0001 1 2 3 4 5 ****************************************************** 6 7 8 TEXAS LOTTERY COMMISSION 9 MEETING 10 11 OCTOBER 1, 2004 12 13 14 ****************************************************** 15 16 17 18 BE IT REMEMBERED that the Texas Lottery Commission 19 meeting was held on the 1st day of October, 2004 from 8:00 20 a.m. to 11:52 a.m., before David Bateman, RPR, CSR in and 21 for the State of Texas, reported by machine shorthand, at 22 the Offices of the Texas Lottery Commission, 611 East 6th 23 Street, Austin, Texas 78701, whereupon the following 24 proceedings were had: 25 0002 1 A P P E A R A N C E S 2 3 Chairman: 4 Mr. C. Tom Clowe, Jr. 5 6 Commissioners: 7 Mr. James A. Cox, Jr. 8 Mr. Rolando Olvera 9 10 General Counsel: 11 Ms. Kimberly L. Kiplin 12 13 Executive Director: 14 Mr. Reagan E. Greer 15 16 Charitable Bingo Operations Director: 17 Mr. Billy Atkins 18 19 Deputy Executive Director: 20 Mr. Gary Grief 21 22 23 24 25 0003 1 I N D E X 2 PAGE 3 Appearances...................................... 2 4 5 AGENDA ITEMS 6 Item Number 1.................................... 4 Item Number 2.................................... 4 7 Item Number 3.................................... 27 Item Number 4.................................... 28 8 Item Number 5.................................... 32 Item Number 6.................................... 34 9 Item Number 7.................................... 37 Item Number 8.................................... 39 10 Item Number 9.................................... 40 Item Number 10................................... 70 11 Item Number 11................................... 40 Item Number 12................................... 44 12 Item Number 13................................... 46 Item Number 14................................... 63 13 Item Number 15................................... 91 Item Number 16................................... 93 14 Item Number 17................................... 94 Item Number 18................................... 96 15 Item Number 19................................... 106 Item Number 20................................... 117 16 Item Number 21................................... 122 17 Reporter's Certificate........................... 123 18 19 20 21 22 23 24 25 0004 1 AGENDA ITEM NO. 1 2 CHAIRMAN CLOWE: Good morning. It is eight 3 a.m. Today is October 1st, 2004. Commissioner Cox is here. 4 Commissioner Olvera is here. My name is Tom Clowe. I call 5 this meeting of the Texas Lottery Commission to order. 6 AGENDA ITEM NO. 2 7 CHAIRMAN CLOWE: We begin with Item No. 2, 8 report, possible discussion and/or action on lottery sales, 9 game performance and trends. Good morning, Mr. Deviney. 10 MR. DEVINEY: Good morning, Commissioners. 11 Commissioners, we're going to do something a little 12 different for you this morning that we hope you like. We're 13 combining what have been two agenda items, the first being 14 lottery sales and trends, and the second being the online 15 games report. 16 We recognize we're covering a lot of the same 17 material. We've been covering the same material in those 18 two reports. And so what we're going to do is we're going 19 to put it all together for you. One thing that hasn't 20 changed is you've still got -- been provided with three 21 memos this morning and the sales report for week ending 22 September 25th, 2004. 23 And in this PowerPoint presentation, we'll be 24 covering the highlights of what's in that report plus the 25 online games and some other materials. We feel like this is 0005 1 a new way to -- whoops, sorry -- a new way to present this 2 material. 3 It's also a good opportunity for the 4 marketing and financial administration divisions to work 5 together. And we do work together pretty collaboratively in 6 doing the analysis on sales and trends and games. And so 7 we're going to present this material to you as a team. 8 CHAIRMAN CLOWE: We will tell you if we feel 9 overwhelmed. 10 MR. DEVINEY: To summarize where we were for 11 the week ending September 25th, we just begun a new fiscal 12 year on September 1st. To date, this fiscal year we've sold 13 230.6 million dollars worth of lottery tickets. That's an 14 eight and a half percent increase over where we were in 15 fiscal year 2004 at the same point in time. Our weekly 16 sales average is 57.7 million dollars. At the same point in 17 2004, we were at 53.2 million dollars, also an eight and a 18 half percent increase. 19 When comparing our 2005 sales by product to 20 2004 sales, the most significant thing to note -- you'll see 21 this in your memos -- is that instant tickets are 10 and a 22 half percent ahead of where we were in September 2004. When 23 comparing sales for the last two full weeks of this fiscal 24 year, our lottery sales increased by one and a half percent. 25 Instants, MegaMillions, MegaPlier and Lotto Texas increased 0006 1 from week to week. And the lottery sales for the most 2 recent week were 63.8 million dollars. 3 This is a breakout of our weekly sales for 4 the most recent week ending September 25th. As you'll note, 5 our instant games, you know, led as usual at 46.2 million 6 dollars. 7 Now we're going to switch over from fiscal 8 year to calendar years to give you some -- some numbers. 9 Calendar year sales to date: Instant tickets, 1.8 billion 10 dollars, and that makes up 66 percent of our lottery sales 11 for calendar year 2004; Lotto Texas, 372; Pick 3, 207 and on 12 down. Our total calendar year sales to date are 2.7 billion 13 dollars. 14 Looking at it on a weekly basis, the first 39 15 weeks of calendar year '04 compared to calendar year '03: 16 Comparing the two years, we're 14 and a half percent above 17 where we were in calendar year '03. Our instant sales are 18 way up at 29.2 percent and our online sales are 11 and a 19 half percent higher than they were in calendar year '03. 20 And for your reference, the green bars are 21 instants and these are our online games. 22 MR. TIRLONI: Good morning, Commissioners. 23 For the record, my name is Robert Tirloni. I'm the online 24 product marketing coordinator. And I'm going to take us 25 into a little more in-depth look at some of our online 0007 1 games. 2 Since we last met in late August, the 3 Lotto -- an update on Lotto Texas: There was a $36 million 4 jackpot ticket sold in San Antonio for the September 8th 5 drawing. Our current advertised jackpot for tomorrow night 6 is 11 million dollars. 7 And on MegaMillions, our multistate game, our 8 current advertised jackpot for tonight is 101 million 9 dollars. And we are in a roll cycle which began in late 10 August, to be specific, Tuesday, August 24th. 11 To give you a summary of our MegaMillions and 12 MegaPlier sales, if we look at our MegaMillions draw sales, 13 we -- since we started the MegaMillions game in early 14 December, we've sold over 202.3 million dollars worth of 15 MegaMillions. And on MegaPlier, we have sold over 48.4 16 million dollars, giving us a total of over 250.7 million 17 dollars on MegaMillions and MegaPlier. 18 You see that MegaPlier is making up 19.3 19 percent of the sales and there will be another slide further 20 in the presentation that also illustrates that percentage. 21 Since we joined the game in December, the average 22 MegaMillions jackpot is 58.5 million. And since we've been 23 in the game, the highest jackpot has been 290 million 24 dollars. 25 There have been 13 draws where the jackpot 0008 1 has been greater than a hundred million dollars and 37 draws 2 where the jackpot has been greater than 50 million. Of 3 course, the triple-digit jackpot is the level we want to 4 obtain because what we've seen from playership in Texas is 5 that most players, at this point in time, view MegaMillions 6 as a triple-digit jackpot game. And that's when we see a 7 lot of participation in that game increase. 8 A quick -- 9 COMMISSIONER COX: Robert? 10 MR. TIRLONI: Yes, sir. 11 COMMISSIONER COX: How did those numbers 12 compare to what we expected we would have for this period of 13 time? 14 MR. DEVINEY: I'm going to ask Patty Leo to 15 come up and help with that. 16 MS. LEO: Hi. I'm Patty Leo, financial 17 analyst in the financial administration division. The 18 MegaMillions base game is running less than the CDA had, as 19 far as sales, whereas the MegaPlier is about right on. 20 COMMISSIONER COX: Is it a lot less, a little 21 less? 22 MS. LEO: It's about -- I believe that the 23 per capita sales that we had in the CDA were 34 cents a week 24 for the MegaMillions base game and our per capita sales are 25 about 21, 22 cents -- 0009 1 COMMISSIONER COX: So it's -- 2 MS. LEO: -- over that period. 3 COMMISSIONER COX: -- significantly less? 4 What can you tell us about that deficit? 5 MS. LEO: From -- well, Robert, feel free to 6 jump in here, too. 7 MR. TIRLONI: Well -- and I think we might 8 have some slides that might address that -- 9 COMMISSIONER COX: Okay. Good. 10 MR. TIRLONI: -- later on where we talk about 11 per capita on Mega and we have a slide that talks about per 12 capita on Lotto. And I think that has an impact. 13 COMMISSIONER COX: Okay. Good. 14 CHAIRMAN CLOWE: And while you're on this 15 slide, does the Lottery Commission have the name "Texas 16 MegaMillions" trademarked? 17 MR. TIRLONI: No. "Texas MegaMillions" is 18 not, but Mega -- the trademark is in reference just to the 19 MegaMillions -- MegaMillions game. 20 CHAIRMAN CLOWE: I wonder if we shouldn't 21 trademark "Texas MegaMillions." 22 MS. KIPLIN: Commissioner, may I respond to 23 that? 24 CHAIRMAN CLOWE: Certainly. 25 MS. KIPLIN: MegaMillions is a mark that's 0010 1 already owned by the State of Illinois. I think it's the 2 Illinois Lottery Commission. And we've talked with our 3 intellectual property outside counsel regarding 4 possibilities on that kind of a mark. 5 A mark would be subordinate if we were able 6 to get that mark. I can continue those communications if 7 you like. We do have a mark on the MegaPlier, and that is 8 not subordinate to any other mark. There -- in the name, 9 there's two marks in the name only and then the name and 10 design. The design is something that, because it's the 11 MegaMillions, it is not owned by the Texas Lottery. 12 CHAIRMAN CLOWE: Well, I guess I would have a 13 dual interest there. One would be that, if anybody has it, 14 we have it. And the other is that somebody else not have 15 it. And I think it's worth pursuing to a point where it 16 either is available and we can get it or it isn't available 17 to anybody and we share it. 18 MS. KIPLIN: I understand. And let me just 19 say for the record, if we use the mark "Texas MegaMillions," 20 which I don't believe we are. It's the MegaMillions game. 21 We're not using that. But if we -- and I'm wrong, we are 22 using it in commerce and we have common law rights. 23 Of course, the benefit in registering it 24 federally is for constructive notice to all. And it is the 25 better course. But our rights on MegaMillions are 0011 1 subordinate and we're only able to use it through the 2 agreement that we have with the other states because 3 Illinois owns it. 4 CHAIRMAN CLOWE: Okay. And that's fine. And 5 I'm not going to practice law this morning. But when you 6 throw a slide up there and you say "Texas MegaMillions" and 7 you put that TM mark there, I think you are, to a certain 8 extent, misleading the layperson -- of which I am one -- 9 about what's accurate. And that's what engendered my 10 question. 11 MS. KIPLIN: I appreciate that. And I'll get 12 with Robert and we'll make sure that the information put on 13 the slides is little crisper. 14 CHAIRMAN CLOWE: Thank you. 15 MR. TIRLONI: Commissioners, to give you an 16 update on the number of winners we've had on MegaMillions 17 and MegaPlier since we joined in early December, we've had 18 over 4.7 million winners in Texas on the MegaMillions game. 19 And that amounts to over 36 and a half million dollars in 20 MegaMillions prizes. In terms of MegaPlier, the number of 21 winners who have Megaplied is over 1.1 million. And those 22 prizes amount to over 19.8 million dollars. 23 Focusing in a little more on the second-tier 24 prize, which is a $175,000 prize, we have had 72 winners in 25 the state of Texas. And 12 of those 72 winners have 0012 1 Megaplied their prize. 2 Commissioners, this is a slide we have looked 3 at in the past. Thanks to Patty Leo, it has been 4 redesigned. And I think it presents a -- or provides a 5 clearer picture of MegaMillions and the relationship to 6 MegaPlier. 7 On the left-hand axis, you see MegaMillions 8 draw sales. On the right-hand axis, you see MegaPlier draw 9 sales with jackpot amounts at the top. This graph, I think, 10 shows a very clear picture of the relationship between the 11 two. They follow a very similar pattern. 12 You see this is a Tuesday draw. This is 13 sales increase for the Friday draw, which is typical and 14 very similar, actually, to the increase we see on Lotto 15 Texas between our Wednesday Saturday draws. The most 16 important thing to note is that, as the MegaMillions jackpot 17 starts to get into some of the higher levels, you notice how 18 MegaMillions pulls ahead, so to speak, pretty rapidly in 19 front of MegaPlier. 20 And we would attribute that to two reasons. 21 As the jackpot gets into these ranges -- upper 60s, 70s, 22 80s -- you have new players coming into the game that don't 23 play at the base or the starting-level jackpots. And the 24 most likely reason for the difference is that those new 25 players may not be familiar with the MegaPlier feature of 0013 1 the game. 2 The second reason we would attribute that to 3 is that, as the jackpot gets higher -- and I think we've 4 talked about this in previous meetings -- players who may 5 play MegaPlier when the jackpot is 10 or 20 or 30 take that 6 dollar that they would spend on MegaPlier, and when it 7 reaches those higher levels, they apply it to the base game 8 for a chance to win the multi-million dollar prize. 9 COMMISSIONER COX: Robert? 10 MR. TIRLONI: Yes, sir? 11 COMMISSIONER COX: Thank you for that graph. 12 I've been wanting to see that for some time. And it does 13 have, looks like, some rich information in it. I hope that, 14 as we do our market research, we will try to narrow down the 15 reason for that and see if we can -- if it's something that 16 we should be addressing. 17 MR. TIRLONI: Yes, sir. 18 This is another slide that we've looked at in 19 the past. Again, it looks a little bit different thanks to 20 Patty. This reveals the 19.3 percent of the total sales of 21 the MegaPlier sales -- I'm sorry -- Megaplier's comprising 22 19.3 percent of the total sales. And you see the red bar is 23 the MegaMillions sales and the blue is MegaPlier. 24 And the green shading in the background gives 25 you an idea of what the MegaMillions jackpot was. So I'll 0014 1 give you an example. At this point in time, the 2 MegaMillions jackpot is the -- the green shading. So we 3 were in the mid-100 range, right around a hundred and 4 probably 30, 140. And so you can see the MegaMillions sales 5 and the MegaPlier sales at that time. 6 But something worth noting that's interesting 7 is that, at that same time, the Lotto Texas jackpot was 145 8 million dollars. And we've noticed you -- if you can look 9 at this trend of how the sales increased as the jackpot 10 increased, you see very rapid rise in MegaMillion sales. We 11 believe that's the result of very high traffic in retail 12 stores due to the Lotto Texas jackpot amount. 13 We feel that the -- the game that's been 14 around in Texas for 12 years, which has a very loyal 15 following, drew a lot of people into the stores. And when 16 they were in there purchasing their ticket for a chance at 17 145 million on Lotto, they were also interested in 18 purchasing a MegaMillions ticket, which was also in the $100 19 million range. 20 COMMISSIONER COX: Robert? 21 MR. TIRLONI: Yes, sir. 22 COMMISSIONER COX: Back on that slide, why do 23 we have so much green showing at the top on the right and 24 left where we don't have it in the middle? 25 MR. TIRLONI: I'm going to defer to Patty on 0015 1 that question. 2 MS. LEO: In the September area? 3 COMMISSIONER COX: Yes. 4 MS. LEO: Well, your -- the jackpot's rising. 5 It's up to 86 at the very last observation there. And 6 sales -- it shows more because sales aren't increasing as 7 rapidly as the jackpot is. And that kind of refers back to 8 what Robert was saying, in that it -- people regard it as a 9 triple-digit game. 10 And so you don't see the sales response to 11 the increase in the jackpot until it gets to the higher 12 level. So it's in -- the jackpot is in the level of -- that 13 the sales are not increasing. We're not seeing a big 14 response in sales yet. 15 COMMISSIONER COX: Well, now Patty, if that 16 were correct, would that not be also the pattern of July and 17 August? But there I'm seeing the bars get above the top of 18 the green. And over in September, I don't. 19 MS. LEO: It's the -- if you'll notice that 20 the bars after the jackpot was hit on July 2nd, they're 21 relatively flat. That's pretty much our core group of 22 players. 23 COMMISSIONER COX: I see. 24 MS. LEO: See? And then so they're the only 25 ones playing, really, in these jackpot levels or there's not 0016 1 as much deviation. Once the jackpot climbs, then you get 2 your new players in or, you know, the core players start 3 increasing their purchases. 4 COMMISSIONER COX: Okay. Thank you. 5 MR. TIRLONI: And I believe that's why you 6 don't see as much green over here because the sales are so 7 much higher because of the level of the jackpot being 290 8 million dollars. 9 COMMISSIONER COX: Uh-huh. 10 MS. LEO: If you were to look at this graph 11 over back to December, you see the same type of pattern in 12 it in low-jackpot periods. 13 MR. TIRLONI: Commissioners, this is a slide 14 that shows our cumulative MegaMillions draw sales by each of 15 the participating states, all 11, since we joined the game 16 in early December, so from December 5th through the drawing 17 that just took place this past Tuesday, the 28th of 18 September. 19 So when you look at all the states in terms 20 of their draw sales, you see Texas pretty much is in second 21 place through that entire -- through that entire period. 22 And when we look at per capita, Commissioner Cox, as you've 23 asked us to do in the past, you see -- and we were talking 24 about this earlier -- you see that Texas falls towards the 25 bottom in terms of a per capita ranking with the other -- 0017 1 with the other states. 2 But if we just look at this slide alone, I 3 don't think it paints the entire picture about what's 4 happening. And I think we need to think about what our per 5 capita is on our Lotto Texas game, because I think that has 6 a direct impact on our per capita on MegaMillions. And I 7 have a slide that I want to show you. 8 Basically, what this slide does is it takes 9 the per capita for all of the participating states in 10 MegaMillions. It takes the per capita for their in-state 11 Lotto game and the per capita for MegaMillions game and it 12 shows the percentage of the total that's in-state. And I'll 13 -- I'll walk you through one or two. 14 So let's look up at the top, for example, on 15 New Jersey. Their in-state game is represented in red. 16 Their MegaMillions is -- per capita is in green. And so 17 their in-state game is making up 34.6 percent of the total. 18 New York has very similar stats. And then 19 you get to Texas. And we're really the outlier in the 20 bunch. You see, I think pretty drastically in this slide, 21 that the in-state game in Texas, Lotto Texas, is very strong 22 compared to all of the other states' in-state game. So 23 Lotto is making up 63 percent of the -- of the total. 24 The only state that comes close to us in -- 25 in their terms of strength in their in-state game is the 0018 1 state of Washington. And they're way at the bottom. Their 2 in-state game is making up 50 percent. I want to go back 3 and -- to the slide before this and then I'm going to come 4 back to this one. I just want to point one thing out. 5 You notice the three states that are at the 6 -- that are at the bottom, so to speak -- Massachusetts, 7 Texas and Washington -- when we come back here -- sorry. 8 When we come back to this slide, you notice that those three 9 states -- Texas, Massachusetts and Washington -- are the 10 three states that have the strongest in-state game out of 11 the -- out of all 11. 12 So I think what this shows is -- and we've 13 known this and we've talked about this. We have a very 14 dedicated group of players in Texas to the Lotto Texas 15 brand. And that, I would attribute, is part of the reason 16 why we're seeing lower per capita numbers on MegaMillions. 17 We obviously have a lot of room for growth on MegaMillions 18 and we're going to work towards that goal. 19 I think our goal here would be to keep this 20 bar as is in the yellow and, obviously, grow this green bar 21 and increase our per capita on MegaMillions. But I think 22 the strength of the Texas Lotto brand is very evident in 23 this slide and is -- is a big part of the reason that we 24 don't see a higher per cap on MegaMillions at this point in 25 time. 0019 1 Commissioner Cox, did that answer your 2 question from earlier in the presentation? 3 COMMISSIONER COX: Well, I'm going to ask 4 another one that we talked about last month, I think. And 5 that was: Do you believe that this is attributable to the 6 fact that MegaMillions is a new game and do you have any 7 data to support your answer? 8 MR. TIRLONI: I have -- I have some follow-up 9 for you on that later in the presentation -- 10 COMMISSIONER COX: Good. 11 MR. TIRLONI: -- about some historical per 12 caps in other states -- 13 COMMISSIONER COX: Okay. 14 MR. TIRLONI: -- that I can -- that I'll 15 share with you in a few slides. 16 This is also a slide that we've looked at 17 before. It looks a little different, but this basically 18 shows, since we joined MegaMillions in December, the roll 19 cycles and the patterns on both Lotto and MegaMillions. 20 So the blue bars are MegaMillions and the red 21 shading behind there is Lotto. And again, this basically 22 just shows our roll cycles. This is when we started in 23 MegaMillions in December. And in the background, you see 24 Lotto -- the Lotto roll cycles up to 70, a cycle up to 12, 25 the long roll cycle up to the record-breaking $145 million 0020 1 jackpot. 2 And as we just talked about, as Lotto was 3 rolling, so was MegaMillions. They were both in the $100 4 million range for a period of time. We did have a winning 5 ticket sold on Lotto. And MegaMillions continued to climb 6 up to the $290 million jackpot. I talked earlier about the 7 $36 million Lotto jackpot just sold in San Antonio. And 8 then that's where we are today, at $11 million Lotto Texas 9 jackpot. 10 And this was as of -- this was after the 11 Tuesday draw. And so that's why you don't see MegaMillions 12 at 101, which is what it is currently. 13 COMMISSIONER COX: Robert? 14 MR. TIRLONI: Yes, sir. 15 COMMISSIONER COX: That was -- that's an 16 awful lot of information on one slide. Tell me what we 17 learn from that. 18 MS. LEO: Well, one, you can see the relative 19 differences in the Lotto jackpot levels and the 20 MegaMillions. But it also shows you pretty clearly the -- 21 the length of time in the roll cycles of the two. For 22 example -- 23 MR. TIRLONI: These. 24 MS. LEO: Yeah. 25 MR. TIRLONI: Here's the roll cycle where we 0021 1 started. And there's the length of time it took us to get 2 from four up to 145. And you can see the difference, in 3 terms of MegaMillions started at 10 here and was almost even 4 with Lotto Texas by that point in time. 5 MS. LEO: Over that same period, you can see 6 that, during the time that Lotto was on that same roll, that 7 that's actually the third roll cycle that MegaMillions was 8 in. 9 So MegaMillions gets hit more often, but -- 10 and it climbs faster. So you can kind of see the relative 11 differences from that by looking back. It also -- you can 12 see what levels that each of them were hit over that same 13 time period. 14 COMMISSIONER COX: Okay. Thank you. 15 MR. TIRLONI: Commissioners, this is just a 16 comparison of MegaMillions and Lotto Texas. Again, we're 17 looking at the same time period from the time the game 18 started -- I'm sorry -- from the time we started in the 19 MegaMillions game in December. 20 You see Lotto Texas draw sales totalling just 21 under $400 million for that time period and you see 22 MegaMillions and MegaPlier sales totaling just under $251 23 million. And when you look at that on a per capita basis, 24 you see Lotto Texas is just under 42 cents per capita and 25 MegaMillions is at 26. 0022 1 When comparing online and instant sales -- 2 excuse me -- for FY '03 and FY '04, you see that we've had 3 an increase in online. Excuse me. You see we've seen an 4 increase in online of 16.1 percent and an increase in 5 instants of 9.2 percent. And total sales for fiscal year 6 '04 were up 11.4 percent over fiscal year '03 sales. 7 This is a summary we've talked about in the 8 past. We've increased the game variety in Texas by bringing 9 on the MegaMillions game and introducing MegaPlier. And we 10 have increased sales. We're generating more dollars in 11 sales by having the MegaMillions product and MegaPlier 12 product. And more lottery dollars generated means more 13 money that we can return to the state of Texas. 14 Here's the follow-up from the last meeting, 15 Commissioner Cox. The first one is a question that you 16 asked. And I also have a quick follow-up on the Dr. Eubank 17 report on the MegaPlier drawings. 18 Looking back at all of the participating 19 states in MegaMillions, MegaMillions began in May of 2002. 20 All of the participating states except the state of 21 Washington have seen an increase in their weekly per capita 22 sales from 2002 to 2003 and then from 2003 to 2004. So 23 everybody has seen an increase. 24 Washington joined MegaMillions in September 25 of 2002. And as I said earlier, they're the only state that 0023 1 has not seen an increase at this point in time. We were 2 just in Atlanta for a MegaMillions meeting with the 3 MegaMillions directors. We talked about the issue of having 4 a winner in your state. And I think probably one of the 5 best states recently that we can look at would probably be 6 Ohio. 7 Their financial director and their marketing 8 director both conveyed to Reagan and to myself that the -- 9 they could not place a value on what it's like to have a 10 jackpot winner in the state on a multistate game such as 11 MegaMillions. They feel that it's helped their sales. It's 12 helped the game. It's helped the public knowledge of the 13 game. 14 And as I've said in previous meetings, I 15 think that will be a crucial factor for us in MegaMillions, 16 once we do have a winner, publicizing the fact that we've 17 had a winner, educating the public and the retailers that, 18 you know, somebody in Texas does have a chance to win this 19 game. And when they do and when that day happens, because 20 it will, we have to be very strong with our message about 21 that and get that news out there. 22 But we will continue to -- through our 23 marketing research -- look at MegaMillions and MegaPlier and 24 how we can also come up with ways to increase that per 25 capita that does not have to do with having a winner in the 0024 1 state. 2 On the MegaPlier draw analysis, we have 3 received a report from Dr. Eubank. He used a standard 4 statistical goodness of fit tools or models to analyze the 5 MegaPlier data that was sent to him. And this is direct 6 quote from his letter dated August 29th that he sent in: 7 "I found no statistical evidence that the 8 MegaPlier values are not being generated randomly with the 9 desired relative frequencies." 10 That's from the last paragraph. His letter 11 or report is five or six pages long. It was very detailed. 12 He looked at all the data. And we will continue to be in 13 communication with him and send him MegaPlier draw results 14 as needed so that he can continue to analyze that data 15 and -- and continue to send us his statistical analysis on 16 that data. 17 COMMISSIONER COX: Okay. Now what we were -- 18 the question was: Since these draws are not manual but 19 rather are digital, do we have evidence that they are either 20 appear to be random or appear to be not random? 21 MR. TIRLONI: That's correct. 22 COMMISSIONER COX: And this is -- and the 23 answer is that it seems that we're getting the same kind of 24 result that we might be if we were just picking numbers out 25 of a hat. 0025 1 MR. TIRLONI: Yes, sir. That's correct. 2 And Lee is going to finish off the 3 presentation today with some fiscal year numbers, since the 4 last time we met was at the end of August and we had not yet 5 completed our fiscal year '04. 6 MR. DEVINEY: As we now have completed fiscal 7 year '04 and -- these are unaudited numbers. We're working 8 on our annual report and independent audit right now. But 9 there is our unaudited final year-end number, 3.487 billion 10 dollars, which is the second highest sales of the -- of the 11 Texas lottery. I think 1997 was the highest year. 12 Instants: You know, as I mentioned earlier, 13 66.7 percent of our sales. And then our online games are 14 displayed across the top for the remaining 43 percent. It 15 was a good year for the Texas lottery. 16 And we also thought we would show you what 17 the accrual basis transfers to the -- of lottery proceeds 18 are from sales. This, of course, doesn't include -- we do 19 transfer a little bit of money to the state through the 20 bingo program. So this excludes the bingo. 21 The red bars here are the early years of the 22 lottery from 1992 into 1997. This is when the transfers 23 were made to the state's General Revenue Fund. And then 24 in -- starting in fiscal year 1997, we began transferring 25 funds, lottery proceeds to the Foundation School Fund. 0026 1 Our unaudited accrual base transfer for FY 2 2004 is 1.01 billion dollars, which is getting comparable to 3 the '96 through '98 time frame in terms of total dollars. 4 And it would be our second best year of transfers to the 5 Foundation School Fund. 6 And that is our presentation. We're here to 7 answer any -- any other questions that you may have and any 8 comments on how you like this new presentation style. 9 COMMISSIONER COX: I like it a lot. I think 10 it's an excellent presentation. And I really like the fact 11 that marketing and finance are working together. So often 12 you find in an organization marketing has their own set of 13 data that they work with, and it may or may not have 14 anything to do with the real numbers. 15 When I see y'all working together, I know 16 that marketing is working with real numbers and I like that. 17 When I see us getting this kind of information, I'm 18 comfortable that management is getting better information 19 than had been getting in the past. And that's what's really 20 important. Thank you very much. 21 CHAIRMAN CLOWE: Lee, can you give us a 22 printout on this presentation? 23 MR. TIRLONI: I can certainly do that. 24 CHAIRMAN CLOWE: Would you do that? Give 25 each of the commissioners a copy of this presentation, if 0027 1 you would. 2 MR. TIRLONI: Absolutely. 3 AGENDA ITEM NO. 3 4 CHAIRMAN CLOWE: Thank you. Next Item 3, 5 report, possible discussion and/or action on HUB and/or 6 minority business participation, including the agency's 7 mentor/protege program. 8 MR. DEVINEY: Commissioners, as -- as we 9 usually do, Joyce Bertolacini, the agency's HUB coordinator, 10 will present this report to you. 11 MS. BERTOLACINI: Good morning, 12 Commissioners. For the record, my name is Joyce Bertolacini 13 and I'm the agency's Historically Underutilized Business 14 coordinator. And included in your notebooks today is the 15 August monthly HUB minority contracting activity report, 16 which includes all fiscal year 2004 expenditures paid from 17 September 1st of 2003 through August 31st of 2004. 18 Our total qualifying expenditures as of 19 August 31st were 150.7 million dollars. And our estimated 20 HUB utilization was 41 million dollars, which equates to 21 27.21 percent. 22 I also wanted to mention to you this morning 23 that the annual statewide HUB report will be released by the 24 Texas Building and Procurement Commission on October the 25 15th. I've already reviewed a draft version of this report. 0028 1 And I'm happy to report that our overall HUB percentage has 2 increased over the last year. I will be providing some 3 detailed analysis to you once the official report is 4 released. 5 I have no updates regarding the commission's 6 mentor/protege program at this time, but I'd be happy to 7 answer any questions that you might have. 8 CHAIRMAN CLOWE: How much of an increase? 9 MS. BERTOLACINI: Last year overall we were 10 at 18.4 percent. And this year the draft report looks like 11 we were at 26.9 percent. 12 CHAIRMAN CLOWE: Significant. 13 MS. BERTOLACINI: Yes. 14 CHAIRMAN CLOWE: Well, that's excellent, 15 Joyce. And the commissioners continue to be extremely 16 supportive of this effort and urge you and others who are 17 involved to continue this good work. That's a good 18 increase. 19 MS. BERTOLACINI: Thank you. We will. 20 CHAIRMAN CLOWE: Thank you. 21 AGENDA ITEM NO. 4 22 CHAIRMAN CLOWE: Next Item 4, report, 23 possible discussion and/or action on the agency's contracts. 24 MR. DEVINEY: Commissioners, again, I'm Lee 25 Deviney, financial administration director. The weekly 0029 1 contract report is down under tab 4 of your notebook. This 2 covers all contracts with a value of 25 thousand dollars or 3 more. If you have any questions, we'll try to answer them. 4 CHAIRMAN CLOWE: Are there any questions? 5 COMMISSIONER COX: I have one. 6 CHAIRMAN CLOWE: Yes, sir. 7 COMMISSIONER COX: Can somebody tell me what 8 this market research is all about? What market research is 9 delivered by Ipsos Reid and what's done with that 10 information? 11 MR. TIRLONI: For the record once again, I'm 12 Robert Tirloni, the online product coordinator for the 13 marketing division. Ipsos Reid provides market research 14 services. They do monthly tracking studies for the 15 commission through phone interviews. 16 Ipsos Reid also conducts player and sometimes 17 retailer focus groups on new game concepts on the online 18 side. On the instant ticket side, they run quarterly focus 19 groups on new game designs, new tickets. 20 Ipsos Reid has the ability to do research via 21 the Internet. They do demographic studies for us. They do 22 an annual segmentation study for us where they break the 23 player base into -- into actual market segments based on 24 their spend and based on their frequency of play. 25 COMMISSIONER COX: Is this being done 0030 1 pursuant to some statutory mandate? 2 MR. TIRLONI: I don't believe that it is, 3 Commissioner. 4 COMMISSIONER COX: Is the information useful? 5 MR. TIRLONI: Yes. I do believe that the 6 market research information from Ipsos is useful. 7 COMMISSIONER COX: I'd like to see a 8 cost/benefit analysis on this market research. 9 MR. TIRLONI: We will put that together for 10 you, Commissioner Cox. 11 COMMISSIONER COX: Okay. Now apparently this 12 Ipsos Reid was recently awarded an additional contract; is 13 that correct? 14 MS. KIPLIN: Commissioner Cox, I'm asking Mr. 15 Marker, who's the agency attorney assigned to that 16 procurement, to come forward and let you know what the 17 status is. 18 MR. MARKER: Good morning, Commissioners. My 19 name is Andy Marker, assistant general counsel for Texas 20 Lottery. That is correct, Commissioner Cox. The commission 21 and Ipsos Reid executed a contract earlier this week for 22 market research services. 23 COMMISSIONER COX: Was there competition on 24 this contract? 25 MR. MARKER: Yes, Commissioner. I believe 0031 1 there were four proposals that were submitted. 2 COMMISSIONER COX: What were the criteria for 3 selection of Ipsos Reid? 4 MR. MARKER: The general categories were 5 those that are found in the statute, which were: financial 6 soundness, probable quality, past experience and 7 performance. 8 COMMISSIONER COX: Did the -- 9 MR. MARKER: And -- I'm sorry -- also cost. 10 COMMISSIONER COX: Did the other proposers 11 get an opportunity to propose an approach to this work or 12 were they just responding to questions that we asked? 13 MR. MARKER: The -- all proposers had an 14 opportunity to respond to request for proposals. The RFP 15 did include -- I believe it was three scenarios where the 16 commission put out different -- different problems and asked 17 proposers to address those problems. 18 So proposers were judged on the proposal, 19 which included their specific responses and then also the 20 other categories: probable quality, past experience, and 21 also cost. 22 COMMISSIONER COX: One of the things that I'm 23 concerned about here is, I have looked at the information in 24 the Ipsos Reid reports and I find it useless. So somebody 25 here is going to have to help me with what good they find 0032 1 it. 2 CHAIRMAN CLOWE: Anything further? 3 AGENDA ITEM NO 5. 4 CHAIRMAN CLOWE: Next is Item 5, report, 5 possible discussion and/or action on the agency's financial 6 status. 7 MR. DEVINEY: Commissioners, again, I'm Lee 8 Deviney, financial administration director. Please refer to 9 tab 5 of your notebook for the agency's financial status 10 report. The first thing under that section is the report on 11 transfers made to the Foundation School Fund and allocation 12 of unclaimed prize money. 13 The September transfer of lottery sales to 14 the Foundation School Fund will amount to 4.8 million 15 dollars. And we've also -- we also transferred another 600 16 thousand dollars of unclaimed prize money to the State. 17 I would like to make a comment on that, that 18 you'll notice that number transferred to the Foundation 19 School Fund is smaller than you normally would expect to 20 see, which is usually in the $70 - $80 million range. The 21 reason for that is because we did two transfers in August. 22 Normally we transfer money the month after 23 the sales month. But at the end of the fiscal year, we 24 typically make two transfers. We make one in late August in 25 order to get that money -- get that cash put into the 0033 1 Foundation School Fund before year-end. So this is a normal 2 pattern. 3 Behind the transfer report, you'll find a 4 report of lottery revenues, expenditures and transfers from 5 1992 to date. Total transfers to the State have amounted to 6 11.8 million dollars through the end of fiscal year 2004. 7 Then you'll find an orange divider page in 8 your notebook. And behind that is the -- the lottery budget 9 report -- make a few comments on that. The first page in 10 there is -- again, this -- these are unaudited numbers. But 11 this is a fiscal year 2004 year-end summary for funds for 12 appropriations out of the state lottery account. 13 We came in under budget by about 11.6 million 14 dollars. And for bingo, which is appropriated primarily out 15 of the General Revenue Fund, we were right on budget and -- 16 and had a remaining balance of approximately 24 thousand 17 dollars. 18 One reason we had such a large ending balance 19 in the state lottery account is because we are appropriated 20 additional money based on additional sales. And we just had 21 more sales than we expected which, of course, is a good 22 thing. And some of those funds can be transferred forward 23 to fiscal year 2005. The remainder will go to the 24 Foundation School Fund for the benefit of the State. 25 And that's really all I have on the budget 0034 1 report for this month. 2 CHAIRMAN CLOWE: Are there any questions? 3 COMMISSIONER COX: No, sir. 4 CHAIRMAN CLOWE: Thank you, Mr. Deviney. Mr. 5 Greer, is there an item on item number 6 for the report? 6 MR. GREER: Yes. Robert Tirloni will make 7 the report. 8 AGENDA ITEM NO. 6 9 CHAIRMAN CLOWE: Then we'll consider that 10 item, report, possible discussion and/or action on the 11 lottery advertising and promotions. 12 MR. TIRLONI: Good morning again, 13 Commissioners. I'll be reporting on this item for you 14 today. 15 DDB Dallas is at the end of a three-week 16 advertising flight which features the jackpot song. This 17 flight will end this Sunday, October 3rd. And this flight 18 focuses on our online jackpot games: MegaMillions, Lotto 19 Texas and Texas Two Step. 20 The next advertising flight that DDB will 21 begin will be towards the end of October on the 25th. That 22 will be a campaign referred to or called "Scratch Dance." 23 And that will support the commission's scratch-off or 24 instant product. 25 At this time, DDB is working on two point of 0035 1 sale campaigns. One of those campaigns will support the 2 holiday scratch-off games that are coming out. And the 3 other campaign will support Cash 5 promotions that are 4 taking place during the fall. 5 The King Group, our minority market 6 advertising agency, is on air with their "Right Now" 7 scratch-off campaign. That runs through the 9th. And the 8 "Right Now" campaign focuses on our scratch-off or our 9 instant product as well, and it focuses on the immediate 10 gratification that the scratch-off games can deliver to 11 Texas players. 12 And lastly, on the promotions front, we are 13 selling tickets at the State Fair of Texas, which began on 14 Friday, the 24th of September. We have a major presence at 15 the fair. We have banners placed on all of our outdoor 16 billboards in the Dallas/Ft. Worth area announcing our 17 participation at that event. And my understanding is that 18 sales are very strong and are already exceeding last year's 19 sales at the event. 20 And that is the report. I'd be happy to try 21 to answer any questions I can for you. 22 CHAIRMAN CLOWE: Thank you, Robert. Are 23 there any questions? 24 COMMISSIONER COX: Yes, sir. 25 Robert, the contract with DDB Dallas has a 0036 1 provision that I plainly recall that they produce a report 2 for us each year as to the benefit, economic benefit that we 3 derive from the advertising money that we spend. Does that 4 ring a bell? 5 MR. TIRLONI: It doesn't offhand, but I 6 can -- I can look at that. 7 COMMISSIONER COX: And does anyone here 8 recall the provision in the contract that I'm trying to 9 refer to? 10 MR. GRIEF: Commissioner Cox? 11 COMMISSIONER COX: Yes? 12 MR. GRIEF: Are you referring to the monthly 13 requirement that they provide us a report on return on 14 investment? 15 COMMISSIONER COX: Is it a monthly report? 16 MR. GRIEF: I believe so. 17 COMMISSIONER COX: Do we get those reports? 18 MR. GRIEF: Yes, sir. 19 COMMISSIONER COX: I'd sure like to see one. 20 MR. GRIEF: I'll be happy to provide you with 21 a copy of the report. 22 COMMISSIONER COX: Thank you. 23 CHAIRMAN CLOWE: Anything further? Thank 24 you, Robert. 25 MR. TIRLONI: Thank you. 0037 1 AGENDA ITEM NO. 7 2 CHAIRMAN CLOWE: Next Item 7, report, 3 possible discussion and/or action on the 78th Legislature. 4 I believe Mr. Haza is going to make that report this 5 morning. 6 MR. HAZA: Good morning, Commissioners. I'm 7 Colin Haza from the governmental affairs staff. Included in 8 your notebooks are several documents that we'd like to 9 address with you today. 10 First of all, the Committee on Licensing & 11 Administrative Procedures, chaired by Representative Kino 12 Flores, held a committee hearing on September 15th to 13 discuss several of the committee's interim charges. As 14 noted on the committee's agenda, one of those charges 15 specifically relates to the implementation of House Bill 16 2519, bingo processes at the Lottery Commission and state 17 comparisons of the percentage distributed to charities. 18 In preparation for the hearing, we provided 19 the committee with information specific to the interim 20 charge. Billy Atkins and Phil Sanderson provided testimony 21 and answered questions from the committee members. Also 22 listed on your agenda are representatives of the charitable 23 bingo industry who provided testimony at the hearing. 24 In response to a request from Chairman Flores 25 and the committee staff, we provided additional information 0038 1 related to this interim charge. It's our understanding that 2 the committee will issue its interim report sometime this 3 month, sometime mid-October, we believe. 4 The next item in your book relates to the 5 joint budget hearing, which was held on September 16th 6 before the staff of the Legislative Budget Board and the 7 Governor's Office of Budget Planning and Policy. Lieutenant 8 Governor Dewhurst also had a representative in that hearing. 9 Reagan Greer, Billy Atkins and Lee Deviney 10 provided testimony related to the agency's legislative 11 appropriations request. And the staff members responded to 12 various questions from the panel, and additional information 13 requested has been provided to the appropriate offices. 14 The Senate Finance Committee chaired by 15 Senator Steve Ogden is conducting hearings to review state 16 agencies' legislative appropriations requests. We've 17 provided the committee with the information requested in 18 Senator Ogden's letter. And our agency is scheduled to make 19 its presentation before the committee next Tuesday, October 20 5th. 21 Lastly, the last item in your notebook is a 22 letter from Representative Joe Pickett, who chairs the House 23 Appropriations Subcommittee on General Government, that 24 requests the agency's response to an interim questionnaire. 25 Responses are due to Chairman Pickett by October 31st. And 0039 1 we are compiling the necessary information to respond by the 2 deadline. 3 That concludes my report, but I'll be happy 4 to answer any questions. 5 CHAIRMAN CLOWE: Are there any questions? 6 Thank you. 7 AGENDA ITEM NO. 8 8 CHAIRMAN CLOWE: Next Item 8, report, 9 possible discussion and/or action on the Sunset process 10 involving the agency. 11 MR. HAZA: Mr. Chairman and Commissioners, we 12 have no updates to that subject. 13 COMMISSIONER COX: So just help me understand 14 where it is. Are they through with their recommendation to 15 the legislature about the Texas Lottery Commission? Is that 16 all wrapped up? 17 MR. HAZA: The Sunset Commission has adopted 18 the recommendations at the -- I believe it was July meeting 19 or August meeting. A bill will be drafted and a sponsor 20 will file a bill with the 79th Legislature. 21 COMMISSIONER COX: But as far as their formal 22 action regarding this commission, it's done? 23 MR. HAZA: That's correct, until the bill's 24 drafted and filed. 25 COMMISSIONER COX: Thank you. 0040 1 CHAIRMAN CLOWE: Thank you, Colin. 2 MR. HAZA: Thank you. 3 AGENDA ITEM NO. 9 4 CHAIRMAN CLOWE: Next is Item 9, 5 consideration of and possible discussion or action on the 6 external and internal audits and/or reviews relating to the 7 Texas Lottery Commission and/or the internal audit 8 department's activity. Ms. Melvin, good morning. 9 MS. MELVIN: Good morning. For the record, 10 I'm Catherine Melvin, director of the internal audit 11 division. I have no information under this agenda item to 12 report at this time, but I'm happy to answer any questions 13 you may have. 14 CHAIRMAN CLOWE: Are there any questions? 15 Thank you, ma'am. 16 MS. MELVIN: Thank you. 17 CHAIRMAN CLOWE: Next Item 10, consideration 18 of, possible discussion and/or action on the agency's 19 security policy. Mr. Grief? 20 MR. GRIEF: Chairman Clowe, we're not quite 21 set up for this presentation, if we could defer on that 22 item... 23 AGENDA ITEM NO. 11 24 CHAIRMAN CLOWE: We'll come back. Item 11 25 next, consideration and/or possible discussion and/or action 0041 1 on the agency's business plan. 2 MR. GRIEF: Commissioners, I'm reporting this 3 morning for Michael Anger, our lottery operations director. 4 And I have a brief update for you. 5 Agency staff are in the process of revising 6 sections of the business plan to incorporate some of the 7 feedback that the staff received from the commissioners at 8 the September 8th commission meeting. 9 In November, Billy Atkins is planning on 10 sharing the suggested revisions to action plan number six of 11 the proposed business plan, which is the development of a 12 bingo annual report with the Bingo Advisory Committee and 13 seek their input. With the approval of the commission, we 14 anticipate finalizing the plan after that meeting has 15 occurred and we will then bring the final draft back before 16 you for approval. 17 I'd be happy to answer any questions. 18 CHAIRMAN CLOWE: Did you find the meeting 19 that you had with the commissioners helpful? 20 MR. GRIEF: Extremely helpful from my point 21 of view, yes, sir. 22 MR. GREER: Yes. 23 CHAIRMAN CLOWE: I tried to give you an 24 opportunity. 25 MR. GRIEF: Very, very helpful. 0042 1 COMMISSIONER COX: Really helpful. 2 CHAIRMAN CLOWE: I think one thing that may 3 come out of that in regard to the bingo division is a 4 discussion under Billy's activities the possibility of a 5 joint meeting between the commission and the Bingo Advisory 6 Committee. 7 And I think on my behalf -- I can't speak on 8 behalf of all the commissioners -- it was very helpful to 9 sit down with you-all and review that plan, although I had 10 had the opportunity to attend some of the working sessions. 11 I don't know about the other commissioners. 12 I got a feeling and a sense of involvement 13 that I don't think I would have gotten any other way. 14 Commissioner Cox, I think on behalf of Commissioner Olvera 15 and myself, we thank you for suggesting that. We think it 16 was very beneficial to us. 17 COMMISSIONER COX: At least -- at least for 18 us. 19 CHAIRMAN CLOWE: For us. 20 COMMISSIONER COX: Yes. 21 MR. GREER: Well, Mr. Chairman, I'd like to 22 just chime in briefly to state how much we appreciated y'all 23 taking time to be here. That was a great project. You know 24 that we spent three full days off campus really 25 brainstorming to come up with that. 0043 1 I thought Mike Anger and his team did a great 2 job on putting that information together. And the fact that 3 we took a day, again, to reflect on what we had come up with 4 and then get your opportunities to give input I thought was 5 very valuable. And I think we're -- I know that, from my 6 perspective, that we're going to really utilize this 7 document and it's going to be helpful. 8 CHAIRMAN CLOWE: And that's the 9 commissioners' hope, I think. 10 COMMISSIONER COX: One more thing. 11 CHAIRMAN CLOWE: Certainly. 12 COMMISSIONER COX: I think that the agency 13 used -- first of all, retained excellent consultants for 14 these projects and, secondly, used those consultants very 15 well. When you hire consultants to do a turnkey project and 16 they hand it in at the end, those -- those products tend to 17 be less useful than this kind of situation where you hire 18 the consultants to help lead and facilitate our doing the 19 work and producing the product jointly with them. 20 I think there's not only a lot more buy-in, 21 there's a lot more familiarity with what is there. And you 22 get some momentum going on implementing things that you 23 don't get when you give it to them and they turn it in. I 24 thought y'all did a great job. 25 MR. GREER: Thank you. 0044 1 AGENDA ITEM NO. 12 2 CHAIRMAN CLOWE: Very good. Next Item 12, 3 report, possible discussion and/or action on the instant 4 tickets and services procurement. Mr. Greer or is Mr. 5 Marker going to handle this? 6 MR. GREER: Mr. Marker. 7 MR. MARKER: Good morning, Commissioners. 8 Good morning. Again, my name is Andy Marker, assistant 9 general counsel, here to report that last month the 10 commission awarded contracts to Scientific Games 11 International as priority vendor and Pollard Banknote 12 Limited as secondary vendor for instant ticket products and 13 services. 14 I'll be happy to answer any questions. 15 CHAIRMAN CLOWE: Are there any questions? 16 We have an appearance filed by Mr. Cliff 17 Bickell, who -- who wishes to make a comment on this item. 18 Would you come forward, please, sir. 19 MR. BICKELL: Good morning. 20 CHAIRMAN CLOWE: Good morning. 21 MR. BICKELL: Good morning. My name is Cliff 22 Bickell. I'm the president of Scientific Games printed 23 products group. Accompanying with me this morning is Jim 24 Kennedy, senior vice-president of sales and marketing for 25 North America for Scientific Games, as well as Sam Wakasugi, 0045 1 senior regional director for Scientific Games responsible 2 for the Texas Lottery for Scientific Games. 3 My brief appearance here this morning is to 4 thank the lottery and the Lottery Commission for the 5 awarding of this contract. Scientific Games is very 6 appreciative. This includes our chairman, Lorne Weil, and 7 all the employees of Scientific Games around the world. 8 We've been very proud to be a primary 9 supplier to the Texas Lottery for the past five years. And 10 I can assure you we are very dedicated to continue our work 11 with the very professional staff of the lottery to help them 12 achieve their goals in funding the Texas Education 13 Foundation. 14 So I just wanted to thank you very much. 15 CHAIRMAN CLOWE: Thank you, Mr. Bickell. Any 16 comments or questions? 17 COMMISSIONER COX: No, sir. 18 COMMISSIONER OLVERA: Thank you, sir. 19 MR. BICKELL: Thank you very much. 20 CHAIRMAN CLOWE: We appreciate you being 21 here. 22 MR. BICKELL: Okay. From time to time, I 23 have visited to give an update to the commission. Any time 24 that you'd like us to do that in the future, we're more than 25 pleased to give you our view of the lottery. 0046 1 CHAIRMAN CLOWE: Thank you, sir. 2 MR. BICKELL: Thank you. 3 MR. GREER: Mr. Chairman? 4 CHAIRMAN CLOWE: Yes, sir? 5 MR. GREER: I'd like to mention that 6 yesterday we had a productive meeting with the team from Sci 7 Games and I want to thank Jim and his group for coming 8 forward. We've got an aggressive plan to move to a higher 9 level on our instant product side. 10 And they were very helpful in giving some new 11 ideas on some of the things that are going on around the 12 country. I intend to visit your facility in the next few 13 months and get a better perspective on what Sci Games has to 14 offer. But we're pleased with the process. 15 I want to thank the team that worked to get 16 us to this point. And I wanted to thank you for allowing 17 them to visit with me yesterday. It was very productive. 18 MR. BICKELL: Thank you very much, Reagan. 19 And you're certainly very welcome to visit us, as any member 20 of the lottery is, as well as the Lottery Commission to give 21 you maybe a little different insight into the whole process. 22 And you're more than welcome. We welcome your visits. 23 CHAIRMAN CLOWE: Thank you. 24 MR. BICKELL: Thank you. 25 AGENDA ITEM NO. 13 0047 1 CHAIRMAN CLOWE: Next Item 13, consideration 2 and possible discussion and/or action on the agency's 3 headquarters lease. 4 MR. GRIEF: This morning, at the request of 5 Chairman Clowe, I'm going to provide the commissioners with 6 just a very brief update and overview regarding the 7 contractual arrangements that the agency has in place for 8 our headquarters building, as well as the related parking. 9 I'm asking for no action on this item today, 10 but I'm providing this to you just for your information. 11 I'm going to touch on some background information regarding 12 how the agency came to occupy the Grant Building, the 13 facility we're in, this morning and end with an overview of 14 the current conditions of our agreements. And I will be 15 happy to answer any questions at any point in the 16 presentation. 17 Going back and giving you just a little bit 18 of background, in November of 1996, the agency was located 19 at our original location, which was the American Founders 20 Building in North Austin. We were under a five-year lease 21 term at that time. And that lease was expiring in May of 22 1997. We reached an impasse with our lessor at the current 23 time, and no agreement on a lease renewal or extension could 24 be reached. 25 The Lottery Commission, in consultation with 0048 1 what was then known as the General Services Commission now 2 called the Texas Building & Procurement Commission, 3 instructed the executive director to proceed with 4 negotiating an emergency lease to meet the agency's space 5 requirements at that time. 6 CHAIRMAN CLOWE: And Gary, if you remember, 7 how many square feet did the commission have at American 8 Founders? 9 MR. GRIEF: I recall it being about 68 10 thousand square feet. 11 CHAIRMAN CLOWE: Thank you. 12 MR. GRIEF: In January of '97, the executive 13 director executed and negotiated an emergency lease with the 14 Grant Building of Austin, Limited Liability Corporation. 15 That lease agreement included a May 8th, 1997 lease 16 commencement date, 75,578 net usable square feet including 17 the main Grant Building and one of two buildings on the 18 property that fronted 6th Street. 19 It also had the right of first refusal for 20 the agency as space became available in the second building 21 on 6th Street. And it had a three-year initial term with 22 one five-year renewal option. And there you can see the 23 rental rates for the first three years of that initial term. 24 That lease also included 350 thousand dollars 25 in tenant -- in a tenant improvement allowance from the 0049 1 lessor, plus an additional $50,000 architectural allowance. 2 The lease was full service, which means it included 3 janitorial, landscaping, pest control, maintenance, 4 insurance, taxes and parking all in the base rent. 5 And the only things that weren't included in 6 the base rent were after-hours heating and air conditioning 7 and specialty rooms, such as our computer rooms' heating and 8 air conditioning. 9 Moving through time, in February of 1999, the 10 executive director executed the first lease amendment. And 11 that first lease amendment included the exercising of the 12 five-year renewal option. And there you see the monthly 13 rental rates in the periods of time covered by that 14 five-year renewal period. 15 In executing that lease, the agency also 16 received an additional 605 thousand dollars in tenant 17 improvement allowance and also negotiated into the lease 18 were two additional five-year renewal options. 19 Going forward to May 2001, the executive 20 director executed a second lease amendment, and this 21 amendment had to do with parking. It eliminated the 22 off-site employee parking lot, which was previously located 23 across 5th Street at the location of what is now the large 24 parking garage that's under construction. 25 This amendment also clarified the parking 0050 1 that was available for agency staff to use on the surface 2 lot and in the basement. And it reduced our monthly rent by 3 six thousand dollars. 4 In that same month, the executive director 5 executed a parking lease with what was then known as the 6 Sheraton Hotel, now the Crowne Plaza, which is across the 7 street, across Sabine Street from agency headquarters. And 8 that lease contained a four-year initial term with two 9 five-year renewal options. And monthly rental rate is 8,125 10 dollars. And that is for 65 additional parking spaces for 11 our staff. 12 In October of 2001, the executive director 13 executed a third lease amendment with the Grant Building. 14 And that amendment included the exercising of one of the two 15 available five-year renewal options. And there you see the 16 monthly rental rates for each of the years that the agency 17 renewed. 18 And in exercising that amendment, the agency 19 received an additional 500 thousand dollars in a tenant 20 improvement allowance. 21 CHAIRMAN CLOWE: And was Year 1 2001, Gary? 22 MR. GRIEF: Of the five-year renewal? 23 CHAIRMAN CLOWE: Yes. 24 MR. GRIEF: No, sir. Year 1 of that renewal 25 will actually be in 2005. 0051 1 CHAIRMAN CLOWE: Okay. 2 MR. GRIEF: We're still under the -- 3 CHAIRMAN CLOWE: Second. 4 MR. GRIEF: -- previous renewal. 5 COMMISSIONER COX: So we're -- Gary, we're 6 paying -- there it is, okay -- 24 dollars a foot full 7 service. 8 MR. GRIEF: Yes, sir. 9 CHAIRMAN CLOWE: And that extends through 10 2010 -- 11 MR. GRIEF: Correct. 12 CHAIRMAN CLOWE: -- under the current 13 agreement with one five-year option remaining? 14 MR. GRIEF: Yes, sir. And as Commissioner 15 Cox said, the current monthly rent does equate to $24.22 per 16 square foot for a full-service lease. We believe the price 17 is competitive with similar office lease space and it even 18 becomes more attractive when consideration is given to the 19 approximate one and a half million dollars in tenant 20 improvement allowance that the agency has -- has used. 21 The current tenant improvement balance from 22 the lessor is 200 -- slightly greater than 287 thousand 23 dollars. That money is available to the agency to use if we 24 need to make modifications to the facility for construction 25 purposes, etcetera. And the way the lease agreement is -- 0052 1 is put together, any unexpended funds in that tenant 2 improvement allowance will revert to rental credit as of 3 February 1st, 2010. 4 The agency has also invested approximately 5 1.9 million dollars over time in permanent building 6 improvements at the Grant facility. And as Chairman Clowe 7 mentioned, the lease does currently expire May 7th, 2010. 8 And we do have one additional five-year extension still 9 available that could be exercised at a prevailing market 10 rate. 11 CHAIRMAN CLOWE: If you or Lee know, what is 12 the unappreciated balance on our improvements at this time? 13 MR. GRIEF: I don't know. 14 MR. DEVINEY: Commissioner Clowe, I'll have 15 to find out and get back to you on that. 16 CHAIRMAN CLOWE: Will you give that to the 17 three commissioners, please? 18 MR. DEVINEY: Okay. 19 COMMISSIONER COX: So Gary, again, this is a 20 full-service lease. So property taxes can go wherever they 21 please and we don't pay any more. Energy costs can go 22 wherever they please and we don't pay any more. 23 MR. GRIEF: Property taxes, yes, sir. Energy 24 costs, the only way that would impact us is after-hours and 25 in our specialty rooms. 0053 1 CHAIRMAN CLOWE: And what was that second 2 part, Gary? After-hours and... 3 MR. GRIEF: After-hours and in our specialty 4 rooms where we need special heating and air conditioning. 5 CHAIRMAN CLOWE: Right, in our computer 6 rooms? 7 MR. GRIEF: Right. Or the studio is another 8 example. On our parking, the current parking contract with 9 Crowne Plaza Hotel, the rent still is currently 8,125 10 dollars a month. That lease expires May 31st, 2005. And we 11 have two additional five-year extensions available under 12 mutually agreed upon terms and conditions. 13 COMMISSIONER COX: So do we provide parking 14 for all of our employees? 15 MR. GRIEF: Yes, sir. And that concludes my 16 presentation. I'd be happy to -- 17 CHAIRMAN CLOWE: Go back to that prior slide 18 for just a moment, please. There are two additional 19 five-year extensions. 20 MR. GRIEF: Just for parking. 21 CHAIRMAN CLOWE: Okay. 22 MR. GRIEF: Only talking about parking. 23 CHAIRMAN CLOWE: Yeah. That's what I wanted 24 to know. There's one on the building? 25 MR. GRIEF: Correct. 0054 1 CHAIRMAN CLOWE: This is just exactly what I 2 hoped we would see. And thank you for presenting it to us. 3 We're in a very favorable position here, it looks like to 4 me. And I think the fact that you're able to provide 5 parking for all the employees is a big plus. 6 We're in a congested area that will probably 7 become more congested over a period of time. So securing 8 our parking lot, as we have done with the automatic arms, 9 and providing parking for employees is a critical issue to 10 the continued use of this property. 11 Are you having comments from visitors about 12 parking availability? What -- what recommendation do you 13 make to them when people come in and want to attend meetings 14 here regarding their parking? 15 MR. GRIEF: Initially, when we were not able 16 to provide visitor parking spaces, we did receive some 17 questions about that. We do have some winner parking spaces 18 that are available when our winners come in on the west side 19 of the parking lot. Our vendors, our state -- other state 20 agency colleagues, etcetera, I believe they've all gotten 21 fairly used to the fact that they need to find parking at 22 the meters. 23 CHAIRMAN CLOWE: And generally, they're able 24 to do that in a similar way that public persons do when they 25 visit the Capitol or the Reagan Building or the Travis 0055 1 Building or any other state office building. It's no more 2 difficult to come and visit this agency and park your 3 vehicle than it would be agencies located in the Capitol 4 Complex. Am I correct in that statement? 5 MR. GRIEF: Yes, sir. I think that's a fair 6 statement. I do not hear complaints from vendors or members 7 of the public insofar as how they're able to park around the 8 building. 9 MR. GREER: And I'd like to reiterate that, 10 as I'm out visiting people, they comment on how easy it is 11 to find a parking place within the vicinity versus some 12 other areas where they have to park at a lot far away. The 13 parking meters are generally available. And I personally 14 have not received any negative comments on that. 15 CHAIRMAN CLOWE: I've found that to be true 16 with parking meters on 6th Street. When someone's picking 17 me up here, I always look to see if the parking meters are 18 open. And generally, there is space available. Can public 19 persons park at the Crowne Center parking lot? 20 MR. GREER: No, sir. 21 CHAIRMAN CLOWE: That's only for hotel guests 22 or for our employees? 23 MR. GRIEF: It's badge-operated. It has an 24 arm similar to the gate that we have coming in to our 25 facilities and it's operated by our employee badge. 0056 1 CHAIRMAN CLOWE: What is your sense of the 2 level of comfort that our landlord has with the current 3 arrangements that you've laid out here for us? 4 MR. GRIEF: Previously when I was operations 5 director, I would talk on a regular basis with 6 representatives from our landlord. I haven't done that in 7 quite a while, but Michael Anger and I do talk frequently 8 about the building and about activities in the building and 9 things we have to work out with the landlord and the 10 landlord's representatives. 11 And I haven't heard any negatives. I haven't 12 heard any talk of "Hey, we're giving you this building too 13 cheap. We're looking forward to the end of the lease." I 14 haven't heard any comments like that. I think my sense is, 15 from my personal discussions, is we're viewed as a very good 16 citizen to have in a building here in Austin, Texas. 17 I think our landlord is very proud of the 18 fact that the Texas Lottery Commission occupies this -- this 19 particular facility. And I think -- I know they use this 20 facility as a model to -- when they're bringing in 21 prospective tenants for buildings in other cities, 22 particularly in the Houston and Dallas areas. And they like 23 to point to the fact that they've been in what is their mind 24 a good landlord to us over time. 25 CHAIRMAN CLOWE: What is your sense as to the 0057 1 openness that they might have regarding additional five-year 2 options? 3 MR. GRIEF: Mr. Chairman, I haven't had those 4 discussions in quite a while. But in the past, they have 5 always been open to those types of discussions. I'll be 6 happy to explore that with them if you like. 7 CHAIRMAN CLOWE: I'd like to make a comment 8 about the housekeeping in this building. I have attended 9 numerous other agencies in our state government here in 10 Austin. And in some cases, I've been positively impressed 11 but in others, very negatively impressed. 12 I think there can be a tendency in some 13 agencies to not give the attention to housekeeping that I 14 personally like to see. And I'm very pleased with the level 15 of housekeeping that is maintained in this agency. And 16 that's a combination of the services that are bought and 17 paid for that are professional and the individual care and 18 attention that goes into the personal space. 19 It's our job, I think, to see that walls are 20 repainted and worn carpet is replaced and walls are not 21 marked, doors are not scuffed, that sort of remedial and 22 preventative maintenance that requires expenditure of funds. 23 It's the responsibility of the individual employees to keep 24 their area neat and orderly and professional in appearance. 25 And I think our employees here in this 0058 1 building and in the other agency offices that I've attended 2 around the state, we maintain a nice level of professional 3 appearance. And I'm appreciative of that as a member of 4 this board and a associate or colleague. I like to be 5 associated with people who take pride in not only the 6 appearance of their work place, but the image that portrays 7 to the public who comes in to call on us. 8 And I think that's an important part of the 9 happiness in the workplace. And I'd like us to continue to 10 maintain that level in the future. And I guess you have 11 Michael Anger watching for areas in this building and in our 12 offices around the state where we need to spend funds and 13 keep a good level of appearance for our employees. 14 Is that correct? 15 MR. GRIEF: Yes, sir. And even more specific 16 than Mike, Vince Devine, our manager of support services, 17 that is one of his true focuses. And he is constantly on 18 the lookout for items that might be better maintained or 19 shaped up. He does a great job in that regard. 20 CHAIRMAN CLOWE: Good. I think there's a 21 good medium tone struck here. These offices are fitting for 22 a state agency. They're not overly done, but they are clean 23 and neat and very professional. And I'd like us to keep 24 that as a point of importance now and in the future. 25 I'm very pleased with the lease arrangements 0059 1 and I appreciate this presentation. I'm very satisfied with 2 where we are on this. 6th Street is a street that has a 3 particular appeal to social activities. 4 And we're a little out of place, I guess, to 5 a certain extent being on 6th Street. But we are in a 6 wonderful location so close to I-35 with 6th one-way 7 westbound and 5th one-way eastbound. And I think we can 8 maintain our comfortable status here particularly with the 9 cost. That's very beneficial to the state. 10 And I think that anyone who would care to 11 examine this would see that this is a good deal for the 12 State and a good location for this agency with its easy 13 access to people from out of town. 14 Commissioners, do you have any comments or 15 questions? 16 COMMISSIONER OLVERA: Well, only to reiterate 17 since, amazingly enough, 2005 is almost upon us, I don't 18 think it's premature to start negotiating an extension of 19 the 2010 expiration date. 20 CHAIRMAN CLOWE: The only thing that might 21 change this agency's situation in a major way that I can 22 think of would be if there was a change in laws that would 23 affect the duties of this agency. That's very hard to 24 forecast and almost impossible to provide beyond the period 25 of time that you have in the existing least period today. 0060 1 I'm thinking about, you know, a big increase 2 in personnel or a substantial reduction. I think you got us 3 in a very favorable position. 4 MR. GRIEF: One comment to that, Mr. 5 Chairman. Having been a part of the negotiations with this 6 building, that's one of the reasons, the one you just 7 mentioned, the unknown and knowing the type of activities 8 that this agency is and can be engaged in why we think the 9 tenant improvement allowance set up gives us the most 10 flexibility and allows us to be prepared in the event that 11 we have additional duties and we need to rearrange or make 12 additional space for new staff or different types of 13 specialty areas, that type of thing. 14 COMMISSIONER OLVERA: But Gary, back to the 15 issue, is there an option to extend beyond 2010? 16 MR. GRIEF: We have one more five-year 17 renewal option available. 18 COMMISSIONER OLVERA: Beyond 2010? 19 MR. GRIEF: Yes. 20 COMMISSIONER OLVERA: All right. Then that 21 answers the question, obviously. An option is dependent 22 upon numerous variables. 23 COMMISSIONER COX: Gary, this is a real good 24 presentation. It filled a void that I had. And what -- 25 understanding the history of the lottery, our agency tends 0061 1 to attract criticism in many of the places that we go. Have 2 we been criticized for this lease? 3 MR. GRIEF: I don't know criticize is the 4 right word, Commissioner. We've certainly been questioned 5 in the past. And I think the questioning centered on the 6 fact that the lease was done between the agency and the 7 lessor and it wasn't done as a lease between the General 8 Services Commission and the lessor. 9 But I tried to emphasize in the presentation, 10 when this lease was originally negotiated and when the first 11 renewal was executed, we had what were then staff from the 12 General Services Commission right beside us in the -- in the 13 commission meeting advising us, helping us all along the 14 way. 15 COMMISSIONER COX: But that was by our choice 16 because the Lottery gave the executive director the 17 authority; is that correct? 18 MR. GRIEF: That's correct. We wanted to 19 embrace them. 20 MR. GREER: And Commissioner, I'd like to 21 mention that I have been personally questioned by some 22 senators and legislators and answered the questions, but 23 could use this as a follow-up presentation. It's great. I 24 thank Gary for his work on that. I obviously inherited 25 that. 0062 1 But after 20 years in real estate prior to my 2 government service, when I was apprised of the scenario that 3 has just played out today, I thought it was very good and 4 look forward to having the opportunity, if questions are, 5 you know, brought to my attention by legislators, that I 6 have this presentation to fall back on. So it was very 7 good. 8 COMMISSIONER OLVERA: And Kim or Gary, by 9 when pursuant to the contract when would we have to notify 10 the lessor to be exercising the option to renew? 11 MS. KIPLIN: Commissioner, I don't know that 12 off the top of my head. Mr. Bennett is in the audience and 13 he may have that more specific information. If he doesn't 14 have it at his fingertips, we'll certainly provide that to 15 you. 16 MR. GRIEF: If memory serves me correct, 17 I'm -- my recollection is it would be within the last year 18 or some piece of the last year. 19 MR. BENNETT: Commissioner, for the record, 20 my name is Ridgely Bennett. I'm the deputy general counsel 21 and I'll be happy to go through the lease and provide you 22 with that information shortly. 23 CHAIRMAN CLOWE: Phillip, give us the lights. 24 Would you, please? Thank you, Ridgely. Any further 25 questions? Ridgely, are you ready to go forward with Item 0063 1 14 on the agenda? 2 MR. BENNETT: Yes, Commissioners, I am. 3 AGENDA ITEM NO. 14 4 CHAIRMAN CLOWE: Commissioners, this is Item 5 No. 14, consideration of and possible discussion and/or 6 action on the lottery operator contract, including approval 7 of the amendment to the lottery operator contract and/or 8 whether the negotiation of the lottery operator's contract 9 in an open meeting would have a detrimental effect on the 10 commission's position in negotiations of the lottery 11 operator contract. 12 It would be necessary for us to vote and sign 13 an order that the discussion of this contract would be 14 detrimental in a public session in order to go into 15 executive session. We have discussed this in the past. 16 And I think you're both aware, as I am, of 17 this opportunity that the commission has if it so desires. 18 What is your pleasure? I think each of us have been 19 individually briefed, if I'm correct. 20 My sense is I'd like to go forward in the 21 open meeting. Is that all right with each of you? 22 COMMISSIONER OLVERA: As I was just going to 23 say, let the sun shine in. 24 CHAIRMAN CLOWE: Very good. We'll take this 25 item up in just a minute. 0064 1 MR. BENNETT: Thank you, Commissioners. 2 Actually, Gary Grief is prepared to make staff's 3 presentation to the commission regarding this agenda item. 4 CHAIRMAN CLOWE: Mr. Grief? 5 MR. GRIEF: Commissioners, this morning staff 6 is proposing an amendment to the Gtech contract for lottery 7 operations and services. The amendment that you'll hear me 8 lay out today is a little bit different than what we've had 9 an opportunity to brief individual commissioners on. 10 The proposed amendment that we have in front 11 of you today only encompasses one contractual issue. And 12 that issue concerns a current requirement in the contract 13 that the lottery operator provide the agency with an 14 Internet base player registration and database service. 15 This service was called Player Connect. And 16 the purpose of the Player Connect service was to provide the 17 lottery with the ability to capture player information via a 18 Web-based registration program and enable the lottery to 19 communicate with players via the Internet. 20 Based on several factors, including but not 21 limited to limited success in attracting players to register 22 with Player Connect, attractive alternative methods of 23 communicating with players via the agency's Web site, 24 upcoming opportunities to further enhance our success in 25 this area with several of our proposed eStrategy 0065 1 initiatives, and challenges that arose in maintaining the 2 Player Connect database that was in a manner acceptable to 3 the lottery, staff is recommending an alternative service be 4 obtained from Gtech in lieu of the Player Connect system. 5 The negotiated alternative services being 6 sought are refurbished 12-bin instant ticket vending 7 machines, also known as ITVMs. 140 of these ITVMs plus a 8 two-percent reserve number of machines will replace existing 9 16-bin ITVMs at certain low volume, low-selling retailer 10 locations. 11 Gtech will be responsible for the 12 installation and maintenance of those ITVMs through the life 13 of the lottery operator contract. And the determination of 14 the placement of those machines will be determined by the 15 lottery. A cost/benefit analysis was performed regarding 16 this change to the contract. And the results indicated a 17 significant benefit to the State. 18 Commissioners, our intent this morning was to 19 also include an amendment regarding an issue related to 20 contract compliance. However, this item is not going to be 21 included in the meeting today and will instead be brought 22 before you in -- hopefully at the next commission meeting. 23 And I will be happy to answer any questions. 24 CHAIRMAN CLOWE: So what you're asking for 25 now is approval to this contract amendment? 0066 1 MR. GRIEF: Yes, sir, only to the ITVMs 2 Player Connect issue. 3 CHAIRMAN CLOWE: What's ICBM stand for again? 4 MR. GRIEF: ITVM is instant ticket vending 5 machine. 6 CHAIRMAN CLOWE: ITVM? 7 MR. GRIEF: ITVM. 8 CHAIRMAN CLOWE: I thought you were saying 9 ICBM. I was hoping we weren't getting into that. 10 MR. GRIEF: Not yet. 11 CHAIRMAN CLOWE: Commissioners, are there any 12 questions? Is there a motion? 13 COMMISSIONER OLVERA: So move. 14 COMMISSIONER COX: Second. 15 CHAIRMAN CLOWE: All in favor, please say 16 aye. 17 COMMISSIONER COX: Aye. 18 CHAIRMAN CLOWE: Aye. 19 COMMISSIONER OLVERA: Aye. 20 CHAIRMAN CLOWE: Opposed, no. 21 The vote is three-zero in favor. 22 Commissioners, with your permission, I'd like to go back and 23 pick up an agenda item that we have passed. And we also 24 have an appearance form that has come to me from Ms. Dawn 25 Nettles, who wishes to comment on item number -- is it two 0067 1 and nine, Ms. Nettles? 2 MS. NETTLES: Yes. And I intended to write 3 general comments. 4 CHAIRMAN CLOWE: All right. Would you come 5 forward at this time, please. 6 MS. NETTLES: Good morning, Commissioners. 7 CHAIRMAN CLOWE: Good morning. 8 MS. NETTLES: Is this on? For the record, my 9 name is Dawn Nettles. I'm with the Lotto Report out of 10 Dallas. Can you hear me now? 11 For the record, my name is Dawn Nettles. I'm 12 with the Lotto Report out of Dallas. And I wanted to make a 13 few comments this morning about some of the things that I 14 have heard that's been discussed here. 15 First of all, on the sales, I wanted to 16 comment on that that PowerPoint presentations are very nice 17 and pretty and all that, very effective. But sometimes you 18 have a hard time distinguishing things that are really kind 19 of important, such as it's hard to see on those things that 20 the jackpot that reached 145 million, that it took 27 rolls 21 to reach. That is a long time and that's really hard to see 22 on those slides. 23 Also with regard to the MegaMillion sales, it 24 was hard to distinguish that, for the $85 million jackpot 25 drawing that we had this past Tuesday night, their sales 0068 1 were 2.1 million. In the last $85 or $86 million jackpot 2 that we had for MegaMillions, which was just a couple weeks 3 ago, it was over at 2.8 or 2.9 million dollars. So that is 4 a substantial drop in sales for the like jackpot amount. 5 And I thought that was important to bring out. 6 The other thing I wanted to comment on is 7 that it was reported just a little bit ago that sales were 8 3.4 billion, which is superb, of course, second only to 9 1997. And what you didn't see was that, when you compare, 10 you say that that second to 1997, 1997 we only played Lotto 11 twice a week. We played Cash 5 twice a week. We played 12 Pick 3 six days a week. And we had scratch tickets and that 13 was it. 14 And we're comparing to what we're doing in 15 fiscal '03 or '04 -- it's fiscal '04. We're now playing 16 Lotto Texas twice a week, MegaMillions twice a week, 17 MegaPlier, Cash 5 six nights a week, Pick 3 12 draws a week, 18 Two Step and scratch tickets. And when you've doubled your 19 games or tripled your games, you would think that they would 20 at least catch up with sales in 1997. That was just my 21 observation. 22 And with regard to the auditor's report and 23 her not having any status report today, I'm a little -- 24 CHAIRMAN CLOWE: That's a different item, 25 Ms. Nettles, I believe. 0069 1 MS. NETTLES: That was the Item No. 4 -- 9, 2 whatever it was, the internal auditor's report. 3 CHAIRMAN CLOWE: Very good. Item No. 9, yes. 4 MS. NETTLES: Is that correct? 5 CHAIRMAN CLOWE: Yes. 6 MS. NETTLES: Okay. With regard to her not 7 having a report, I was a little disappointed to hear that 8 because last month she stated -- I believe it was -- that 9 she was going to -- was working on a letter stating the 10 objectives and the time lines that she would hope to submit. 11 And I was a little disappointed to hear there 12 was no time line or no questions asked with regard to a time 13 line on this. This is the second investigation. And I 14 know, Commissioner Clowe, two months ago when this came up, 15 you specifically asked how fast is this going to be done. 16 And with no comment from her, I was a little 17 disappointed to hear that, not surprised, very disappointed 18 in the commission for not addressing that. 19 During the last commission meeting, I 20 commented on the SSTs. When I read the transcript the other 21 day with what I said, somehow or another I either didn't 22 complete my sentence or the court reporter didn't pick it up 23 or something because I had made a comment that it had 24 been -- that the Texas Lottery bought the SSTs in August 25 31st, 2003 -- 0070 1 MS. KIPLIN: Ms. Nettles, I'm sorry to 2 interrupt you. What item are you referring to? 3 MS. NETTLES: Just general comments. 4 CHAIRMAN CLOWE: Let me -- let me help her on 5 this. Your comments need to be on Item 2 or 9. The SSTs, I 6 don't think, fall in those items. If you want to comment on 7 that, I'd ask you to wait until the period for public 8 comment. 9 MS. NETTLES: Yes, sir. I'll certainly do 10 that, because I have some other general comments that I'd 11 like to make. 12 CHAIRMAN CLOWE: Very good. Thank you, 13 Ms. Nettles. 14 AGENDA ITEM NO. 10 15 CHAIRMAN CLOWE: Now Mr. Grief, we'll go back 16 to Item No. 10, which you asked to be passed, consideration 17 of and possible discussion and/or action on the agency's 18 security function. 19 MR. GRIEF: Commissioners, this morning I'll 20 be representing a work group assigned to this project. And 21 I'll be laying out for you the progress made thus far in the 22 work group's effort to review the security function of the 23 agency and evaluate any changes that should be made to more 24 effectively meet the missions of the lottery and bingo 25 divisions, as well as best serve the needs of the state. 0071 1 During this presentation, I'll be providing 2 you with some background information on the security 3 function at the Lottery Commission, a brief explanation of 4 who made up the work group involved in developing these 5 recommendations, the goals of the project, the data we used 6 in making our recommendation and a proposed prioritization 7 of certain services related to security. 8 Our goal this morning is to receive direction 9 from the commission on the list of goals -- I'm sorry -- of 10 services and priorities that we have put together. Once 11 we're clear on that direction, I will brief you on the 12 proposed next steps that the work group will be taking. 13 To start our discussion, I want to provide 14 you with some general background information regarding the 15 security function at the agency. When the lottery began 16 back in 1992 as a division of the controller's office, 17 lottery was modelled similar to other lotteries in other 18 states at that time. 19 And that included establishing a security 20 department or section under the lottery division of the 21 state controller's office. And this concept of a 22 stand-alone security unit has remained constant since 23 lottery started. 24 Today the security function is considered one 25 of the support areas of the agency, not unlike legal or 0072 1 information technology, providing expertise and oversight in 2 functions such as investigations, background checks of 3 vendors, licensees and employees, and physical security site 4 reviews of agency and vendor work locations. 5 As a support division for the agency, the 6 quality and the type of services provided by the security 7 function directly impact other areas of the agency, 8 especially those core divisions such as lottery operations 9 and charitable bingo. Both of those divisions are 10 responsible for licensing and enforcement activities within 11 the agency. 12 The services performed in the security 13 division of the agency have changed over time. And other 14 than those functions mandated by statute to be performed by 15 a security department, which I will touch on later in the 16 presentation, the agency has broad discretion over both the 17 scope of services performed by the security function and the 18 location within the agency in which those services may be 19 performed. 20 The services I've listed here have either 21 moved into or out of the security division over time. And 22 that's either been caused by management decisions or, as in 23 the case with bingo, functions transferred into our agency. 24 For charitable bingo enforcement, that 25 function was added in 1994 when the bingo function was 0073 1 transferred from TABC to the Lottery Commission. 2 The field office concept, that came into 3 being at the same time that bingo transferred in. Back in 4 1994, field offices were established. 5 Bingo and lottery product testing, at the 6 start of the lottery, instant ticket testing was performed 7 by an independent and certified testing lab. In 1998, this 8 function was brought in-house to the agency's own testing 9 lab, which is housed above the Austin claims center. 10 Bingo pull-tab testing came to the agency in 11 April of 1994 and at that time was handled jointly by 12 security, marketing and bingo. Bingo assumed full 13 responsibility for pull-tab testing in April of 2002. 14 Bingo cardminding testing began in-house in 15 April 1996 as a joint function of the security, bingo and IT 16 divisions. Bingo assumed full responsibility for cardminder 17 testing in March of 2002. 18 Drawings -- in similar fashion, the drawings 19 function at the lottery has changed over time. At lottery 20 start-up, the drawings function was primarily handled by the 21 marketing division. Security's role at that time was to 22 oversee the drawings process. The drawings were conducted 23 at that time at an off-site studio which was owned by a 24 third party. 25 In '97, the drawings function was transferred 0074 1 from marking to security. And in 2001, the location of the 2 drawings was moved and brought on-site to the current studio 3 on 6th Street. 4 Risk management has also been moved through 5 the agency. It originally was performed solely by the human 6 resources division. It moved to a joint effort on the part 7 of human resources and security. And most recently, risk 8 management is handled as a joint effort by human resources 9 and the lottery operations division. 10 I share this information with you today to 11 offer you examples where the agency has exercised in the 12 past and still possesses broad discretion in the services 13 performed by the security function. 14 Recently the chairman asked the internal 15 audit division to perform a review of the security 16 division's investigative process for bingo cases. At the 17 July 29th commission meeting, these findings by internal 18 audit were presented. 19 In addition to the findings, there were other 20 questions raised in the July commission meeting regarding 21 the security function. There was discussion about the 22 coordination of investigations. And there were questions 23 about the coding and the tracking system of complaints, 24 effective communication, the number of complaints that are 25 administrative compared to those that are criminal in 0075 1 nature, and what our administrative function is relative to 2 the qualifications of the staff doing investigations. 3 The question was also raised as to whether 4 our security division should be combined with legal division 5 or should bingo have its own investigative staff and/or 6 lawyers in order to do a better job. 7 The funding mechanisms for both the lottery 8 and bingo sides of the organization were targeted by the 9 commission. And staff was asked to keep these funding 10 issues carefully in mind as we reviewed the security 11 function. The commission asked that staff take a fresh look 12 at the security function and see if we're doing the best and 13 most efficient job that we can and make suggestions, if 14 needed, as to how we might do a better job. 15 Based on this direction, Reagan asked me to 16 lead a comprehensive review of the security function. And 17 we presented you with a work plan in the August commission 18 meeting. 19 To accomplish this task, I put together a 20 work group of senior management within the agency who I 21 believe have the skills and experience necessary to make 22 thoughtful and effective recommendations to the executive 23 director and, ultimately, the commission. 24 Catherine Melvin, our internal audit 25 director, brings a sense of independence. She looks at 0076 1 things from an efficiency standpoint. And she has helped 2 analyze our actions for potential risks. 3 CHAIRMAN CLOWE: Gary, we know all those 4 individuals. I don't think you need to qualify them. I 5 think just to identify them is sufficient. 6 MR. GRIEF: These are the project goals of 7 our work group, as I described them to you in the last 8 commission meeting. We wanted to find a scope of services. 9 And I want to clarify that this is not a review of the work 10 done by security in the past, but it's rather an analysis of 11 what the agency needs the security function to do in the 12 future. 13 We want to prioritize those services, 14 allocate resources and identify outsourcing opportunities 15 and identify the appropriate organizational structure. The 16 data that we relied on in coming up with our 17 recommendations, several sources. We gathered information 18 from other state lotteries regarding the role of security 19 function in those states, as well as from other Texas state 20 agencies that have a law enforcement or an investigative 21 function within their organization. 22 With help from NASPL, the National 23 Association of State and Provincial Lotteries, we issued a 24 survey instrument to 47 other lotteries designed to obtain a 25 list of the regulated activities under those lotteries, as 0077 1 well as the responsibilities and functions of their 2 respective security or enforcement departments. And we 3 asked them to rate each responsibility and function as to 4 the criticality and relevancy the activity had to the 5 security function. 6 And we received 24 responses from that 7 survey. In addition, we received numerous organizational 8 charts from other lotteries and other state agencies that 9 have a law enforcement or investigative function in their 10 organization. And we reviewed the work that was performed 11 by a previous committee that had looked at the current 12 functions of the security division. 13 And finally, we carefully considered the 14 expertise and opinions of individual members of our work 15 group, both on their experience here at the agency and at 16 other Texas state agencies. 17 In the regular course of agency day-to-day 18 management, there have been several recent actions taken 19 that have impacted certain functions in security either by 20 changing that function or transferring that function to 21 another department within the agency. 22 These include the moving of the new camp 23 function, risk management and administration of the building 24 system security contract from the security division to the 25 lottery operations division. The checking of the colors on 0078 1 the instant tickets as they come off the printing press at 2 our ticket manufacturer locations has been moved to the 3 marketing division. 4 The duplication of auditing efforts at the 5 instant ticket games at the ticket manufacturing locations 6 has been discontinued. And then, finally, recognizing that 7 there is a statutory requirement that the department of 8 security shall supervise ticket validation and lottery 9 drawings, the drawings function itself is also currently 10 being considered for transfer to another department within 11 the agency. 12 In developing our list of proposed agency 13 priorities, the work group took a zero-based approach, that 14 is we started with a blank slate and sought feedback from 15 certain divisions, in particular lottery operations and 16 charitable bingo, on what services they needed from an 17 effective security department. 18 We carefully reviewed and recognized the 19 statutory requirements relating to a security department, 20 and we considered those requirements in our recommendations. 21 We discussed in the work group several different approaches 22 in how to prioritize the services. 23 And ultimately, we landed on placing them 24 into what we believe are three very distinct categories. 25 And our goal today is to obtain direction from the 0079 1 commission regarding the list of services and assigned 2 priorities we've compiled. Our hope is that the commission 3 will see fit to adjust any service to a different priority 4 level, if it's the will of the commission, or even remove 5 that service completely from the list if the commission 6 believes the agency shouldn't expend resources on it. 7 Likewise, we're looking for direction on any 8 services that may be important to the commission that the 9 work group might have overlooked. 10 The first group of services that the work 11 group identified fall into the highest priority level, what 12 we're calling priority one. And we define priority one 13 services as those critical to agency business where work 14 stoppage or interruption will occur if not performed and/or 15 having a significant impact on the integrity or security of 16 the lottery or the fairness of charitable bingo games. 17 And there you see the list of what we put 18 into priority one. 19 CHAIRMAN CLOWE: Give us a minute more there, 20 if you would, please. 21 MR. GRIEF: Certainly. And I failed to 22 mention this. I do have hard copies of this presentation in 23 front of each commissioner. 24 CHAIRMAN CLOWE: Thank you. 25 MR. GRIEF: The second group of services that 0080 1 the work group identified fall into a different priority 2 level. We're calling that priority two. And we define 3 priority two services as those necessary to agency business 4 and/or having a potential impact on the integrity or the 5 security of the lottery or the fairness of charitable bingo 6 games. And there you see the list. 7 CHAIRMAN CLOWE: Thank you. 8 MR. GRIEF: And finally, the last group of 9 services identified by the work group fall into the lowest 10 priority level, what we're calling priority three. And 11 we've defined priority three services as those indirectly 12 related to agency business but not required to conduct 13 business and/or having a minimal impact on the integrity or 14 security of the lottery or the fairness of charity bingo 15 games. 16 COMMISSIONER COX: What is an A and A, Gary? 17 MR. ATKINS: Commissioner Cox, I'll answer 18 that. It's an assistance -- excuse me -- an assistance and 19 assessment inspection that is routinely currently being 20 performed by the auditors on locations where bingo is 21 conducted. 22 COMMISSIONER COX: Are you talking about your 23 auditors? 24 MR. ATKINS: Yes, sir. Yes, sir. 25 COMMISSIONER COX: Okay. 0081 1 CHAIRMAN CLOWE: Thank you. 2 MR. GRIEF: Commissioners, at this point in 3 the presentation, most if not all of the members of the work 4 group are present. We would be happy to answer any 5 questions that you might have or happy to receive any 6 direction from the commission that you might see fit to give 7 us. 8 CHAIRMAN CLOWE: Commissioners, what are your 9 comments? 10 COMMISSIONER OLVERA: Gary, in reviewing this 11 both from my meeting with you yesterday and the 12 documentation you provided me, I think it's important to 13 perhaps include some kind of a statement for clarification 14 to our security division in that these levels are a guide 15 and that there are variables that during the real -- real 16 working day of any security division, a priority three level 17 may all the sudden become a priority one or a priority two 18 or vice-versa and that just because they're labeled in a 19 certain category does not mean that a priority three item is 20 not or can't be a priority one. 21 So some kind of concise statement that this 22 is a guide only and that -- and that depending upon 23 circumstances and variables that exist, that certain levels 24 can be moved or become certain different situation as the 25 case may dictate. 0082 1 MR. GRIEF: Very good. I'll be certain to 2 include that. 3 COMMISSIONER COX: Gary, looks to me like 4 you've done a really excellent job. And the only thing that 5 I think that, to me, seems to be a function of our role is 6 to see that you have done a very thorough job of this, 7 you've evaluated the needs, and you've looked at 8 alternatives to where they might be. 9 The -- to me, the key issue here from the 10 board's level is that we have our peace officers. Because I 11 think running an agency like this, we have to have command 12 of or immediate uncontrolled access to peace officers. And 13 if we don't have our own, we can't have that. 14 So I think it's critical that we have a 15 security function to perform those law enforcement kinds of 16 duties that are just necessary to conducting the Texas 17 lottery. But as to the other things that you've done as to 18 where certain kinds of things should be, etcetera, I think 19 those are largely functions of management determinations. 20 And I think you're proceeding with them in a very orderly 21 manner. 22 CHAIRMAN CLOWE: I agree with that. And my 23 impression at this point of the priority ranking is 24 favorite. My question, I think at this time, goes to the 25 issue of the management of these activities in the 0083 1 priorities as designated relative to the timeliness of 2 action, the correctness of action. 3 You mentioned and we have discussed what 4 relationship the security operations might see combined with 5 the legal division with the overall view of management by 6 the executive director. Where are you on that? 7 And what I'm thinking, to try to clarify my 8 thoughts, the question I'm trying to form is: These are the 9 duties. How are these duties going to be managed? Who's 10 going to see to it that -- and who has that overall 11 responsibility, which I understand resigns -- resides with 12 the executive director -- but on an ongoing daily basis, how 13 is all this going to be coordinated and oversighted so that 14 complaints are processed promptly and complaints are 15 processed correctly and fairly, all of these activities that 16 we've identified here are done in the most professional and 17 best possible way? 18 MR. GRIEF: Mr. Chairman, understanding what 19 you said about your impression that you're generally 20 favorable to the list of priorities, your question leads me 21 to my next slide. 22 Our intent today was to get some type of -- 23 CHAIRMAN CLOWE: Gary -- 24 COMMISSIONER COX: Since you're closing here, 25 I have one more question. This relates to a specific item, 0084 1 investigations. Now we have investigations of every type. 2 We have -- legal does investigations. Billy's auditors do 3 investigations. And security does investigations. Human 4 resources does investigations. And then separately the 5 auditor does investigations. 6 Have y'all looked or are you looking at that 7 issue as a part of this issue, if that is an issue? You 8 know, should we have a simple investigative agency or 9 department that does all these investigations? Is it 10 appropriate for five different departments to be doing 11 investigations? 12 Do they all have special capability to do 13 investigations or is that another question? 14 MR. GRIEF: That's not a question that this 15 group has considered exactly as you worded it. We certainly 16 are going to be looking at the security investigative 17 process and all that goes with that. 18 My immediate thought in response to your 19 question is: Many of those investigations are tied directly 20 to the professional training that that particular area has 21 received. For example, human resources with all that types 22 of EEO and Title 9 and those types of violations, they and 23 not security and not internal audit would obviously be the 24 most qualified to do an investigation of that nature. 25 And I could go down the list and probably try 0085 1 to qualify each one of those. We'll certainly add that to 2 our plate and talk through that as a work group and be happy 3 to give you feedback on our discussion. 4 CHAIRMAN CLOWE: And I think that's a very 5 good point well made. I like your answer. But I think we 6 need to be cognizant of the very thing that you pointed out. 7 There are many investigative activities that go to the 8 training and expertise of certain professionals within this 9 agency. 10 And I'd like to add my comment that we need 11 to make sure all those investigations are timely, are fair, 12 are reported accurately, and are concluded so that a result 13 is reported and documented. 14 MR. GRIEF: Got it. 15 If my sense is right -- and I feel like the 16 commissioners are giving a nod that they approve the 17 priority list, then the next actions for us, as a work group 18 and as staff, include considering the need for assistance 19 from outside resources, considering other opportunities for 20 input. 21 We want to review the list of services to 22 determine if they're best suited to be done in-house or 23 possibly outsourcing. And for those services deemed 24 appropriate to be done in-house, we want to determine the 25 appropriate placement of that service within the agency. 0086 1 And Mr. Chairman, that item is right where 2 we'll go to the heart of: Are they going to be done 3 correctly and precisely and in a timely manner and by who? 4 And then we'll develop the appropriate organizational 5 structure to effectively and efficiently perform those 6 in-house services. 7 Any of those services that we think would 8 best be outsourced, we will look and identify and pursue the 9 appropriate placement of those services outside the agency. 10 CHAIRMAN CLOWE: Looks good to me. 11 COMMISSIONER COX: Good. 12 COMMISSIONER OLVERA: I have no revisions to 13 the priority list. My only comment on that last note, 14 though, Gary, and I know it's difficult if -- I can't think 15 of a situation where this would arise. But if we did have 16 to outsource, I think we would still have to emphasize the 17 importance of the same criteria that we have for in-house 18 investigations, in terms of the timeliness that -- and the 19 demands that we have. 20 MR. GRIEF: Very good. 21 CHAIRMAN CLOWE: And I -- and I think at this 22 point, Gary, I'd like to say and have it on the record that 23 we are looking at a number, a multitude of subjects that 24 range deeply within the lottery and the charitable bingo 25 division. And these subjects intermingle, the services and 0087 1 the activities and performance of those two entities. 2 And the funding has -- traditionally, since 3 bingo was brought to the Lottery Commission -- been somewhat 4 mixed in some of these functions and we recognize that. And 5 that continues to be a part of this work and I assume of 6 this study, this project, that you cannot draw a bright line 7 and keep these functions separate and apart. 8 There's going to be some mixing and some 9 support, basically, from the lottery to the bingo division. 10 And I want that put out in the open so that it's 11 acknowledged and that is a way that has been adopted and is 12 continuing to be done. You just can't draw a bright line. 13 MR. GRIEF: Yes, sir. I understand. And we 14 have kept that at the forefront of our thoughts as we worked 15 through this. And we continue, when we come to those 16 hurdles where the funding for a particular activity is in 17 question, we have been loud and proud and reaching outside 18 the agency to ask for guidance, whether it be from LBB, the 19 Governor's Office of Budget and Planning. 20 And if we can't get guidance, we at least 21 want to be open and explain what we're doing and why we're 22 doing it and why we think it's a good business decision. 23 CHAIRMAN CLOWE: That's right. 24 MR. ATKINS: And if I could, Mr. Chairman, 25 just elaborate a little on your statement about those 0088 1 services where lottery may be providing services for bingo 2 activity. We've also been able to enjoy in the past 3 situations where the bingo division has been able to reach 4 out and offer services to the lottery. 5 And I can think specifically of two occasions 6 where our audit staff has been able to be of assistance to 7 the financial administration division, as well as internal 8 audit. 9 CHAIRMAN CLOWE: So there's been some equity 10 there, if not in terms of real cost or dollars, in a need 11 met as a result of expertise perhaps that lies within one of 12 these two entities that benefits the other, which certainly 13 has value. 14 And I think when you have two entities 15 working together like we have here, that's necessary. It 16 creates a better result for both of them. But it's very 17 hard to evaluate that. You look for equity, I think, and 18 the beneficial results of the overall more than you do to 19 try to devise some kind of strict accounting. 20 I've run into this in business where you have 21 divisions helping each other and they either do it in a team 22 spirit with a beneficial result to all or they want every 23 effort of every person accounted for. And that's a road to 24 disaster. 25 I'm interested in a very positive attitude 0089 1 being in place in this effort that will engender more 2 cooperation and a better work product for the overall 3 agency. If the commissioners share -- I don't want to -- I 4 don't want to take my philosophy... 5 COMMISSIONER COX: Very well said. 6 MR. GRIEF: And I don't want to speak for 7 Reagan or Billy, but I'd like to -- I'd like to put on the 8 record that I think that's exactly the spirit that the three 9 of us do our business in. We work together and we try to 10 help each other and make allowances for when one division 11 has needs. 12 CHAIRMAN CLOWE: Very good. 13 MR. GREER: I agree. 14 COMMISSIONER COX: And the audit department, 15 as well. 16 CHAIRMAN CLOWE: Very good. Anything 17 further, Gary? 18 MR. GRIEF: Just one last item, Mr. Chairman. 19 Do you envision us coming back to you at a later date with a 20 report on how we're making progress or what's the role of 21 the commission on this item? 22 CHAIRMAN CLOWE: I would hope that you would 23 make progress and you would brief the commissioners 24 individually so that you can continue to get their input. I 25 think this public briefing is an excellent step at this 0090 1 point in time because I think the commissioners wanted to 2 see what you've done and you wanted reaffirmation that you 3 were on the right track. 4 I think you're getting that today. Then I 5 hope, as you progress, you will brief the commissioners 6 individually, continue to get their direction, and then come 7 back to the commissioners with a plan. 8 MR. GRIEF: Very good. That's exactly what 9 I'll do. 10 CHAIRMAN CLOWE: Anything further? 11 MR. GRIEF: No, sir. 12 CHAIRMAN CLOWE: Commissioners, that 13 concludes the agenda we have up to this point. And with 14 your permission -- 15 MS. KIPLIN: Mr. Chairman, may I interrupt 16 you for just one second? 17 CHAIRMAN CLOWE: Certainly. 18 MS. KIPLIN: Mr. Bennett does have the 19 question (sic) to Commissioner Olvera's question regarding 20 the time period within which to notify the lessor. And I 21 didn't know if you -- 22 CHAIRMAN CLOWE: Sure. 23 MS. KIPLIN: -- would allow -- 24 CHAIRMAN CLOWE: Let's have it. 25 MR. BENNETT: For the record, may name is 0091 1 Ridgely Bennett. We have to provide at least 180 days 2 written notice in order to exercise the option to renew. 3 MS. KIPLIN: It's at least. 4 MR. BENNETT: At least. 5 CHAIRMAN CLOWE: And Mr. Bennett, did you 6 have an order for us to sign on that motion that was made 7 and passed commission approval? 8 MR. BENNETT: There's no order that needs to 9 be signed on that, Mr. Commissioner. 10 CHAIRMAN CLOWE: You just wanted a vote and 11 that was it? 12 MR. BENNETT: That's correct. 13 CHAIRMAN CLOWE: Commissioner Olvera is 14 needing to leave later this morning. And commissioners, 15 with that in mind, if you are ready, I would like to make a 16 motion that would take us into executive session. Is that 17 agreeable? 18 COMMISSIONER COX: Yes, sir. 19 AGENDA ITEM NO. 15 20 CHAIRMAN CLOWE: At this time, I move the 21 Texas Lottery Commission go into executive session to: 22 Deliberate the duties and evaluation of the 23 executive director and/or deputy executive director, 24 internal audit director and charitable bingo operations 25 director pursuant to Section 551.074 of the Texas Government 0092 1 Code; to deliberate the duties of the general counsel and 2 security director pursuant to Section 551.074 of the Texas 3 Government Code; to receive legal advice regarding pending 4 or contemplated litigation and/or to receive legal advice 5 pursuant to Section 551.071(1)(A) or (B) of the Texas 6 Government Code and/or to receive legal advice pursuant to 7 Section 551.071(2) of the Texas Government Code including, 8 but not limited to Patsy Henry versus the Texas Lottery 9 Commission, Sandy Surber et al. versus Gtech Corporation, 10 Yolanda Garza versus SSP et al., Linda Cloud versus Mike 11 McKinney et al., James T. Jongebloed versus Texas Lottery 12 Commission, Steven W. Hieronymus et al. versus Texas Lottery 13 Commission and Gametech International Inc., Felipe Chavez 14 versus Texas Lottery Commission and Sergeant Marvin J. 15 Collins, Don McCaffety versus Texas Lottery; employment law, 16 personnel law, procurement and contract law, evidentiary 17 law, procedural and general government law. 18 Is there a second? 19 COMMISSIONER OLVERA: Second. 20 CHAIRMAN CLOWE: All in favor, please say 21 aye. 22 COMMISSIONER COX: Aye. 23 COMMISSIONER OLVERA: Aye. 24 CHAIRMAN CLOWE: Aye. 25 The vote is three-zero. The Texas Lottery 0093 1 Commission will go into executive session. The time is 2 10:07 a.m. Today is October 1st, 2004. 3 (Executive session from 4 10:07 a.m. to 11:10 a.m.) 5 AGENDA ITEM NO. 16 6 CHAIRMAN CLOWE: The commission is out of 7 executive session. The time is 11:10 a.m. 8 Is there any action to be taken as a result 9 of the executive session? 10 COMMISSIONER COX: Mr. Chairman, I move that 11 the evaluation of the internal audit director be approved. 12 CHAIRMAN CLOWE: Second. 13 All in favor, please say aye. 14 COMMISSIONER OLVERA: Aye. 15 COMMISSIONER COX: Aye. 16 CHAIRMAN CLOWE: The vote is three-zero in 17 favor. 18 Is there any other action to be taken as a 19 result of executive session? 20 COMMISSIONER COX: Mr. Chairman, I move that 21 we approve the salary increase for the internal audit 22 director. I move that that annual salary be set at $91,008 23 -- 91,008 -- and that that rate of pay be effective 24 September 1, 2004. 25 COMMISSIONER OLVERA: Second. 0094 1 CHAIRMAN CLOWE: All in favor, please say 2 aye. 3 COMMISSIONER COX: Aye. 4 COMMISSIONER OLVERA: Aye. 5 CHAIRMAN CLOWE: Aye. 6 Opposed, no. 7 The vote is three-zero -- three-zero in 8 favor. 9 Is there any further action to be taken? If 10 not, we will move to the next item on the agenda. And for 11 the record, Commissioner Olvera will be leaving the meeting 12 and it will be Commissioner Cox and I forming the quorum. 13 COMMISSIONER OLVERA: Thank you, sir. 14 CHAIRMAN CLOWE: Thank you. 15 AGENDA ITEM NO. 17 16 CHAIRMAN CLOWE: We're ready to go forward 17 with Item No. 17, consideration of the status and possible 18 entry of orders as listed on our agenda and identified by 19 the letter A through the letter O. 20 Ms. Kiplin, would you help us with those? 21 MS. KIPLIN: Yes, Mr. Chairman. I'd be happy 22 to. All of these cases that are on your agenda today are 23 lottery cases involving retailers. All but the first one, 24 which is Courtesy Mart, are proposals for decisions that 25 have been issued by the State Office of Administrative 0095 1 Hearings administrative law judge recommending and finding, 2 as a conclusion of law, that revocation of the license is 3 warranted. 4 All of them are for insufficient funds being 5 available at the time that the lottery swept the account for 6 monies owed the lottery. The one exception to that is 7 Docket D, Get N Go. And that is because they were out of 8 business. And so we are moving forward to revoke their 9 license. 10 The staff does recommend that you vote to 11 approve the proposal for decision and order revoking their 12 licenses. Courtesy Mart, the first one, is a 13 redetermination. We noticed this retailer that the retailer 14 owed the lottery in the amount of $16,608.24. They 15 requested under law -- they were able to do that, a 16 redetermination of that amount. 17 The State Office of Administrative Hearings 18 administrative law judge found that the retailer was liable 19 to us in that amount. And that is the proposal for decision 20 and the recommended order is that they are, in fact, liable. 21 The staff recommends that you vote to approve all the 22 proposals for decision and orders -- respective orders to 23 those cases. 24 CHAIRMAN CLOWE: Are there any questions? 25 COMMISSIONER COX: No, sir. 0096 1 CHAIRMAN CLOWE: So move. 2 COMMISSIONER COX: Second. 3 CHAIRMAN CLOWE: All in favor, please say 4 aye. 5 COMMISSIONER COX: Aye. 6 CHAIRMAN CLOWE: Aye. 7 Opposed, no. 8 The vote is two-zero in favor. 9 We'll sign these orders. And then Reagan, 10 I'll be calling on you for your report under agenda Item No. 11 18 in just a moment. 12 MR. GREER: Yes, sir. Thank you. 13 CHAIRMAN CLOWE: Kim, would you check these 14 orders to make sure we haven't failed to sign. 15 AGENDA ITEM NO. 18 16 CHAIRMAN CLOWE: Next we'll call on you, Mr. 17 Greer, for the report by the executive director and/or 18 possible discussion and/or action on the agency's 19 operational status, FTE status and retailer forums. 20 MR. GREER: Yes, sir. In reference to the 21 FTE status, that's in your notebook. But I did want to 22 bring you up to date on some occurrences that have happened 23 over the last month since we came together as a group. 24 First off, I want to talk briefly about Lotto 25 Texas. We continue to monitor Lotto Texas. The current 0097 1 jackpot is at 11 million. I've been frustrated by the fact 2 that the interest rates remain low. And that is a primary 3 consideration when we're looking at setting the jackpot. 4 So we've been very conservative and the 5 growth is slower than we anticipate. But hopefully the 6 interest rates will work with us in time. And I continue to 7 work with our marketing division and finance division to 8 stay on top of how that game is doing and how we're 9 progressing. 10 MegaMillions update, we've conservatively 11 made an estimate the other day of 101 million on this 12 current roll. And based on the call that was this morning, 13 we were represented by our financial division on call, the 14 estimate of what we'll find on this jackpot is 105 million. 15 MegaMillions is exceeding our expectations this week. 16 A lot of that revolved around the -- we stay 17 in a conservative mode when we're estimating those jackpots 18 because of weather. And those hurricanes that were hitting 19 Florida were going up and affecting a number of the 20 MegaMillions states there on the East Coast. And the 21 weather cleared quicker than we thought. 22 And the jackpot rolled to 123 million if it 23 is not hit tonight. Robert mentioned that I did attend with 24 he and Steve Martin a MegaMillions directors meeting in 25 Atlanta on September 13th. It was very productive and we're 0098 1 continuing to move forward on a number of initiatives. I'm 2 going to write you up a report on that and provide it to 3 each one of you individually. 4 CHAIRMAN CLOWE: What contingency plans -- 5 what contingency plans did you have in place in the event of 6 the hurricane affecting that drawing? 7 MR. GREER: Catastrophe? Actually, that was, 8 you know, one of the issues that we brought up up front when 9 we got into the MegaMillions scenario and put new disaster 10 language in our contract. It's currently being -- they're 11 putting the language together for legal to look at. 12 The contingency is Illinois, and we were 13 prepared to, you know, go there if we had to. But 14 fortunately, we didn't have to go there. The only thing 15 that was really affected is that Gtech -- a number of the 16 states are Gtech states, as far as their contractual 17 relationship. 18 And their call center is in Boca Raton, 19 Florida. So that was affected. But as far as the 20 MegaMillions game and the drawing and everything, it was not 21 affected at all. So we did monitor that. And with the help 22 of legal counsel, we are moving forward to specify some 23 language that will make it a little bit clearer. 24 And that was one of the things we talked 25 about when we got into the game. There was some broad 0099 1 interpretations regarding weather. We wanted to make them a 2 little more narrow and focused. 3 CHAIRMAN CLOWE: Good. Thank you. 4 MR. GREER: I wanted to make you aware that, 5 unfortunately, the Latin Lotto scam continues to be alive 6 and well in our state. And there was recently a Garland man 7 who lost 15 thousand dollars, an elderly couple in Victoria 8 that lost 16 thousand dollars. 9 I'm working with Bobby in marketing to come 10 up with some new brochures and some things and are actively 11 working with retailers and local law enforcement to keep 12 them apprised of what's going on with that. 13 I'm also frustrated by the fact that recently 14 we've seen a number of Canadian Lotto scam scenarios in our 15 state which involves a -- it's a telephone type scenario 16 where they're telling individuals in our state that they've 17 won the Canadian lottery. And, unfortunately, they're 18 buying into that. 19 The most recent was, I believe, in Rosenberg. 20 I'm working with the Attorney General's Office. The 21 Attorney General himself has come out to talk about this 22 issue. There was a segment on 60 Minutes about it not long 23 ago. But on my clips that I get every day, news around the 24 state, it's been consistently on the clips all week. 25 And so I talked to Bobby yesterday and we're 0100 1 going to get more aggressive on informing our players about 2 the Canadian Lotto scams just as a public service to make 3 them aware of that. So there are two scams right now that 4 are, unfortunately, seeing activity. And I just wanted you 5 to be aware of that. 6 We're focused on '05 now. '04 was a great 7 year. We talked about that this morning, as far as sales 8 and some of the things that we accomplished. But we are 9 moving forward on '05. And I'm putting together our goals 10 for the year. I'll be sharing those with you when we're -- 11 I have those finalized, which should be in the next few 12 weeks. I'll be meeting with you individually. 13 And I'm very pleased with the work the staff 14 has done to stay goal-focused and goal-oriented so that we 15 can take it up a notch in '05. We did award contracts, as 16 was stated earlier, and the Sci Games representatives were 17 here, the Scientific Games International being our primary 18 vendor and Pollard Banknote Limited being our secondary 19 vendor. 20 I did want to note that the primary vendor is 21 the prime source of Texas lottery instant tickets and 22 services. And the secondary vendor will print a minimum of 23 one game per year, as far as the contract is concerned, and 24 also serve as a backup in the event the primary vendor is 25 unable to perform. 0101 1 I mentioned I met with Sci Games yesterday 2 and Pollard is coming in the next two weeks. I look forward 3 to establishing a strong working relationship with both of 4 those organizations. And they're going to be a part of the 5 ideas and things that we're doing to continue the 6 opportunity to take our instant ticket level to a higher -- 7 higher mark. 8 CHAIRMAN CLOWE: Reagan, how many machines 9 does Scientific Games have? 10 MR. GREER: Scientific Games, as far as the 11 instant ticket process? 12 CHAIRMAN CLOWE: Printing process. 13 MR. GREER: Oh, they have four presses in 14 Alpharetta, Georgia. And I'm hoping to go there. I'm 15 looking at probably the middle of November to go down there. 16 They have a very sophisticated operation. I've never seen 17 it. I've just heard from other staff members about it. 18 They do have four -- they print 24/7. We plan to keep them 19 very busy next year. I assure you that. 20 I've been on the road some. I wanted to make 21 you aware of that. September the 9th I held a press 22 conference in Boerne, Texas to give away our first Corvette. 23 And we had a winner that bought her ticket at a HEB ITVM and 24 was an HEB employee on top of that. 25 She was real excited, and that was a great 0102 1 event. It happened to be the same day that the Lotto Texas 2 jackpot was hit in San Antonio. So there was a lot of media 3 there. We had a lot of interest in that story. 4 On September the 10th, we held a press 5 conference here in the auditorium to announce our unaudited 6 numbers for the year, which have been expressed today. We 7 got good coverage on that event and specifically focused on 8 our over billion dollars into the Foundation School Fund, 9 which is obviously very important on why we exist, our 10 mission. 11 September the 15th I made a speech to the 12 Texas District Court Alliance. And one of the things that 13 was noted in that speech was a question from the audience. 14 There was a note of appreciation for the work that we do to 15 assist in collecting child support if there are winners that 16 come forward that -- you know, that money transfers so 17 the -- that's how they -- that's why they asked me, to be 18 honest with you, is to understand more about the process of 19 the lottery and to thank me on -- as the representative of 20 the lottery for the work that we do to assist in the 21 District Court Alliance. That was good. 22 September 16th, as was mentioned by Colin 23 earlier, we attended a LAR hearing. We're due for follow-up 24 with the Senate Finance Committee on October the 5th. I 25 will be attending that meeting. And I think, Mr. Chairman, 0103 1 you will be there and Billy and Lee will be there, as well 2 as Gary. And I look forward to answering any questions and 3 laying that out in front of the Senate Finance Committee. 4 September the 22nd I spoke to the South 5 Austin Rotary Club. There was a lot of questions, a good 6 group, and was glad to do that. I wanted to make you aware 7 that I will be going to the State Fair -- we have a booth 8 there, as you know -- on the 13th and 14th of October. And 9 I also will be doing a check presentation and we have a 10 Corvette winner in that area that I'll be visiting with. 11 I'm very pleased and want to do a follow-up 12 with you on the progress we've made on our intranet. We 13 talked about that in our business plan and incorporated a 14 number of those suggestions that came out of that meeting. 15 We did hold staff training sessions on the 16 16th and 21st. Staff's excited about it and look forward to 17 that. It will be a great form of communication. And I just 18 wanted to reinforce one of the things that I'm most excited 19 about is that the claim center offices, being all over the 20 state, are just, you know, constantly, I think, feeling like 21 they're away from us and separated. 22 And this will be a way for us to stay in 23 better contact and communication with them. The claim 24 centers have expressed a lot of excitement about it. 25 The current three divisions that are on the 0104 1 intranet is human resources, information technology and the 2 exec division. I'll keep you apprised of those when we move 3 forward bringing other divisions on and how the pages lay 4 out. 5 The state employee charitable campaign will 6 be kicking off today. It will be our October theme of the 7 month, I guess you'd say. And I look forward to having a 8 positive impact on the community by being involved in the 9 state employee charitable campaign. Last year 47 percent of 10 our employees participated. This year the goal is 60 11 percent. 12 And the fact that they can designate where 13 the giving goes and the fact that there is an opportunity to 14 do a lot of things in a positive way for our community, I 15 think the employees will embrace that. I firmly believe the 16 charge on that again and that it's very important to show 17 that we're community minded in what we do. 18 Our October theme, again, will be the 19 charitable campaign. In September, it was attitude. I 20 talked a lot about that in our directors meetings, as well 21 as the staff meeting. I thought it was a great way to kick 22 off the year to reinforce that positive attitude does make a 23 difference and have a lot of reinforcement on that. 24 And in closing, I'm obviously very pleased 25 that we have come forward with a report to you today to show 0105 1 that we had our second best year in the history of the Texas 2 lottery, as far as sales are concerned. But as one of our 3 '05 goals and has been pointed out earlier, there is 4 opportunities for us to continue to sell. MegaMillions is a 5 great example of that. Instant tickets are an example of 6 that. 7 I look forward to focusing on Cash 5. You 8 may note in Robert Tirloni's -- one of his reports that Cash 9 5 is going to be a part of our point of sale starting at the 10 end of October. That's a great game, overall odds of 11 winning, one in eight. 12 And we're going to try to bring those sales 13 up to a little higher level, around two and a half million a 14 week. Right now they're sticking around between two and 2.1 15 million a week. And we think we can do better in that 16 arena. 17 Another thing that we're going to monitor, in 18 reference to one of your questions earlier about 19 advertising, is that we are focusing some of our advertising 20 on scratch-offs, which we have not done much in the past and 21 get an idea there from a measurement perspective. That will 22 be a direct impact on the sales on some of those games so 23 that we can have a better feel for that. 24 I've been involved in the concepts on those 25 new ads. They've been well-received. I look forward to 0106 1 bringing you this new ad called "Scratch Dance." And it's 2 been used in some other jurisdictions very successfully and 3 I think the players will really like it. 4 So, again, thank you for the opportunity to 5 serve as executive director and pleased to bring you this 6 report today. 7 CHAIRMAN CLOWE: Questions? 8 COMMISSIONER COX: No. 9 CHAIRMAN CLOWE: Mr. Grief, do you have 10 anything to add? 11 MR. GRIEF: No, sir. I do not. 12 AGENDA ITEM NO. 19 13 CHAIRMAN CLOWE: Mr. Atkins, Item No. 19 is 14 the report by the charitable bingo operations director and 15 possible discussion and/or action on the charitable bingo 16 division's -- operation divisions activity. 17 MR. ATKINS: Thank you, Commissioners. Some 18 of the things that I would like to update on my report: As 19 you know, we had a vacancy for an audit position in our 20 Dallas regional office. Interviews had been conducted to 21 fill that vacancy. 22 And based on the results of the interviews, 23 Marsha McDade, the senior audit manager, has recommended 24 that that position be reposted. So we -- as of the 30th, 25 we've received seven applications. We will continue to seek 0107 1 to fill that position. And as you know, our goal is to get 2 the best qualified individual in there that we can. 3 Under the Bingo Advisory Committee, I have 4 included in my report the status of some of the work groups 5 that are comprised of members of the advisory committee, as 6 well as staff, and members of the general public. One that 7 I did not have the opportunity to add before I prepared this 8 report deals with a nominations committee. 9 As you know, there's a vacancy in the 10 charitable position. And I have had e-mail exchanges with 11 Kimberly Rogers, who is the chair of that work group for the 12 BAC. They have the questionnaires and will be splitting up 13 the interviews with individuals that have submitted 14 nomination forms, be conducting those and forwarding those 15 to staff for us -- for the required background 16 investigations on them. 17 The other one that I wanted to update you on 18 deals with the organization of bingo administrative rules. 19 The report shows that no action is pending. Since this 20 report, I've gone back and reviewed the original 21 recommendation from that work group. 22 And a lot of their decision to take no action 23 at this time stems from the fact that the recommendation 24 from the Texas Register was that the easiest way for this to 25 occur would require the mass repeal of all of the existing 0108 1 rules and the proposal of the new rules with the new 2 numbering system and the appropriate subchapters, etcetera. 3 And at the time when this was originally 4 being discussed, there were a number of rules that were out 5 for public comment due to the implementation of House Bill 6 2519. At this time, with the exception of the 7 administrative penalty rule, which I understand is still 8 undergoing a fairly thorough review, I've asked that work 9 group to reconsider their earlier recommendation and see if 10 the reorganization of the bingo administrative rules is 11 something that we could consider at this time. 12 So I will be bringing that recommendation 13 back to you at a -- at a later meeting. I think that that 14 is important. I think it is a sign of a -- of an efficient, 15 professional organization. 16 When those administrative rules are 17 structured in such a way that they're in subchapters and it 18 increases the ease for not just the public, but the 19 organization itself, to find in a little easier manner 20 anyway, the specific administrative rules that they're 21 looking for at the time. 22 This week staff from the charitable bingo 23 division attended a conference here in Austin that's put on 24 by an organization called Green Lights for Nonprofit 25 Success. They are a nonprofit consulting firm. They hold 0109 1 this conference annually. And it's an opportunity for 2 executive directors, board members, volunteers or just those 3 interested in the nonprofit community to gather together to 4 hear presentations on different topics of interest to 5 nonprofit organizations. 6 They also have a -- what I would call for 7 lack of a better word conference or -- I'm sorry -- a trade 8 show. Charitable bingo division did have a booth again this 9 year at this trade show where we had staff available to 10 discuss with members in attendance at this organization 11 charitable bingo as a possible fund-raising activity for 12 those organizations. 13 The staff has reported that they supplied 14 applications to approximately 35 different organizations, 15 did have the opportunity to discuss bingo with not just 16 those 35 organizations but a number of other organizations 17 as a fund-raising activity either on an annual basis or 18 on -- on temporary basis, as many organizations do. So we 19 were very pleased with the response that we received from 20 the organizations in attendance this year. 21 On the bingo activity report, I just wanted 22 to point out to you it doesn't cover the normal six-week 23 period that I think you're used to. Since this reporting 24 period did coincide with the end of the fiscal year, we 25 totaled up the fiscal 2004 figures and then added the 0110 1 current 2005 figures that would be subject to this report. 2 So that's why this one looks a little different for the next 3 report. We'll go back to reporting the full six-week period 4 that we normally provide you in each report. 5 And then, finally, I will also be out of the 6 office some in October and November. I'll be out of the 7 office October 11th through the 13th and the 21st and 22nd. 8 And I'm also currently scheduled to be out of the office 9 November 4th and 5th. We are working on putting together a 10 board meeting for the members of North American Gaming 11 Regulators Association. 12 Since the association now only holds one 13 conference a year as opposed to two, the board has found it 14 necessary for us to get together at least once outside of 15 our regular conference time to address the business of the 16 association. And we're currently, as I mentioned, looking 17 at doing that November 4th and 5th. 18 CHAIRMAN CLOWE: And where will that be? 19 MR. ATKINS: It's in Phoenix. Two of our 20 board members are already located in that location. And 21 it's actually, for the majority of the board, much closer. 22 CHAIRMAN CLOWE: And Billy, if the notice 23 provides and Commissioner Cox wishes, do you want to talk 24 about the possibility of a joint commission and BAC meeting 25 at this time or not? 0111 1 MS. KIPLIN: As I recall, you raised this 2 issue in connection with the business plan, the agency's 3 business plan? 4 CHAIRMAN CLOWE: Yes. 5 MS. KIPLIN: And I'm thinking that this is a 6 continuation of that topic, the agency's business plan. And 7 that's under division activities. But it seems as though 8 it's the continuation and that's what I noticed up. 9 CHAIRMAN CLOWE: Thank you. 10 MR. ATKINS: There were -- there was a 11 discussion that took place at the work group session that 12 the commission had with the staff in the development -- 13 excuse me -- of the agency's business plan. And I think 14 there was a desire to find a way to more fully engage the 15 bingo industry or their representatives in those matters of 16 importance to the industry. 17 And there were a number -- a number of 18 considerations discussed. And I did -- it had been my 19 recommendation to you, Mr. Chairman, there had been a 20 discussion in the past about the possibility of a joint 21 Lottery Commission and Bingo Advisory Committee -- Bingo 22 Advisory Committee meeting. 23 And it could be possible to bring forward 24 that item at that joint meeting in a setting similar to the 25 one that commission had with staff, a -- more of a work 0112 1 session to discuss that issue more fully and get input from 2 the industry on that item. 3 CHAIRMAN CLOWE: And I think one of the 4 things that I mentioned at that work session was possibility 5 of you discussing that with members of the BAC, if I 6 remember correctly. If I didn't ask you to do that, I 7 wanted to. And I just wonder if you've gotten any feedback 8 on that possibility. 9 MR. ATKINS: I haven't, Mr. Chairman. And it 10 was probably a misinterpretation on my behalf. And I 11 apologize for that. 12 CHAIRMAN CLOWE: Not at all. It may be a 13 dream that I had. 14 MR. ATKINS: Well, no. No. No. I do think 15 that there was direction of that type. My misinterpretation 16 was that for it to occur at their next regular meeting. 17 CHAIRMAN CLOWE: And I'm thinking that's 18 November the 17th, I think. And why wait until then? 19 MR. ATKINS: I would -- I would just want to 20 get with counsel and make sure that I wasn't circumventing 21 the Open Meetings Act, in terms of having that discussion. 22 CHAIRMAN CLOWE: Sir? Well, what's your 23 thought, Commissioner Cox? 24 COMMISSIONER COX: What will you do at that 25 meeting? 0113 1 CHAIRMAN CLOWE: Well, not the same thing 2 we've been doing all along. You very astutely pointed that 3 out. We don't want to say the same things we've been 4 saying. 5 COMMISSIONER COX: If we -- I don't want to 6 have to tell them again that we can't advertise and that the 7 law is the law and that they're an advisory committee and 8 not a trade association. 9 CHAIRMAN CLOWE: Right. And -- and I'm, out 10 of a sense of frustration, trying to continually communicate 11 beneficial things to them that would support their efforts 12 to help them in their quest to be more productive in their 13 operations for the charities of Texas. 14 And it's just an effort that I think we need 15 to make a conscious decision about whether we think it has 16 value. And it was a suggestion that someone made. I can't 17 remember who did that. Maybe Billy did. And before we 18 accept it or reject it, I'd like to hear from the BAC 19 members, if that doesn't run counter to the Open Meetings 20 Act. 21 And maybe the chair or vice-chair and then 22 you're agreement and Commissioner Olvera will be available. 23 It's sort of another effort on our part to help them focus 24 on their role and to make them more productive in their 25 relationship as an advisory group to us. My recollection is 0114 1 that we voted to give them another year's existence through 2 this next calendar. 3 MR. ATKINS: No, sir. It was through the 4 next fiscal year. The expiration date would be August 31st, 5 2005. 6 CHAIRMAN CLOWE: Okay. So it's -- they're in 7 now that period. And I think, in the sense of that, when 8 that period is up, this commission needs to be ready to make 9 a determination whether there's value there. 10 And in determining what my vote might be on 11 that, I would want to say to myself I made every effort I 12 can that justifies my vote, whichever way I might determine 13 how I might want to vote on any issue in that regard. But 14 that's just sort of what's going through my mind. 15 COMMISSIONER COX: Billy, I think that the 16 thing that -- two things that I would want to see. One is, 17 if we had such a meeting, we not think of it generally but 18 very specifically as to what would be on the agenda and 19 let's write that agenda down and look at it and try to 20 evaluate what would be accomplished, what would we talk 21 about, what would be accomplished, what we intend to 22 accomplish as a result of each of those discussions. 23 And the other would be that, as we 24 communicate to the Bingo Advisory Committee members, we do 25 it in a way that manages their expectations. And that 0115 1 relates to those specifics that I enumerated earlier. We 2 can't change the law. You know, that -- only the 3 legislature can do that and also, as to what might come of 4 this. 5 We have -- what the frustrating thing about 6 our role in the bingo is that it is -- doesn't leave much 7 room for imagination or interpretation. It's pretty 8 dog-gone clear what we can do and what we can't do. And 9 meeting with them isn't going to change that. So I guess 10 those are my thoughts. 11 MR. ATKINS: I will, Commissioner, certainly 12 follow up with the chair of the BAC and inform her of these 13 discussions and the desire of the commission and see if I 14 can get some kind of feedback from her and -- and then 15 follow up, Mr. Chairman, with you on that. 16 CHAIRMAN CLOWE: Yeah, within the scope of 17 the Open Meetings Act. 18 MR. ATKINS: Yes, sir. 19 CHAIRMAN CLOWE: Commissioner Cox, in that 20 regard, I really feel like this meeting we're having today 21 is our September meeting because we literally were supposed 22 to meet in September. And due to this being the only date 23 this week that I personally had open, it falls on October 24 1st. 25 In that regard, I would like to propose that 0116 1 we have another October meeting later this month. And we 2 could discuss this subject at that time in Billy's part of 3 the agenda relative to a November 17th meeting date that is 4 set by the BAC at this time. And that's well-ahead of 5 Thanksgiving and the oncoming holidays. 6 COMMISSIONER COX: So you're thinking that 7 this would be a bingo advisory -- a regular quarterly Bingo 8 Advisory Committee meeting which we would know so all three 9 of us could attend. 10 CHAIRMAN CLOWE: In November around November 11 17th. 12 COMMISSIONER COX: Okay. 13 CHAIRMAN CLOWE: But we would have a meeting 14 later in the month of October of the commission. And we 15 could make a determination with Billy's feedback, which he 16 has promised us now. And Commissioner Olvera could be here 17 so that we can decide whether we want to go forward with 18 that. 19 COMMISSIONER COX: Yeah. 20 CHAIRMAN CLOWE: Is that all right with you? 21 COMMISSIONER COX: Sure. 22 CHAIRMAN CLOWE: I reckon that will be the 23 plan then, Billy and Reagan. 24 MR. GREER: Yes, sir. 25 CHAIRMAN CLOWE: Anything further, Billy? 0117 1 MR. ATKINS: No, sir. 2 CHAIRMAN CLOWE: Thank you. 3 AGENDA ITEM NO. 20 4 CHAIRMAN CLOWE: Next is Item No. 20, public 5 comment. And Ms. Nettles is here. And you have an 6 appearance form filed. Will you come forward, please, 7 ma'am? 8 MS. NETTLES: Hello again. 9 CHAIRMAN CLOWE: Hello. 10 MS. NETTLES: My name is Dawn Nettles. I'm 11 with the Lotto Report from Dallas. 12 CHAIRMAN CLOWE: Thank you for coming back. 13 MS. NETTLES: You're welcome. Thank you for 14 giving me the opportunity to speak to y'all. 15 What I was attempting to say earlier was with 16 regard to what I said last month about the SSTs. And 17 apparently I didn't finish my sentence because it wasn't in 18 the transcript. I thought I did, but I didn't apparently. 19 And I wanted to make sure that that sentence 20 got finished. What I tried to say to you-all last month was 21 that seven months after the TLC purchased the SSTs, Gtech 22 had came out with a new product, a new SST that was full 23 service. And that would have been the best thing to have 24 bought. That part was in the transcript, but somehow or 25 another it just halted at seven months. So I wanted to 0118 1 clear that up. 2 The other thing I wanted to comment on is: I 3 received an e-mail this week from a player. And what it is, 4 is it's a copy of an e-mail that was sent to the Texas 5 Lottery. And the Texas Lottery responded and he sent me a 6 copy of it. He sent the Texas Lottery an e-mail that simply 7 said: Would you please explain what a pseudo random drawing 8 is? Thank you. He signed his name, Richard. 9 He then -- apparently the TLC answered. And 10 their answer was: What are you referring to directly? With 11 clarification, I will be to answer your questions. Thanks 12 for contacting us, Michelle Byrd, information specialist. 13 I am assuming that the gentleman shared this 14 with me because I had posted on my Web site last week that 15 the Texas Lottery had elected to go with pseudo random 16 drawings for the computerized animated drawings that y'all 17 are planning to have in the near future starting with the 18 Cash 5. 19 CHAIRMAN CLOWE: And is that word you're 20 using pseudo? 21 MS. NETTLES: Yes, sir. It's spelled 22 P-S-E-U-D-O. Pseudo random is what it's called. 23 CHAIRMAN CLOWE: And is that your phrase, 24 Ms. Nettles? 25 MS. NETTLES: No, sir. Not at all. Not at 0119 1 all. That is the termination that Gary or Reagan or someone 2 here could tell you what that is. I'm quite certain in 3 order to do computerized drawings you have to select 4 software that you're going to use to conduct your random 5 drawings. And there are a number of different kinds of 6 software. 7 At any rate, I was amazed that the commission 8 would not just tell him what pseudo random was, since I knew 9 that the commission knew. He then apparently responded to 10 this. And he has now written in his response to her, to 11 Michelle. 12 He said: I recently learned that the TLC 13 might replace ball sets and machines with computerized 14 drawings starting with the Cash 5 game. Numerous software 15 programs are available for the random selection of numbers. 16 And I ask if the TLC has conducted studies to decide which 17 is best suited to the Texas lottery. The programs have 18 slightly different capabilities and advantages. 19 I read at lottoreport.com that you chose 20 pseudo random and would like to know why this was chosen. 21 What characteristics of the C++ language made you choose the 22 software? What alternatives were considered when you made 23 this choice? How can I get the information that TLC 24 evaluated regarding different programs? I shall be eagerly 25 awaiting your prompt reply. And it's signed Richard 0120 1 Trettin. 2 And I don't know if the TLC has responded to 3 it or not. This was two or three days ago. But my point 4 is -- 5 CHAIRMAN CLOWE: And Ms. Nettles, what was 6 his last name? Richard... 7 MS. NETTLES: Trettin, T-R-E-T-T-I-N. 8 CHAIRMAN CLOWE: Trettin? 9 MS. NETTLES: Richard Trettin, T-R-E-T-T-I-N. 10 Oh, and then there's -- I left out an interesting aspect of 11 it. He asked for his message to be forwarded to 12 Commissioners Clowe, Cox, Olvera, Representative Branch and 13 Senator John Brown. Of course, I realize the commission is 14 not going to forward that, but I forgot about that. 15 I really was disappointed, though, because 16 when I saw his message, I thought, well, this will be 17 interesting to see what the commission says, because I 18 haven't discussed it with anyone at the commission yet. I 19 hope that you-all do answer his questions because the people 20 do -- are entitled to an answer to that. And that's enough 21 of the pseudo random. 22 One more thing I want to say, and this -- 23 you'll -- Commissioner Cox, you should enjoy this one. 24 Ipsos Reid, you mentioned the Ipsos Reid contract a while 25 ago or earlier. About two weeks ago, I received an Ipsos 0121 1 Reid report. And it was regarding -- it was a very large 2 report sent to another state lottery regarding computerized 3 random drawings. 4 And Ipsos Reid, in their report, advised the 5 state under no circumstances should they ever switch over to 6 computerized drawings. It was -- a portion of that report 7 was questions and answers. Some of it was technical that I 8 didn't understand. And I haven't read it in its entirety. 9 I read some of the report. 10 But it got my attention since I knew that 11 Texas used Ipsos Reid. Now when you made your comment a 12 while ago about Ipsos Reid when you first said it, I kind of 13 laughed to myself because I thought, yeah, I agree with him 14 because Ipsos Reid is the one who told the commission or 15 supported that the people of Texas wanted the new Lotto 16 Texas. 17 And I dispute their findings to have 18 instigated that game. So the -- my point is on Ipsos Reid, 19 I'm hoping that you-all -- Texas has such a report, too, 20 since they are your primary focus who did a marketing study 21 on the computerized drawings. And I hope you've read it. 22 Because if it's anything like what I saw that 23 went to another state, it's not the way Texas needs to go. 24 And I know that the commission is planning to switch Cash 5 25 over in the very near future and it would be a terrible 0122 1 mistake. 2 And that concludes my remarks. 3 CHAIRMAN CLOWE: Thank you, Ms. Nettles. Is 4 there any other business to come before the commission at 5 this time? 6 AGENDA ITEM NO. 21 7 CHAIRMAN CLOWE: We are adjourned. The time 8 is 11:52 a.m. Thank you-all very much. 9 (Meeting adjourned at 11:52 a.m.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0123 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, David Bateman, RPR, Certified Shorthand 7 Reporter in and for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing before 9 the Texas Lottery Commission as hereinafter set out, that I 10 did, in shorthand, report said proceedings, and that the 11 above and foregoing typewritten pages contain a full, true, 12 and correct computer-aided transcription of my shorthand 13 notes taken on said occasion. 14 15 Witness my hand this the 8th day of October, 2004. 16 17 18 19 ___________________________________ 20 David Bateman, RPR, Texas CSR #7578 Expiration Date: 12/31/05 21 Wright Watson STEN-TEL Firm Registration No. 225 22 1801 North Lamar Boulevard Mezzanine Level 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 041001dpb