staff and one meeting with the Bingo 
 3   Advisory Committee, I knew as much about their 
 4   problems as I know now after two years.  And that's 
 5   not because I haven't heard the same story over and 
 6   over for two years.  I have.  But it's -- there's 
 7   nothing new.  The story is the story.
 8                 And so I would suggest that if we do 
 9   this, we do it with the idea that it would be a 
10   one-time thing.  And we'll see if it's -- provides a 
11   benefit that will justify doing it again.  But if what 
12   we hear is what we already know, then all we can -- 
13   are able to say to them is, we don't have money for 
14   advertising; it's not our job to promote the bingo 
15   industry; see your friendly local legislature, then I 
16   think we've already done that.
17                 CHAIRMAN CLOWE:  I think we have, but I 
18   don't think that message has gotten out to the depths 
19   in the industry to the point where either they accept 
20   it and say, okay, we understand it, or we're going to 
21   do something about it; and maybe form an association 
22   and -- or form a citizens group and be active in 
23   promoting our interests.
24                 COMMISSIONER COX:  Well, one thing they 
25   could do for sure is what you just said, to be sure 
0082
 1   that we have given our message for them the widest 
 2   possible disclosure and the opportunity for any and 
 3   all to come and hear what we have to say, that we 
 4   would like to do but can't, or don't even have the 
 5   right to love it.  We just have to tell you that 
 6   that's not our job.
 7                 CHAIRMAN CLOWE:  And I think we ought 
 8   to do that.  And I'm to the point of frustration, that 
 9   I can't rest until I feel better about us getting our 
10   message out.
11                 COMMISSIONER COX:  Well, I'm going to 
12   rest.
13                 CHAIRMAN CLOWE:  I said that, you know, 
14   metaphorically.
15                 COMMISSIONER COX:  Well, I would like 
16   for you to metaphorically rest.
17                 CHAIRMAN CLOWE:  Billy, throw cold 
18   water on us.
19                 MR. ATKINS:  Well, it's not so much, 
20   Mr. Clowe, throwing cold water on it as -- as, quite 
21   frankly, I -- I just think that the Commission is 
22   selling itself short.  And particularly you are 
23   selling itself short because, again, you made numerous 
24   appearances before the advisory committee and -- and 
25   said, you know, almost what you've said here today.  
0083
 1   And I understand that you've referenced the advisory 
 2   committee, but I know, in many of those meetings, 
 3   there were individuals, either paid lobbyists or 
 4   organizations, that heard what you said, or 
 5   individuals that are active in the bingo industry that 
 6   heard what you've said.  And they've put it to me that 
 7   they've heard you.  And that's what they did.
 8                 They -- they went to the legislature 
 9   and they told their -- their -- their message to the 
10   legislature, and they appreciated your directness as 
11   well as your direction.  I just don't know what type 
12   of success we would have with this tent meeting, 
13   inviting everyone in to, you know, express their 
14   concerns, to have this dialogue.  And the only reason 
15   I say that is because of what we hear from 
16   organizations again and again.  We're a volunteer 
17   operation.  We have day jobs.  I don't have the time 
18   or the money to come down to Austin, you know, to -- 
19   to take part in this with you.
20                 I -- I also agree with what 
21   Commissioner Cox was saying, in that, I think we know, 
22   to a big degree, what -- what needs to be done.  I 
23   think to some degree, the lottery is the perfect 
24   example.  They change up their games.  They change up 
25   their price structure.  They keep the games 
0084
 1   interesting.  They keep the public's awareness and 
 2   excitement about the games going on.  The Bingo 
 3   Enabling Act, as we also discussed at that meeting 
 4   last week, Commissioner Clowe, is old.  I mean, 
 5   it's -- it's out-of-date.  It's an archaic piece of -- 
 6   of -- of legislation.  And I -- I -- I'm also very 
 7   sensitive to what you said, Commissioner, in terms of 
 8   the sensitivity of -- of walking along this issue.
 9                 I will let you know that when we had a 
10   lot of group sessions, Doctor Cadenhead and his team, 
11   particularly Mr. Kessler, you know, were always trying 
12   to push that envelope, particularly when they were 
13   talking about the bingo, you know, what do you want 
14   bingo to do, talk in terms of length and talks in 
15   terms of progressive games.  And I intentionally, you 
16   know, backed off of those, you know, given the, I 
17   guess, guidance or understanding we had at the time, 
18   that we don't advocate for those -- for those types of 
19   activities.
20                 And so I guess what I'm struggling with 
21   now -- and, again, I don't mean it as an attempt to 
22   throw water on it.  I'm struggling with, again, 
23   walking that line between advocating for something 
24   that we shouldn't necessarily need or that we're not 
25   necessarily in a position to advocate for.
0085
 1                 I do think I understand your desire, 
 2   Commissioner Clowe, to develop some other avenue of 
 3   communication with the organizations, where we can 
 4   have that dialogue in terms of, you know, receiving 
 5   their input, what it is they're looking for, and 
 6   getting our message to them in terms of -- of what we 
 7   can and can't produce and where they would need to go 
 8   to the legislature.
 9                 CHAIRMAN CLOWE:  Let's call on the 
10   mighty consultants to shine the light of knowledge so 
11   they can light our path.
12                 MR. CADENHEAD:  I feel set up.
13                 COMMISSIONER COX:  You are.
14                 MR. CADENHEAD:  I was just thinking if 
15   you -- if this all goes by, we're given the task to 
16   create a structure involving the playing of bingo to 
17   benefit the charities of the state, I would bet you a 
18   bunch of lottery tickets it would look nothing like we 
19   have today.  I mean, we've got a -- we've got a broke 
20   structure that is a threat to the Commission because 
21   of the various things going on.  And, yet, we're in an 
22   environment in which we can't advocate changes.  So 
23   the thought I was having, inspired by your 
24   recommendations, was to get not the bingo operators 
25   together but get the charities together.  Have a 
0086
 1   meeting with the charities and have them propose what 
 2   would work for them and have that be the source of the 
 3   advocacy.
 4                 CHAIRMAN CLOWE:  You didn't throw water 
 5   on it.  You through gasoline on it.
 6                 MR. CADENHEAD:  I'll turn it over to my 
 7   brother Kessler, who is always -- is much more serene 
 8   than I am.
 9                 CHAIRMAN CLOWE:  Ron, what do you 
10   think?  Do you understand the problem?  
11                 MR. KESSLER:  Yeah.  I -- what I don't 
12   understand is the extent that you guys do, but it 
13   didn't make me long to figure out the -- the Achilles' 
14   heel or Achilles' tendon, but I think this -- these 
15   guys over here, you know, they've got to -- they've 
16   got to keep the forum rolling.  But they don't have 
17   the structural problems that is on this side of the 
18   table.  And so -- so I -- you know, this -- 
19   identifying that and then understanding that, I don't 
20   know what the appetite for change on that is.  But if 
21   there -- if you want to be -- if you want to abide by 
22   your core principles, core values, that -- then I 
23   think you -- you need to tell people straight up that 
24   we're concerned, that we've got a governance issue on 
25   this or a structural issue ahead.
0087
 1                 Now, going about fixing it may -- 
 2   may -- may -- may be the agenda for one of these 
 3   forums is, you know, to brainstorm what would be a -- 
 4   a workable system.  One that really makes sense for 
 5   making -- for people to make some money along with 
 6   those other charities.  And they're probably -- 
 7   there's got to be some other states that do this -- 
 8   this better.  And maybe there's some best practices 
 9   and state-of-the-art things that should be taken into 
10   consideration. 
11                 MR. ATKINS:  Again, I was -- I'll -- 
12   I'll go back to something Commissioner Cox mentioned.  
13   I think we know what a lot of the problems are.  I 
14   think we've heard those, and I think they've been 
15   consistent.  And I think that we've had the 
16   opportunity, when requested by members of the 
17   legislature.  Just recently we received a request from 
18   the appropriations committee for information on 
19   additional types of bingo games that we supplied to 
20   them, including progressive, standing pull-tab sales, 
21   linked bingo games, et cetera.
22                 Another opportunity could be that next 
23   week we're having a hearing before the house licensing 
24   committee, which is the committee that has oversight 
25   for the Texas Lottery Commission.  And that may be the 
0088
 1   forum to raise that issue that, you know, the 
 2   Commission is concerned with a lot of these continued 
 3   comments that we get from the industry, but there 
 4   doesn't seem to be an understanding on the industry's 
 5   part, at least, that the legislature is the place for 
 6   those to be resolved.  So we would like to take 
 7   that -- that opportunity to supply that information to 
 8   them.
 9                 We could further offer, Commissioner 
10   Clowe, to -- to -- to tell the licensing committee 
11   that we will take the action of at least holding that 
12   tent meeting, revival meeting, what -- whatever it is 
13   that -- that we talked about, gather that information, 
14   and then supply that to them.
15                 CHAIRMAN CLOWE:  Well, I think this is 
16   a good discussion.  And I don't want to come to a 
17   conclusion here because I think it preempts cooler 
18   thinking and deeper thought.  But I really do want us 
19   to see what else we can do to help this industry.  And 
20   I appreciate your comments about the efforts we've 
21   made, but I don't judge the success as being at all 
22   adequate.  I -- I think the questions are still 
23   there.  I think that when those guys left their 
24   meeting with us last week, I don't think they were 
25   energized.  I don't think they went out and started 
0089
 1   being proactive.  It's going to take something more 
 2   than that, than telling what their problems are and 
 3   what they ought to do about it, to help them.  And 
 4   maybe that's beyond this Commission.
 5                 But we are public servants and we 
 6   regulate this industry and we see a broader picture 
 7   than any of them and I think we have the incumbent 
 8   responsibility to communicate with them as best and 
 9   most effectively as we can.  And I don't think the 
10   word is getting back to the BAC, here are the things 
11   that you guys need to be looking at.  And we could -- 
12   as Gary said, yeah, we could -- we could whip up the 
13   right forum, I think, very quickly, but that's not our 
14   role.  They have to work with the legislature, it 
15   seems to me, to get that done.  And it's just a crying 
16   shame to see the opportunities that exist for the 
17   charities of Texas not to benefit from a more 
18   efficient bingo operation in this state.  That's the 
19   loss to the people of Texas, and that's my 
20   motivation.  
21                 Anything further, Commissioner?  
22                 COMMISSIONER OLVERA:  No.
23                 CHAIRMAN CLOWE:  Okay.  That's your 
24   problem.  Go solve it.
25                 MR. ATKINS:  Okay.  I appreciate that.
0090
 1                 MR. GRIEF:  Mr. Chairman, what we're -- 
 2   one of our goals today is to try to get clear feedback 
 3   on these particular items, so I didn't want to leave 
 4   this item until I've checked with Billy.
 5                 Are you clear on the direction on -- on 
 6   what was proposed in the business plan?  
 7                 MR. ATKINS:  Well, I'm not sure.  Let 
 8   me see if I -- I summarized it.  I think that the 
 9   Commission is generally okay with the concept of a 
10   bingo annual report.  But apart from that, there's a 
11   desire that we look to developing some sort of 
12   mechanism to receive input from the broadest amount 
13   of -- of the bingo industry regarding their concerns 
14   and issues and develop a way to convey that to the 
15   legislature.
16                 CHAIRMAN CLOWE:  Or have them 
17   understand how they can convey that to the individuals 
18   who hold the responsibility for change of the act.  I 
19   don't really think that's our responsibility to do 
20   anything, maybe other than communicate.  I think they 
21   need to be the prime movers.
22                 MR. ATKINS:  Okay.  Then -- then you're 
23   looking at having that exchange to -- to receive the 
24   input but then also to explain to them, similar to 
25   what we did in that meeting last week, the specific 
0091
 1   roles and responsibilities of the -- of the different 
 2   bodies, such as the Commission, the division, the 
 3   legislature, et cetera.
 4                 CHAIRMAN CLOWE:  That's right.
 5                 MR. ATKINS:  Okay.  Then -- so would 
 6   it -- would it not be the Commission's desire or 
 7   direction that we raise this specific issue about the 
 8   coming hearings, but instead wait until we've had that 
 9   dialogue?  
10                 CHAIRMAN CLOWE:  I think -- I think 
11   it's a good thing to raise and -- and discuss it with 
12   the committee.
13                 MR. ATKINS:  Okay.
14                 CHAIRMAN CLOWE:  And then, Gary, 
15   there's -- as an ancillary subject to this, there's a 
16   study underway regarding the efficiencies of security 
17   and legal activity relating to the bingo division.  Is 
18   that covered under this action plan number six?  
19                 MR. GRIEF:  I don't believe so, no, 
20   sir.  This only goes to the annual report, as I 
21   understand it.
22                 CHAIRMAN CLOWE:  Okay.  But that's 
23   still on the table.  That hasn't...
24                 MR. ATKINS:  That's correct.
25                 COMMISSIONER OLVERA:  Okay.  And let me 
0092
 1   clarify something else.  I also thought that the 
 2   report should address the issue of proceeds versus 
 3   contributions, in terms of proceeds going out and 
 4   contributions going down.
 5                 MR. ATKINS:  Well -- well, the -- well, 
 6   the -- in terms of some kind of an action plan as to 
 7   why that scenario exists and what steps can you take 
 8   to resolve that to improve that scenario.  Okay.  And, 
 9   again, I would -- I would think that would go back to 
10   the distribution formula as it's contained in the 
11   Bingo Enabling Act.
12                 COMMISSIONER COX:  Well, Billy, I think 
13   that, if I understand Commissioner Olvera's question, 
14   it's not so much does it comply with the formula but 
15   help me understand this phenomenon, and then I'll 
16   consider whether I think the formula is appropriate in 
17   light of what I now know.  Because it's intuitive that 
18   if proceeds are going up, contributions should be 
19   going up, or something is out of play.
20                 Commissioner, is that kind of where you 
21   were?
22                 COMMISSIONER OLVERA:  That is correct.  
23   And that is the chairman's goal with the opening 
24   statement as to this issue, if I'm not mistaken.
25                 CHAIRMAN CLOWE:  That's right.  I'm 
0093
 1   concerned about that.  I think the legislature ought 
 2   to be concerned about that.  I think we ought to be 
 3   concerned about that.
 4                 MR. ATKINS:  I guess, I'm -- I guess 
 5   I'm not clear in terms of what you mean by -- by we 
 6   should be concerned and what we should be doing as a 
 7   result of that concern.  And I'm -- you know, what I'm 
 8   trying to get is -- is a clarification in my mind 
 9   between, you know, something that we're routinely 
10   reminded of that are our responsibilities begin and 
11   end with, you know, what we're granted under statute 
12   and how this would fit into that.
13                 CHAIRMAN CLOWE:  Yeah.
14                 COMMISSIONER COX:  Billy, the way I see 
15   it is, when the Sunset folks came in, they saw the 
16   phenomenon that we're talking about and they attempted 
17   to address it formulaically.  And we looked beneath 
18   the formula and said, that isn't going to work.  
19   That's going to put half of the charities in the state 
20   out of business.  Because what you're doing is making 
21   an arbitrary determination based on micro data that 
22   when applied on a micro basis, is going to have a very 
23   different result from what you intended.  So that's 
24   what has gone wrong thus far with the effort that was 
25   directed forth where I think we're asking you to go.
0094
 1                 Now, if it is true that it is part of 
 2   our responsibility to foster an environment in which 
 3   money can be raised for charity -- and I didn't use 
 4   the term promote.  And maybe foster the environment 
 5   isn't right either.  But that's to say that we're not 
 6   here to stand in the way of it, nor to promote it, but 
 7   we are to enable it and maybe even act as a catalyst, 
 8   that we are probably in the best position to look at 
 9   whether the current distribution requirement structure 
10   maximizes the contribution to charity, given the level 
11   of operations that's presently out there.
12                 We've already done an awful lot of work 
13   in connection with that, when we helped the Sunset 
14   staff.  And maybe we've done everything we can, or 
15   maybe we have a recommendation back in there somewhere 
16   that we should put forward to say, hey -- to the 
17   legislature -- here is something you may want to 
18   consider; it may have the effect of fostering the 
19   environment for raising money for charity.
20                 MR. ATKINS:  Well, I will share with 
21   the Commission, that one of the specific interim 
22   charges of the licensing committee and one of the 
23   items that they've requested is a comparison of the 
24   charitable distribution formulas among other 
25   jurisdictions.  So we will be providing that.  We will 
0095
 1   be discussing that at the committee meeting next 
 2   week.  They haven't specifically asked for any type of 
 3   alternative formula, any type of different formula, 
 4   but they have at least opened the door in terms of 
 5   just asking for that comparison information among 
 6   other jurisdictions.
 7                 COMMISSIONER OLVERA:  And, Billy, just 
 8   let me add one more thing.  I -- I also would request 
 9   that the report include -- I don't want a report, 
10   shall we say, with a summary that -- that gives 
11   exclusive recommendations as to what the legislature 
12   can do to improve bingo.  I also want a report that 
13   has bingo playing with the hand that it has been  
14   dealt and seeing what it can do to increase their 
15   charitable contributions more consistently than it has 
16   as it is now because obviously there is no guarantee 
17   that we're going to receive the changes or the 
18   revisions, that we've requested that it has those 
19   contributions.
20                 What I mean by it, is every month we 
21   see -- every month we see sales of lottery tickets, 
22   lottery figures, what we can do to increase or compare 
23   previous sales from prior years, or what have you.  I 
24   mean, we can see a trend in contributions.  And we can 
25   see whether contributions are up, whether 
0096
 1   contributions are down.  And I -- I would like to see 
 2   some kind of explanation as to why you think they're 
 3   down -- and I'm not saying you personally -- but why 
 4   you think they're down and what you think -- or what 
 5   bingo thinks it can do to increase those 
 6   contributions.
 7                 CHAIRMAN CLOWE:  That's a tough role.
 8                 COMMISSIONER OLVERA:  And it's -- it's 
 9   not -- there's no easy answer.
10                 CHAIRMAN CLOWE:  That's tough.
11                 MR. ATKINS:  That is tough.  And 
12   that's -- that's -- that's going to be a fundamental 
13   about-face from how the regulatory agencies in this 
14   state, not just at this agency but the ones that have 
15   previously regulated bingo because they have never 
16   looked at it as their responsibility to increase 
17   distributions.  It's -- you know, it's --
18                 CHAIRMAN CLOWE:  Well, Billy, I-- and I 
19   think Commissioner Olvera is on the right track that 
20   Commissioner Cox defined with the word that he used, 
21   not promote but to foster.
22                 Is that the word you used?
23                 I don't think Commissioner Olvera is 
24   advocating that we go into the promotion of the bingo 
25   business.  But he wants a definition, I think, Billy, 
0097
 1   so there can be some understanding about what it is 
 2   that's troubling the bingo operation in the state, 
 3   relative to proceeds increasing and contributions 
 4   decreasing.  And I think -- I agree with them him on 
 5   that.  I think we could have a better understanding.  
 6   If it's possible, I would like to know what that is.
 7                 COMMISSIONER OLVERA:  Well, and in many 
 8   ways it goes back to what Ron said.  It's -- one of 
 9   the goals of this organization -- well, lottery is to 
10   contribute to the Foundation School Fund.  We know the 
11   lottery goal.  What is the goal of bingo?  Why was it 
12   enacted?  Well, in order to contribute to charities.  
13   So I mean, let's keep in mind what our goal is, and 
14   let's do everything we can to make sure that goal is 
15   being accomplished.  And if it's not being 
16   accomplished, well, I want to know why.
17                 CHAIRMAN CLOWE:  Okay.  And I don't 
18   think we're stepping across the line, Billy.  And I 
19   understand that bright line that you're defining for 
20   us.  We're not in the promotional bingo business.  
21   We're in the business of regulating it.  But as 
22   Commissioner Cox said, we -- we want our position in 
23   regulating it to be supportive to it.  And that's 
24   where I think we can step up to some extent and help 
25   by better communications to the industry.
0098
 1                 This is tough.  This is tough.  We 
 2   don't own this thing.  You know, it -- it's owned by 
 3   lots and lots of people out there.  We can do anything 
 4   we want to with the Lotto, you know, within the 
 5   lottery act.  But we change the rules and do a lot of 
 6   things to make that really attractive.  With all the 
 7   staff's work, you know, to be able to point in a year 
 8   was the second best in history and up 11 percent, 
 9   that's magnificent.  And here we've got bingo just 
10   languishing.  But it's not our business to reach in 
11   there and get it and do the things that Gary pointed 
12   out, we think we know how to do.
13                 We've got to reach out and communicate 
14   with these people and help them understand -- that 
15   there's -- they're not aware.  We saw that last week.  
16   After all the evidence, those guys just didn't have an 
17   idea of what their problem was, and they came to us to 
18   fix their problem.  And that -- that really frustrated 
19   me.  We haven't got our message across.
20                 COMMISSIONER COX:  Billy, just one more 
21   thing that I want to add.  Last year we spent a good 
22   deal of time trying to define, and perhaps set 
23   requirements for, the length between proceeds and 
24   contributions to charity and that is how much money 
25   charity can keep in its operating account before it 
0099
 1   has to overflow that account and go into charity.  And 
 2   that might be the thing that we need to look into 
 3   again.  Because if the proceeds go up, net proceeds go 
 4   up, and contributions to charity go down, the only 
 5   place that that can be wrong that's occurred to me, is 
 6   in the operating accounts.  And if they're 
 7   accumulating unnecessary amounts in the operating 
 8   accounts before making charitable distributions or 
 9   just out of abundance of caution, then we should 
10   identify that as being where that money is going and 
11   help bring that issue out into the open and suggest 
12   solutions for it.
13                 MR. CADENHEAD:  Could I make one more 
14   comment?  
15                 COMMISSIONER COX:  Please.
16                 MR. CADENHEAD:  In the early part of my 
17   career, I spent five years in an organization in Santa 
18   Barbara called the Center for the Study of Democratic 
19   institutions.  They had a very audacious goal to just 
20   sort of shine the light on democracy and on the 
21   problems that it appeared that the country was not 
22   facing at the moment.  And back in the '70s that was 
23   things like cloning and global warming, that there 
24   would be some values, shining some light in those and 
25   just airing the issues and bringing experts in and 
0100
 1   talking about that.  It seems to me that kind of model 
 2   might be appropriate here in your meeting format.
 3                 It seems to me that what's -- what's 
 4   going on in bingo is largely in the dark.  Most Texans 
 5   don't know what's happening here.  Most don't know how 
 6   little is going to charities and where the money is 
 7   going.  And just to have a major conference maybe 
 8   sponsored partially by the lottery, partially by the 
 9   attorney general, and partially by a foundation and to 
10   really bring a group of experts and compare best 
11   practices and theory and just to air that could have 
12   some value.
13                 CHAIRMAN CLOWE:  I think that's pretty 
14   good.
15                 COMMISSIONER COX:  Maybe partially by 
16   the fellowship.
17                 MR. ATKINS:  We'll be working with the 
18   consultants on this issue closely.
19                 CHAIRMAN CLOWE:  He's going to get you.  
20   They did shine the light finally.  Finally got them to 
21   shine the light.
22                 MR. GREER:  Catherine has a follow-up 
23   to that.
24                 MS. MELVIN:  I want to make a comment.  
25   I don't know if it's appropriate, but I know this is a 
0101
 1   work session.  As this dialogue is ongoing, I had a 
 2   thought and maybe it's more of a question.  But I'm 
 3   going to simplify it.  And I know this isn't very 
 4   simplified, but it seems to me there's an equation 
 5   you're working with.  There's a certain amount of 
 6   revenue that the bingo industry is bringing in.  There 
 7   are their allowable expenditures.  And at the end of 
 8   the note, several subtractions comes the amount of 
 9   money that they give to the charities.  And I'm 
10   wondering, how much control does the Lottery 
11   Commission have over what's considered an allowable 
12   expenditure.  And maybe therein lies the answer to 
13   increasing the amount of money that goes to charities.
14                 I know -- I know this because -- or I 
15   ask this because in other models, say, you know, with 
16   grants and Federal monies, that it's very interesting 
17   how grant recipients treat allowable expenditures.  
18   That concept can mean a number of things.  And so, you 
19   know, Commissioner Cox, you mentioned, well, how much 
20   are they keeping in reserves or other operating 
21   accounts.  It might be a matter of what are they 
22   terming as allowable expenditures and how much 
23   flexibility do we grant them in increasing allowable 
24   expenditures.  And I don't know.  I guess that's my 
25   question is how much authority do we have over more 
0102
 1   narrowly defining what that means?  
 2                 MR. ATKINS:  Well, the Bingo Enabling 
 3   Act actually identifies those expenses that are 
 4   allowable.  So they are provided for in the statute.  
 5   And one of the problems with the distribution formula 
 6   is that it allows for so many expenses to be deducted 
 7   before the distribution has to be calculated.  And 
 8   there have been occasions when that list of expenses 
 9   has grown.  And the more expenses has been 
10   authorized.  And every time that has come forward to 
11   the legislature, we have made the statement, where 
12   appropriate, every expense that you add on this side 
13   of the sheet is ultimately going to have an impact of 
14   decreasing what that distribution is going to be.
15                 MS. MELVIN:  Billy, but let me ask 
16   you.  In the Enabling Act, is there the concept of 
17   reasonable and necessary?
18                 MR. ATKINS:  Yes.
19                 MS. MELVIN:  Because under allowable 
20   expenditures -- I mean, for example, salary, of 
21   course, is a -- is a necessary expenditure and I would 
22   imagine would be allowable.  But, you know, at what 
23   level does it become unreasonable?  Is that provided 
24   for in the Act?  
25                 MR. ATKINS:  It is provided for in the 
0103
 1   Act, and we've had -- I don't know exactly how many, 
 2   but we've -- we've gone to hearing over what's 
 3   reasonable and necessary.  Reasonable and necessary is 
 4   in there, but it's not defined.
 5                 MS. MELVIN:  Those are all my comments.
 6                 CHAIRMAN CLOWE:  You make a good point, 
 7   Catherine, but you and Billy will talk about that 
 8   later.
 9                 Okay.  Thank you for this discussion.
10                 MR. ATKINS:  Thank you.
11                 MR. GREER:  We actually have a follow-
12   up action plan that we will delve in into some of the 
13   issues that you've discussed, delve into some of the 
14   issues that you've discussed in this conversation as 
15   well.
16                 With that, Mr. Chairman, you mentioned 
17   a moment ago, we --
18                 COMMISSIONER COX:  The action plan six 
19   was bingo only in that annual report?  Is there 
20   already a lottery annual report, or did y'all not 
21   think that was a good idea for your side of the 
22   house?  Or what do you think about that?  
23                 MR. GRIEF:  On our side of the house, 
24   Commissioner, I believe what we were thinking is we 
25   have -- we are already involved in reporting to a 
0104
 1   pretty high degree.  We have a strategic plan.  We 
 2   have an LAR.  We now have a business plan.  I know 
 3   that in past years there was some discussion of 
 4   developing an annual report that would highlight the 
 5   events of the past fiscal year.  And I think what 
 6   Reagan has done since he's come on board is doing an 
 7   excellent job of getting that word out in other 
 8   formats other than a document that may go on a shelf 
 9   somewhere, along with many other documents that state 
10   agencies produce.
11                 We've got the press conference that's 
12   scheduled for this Friday.  We had a similar one last 
13   year.  Reagan and Nelda and governmental affairs staff 
14   make a point of meeting with legislators on a regular 
15   basis to update them.  I know we use e-mail, letters, 
16   correspondence, that, in my own opinion and I'm open, 
17   I think those can generate better attention from the 
18   people that matter than perhaps another document like 
19   this.
20                 COMMISSIONER COX:  So you -- you 
21   believe that it's a worthwhile goal and you're 
22   achieving it in other ways.
23                 MR. GRIEF:  That is -- that's my 
24   opinion, yes, sir.  
25                 MR. GREER:  I agree.
0105
 1                 Lee.  Go ahead, Lee.
 2                 Pass Lee the mike.  I know from a 
 3   financial status, we do have some type of document out 
 4   there.
 5                 MR. DEVINEY:  It's a little bitty 
 6   budget.  Is that it?
 7                 We -- starting in fiscal year 2002, we 
 8   produced our first comprehensive annual financial 
 9   report which includes information that you -- that you 
10   don't find just in our financial statements.  It 
11   incorporates our financial statements.  The last place 
12   I worked, Texas Agricultural Finance Authority, we 
13   had -- we were statutorily required to do what was 
14   called the annual activity report.  And it included 
15   nonfinancial information but information -- 
16   information about the -- you know, what the agency is 
17   doing and -- and information about, oh, our -- our 
18   activities, benchmarks, performance against 
19   benchmarks, things that wouldn't be in an AFR.  And we 
20   rolled those up together into -- into a comprehensive 
21   report.  We didn't call it a CAFR.
22                 I'm not an expert on the elements of -- 
23   of the CAFR as we produce it to comply with government 
24   finance officers association requirements, but it's 
25   possible that, you know, we can take a look at the 
0106
 1   CAFR and see if there's some room for expansion there 
 2   to maybe capture some of the -- the elements that Gary 
 3   mentioned and we're already reporting by other 
 4   avenues.
 5                 COMMISSIONER COX:  I wasn't suggesting 
 6   that you generate another report.  I just wondered 
 7   why.  It seemed to be a good idea over here and what 
 8   you guys thought to do.
 9                 MR. GREER:  Point well taken.
10                 Are y'all comfortable in moving forward 
11   to the second objective?  
12                 Mr. Chairman, you touched on, a moment 
13   ago, that we've just come off of a very successful 
14   year, our second best.  But obviously we're going to 
15   continue with a way that we can enhance what we're 
16   doing.  And our second objective is to grow 
17   contributions to the Foundation School Fund.  A lot of 
18   that revolves around developing and enhancing new and 
19   existing products and technologies.  That is our 
20   strategy number three.  As we continue to look at ways 
21   that we can do this, a number of these items are 
22   obviously in the marketing realm.  And Steve Martin 
23   will be touching on action plans seven, eight, nine, 
24   and ten.
25                 Steve.
0107
 1                 MR. MARTIN:  Good afternoon, 
 2   Commissioners.
 3                 Action plan number seven, study of 
 4   demographics, identify growth markets, and develop new 
 5   products more appealing to them is an overview of this 
 6   action plan.  More market research studies involving 
 7   the Commission has identified several player segments 
 8   with multiple characteristics.  Traditional marketing 
 9   activities have focused on encouraging existing 
10   players basically to play more often.  Significant 
11   revenue growth can come from marketing activities -- 
12   activities that appeal to infrequent players.
13                 Program roll out for this action plan, 
14   examples of the second focused marketing activities, 
15   the lottery will evaluate in fiscal years 2005 through 
16   2007.  Developing a marketing campaign that 
17   reintroduces the lottery to -- to the public.  There 
18   are new players that are now of legal age that may not 
19   necessarily be aware or have ever played the lottery 
20   or they don't have enough information about the game 
21   to feel comfortable playing.
22                 Based on a request from the state 
23   legislature, the lottery will develop localized 
24   messaging and regional media advertising or direct 
25   marketing to appeal to players who believe no one wins 
0108
 1   in their area.  And this could be executed through 
 2   point-of-sale materials, program LED signs, out and 
 3   out e-mail campaigns, regional eversion radio reads, 
 4   and website communications.  Message examples could be 
 5   something like a winning lotto jackpot ticket was sold 
 6   in Austin; get out and check your numbers; over 100 
 7   top -- top prize-winning Cash Five tickets have been 
 8   sold in the Dallas area in the past three years.  Next 
 9   time it could be you.  So basically getting the word 
10   out that people do win within their area.
11                 Another item would be developing 
12   offers.  For example, buy five get one free or those 
13   that appeal to each segment profile relative to 
14   playing bonuses or other attributes.
15                 Coordination of these activities, this 
16   work will be coordinated by the marketing division in 
17   cooperation with its contractor vendors.  Measurement 
18   would -- these marketing efforts can be measured by 
19   response rates, coupon redemption, website click clues 
20   and sales relative to any regional focus.
21                 That's it for action plan seven.  Can I 
22   answer any questions on that one?
23                 COMMISSIONER COX:  Steve, it sounds 
24   like what you're doing is not just going after the 
25   same 'ol guy, but you're looking at where the money is 
0109
 1   to trying to get some of that money brought into the 
 2   lottery proceeds.  And I think that's the way to go.
 3                 MR. MARTIN:  Yes, sir.  It's looking at 
 4   some of the -- the player segments that don't play 
 5   quite as often, to try and identify those reasons to 
 6   try and get them out there.
 7                 Do you want me just to continue?  
 8                 MR. GREER:  Yes, sir.
 9                 MR. MARTIN:  Action plan number eight 
10   is to develop a research and development pipeline 
11   analysis to align the organization around new gaming 
12   innovations and technologies.
13                 An overview of this action plan, many 
14   organizations have implemented a research and 
15   development process called pipeline analysis.  This is 
16   to identify and weigh the impact of new innovations, 
17   technologies, and changes in the marketplace.  The 
18   Lottery Commission's purpose for a research and 
19   development pipeline analysis is to identify 
20   emerging -- emerging technologies and product lines, 
21   industry trends, and related -- issues related to 
22   vendors and the vendors' industry competition.  For 
23   evaluation of gaming products, that it currently has 
24   the legal authority to develop and commercialize in 
25   order to grow contributions in the Foundation School 
0110
 1   Fund.
 2                 Program roll out.  This would consist 
 3   of a dedicated team or individual staff within the 
 4   marketing division's research department who will -- 
 5   who will prepare analysis with cross-divisional 
 6   support and direct contributions from the lottery's 
 7   division leaders.
 8                 The marketing division is currently in 
 9   the process of building a job description and posting 
10   for a full-time employee with the responsibilities of 
11   industry or pipeline analysis.  The analysis will be 
12   formally evaluated on a quarterly basis or as needed 
13   by topic or project.  The recommended model of a 
14   research and development pipeline analysis at this 
15   level includes two categories for innovation and 
16   technology.  These are two phases.  The first -- the 
17   first is the development phase.  These are products 
18   that some lottery jurisdictions have implemented or 
19   are in the process of implementing.
20                 This analysis will focus on products 
21   that could be brought to market in Texas under 
22   existing legislation.  Products requiring legislation 
23   that will -- requiring legislation will be referred to 
24   the resource center, which is in our action plan 
25   number 19, which I'll get to later.  But that would be 
0111
 1   for fact gathering and further analysis.
 2                 The second phase is a growth phase.  
 3   Products the lottery has recently implemented, but has 
 4   yet to achieve full scale roll out or long-term 
 5   sustainability.  Examples of this would be self-
 6   service terminals or website marketing.  The marketing 
 7   division will focus on enhancing the success of these 
 8   efforts.  Coordination of this action plan will be 
 9   coordinated by the marketing division with cross-
10   divisional support and direct contributions of the 
11   lottery's division leaders.
12                 Measurement, this plan will be 
13   evaluated on a quarterly basis or as needed based on 
14   research data.
15                 Can answer I answer questions regarding 
16   action plan eight?  
17                 MR. GREER:  I would like to add 
18   something.  I'd like to add something on action plan 
19   eight.  Is -- one of the ongoing items that we 
20   continue to pursue is outside construction and 
21   assistance from Doctor Jarrod, another project that 
22   we're working on.  And specifically there is some 
23   items that are in their plan that we're going to be 
24   looking at.  And I just wanted to make note of the 
25   fact that we are coordinating with them on both of 
0112
 1   these projects to keep them in sync and moving in the 
 2   direction. And that is appropriate under this section.
 3                 MR. MARTIN:  And, Reagan, I do have a 
 4   few of those that I'll -- I'll address in the --
 5                 MR. GREER:  Great.
 6                 MR. MARTIN:  -- in the resource center.
 7                 MR. GREER:  Okay.
 8                 MR. MARTIN:  Moving on to action plan 
 9   number nine, evaluating and utilizing informative 
10   marketing techniques and studying multiple message 
11   delivery formats to more effectively share knowledge 
12   about the Lottery Commission and its games with 
13   playing and non-playing Texans.
14                 Overview of this action plan.  The 
15   lottery currently utilizes some informative marketing 
16   techniques, including provide information about 
17   lottery games through point-of-sale materials, website 
18   messaging, and newsletters.  In fiscal year '05, the 
19   marketing division will evaluate increasing the number 
20   of informative marketing campaigns, as well as the 
21   number of media channels utilized within each 
22   campaign.
23                 Program roll out.  Research the 
24   informative marketing strategies of other lotteries, 
25   which may include direct -- direct mail and electronic 
0113
 1   e-mail campaigns; coupons and promotional offers; 
 2   internet advertising; website how-to-play demos, which 
 3   can be in the form of a flash movie; and placement of 
 4   how-to-play brochures in newspapers and periodicals, 
 5   as well as building a data base for the dissemination 
 6   of information through direct mail, e-mail, and coupon 
 7   offers.
 8                 Coordination of this action plan, the 
 9   marketing division will involve GTECH, the instant 
10   ticket manufacturer; lottery operations; ITs; and 
11   security; and marketing and planning.  The marketing 
12   staff will develop and refine a process to ensure that 
13   the campaigns are implemented effectively.
14                 Measurement, cost benefit analysis will 
15   be conducted prior to any informative marketing 
16   campaign and response and sales impact will be 
17   measured following the activity.  Inform -- 
18   informative marketing efforts can be measured by 
19   response rates, coupon redemption, website click 
20   clues, and sales relative to a specific focus.
21                 Can I answer any questions about nine?
22                 Action plan ten, develop a business 
23   plan for a virtual lottery store that would sell 
24   lottery brand gifts and apparel.  Overview on this, 
25   the -- the Texas Lottery brand represents fun, 
0114
 1   excitement, and opportunity.  Providing the public 
 2   with an opportunity to purchase promotional items can 
 3   enhance the advertising value to the lottery and its 
 4   games and generate -- generate incremental type 
 5   contributions to the Foundation School Fund.
 6                 Robert is going to pass around a few of 
 7   our -- our items to see examples of what's likely to 
 8   be in a -- a store which could be either a website 
 9   store or something that's sold as a line with the 
10   retailers.
11                 Program roll out.  Currently the 
12   Lottery Act authorizes the Commission to sell tickets 
13   only and would require legislative review to expand 
14   selling opportunities to include promotional items.  A 
15   survey of other lotteries will be conducted to collect 
16   data on their current merchandising venues and 
17   promotional items.
18                 Review and evaluate procedures for 
19   selling promotional items by other state agencies.  
20   And this would include agencies like the State 
21   Preservation Society's Capital store, in the Capital; 
22   the Texas History Museum store.  And both of those do 
23   sell a brand of -- brand of promotional items.
24                 Budgeting and allocating for the 
25   procurement, distribution, and promotion of the items, 
0115
 1   as well as IT vendor contracts for a software license 
 2   to establish a secure e-commerce website.
 3                 Distribution channels for public 
 4   purchase of items would need to be planned, and this 
 5   could include a wholesale channel of the merchandise 
 6   for current retailers, potential lottery retail 
 7   locations, it could be the headquarters, and then the 
 8   website store, as I mentioned.
 9                 Coordination, implementation time line 
10   would need to be created with the assistance of other 
11   internal divisions.  Plans, procedures, and designated 
12   staff would need to be determined to implement and 
13   promote the lottery store availability to the public 
14   and retail base.
15                 Measurement.  Sales tracking will 
16   identify the most preferred items by category and 
17   style.  Cost benefit analysis will be conducted before 
18   and after the first 90 days and periodically 
19   thereafter to provide data.  Demographic analysis and 
20   research would be needed to be conducted to identify 
21   the customer base potential for a lottery store.
22                 In closing, I would like to reiterate 
23   that the Lottery Act authors -- authorizes the 
24   Commission to sell tickets only.  And this plan would 
25   require legislative review to expand selling 
0116
 1   opportunities to include promotional items.
 2                 Any questions on action plan number 
 3   ten?
 4                 MR. GREER:  I would like to make a 
 5   comment on that as well.  This is an area that in my 
 6   prior life as a realtor, I was the chairman of the 
 7   state in the local PR committee.  And we started out 
 8   on a local level with a budget of $233 -- and it was 
 9   all I could do to get that -- because I felt that 
10   there was value in promoting the industry as a whole.  
11   You know, I have a little larger budget here at the 
12   Texas Lottery to work with and --
13                 COMMISSIONER COX:  Or smaller.
14                 MR. GREER:  Yeah.  Or smaller.  It 
15   could be shrinking.
16                 But I'm sensing from my visits with the 
17   retailers and just players in general, that there is a 
18   lot of excitement about specific games the players, 
19   you know, really enjoy.  And the retailers 
20   specifically, they want to wear a jacket.  I give them 
21   a hat when I go and see them and thank them, and 
22   they're all excited about that.  But this is an area 
23   that I will personally be involved in, have experience 
24   in, have worked with the capitol store, with the 
25   preservation board over there.  And they will require 
0117
 1   legislative action.
 2                 This was a BHAG as we work through our 
 3   session as a whole.  This was a -- this is a big 
 4   goal.  It's something I think is worthwhile.  And I 
 5   just wanted to mention to you that we will continue to 
 6   monitor it.
 7                 And I think Kim had a follow-up.  I see 
 8   her head nodding.
 9                 CHAIRMAN CLOWE:  Have you -- have you 
10   done a revenue projection on this?  
11                 MR. GREER:  We haven't gotten past 
12   anything more than an idea from the prospective that 
13   it's a legislative requirement.  And we're concerned 
14   about stepping out too far.
15                 MS. KIPLIN:  Just to -- I guess, to put 
16   two cents in, there has been an internal interest 
17   rendered that's consistent with what Steve said.  
18   We're considering requesting an attorney general's 
19   opinion just -- just to see if opinions are 
20   different.  I think there is the thought that there 
21   are state -- there are state agencies that, to engage 
22   in this type of commercial enterprise, you actually 
23   have to have express authority.  But that -- those 
24   agencies are a bit different in the sense that they're 
25   not actually selling the product.  The one that comes 
0118
 1   to mind in particularly is the Parks and Wildlife is 
 2   selling.
 3                 CHAIRMAN CLOWE:  They're selling deer 
 4   eggs.
 5                 MS. KIPLIN:  They actually have 
 6   expressed an orientation on that kind of activity.  
 7   But what -- what I think what -- what we're 
 8   envisioning is not necessarily generating revenue from 
 9   the sale of these items, but in -- in reality, 
10   actually promoting the lottery through the sell of the 
11   items and people wearing them and having them and, you 
12   know, the display, the visibility.  And so it may be 
13   that we could receive an opinion that would say, so 
14   long as it is a cost recovery and you're not engaging 
15   in the commercial enterprise of selling these kind of 
16   goods, maybe that's the fine line.
17                 COMMISSIONER COX:  We're not going to 
18   seek that particularly, are we?  
19                 MS. KIPLIN:  Beg your pardon?
20                 We'll be -- we'll be probably asking a 
21   neutral opinion.  We can do it either way.  We can 
22   advocate a position.  
23                 COMMISSIONER COX:  Well, if we could do 
24   it, if we get a positive opinion that we could sell it 
25   for profit, then we could -- that might also include 
0119
 1   the idea that it would be cost recovery, not vice 
 2   versa.  I'd sure hate to limit ourselves in what we 
 3   ask for.
 4                 MS. KIPLIN:  I tell you -- well, on 
 5   that aspect, why don't I visit with you --
 6                 COMMISSIONER COX:  Okay.
 7                 MS. KIPLIN:  -- individually.  And I'm 
 8   happy to -- not to the exclusion of the other.  I'll 
 9   go each individually, as we proceed.
10                 COMMISSIONER COX:  Reagan, I think it's 
11   a great idea.  But one thing I would caution you on, 
12   having been in a business that did this once, is, you 
13   have no idea how many people expect it free.
14                 MR. GREER:  I agree.  I mean, there's a 
15   lot of --
16                 COMMISSIONER COX:  That's not a reason 
17   not do it.
18                 MR. GREER:  -- lot of land mines.  We 
19   thought, you know, just looking at the ideas, start 
20   with limited items, specifically some of these -- you 
21   know, a hat, a jacket, you know, basic things that 
22   players -- a lot of people are really proud of the 
23   fact that they support the lottery.  And it's, you 
24   know, kind of an intangible value, I think, is what 
25   we're saying.
0120
 1                 MS. KIPLIN:  The other issue, at least, 
 2   in the back of my mind, and I want, I think, least 
 3   make sure that it's embedded is, any kind of exposure 
 4   liability from products, liability issue, you know, 
 5   things of those nature.  We are a state agency, and as 
 6   such, we enjoy all sorts of immunity.  But when a 
 7   state agency begins to enter into a private 
 8   marketplace, there is some case law -- and I don't 
 9   know if it's on point on this -- that would stand for 
10   the proposition that we would lose the ability to plan 
11   a on this.
12                 COMMISSIONER COX:  There goes the 
13   fireworks.
14                 COMMISSIONER OLVERA:  Mr. Chairman and 
15   Commissioner Cox, if I -- if I may request a favor, I 
16   have a 4:55 flight, so I probably need to be leaving 
17   fairly shortly.  Perhaps we can go a little bit out of 
18   turn and if we could hear some closing or summary 
19   comments from Reagan or Billy, if applicable.
20                 CHAIRMAN CLOWE:  Okay.  And in that 
21   regard, where are we in this process?
22                 MR. GREER:  We are moving about -- 
23   we're on the home stretch.  You know, there's 23 
24   items, and we're moving into items 11 through 14, 
25   which are all interrelated.  That was four that are 
0121
 1   interrelated.  Just a few more pages actually.
 2                 CHAIRMAN CLOWE:  Well, and then, in 
 3   light of what Commissioner Olvera's time schedule is, 
 4   why don't you try to accommodate him.  And when he has 
 5   to go, we still have a quorum.  We can go back and 
 6   touch things that need to be touched.
 7                 MR. GREER:  Well, one -- just in a 
 8   brief summation of where we are and where maybe we are 
 9   headed, we took the document -- Mike Anger had 
10   accompanies us on this.  We took the document and 
11   basically hit the high points.  We've gone into some 
12   detail.  The -- the pages that correspond to where, 
13   you know, we are in this in reference to the overall 
14   document, it's 40 pages and we're on page 27.  So 
15   there are some things that take a lot more time and 
16   there are some that, you know, really don't.
17                 But with the marketing aspect of it as 
18   far as the details of where we are, you know, 
19   currently looking.  And then you look at objective 
20   number three.  There is one action item on objective 
21   number three which is emerging environment responses.  
22   And then you look at action item number four.  And 
23   those are our last three, which is the quality and 
24   skill of our staff.
25                 So a lot of what I wanted to, you know, 
0122
 1   accomplish was -- was covered with you being here, we 
 2   can bring you up to speed on the other issues that 
 3   might come forward, you know, after that from my 
 4   point.
 5                 Billy.
 6                 MR. ATKINS:  I think primarily, 
 7   Commission Olvera, we just wanted to make sure that we 
 8   were kind of going along the same lines of whatever 
 9   expectations you might have had in terms of the 
10   development of the -- of the business plan and if 
11   there's, you know, any -- any amendments or any other 
12   directions you would like to see us go in.
13                 COMMISSIONER OLVERA:  And that's fine.
14                 Well, on that note, I want to thank the 
15   staff and our consultants for being here today.  Thank 
16   you for your presentation and any enlightenment you 
17   can share with us.  And I will take my leave.  
18   Commissioners.
19                 CHAIRMAN CLOWE:  If you could just wait 
20   a minute.
21                 COMMISSIONER OLVERA:  Sure.
22                 CHAIRMAN CLOWE:  I want to make one 
23   comment that I'd really appreciate you being here for.
24                 COMMISSIONER OLVERA:  I would be happy 
25   to.
0123
 1                 CHAIRMAN CLOWE:  We touched, to some 
 2   extent, on -- and a number of times -- it deals with 
 3   the quality of people in this agency and the work 
 4   product that is produced here.  I think it's very 
 5   important that that be recognized.  Ron touched on 
 6   that in his remarks, but I really want the three 
 7   commissioners to make a statement about how they value 
 8   the people in this Commission and the work product and 
 9   the reliance that we can place on the good work that's 
10   done here every day.
11                 This agency is different.  It is, in my 
12   mind, held to a higher level of performance.  And it 
13   is extremely important that every employee in this 
14   agency, all 325 of them, or whatever the correct -- 
15   current number is, understand how important they are 
16   to the State and to the three commissioners.  And 
17   there is no way we could pay these people what they 
18   are worth.
19                 There is no way we can do the kind of 
20   educational and career developmental work that we 
21   could do if we were in the private sector.  You know, 
22   I would like to love to see all of you get to go to 
23   seminars and schools and improve yourself at this 
24   business entity's expense, because I've always felt 
25   you get that back tenfold.  But you have committed to 
0124
 1   State service.  And there are benefits from that, as 
 2   opposed to being in private enterprise.  And one of 
 3   the things is, you get to live in Austin, Texas.  And 
 4   you get the stability that's here and all those good 
 5   things.
 6                 My son works for a state agency, and he 
 7   appreciates that.  But I think you don't get enough 
 8   praise and you don't get enough appreciation when you 
 9   meet the high standards that these commissioners have 
10   set.  And we are setting a high standard.  I think 
11   that's our job.  And we don't except shoddy 
12   workmanship or late work products or things that don't 
13   work.  We tell you it's no good when we see it coming, 
14   and we expect you to do it better and you do it.
15                 And I just think it's important 
16   throughout the adoption of this business plan -- and I 
17   haven't seen it specifically stated in bold title.  
18   But I would like it to be part of the business plan to 
19   continue to appreciate the work that's done by the 
20   employees of this Commission, to support them and to 
21   urge them to improve in every way possible and to call 
22   on the three commissioners to be a part of that when 
23   they can play that role.  And I just wanted you to be 
24   here so that you could give your comment in regard to 
25   the people aspect of this business.
0125
 1                 COMMISSIONER OLVERA:  Well -- and thank 
 2   you for that, Mr. Chairman.  For the record, I don't 
 3   think -- or many people do not realize that the 
 4   commissioners are volunteers.  We're not paid to be 
 5   here.  And yet we're charged with regulating a multi-
 6   billion-dollar industry.  And just with that statement 
 7   alone, I think it should be inherently obvious that it 
 8   would be impossible to do it without a staff of the 
 9   quality that we have and that keep us abreast of this 
10   industry, this business.
11                 I thank you for your efforts.  Thanks 
12   are not enough because of the work that you put in.  
13   But I could not do my job without you doing your job, 
14   nor could any of the commissioners.  And keep up the 
15   good work.  We have set high standards.  I know we've 
16   said that -- said that before.
17                 One of the problems I think that we see 
18   in this nation is -- is inherently lowering 
19   standards.  And I don't believe that's a trend that 
20   America believes in.  I think it's always been the 
21   opposite in our history, that we've always set the bar 
22   higher than usual.  And that is what we shall continue 
23   to do.  That is what I shall continue to endeavor to 
24   do as a part of this Commission.  And you've 
25   consistently met those goals and continue to achieve 
0126
 1   those goals, both bingo and lottery.  So thank you for 
 2   that.  And I look forward to seeing you next time.
 3                 COMMISSIONER COX:  Well, this -- this 
 4   exercise has done for me what I knew it would do, and 
 5   that is to awaken you people to the realization that 
 6   you can do this kind of work.
 7                 And I know, Gary, we've probably talked 
 8   about this before Reagan came on board, because it was 
 9   recommended before he came on board.  And we were very 
10   apprehensive and we were concerned about where we 
11   could get the kind of help that could help us do this 
12   without taking over the process and making it 
13   something that wasn't ours.  And Reagan, Gary, and 
14   Billy -- Gary, congratulations to all of you for doing 
15   this thing just right.
16                 This is a very well-balanced document 
17   that I know management has bought into and that you 
18   brought your expertise to it.  And it's very obvious 
19   that you brought your expertise to it.  I can tell 
20   based on the input.
21                 CHAIRMAN CLOWE:  Very well.  The record 
22   will reflect that at 4:05 Commissioner Olvera excused 
23   himself.
24                 We will continue on then.  
25                 MR. GREER:  Thank you, Commissioner.
0127
 1                 We will move forward as we continue on 
 2   the topic of growing contributions to the Texas 
 3   Foundation School Fund through strategy number four, 
 4   develop and enhance new and existing channels for 
 5   marketing and delivering TLC products and growing 
 6   contributions.  Action items 11, 12, and 13 will be 
 7   handled by Robert Tirloni from marketing.
 8                 MR. TIRLONI:  Commissioners, I'll start 
 9   with action plan 11.  Action plan 11 is to consider 
10   utilizing cross-promotion opportunities with quality 
11   brands and large retailers.
12                 Commissioners, through our marketing, 
13   promotional, and advertising initiatives, we worked 
14   hard to develop a strong brand awareness that the 
15   Texas Lottery enjoys today.  There's no question when 
16   the public sees the logo with the hat and the hands, 
17   there's no question about what that symbolizes and 
18   that that logo represents the Texas Lottery 
19   Commission.  So the brand which we've built represents 
20   fun, excitement, opportunity.  And we feel that the 
21   brand awareness that we've built matches well with 
22   other trusted brands.  So we feel there are examples 
23   or opportunities for cross-promoting and cross-
24   marketing the Texas Lottery.  And we feel that we can 
25   develop relationships with such entities as airlines, 
0128
 1   consumer product manufacturers, grocery store chains, 
 2   and car dealers.  And those are just a few examples.  
 3   We think we can achieve some win/win campaigns that 
 4   can generate increased lottery sales and increased 
 5   brand awareness for us and for the entities in which 
 6   we enter into relationships with.
 7                 So in order to roll these types of 
 8   opportunities out, staff will work with -- marketing 
 9   staff will work with GTECH sales staff and will 
10   evaluate co-marketing relationships and then develop 
11   venue-specific promotions to carry those -- to carry 
12   out those promotions.  I should say that we conduct 
13   promotions all the time.  We -- I'm sure you hear 
14   radio promotions.  We participate in grand openings.  
15   Our promotions team in marketing participates in fairs 
16   and festivals all around the state.  One of the most 
17   popular ones -- upcoming one here in the next few 
18   weeks, The State Fair of Texas.
19                 This is going a step further than our 
20   normal promotional efforts.  And it's really building 
21   programs.  So for example, for retail store openings, 
22   we feel that we can build a program with, let's say, a 
23   gas station chain, where no matter when that -- that 
24   chain was going to be opening a new location, whether 
25   it be in Corpus or Amarillo, the lottery would be part 
0129
 1   of the grand opening event, so to speak.  And that 
 2   would include, or could include, radio station 
 3   broadcasts, radio remotes, hourly lottery ticket 
 4   giveaways, and the distribution of lottery merchandise 
 5   or promotional items that we just saw.  We also feel 
 6   we can develop programs with car dealers, where local 
 7   dealers could give away, for example, ten dollars' 
 8   worth of lottery tickets for people coming in to take 
 9   test drives on certain products or certain cars that 
10   that dealership sells.
11                 We think we have the opportunity to 
12   work with airlines.  There are three Texas-based 
13   airlines.  And we felt that we could develop a program 
14   with those airline when -- as -- as flights are 
15   preparing for landing at Texas destinations, our 
16   current jackpot amounts could be announced.  And that 
17   could also work in conjunction with deployment plans 
18   for SSTs and airports and airport terminals.
19                 We also believe that we can develop 
20   frequent player programs.  Again, we would build these 
21   programs with our corporate chains.  And this would 
22   incorporate loyalty cards that players would use when 
23   they make lottery purchases at certain corporate 
24   grocery store chains, or they would build points that 
25   could be redeemed for either free play on lottery 
0130
 1   games or for merchandise from that store.
 2                 Again, a lot of these are extensions of 
 3   our current promotional efforts.  They're taking one 
 4   step further and building a program with some of 
 5   these -- what we could call partners.  We would 
 6   measure the effectiveness of these promotions by doing 
 7   ROI measurements on a case-by-case basis after these 
 8   programs or promotions were initiated and executed.
 9                 And that's my comments on plan 11 -- 
10   action plan 11.  I would be happy to answer any 
11   questions.
12                 COMMISSIONER COX:  Counsel.
13                 MS. KIPLIN:  Yes.
14                 COMMISSIONER COX:  I assume you are 
15   involved with this.
16                 MS. KIPLIN:  Yes.
17                 COMMISSIONER COX:  Good.
18                 MS. KIPLIN:  I will say on some of 
19   these action plans, we already have some legal 
20   referrals on whether we do have the authority on some 
21   of the concepts that are already being --
22                 COMMISSIONER COX:  And if we have the 
23   authority, what kind of liability are we getting into 
24   in creating and joint co-oping in the whatever all 
25   those terms are.
0131
 1                 MS. KIPLIN:  Sure.  Okay.
 2                 CHAIRMAN CLOWE:  And then additionally, 
 3   to those considerations, from a fairness standpoint, 
 4   we have to have standards that if we deal with one car 
 5   dealer, based on certain criteria, we deal with all 
 6   car dealers.  We have been approached by certain 
 7   entities for promotions to be entered into with our 
 8   instant tickets that would promote their events.  
 9   And -- and we're concerned about that.  Narrow 
10   interest that favors one business entity and does not 
11   offer that same opportunity to others similarly 
12   qualified business entities, for a state agency, would 
13   be improper.  So that fairness issue must be dealt 
14   with.  And equity has to be there for all who are 
15   qualified that we would offer the opportunity to.
16                 MR. TIRLONI:  Yes, sir.  I will take 
17   all that into consideration and work with legal 
18   counsel on any and all those ideas that we end up 
19   pursuing.
20                 CHAIRMAN CLOWE:  Other than those, we 
21   think your idea is great.
22                 MS. KIPLIN:  Commissioners, I would say 
23   that we have had these issues arise in terms of 
24   fairness and -- and equity among our retailers on 
25   promotions that occur in particular geographic 
0132
 1   locations.  And so we're -- we will work through those 
 2   issues on the same kind of footing.
 3                 CHAIRMAN CLOWE:  Thank you.
 4                 Robert, I'm going to ask you to pause 
 5   now.  We have worn out our court reporter.  And we're 
 6   going to give her a break.  And we'll just take a 
 7   short 10-minute or so break and let her be replaced by 
 8   another court reporter.  And then we'll be ready for 
 9   action plan number 12.
10                 Thank you for your help this afternoon.
11                 (Recess.)
12   
13   
14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0133
 1                        (RECESS.)
 2                  CHAIRMAN CLOWE:  It is 4:22.  This
 3   Commission will come back to order.  And, Robert, I
 4   think you were ready to go into action plan number 12.
 5                  MR. TIRLONI:  Yes, sir.  Actually,
 6   Commissioners, I'm going to combine 12 and 13 and talk
 7   about them both at the -- at the same time.  Action
 8   plan number 12 is to utilize the deployment of
 9   emerging lottery product technologies to foster
10   expansion strategies in new distribution channels.
11   And action plan 13 is to enhance retailer licensee
12   recruitment efforts.
13                  We feel that to execute number 13, we
14   also need to execute number 12.  The overall goal
15   would be to expand and maintain a healthy retailer
16   base by supporting our existing licensees and
17   recruiting new licensees.  And when I say "new
18   licensees," I'm talking about corporate chains in
19   which we do currently have a presence, such as
20   drugstore chains, home improvement store chains, and
21   some other venues that we talked about actually in the
22   last Commission meeting.  There have been enhancements
23   in technology in the Lottery industry that can expand
24   the placement of lottery products and open up new
25   distribution channels.
0134
 1                  One of those -- one of those items
 2   we've been using for quite some time and that's our
 3   ITVMs or our instant ticket vending machines.  And
 4   those are basically self-service machines that sell
 5   instant tickets.  More recently, we have introduced
 6   self-service terminals, which now are -- which now is
 7   a self-service type machine terminal that allows for
 8   the sale of on-line lottery products into
 9   nontraditional locations.  A very good relationship
10   that we have developed due to new technology is our
11   relationship with H-E-B.  The H-E-B grocery store
12   chain would not be selling lottery products today if
13   it were not for the SSTs or the self-service
14   terminals.
15                  Besides the ITVM and the SST, we are
16   looking at and closely watching the possible
17   introduction and addition of a new hybrid machine.
18   Basically, this hybrid machine is a combination of an
19   SST terminal and an instant ticket vending machine all
20   rolled into one.  The benefits of that are a smaller
21   footprint, which is very attractive to retail
22   locations that are very focused on space allocation.
23   GTECH is going to be testing this hybrid technology in
24   the state of Washington in early 2005, and we'll be
25   closely monitoring the progress of that test.  So in
0135
 1   order to roll this out, new types of locations would
 2   need to be identified, and we've already done that in
 3   coordination with GTECH sales and corporate account
 4   staff.  Some of those locations would be airport
 5   terminals, hotel lobbies, convention centers, sports
 6   arenas, as I mentioned, drugstore chains, home
 7   improvement chains, and we've even talked about mass
 8   transportation stations.  And we work closely with
 9   lottery operations and legal on the possibility of new
10   types of licensee relationships.  For example, the
11   possibility of a license for a retailer to sell only
12   on-line lottery products.  And in order to recruit
13   these locations, we might reversion recruitment and
14   retailer kits by industry.  For example, a recruitment
15   kit that would focus on drugstore chains.  We've had
16   great success in working with H-E-B on the development
17   of a how-to-play flyer for the self-service terminals
18   that they asked us for, and that's been very
19   successful and very beneficial to the rollout of SSTs
20   in those type locations.
21                  So we would work with other divisions
22   within the agency to explore different licensing
23   options and, as I said, GTECH corporate account staff,
24   to open up the doors to these new channels for us.
25   Before taking a step in this direction, we would
0136
 1   perform cost-benefit analysis prior to the acquisition
 2   of any new equipment.  And after installation, we
 3   would monitor return on investments so we could
 4   monitor equipment performance and determine the
 5   optimum locations for success.
 6                  And that is my comments on 12 and 13,
 7   and I would be happy to answer or address any
 8   questions.
 9                  CHAIRMAN CLOWE:  Thank you, Robert.
10                  MR. TIRLONI:  Thank you.
11                  CHAIRMAN CLOWE:  Reagan.
12                  MR. GREER:  We'll continue with action
13   number 14, which is going to be presented by Lottery
14   Operations as well as Charitable Bingo, Mike and
15   Billy.
16                  MR. ANGER:  Commissioners, this action
17   plan differs somewhat from the two action plans that
18   Robert just talked about related to recruitment of new
19   licensees and focuses more on our existing licensee
20   base.  The action plan to enhance and expand
21   communication processes with licensees represents the
22   formalization of an ongoing effort here at the agency.
23   Staff recognizes the effective communications with
24   licensees are critical to the success of the
25   Commission for a number of reasons.  Specifically, it
0137
 1   fulfills our commitment to provide quality customer
 2   service to the public, and it also creates operational
 3   cost savings for the agency through increased licensee
 4   compliance through greater understanding of out rules
 5   and policies.  And to a certain extent, this is
 6   something that we stole from our friends in Charitable
 7   Bingo.  They developed an operator training program
 8   which they found to be very effective in reducing
 9   licensee violations, and it's something that we have
10   recognized on our side of the house that could be a
11   benefit to us as well.
12                  In August of 2003, at the direction of
13   executive management, the Retailer Communications
14   Committee was formed.  And the committees is made up
15   of lottery operations, marketing, security, the legal
16   division, and also representation from the Lottery
17   operator, GTECH, to provide us input based on their
18   interactions with licensees out in the field.  The
19   committee was assigned several goals:  Develop and
20   launch of a more extensive licensee training program;
21   development of additional retailer licensing rule
22   support documents; the evaluation of licensee outreach
23   programs; enhancing communications tools to reach
24   licensees on important topics; and, finally, to
25   develop a new web-based communications tool.
0138
 1                  In short, the staff believes that there
 2   is an ongoing value in the ideas being generated by
 3   this group across divisional staff and believes there
 4   is an opportunity here to continue those activities.
 5                  Two of the successes that I wanted to
 6   bring to your attention, one with regard to the first
 7   role that was set forth was to enhance our training of
 8   our licensees.  In June of this year, we rolled out
 9   some diversified training that was focused on
10   different licensees and different structures that they
11   might operate under in businesses to try to better
12   communicate information and that would be important to
13   people at the store level, and also, to corporate
14   accounts as far as managing their relationship with us
15   as a licensee.  That's an ongoing activity that the
16   Retailer Communications Committee will be monitoring
17   and reporting back on and adjusting the training
18   program as we move forward.
19                  One of the other successes that's come
20   from that group is that we've worked with the IT
21   division on the development of the retailer services
22   center, which is a web-based application for the
23   retailers, which we actually began testing on this
24   week with some of our retailers on a beta testing
25   basis, and the website will provide retailers, via a
0139
 1   PIN number, with financial information about their
 2   accounts which, in the past, has always only been
 3   available through contacting the Commission directly.
 4   Additionally, they'll also be able to make bank
 5   account changes, and we envision a number of other
 6   activities that we'll be able to expand through time.
 7                  The focus of any of the efforts out of
 8   this committee, though, is to evaluate the things that
 9   will provide the best benefit to the licensees and
10   also the best cost benefits for the agency.  So as
11   these ideas come forward, we want to evaluate those
12   ideas and ensure that they're in the best use of
13   agency resources as we move forward with those.
14                  I'm going to turn things over to Billy
15   to talk about activities in the Charitable Bingo
16   division and how they're following some similar
17   processes in their area.
18                  MR. ATKINS:  And Commissioners, I
19   would, for the bingo segment of this action plan, I
20   would draw your attention to two documents.  The first
21   is the business -- the draft business plan itself,
22   which you have in front of you on page 33, where it
23   talks about some of the division's goals.  Under that,
24   I draw your attention to, I believe it is the first
25   and the third bullet.  The first one reads, simplify
0140
 1   the process to obtain a bingo license within the
 2   requirements of the Bingo Enabling Act.  The third is,
 3   simplify and clarify the application process while
 4   maintaining appropriate regulatory controls so that
 5   the process doesn't seem overwhelming for
 6   organizations run by volunteers.
 7                  The second document that I would refer
 8   to is the agency's strategy report, which was issued
 9   in the December of 2003.  And the primary goal of that
10   report was to allow licensees to transact business
11   with the agency through the Internet.  As Mike just
12   mentioned, the lottery's Internet retail center is
13   currently being tested, and one of the things that we
14   want to do is review its functionality as it's being
15   tested when it goes live, have discussions with the
16   Lottery to see how it's working out for them.  But
17   we're also going to be looking at perhaps specific
18   modules developed for the Lottery that we could
19   utilize for some of our own purposes.  And a lot of
20   our interest in piggybacking off the Lottery service
21   center is the desire to reduce the cost to fully
22   implement the bingo license and support center, which
23   is currently estimated at about 630,000 dollars.
24                  Again, as we move forward on this item,
25   we think it's very important that the issue be brought
0141
 1   to the attention of the bingo industry.  As I
 2   mentioned earlier, this is one of those examples that
 3   could be brought forward in one environment of the
 4   Bingo Enabling Report, also, through the Advisory
 5   Committee, but we think it's important to get the
 6   information to the industry since there will be a
 7   fiscal impact in terms of implementing it.
 8   Specifically, when we look to the fact that the last
 9   time the division asked for funds to perform any kind
10   of upgrade on the division's operating systems,
11   specifically, the ACDS, the only funds authorized were
12   obtained through an increase in the license fees.
13                  For the division, the emphasis of this
14   action plan isn't so much on cost savings as it is on
15   improved customer services.  And we're all aware of
16   the wide variety of activities that can be conducted
17   over the Internet, whether it's making travel
18   arrangements, financial transactions, et cetera.  We
19   believe that there is time that can be freed up by
20   some of the functions, primarily those of temporary
21   applications and amendments, and some of that freed-up
22   time can then be used in concentrating more on
23   compliance issues.  We'll be able to monitor the
24   success of these functions based on the amount of
25   business that licensees conduct on-line.  And, again,
0142
 1   we believe that we need to include the industry in
 2   this analysis and determine what type of level we
 3   could expect from the licensees.  Something that
 4   really intrigues us about this specific license plan
 5   is the fact that we're not aware of any other
 6   jurisdiction that is involved in this type of on-line
 7   services.  And so one of the suggestions that we had
 8   from the consulting team as we went through this
 9   process was a review of the book that Ron mentioned
10   earlier, Good Create by Jim Collins.  And in the book,
11   the organizations are encouraged to use technology as
12   an accelerator of momentum, although not a creator of
13   it.  Specifically, Collins says, does the technology
14   fit directly with your purpose.  If yes, then you need
15   to become a pioneer in the application of that
16   technology, and we're interested in becoming those
17   pioneers.
18                  CHAIRMAN CLOWE:  I think that's
19   excellent work.  And I'm particularly pleased to see
20   that, Billy, you and Michael are focused on what I
21   call customer maintenance and service.  It's important
22   to keep the people who are our customers happy, who
23   deal with the ultimate customer, who is the player.
24   And I don't know how effective GTECH is in managing
25   those relationships for the Lottery, and I'll make my
0143
 1   comments more to those thinking about them.  We get
 2   the retailer survey and we read that with interest,
 3   and it sure looks great, but I'm glad that we're
 4   oversighting that and judging how we feel those
 5   reflections are of their impression of the Lottery.  I
 6   think it's well to focus effort and attention to that
 7   and maintain our customer base as we try to grow this
 8   new business.  The same thing applies to bingo.
 9                  MR. GREER:  Mr. Chairman, I think it's
10   worth noting, too, that our retail licensee group now
11   is up to 16,611.  I continue to watch that grow and I
12   think that we're doing a good job, but can do a better
13   job at communicating and outreach.  And a part of that
14   is through our corporate connections, and I'll
15   continue to be committed to assisting as we look at
16   different corporate opportunities to grow that
17   strategy.
18                  CHAIRMAN CLOWE:  That's a great effort
19   and it's -- you know, it all comes together.  I think
20   our largest customer base, as it relates to retailers,
21   continues to be over -- if I remember, over 50
22   percent, maybe close to 60 percent, convenience with
23   gas.  Is that -- how accurate is that?
24                  MR. GREER:  I think that's right.  Yes,
25   sir.
0144
 1                  CHAIRMAN CLOWE:  And that's a lot
 2   different from any other lotteries in other states.
 3   It may be our culture here but, you know, the work
 4   you're doing with SSTs is more directed at other
 5   locations.
 6                  MR. GREER:  Right.
 7                  CHAIRMAN CLOWE:  And we want to keep
 8   convenience with gas happy.
 9                  MR. GREER:  We're focused on that, and
10   Mike and I have talked about that and will continue to
11   do that.
12                  Did you have another point?
13                  MR. ANGER:  No, sir.  But, absolutely,
14   we realize that it's very important to hear -- and
15   it's some of the things that we talked about with
16   bingo licensees, from hearing from that community and
17   being responsive to their needs.
18                  CHAIRMAN CLOWE:  Okay.  I've got a test
19   for you.  There is a retailer in Waco, Texas, who runs
20   some really good liquor stores, and he got mad at us
21   two or three years ago and quit the Lottery.
22                  MR. ANGER:  Yes, sir.
23                  CHAIRMAN CLOWE:  His name is Frank
24   Dicorte.  Let's see how good you are.
25                  MR. ANGER:  Get him back in the fold.
0145
 1                  CHAIRMAN CLOWE:  That's right.  And he
 2   has opened two really good liquor stores in addition
 3   to the one he quit us at.  Let's see if you can get
 4   him back.
 5                  MR. ANGER:  Frank DeCorte?
 6                  CHAIRMAN CLOWE:  Frank Dicorte,
 7   D-i-c-o-r-t-e.
 8                  See how good you are.
 9                  MR. ANGER:  All right.
10                  CHAIRMAN CLOWE:  Okay.
11                  MR. ATKINS:  I'm just curious what a
12   good liquor store is.
13                  CHAIRMAN CLOWE:  I'll discuss that with
14   you off the record.
15                  MR. ANGER:  Thank you, Commissioner.
16                  CHAIRMAN CLOWE:  Thank you, Mr. Anger.
17                  MR. GREER:  We will move forward in our
18   continuing work on objective two, which is to grow the
19   contributions to the Foundation School Fund.  Part of
20   that, obviously, is to look at other ways that we can
21   do business here, and strategy number five is to
22   implement processes to enhance the efficiency of the
23   operations.
24                  Action plan 15 is information
25   technology, Mike Fernandez.
0146
 1                  MR. FERNANDEZ:  Thank you.
 2                  Good afternoon, Commissioners.  This is
 3   in keeping really with the discussion you just heard.
 4   And what this is about is to fully understand the
 5   impact of new technology on enterprise and to exploit
 6   that.  I think the example that you heard alluded to
 7   earlier is a very good one.  I think that we could
 8   have taken that a step further, and I think that
 9   that's what this particular strategy or this
10   particular action plan is.  Is that we're continually
11   looking at the market.  We're continually looking at
12   price watch, we're looking at other agencies, and
13   we're looking at the private sector and how they
14   implement new technologies and what new technologies
15   there are in the pipeline.  And that's happening
16   across the division.  We get calls with some
17   frequency, from some divisions more than others,
18   talking about technologies that they've seen or heard
19   of or that they've read about in various publications
20   and how that might help them improve their business.
21   What we want to do is that we want to go through the
22   same process that we used in the E strategy plan; we
23   want to look at those new technologies, we want to
24   work with the division directors and work across the
25   divisions and see how we implement that, and what
0147
 1   opportunities we have to implement those and in what
 2   format, in terms of the cost, the strategy, the return
 3   on that investment, and also, what the impact is going
 4   to be across the resources of the agency.  And that
 5   was the step I think that we could have -- we could
 6   have taken that we did to some degree in looking at
 7   the impact on agency staff in the E strategy plan, but
 8   what we want to do is we want to take a holistic
 9   approach, and as we roll those out, we want to bring
10   in our HR people and take a look at, are we going to
11   be looking at new skill sets, develop new skill sets
12   that we have on staff or that are new and emerging and
13   that we have to develop and/or combinations of those
14   skill sets, and how that process plays out across the
15   division.  If we make changes in Michael's operation,
16   how does that affect other operations, and more fully
17   exploit the new technologies.
18                  CHAIRMAN CLOWE:  Thank you, Mike.
19                  MR. GREER:  We'll move now into action
20   plan number 16, Financial Administration with Lee
21   Deviney.
22                  MR. DEVINEY:  Commissioners, we're up
23   to page 35 in your plan.  And action item 16 regards
24   the development of a contract procedures guide.  And
25   to provide you a little background, the Lottery
0148
 1   Commission has structured a contract for major goods
 2   and services and capital equipment necessary to
 3   fulfill our objectives.  And this was the model that
 4   was adopted by the State Legislature when they set up
 5   the Lottery as the independent agency.  In some cases,
 6   goods and services may be sourced from multiple
 7   vendors.  Things such as computer software or
 8   promotional items, you can go to many, many places to
 9   get them.  However, for some of our more critical
10   needs, the market for vendors is very limited.  A good
11   example would be the Lottery operator and the people
12   that can print instant Scratch Off tickets.
13   Therefore, contract controls are essential for our
14   critical purchases.
15                  In the course of performing its
16   mission, the Lottery Commission is faced with a
17   decision, in some cases, whether to perform services
18   in-house or contract for them, and when we have to
19   make purchases, particularly capital purchases, we may
20   need to make a decision whether to lease,
21   lease-purchase, or buy outright what we need within
22   some -- within legislative constraints.  Sometimes we
23   don't have complete flexibility.
24                  The contract procedures guide would
25   include -- I could see it including the cost-benefit
0149
 1   analysis that we do to make those decisions, and we
 2   would hope that this would be -- Kim had mentioned --
 3   yesterday we discussed this, that this would be -- we
 4   take the cradle to grave approach in that we would
 5   want our guide to be useful to develop a contract that
 6   would hopefully anticipate and plan for things that
 7   would occur during the term of the contract.  It would
 8   be addressed in the contract.
 9                  The purposes of this action plan are to
10   ensure that the contracting process is sufficient to
11   objectively and fairly select the best contractors
12   that will provide the best value to the Lottery
13   Commission.  Next, to plan appropriately with an eye
14   to the future so that we don't run into, I believe,
15   what is termed technology lock-out or lock-in.  Which
16   is it?
17                  In any case, we don't want to be locked
18   up.  We want to be sure that we put into contracts,
19   contract provisions that hold vendors accountable for
20   delivery and quality of the services and goods that we
21   require, and also prevent inappropriate use of public
22   funds.  We also want to ensure that we have contract
23   reimbursement procedures that ensure that we pay
24   reasonable prices for what -- for whatever we're
25   purchasing.  We want to ensure that we plan for
0150
 1   adequate vendor oversight.  We require quality goods
 2   and services, and we need to know that our public
 3   funds are being spent efficiently.  And we want to
 4   incorporate the best, and I'll use the term, practical
 5   practices, into the contract procedures guide, and we
 6   want this to be a guide that will be used by agency
 7   personnel and revised as needed.
 8                  Some of the goals that we would hope to
 9   achieve with the development of the guide would be to
10   improve the efficiency and cost effectiveness and the
11   satisfaction that we receive from the -- from our
12   contracts.  And we want this to be an active plan, not
13   a static plan that -- that is never changed or that we
14   would never go back and improve upon as conditions
15   change.  We want to formalize the best practices we
16   can identify, whether those practices are things that
17   we've -- that we're currently doing or that we find
18   from other sources, into the guide.
19                  So how will this start?  We will use
20   staff resources, form a committee and perform the
21   following tasks.  We want to research, identify, and
22   adopt the best and most practical practices that we
23   can identify into the plan; we want to identify
24   process and controls that are relevant to our
25   operations and that are cost effective to implement.
0151
 1   We need -- we recognize the need to customize key
 2   processes and best practices into this guide.  Once we
 3   have the guide developed, we need to conduct training
 4   for our staff so that all employees that are
 5   responsible for contracting and negotiating with our
 6   vendors understand, you know, how to use -- use the
 7   guide, so that we get the best -- you know, the best
 8   terms from our vendors.  And, finally, we need to
 9   develop quality control tests, and this could include
10   internal audit reviews, to ensure that we are -- have
11   adopted the best practices and we're using them and
12   that we -- that these practices are continuously
13   improved and updated into the contract procedures
14   guide.
15                  CHAIRMAN CLOWE:  Are you going to cover
16   17, too, Lee?
17                  MR. GREER:  That's Gary, sir.
18                  CHAIRMAN CLOWE:  Okay.  My thought, to
19   link 16 and 17, is that we have had continuing urging
20   on behalf of the Sunset Committee, and I think the
21   legislature, for Commission oversight.  And I hope, as
22   you develop 16, and I think 17 is related, that you
23   will find a way to support Commission oversight and
24   involvement to the extent that it's appropriate.  I
25   don't think there is an intent for the Commissioners
0152
 1   to infringe on the Executive Director's authority at
 2   all.  But there is a call, I sense, to oversight and
 3   to support, assist, and involve themselves in the
 4   subjects covered in 16 and 17.  And I would like to
 5   mention that at this time to heighten your awareness
 6   and fulfill what I think the charge is that the
 7   Commissioners are hearing from the legislative body.
 8                  MR. GREER:  We will move into action
 9   plan 17.  That will be Gary Grief from executive.
10                  MR. GRIEF:  Commissioners, as you know,
11   the agency has entered into several contracts with
12   vendors to provide goods and services, for which it
13   would be less cost effective and really impractical
14   for the agency to try to develop the in-house
15   expertise and resources to perform those functions on
16   our own.  These contracts must emphasize the goal of
17   maximizing revenue to the Foundation School Fund.  As
18   the management team worked through this particular
19   action plan item, our focus was on the contract that
20   we currently have with GTECH, the Lottery operator.
21   And I want to point out that Ramon Rivera, the general
22   manager for GTECH Texas, is here with us today in the
23   audience, and none of this information should come as
24   a surprise to Ramon.
25                  I would like to first provide you some
0153
 1   background on this issue.  In a Commission meeting
 2   held on January 31st, 2003, a discussion was held with
 3   the Commissioners, and that focused on the manner in
 4   which GTECH is compensated.  Both Chairman Clowe and
 5   Commissioner Cox were serving on the board at that
 6   time, and in that meeting, there was much discussion
 7   about -- as to whether or not this item was
 8   appropriate for the open meeting.  And legal advice
 9   was provided by the General Counsel at that meeting
10   and, ultimately, a discussion was held in the open
11   that day.  I want to cover -- just review a little bit
12   of that information that was discussed that day, as
13   well as provide you with some new information on this
14   item as well.
15                  Our nine-year lottery operator contract
16   with GTECH, which started on September 1st, 2002, and
17   which also contains a 30-day at-will cancellation
18   clause, calls for Gtech to be compensated at 2.6999
19   percent of total gross sales.  And as the
20   Commissioners know, the lottery operator plays a very
21   significant role in the success of our games, and
22   GTECH is an integral part in both the marketing and
23   the promotion of both our instant and our on-line
24   products.  By contract, GTECH must provide the
25   Commission with an overall suggested strategy for
0154
 1   marketing our games and detailed analyses and
 2   suggestions for new on-line games or enhancements to
 3   our on-line product line.  In addition, they must
 4   contractually provide us with long-range sales goals
 5   for every one of our games and any game enhancements
 6   that we might wish to consider.
 7                  So with that information in mind, I put
 8   this item before the Commission back in January 2003,
 9   and we had a discussion about the pros and cons as to
10   the current methodology that's used to compensate
11   GTECH on gross sales, versus an alternative method
12   that might include some type of compensation on net
13   sales or some variation thereof.
14                  Currently in the lottery operator
15   contract, sales are defined as sold tickets processed
16   by the lottery gaming system, less any tickets that
17   have been canceled or returned, and less any
18   promotional tickets or coupons.  When I speak about
19   net sales, I'm talking about gross sales less prizes
20   paid.  If any change were made to the current payment
21   methodology in the contract, it would have to be a --
22   an amendment to the Lottery operator contract that
23   would be agreeable to both parties.  The agency does
24   not have the unilateral authority in the contract to
25   make this change.  Although, we do, the Commission
0155
 1   does, as I previously mentioned, have the at-will
 2   cancellation provision available pursuant to the
 3   provisions of the contract.
 4                  Commissioners, one of the most
 5   important factors that we consider whenever we're
 6   looking at bringing on a new game or tweaking a game
 7   is the prize payout percentage.  You may recall, over
 8   time, that we have studied sales from other states,
 9   and one of the states that always comes to our
10   attention is Massachusetts.  They have the highest per
11   cap instant sales in the country.  And the prize
12   payout for instant ticket games in Massachusetts is
13   significantly higher than it is here in Texas,
14   somewhere in the range of ten to 15 percent higher,
15   depending on the particular game that we're looking
16   at.  It seems obvious to us that the higher payout
17   percentage plays a significant role in the success of
18   the instant ticket games in Massachusetts.  How much
19   of a role the prize payout percentage plays, we're
20   researching that with help of from the University of
21   Texas, because we feel that there are other factors at
22   work as well in that particular state.  But,
23   nevertheless, increasing the prize payout percentage
24   is one possible component of future game changes that
25   we may make here in Texas.  However, understanding the
0156
 1   importance that we place on our relationship with
 2   GTECH when it comes to developing our game plans and
 3   marketing our games, whenever we increase the prize
 4   payout on any game here in Texas, that decreases the
 5   net return to the state if the sales remain constant.
 6                  On the other hand, an increase in the
 7   prize payout percentage has no impact on the amount of
 8   compensation that GTECH receives -- GTECH receives.
 9   As I described earlier, its sales remain constant.
10   With -- and while this methodology is the industry
11   standard in other states, in other jurisdictions, not
12   only in Texas, but in the United States, but around
13   the world, as I understand it, there are very few, if
14   any, jurisdictions that call for the comprehensive set
15   of services that GTECH provides to us here in Texas.
16   And we believe that we have a responsibility to
17   continually re-examine this arrangement to ensure that
18   the state is receiving the best value from our vendor,
19   including, looking at this current contract payment
20   structure.
21                  As an example, let's think about a
22   particular one-dollar instant ticket and, for
23   discussion purposes, let's assume that the prize
24   payout percentage is 55 percent.  Well, using the
25   average prize distribution for that entire game, on
0157
 1   the sale of a one-dollar lottery ticket out of that
 2   game, 55 cents would go back to the player in the form
 3   of a prize, five cents would go to the retailer for a
 4   commission, seven cents to the Lottery Commission as
 5   the agency administrative costs, and about 2.7 cents
 6   would go to GTECH.  Conversely, if we decided that we
 7   wanted to raise the prize payout for that particular
 8   game from 55 to 60, in an effort to increase sales and
 9   generate more bottom line revenue to the state, all
10   those other factors would remain the same, except out
11   of the sale of a one-dollar ticket, the remainder that
12   goes to the Foundation School Fund would be reduced by
13   the five percent increase in the prize payout
14   percentage, while GTECH's 2.6999 percent remains
15   constant.
16                  In essence, we believe that the
17   Commission should consider having GTECH share the risk
18   in these types of strategical decisions.  And while I
19   believe that the advice that we've received from GTECH
20   over the years has consistently been in the best
21   interests of improving net revenue to the state, we
22   should be mindful that the current contractual
23   arrangement might leave a perception that there is a
24   conflict of interest.  So I've had several discussions
25   about this issue with Commissioner Cox, in particular,
0158
 1   over time, and prior to the recent interest by the
 2   legislature in video lottery, we were on a path to
 3   begin discussions with our lottery operator, GTECH, on
 4   this issue.  And I had asked Mike Fernandez, based on
 5   his experience, to help me begin researching how we
 6   could best position the agency to enter into those
 7   discussions with GTECH.  And due to the time and staff
 8   resources that were needed in acting as a resource on
 9   video lottery, we tabled this particular issue at that
10   time.  But now we're -- we are refocusing our efforts
11   in this regard.  And we have some potential game
12   changes that are looming in the near future, and we
13   need to make our best efforts to align the interests
14   of GTECH with those of the agency.  And I want to
15   assure the Commission that we will continue to keep
16   you informed as we work through this issue.
17                  There are some other major contracts
18   that we will also continue to monitor in this same
19   regard, not only to align interests, but also to look
20   at enhancing services or reducing costs, and those
21   would include the broadcast and production services
22   contract, the vendor that works and produces our
23   drawings on a nightly basis, the instant ticket
24   production and services contracts, the general and
25   minority market advertising contracts, and the instant
0159
 1   ticket vending machine contract.
 2                  And I would be happy to answer any
 3   questions that you might have.
 4                  COMMISSIONER COX:  Gary, I don't have
 5   any questions, but I'm very pleased that y'all are
 6   looking at this.  And the example that you gave of the
 7   payback percentage, return to customer on instant
 8   tickets, of course, has been one of the areas where we
 9   presently have a potential conflict.  One of the
10   things that we talk about from time to time is the
11   Commission structure.  GTECH doesn't share in the
12   commissions that we pay.  Their percentage is on gross
13   and commission -- the commissions are paid out on a
14   number below that.  We pay all the advertising.  And
15   yet advertising certainly advances sales, at least
16   we're told that it does.  And one of the resources
17   that we want to look to as to whether advertising
18   advances sales is GTECH.  But when there are obvious
19   interests, if you analyze this just from a strict
20   dollars and cents standpoint, would be for us to
21   advertise as much as possible because it probably
22   isn't hurting anything, and it doesn't cost them
23   anything.  So getting those things all in alignment I
24   think are incredibly important to enable us to use to
25   the maximum the tremendous resources that GTECH brings
0160
 1   to the forum.
 2                  CHAIRMAN CLOWE:  What has the response
 3   from GTECH been to this point to this discussion?
 4                  MR. GRIEF:  They have not been
 5   unreceptive.  We haven't really gotten into any type
 6   of detailed discussion other than -- and Ramon, I
 7   don't want to speak for you, but they are well aware
 8   this is an issue.  We've had meetings with them when
 9   we've talked about potential game enhancements where
10   we've talked about the need to get these issues ironed
11   out and addressed as best we can.
12                  CHAIRMAN CLOWE:  Is your discussion
13   with them limited to the instant tickets?
14                  MR. GRIEF:  No, sir.  It would be for
15   all games.  The contract as it stands today, the
16   2.6999 applies to all sales and we would need to
17   address it globally.
18                  CHAIRMAN CLOWE:  Thank you.
19                  COMMISSIONER COX:  Gary, just one more
20   point.  I think I understand correctly that one of
21   GTECH's concerns is that they want to have input into
22   the process if they're going to have skin in the game.
23   And I think that input into the process is integral to
24   the idea that we're talking about.  What kind of
25   actual authority can be shared, I don't know, and
0161
 1   obviously those are issues that have to do with the
 2   statutes and the like.  But as far as receiving and
 3   giving due weight to their input, I can assure you
 4   that I want us to do that anyway.  It's just that we
 5   can put more weight on their input if they're applying
 6   the same game we are.
 7                  MR. GRIEF:  Yes, sir.
 8                  MR. GREER:  Good points.  Thank you.
 9                  Action plan 18, will be lottery
10   operations and information technology.  It will be
11   Mike Anger and Mike Hernandez.
12                  MR. ANGER:  Commissioners, action plan
13   18, implement "paperless" e-records management issues,
14   represents the agency's recognition of the opportunity
15   to capitalize on one of its past successes.  In the
16   fall of 2000, the Lottery operations retailer
17   accounting and licensing areas made the transition
18   from paper files to e-records or electronic files for
19   tracking of licensing data and accounting data.  These
20   efforts benefitted the division and the agency in a
21   number of ways.  They significantly reduced the
22   division's need for physical file space and ongoing
23   file storage costs, ensured more effective and
24   accurate records retention through the elimination of
25   lost or misfiled records, expedited processing of file
0162
 1   record destruction, and allowed for more efficient
 2   multi-user access to the same record files.
 3   Recognizing these benefits, executive management
 4   instructed staff to identify and pursue similar
 5   opportunities that would result in more efficiency
 6   around the agency and additional cost savings.
 7                  Our current model, when we rolled this
 8   out, dating back to 2000 when this program began,
 9   involved outsourcing the management of both the
10   hardware to store these e-records and also the
11   software that operated the system that we used to
12   access those records to an external vendor.  And
13   that's the current environment that we operate in
14   today.  The Information Technology Division has
15   recently completed an assessment and has made a
16   determination that they believe that we could bring
17   this functionality in-house and operate this in-house
18   more effectively.  And I will defer to Michael
19   Fernandez to tell you about this effort and the
20   approach that we might use for evaluating new
21   opportunities to enhance the efficiencies that we can
22   find around the agency through e-records management.
23                  MR. FERNANDEZ:  Thank you.
24                  Building on the work that Mike has
25   done, we want to proceed to, A, move the records that
0163
 1   have currently been imaged into our architecture, and
 2   we have the ability, we have the tool sets to be able
 3   to do that, and we have staff on board that can --
 4   that have that knowledge and can accommodate that
 5   transition.
 6                  Once we do that, what we would like to
 7   do is to go a little further than the work that's been
 8   done, and not unlike the e-strategy we use, is to
 9   identify opportunities across the agency for imaging
10   or creating electronic records.  Once we do this, what
11   we intend to do is then to bring that forward to the
12   management team, and I'm sure, ultimately to the
13   Commission, to set those priorities.  Where do we get
14   the biggest bang for the buck.  Once we do that, we
15   want to come back and reassess the environment, going
16   back to the thing that Lee said.  We want to take a
17   look and see, if we image all of the opportunities
18   that we have, do we have to make some architectural
19   changes.  Do we have to add hardware, do we have to
20   add software, and how does that play out in the
21   marketplace.  So that would also be part of that.
22                  As we go through that process, we're
23   going to follow the exact same format, we're going to
24   build business cases, we're going to identify the
25   return on that investment, we're going to build a
0164
 1   cost-benefit analysis to present to the management
 2   team.  So we think we've got a viable plan.  We've got
 3   staff currently working on that effort, looking at the
 4   way to convert those records into our environment.
 5                  COMMISSIONER COX:  One thing that I
 6   heard recently was the concern expressed by an auditor
 7   when he learned that banks were no longer going to --
 8   certain banks were no looking going to send canceled
 9   checks back and they would not be available to the
10   customer.  And the auditor didn't make the audit on --
11   he's looking at dispersals.  So we need to be sure
12   that Catherine is involved here so that we're not
13   destroying our audit trails.
14                  MR. FERNANDEZ:  I'll let Catherine
15   speak to that in a second.
16                  One of the things I would say is that,
17   not only Catherine, but all of her staff, but her
18   recent addition, Brother Winckler, is an IT auditor
19   that I've had the opportunity to work with in the
20   past.  And any time we begin a development effort,
21   Catherine's staff is involved.  And we do that
22   purposefully.  That is so that any issues in terms of
23   changes that are being made across the street or in
24   the accounting practices, or reviewing controls are in
25   place, and as we don't find out those out later in an
0165
 1   audit that is been conducted.  So they are at the
 2   table with us as that whole process is replaced.
 3                  COMMISSIONER COX:  Great.
 4                  MS. MELVIN:  I don't have much to add
 5   to that other than to say that Brenda is certainly a
 6   wonderful addition to our staff because she brings a
 7   certain level of expertise and knowledge in this
 8   particular area.
 9                  But the other thing I would like to say
10   is that, for auditors, we're going to have to come up
11   with new ways to audit, because, you know, I hate to
12   see processes that are -- or I hate to see it when
13   organizations work for the process rather than the
14   process working for them.  And so, you know, these are
15   processes that make sense and so we need to find
16   better tools and better ways to audit.  And I think
17   every audit organization is facing that challenge.
18                  MR. GREER:  I think another valuable
19   thing to add to the conversation is that legal has
20   been involved in the process and has come up a great
21   new records retention schedule, and e-records is a
22   part of that understanding.  And you might address
23   that.
24                  MS. KIPLIN:  Well, I think we were
25   working under an antiquated records retention schedule
0166
 1   and I caused, I think, just about every aspect of the
 2   agency frustration in terms of wanting to store
 3   documents or -- documents that they found obsolete,
 4   destroyed.  And we didn't have the authority because
 5   we didn't have the schedule approved.  I will say that
 6   I think the State Library is pretty much on top of it
 7   in terms of E -- electronic records, and they're
 8   constantly offering training.  And I know that there
 9   is a training opportunity that's coming up in the very
10   near future that several of us will be attending.  But
11   I share with Mike Fernandez and Cathy Melvin the
12   statements they've made.  The world is going
13   electronic, and it really is up to organizations to
14   keep up with that process and safeguard the
15   information in some medium to where it can -- it can
16   be used in all sorts of different ways.
17                  I hear, Commissioner Cox, you talk
18   about audit.  I worry about litigation, you know, so
19   we all have the same concerns with electronic records.
20   And I think those are -- are issues that will be
21   addressed as we go along.
22                  MR. ANGER:  Commissioner Cox, there is
23   just one additional thing I wanted to add.  When we
24   started our program, in the beginning, we maintained
25   dual records.  We maintained paper records and
0167
 1   electronic records and we walked through a process
 2   with the State Library to be certified that we could
 3   keep the electronic records as our document
 4   of record -- I mean, the records retention schedule.
 5   So we followed that process and we have now been
 6   approved for that, that we actually use those
 7   electronic file records, and we have a document
 8   archival program and we use it just like we would a
 9   paper file through the retention process.
10                  MS. KIPLIN:  I think, just to chime in
11   a little bit.  I think the real challenge for any
12   organization is a uniform retention on electronic
13   records.  And some of us don't necessarily keep
14   documents like e-mail that are -- e-mail, of course,
15   is a medium, but communications within the e-mail that
16   are transitory, and there are others of us that are
17   pack rats.  I'm in the pack rat category and,
18   obviously, will be moving to the other side, on
19   Mr. Fernandez's recommendations.  But it is an issue
20   in terms of network space and what we keep in it.  And
21   then, in terms of receiving Open Records requests, the
22   search capability for particular documents that are --
23   that are relevant to the request or responsive to the
24   request.  So I think we'll have to change the way we
25   think.
0168
 1                  COMMISSIONER COX:  I agree with that.
 2   At the same time, the auditor is, by definition, in
 3   control of the audit process.  And you can't move
 4   faster than he is willing and able to move.
 5                  MR. ANGER:  Or she.
 6                  MR. GREER:  Good points.  Moving way
 7   forward down to objective number three, which is, plan
 8   responses to emerging environments.  And strategy
 9   number six is to improve in-house capabilities to
10   identify and assess emerging -- I'm having a hard time
11   with that word today -- emerging opportunities and
12   threats to the Texas Lottery Commission.
13                  Action plan number 19 will be carried
14   out by Marketing, Steve Martin.
15                  MR. MARTIN:  This action plan is in
16   reference to the resources which I referenced earlier,
17   develop a "Resource Center" to assess emerging
18   opportunities and threats and accumulate research on
19   gaming trends and technologies that may aid TLC's
20   management and State policymakers in evaluating the
21   future of gaming in Texas.
22                  Overview for this action plan, it is
23   imperative for successful organizations to allocate
24   resources for forward looking activities so managers
25   can engage in proactive and efficient planning rather
0169
 1   than in reactive and inefficient problem solving.  An
 2   example of forward looking activity is research of
 3   industry trends and technologies that may impact the
 4   Lottery's sales.  The Lottery Commission serves as a
 5   reliable source of information for the State's
 6   policymakers.
 7                  A little chilly?
 8                  The Lottery's primary purpose for
 9   developing a resource center is to identify emerging
10   technologies and product lines through broad-based
11   industry research and evaluate gaming products and
12   trends that may impact lottery and bingo in Texas.
13   The program rollout will consist of -- the Lottery
14   will implement a formal process to develop and
15   maintain timely and effective analysis of gaming
16   trends and technologies to ensure that the Lottery
17   delivers the best possible service in this area.  The
18   resource center will be located in the marketing
19   division's research area.  Its focus will include
20   evaluation of current industry events and
21   technologies, as well as evaluating emerging trends
22   and technologies and forecasting the potential impact
23   on lottery and bingo in Texas.  Where merited, the
24   resource center will prepare research to thoroughly
25   assess innovations or technologies of interest to the
0170
 1   Texas leadership.
 2                  The recommended model of -- of research
 3   and development pipeline analysis for the resource
 4   center, as compared to the analyst's position I
 5   referenced earlier, includes two categories for
 6   innovation and new technology.  These categories are a
 7   concept phase and a research phase.  The concept phase
 8   is basically a futuristic review of possibilities at
 9   least five years from now.  As an example, a global
10   lottery or bingo game.  Concept phase innovations and
11   technologies identified will be reviewed through the
12   resource center for study on the potential long-term
13   impact or opportunity for Texas.  The research phase,
14   this is products developed in the form of prototypes
15   or emerging industry technologies that are not yet
16   widely implemented in the U.S. gaming jurisdictions.
17   These products will be -- would receive further review
18   and analysis by the resource center.  After analyzing
19   the University of Texas Lottery Efficiency Study,
20   phase one, B, from Doctors Huff and Jarrett, the
21   resource center will research the following
22   opportunities:  The impact of international lottery
23   games, playing lottery games via cell phones or mobile
24   lottery, beneficiary advertising, which we referenced
25   earlier with the Where The Money Goes campaign.  This
0171
 1   would basically be a paid version of the PSA type
 2   campaign and which would come in the form of a pilot
 3   campaign, but that could be something that we could
 4   test as far as that message.  Another item would be
 5   credit card purchases of other Lottery products.
 6                  Coordination of the research for the
 7   resource center.  Plans are to be approved in the
 8   beginning of '05 and the Lottery Commission will be
 9   capable of building a team to provide better and more
10   timely information when requested by policymakers, and
11   through the strategic planning capabilities, and be
12   positioned to adopted new technologies and
13   innovations.  This work will be coordinated by the
14   Marketing Division and then cross-divisional support
15   and direct contributions from the Lottery Commission's
16   division leaders.
17                  This plan will be evaluated on a
18   quarterly basis or as needed, based on research data
19   and the effectiveness of the resource center output
20   and demand.
21                  That's all I have for that action plan.
22   If y'all have any questions on it.
23                  COMMISSIONER COX:  Well, I heard you
24   say that you're going to have other divisions
25   involved.
0172
 1                  MR. MARTIN:  Yes, sir.
 2                  COMMISSIONER COX:  Specifically,
 3   Counsel, will you be involved to the extent
 4   appropriate as these things emerge and begin to have
 5   more policy, perhaps you develop expertise within your
 6   house to minimize the necessity to utilize basically
 7   outside vendors, particularly, the ones out of
 8   state --
 9                  CHAIRMAN CLOWE:  From Las Vegas.
10                  MR. MARTIN:  I didn't mention that.
11                  MS. KIPLIN:  The answer to that
12   question is, yes.
13                  COMMISSIONER COX:  Thank you.
14                  CHAIRMAN CLOWE:  Well, I guess we might
15   as well just throw it out there on the floor.  Suppose
16   you've got to do that, and you don't have the
17   expertise in-house, and you've got to reach out to
18   some expert on some subject.  Let's just take Internet
19   gaming for an example.
20                  MR. MARTIN:  Yes, sir.
21                  CHAIRMAN CLOWE:  And you identify who
22   is the nationwide expert or worldwide expert, and they
23   say, we'll be glad to help you, but it's going to cost
24   you half a million dollars.  So what does the resource
25   center do then?
0173
 1                  MR. MARTIN:  I would say the resource
 2   center, in this situation, would put together a body
 3   of information and report, and I'll defer to legal
 4   on -- that's a contract question.
 5                  CHAIRMAN CLOWE:  That's called a punt.
 6                  MS. KIPLIN:  That's fine.  And I'll
 7   receive the ball on that.
 8                  The resource center is just that.  It's
 9   a resource center.  It is not an activity to
10   implement.  The implementation is going to require
11   particular legislative authority.  You know, we're --
12   we've come full circle in terms of what is our
13   authority on working on matters that the legislative
14   requests that may not be embodied in our statutory
15   structure.  And I'm reminded of a conversation you and
16   I had, Commissioner Cox, and which I thought was right
17   on point, and that is, any time there is a change in
18   legislation, that means that it didn't exist.  And so
19   when agencies are asked to work on things at a
20   legislator's request, in terms of drafting
21   legislation, and I've been asked to do that on
22   matters, in particular, as we all know, on video
23   lottery, by definition, didn't exist.  I think that
24   the -- the advice that I would give today and I would
25   give in the future is, let's be very careful and make
0174
 1   sure that we have the support of those that we need to
 2   have support of before we proceed.  But as an
 3   attorney, if we do not possess the competency
 4   in-house, then we are, under the Rules of Professional
 5   Responsibility, required to disclose that to our
 6   client and either gain that competency or seek it,
 7   provided by -- so we can get that competency.  As a
 8   State agency general counsel, I will always look to
 9   the Attorney General's Office first and foremost for a
10   level of competency that we may not possess in-house.
11   And upon their determination that they do not possess
12   it, then sad to say, because I know that we were
13   criticized for using outside counsel, I would probably
14   recommend that again.  Making sure that we clearly had
15   support and there was disclosure of those issues.
16                  In terms of your question on the cost
17   of that, I think that we'll need to make sure that
18   we're going into that with eyes open, and the
19   contracting question that the Las Vegas lawyers were
20   working on, there was a contract cap on that, and
21   there will be continue to be contract caps as we
22   proceed.
23                  COMMISSIONER COX:  One thing that -- as
24   a practical matter, we know that when you hire outside
25   counsel, it attracts attention.  However, we've also
0175
 1   had the discussion that were you to have developed
 2   that expertise in-house, you would have still been
 3   spending State money toward the same purpose.  And so
 4   whatever would govern one should govern the other.  So
 5   even if we're not talking about going to outside
 6   counsel, but if we're talking about one of your
 7   lawyers spending one hour reading cases or briefs, or
 8   whatever, we have done the same thing, and I want us
 9   to feel safe, not only in using your resources, but in
10   using any agency resources, that we have got a safe
11   harbor that we're motoring around in.
12                  MS. KIPLIN:  And I agree with that.
13   And to -- and I'm reminded of the recent letter that
14   Barry McBee, the First Assistant Attorney General,
15   sent to the Comptroller of Public Accounts in response
16   to the question posed by the Comptroller of whether
17   the Lottery did, in fact, have the authority and could
18   that transfer of money go from the Lottery to the
19   Attorney General's Office, and the answer by the
20   Attorney General's Office was, yes, in fact, we did.
21   And there was a fairly well-developed analysis
22   contained within that letter.
23                  My concern about relying only on that
24   letter is that it is not an Attorney General Opinion.
25   Now, an Attorney General Opinion is not primary
0176
 1   authority under law; it's secondary authority, but
 2   agencies are given great deference to rely on that
 3   authority.  And I think that is that -- that comfort
 4   level.
 5                  The question is, how best to get that
 6   kind of comfort level.  And that is a matter that you
 7   know, frankly, I'm still wrestling with in terms of
 8   getting it not only for this agency, but for all
 9   agencies.  It does not just affect this agency, it
10   affects all State government.  This is the third
11   agency that I have worked for in the capacity as a
12   lawyer, and this is the third agency where I've been
13   asked to draft legislation to effect a change in law,
14   by a member of the legislature.  And so, as it impacts
15   this agency, it impacts other agencies.
16                  COMMISSIONER COX:  And I think, too,
17   that we have, in the situation that you referred to,
18   the further support that the services were requested
19   by leadership offices.  Now, if we are looking at
20   initiatives here that we have identified on our own,
21   then I think we may be in a different type situation
22   that we need to be sure that we're safe on as well.
23                  MS. KIPLIN:  And I will tell you that
24   we have had dialogue about that for quite some time,
25   Mr. Martin and I have, and, frankly, in the forum just
0177
 1   as recently as yesterday.  The Executive Director,
 2   Mr. Greer, frequently receives requests, as recently
 3   as I think our -- our interim committee hearing on the
 4   Subcommittee on House Appropriations Committee, where
 5   he was specifically requested to provide information
 6   on those items that can be -- that the Lottery can do,
 7   with current authority, and to provide information on
 8   those items that the Lottery needs authority on.  And
 9   I suspect that those -- those requests will continue.
10   But we certainly will keep up with that and we'll work
11   with Governmental Affairs to make sure that we're
12   within the bounds.
13                  I think the charge of promoting the
14   Lottery and maximizing revenue for the State of Texas,
15   inherent in that -- and this goes to somewhat the
16   analysis in that letter from Mr. McBee to the
17   Comptrollers Office -- inherent in that is the need to
18   stay abreast of emerging issues in -- in this
19   particular industry, in this enterprise, which is
20   gaming.  It's lottery, but gaming in other forms
21   impacts the Lottery.  And it's my opinion that we
22   would be imprudent not to stay abreast of those very
23   things that impact lottery sales, whether positive or
24   adverse.
25                  COMMISSIONER COX:  You know that I
0178
 1   personally agree.  My point is, let's just be sure
 2   that we are in the safest harbor we can possible be
 3   in.
 4                  MR. GRIEF:  Could I add something to
 5   that, too, Commissioner?  I hear the discussion that's
 6   going on.  Just the -- the fact that we've been asked
 7   by the Sunset Commission to put together a business
 8   plan, I think inherent in any good business plan is
 9   the organization trying in some fashion to predict the
10   future, to try to foresee changes in the industry or
11   changes in your distribution methods or your consumer
12   base that could occur, different ways to market your
13   product, different products.  And I think there is
14   somewhat a conflict along those lines when the agency
15   is asked and instructed by the Sunset Commission to
16   put together a business plan, but yet we're trying to
17   live within the proper legal constraints and living
18   through the experience that we have just gone through,
19   as far as the outside counsel.  And that was something
20   that was in the back of our minds as we worked through
21   this project, and it makes it a challenge.
22                  COMMISSIONER COX:  That's why we get
23   the big bucks.
24                  CHAIRMAN CLOWE:  And yet you went out
25   and hired an outside consultant again.
0179
 1                  MR. GRIEF:  We did it again, yes, sir.
 2                  MS. KIPLIN:  I can tell you that given
 3   the -- given the events that -- that arose after the
 4   end of the special session, at least for me, my intent
 5   is very -- and I'm very sensitive to this issue,
 6   probably more so than before.  And I won't speak for
 7   either Mr. Grief or Mr. Greer, but I do remember you
 8   by my side, along with Mr. McBee, in responding to
 9   these kinds of questions.  And so we will continue
10   to -- to be very sensitive to this and make sure we're
11   on the most sound ground that we can.
12                  COMMISSIONER COX:  As long as we have
13   got the authority to spend the money, we'll be okay.
14                  CHAIRMAN CLOWE:  Well, and I think all
15   indications are, from every source, that we had the
16   authority and we did the right thing.  But, you know,
17   so much of this is, I think, a rehash of what we did,
18   we're saying, we would probably do the same thing
19   again.  The problem is that there are those who oppose
20   what was being proposed at the time, and they took
21   issue with what the leadership asked this agency to do
22   and the way this agency did it.  And that criticism is
23   fair in that it's -- it's a question that's entitled
24   to be debated in the public forum.  And that will
25   occur again.  And, you know, I think what this agency
0180
 1   wants to do is the right thing, and it wants to do it
 2   with as much grace as possible.  And the issue of how
 3   fast it was done was brought up, over a weekend and
 4   late at night, and if there were those in the state
 5   who had the expertise, that -- those are fair
 6   questions to raise.  It's a learning experience, I
 7   think, for all of us.  I certainly supported
 8   everything that the agency did, said that publicly,
 9   and continue to feel that everything was done
10   correctly.  But I think we can learn from this
11   experience that, in the future, there will be those
12   who will question what is going on at any time it's
13   brought to their attention, and we should do this in
14   as open a way and as open a forum as is possible.
15                  COMMISSIONER COX:  I agree.
16                  CHAIRMAN CLOWE:  And maybe if there was
17   a failure on our part, as we tried to produce the work
18   product and meet the demands which were being placed
19   on us, which were real and substantial, maybe we
20   overlooked the opportunity, if there was one then, to
21   more fully communicate so that we wouldn't have
22   received some of the criticism in the aftermath that
23   we did.  And I'm just searching for helpful hints.  I
24   think your answers are good, Kim, and we've all sort
25   of rehashed this, with the exception of the
0181
 1   Commissioners, about how we could do it better and if
 2   we did it right.  Well, I think that there is
 3   unanimity in that we did.  And we would do it the same
 4   way, except maybe that we would be more mindful of
 5   those who we know have an interest in this, and we
 6   maybe should reach out to them more openly.  And now,
 7   we've been requested to do this, we're moving ahead,
 8   and give them the opportunity to know about it and
 9   take whatever action.  That's the only thing I can
10   think of that might make it better.
11                  COMMISSIONER COX:  I agree.
12                  MR. GREER:  And, Mr. Chairman, I
13   acknowledge that, and Nelda and I have talked about,
14   you know, opportunities that we have had placed before
15   us by a learning experience that we would have drawn
16   on that issue and, you know, enjoy the opportunity to
17   be a resource, which we were, which is part of how
18   this conversation and how this strategy and objective
19   came forward is that we will continue to have to be a
20   resource.  The Lottery industry as a whole and the
21   gaming industry, which counsel touched on, is
22   constantly in the emerging way, and we have to just
23   stay on top of that.  And we think this will help do
24   that, the resource center.
25                  CHAIRMAN CLOWE:  It's probably going to
0182
 1   happen late at night or on the weekend, and it's going
 2   to be, I need it yesterday and, you know, I want
 3   everything tomorrow in triplicate.
 4                  Your resource center is sort of a
 5   feel-good thing in my mind, and it can do a lot of
 6   easy stuff, but when it comes to the hard stuff, I
 7   think the senior management is going to step up and do
 8   it as quick as they can, in the best way they know
 9   how.  That's the way it was done the last time.  And
10   one thing I think that, in retrospect, and I've given
11   it a lot of thought trying to figure out how we could
12   have gotten out of some of the unhappiness that we
13   found ourselves in.  We just might have reached out
14   more broadly and given people notice that there were
15   these requests and this work was being done.  And that
16   that's the only thing I can think of.  I don't know
17   what they would do about it, but that would be up to
18   them.
19                  MR. GREER:  I totally degree.  And, you
20   know, the only other thing I would mention is the --
21   the value of being involved in NASPL and on a national
22   level, looking at industry-wide trends, being a part
23   of Mega Millions and seeing what other states are
24   doing, being able to take advantage of relationships
25   that we all have with our peers in other states,
0183
 1   that's all going to be beneficial as well as we move
 2   into this uncharted world ahead.
 3                  CHAIRMAN CLOWE:  And the continuing
 4   program, through government relations, of having these
 5   legislative briefings and meeting one-on-one with
 6   members of the House and Senate and leadership offices
 7   and telling them what we're doing and asking them what
 8   questions they have to us, reinforces this agency's
 9   position that it's all out there in the open.  There
10   is nothing in government that people are more damning
11   towards than work done in the dark.  And I think we're
12   making an excellent effort along those lines and we
13   ought to continue to do that.
14                  MR. GREER:  We'll continue to be
15   proactive in communicating with the leadership and the
16   legislature, absolutely.
17                  CHAIRMAN CLOWE:  And there will always
18   be those people who are opposed to what is being done.
19   It's just -- you've got to always know that is out
20   there.
21                  MR. GREER:  I agree.  Well, that was a
22   good discussion.  Thank you.
23                  And our last objective of the day will
24   be objective number four, to improve the quality,
25   skill and satisfaction of the Texas Lottery Commission
0184
 1   staff.  Strategy number seven is to increase the --
 2   increase the efficiency and effectiveness of the TLC
 3   through better intra-organizational communications.
 4                  We're going to start off with a
 5   presentation on that from Scott Semegran, who is
 6   working with Mike Fernandez in Information Technology
 7   on one of the projects that I'm really excited about.
 8   And we have already embraced this and will be rolling
 9   it out on September the 13th, as an opportunity to
10   create better communications.  Scott, Mike.
11                  MR. FERNANDEZ:  One of the things, you
12   know, that's -- that's fun about my job, I think, is
13   that we get to do some very exciting things.  And this
14   is one of those very exciting things.  I would say
15   that all of our divisions share the same goals.  We
16   don't always have those goals as the same priorities.
17   This particular effort, I think, was a high priority
18   across the agency.  One of the things that we were
19   looking at doing was to -- and the management team
20   wanted to do was to improve communication, and we were
21   looking for a vehicle to help improve communication.
22   And I'm sure that some of us had our own personal
23   goals in there, and that was to expedite work or make
24   some work across divisions more effective.  And in my
25   past history, I had the opportunity to work with some
0185
 1   bright young minds, and one of those bright young
 2   minds that had done this with me, and really did the
 3   work for us, was Scott Semegran, and we had the
 4   opportunity to have him come and work with us and lead
 5   this effort for the agency.
 6                  What we think this is going to do is
 7   going to provide just a tremendous communication
 8   vehicle for the organization.  This is an internal
 9   tool, and that it's not only going to enable us to put
10   information out to all of our staff, both at the State
11   level and the field, it's going to allow us to put all
12   our manuals and procedures up, to service those very
13   quickly, to keep staff up to date on news in the
14   organization, and also, to provide all of the forms
15   and reports that we have to deal with.  Hopefully,
16   we'll be able to do routine functions, HR functions
17   and other functions through this particular --
18   particular effort.  So with that, I want to turn this
19   over and let Scott Semegran navigate us through some
20   of these things.  And I'll hold the mike, Scott.
21                  MR. SEMERGRAN:  Good afternoon,
22   Commissioners.  This intranet is a centralized,
23   searchable, internal use only website that utilizes
24   the ease and accessibility of Internet technologies to
25   display current information for the Texas Lottery
0186
 1   Commission.  Some of the information that will be
 2   displayed is news and events, messages from the
 3   Executive Director, the Friday message, also from the
 4   Executive Director, a centralized location for forms
 5   and directories and procedures.
 6                  This is a central repository for forms
 7   and procedures from different divisions.  On-line
 8   reports that will display information from the Oracle
 9   database, and one example is the daily sales report.
10   This information is being displayed directly from the
11   Oracle database.
12                  On-line training opportunities for
13   employees, including new employee orientation, as well
14   as other training opportunities that were presented
15   down here in the auditorium can now be done at an
16   employee's desk.  And then, most importantly, is
17   information from each of the divisions.  The intranet
18   will go on-line September 13th, and the four areas
19   that will be available will be an area for the
20   Commissioners.  Each Commissioner has their bio here
21   as well as their photograph.  Executive
22   Administration.  This will display information from
23   the executive administration area, including a summary
24   of staff meetings, administrative deadlines,
25   interactive polls and surveys.  There is an example of
0187
 1   the first survey where employees can come here and
 2   answer questions from the survey, and then we'll
 3   display the results and total participants.  Monthly
 4   themes, including signage from the building, and a
 5   message from Reagan.  Birthday flyers.  Forms from
 6   executive administration.
 7                  Human Resources is another division
 8   that will be on-line.  They will have their training
 9   opportunities, forms and procedures from human
10   resources, internal job postings, as well as a link to
11   the external job postings on the Internet site.
12   Information related to benefits, and forms and
13   information related to the -- and the last division
14   that will be on-line is Information Technology.  We'll
15   also have their forms and procedures.
16                  And then soon after this website goes
17   on-line, the rest of the divisions will come on-line
18   with their information as well.
19                  Questions?
20                  CHAIRMAN CLOWE:  Very nice, Scott.  And
21   did you formulate this and create it.
22                  MR. SEMEGRAN:  IT provided the tool to
23   use from Oracle, called Oracle Portal.  And that's the
24   tool that actually develops and implements the
25   intranet itself, and then all of the divisions will be
0188
 1   providing the expertise and content from their areas
 2   as the content for the intranet.
 3                  CHAIRMAN CLOWE:  So you're really the
 4   Web master on this.
 5                  MR. SEMEGRAN:  Yes, sir.  I'm the Web
 6   master.  I make sure that the site functions properly
 7   and that the divisions can upload and provide the
 8   content they need.
 9                  CHAIRMAN CLOWE:  Nice job.
10                  MR. GREER:  They've done a great job on
11   this.  I want to thank Scott again.  He and I have
12   talked about this a lot.  The thing I'm most excited
13   about is two-fold.  One, is that the committee that
14   helped put this together was from all the divisions.
15   Everybody had input and will have input in the
16   process.  And the other one is that as I visit the
17   field offices, specifically they feel left out a lot.
18   And this will give cohesiveness to the 16 field
19   offices that we currently, you know, have out in the
20   field and give us a better chance to communicate with
21   them.  Scott has had some great ideas.  One of them is
22   the opportunity to poll the employees about different
23   scenarios that might be going on.  There is just a lot
24   of things from a morale perspective and a
25   communications perspective we couldn't do before, and
0189
 1   this will allow that.  I am thrilled about this
 2   project.  I think it's going to go a long way to
 3   helping us implement the strategy to increase the
 4   efficiency and effectiveness of our
 5   intra-organizational skills.
 6                  CHAIRMAN CLOWE:  Are you open to
 7   suggestions?
 8                  MR. GREER:  I'm open.
 9                  CHAIRMAN CLOWE:  You've got too damn
10   many messages up there, one every month and one every
11   Friday.  And in the past, a real effective team
12   building tool, I think, is to invite the members of
13   the senior management team to have their message up
14   there.
15                  MR. GREER:  I did that and they
16   declined.
17                  CHAIRMAN CLOWE:  I think you ought to
18   re --
19                  MR. GREER:  Continue to revisit --
20                  CHAIRMAN CLOWE:  -- issue that
21   invitation.
22                  You know, I would put Nelda's picture
23   up there and have her talk about what is important to
24   her for all the employees of this agency to know, and
25   it will benefit them and improve the agency.
0190
 1                  MR. GREER:  I agree.
 2                  CHAIRMAN CLOWE:  And everybody that's
 3   participating in this meeting today is a real team
 4   member, and it's got to be a burden on you to come up
 5   with a monthly message and a Friday message every
 6   week.  And I think if you would cast your spotlight on
 7   other members of the management team, and then give
 8   the managers at the claim centers, who you have said
 9   feel left out, an opportunity to appear on this
10   website and tell the employees of the Commission what
11   they do in El Paso and --
12                  MR. GREER:  Right.
13                  CHAIRMAN CLOWE:  -- Tyler, and
14   wherever, it would certainly have an impact on the
15   level of knowledge and communication and the morale.
16                  MR. GREER:  And I fully support that
17   and did bring that up, up front.  We're going to start
18   with this, and one of the things that's really neat is
19   that each division is going to develop their own page
20   and we will feature a division a month, you know, or
21   do something like that.
22                    We're exploring new ways that we can
23   utilize this, and we're starting by, basically, the
24   theme of the month this month is attitude, as an
25   example.  And the Friday message, which is something I
0191
 1   started doing as a way to say, you know, have a good
 2   weekend, and it's kind of turned into something that
 3   the employees look forward to.  And I e-mail it, and
 4   so what we're hoping to do through this is get away
 5   from a lot of the e-mail activity and let them go into
 6   the intranet as a source of information on a regular
 7   basis.
 8                  CHAIRMAN CLOWE:  Well, I think it's all
 9   good.  It's just that it's so heavy in only one
10   direction, from you.  And you want this team to be
11   strengthened and, you know, you want a team effort.
12                  MR. GREER:  I agree.
13                  CHAIRMAN CLOWE:  This is a great
14   vehicle to develop that aspect.
15                  MR. GREER:  Well, and part of that
16   today is that that's what we're bringing.  We're
17   bringing up HR, IT, and Executive, so a lot of it was
18   focused towards Executive, but eventually, like I
19   said, all the divisions will have their own page and,
20   you know, Billy can -- I think it's a great
21   opportunity, like you said, to give those people in
22   the field a better idea of what does Nelda do.  You
23   know, what does marketing do.  What does -- so we're
24   on the same page on that.  The -- the primary focus on
25   this is just the new opportunity to communicate
0192
 1   better.
 2                  CHAIRMAN CLOWE:  It's great.  It brings
 3   to mind also what you did on that survey.  I think
 4   I've asked you about this before, and I have forgotten
 5   the answer you gave me.  We had a survey conducted
 6   been by an outside State agency.  Who was that, Jim,
 7   and when was the last time we did that?
 8                  MR. RICHARDSON:  It was the Survey of
 9   Organizational Excellence.  It's done by the
10   University of Texas.  It was done last November, but
11   we do plan to do it again this November as well.  It
12   used to be that we did it every two years, but we've
13   decided to start doing it every year, collect that
14   data annually.
15                  CHAIRMAN CLOWE:  And the University of
16   Texas does it?
17                  MR. RICHARDSON:  Yes, sir.  The School
18   of Social Work.
19                  CHAIRMAN CLOWE:  That's great.  I think
20   that's a wonderful opportunity to get feedback from
21   everybody in the agency, and we can judge not only the
22   quality of the answers, but the extent of the
23   response.  And we had a pretty good response the last
24   time, if I remember.
25                  MR. RICHARDSON:  Yes, sir, we did.  We
0193
 1   had 63 percent.
 2                  MR. GREER:  Yeah.  Mr. Chairman, we
 3   talked about that, and I sent that in a follow-up
 4   communication, but I love, you know, having the input
 5   there.  And it's a requirement every two years; we're
 6   going to start doing it every year, and I look forward
 7   to getting those results.  And a higher participation.
 8   63 percent is good, but, you know, really, to me, it
 9   needs to be 80, 90, a hundred percent, where you've
10   really got a total handle on things.
11                  CHAIRMAN CLOWE:  That's great.
12                  MR. ATKINS:  And I had -- just to kind
13   of follow up on something that Reagan was mentioning.
14   Again, there will be a page for each division, so I
15   think it's kind of sad that, you know, we don't have a
16   picture of Jim on the HR page, but, you know, that
17   would be a possibility for each of the divisions as
18   they come up.
19                  CHAIRMAN CLOWE:  Commissioner Cox says
20   we need a short recess.
21                    (RECESS.)
22                  CHAIRMAN CLOWE:  Before we pursue the
23   agenda.  Commissioner Cox, we have posted at this
24   meeting the possibility that the Commission will go
25   into executive session.  And the only item, I believe,
0194
 1   that there was an intent to cover was a personnel
 2   matter which we've been involved in in executive
 3   session.  And my question to you is whether or not we
 4   would like to postpone this until our next meeting,
 5   due to the hour and the length of the meeting that
 6   we've already been in.  What is your pleasure?
 7                  COMMISSIONER COX:  I can go either way,
 8   Mr. Chairman, but I live in Austin and, in fact, I
 9   have a very short commute, and others involved have a
10   longer commute, and I know you do.  So I don't think
11   that it is so pressing that we couldn't postpone it
12   until the next meeting.
13                  CHAIRMAN CLOWE:  I think it would
14   indeed, and if you're agreeable with that, let's not
15   plan on going into executive session, and we'll take
16   this matter up at our next opportunity.  And I think
17   we'll all be fresh and more prepared to do a good job,
18   if that's okay with you.
19                  COMMISSIONER COX:  That is fine.
20                  CHAIRMAN CLOWE:  Good.  Then I'll serve
21   notice that the Commission will follow the public
22   agenda and does not intend to go into executive
23   session.
24                  And now we're back to you, Reagan.
25                  MR. GREER:  Thank you, Mr. Chairman.
0195
 1   Continuing with strategy number seven, to increase the
 2   efficiency and effectiveness of TLC as far as the
 3   intra-organizational communications.  Action plan
 4   number 21 will be HR, Jim Richardson, Human Resources.
 5                  MR. RICHARDSON:  Commissioners, as
 6   stated in the draft plan, the State Employee Incentive
 7   program no longer exists.  TLC would like to implement
 8   a process to encourage employees to contribute ideas
 9   and reward employees for those ideas that safe costs
10   and/or ultimately increase contributions to the
11   Foundation School Fund.
12                  The first phase of this project would
13   be to conduct a cost-benefit analysis to determine if
14   the rewards program expense would be offset by an
15   equal or greater cost savings or greater contributions
16   to the Foundation School Fund.  If so, to encourage
17   participation of all divisions, and the rewards
18   opportunity program would be developed and announced
19   to employees.  In addition, as a means to enhance
20   management's involvement in the program, incentives
21   would be tied -- could be tied to subordinate
22   participation rates.  Upon implementation, ideas from
23   employees would be received by Human Resources and
24   reviewed for compliance with program guidelines.
25   Human Resources would then forward accepted ideas to
0196
 1   the appropriate divisions for review.  If the affected
 2   division acknowledges the idea as a viable one, then a
 3   committee comprised of a cross-section of the
 4   divisions would evaluate the idea further and
 5   recommend to executive management those ideas that
 6   warrant implementation.  This committee would also
 7   recommend appropriate reward parameters for executive
 8   management to consider.  Similar to the rewards
 9   currently offered to employees for performance,
10   rewards for ideas could include one administrative
11   leave for up to three days per fiscal year; two, a
12   merit increase, including one-time merit increases;
13   three, gifts not to exceed employees' 50-dollar annual
14   limit; four, public recognition from executive
15   management at staff meetings or in agency newsletters;
16   and, five, letters of recognition from the employee's
17   personnel file.
18                  To measure the success of the program
19   and the amount of operational savings, the increased
20   sales to the TLC, and contributions to the Foundation
21   School Fund could be compared to operational expense.
22   As the program developed and/or legislative changes
23   occurred, modifications could be made to the type of
24   rewards available and types of submissions considered.
25                  And I would be happy to answer any
0197
 1   questions that you might have on this action plan.
 2                  CHAIRMAN CLOWE:  It's good work and
 3   I -- I can tell you that we're both interested in
 4   seeing this developed.
 5                  That's excellent.
 6                  MR. GREER:  Action plan number 22 will
 7   be from Executive, Gary Grief.
 8                  MR. GRIEF:  Commissioners, with 325
 9   FTEs, 12 divisions, and annual sales approaching 3.5
10   billion, our agency is highly leveraged in terms of
11   productivity and use of strategic outsourcing.  For
12   this particular action plan, we will have two areas of
13   focus.  The first is management and oversight of
14   cross-divisional committees and work programs.  We
15   made a commitment to cross-divisional participation in
16   the development of agency programs and ongoing
17   research.  However, the number of committees and work
18   groups that we now have in place is significant and
19   it's growing on a regular basis.  And we expect,
20   through the implementation of many of these action
21   plans, that we will have even more committees and work
22   groups set up.
23                  I want to just give you a sampling of
24   the committees that we have in place currently.  We
25   have an information technology, automation steering
0198
 1   committee, we have a security function work group,
 2   retailer communication committee, a seized evidence
 3   task force, a business continuity planning committee,
 4   a contract work group, our CAMP committee, which is
 5   the compliance activity and monitoring process, an
 6   intranet committee, a bingo enforcement process review
 7   committee, an ethics committee, and an agency
 8   publications committee.  We are committed to
 9   appropriately managing and monitoring the activities
10   of those many groups, and we are developing a logical
11   process to report the progress.
12                  Our plan includes, one, the assignment
13   of a division director to each of those committees as
14   a liaison for that particular project; two,
15   designating a project leader who will be responsible
16   for the success of the project; and, three, continuing
17   to select team members from a variety of staff levels
18   and divisions to ensure diversity of ideas and
19   expertise, and also, hopefully, build our bench
20   strength of qualified project managers for the future.
21                  The second area of focus for this
22   action plan is high-level ongoing organizational
23   structure review and outsourcing opportunities review.
24   We've got an ongoing responsibility to review our
25   organizational structure and propose changes that will
0199
 1   benefit the agency whenever the opportunity arises.
 2   In the last two years, reorganizations have occurred
 3   in almost all divisions of this agency, and these were
 4   done in an effort to both increase efficiency and also
 5   to respond to the legislature and leadership offices.
 6   We view those changes as a positive activity, as we
 7   continue to modify the organization to best meet the
 8   needs of the State, and also to generate revenue.
 9                  As you know, we're currently examining
10   the function of security within this organization.
11   We're trying to determine a proper scope of services
12   and prioritize that scope of services and allocate
13   resources, and then implement the appropriate
14   organizational model.  And we're going to do those
15   things to make sure that the needs of the public and
16   our licensees and the agency are met.  And considering
17   the type of activities that this agency is involved
18   in, as well as the potential for new activities that
19   we might be involved in, given the will of the
20   legislature in the future, we think that monitoring
21   the organizational structure, including looking at any
22   opportunities that we might have for outsourcing, is a
23   very important key to our success.  And we are going
24   to continue to be vigilant in that area.
25                  I'll be happy to answer any questions.
0200
 1                  CHAIRMAN CLOWE:  Thank you, Gary.
 2                  MR. GREER:  Continuing with objective
 3   number four, which is to improve the quality, skill
 4   and satisfaction of the TLC staff, is our last
 5   strategy, strategy number eight, to enhance
 6   professional development initiative within the TLC.
 7   And our final action plan, number 23, will be brought
 8   to us by Human Resources, Jim Richardson.
 9                  MR. RICHARDSON:  Commissioners, knowing
10   this is the last one, I would be willing to bet this
11   is the first time these directors were excited to hear
12   from Human Resources.
13                  MS. TREVINO:  You're right.
14                  MR. RICHARDSON:  TLC staff clearly
15   mentors employees informally.  This occurs in
16   subordinate relationships and peer relationships.
17   This action plan proposal formalizes that process and
18   would expand it to include employees that were
19   identified by management as potential candidates, and
20   self-driven employees who would like to become more
21   involved in their own personal and professional
22   development.  This program would be open to all
23   employees with limitations respective to workloads and
24   the number of mentors available.  As with any sound
25   beginning, the first phase of this project would be to
0201
 1   conduct a cost-benefit analysis to determine if the
 2   expense would be offset by any -- by an equal or
 3   greater cost savings or greater contributions to the
 4   Foundation School Fund.  If the formal program is
 5   viable, it would be developed and announced to staff.
 6   Division directors would be responsible for
 7   identifying mentors and those employees who want to
 8   participate in this type of developmental program.  As
 9   mentoring is a unique relationship between employees,
10   selected mentors would themselves need to attend
11   training to build and enhance their skills at
12   mentoring.  The results of this program would be
13   measured against retention rates of participants
14   versus non-participant retention rates and job
15   satisfaction survey results of the polled
16   participants.
17                  As the program developed or legislative
18   changes occurred, modifications could be made to the
19   type of trainings offered or the allowed numbers of
20   relationships developed.
21                  And I would be happy to answer any
22   questions on this action plan as well.
23                  COMMISSIONER COX:  I have an
24   observation.  I believe mentoring is very important.
25   And over my business career, I've accumulated hundreds
0202
 1   of mentors, and every one of them has helped me.  And
 2   I had therefore assumed that everyone subscribed to
 3   that same view and valued the mentoring process, as I
 4   did.  And I learned in a recent discussion with a
 5   member of the legislature that that member was not
 6   only surprised that I considered part of my role as a
 7   Commissioner to be a mentor to the management here,
 8   but he seemed to think it was totally inappropriate.
 9                  So I just ask you to consider, Jim,
10   that there may be more of an educational process here
11   than I would have thought or that you might have
12   thought, and that we may need to be sure that this --
13   there is a safe harbor for this in State government.
14                  MR. RICHARDSON:  Yes, sir.  We'll
15   explore that.  Thank you.
16                  CHAIRMAN CLOWE:  No further questions,
17   Jim.  Thank you.
18                  MR. GREER:  Mr. Chairman, in summing
19   up, and then moving into a discussion process.
20                  This was a team-building effort.  I
21   thought our days were very productive that we spent
22   with our consultants off campus.  We met over at the
23   Insurance Building.  We were there all morning and all
24   afternoon and, specifically, were guided to get to
25   this result that we are today, but just wanted to
0203
 1   reflect again that this is a conceptual plan that is
 2   certainly open to change.  We're open to your
 3   suggestions, on top of the ones you've already given.
 4   If you would like a different format or a different
 5   layout.
 6                  I wanted to thank the Cadenhead Group.
 7   All three of them were great as far as bringing out
 8   the best in each one of us.
 9                  CHAIRMAN CLOWE:  And good-looking, too.
10                  MR. GREER:  And good-looking, too.
11   Really, they did.  I mean, they didn't let any of us
12   sit around and not participate.  It was a -- a great
13   process and, you know, reinforces to me that you're
14   only as good as the people you surround yourself with.
15   And we got to know each other better and really got to
16   step outside of our normal comfort zone to create this
17   document.  So I feel real good about it, and hope you
18   do, but want to assure you that if there are issues or
19   changes that you want to make on top of what we've
20   already talked about today, we're certainly open to
21   that.
22                  CHAIRMAN CLOWE:  Gary, Dan, Ron, do
23   y'all have anything to add?
24                  MR. SCHMISSEUR:  It's been a pleasure.
25   Thank you.
0204
 1                  MR. KESSLER:  The only thing I would
 2   add to everybody that I consulted with, don't let it
 3   die.  Keep it alive.  A lot of times there will be a
 4   big high and big excitement about where you are,
 5   you've come together, you've got it behind you.
 6   Some -- some would say, well, am I glad to get through
 7   with this.  But your investment, not only in this
 8   process, but in each other, is a huge investment for
 9   the future of this organization.  So keep it alive in
10   some form or fashion.  Talk about it, challenge each
11   other on it, encourage each other on it, mentor each
12   other.  Keep it alive.
13                  CHAIRMAN CLOWE:  You're very correct.
14                  Commissioner Cox.
15                  COMMISSIONER COX:  Earlier today I
16   talked a bit with Reagan about the relationship
17   between this document and other documents.  And just
18   at the very highest level, we have a strategic plan,
19   and we have necessary appropriations request, we have
20   this and that annual report, we have performance
21   measurement benchmarks and the like.  And an awful lot
22   of those things cover things that aren't in this
23   document, and yet are important as ongoing
24   undertakings of the agency.  And what I have suggested
25   to Reagan is that some device be found to incorporate
0205
 1   all of those in one place so that every executive and
 2   every department head knows those objectives for which
 3   we are managing and how we're measuring our
 4   performance in relation to those things.  And I don't
 5   think that's a trivial undertaking, but I think it's a
 6   very important one, to be sure that these things are
 7   seamlessly integrated with our other undertakings so
 8   that we either don't have inefficiencies that overlap
 9   or so that things don't slip through the crack.
10                  CHAIRMAN CLOWE:  You're exactly right.
11   That's an excellent thought.
12                  COMMISSIONER COX:  But it's a great
13   product and I think a real important addition to what
14   we're doing here.
15                  CHAIRMAN CLOWE:  I would like to add my
16   thoughts to what Commissioner Cox has said.  I think
17   he is right on track, and thanks to each one of you
18   for your good work.  Consultants and I are one, you
19   know, come with a question mark over their heads, and
20   they have to dispel that and you've certainly done it.
21   This is really great support that you've given our
22   team.  In the 45 years that I've been in business,
23   frankly, this is as good a business plan and a work
24   product as I've seen.  It's not perfect and it
25   requires some further adjustment, I think, and some
0206
 1   polishing, but it's really good.  It really is good.
 2   And each of you should take away some personal pride
 3   in the work that you've done to create this plan.
 4   It's a reflection, I think, on the quality of each of
 5   you in the jobs that you do, and no plan will speak as
 6   loudly as your job performance and the things that
 7   Commissioner Cox and I see you do every day as we're
 8   here with you and dealing with the problems that you
 9   deal with.  But we do want to thank you for spending
10   this day with us and taking the time to educate us and
11   give us the review that you have given us.  I think
12   it's a great beginning.  And I think Ron's remarks
13   about continued effort and emphasis are right on
14   target.
15                  To that end, I would suggest that you
16   consider a review of this plan in one year, and you'll
17   be after the regular session is closed, we hope.  It
18   would be a time, I think, that we could bring back
19   Gary and his group, do a brush-up, and then bring us
20   all back together to see where we really are.  And I
21   wouldn't be a bit surprised if some of us didn't see a
22   different horizon after that regular session.  I can't
23   begin to predict what it might be, but it could look
24   different, and the work that you're doing now is
25   preparing us for whatever that might be in the future.
0207
 1                  So, again, from Commissioner Cox,
 2   Commissioner Olvera, if he were here, thanks to all of
 3   you for really an outstanding job.  It is excellent
 4   and we're appreciative of it.
 5                  Anything further?  Then this meeting of
 6   the Texas Lottery Commission is adjourned at 6:12 p.m.
 7   The date is September the 8th, 2004.  Thank you all
 8   very much.
 9   
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0208
 1                 REPORTER'S CERTIFICATION.
 2   STATE OF TEXAS       )
 3   COUNTY OF TRAVIS     )
 4               We, SHELLEY N. JONES and BRENDA J. WRIGHT,
 5   Certified Shorthand Reporters for the State of Texas,
 6   do hereby certify that the above-captioned matter came
 7   on for hearing before the TEXAS LOTTERY COMMISSION as
 8   hereinafter set out, that we did, in shorthand, report
 9   said proceedings, and that the above and foregoing
10   typewritten pages contain a full, true, and correct
11   computer-aided transcription of our shorthand notes
12   taken on said occasion.
13               Witness our hand on this the 27TH day of
14   SEPTEMBER, 2004.
15   
16   
                      SHELLEY N. JONES, RPR
17                    Texas CSR No. 8058
                      Expiration Date:  12-31-04
18   
19   
                      ___________________________________
20                    BRENDA J. WRIGHT, RPR,
                      Texas CSR No. 1780
21                    Expiration Date:  12-31-04
                      WRIGHT WATSON STEN-TEL
22                    Registration No. 225
                      1801 N. Lamar Boulevard, Mezzanine
23                    Austin, Texas  78701
                      (512) 474-4363
24   
     JOB NOS. 04908SNJ/040908BJW2
25