0001 1 2 3 * * * * * * * * * * * * * * * * * * * * * * * * * * * 4 5 TEXAS LOTTERY COMMISSION 6 MEETING 7 8 DECEMBER 18, 2003 9 10 * * * * * * * * * * * * * * * * * * * * * * * * * * * 11 12 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY COMMISSION 19 meeting was held on the 18th day of December, 2003, from 20 9:00 a.m. to 1:30 p.m., before Shelley N. Jones, RPR, CSR in 21 and for the State of Texas, reported by machine shorthand, 22 at the Offices of the Texas Lottery Commission, 611 East 6th 23 Street, Austin, Texas, whereupon the following proceedings 24 were had: 25 0002 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Mr. James A. Cox, Jr. Mr. Roland Olvera 6 General Counsel: 7 Ms. Kimberly Kiplin 8 Executive Director: Mr. Reagan E. Greer 9 Deputy Executive Director: 10 Mr. Gary Grief 11 Director, Charitable Bingo Operations Divisions: Mr. William L. Atkins 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances....................................... 2 4 5 AGENDA ITEMS 6 ITEM NUMBER I.................................... 4 ITEM NUMBER II................................... 28, 41 7 ITEM NUMBER III.................................. 44 ITEM NUMBER IV................................... 4 8 ITEM NUMBER V.................................... 49 ITEM NUMBER VI................................... 51 9 ITEM NUMBER VII.................................. 52 ITEM NUMBER VIII................................. 54 10 ITEM NUMBER IX................................... 26 ITEM NUMBER X.................................... 40 11 ITEM NUMBER XI................................... 61 ITEM NUMBER XII.................................. 64 12 ITEM NUMBER XIII................................. 66 ITEM NUMBER XIV.................................. 67 13 ITEM NUMBER XV................................... 70 ITEM NUMBER XVI.................................. 73 14 ITEM NUMBER XVII................................. 80 ITEM NUMBER XVIII................................ 82 15 ITEM NUMBER XIX.................................. 83 ITEM NUMBER XX................................... 121 16 ITEM NUMBER XXI.................................. 121 ITEM NUMBER XXII................................. 105 17 ITEM NUMBER XXIII................................ 107 ITEM NUMBER XXIV................................. 118 18 ITEM NUMBER XXV.................................. 120 19 Reporter's Certification......................... 128 20 21 22 23 24 25 0004 1 December 18, 2003 2 Texas Lottery Commission Meeting 3 CHAIRMAN CLOWE: Good morning. If everyone 4 will take your seats, we will begin our meeting. 5 It is 9:00 a.m., December the 18th, 2003. 6 Commissioner Cox is here. My name is Tom Clowe. 7 Commissioner Olvera is en route and will join us shortly. 8 We have a quorum, so we will begin the meeting of the Texas 9 Lottery Commission, calling that meeting to order. 10 We will move to Item Number IV on the 11 agenda in order to hold those earlier items for Commissioner 12 Olvera's arrival and we'll ask Lee Deviney and Toni Erickson 13 to come up and report on possible discussion and/or action 14 on lottery sales and trends. 15 MR. DEVINEY: Good morning, Commissioners. 16 I'm Lee Deviney financial administration director. Under 17 tab four entitled "lottery sales and trends" in your 18 notebook, there were three memos regarding lottery sales and 19 we've -- Toni has just passed out new memos, new updated 20 memos. The first memo indicates an unaudited fiscal year 21 2004 sales through December 13th, 2003, amounted to $845.6 22 million, which is a 2.4 percent increase over fiscal year 23 2003 sales, which were $825.5 million for the same period. 24 Sales to date in fiscal year 2004 by 25 product group are listed in the same memo by product below. 0005 1 The second memo describes fiscal year 2004 sales by product 2 compared to fiscal two year 2003 sales for the same time 3 period. And the third memo compares sales for last two full 4 weeks ending December 13, 2003 and December 6th, 2003. 5 Total lottery sales decreased by 1.8 percent over that 6 period. Later in the agenda, under tab nine, staff will be 7 providing a more detailed report on the on-line games, 8 sales, and trends. 9 And I will be pleased to answer any 10 questions you may have at this time. And I think at this 11 point I need to turn it over to Robert Tirloni who has a 12 presentation. 13 MR. TIRLONI: Good morning, Commissioners. 14 COMMISSIONER COX: Just -- just a second. 15 I'm trying to -- I'm trying to catch up with the 1.8 percent 16 decline in sales. Anybody got a quick explanation of what 17 that was about? 18 MR. DEVINEY: If you'll look at the bottom 19 of the third memo, the one entitled "weekly sales, weekend 20 ending 12/13/03" -- 21 COMMISSIONER COX: Right. 22 MR. DEVINEY: -- we had a decline in 23 several of our product groups for in the week on that -- 24 that weekly comparison, instants, Lotto Texas, Cash Five, 25 Pick Three, Texas Two Step, and at the same time we had an 0006 1 increase -- of course, we only had a couple of weeks of data 2 in Mega Millions and -- and also the Megaplier. 3 COMMISSIONER COX: So -- 4 MR. DEVINEY: And I believe we may not have 5 caught a full week with Mega Millions and Megaplier. 6 COMMISSIONER COX: Reagan, when we get to 7 your report, I know that you have talked about the 8 cannibalization on Lotto Texas and Texas Two Step. 9 MR. GREER: Right. 10 COMMISSIONER COX: Real quick, it looks 11 like there may be further implications there and maybe 12 you'll comment on that as well when we get to that point. 13 MR. GREER: Specifically on Item IX we're 14 going to address a shifting of dollars and how it affected 15 it; but, you know, the bottom line from my perspective is -- 16 COMMISSIONER COX: Right. 17 MR. GREER: -- I'm looking at the big 18 picture of a 2.4 increase, noting those weekly shifts, which 19 is what we're going to talk about in Item IX. 20 CHAIRMAN CLOWE: Okay. I think when Robert 21 is finished and we have concluded this item, we'll go right 22 into IX because I think these are of similar substance. 23 So, Robert, go ahead. 24 MR. TIRLONI: For the record, my name is 25 Robert Tirloni. I am the on-line product manager for the 0007 1 Texas Lottery. 2 Good morning, Commissioners. 3 Executive Director Greer asked me to be 4 here this morning and give you a brief update on Mega 5 Millions and Megaplier sales. We're going to start this 6 morning by showing you the Friday, December 5th, Texas 7 Lottery drawings program. This was the first Mega Millions 8 drawing in which Texas was a participant, and we wanted you 9 to it see that. 10 (Video feed of Lottery drawing.) 11 MR. TIRLONI: I wanted you to see the first 12 drawing. Sales started as planned, Commissioners, on 13 Wednesday, December 3rd. We had a very successful game 14 kickoff. At the kickoff all of our outdoor billboards were 15 ready, advertising the 44 million-dollar jackpot for that 16 Friday, December 5th drawing. Here's a breakdown of the 17 draw sales summary. The first drawing was Friday the 5th, 18 and sales for that drawing were 3.4 million. Of that 3.4 19 million draw total, over $646,000 were in Megaplier sales. 20 Texas experienced a situation similar to 21 many other states. The -- the draw total for the first draw 22 was a little bit higher. Other states have seen this due to 23 the intense publicity that surrounds the game launch and the 24 first drawing. And then after you get past that first game 25 launch, you see a normal pattern begins to start in terms of 0008 1 sales. Our second draw for a 54 million-dollar jackpot had 2 draw sales of approximately 2.5 million. $550,000 of that 3 2.5 were Megaplier sales. The draw for last Friday, the 4 draw total was over 2.7 million with over $629,000 being in 5 Megaplier sales. And for the draw that just took place two 6 nights ago, the draw total was over 2.8 million with over 7 $657,000 in Megaplier sales. 8 You can see the Megaplier sales and total 9 draw sales have been increasing every draw, and this is a 10 graphical representation of what we just looked at. The 11 yellow part of the chart is the Megaplier sales and, again, 12 that's increasing. 13 MR. GREER: Can you go into that wreath of 14 numbers because it's kind of fuzzy. You may walk through 15 chart. I can't make that out. 16 MR. TIRLONI: It's been blown up on the -- 17 on the screen. I apologize for that. This was the Tuesday, 18 December 9th drawing. And the Mega Million sales were 1.9 19 million. The Megaplier sales were over 560,000, giving us a 20 draw total of 2.5 million. 21 For Friday, December 12th, the Mega 22 Millions sales were over 2.1 million, with the Megaplier 23 sales over $629,000, giving us a draw total of two point -- 24 over 2.7 million. And then lastly again for Tuesday, this 25 past Tuesday, the Mega Million sales alone were the 2.2 0009 1 million, as this fact shows. The Megaplier sales were over 2 657,000, giving us a total draw sales of over 2.8 million. 3 MR. GREER: And, Robert, before you leave 4 that slide, I want to -- basically the colors are what the 5 primary focus is. But if you look at the first draw, then 6 you can see we've been building. Part of that is an 7 education process, getting players used to drawing on 8 Tuesdays and Fridays. Part of that obviously is that 9 they're now beginning to pay attention to the fact that the 10 jackpots are way up there. And so without even looking at 11 the numbers, the colors speak for themselves, the Megaplier, 12 you know, being very successful, about a 25 to 30 percent 13 jump, generally focusing on that. 14 COMMISSIONER COX: Robert, let's go back to 15 the previous slide, please. What we've got on -- you didn't 16 comment on the right-hand column, but you've got a 17 significant increase in Jackpot, and it looks like that 18 these sales are far less sensitive to big increases in 19 Jackpots than Lotto Texas sales. I -- I know this is a 20 sample, a very, very tiny sample and in a very early stage 21 of the game. Do we have any indication that that's going to 22 be the case that these are going to be -- the demand for 23 these is going to be more inelastic than the demand for the 24 Lotto Texas product. 25 MR. TIRLONI: I think over time you'll see, 0010 1 as the jackpot climbs, you'll see the sales climb in greater 2 increments than we're seeing now. I think this is a result 3 of great player loyalty to the in-state game which has been 4 around for 11 years. For 11 years we've ingrained into our 5 players' minds and the public's mind that if you want to buy 6 a multimillion-dollar jackpot ticket in Texas, you do that 7 on Wednesdays and Saturdays. So I think that with the 8 introduction of Mega Millions, and we realize this up front, 9 we have a great deal of education to do in terms of training 10 our players to realize that we are also now offering a 11 multimillion-dollar jackpot game on Tuesdays and Fridays. 12 So I think that as time goes by and people get more 13 accustomed to the Tuesday/Friday drawing, we'll see those 14 sales go up as the jackpot climbs. 15 COMMISSIONER COX: Thanks. 16 MR. TIRLONI: I think it's a very positive 17 sign that we've seen the Megaplier sales go up over the past 18 three drawings and the draw total go up over the past three 19 drawings. What I have heard, I did meet with the GTECH 20 sales management and staff also last week; and they relayed 21 to me that as their sales reps were out in retail stores, 22 people -- customers were going in on Saturday morning asking 23 for the -- the big jackpot ticket, and they were having to 24 explain that there's a lotto drawing tonight but the Mega 25 Millions drawing took place last night and then explaining 0011 1 that if they wanted a ticket for Mega Millions, they could 2 certainly purchase that but it would be for the Tuesday 3 drawing. And like I said, when -- when we designed all of 4 our advertising, all of our point of sale, our radio spots, 5 even our billboards, we knew that we were going to need to 6 get that message out. And we did that on all of those 7 pieces to emphasize the drawings are on Tuesdays and 8 Fridays. 9 COMMISSIONER COX: The outlets that I have 10 driven by, so far, still have only the Lotto Texas jackpot 11 displayed in the window. They don't have the Mega Millions 12 jackpot displayed in there. Are there plans to get that? 13 MR. TIRLONI: Those designs are being 14 converted right now. We're getting new inserts for those 15 signs, and we're going to actually -- we're talking to the 16 advertising agency about printing the Lotto Texas jackpot -- 17 or the Lotto Texas logo -- I'm sorry -- on one side and the 18 Mega Millions logo on the other so that those signs will 19 have dual usage. 20 Also, in store, the LED sign that's hooked 21 up to the actual on-line terminal, we're using those to 22 convey jackpot amounts. So on Tuesdays and Fridays we're 23 letting them know that tonight is the Mega Millions drawing 24 and this is the jackpot amount that is available. And then 25 on Wednesdays and Saturdays we're doing the same with 0012 1 Lotto. So we're trying to get, like I said, our -- our 2 players and our retailers into the -- into the groove, so to 3 speak, of this game is drawn on this day. This game is 4 drawn on another day. We're trying to -- we're trying to 5 hit home that message by using all of the avenues we have 6 available. 7 COMMISSIONER COX: So for those signs that 8 I now see in the outlet windows that say 23 -- Lotto Texas, 9 23 million and the ones we're going to see that will say 10 Mega Millions 85 million, does it make any sense to put on 11 those Lotto Texas, Wednesday, Saturday and on Mega Millions 12 Tuesday and Friday. 13 MR. TIRLONI: We can certainly look into 14 doing that. Absolutely. 15 MR. GREER: You know, and one of the things 16 that I'm excited about is the deal where those new 8,000 17 LEDs that aren't up yet and they're satellite driven and we 18 can change the messages and maybe have more information on 19 the new LEDs. So there's a lot of things that I think will 20 continue to work in our favor that will continue to educate 21 players. 22 MR. TIRLONI: This is an important slide, 23 Commissioners, that I feel we know from our experience with 24 Lotto Texas that we -- we realize the majority of our 25 sales -- 0013 1 CHAIRMAN CLOWE: Robert, excuse me. Let me 2 interrupt you. Commissioner Olvera has arrived. The time 3 is 9:17. Thank you. Go forward. 4 MR. TIRLONI: We know from Lotto Texas, our 5 experience with Lotto Texas that we realize the major -- the 6 major bulk of the draws sold on the actual draw day, so I 7 think this slide is -- is very interesting. This is just 8 the draw day sales. So we see for Friday, December 5th, we 9 did over 1.3 million in Mega Millions sales. And then the 10 following Friday we did over 1.4, and the same pattern is 11 true for the Tuesday drawings. You see on the 9th of 12 December we did 1.2 million and then two days ago we did 1.4 13 million. That -- that is sales for Friday alone and sales 14 for Tuesday alone, and that's important, as I said, because 15 the -- the majority of the sales do come in on the draw day, 16 so that's another positive sign. 17 This is the number of winners we've had in 18 Texas. On the Friday 12/5 draw, we had over 67,000 winners 19 on the Mega Millions game. Of that 67,000 there were over 20 15,000 players who won additional moneys because they 21 purchased the Megaplier feature. You can see the results 22 for Tuesday the 9th, over 45,000 winners in Texas. 23 12,000 -- almost 12,500 also won additional prize money by 24 playing Megaplier. Friday the 12th, almost 50,000 Mega 25 Million winners with over 14,000 winning additional 0014 1 Megaplier prizes. And just for this past Tuesday almost 2 47,000 Mega Millions winners, with over 13,000 Megaplier 3 winners. The Megaplier numbers that have been drawn have 4 been four for the first three drawings and then three for 5 this past Tuesday drawing. 6 We are very excited that we have had 7 over -- we have four second tier prizes. One in the state 8 of Texas and only four drawings. On the very first draw we 9 had 175,000 win -- 175,000-dollar winning ticket sold in 10 Fort Worth. The second -- I'm sorry. The third drawing on 11 the 12th we had a winning ticket sold in Brownsville, and 12 then on just this past Tuesday's draw, we actually had two 13 second tier tickets sold in Weslaco and Duncanville. None 14 of these players Megaplied their purchase, so these were all 15 worth 175,000. If the December 5th and December 12th winner 16 tickets had been Megaplied, they would have been worth 17 $700,000 instead of 175,000; and the two winning tickets 18 from this past Tuesday would have been worth 525,000. 19 We have had some numerous 5,000-dollar 20 prizes sold in the state that have been Megaplied, however, 21 though. So the other word that we're hearing from the sales 22 staff is that the Megaplier feature is positive. A lot of 23 the retailers like the extra feet and the word is spreading 24 about -- just about the feature in general. And I think the 25 slogan that we've used and the campaign that we put out 0015 1 there "When you buy, Megaply" has been very positive, and I 2 think we're getting the message across with that. 3 MR. GREER: And I don't want to let that 4 slide past without, you know, just making a basic remark how 5 excited I've been personally because we knew the overall 6 chance of the winning the game, which I think is part of the 7 education. You know, the press really picked up the one in 8 135 million and saw that as well. Our offset was you've got 9 a one in 43 overall chance of winning. We've had a heck of 10 a lot of winners as you see, you know, by those numbers. 11 But specifically to have winners in a substantial, you know, 12 setting, in the 175 mark, I think we'll continue to draw 13 interest, not only to the Megaplier but to the differential 14 in winning. But to show that the overall odds -- 15 COMMISSIONER COX: Sure. 16 MR. GREER: -- are good in winning and we 17 are having winners throughout the state in Mega Millions 18 so... And there was a lot of nay sayers up front that gave 19 us a real hard time about that. I am pleased to see that 20 the numbers are proving them wrong. 21 MR. TIRLONI: Lastly, Commissioners, a 22 little jackpot update. The current Mega Millions jackpot is 23 $85 million for tomorrow night's drawing. If there are no 24 jackpot winning tickets sold for tomorrow night's drawing, 25 as of the Tuesday morning estimation conference call, the 0016 1 jackpot then goes from 85 to $100 million. It could be a 2 little grayer than that depending on how sales have been 3 since Tuesday night's drawing. So based on how sales were 4 yesterday, today, and how we believe they'll shape up 5 tomorrow, that could be greater than 100 million. 6 And just for a point of reference, the 7 record Lotto Texas jackpot was $85 million, and that was 8 achieved back in March of 2001. 9 MR. GREER: And, again, I -- I have to make 10 a comment that, you know, part of our whole process of 11 thinking when we got into the opportunity of looking at a 12 multijurisdictional game was these new jackpot amounts. And 13 we have equaled what Lotto Texas -- you know, the highest 14 they got. So it's again proving us correct in our 15 assumption that we did to gain that would deliver higher 16 jackpots to Texans. And specifically when you look at that 17 100 million-dollar possibility coming down the pike, I think 18 we'll continue to be supported by what this game is going to 19 deliver. 20 MR. TIRLONI: That's my last slide, 21 Commissioners. I can answer any questions. I -- I know 22 we're going to go into some more detail on -- under the 23 other on-line games under Item IX. 24 CHAIRMAN CLOWE: Robert, what's the highest 25 jackpot that Mega Millions has reached. 0017 1 MR. TIRLONI: When it was a big game, it 2 363 million. That was the highest, I believe, since they 3 changed to Mega Millions. I believe the highest was 4 approximately $180 million. 5 CHAIRMAN CLOWE: So for Mega Millions, 6 although it's currently equal to the highest Lotto Texas 7 jackpot, it's substantially below it's highest level. 8 MR. TIRLONI: Absolutely. That's correct. 9 CHAIRMAN CLOWE: They've seen those 10 jackpots over 300 million, I think, twice, haven't they? 11 MR. TIRLONI: I believe that's true, yes. 12 CHAIRMAN CLOWE: And on a fiscal year to 13 date basis, we're ahead by a total of 2.4 percent with a 14 continuing reduction in Lotto Texas, Cash Five, and Texas 15 Two Step. 16 MR. TIRLONI: Mr. Deviney will talk to 17 that. I don't that in front of you. 18 MR. DEVINEY: Just -- yeah. Just briefly, 19 this -- you know, the memo you have -- the new memo this 20 morning, you know, speaks to the change from the week ending 21 December 6th and the week ending December 17th. 22 CHAIRMAN CLOWE: Now that's not what I'm -- 23 I'm on the first memo that you gave us. 24 MR. DEVINEY: Okay. 25 CHAIRMAN CLOWE: The second memo, I guess, 0018 1 on the updated package, Lee, entitled "unaudited year-to- 2 date sales comparison by product, week ending 12/13/03. 3 MR. DEVINEY: Okay. I'm with you. Do you 4 mind if I -- do you mind repeating your question now that 5 we're on the same page. 6 CHAIRMAN CLOWE: We're looking at -- on a 7 fiscal year-to-date basis, '04 to '03, a 2.4 percent gain 8 overall with continuing declines in Lotto Texas, Cash Five, 9 and Texas Two Step. 10 MR. DEVINEY: That's correct. I think you 11 have to look at the instants because the instants make up 12 the bulk of the sales. As long as they're increasing, they 13 can -- they by themselves can offset, you know, perhaps, 14 declines in other games, and then you get the boost with 15 Mega Millions and -- and Megaplier. 16 CHAIRMAN CLOWE: Yeah. I'm -- I'm buying 17 that to a certain extent on Lotto Texas, and I think, 18 Robert, we're continuing to believe that Lotto Texas and 19 Mega Millions are jackpot driven. 20 MR. TIRLONI: That's correct. Absolutely. 21 CHAIRMAN CLOWE: I'm not as convinced of 22 that on Cash Five and Texas Two Step. I don't know. That 23 game just hasn't been received and hasn't gotten the 24 attention that we thought it would in my mind from the out 25 set and I'm hoping that somebody is looking at that trying 0019 1 to figure out what our situation is there. 2 MR. TIRLONI: We are. We are looking at 3 Texas Two Step. We're going to go into some more detail in 4 that we have a whole separate presentation that was done by 5 the staff, but we are looking at Texas Two Step. We met 6 with GTECH marketing just yesterday to talk about Two Step 7 and some options with it. 8 Two Step was introduced in May of 2001, and 9 it's -- it's been a consistent game for us over the past two 10 years, but it has seen some impact from -- because it shares 11 the same draw days as Mega Millions. So we knew from the 12 onset that that would be one of the games besides Lotto that 13 we would have to closely watch and closely scrutinize and 14 we're at that point right now and we have a plan in place to 15 address that. 16 CHAIRMAN CLOWE: Okay. That sounds good. 17 I -- I really have to say, I think, one viewpoint here is 18 how we're doing overall. And I understand the sensitivity 19 on an incidental basis and game to game, but we have an 20 array of choices out here for the players. And, you know, 21 for example, both the Lotto Texas and Mega Millions now are 22 building jackpots. And we're drawing in, I would assume, 23 player interest as a result of that. If Lotto Texas were 24 hit this next Saturday night, for example, and Mega Millions 25 went over a 100 million, I would be very interested in 0020 1 seeing what the player reaction to that is. I -- 2 MR. TIRLONI: We are too, sir. 3 CHAIRMAN CLOWE: I can give you an opinion 4 on that, but I won't prejudice myself by giving you that 5 thought. But, you know, we're in unchartered waters here, 6 and we're going to see how these games affect -- affect each 7 other in the players' minds, which is what's really 8 important. 9 MR. TIRLONI: We'll be -- we'll definitely 10 be watching. We're tracking sales day by day, draw by draw, 11 week by week. And as you said, it's going to be very 12 interesting to see the effect of if one game gets hit and 13 the other keeps rolling or vice versa or if they are -- or 14 if they're both hit. What happens if Texas -- if Mega 15 Millions is hit on Friday and it rolls back to ten million 16 and -- for their starting jackpot, and what happens if Lotto 17 is hit on Saturday night and goes back to $4 million. It 18 will be interesting to see the dynamics, the spending 19 dynamics when players go into the stores to see where 20 they'll spend their dollars when both jackpots are at their 21 starting amounts. So there's going to be a lot of -- 22 there's going to be a lot of analysis of the dynamics that 23 take place based on what level each game is at. 24 CHAIRMAN CLOWE: Yeah. Well, I did my 25 research in Johnson City, and I think it was Seguin. So 0021 1 what I got from the retailers there was that players were 2 just learning how to play Mega Millions. They really hadn't 3 learned yet and weren't comfortable with the number 4 selection yet, and the retailers commented that -- well, 5 they knew how to sell the tickets, but they really didn't 6 know how to explain the game and they didn't have enough 7 material. So I called in and I think our sales marketing 8 group followed up on that. 9 But, you know, it's like a lot of other new 10 things. There is a period of time of learning and getting 11 comfortable with it. And surely these higher jackpots is an 12 incentive to the players to take a look and deal with it. I 13 think the numbers hold that up. I think the Megapliers is 14 really interesting. You know, I remember Mega Millions came 15 to us without that feature. 16 MR. GREER: Right. 17 CHAIRMAN CLOWE: And my recollection is the 18 staff here said we see this feature, and we think it's 19 important and the staff here named that feature. And I'm 20 looking at these numbers and I'm thinking, gosh, I'm sure 21 glad we have that. And if we didn't, the numbers wouldn't 22 look as good as they do. So I want to say whoever gets that 23 credit, thank you for that. And I think as the players 24 become more familiar with it and we get some winners on the 25 Megaplier, word of mouth in this seems to be very, very 0022 1 important. That's going to inure to our benefit, the 2 commission's benefit. 3 MR. TIRLONI: I think it will be very 4 beneficial once we see a second tier prize, $175,000 at 5 prize one and somebody, whoever that lucky person is, has 6 also megaplied their purchase, and we can see a substantial 7 increase in their prize amount. 8 MR. GREER: And, you know, just as a 9 reminder, this was a key part of our negotiating when we 10 went into Mega Millions. We are the pilot project for the 11 country on this, and I will have to say that my fellow 12 executive directors in other states are looking at this 13 favorably and will continue to monitor what happens. But so 14 far specifically what they're saying is this is being 15 noticed across the country, and I do think it's a great move 16 and I appreciate the research that, you know, brought that 17 forward when we met as a group and got that recommendation 18 and negotiated that into the contract. 19 CHAIRMAN CLOWE: Commissioner, we started 20 on Item IV, and we're just really I think now to the end of 21 that and when -- we -- we said we could go on to Item IX 22 because it's related, just to bring you up to date. You 23 really haven't missed that much at all. 24 COMMISSIONER OLVERA: Okay. Thank you. 25 CHAIRMAN CLOWE: Anything further on Item 0023 1 IV? 2 COMMISSIONER COX: I have one more 3 question. 4 CHAIRMAN CLOWE: Sure. 5 COMMISSIONER COX: Robert, I had a 6 discussion with Liz a couple of weeks ago about just the 7 point that Chairman Clowe was making about the decline in 8 the on-line games, with the exception of Pick Three; and 9 what I recall her telling me there was that that's a game 10 that as the successor of the numbers game, the policy game, 11 and has a very loyal following. As we've seen in the other 12 three on-line games a decline, we've seen increases in the 13 instant games. And I'm wondering what we know about whether 14 the instant game players are crossing over from the on-line 15 games, are there more of them, are they increasing their 16 budgets. 17 MR. TIRLONI: I'm going to ask Liz to come 18 up to help me with that one. Pick Three has been a very 19 successful product for us, and it's actually been our only 20 product in the entire commission's portfolio, including 21 instants, that has seen an increase every year since it was 22 introduced back in '93. So, of course, we are very pleased 23 with the way it's been moving along every year. I would say 24 on -- of course, Lotto and the Two Step are -- are -- both 25 of them are jackpot games. Two Step is much larger in 0024 1 scale, but we do see the -- the sales for Two Step go up as 2 that jackpot climbs. Two Step has been hit consistently 3 over the past two or three months at the lower levels. So 4 that's part of the -- that's another part of the reason for 5 the decline in -- in the Two Step. 6 I'll let Liz answer your other question. 7 MS. JAMBOR: Good morning. For the record, 8 I'm Liz Jambor. I'm the marketing research manager for the 9 Texas Lottery. As far as instants, the -- the primary 10 increase or the reason for the increase in instants is a 11 greater variety of prize points. We have moved from one and 12 two dollar to one to 20-dollar tickets. And -- and it -- I 13 just did two pie graphs for the strategic plan yesterday in 14 comparing 2001 to 2004, and the representation of the total 15 pie of ones and twos is much smaller, meaning that people 16 are gravitating towards the higher prize point tickets. And 17 as they're spending more at those levels, our instant sales 18 are increasing. 19 COMMISSIONER COX: Do we know anything, 20 Liz, about where that additional pool of money is coming 21 from? Is it coming from people that were on-line players 22 that are now being attracted on the bigger tickets over 23 here? Are we -- are we bringing in new instant players as a 24 result of the higher prize points? Are the old ones 25 increasing their budget? Is it all of the above? Do we 0025 1 know? 2 MS. JAMBOR: It -- it could be a little bit 3 of all of the above. I don't think that we're drawing as 4 many on-line players to the instant game. If -- if there is 5 cross-play, that's pretty steady between the games. I think 6 our biggest cross-play comes instants and Lotto. It may -- 7 that may shift to Mega Millions. We -- we don't have enough 8 data to compare that yet. But -- so they're not -- the 9 instants are not really pulling a lot of the on-line players 10 away because it's really two different mind sets when -- 11 when you're playing those games. What we are seeing is 12 there are -- there are two particular player groups who 13 really like the lottery and really like the gaming, the 14 excitement, the fun. And because we are providing them a 15 greater variety at -- at -- at different prize points, 16 they're putting more money into the game. 17 CHAIRMAN CLOWE: When is our next player 18 survey due? 19 MS. JAMBOR: Well, we have monthly tracking 20 on a monthly basis that we roll into a quarter, so I -- I am 21 working on first quarter's report right now. And that will 22 be available -- well, before I leave for Christmas. 23 CHAIRMAN CLOWE: We will receive that? 24 MS. JAMBOR: Yes, I -- I will make sure you 25 get a copy of that. Yes, sir. 0026 1 CHAIRMAN CLOWE: And then don't we do a 2 general or maybe GTECH does a general biannual survey? 3 MS. JAMBOR: We -- we do a demographic 4 survey every two years. That is -- 5 CHAIRMAN CLOWE: Every two years. 6 MS. JAMBOR: Yes. That is not due -- that 7 is the one that's mandated. We do not start that until the 8 fall of 2004. We do an annual segmentation study that was 9 just presented by our market research company Ipsos-Reid 10 this past -- this -- earlier this week, and I'm waiting for 11 the hard copy of that study, which then will be put in your 12 packets for review. 13 CHAIRMAN CLOWE: Great. Thank you. 14 Mr. Greer. 15 MR. GREER: And in reference to that study, 16 I'd say on any other day, there's some great information in 17 there that will hold specifically some of the points that 18 you just asked about who are the players. They ask some 19 very good questions in that study. We're going to utilize 20 that a lot as we look at the whole instant ticket plan for 21 this year as well as the effect of some of these new on-line 22 games and Mega Millions. It's typically got great 23 information. 24 CHAIRMAN CLOWE: Very good. 25 Then we'll move right on to Item Number IX 0027 1 which is related to these discussions we've been having. 2 Report, possible discussions and/or action on the 3 commission's on-line lottery games. 4 MR. GREER: Specifically, this item was 5 something I wanted to put on the agenda. We started last 6 month. I think we need to, over the, you know, initial 7 months of Mega Millions, dive in a little bit deeper than we 8 normally would on the on-line games. Many of the points 9 that you just brought up will come to the forefront through 10 this presentation that Liz and I have worked on together and 11 there has been some comments that I have to make in regard 12 to that. 13 MS. JAMBOR: Again, for the record, my name 14 is Liz Jambor. I'm the marketing research manager of the 15 Texas Lottery Commission. I would like to present the 16 influence of Mega Millions in the first two weeks of sales. 17 And I would like to emphasize that we're talking about the 18 two first -- first two weeks of sales. Nothing that I'm 19 going to show you today should indicate a trend. It is 20 simply a snapshot in time just so that we can report how 21 Mega Millions is doing and how the other games are 22 responding to it. 23 This slide shows us basically the average 24 weekly sales pre Mega Millions start versus post Mega 25 Millions start. We can see that Mega Millions did have an 0028 1 impact. Because this is total overall sales, we also know 2 that instants had some influence in here but it -- but we 3 are showing that Mega Millions is giving us an increase in 4 overall sales. 5 COMMISSIONER COX: Liz, I can't read the 6 left scale. 7 MS. JAMBOR: Oh. The -- the top number is 8 66 million. The bottom number is 51 million. 9 COMMISSIONER COX: Thank you. 10 MS. JAMBOR: We also know that we are 11 seeing a shifting in weekly sales. This is -- represents 12 lotto sales on the average for these particular jackpots. 13 So these are average weekly sales for sales where there was 14 a jackpot of 15 million broadened to 17 million, and then 15 weekly sales for a jackpot that was at 20 million and rolled 16 to 22 million and what we see pre and post Mega Millions is 17 a shifting away from Lotto Texas. And our average sales 18 decline in Lotto Texas across these two weeks is 19 approximately 19 percent. But, again, I want to emphasize 20 this is not a trend. This does not indicate what is going 21 on. There is -- there's a lot yet to be answered that we'll 22 be able to answer with more Mega Millions data. 23 CHAIRMAN CLOWE: Let me see if I understand 24 that. You took the actual amounts post Mega Millions, but 25 you took a representative drawing sales for the jackpots 0029 1 that existed for Lotto Texas against those actual data for 2 Mega Millions from some prior period. Is that correct? 3 MS. JAMBOR: Correct. So in -- in the time 4 period prior to Mega Millions but since of 2000 when we 5 changed the matrix, if there were any weeks that had a 6 15 million on Tuesday and 17 million on Saturday, those are 7 the weeks I used for comparison. 8 CHAIRMAN CLOWE: Okay. 9 MS. JAMBOR: And the same for the other 10 jackpots. 11 CHAIRMAN CLOWE: Okay. 12 MR. GREER: And, you know, the number that 13 we had talked about as an average overall is 21 percent. 14 Obviously we can learn from these on a daily basis. And the 15 key thing, as you look at the chart, is to continue to work 16 on the fact the dollars are shifting. And we're not losing 17 the dollars. They're just shifting in another direction. 18 CHAIRMAN CLOWE: And I think, Liz, you 19 stated directly the jackpot amounts are so relative -- 20 MR. GREER: Right. 21 CHAIRMAN CLOWE: -- in this that all you're 22 looking at is a snapshot. We need a much longer period of 23 time to really see what the vibration is going to turn out 24 to be. And I still think you're telling us it's going to be 25 jackpot driven to a great extent. 0030 1 MS. JAMBOR: That is true because we may 2 see that if Mega Millions was at ten million and Lotto Texas 3 was at 50 million, those bars might flip because of -- of 4 the jackpot chase that some of our players have. 5 CHAIRMAN CLOWE: So you told us initially 6 no conclusions can be drawn this time. 7 MS. JAMBOR: That is correct. This is 8 simply information for where we are for right now after two 9 weeks of Mega Millions sales. 10 COMMISSIONER OLVERA: And, Liz, what's your 11 estimate as to when we'll have enough data for you to give 12 us some conclusions on trends we will see? 13 MS. JAMBOR: I cannot give you an estimate 14 right now because I don't know what the jackpots will do. 15 Basically we're going to need enough fluctuation between the 16 two games and their jackpots to be able to say more 17 definitively this is what's happening to Lotto and this is 18 what's happening to Mega Millions or Two Step, whichever 19 game we're going to look at. We just need -- we need to see 20 that play between the two jackpots and how money will go 21 back and forth between the two games. 22 MR. GREER: You know, and specifically as 23 we watched this it's been interesting, and Lotto Texas is 24 holding. And I think a lot of that is because of the 25 jackpot amount that we've, you know, alluded. We've been 0031 1 staying under 20's. That first week we had an 11.4 percent 2 shift. So as the jackpots, you know, waiver, we're probably 3 going to see a teeter-totter effect. 4 CHAIRMAN CLOWE: And what bordering states 5 have Mega Millions to Texas and what states don't? 6 MS. JAMBOR: There are no bordering states 7 to Texas that have Mega Millions. 8 CHAIRMAN CLOWE: So we're going to get 9 those players from those states in this jackpot of Mega 10 Millions. They may not drive across the border for a 11 28 million-dollar jackpot, but they might for 180 million 12 jackpot. 13 MR. GREER: There -- there's a lot of 14 interest, and I'll talk a little bit more about the -- the 15 interviews and things that I did. There's a lot of interest 16 specifically on those border cities, New Mexico and the 17 Louisiana side. And right now they've got to be like this 18 because we're -- Mega Millions is 85. Powerball is 100. 19 So, you know, they're both holding right in there together. 20 But certainly they alluded to the fact that for years 21 they've been watching as people left the state to drive to 22 New Mexico or left the state to Louisiana. So overall we're 23 hoping that they'll be driving to Texas, and that will have 24 an effect. 25 MS. JAMBOR: And we can't forget Oklahoma. 0032 1 They don't have either one. 2 MR. GREER: Yeah. Oklahoma goes 3 everywhere. 4 MS. JAMBOR: So we get players from them. 5 MR. GREER: They go to any state all 6 around. 7 MS. JAMBOR: We have the same information 8 here for Texas Two Step, again, just weekly sales, snapshot 9 in time for weeks that had a 200,000-dollar jackpot roll 10 into a 250,000-dollar jackpot and then also for weeks that 11 have a 325,000-dollar jackpot that -- that was hit and 12 rolled down to a 100,000-dollar jackpot. And, again, you 13 see sales shifting away from Two Step. And this one in 14 particular is not surprising since it is drawn on the exact 15 same days as Mega Millions. 16 COMMISSIONER COX: Liz, could I see the one 17 before again? 18 MS. JAMBOR: This Lotto one? 19 COMMISSIONER COX: Yes. That one. Are 20 these -- is left to right chronological or is it just -- 21 MS. JAMBOR: Yes, it is. So -- 22 COMMISSIONER COX: Okay. So -- 23 MS. JAMBOR: -- we're seeing a really -- 24 COMMISSIONER COX: -- so it's getting 25 bigger? 0033 1 MS. JAMBOR: Yes. 2 COMMISSIONER COX: On a sample of two. 3 MS. JAMBOR: Yeah. 4 All right. And here we have draw sales for 5 Lotto Texas. And, again, just for these particular 6 jackpots, we are seeing sales shift from Lotto Texas, but 7 the thing to note on this one is -- and -- and it's -- and 8 it goes back to Reagan's point of Lotto Texas is holding its 9 own -- is here we have a 20 million-dollar jackpot and 10 22 million-dollar jackpot and we see the sales for Lotto 11 Texas post Mega Millions increasing. So Lotto Texas sales 12 are responding to the jackpots. So even though we're seeing 13 some sales shifting away from Lotto Texas, we still are 14 seeing that increase that we expect as the jackpot grows. 15 CHAIRMAN CLOWE: Well, why didn't have you 16 an increase from 17 to 20? 17 MS. JAMBOR: Well, I -- I think that's -- 18 that's in relation to the newness of Mega Millions. Still 19 that focus on it, there was an initial move away from Lotto 20 Texas and now the other issue is 20 million has been one of 21 our markers for Lotto Texas. When you hit those 20 million, 22 30 million, 40 million, each ten million-dollar increments 23 there's a new layer of players that are now suddenly 24 interested. It's suddenly enough money for them to make the 25 trip to the store. 0034 1 Again, draw sales for Texas Two Step, we 2 see the same thing and, again, we are seeing a similar 3 pattern as we saw with Lotto Texas and even though there's a 4 drop from here to here, we're seeing that as a result of 5 differences in jackpot. 6 Okay. So we know there are a lot of sales 7 shifting, but the -- the important point to make in all of 8 this is what would our sales be like if we had no Mega 9 Millions. The -- the bar on the left shows what our average 10 weekly sales have been with Mega Millions. And I 11 apologize. It's not on the screen. But the -- the top of 12 the chart is 66 million. The bottom of the chart is 13 56 million. So the bar on the left shows us what our 14 average weekly sales have been with Mega Millions. What I 15 did was estimate what our sales would be with no Mega 16 Millions. So I pulled out the Mega Millions and the 17 Megapliers sales. I used instant ticket sales as they were, 18 and then I estimated what the on-line sales would have been 19 with no sales -- sales shifting. So if we would go back and 20 look at the other bars, the taller bars on the other one. 21 And we still see that with Mega Millions with sales 22 shifting, we're still getting incremental sales. So 23 although -- and it goes back to the points that have been 24 made. We're not losing sales, it's just the sales are 25 shifting to another game. 0035 1 So our next steps, we need to continue 2 monitoring sales for Mega Millions and Megaplier. We need 3 to make sure that they're still following the predictions 4 that we had set prior to joining the game, continue 5 monitoring sales of Lotto Texas. And as we've discussed 6 already, we don't know what Lotto Texas is going to do if 7 this jackpot exceeds Mega Millions. We don't know what 8 Lotto Texas will do if it's at four million and Mega 9 Millions is at 200 million. So those are things that we 10 still need to continue monitoring. 11 We need to review Texas Two Step draw day. 12 We need to consider moving Texas Two Step draw days to 13 Monday and Thursday to minimize a direct competition to Mega 14 Millions. In these two weeks that we've had Mega Millions 15 Texas Two Step has seen its first week of sales below 16 $1 million since its inception, and we are tracking to have 17 another below one million-dollar sales week for this week. 18 The average weekly sales for the first two weeks of Texas 19 Two Step with Mega Millions was just over $900,000. That is 20 down from a weekly average of 1.5 million since its 21 inception and 1.3 million since the Lotto Texas change. 22 So, in summary, the current games need to 23 continue monitoring to assess the impact of the new game and 24 of the competing draw days on overall sales. On-line sales 25 have experienced an average weekly increase of 30 percent 0036 1 with the additional Mega Millions or approximately an 2 additional 4.5 million in sales per week. And Mega Millions 3 in its first two weeks of sales has shown itself to be a 4 positive addition to the Texas Lottery game mix. 5 And if you have any questions I will be 6 happy to answer them. 7 MR. GREER: Specifically, I would like to 8 go to the prior slide. And I want to ask that we discuss 9 Texas Two Step for a minute. 10 You know, certainly the information that 11 has come forth has been very helpful in making these types 12 of determinations, but in visiting specifically with our 13 marketing group and looking at the fact that Texas Two Step 14 for the first time since its inception has gone below the 15 one million mark, that was something that we really spent a 16 lot of time discussing, and they're bringing basically an 17 idea. I'd like to pursue the idea of moving Texas Two Step 18 from Tuesday, Friday to Monday, Thursday. 19 The reason being from my perspective is I'm 20 sensitive to the fact that when you go in and you're in the 21 position where you have to determine how you're going to 22 spend your buck and one is 200,000 and one 85 million, 23 they're moving to 85 million. You know, I -- I certainly 24 understand that. In looking at this whole scenario, I can't 25 back -- help but think back to the winner we had. All I 0037 1 remember is Sandy from Pasadena. She was great, and she 2 loved Texas Two Step. I mean, that's her game and, you 3 know, very loyal to the game. That's all she really 4 played. She liked the chances of winning. They're -- 5 they're better. So I don't want to lose the -- the Sandys 6 from Pasadena, you know, that are out there. But I know 7 from the comparison that I just gave you that we're going to 8 continue to, I think, see below a million-dollar sale. 9 I think we can keep the game healthy, look 10 at the opportunity that we'll have to add another feature to 11 Texas Two Step which they touched on a minute ago that will 12 be an additional opportunity to have a better chance of 13 winning or possibly an -- an additional chance of winning on 14 Texas Two Step. And I'm basically coming to for your 15 feedback, and I'm making the recommendation that we pursue 16 this idea of moving Texas Two Step to Monday, Thursday to 17 create another opportunity for a high jackpot game on those 18 nights we've never had before and to see what it does if we 19 add an additional feature to the game. So I just want to 20 throw that out there for discussion. And it's a major 21 move. I realize that. It would give us a higher jackpot 22 level every night of the week, six, staying off of Sunday 23 still. 24 But I think as we continue to see the 25 jackpot levels and Mega Millions hold or go higher than what 0038 1 we're used to, that to keep Texas Two Step healthy and to be 2 responsive to the players that are very loyal to that game 3 that it would be worth looking at moving it to a different 4 drawing. 5 COMMISSIONER COX: No questions. 6 COMMISSIONER OLVERA: I see no problem with 7 that. 8 CHAIRMAN CLOWE: Reagan, my thought is 9 that, you know, the commission is here to support you and 10 the staff and be primarily focused on policy issues, and I 11 see this as your decision. The commissioners are open to 12 this, I think. There's no negative response. I would like 13 to say my personal view is that what you're doing is 14 marketing, and you have to provide what the players want. 15 And changing the games where you are respectful of the 16 players wishes, you're mindful of likes and dislikes, which 17 I hear you say in the meeting, must be taken into account. 18 And then for the overall attractiveness to the players and 19 for the good for the state, we must be open to change and we 20 must present our products in a way that is most appealing 21 and attractive to those people that want it. 22 So I would be generally in favor of the 23 move that you and the staff have well thought out and have 24 determined to be a beneficial result for the Lottery 25 Commission. I think when you get into a position where 0039 1 you're afraid to make a change and you're not willing to 2 take that risk -- and there's always some risk associated 3 with something like this -- would be a mistake and you 4 should for good contamination of the potential, feel 5 confident in making a change like this. And hopefully it 6 will be one that will result in the players liking it and 7 going to that new change. 8 I think back from the way this lottery has 9 changed from '92 until, you know, when I came on the 10 commission almost four years ago, and it really changed 11 substantially in the hardware, and the software, and the 12 lure of the games. And we are back to the plus of the 13 overall selling of the games to where the state wants to be. 14 I just give you that oversight as being very supportive from 15 me individually. 16 MR. GREER: Well, thank you. And I -- I 17 would like to also mention the fact that one of the things 18 that attracted us to Mega Millions was the staff when we 19 looked at, you know, the differences and with the 20 opportunity to work with some of the other large lotteries. 21 We have had a chance to build relationships now with the 22 other executive directors in the other states and bouncing 23 this off them, being proactive and addressing a situation 24 like this up front was their recommendation. 25 Many of them after they got in Mega Million 0040 1 watched the specific games like Texas Two Step that was on 2 that night, you know, competing, but they watched for too 3 long. You know, I don't want to watch for too long. I -- I 4 want to be conscious of the fact that to keep the game 5 healthy I think we have to address scenarios like this up 6 front and certainly your words of support are most 7 appreciated. And we will continue to pursue this idea and 8 bring you back a report of possibly a rule change next 9 month. 10 CHAIRMAN CLOWE: Very good. Anything 11 further on Item IX? 12 While we're on the subject, I think Item X 13 follows: Report, possible discussion and/or action on 14 lottery advertising and promotions. 15 Toni, do you have further information for 16 us? 17 MS. ERICKSON: Actually, I don't have any 18 further information. Do you want me to give an update based 19 on the what's in -- in the memo, in the notebook? 20 CHAIRMAN CLOWE: I'm sorry. I couldn't 21 hear you. Would you say that again? 22 MS. ERICKSON: I don't have any additional 23 information other than memo. Would you like me to clarify 24 what's in the notebook? 25 CHAIRMAN CLOWE: Commissioners, do you have 0041 1 any questions? 2 COMMISSIONER COX: No, I don't. 3 COMMISSIONER OLVERA: I have no questions, 4 sir. 5 CHAIRMAN CLOWE: Toni, I would like to say 6 that I think we all feel like you're doing an excellent job 7 in your current role as acting director -- and if that's 8 correct title. And we appreciate you stepping in and doing 9 that, and my understanding is the position of the director 10 was posted and closed, and there were interviews and a 11 selection was not made and -- and that position is going to 12 be posted again. Is that correct? 13 MR. GREER: Yes, sir. And I'm going to 14 speak to that in my comment in my report. 15 CHAIRMAN CLOWE: In your report? 16 MR. GREER: Yes, sir. 17 CHAIRMAN CLOWE: Okay. Thank you very 18 much. 19 MS. ERICKSON: Thank you. 20 CHAIRMAN CLOWE: Again we'll go back to, in 21 order, Item Number II, consideration of and possible 22 discussion and/or action including proposal of amendments on 23 16 TAC, 402.558, relating to bingo card, slash, paper. 24 MR. OLDHAM: Good morning, Commissioners. 25 CHAIRMAN CLOWE: Good morning. 0042 1 MR. OLDHAM: For the record, my name is 2 Kevin Oldham. I'm assistant general counsel here at the 3 Lottery Commission. By the way of background, 4 Commissioners, we have in your notebook four documents: 5 cover page, a draft rule, an actual letter from American 6 Games, and the order that was signed at the November 24th 7 commission meeting. We received those -- a letter from 8 American Games, Inc., in October 28th, which basically 9 petitioned the commission for rulemaking regarding 16 TAC 10 402.558 and the subject matter of the request was as it 11 relates to break-open bingo, bingo paper. And this is paper 12 which means the face of the paper, which actually has the 13 letters on it, remains concealed until the player actually 14 pays for it and then opens it up and plays the -- plays the 15 game. And especially the -- the concern was that the 16 manufacturer assigned serial number, according to our 17 current rule, was that that be on the face of the paper 18 which in the case of this specific type of paper was 19 concealed until played to make it more difficult for 20 tracking and for purchases. 21 The staff looked over the recommendation 22 and -- and provided a -- the letter to you at the November 23 24th commission meeting when we got an order signed by the 24 commission to engage in the rulemaking process. Subsequent 25 to that, we presented the rule and the letter -- a copy of 0043 1 the rule and the letter to the Bingo Advisory Committee at 2 their December 4th meeting, and they -- they made comment on 3 it. The comment was -- was good. They -- they -- they 4 liked the idea. They did have one concern about the 5 definition of break-open bingo, and I assured that nobody 6 would use the definition that is in the rule to make that 7 consistent, if different manufacturers had concerns about 8 the term or used different terms. 9 Other than that, though, they did recommend 10 proposing the -- the amendment to the rule in the Texas 11 Register for a period of 30 days. They recommended that to 12 you. And I have a -- the rule before you with the 13 amendments underlined and the -- the appropriate preamble 14 which describes the rule to the staff, following those staff 15 recommendations. The staff does recommend that the 16 commission publish the proposed amended rule in the Texas 17 Register for public comment for a period of 30 days. 18 CHAIRMAN CLOWE: Are there any questions? 19 COMMISSIONER COX: No. 20 CHAIRMAN CLOWE: So moved. All in favor 21 please say aye. 22 THE COMMISSIONERS: Aye. 23 CHAIRMAN CLOWE: Aye -- opposed, no. 24 The vote is 3-0 in favor. 25 MR. OLDHAM: Thank you. 0044 1 MR. ATKINS: Commissioner Clowe. 2 CHAIRMAN CLOWE: Sir. 3 MR. ATKINS: If I could mention one thing 4 on that. Commissioner Cox had mentioned at the last meeting 5 that he wanted to make sure that these proposed amendments 6 wouldn't affect any existing products or manufacturers that 7 are currently operating under the rule and we performed that 8 analysis and don't believe that it does. 9 MR. OLDHAM: That is correct. I apologize 10 for not saying that. 11 CHAIRMAN CLOWE: Thank you, Mr. Oldham. 12 MR. ATKINS: Just for your information. 13 CHAIRMAN CLOWE: Okay. And, Billy, Item 14 III, report by the Bingo Advisory Committee chairman, 15 possible discussion and/or action regarding the Bingo 16 Advisory Committee's activity including the December 4th, 17 2003 committee meeting. I believe by e-mail from the chair 18 that you're going to handle that item. 19 MR. ATKINS: And you have in your notebook, 20 Commissioners, the report from Virginia Brackett, chair of 21 the Bingo Advisory Committee. The meeting on December 4th 22 ended at approximately 1:00 p.m. due to the loss of a 23 quorum. As Virginia mentioned in her report, one of the 24 items that they had to pass on due to the lack of time was 25 the bingo player survey. I draw attention to that because, 0045 1 Chairman Clowe, you had indicated that you were interested 2 in receiving their response to that. So we're sure that 3 that will be forthcoming from them once we're able to give 4 them presentation. 5 Another item that was passed was the BAC 6 report to the commission on the Texas bingo industry. As 7 you know, Section 2001.057 of the Bingo Enabling Act 8 requires the BAC to report annually to the commission on 9 their activities. Also, the Charitable Bingo Administrative 10 Rule 402.567 requires the BAC to report annually on 11 charitable bingo gross receipts, distribution, expenses, 12 attendance, and any other area requested by the commission. 13 And we're going to continue to recommend and work with the 14 advisory committee that they address this issue so that 15 they're able to report or able to make that report to you. 16 Finally just for informational purposes, 17 there was a discussion at the BAC meeting regarding the 18 amount of bonds that organizations conducting bingo are 19 required to post with the commission. The commission 20 currently requires a bond that equals exactly three times 21 the average amount due from an organization's quarterly 22 report. We found that in some cases, it can take up to 23 three quarters to complete the administrative process before 24 a delinquent organization has their license denied or 25 revoked. We believe that this practice has been very 0046 1 prudent in protecting the state's interest. For example, in 2 1994 when bingo transferred over from another state agency, 3 the amount of uncollected liabilities totaled over 4 $700,000. In 2003 we're looking at around $53,000. 5 We did agree to work with Mario Manio who 6 is the BAC member that raised this issue and report back to 7 the full committee. However, we did stress to Mario and the 8 advisory committee that absent some sort of compelling 9 evidence, the staff would be really hard-pressed to change 10 their position on the amount of bond we request from 11 organizations. 12 CHAIRMAN CLOWE: Any questions? 13 Counselor, I have received copies of some 14 letters regarding proposed rule changes in the bingo 15 division. Where in the agenda is it correct to ask the 16 division director about that process, if it is proper and 17 noticed under his report? 18 MS. KIPLIN: No. No, sir. I don't think 19 it is. I -- I think those go to -- directly to particular 20 rules that are out for comment. 21 CHAIRMAN CLOWE: And they're not noticed on 22 this agenda to my knowledge. 23 MS. KIPLIN: No. They're not. I can take 24 a look at the agenda. You know, my conservative nature is 25 that it's more apropos for the particular item because those 0047 1 rules obviously have a public interest, and they're not 2 noticed. 3 CHAIRMAN CLOWE: Well, I wanted to bring 4 that up because I think there is a hearing tomorrow, but 5 I -- if I can't bring it up, I won't. 6 MS. KIPLIN: Well, I -- I guess, if I could 7 probe just a little bit. Is your question more to the 8 agency's process with particular matters in terms of 9 rulemaking, how we -- how we proceed? 10 CHAIRMAN CLOWE: And wanting to acknowledge 11 that we have received input from the legislative members and 12 that there is a public hearing tomorrow. 13 MS. KIPLIN: Well, I think probably under 14 the executive director there is a -- a language regarding 15 the agency -- agency's operational status, and I guess if 16 you're inquiring in terms of what is the process on 17 receiving comment and things of that matter, it would be 18 more apropos under there. And I'll be glad to address that 19 for you. 20 CHAIRMAN CLOWE: All right. 21 MS. KIPLIN: As you know, operationally we 22 come before you and make recommendations on proposing rules 23 or amendments to rules. There's a comment period that we -- 24 that we charted out in terms of a 30-day comment period. I 25 think we collectively thought that was a good idea to start 0048 1 actually putting a deadline so that we could continue the 2 rulemaking process in an orderly fashion. And we receive 3 comment on the rules, and I think what you're talking about 4 is a comment that was received. Those comments go into the 5 rulemaking file that is maintained in the legal division 6 although depending on who the -- the client division is, 7 they'll also -- copies of those will go there because of the 8 subject matter expertise we need to draw upon. 9 There is an ability to request a public 10 hearing under the administrative procedure act, if there are 11 25 or more people that do it or it's by group or association 12 that's made up of 25 or more persons. And when we get those 13 kinds of requests, we typically set up those up for comment 14 hearings. So in particular, we have one tomorrow over 15 subject matter of bingo rules. It is beyond the -- the 16 comment period, but it -- but it was a request that was made 17 prior to the end of the deadline for comment. And in case 18 we look at the APA, I think it is appropriate and it's an 19 obligation for us to go ahead and have that comment period, 20 and we'll do that. Written from -- 21 CHAIRMAN CLOWE: And the letters that have 22 been written to you from individuals, from citizens, and 23 legislative members will be taken in as part of that, 24 right? 25 MS. KIPLIN: Yes, sir. Those were, as -- 0049 1 as I recall, the comment that we received that I believe 2 each of you were copied on that's -- now, I know, 3 Mr. Chairman, you were. Those were comments that were 4 received prior to the deadline, and they will be considered. 5 CHAIRMAN CLOWE: Good. 6 MS. KIPLIN: Just like any other comment 7 that's received. 8 CHAIRMAN CLOWE: Good. 9 MS. KIPLIN: Does that answer your 10 question? 11 CHAIRMAN CLOWE: It does completely. Thank 12 you. 13 Next item is Number V, report, possible 14 discussion and/or -- and/or action on HUB and on minority 15 business participation. 16 MR. DEVINEY: Commissioners, again, I'm Lee 17 Deviney, financial administration Director. And under tab 18 five you will find a report of Joyce Bertolacini, the 19 commission's historically underutilized business coordinator 20 will provide a brief overview of the lottery's 21 sub activities. 22 MS. BERTOLACINI: Good morning, 23 Commissioners. For the record, my name is Joyce 24 Bertolacini, and I'm the agency's historically underutilized 25 business coordinator. I'm here to report on several items 0050 1 relating to HUB and/or minority business participation. 2 Included in your notebook today is the 3 TLC's monthly HUB minority contracting activity report, 4 which includes all fiscal expenditures made from September 5 1st of 2003 to November 30th of 2003. I'm happy to report 6 that our total expenditures for this period were 7 34.4 million. And our estimated HUB utilization was 8 11.4 million, which equates to 33.3 percent. 9 Also in your notebook are several reports 10 which summarize the agency's fiscal year 2003 HUB 11 performance based on the Texas Building and Procurement 12 Commission's annual statewide HUB report. The TLC achieved 13 a five-year high in its HUB participation during this 14 period, with an overall HUB percentage of 18.4 percent. 15 Also, note that of the top 10 largest spending state 16 agencies, the TLC ranked number one by total HUB percentage. 17 Commissioners, we are currently preparing 18 the agency's annual minorities business participation report 19 for fiscal year 2003 and will be seeking your approval to 20 publish the finalizes report in the near future. Finally, 21 please note that we have no updates to report on the mentor 22 protegee program at this time. 23 I will be happy to answer any questions 24 regarding any of the reports, that you might have. 25 CHAIRMAN CLOWE: This is outstanding, and 0051 1 we are extremely pleased. 2 MS. BERTOLACINI: Thank you. And if you -- 3 MR. GREER: I'd like to -- 4 MS. BERTOLACINI: -- have any input 5 regarding any of the information, I have kind of just been 6 using the format that was previously used. If there was 7 something that you would like to see or something that you 8 feel is extraneous, please just feel free to give me some 9 input. Thank you. 10 MR. GREER: And I -- I would just like to 11 say this is has been a focus and a personal commitment of 12 mine. Reaching a five-year high is great, but certainly 13 being recognized as number one of the top ten agencies is 14 huge, and I am very proud of that effort and thank you for 15 your work on that, Joyce. 16 CHAIRMAN CLOWE: And we certainly want to 17 tell people about this and keep up the good work. 18 MS. BERTOLACINI: Thank you. 19 CHAIRMAN CLOWE: Thank you, Lee. The next 20 Item Number VI is also yours, discussion and/or action on 21 the agency's contracts. 22 MR. DEVINEY: The agency's contract report 23 is under tab six of your notebook. This is an updated 24 weekly for all contracts with a value of $25,000 or more, 25 and you'll see the status of each procurement at that 0052 1 level. Any questions? 2 CHAIRMAN CLOWE: No further comments on 3 that. 4 Any questions? 5 Thank you, and the next item is yours as 6 well. Report on the agency's fiscal '04 operating budget. 7 MR. DEVINEY: We're up to Number XIII 8 already? 9 CHAIRMAN CLOWE: I believe that's Number 10 VII. 11 MR. DEVINEY: The fiscal year 2004 12 operating budget -- well, all I have to report at this 13 meeting is that we had two responsibilities. One was to 14 file the operating budget with the legislative budget report 15 by December 31st. That was done and there was a 16 certification that was required to be filed by December 8 17 and that was done timely as well. 18 CHAIRMAN CLOWE: And that got filed on 19 time? 20 MR. DEVINEY: On time. 21 CHAIRMAN CLOWE: Counselor, do you have a 22 comment on that? 23 MS. KIPLIN: Yes, I do. As you know, there 24 were issues that we discussed at the last commission meeting 25 regarding the -- the actual language of the certificate. We 0053 1 tried to work that through. The information that I received 2 was that it was -- it -- it was not that -- not timely for 3 them to be able to make a change because they had to -- the 4 legislative budget board and the Governor's office of budget 5 and planning had to work together regarding that particular 6 text. I still had concerns because of the -- the text of 7 that certificate, and we worked on a letter, I think, that 8 would clarify the concerns that would hopefully be favorably 9 received for the next time in which a certificate is 10 required in connection with the agency's operating budget. 11 Mr. Chairman, as you'll recall, you signed 12 the letter, and I have copies for the other two 13 commissioners so that they'll have a -- an opportunity to 14 see what was filed on behalf of the agency -- 15 CHAIRMAN CLOWE: Great. 16 MS. KIPLIN: -- to the executive director. 17 CHAIRMAN CLOWE: And, Commissioners, this 18 letter was supplemental in nature and was an attempt to 19 clarify and point out points that we were at least I think 20 you can say interested, if not concerned, and we wanted to 21 be on the record with the certification about those items, 22 and it was filed respectfully and with great interest in the 23 process being examined for the future. And I understand it 24 I understand it was well received. 25 MS. KIPLIN: I will defer to Mr. Deviney on 0054 1 that. I know that my conversations with him left me with 2 the impression that the folks understood what would be 3 submitted by the agency and the reasons supporting that. 4 CHAIRMAN CLOWE: Okay. 5 MR. DEVINEY: That's correct. And I 6 haven't had any further conversations with the -- the budget 7 office on that. 8 CHAIRMAN CLOWE: Great. And we want to 9 keep talking about that. And it would be helpful if it's 10 possible for us to do that. 11 Anything further, Commissioners, on that? 12 Lee, I think the next Item Number VIII, 13 now, we're ready for discussion on the agency's annual 14 financial audit and/or comprehensive annual financial 15 report. 16 MR. DEVINEY: Yes, Commissioners. And I 17 believe Director Greer has some comments to make. And also 18 joining us up here at the table are the auditors from 19 McConnell & Jones. 20 CHAIRMAN CLOWE: Good morning. 21 MR. EATON: Good morning. 22 MR. OKOYE: Good morning. 23 CHAIRMAN CLOWE: Would you identify 24 yourselves, please. 25 MR. EATON: Yes. Yes, sir. Commissioners, 0055 1 my name is Eric Eaton. I'm the director of assurance 2 services from McConnell & Jones. 3 MR. OKOYE: And my name is Godwin Okoye, 4 and I was in charge of the field work audit. 5 CHAIRMAN CLOWE: Good. We're happy to have 6 you. 7 MR. EATON: Thank you. 8 MR. GREER: Commissioners, I'm going to 9 begin with the section of the agenda with the -- a basic 10 acknowledgment and I guess you'd say an announcement of 11 something I'm very proud of. I would like to begin by 12 framing for the commission to be aware of the fact that we 13 have recently been awarded the certificate of achievement 14 for excellence in financial reporting by the Government and 15 Finance Officers Association of the United States and Canada 16 for its fiscal year 2002 comprehensive annual financial 17 report. 18 The certificate is the highest form of 19 recognition in the area of governmental accounting and 20 financial reporting, and its attainment represents a 21 significant accomplishment by a government body and its 22 management. An award of financial reporting achievement is 23 presented by the GFOA, which I mentioned a moment ago, the 24 Government Finance Officers Association, to the individual 25 or individuals, department, or agency designated as 0056 1 primarily responsible for preparing an award -- an award- 2 winning CAFR. This has been presented to the financial 3 administration division of the Texas Lottery Commission, and 4 here it is. Ta-da. This is a great thing. I want to pass 5 that down, and I also want to pass down a press release that 6 came out of the association out of Chicago, Illinois for you 7 to review. 8 Following up on this honor, the Texas 9 Lottery Commission will within a few months be submitting 10 our fiscal year, FY '03 to the CAFR and to this association 11 and other interested parties. Incorporated within the new 12 CAFR will be the audited financial statements of the Texas 13 Lottery Commission. Here today to present those audited 14 statements, findings, and other information are 15 representatives of the other independent audit firm of 16 McConnell & Jones as recognized down here. And in addition 17 to the financial administration staff, internal auditor 18 Catherine Melvin. 19 And, Commissioner Cox, I know that you've 20 been serving as a liaison to the auditors during the FY '03 21 process, and I want to thank you for that. 22 The audited financial statements as 23 incorporated into the 2003 CAFR will be filed according to 24 state law with the comptroller of public accounts and other 25 repositories on December the 20th of this year. 0057 1 Now I'm going to turn it over to the group 2 that is here before us from McConnell & Jones to present 3 their audit report. 4 CHAIRMAN CLOWE: Before they make their 5 report, we certainly want to acknowledge the hard work of 6 everyone that participated in receiving this certificate of 7 achieving this distinguished accomplishment, and we're 8 appreciative of that. And I would assume the commission 9 would expect our auditing costs to go down since we've done 10 such a great job. 11 MR. GREER: That is outside of my purview, 12 sir. 13 CHAIRMAN CLOWE: Oh, I see. 14 MR. EATON: Thank you, Mr. Greer. I 15 hope -- well, first of all, I would like to thank the 16 commissioners and management for having us here today, and 17 we appreciate the opportunity to serve for y'all. I hope 18 you have in front of you the annual financial report and 19 inserted in there is our required communication letters to 20 the commissioners. 21 First, I would like to go over the required 22 communications, and I will -- excuse me -- and I will 23 summarize for those for you briefly. Our responsibilities 24 are to audit the commission's financial statements in 25 accordance with generally accepted auditing standards, 0058 1 generally accepted accounting -- in accordance with 2 generally accepted auditing standards and government 3 auditing standards. Our responsibility is to plan and 4 perform our audit to obtain reasonable assurance that the 5 financial statements are free from material misstatement in 6 accordance with generally accepted accounting principles. 7 Now, we also consider the commission's internal controls 8 over financial reporting and in compliance with the laws and 9 regulations of financial reporting is also included in our 10 report on those as well. 11 We also are required to inform you that our 12 accounting policies are the responsibility of management and 13 the use of appropriate accounting policies is their 14 responsibility. Our responsibility is to advise management 15 of the appropriate -- appropriateness of those and render 16 our opinion on the financial statements based on our review 17 of those internal controls. 18 There was one unusual accounting policy for 19 the current year, and that was a prepaid item that was in 20 generation with the contract for the lottery operator for 21 the some prepaid assets. Those had been kind of forwarded 22 in the financial statements as a prepaid asset, and that is 23 unusual and we are required to report any unusual 24 transactions to you. Accounting estimates are based on 25 management's assumptions, knowledge, and history; and we 0059 1 felt that there were some sensitive estimates that affected 2 financial statements mainly in the area of accounts 3 payable. And so our responsibility would be to those in our 4 estimates, and our responsibility is based on -- 5 THE REPORTER: Can you push the mike closer 6 to you? I can't -- I'm having a real hard time hearing. 7 MR. GREER: Okay. Is that good? 8 THE REPORTER: There you go. Can you 9 repeat your last sentence? 10 MR. EATON: Sure. Sure. The sensitive 11 estimates affecting the financial statements were mostly 12 related to the financial table for 2003. There were audit 13 adjustments that were proposed in the current year and those 14 adjustments were recorded or were not recorded, but they 15 indicate matters that could have been matters that had a 16 significant impact on the commission's financial reporting 17 process. In our judgment, none of those proposed 18 adjustments were significant and would not have been found 19 during the normal course of the operation. 20 There were three past adjustments that were 21 not recorded in the financial statements. However, those 22 are not material to the financial statements as a whole and 23 does not affect our audit of the financial statements. 24 We're happy to report that there was no disagreements with 25 management. We did not use other independent accountants 0060 1 for consulting. And there were no significant difficulties 2 noted during the performance of our audit. 3 If we can go to the audit report, report of 4 the main -- the main item on page one which is our 5 independent auditors' report. If you look down to the third 6 paragraph in our your opinion, the financial statements 7 referred to above presents the finance position of the 8 governmental activities, the business type activities, and 9 each major fund, fiduciary fund, and respective changes in 10 the financial position in cash flows for the year ending 11 8/31/03 in accordance with generally accepted accounting 12 principles. 13 Some of the financial highlights that I 14 just wanted to go over with y'all briefly is taken from the 15 financial statements themselves. If you would turn page 11, 16 you have total assets of 1.7 million -- or 1.7 billion, 17 mostly in returns of investments which are restricted from 18 prize payments. Total liability is 1.6 million and most 19 notably the significant amount is 1.3 million related to 20 prizes payable from those restricted assets. Now, if you 21 look down your total net assets is 86.5 million and as 22 compared to 2002 which is also reported of $101 million. 23 If you'll look on page 12, this is, of 24 course, our statement of activities for the year ending 25 8/31/03 with the total amounts for FY '02. Total 0061 1 governmental revenues is approximately 12 million. Total 2 business type which is lotto sales equals 3.1 million -- or 3 I'm sorry -- 3.1 billion as compared to last year's amount 4 of 2.9 billion. 5 If you'll look in the back of the report on 6 page 50, we present our report on compliance and internal 7 control of financial reporting based on our audit of 8 financial statements in accordance with the auditing 9 standards. The results of our test disclosed no examples of 10 noncompliance that we -- we are required to report and there 11 were no material weaknesses or report of conditions in 12 internal -- in internal controls of the financial reporting 13 that we are required to report. 14 I'm open for any questions. Godwin, would 15 you have anything else to add? 16 MR. OKOYE: Not at this time, but we can -- 17 we're open for any questions. 18 CHAIRMAN CLOWE: Catherine, do you have 19 anything to add? 20 MS. MELVIN: I do not. 21 CHAIRMAN CLOWE: Thank you, gentleman. We 22 appreciate your good work. 23 MR. EATON: Thank you. 24 CHAIRMAN CLOWE: Thank you, Lee. 25 Next we'll go to Item Number XI, report 0062 1 possible discussion and/or action on the 78th Legislature 2 and/or implementation of legislation affecting the Texas 3 Lottery Commission. 4 Ms. Trevino, good morning. 5 MS. TREVINO: Good morning, Commissioners. 6 For the record, I'm Nelda Trevino the director of 7 governmental affairs. And I have a very brief report this 8 morning with regard to the 78th Legislature. The house 9 licensing and administrative procedures committee which has 10 oversight of our agency is scheduled to meet later today at 11 2:00 p.m. at the state capitol in Room E2.028. 12 We have been asked by the committee to 13 testify and provide some information as it relates to video 14 lottery and also as it relates to kino-type lottery game. 15 Executive Director Greer and other appropriate staff will be 16 in attendance to -- to respond to the committee's request 17 and to present some information. And this morning we 18 provided you a copy of the material that we are planning to 19 present at today's hearing this afternoon. 20 With regard to an update on the agency's 21 legislative implementation project, we continue to monitor 22 the progress of that project and will certainly bring any 23 appropriate matters to your attention. 24 This concludes my report on this agenda 25 item, and I'll be happy to answer any questions that you 0063 1 might have. 2 MR. GREER: Commissioner. 3 CHAIRMAN CLOWE: Yes, sir? 4 MR. GREER: I would just like to add to 5 Nelda's report that the senior management at the Texas 6 Lottery Commission has been working with the executive 7 branch and will continue to work with the legislative branch 8 in reference to being a resource on a number of issues 9 including video lottery terminals and we'll keep you 10 apprised of that as we move forward and have opportunities 11 to work with members of the different bodies of government. 12 CHAIRMAN CLOWE: And, Reagan, in that 13 regard, I think I can speak for the Commissioners in 14 reminding you that you are to be a resource to the 15 leadership to the legislature and I know you and the staff 16 have been working very hard on that, and I know you will be 17 vigilant in that as those projects are addressed and that 18 work is done. This commission in no way serves any other 19 purpose than as a resource and as interest develops or takes 20 different directions in that regard, we will not be involved 21 in any of that other than providing information and 22 answering questions that are put to us as best we possibly 23 can. 24 MR. GREER: Yes, sir. We see ourselves in 25 a resource mode, include doing research, getting the proper 0064 1 information that, you know, is required to answer the 2 questions that are being posed to us and take that role 3 seriously and appreciate the opportunity to work with the 4 different branches of government. 5 CHAIRMAN CLOWE: Great. 6 Nothing further, Nelda? 7 MS. TREVINO: Not on that agenda time. 8 CHAIRMAN CLOWE: Thank you very much. 9 MS. TREVINO: I think I've got the next 10 one, though. 11 CHAIRMAN CLOWE: Well, we'll take it then 12 and after that we will take a short break. 13 Would you take us to Item XII, report, 14 possible discussion and action on the Sunset process 15 involving the agency? 16 MS. TREVINO: Absolutely, Commissioners. 17 Again, just a very brief update in regards to the agency's 18 Sunset Review process. The Sunset Advisory Commission did 19 meet on December the 10th, 2003, and among other auditors, 20 the commission did adopt the staff review schedule and their 21 meeting schedules for 2004. And based on the staff review 22 schedule, we anticipate the Sunset -- Sunset staff to be at 23 our agency between mid January through mid April. 24 Karen Latta who was our project manager 25 during our last go around during our Sunset Review will 0065 1 continue to be our project manager for the review of our 2 agency. 3 CHAIRMAN CLOWE: She must be wondering if 4 she's ever going to get rid of us. 5 MS. TREVINO: She must be wondering that. 6 She's in the audience today. And we look forward certainly 7 to working with her and the -- the other staff at the Sunset 8 Commission. The Sunset Advisory Commission has scheduled 9 public testimony for our agency for May the 18th and May the 10 19th of 2004 and then they'll have a subsequent hearing on 11 our agency to make their decisions on our recommendations 12 based again on the schedule that they have adopted, on July 13 the 13th and the July the 14th of 2004. 14 And that concludes my report in regards to 15 this agenda item, and I'll be happy to answer any questions. 16 CHAIRMAN CLOWE: And those appointments 17 have been made now for the full committee and they're ready 18 to move forward? 19 MS. TREVINO: Yes, sir. There's just one 20 pending Senate member appointment that Lieutenant Governor 21 Dewhurst needs to make and it's my understanding he needs to 22 make that sometime in January. 23 CHAIRMAN CLOWE: It's my understanding that 24 Chairman Solomons has been appointed chair. Is that 25 correct? 0066 1 MS. TREVINO: Yes, sir. That's correct. 2 CHAIRMAN CLOWE: Very good. And at the 3 convenience of those leaders, we should make, I think, 4 individual contact with them and follow the practice that we 5 did on the initial sunset process. 6 MS. TREVINO: Absolutely. And Colin Haza, 7 Melissa Villasenor, and myself are making initial contacts 8 with the staff at those members' offices and scheduling some 9 one-on-one time with each of the members. 10 CHAIRMAN CLOWE: Great. Thank you very 11 much. 12 And at this time it is approximately 13 10:32. We will take a short recess of about ten minutes. 14 (Recess.) 15 CHAIRMAN CLOWE: We'll come back to order. 16 The time is 10:49 a.m. 17 The next item on our agenda is Number XIII, 18 consideration of and possible discussion and/or action on 19 the agency's business plan. 20 Mr. Anger. 21 MR. ANGER: Hello, Mr. Chairman and 22 Commissioners. For the record, my name is Michael Anger and 23 I'm the lottery operations director. I'm here this morning 24 to give a brief report on the commission's business plan. 25 As I indicated in the last commission 0067 1 meeting, our request for proposals for long-range planning 2 and business planning and consulting services was issued by 3 the agency on November 24th. That procurement is currently 4 open at this time, and I intend to provide you with an 5 update at the next commission meeting on the status of that 6 procurement. And that's all I have to report today. If you 7 have any questions, I'll be glad to answer those. 8 CHAIRMAN CLOWE: Any questions? 9 COMMISSIONER COX: I have a question. 10 CHAIRMAN CLOWE: Yes, sir. 11 COMMISSIONER COX: How are things going 12 with the work that Professor Huff was doing? 13 MR. ANGER: I would defer to Liz Jambor 14 with regard to that, Commissioner. 15 COMMISSIONER COX: Okay. I'll just ask 16 her. 17 MR. ANGER: Okay. 18 MR. GREER: I know that she's been working 19 with him, and I'm assuming that she's versed on the topic. 20 And she told me if she had anything further, she would bring 21 it to my attention. 22 CHAIRMAN CLOWE: All right. Thank you, 23 Mr. Anger. 24 MR. ANGER: Thank you. 25 CHAIRMAN CLOWE: Now to Mr. Grief on Item 0068 1 XIV for possible discussion or action on the agency's 2 strategic plan. 3 MR. GRIEF: And actually the report is 4 going to be given by Ms. Blizzard. 5 CHAIRMAN CLOWE: Wow. Things are getting 6 better. 7 MS. BLIZZARD: Good morning, Commissioners. 8 For the record, I'm Karen Blizzard, the senior editor in the 9 marketing division. As indicated by the memo in your 10 notebook, there's a final update on the development of the 11 agency's 2005 through 2009 strategic plan. The project is 12 currently on scheduled according to the work plan, and the 13 division liaison has submitted their updates for the 14 internal, external assessment sections. Daniel Benjamin, 15 budget supervisor of the financial administration division 16 has begun preliminary work on coordinating updates to the 17 agency's performance measures. 18 And that's all I have at this time. I'll 19 be happy to answer any questions. 20 COMMISSIONER COX: How do the business plan 21 and the -- what was the last one called? 22 MR. GRIEF: Strategic. 23 COMMISSIONER COX: Strategic plan. Are -- 24 are those processes coordinated and are -- are they 25 duplicative of -- how does that work? 0069 1 MS. BLIZZARD: We are working -- I am 2 working closely with Michael Anger with the intent of making 3 these plans complementary. They do have parallel time 4 lines. So there is a challenge with regard to that time 5 line process, in overall looking to make them as 6 complementary as possible. And if Gary has anything to add. 7 MR. GRIEF: Well, just for clarification, 8 Commissioner, the strategic plan is something that's 9 required by the state government every two years by every 10 state agency, and there is a somewhat of a rigid format that 11 we must follow in the development of that strategic plan 12 that all state agencies must also follow. The business plan 13 is something that, as you know, came out of the Sunset 14 Review of our agency. It was a recommendation from the 15 Sunset staff which we have embraced. And I think the 16 business plan for our purposes as somewhat of a state agency 17 that's run more like a business that will better serve our 18 long-term needs. 19 COMMISSIONER COX: So the -- to the extent 20 they are the same, we're using the same material. To the 21 extent they're different, we've developing different 22 materials so they are appropriate for -- 23 MR. GRIEF: The same data will be used to 24 compile those, of course, but really they are for different 25 purposes. 0070 1 COMMISSIONER COX: Okay. Would it be fair 2 to say that one is to satisfy a requirement and the other is 3 a management tool, or are they both management tools? 4 MR. GRIEF: They are both management 5 tools. Just the difference in my mind is the business plan 6 is going to be designed specifically for the special needs 7 of the Lottery Commission as we move forward, whereas we're 8 more in the model of the state government and strategic. 9 MR. GREER: From a personal perspective, I 10 mean, I'm focused on both obviously, but the business plan 11 is one I'm going to continue to rely on as I bring 12 information to you about how we're going to run things and 13 stay steady and move up. 14 CHAIRMAN CLOWE: Thank you, Commissioner 15 Cox. 16 Thank you. 17 MS. BLIZZARD: Thank you. 18 CHAIRMAN CLOWE: I appreciate that. And 19 now we're ready to take up Item XV, consideration of, 20 possible discussion or action on the agency's internal audit 21 chart. 22 Good morning. 23 MS. MELVIN: Good morning. Good morning, 24 Commissioners. For the record, I am Catherine Melvin, 25 director of the internal audit division. 0071 1 Before you today is a proposed revision to 2 the current internal audit charter of which I'm requesting 3 your approval. Changes in professional standards, 4 commission members, the executive director, and the internal 5 audit director have all prompted me for this revision. 6 Professional internal auditing standards require the 7 purpose, authority, and responsibility of the internal audit 8 charter. Formerly the personnel charter had been approved 9 by the government body. The Texas Internal Auditing Act, 10 Government Code 2102 requires adherence to these standards. 11 I would like to highlight one important 12 feature of our proposed charter. The document actually lays 13 out the respective responsibilities of the three-member 14 commission, of the internal audit director, and of agency 15 management; and the reason why this is so is because all 16 three are integral to effective internal audit function for 17 any organization. I would like to thank legal in particular 18 for your assistance during the duration of this drawing. 19 And that concludes my presentation. I 20 would be happy to answer any questions. 21 CHAIRMAN CLOWE: Are there any questions? 22 COMMISSIONER COX: Mr. Chairman, I worked 23 with Catherine on this charter, and if it's an appropriate 24 time, at this point I would move that we adopt it. 25 CHAIRMAN CLOWE: Any questions, 0072 1 Commissioner? 2 COMMISSIONER OLVERA: No questions. 3 CHAIRMAN CLOWE: Do you so move? 4 COMMISSIONER COX: I so move. 5 CHAIRMAN CLOWE: Second. 6 All in favor, please say aye. 7 THE COMMISSIONERS: Aye. 8 CHAIRMAN CLOWE: Opposed, no. 9 The vote is 3-0. 10 MS. MELVIN: Thank you. 11 CHAIRMAN CLOWE: Catherine, has 12 Commissioner Olvera met the gentleman who is working with 13 you? 14 MS. MELVIN: No. He has -- he has not. I 15 would like to introduce him if I can. 16 CHAIRMAN CLOWE: Would you please? 17 MS. MELVIN: The gentleman here is Greg 18 Rowe. He's our new assistant director to internal audit. 19 He comes from another fellow state agency that has an 20 internal audit system over there and in the past years done 21 audits and a financial background. 22 CHAIRMAN CLOWE: We're very happy to have 23 you on board. 24 MR. ROWE: Thank you, Mr. Clowe. 25 COMMISSIONER OLVERA: It's a pleasure to 0073 1 meet you. 2 MR. ROWE: Thank you. 3 CHAIRMAN CLOWE: Next is Item XVI, 4 consideration of and possible discussion and/or action, 5 including adoption of a rule review of 16 TAC Chapter 401, 6 administration of the State Lottery Act. 7 Ms. Kiplin. 8 MS. KIPLIN: Commissioners, if you will 9 recall, we are undergoing a review of our existing rules as 10 required by state law. At the August 5th, 2003 commission 11 meeting the commission had voted to propose the rule review 12 for this particular chapter, Chapter 401. That rule -- rule 13 review is complete. There were no comments that were 14 received. Staff has worked pretty diligently to go through 15 each of these rules and make an assessment as to whether the 16 initial reasons for the adoption of the rule continue to 17 exist. 18 As a result of that review, the staff does 19 recommend readopting most of the rules. I say "most" 20 because under subchapter C, which are our practice and 21 procedure rules, those rules were adopted before there was a 22 rule push by the State Office of Administrative Hearings to 23 have their own practice and procedure rules. As a result, 24 their -- their statute preempting our statute with a 25 conflict. There are reasons why these certain rules should 0074 1 not be readopted. And in particular during the time where 2 there is a case that's been docketed over at the State 3 Office of Administrative Hearings and during the time in 4 which they have jurisdiction over that particular 5 proceeding. So those rules that relate to that process are 6 not part of what the staff is recommending you to readopt. 7 Likewise -- and I've attached an Exhibit A 8 so that -- so it's clear as part of the order. So it's very 9 clear what rules are being readopted. Likewise, the staff 10 is -- has -- does recognize that while there is a need to 11 continue the rules and there is a need to have them 12 readopted, we will be bringing back to you at future 13 commission meetings proposals for rule amendments. So while 14 recognition may exists, there's also recognition that 15 they -- that there is a need to revise. And with that, the 16 staff does recommend to vote to adopt the Chapter 401 rule 17 review and as a result readopt the rules that are set out in 18 Exhibit A. 19 I would be happy to answer any questions 20 that you have. 21 CHAIRMAN CLOWE: Counselor, Executive 22 Director Greer spoke this morning about thinking of changing 23 some aspects of, for example, the Texas Two Step on-line 24 game. 25 MS. KIPLIN: Yes, sir. 0075 1 CHAIRMAN CLOWE: If he were to make that 2 decision, would you then need to come back to the commission 3 for a change in rule 401.312. 4 MS. KIPLIN: You said specifically three -- 5 CHAIRMAN CLOWE: 401.312. 6 MS. KIPLIN: Which is the Texas Two Step 7 rule. Yes, sir, we will. 8 CHAIRMAN CLOWE: So that would come to our 9 attention in the way of a rule change -- 10 MS. KIPLIN: Yes. 11 CHAIRMAN CLOWE: -- if he made that 12 decision. 13 MS. KIPLIN: That's right, and it -- 14 because that rule contains a particular provision regarding 15 the draw dates. So we will need to come forward and request 16 your approval to propose amendments to that rule for public 17 comment. 18 CHAIRMAN CLOWE: Let's do it. 19 MS. KIPLIN: All right. 20 CHAIRMAN CLOWE: Let's do it. 21 MS. KIPLIN: Well, what's before you today 22 is simply a readoption of existing rules, and you'll see 23 during the course of the -- the subsequent commission 24 meetings, be prepared for the staff to come before you 25 recommending proposal amendments to existing rules. 0076 1 CHAIRMAN CLOWE: Okay. Yes, sir. 2 COMMISSIONER COX: That's an excellent 3 question, and it triggers a couple I want to ask. 4 CHAIRMAN CLOWE: Oh, good. 5 MS. KIPLIN: Thank you. 6 COMMISSIONER COX: Would we be able to 7 amend that rule to take out the specificity of dates so that 8 Director Greer would be able to make that change if he, you 9 know, decides or felt it was appropriate. 10 MS. KIPLIN: I think what I'll do is 11 reserve my response to you and look at that with that issue 12 in line -- in -- in line. You and I have talked about the 13 level of specificity with regard to those gaming rules, and 14 I will be glad to continue to look at those kinds of issues. 15 COMMISSIONER COX: Okay. And then the 16 second question is does Director Greer have a kind of, if 17 you will, emergency responsibility to make changes before 18 the proposed rule can go into the process of adoption, with 19 or without our approval. 20 MS. KIPLIN: No. The short answer to that 21 is no. The commission is the entity that is -- has the 22 authority to adopt rules, regardless of whether they're an 23 emergency adoption or normal adoption. Our -- our State 24 Lottery Act is unusual in -- in that the act allows the 25 executive director to actually propose a rule, propose 0077 1 amendments to the rule, but the -- but the authority for 2 adoption lies only with the commission. 3 I can't recall. There may be one instance 4 where the executive director did move forward based on the 5 authority to propose a rulemaking. The risk of doing 6 that -- one of the things that in giving the executive 7 director that authority to do so, it would expedite the 8 process. But the risk of doing that is if the -- the -- 9 after you go through the public comment period and you come 10 before the commission and the commission said, well, I don't 11 like what you proposed. You know, I would have done it 12 differently. It may trigger re-publication so you really 13 haven't -- you haven't saved any time. You've actually lost 14 time. And things that are -- are like a draw date may on 15 its face appear to be insignificant, but the commission as a 16 matter of policy may have issues regarding that so that's 17 why it really has never been triggered as a matter of force. 18 Certainly it's something we can take a look at. 19 Under emergency rulemaking, let me get back 20 to that because you asked a question regarding emergency 21 rulemaking. There are certain statutory criteria upon which 22 the commission has to determine whether a true emergency 23 existed before it can move forward on emergency rulemaking. 24 And it's a pretty harsh remedy if it turns out that there 25 was no emergency, no true emergency that satisfied the 0078 1 elements of the administrative procedure act. It just 2 knocks the rule out because there was no document in the 3 performance of the rules you made, and then you have to 4 start over. 5 Was -- were there any questions? 6 Commissioner Olvera, did you have a question? 7 COMMISSIONER OLVERA: Well, I -- I'm not 8 sure if I follow the questions that was presented with 9 respect to the necessity of having a draw date in a rule. 10 If it's not statutory, obviously then I don't think it would 11 need be placed in the rule because the rule is only meant to 12 clarify the statute so that would give him the liberty to do 13 that. Is that correct? 14 MS. KIPLIN: Well, rulemaking is very 15 tricky and where our authority lies and the things that go 16 into it. Again, you look at your organic law which gives 17 you the statutory authority to -- to -- to engage in 18 activities because we're a creature of the legislation. But 19 there is also the definition of a rule that's set out in the 20 APA, which talks about policy, commission policy that's 21 generally directed to other -- to other folks outside the 22 agency. So there is different things that you have got to 23 take a look at to make a decision about. Is this something 24 that needs to be a rule? Does it need to be a rule, and, of 25 course, the level of specificity. Obviously the -- the -- 0079 1 from a legal perspective, the -- the more specific the 2 better in terms of a rule so that you can withstand any kind 3 of challenge down the line. But it's a balance. There's 4 always a balance in terms of interests, and I'll be glad to 5 take a look at that. 6 CHAIRMAN CLOWE: And in the hope of giving 7 balance to this discussion, I want to remind everyone that 8 there was some comment in the Sunset hearings that the 9 commission would hopefully have more involvement in 10 reviewing certain matters, principle contracts. Our 11 executive director already has substantial authority, and 12 this has been expressed maybe informally more than formally 13 than many other executive directors in other agencies. 14 Additionally, I think the public input 15 aspect of rulemaking is extremely important because we are 16 who we are. The public input is very important to this 17 agency when it makes decisions, and that is an element I 18 would like to see given continuing weight in this process. 19 MR. GREER: I agree. 20 CHAIRMAN CLOWE: Thank you. 21 Anything further on that item? Are you 22 ready for a motion? 23 MS. KIPLIN: Yes, sir, I am. I would like 24 for the motion to be consistent with the staff 25 recommendation and that would be a motion to adopt the rule 0080 1 review and has a rule contained with Exhibit A of the order 2 for section -- for Chapter 401, Title 16 of the 3 administrative code. 4 CHAIRMAN CLOWE: Is there a motion? 5 COMMISSIONER OLVERA: So moved. 6 COMMISSIONER COX: Second. 7 CHAIRMAN CLOWE: All in favor, please say 8 aye. 9 THE COMMISSIONERS: Aye. 10 CHAIRMAN CLOWE: Opposed, no. 11 The vote is 3-0 in favor. Thank you. 12 Next item Number XVII, consideration of and 13 possible discussion and/or action including proposal on a 14 new rule relating to the self-service terminals. 15 MS. KIPLIN: Commissioners, this rule is a 16 new rule. Staff is recommending that you propose this rule 17 for public comment. It relates to on-line self-service 18 terminals. The commission has entered into a contract in 19 the amendment as I understand it and as I recall for self- 20 service terminals. There are conditions and requirements 21 that we're imposing on retailers who will be receiving these 22 self-service terminals, and that's the general crux of this 23 rule. As I understand it, the installation of the first 500 24 of those terminals is to be complete by May so we need to 25 move forward on proposing a rule and adopting a rule 0081 1 establishing the criteria. 2 I would like to point out one -- one matter 3 to you. There has been a change in the draft rule from that 4 which was submitted in your notebook and that is the 5 deletion of subsection E and accordingly a renumber -- 6 renumbering of those subsections. In particular, I would 7 indicate the retailer in this last week, as I explained, 8 still has a minimum of 16 instant games. As I understand 9 it, they're on the divisional level between the marketing 10 division and the lottery operations division. Those 11 divisions do not believe that there should be this kind of 12 requirement in this particular rule, and so that's been 13 changed. That's the only change. 14 At this time staff does recommend that you 15 vote to propose this rule for public comment for a period of 16 30 days. 17 MR. GREER: I have a comment. 18 CHAIRMAN CLOWE: Yes, sir. 19 MR. GREER: In reference to SSTs, this is 20 something I'm really excited about because it's kind of a 21 new day in what's going on in the lottery industry as a 22 whole. We are pursuing a number of different avenues that 23 we can utilize these. I'll be keeping you abreast of what 24 those avenues are, including airports and some large grocery 25 store chains that I personally met with. And one of the 0082 1 issues that I think needs to be on the record and there be a 2 clear understanding of in reference to minors, when you're 3 talking about self-service terminals, and I just want to 4 reinforce to you that the mechanism has a remote on-and-off 5 switch that will operate from a minimum of 50 feet of any 6 particular business environment. So what that establishes 7 basically is that if a clerk witnesses someone that they 8 perceive to be a minor trying to utilize the machine that 9 there is an automatic switch off, and the can be monitored 10 in that way to assure that, you know, the law is being 11 complied with. 12 CHAIRMAN CLOWE: Very good. 13 Give us the motion again, Counselor, if you 14 will. 15 MS. KIPLIN: The motion would be to propose 16 the new rule 401.369 relating to on-line self-service 17 terminals for public comment in the Texas Register for a 18 period of 30 days. 19 CHAIRMAN CLOWE: Is there a motion? 20 COMMISSIONER OLVERA: So moved. 21 COMMISSIONER COX: Second. 22 CHAIRMAN CLOWE: All in favor, please say 23 aye. 24 THE COMMISSIONERS: Aye. 25 CHAIRMAN CLOWE: Opposed, no. 0083 1 The vote is 3-0 in favor. 2 Next, Item XVIII, consideration of and 3 possible discussion and/or action on the instant tickets and 4 services contract and/or for procurement. 5 MR. MARKER: Good morning, Commissioners. 6 I'm Andy Marker, assistant general counsel with the Texas 7 Lottery Commission. I'm here to allow you a brief update on 8 the commission's instant ticket contract. Since September, 9 the commission has reviewed the contract of the primary and 10 the secondary with factors. Those contracts expire February 11 29th of next, of 2004. The commission intends to exercise 12 one of the rule options available under the contracts, it is 13 a six-month rule and carries those contracts through the end 14 of this fiscal year, with the intent that next -- late next 15 spring or early next summer we would issue subsequent 16 proposals to initiate long-term contract or contracts with 17 instant ticket manufacturers. 18 I would be pleased to answer any questions 19 you might have. 20 CHAIRMAN CLOWE: Thank you. 21 MR. MARKER: Thank you. 22 CHAIRMAN CLOWE: Next is Item XIX, 23 consideration of and possible discussion and/or action on 24 the lottery operator contract including approval of the 25 amendment to the lottery operator contract and/or whether 0084 1 the negotiation of the lottery operators contract in an open 2 meeting would have a detrimental effect on the commission's 3 position in negotiations of the lottery operator contract. 4 MS. KIPLIN: Commissioners, if I can take 5 the first part and -- and set out the reason for the 6 deliberations in your opening meeting and whether they will 7 have a detrimental effect is that in a previous legislative 8 session there was an amendment that was made to Chapter 467, 9 specifically 467.030 which provides that the Open Meetings 10 Act does not apply to a closed meeting of the commission, 11 relating to the negotiation of the lottery operators 12 contract. If the commission determines, in writing, that an 13 open meeting would have a detrimental effect on the 14 commission's position in negotiations. 15 So before the staff rules out anything in 16 the open, I guess, the first consideration would be you 17 would want to trigger this and to be able to do that and go 18 into a nonopen session, you would have to make a 19 determination that discussing it in the open would have a 20 detrimental effect on the commission's negotiating positions 21 with the lottery operator. I don't know what the will of 22 the commission is nor what -- what the will of the staff is, 23 but I wanted to make sure that this is brought to your 24 attention. 25 CHAIRMAN CLOWE: Commissioners, would you 0085 1 like to hear the staff on this? 2 COMMISSIONER COX: Yeah. This is new 3 ground for me, and I'd like to know what the pros and cons 4 are generally and specifically. 5 CHAIRMAN CLOWE: Well, I can give you 6 the -- the general take that I have on it. Up until the 7 statute was passed, the commission had to discuss this 8 contract, the lottery operator contract, in the open 9 meeting. The statute allows the commission when it makes a 10 written determination the leeway of going into a nonopening 11 session to discuss the contract. That's the only item that 12 is covered by the statute. Personally, I like to discuss 13 everything in the open meeting. I feel it's incumbent on us 14 to do that except where it really is necessary to go into a 15 nonpublic venue, and obviously there are those situations. 16 And, Counselor, we've done that how many 17 times? 18 MS. KIPLIN: Mr. Chairman, I can recall 19 maybe once or twice, but it was -- 20 CHAIRMAN CLOWE: I know we've done it once. 21 MS. KIPLIN: It was a -- it was a 22 significant point in time, and it was actually at the time 23 of -- of being in a position of awarding a contract. It was 24 the contract. It was not an amendment to the contract. 25 What's before you today is a proposed amendment to the 0086 1 contract covering -- well, I'll turn that over to 2 Mr. Bennett because I don't want to misstate on what the 3 scope of the contract amendment is that's being proposed. 4 CHAIRMAN CLOWE: Well, before we get to 5 that, we're still in general background. That was awarding 6 a very substantial contract for a lengthy period of time; 7 and as everyone knows, the staff could and I think did brief 8 each commissioner individually but the commissioners could 9 not discuss with each other what their concerns or views or 10 opinions were on the contract. We were forbidden except in 11 open conference. So that statute I believe is -- and I 12 remember one time we did this. We went into a nonopen 13 session and we, under these provisions, were able to 14 communicate about the contract. Although, if I remember 15 correctly, Counselor, we deliberated in the nonopen forum. 16 We came back to the open forum to the vote to take action. 17 MS. KIPLIN: Of course. 18 CHAIRMAN CLOWE: And I think we should use 19 that very judiciously and be careful about it because I 20 think it's a rare privilege in regard to the lottery 21 operator contract only. So that's my general take, and if 22 I've misspoken in any way, I appreciate it if you would 23 correct me. 24 MS. KIPLIN: No, I don't think you have. 25 But just to add a little bit more background, it was before 0087 1 any one of you three were -- were on the commission. Under 2 the original contract with the lottery operators, there was 3 a significant amendment that included a rate reduction in 4 exchange for a number of goods and services, and the 5 commission's ability to deliberate amongst themselves was 6 significantly impaired. Obviously the staff could get 7 individual feedback from individual commissioners but could 8 not share that individual feedback with the individual 9 commissioners nor could they -- they discuss except for in 10 an open meeting. And -- and so you have people that are 11 obviously in the open meeting who are listening to the 12 deliberations in terms of potential negotiation strategy, 13 and that make it very difficult to have a -- a -- an equal 14 bargaining position with the -- with the vendor in 15 question. And I think that's what really set up the -- 16 the -- the additional language to this particular provision 17 that I read, for what that's worth. That -- that's the 18 genesis of how it moved to where it did. 19 CHAIRMAN CLOWE: And I was on the 20 commission when late Senator Wentworth introduced this 21 legislation, and it passed into law and it was with a 22 specific deed in mind. So with that general background, 23 would you have any questions before we get the specifics of 24 this situation. 25 COMMISSIONER OLVERA: Well, one more 0088 1 general question, just procedurally perhaps explain to not 2 only to myself but to the public, in the event that the 3 staff found an issue or dispute or some kind of negotiation 4 issue that wanted to be discussed in the private session, 5 that would have to be included on the agenda prior. Is that 6 correct? 7 MS. KIPLIN: Yes. Certainly before you can 8 go into executive session, the public gets to have notice of 9 what topics or subjects to be deliberated in executive 10 session. Now this is deliberations. This doesn't have to 11 do with legal advice. You can still receive legal advice. 12 You just can't deliberate on legal advice. 13 COMMISSIONER OLVERA: Oh. But to what 14 extent did the committee or commission have in the contract 15 before that -- that issue came up? How does that work? You 16 put the cart before the horse or the issue before the 17 contract. 18 MS. KIPLIN: Right. Practice wise 19 Mr. Bennett may have better recall than I do. He was the -- 20 the time lawyer on that. Of course, we had outside 21 counsel. But as I recall, each -- each of the commissioners 22 received the proposed contract for their review and possibly 23 a -- a memo outlining the -- the points of the -- the key 24 points of negotiation and the pros and cons of each of those 25 amendments. But I'll defer. His recall, Mr. Bennett's 0089 1 recall, may be better than mine. 2 MR. BENNETT: For the record, my name is 3 Ridgely Bennett. I'm the deputy general counsel, and I 4 believe you are correct. The commission received a copy of 5 the proposed contract or memo explaining the general terms, 6 the terms and conditions of the contract. 7 MS. KIPLIN: And so what you have in your 8 notebook, Commissioners, is the proposed contract amendment 9 so that you can see the scope of the amendment. And then 10 Mr. Grief is -- as I understand it, is actually going to be 11 laying out the content obviously in the open in terms of 12 the -- the contract amendment. 13 MR. BENNETT: And I also think it would be 14 appropriate for Mr. Grief to lay out the amendment and to 15 possibly decide after he lays out the amendment that you 16 would like to go into executive discussion session to 17 discuss it or you may continue on in the open. 18 CHAIRMAN CLOWE: Is that all right, 19 Commissioners? 20 COMMISSIONER COX: Yes. 21 CHAIRMAN CLOWE: Go forward, please. 22 MR. GRIEF: Commissioners, I've placed in 23 your notebook under agenda Item Number XIX a proposed 24 amendment to the lottery operator contract between the 25 Lottery Commission and GTECH Corporation and as we said 0090 1 earlier, as has been the past practice of the commission, 2 any amendments or substantive changes of certain major 3 contracts that the Lottery Commission enjoys are normally 4 brought before the commission for discussion and/or action 5 prior to the agency moving forward on that contract, 6 amendment, or change. And, of course, the lottery operator 7 contract with GTECH Corporation is by far our largest 8 contract and obviously does fall into that category of 9 bringing it to your attention. 10 Several months ago GTECH Corporation made a 11 corporate business decision to locate GTECH's national 12 response call center to Austin, Texas. The center provides 13 phone bank support to retailers in several different states 14 other than the State of Texas, and this facility is located 15 in a different building than the GTECH Texas facility is 16 here in Austin. 17 In an effort to further consolidate the 18 retailer phone banks nationwide, GTECH came to us, the 19 Lottery Commission, several weeks -- or several months ago 20 and asked us to consider the idea of them also consolidating 21 their GTECH Texas phone bank into their national response 22 center here in Austin. That proposal was researched and 23 discussed in depth by the agency staff here at the Lottery 24 Commission who are involved in that area of our business. 25 And with the advice of our legal counsel, terms of a 0091 1 proposed contract amendment were negotiated over the last 2 several weeks, and we believe that this amendment, if 3 approved by the commission, would be in the best interest of 4 the state. 5 The terms of the current lottery operator 6 contract call for the GTECH Texas retailer hot line to be 7 located in the same building as the GTECH Texas data center, 8 that area of the -- of the gaming where all of the back 9 office computer system is kept. And in researching that 10 issue, we determined that there would be no loss of benefit 11 to the state or to the Lottery Commission if, in fact, we 12 allowed the GTECH Texas phone bank to be consolidated into 13 their national data center. And, in fact, the team of 14 Lottery Commission staff assigned to this were able to 15 negotiate in two additional items into the contract that we 16 think would be of great benefit to the state and to the 17 Lottery Commission. 18 First, we have negotiated in contract 19 sanctions. In the event that GTECH fails to handle 80 20 percent of all phone calls from retailers in 45 -- within 45 21 seconds in any particular given month. Failure to meet that 22 requirement under the terms of the proposed amendment would 23 result in GTECH being assessed $750 per month for each time 24 that they failed to meet that standard. Previously, there 25 were no sanctions in place in the contract to address that 0092 1 performance issue. 2 Secondly, the Lottery Commission will 3 receive approximately 3,000 hours annually in the form of 4 information technology services. That will include but will 5 not be limited to programming, telecommunication services, 6 network, and any other services that we deem appropriate as 7 they relate to information technology. The full 3,000 hours 8 of information technology services will be available each of 9 the next five fiscal years for a total of 15,000 total hours 10 providing these services. 11 In summary, we believe that this amendment 12 will result in a better service to our retailers, better 13 control on the level of service that we provide to our 14 retailers in the form of sanctions available in the event 15 that GTECH fails to meet the standards, and in then the 16 tangible benefits that the Lottery Commission will save in 17 the form of those additional information technology hours 18 available to us. 19 Now I'm recommending to the commission that 20 they give approval to the executive director to sign that 21 amendment with GTECH Corporation, and I know our deputy 22 counsel Ridgely Bennett is here to answer any questions that 23 you might have as well Ramone Rivera, the account general 24 manager for GTECH Texas. 25 MR. BENNETT: Okay. Commissioners, if I 0093 1 may point out one change in the amendment from the version 2 that's the draft version that's in your notebook. Paragraph 3 five of the draft version stated that the effective date of 4 the amendment would be September 1st, 2003. The actual 5 effective date is execution by both parties. GTECH 6 Corporation has already executed the contract. And so if 7 you -- if its your will that Reagan sign the amendment, it 8 will be effective upon his execution. 9 CHAIRMAN CLOWE: Commissioners, with that 10 background I would suggest that the commission discuss this 11 in the public meeting and it is not necessary to go into a 12 nonopen forum. Would -- would you be in agreement to that? 13 COMMISSIONER OLVERA: Agreed. 14 CHAIRMAN CLOWE: Therefore, we'll discuss 15 this proposed change in the contract at this time. Is there 16 any discussion on it? 17 COMMISSIONER COX: Can I make a couple of 18 comments? 19 CHAIRMAN CLOWE: Yes, sir. 20 COMMISSIONER COX: Gary, the first section 21 says handling at least 80 percent of all calls in 45 seconds 22 from answer to abandon. What do those words mean answered 23 or abandoned? 24 MR. GRIEF: I'm going to defer technically 25 to Michael Anger our lottery operations director who manages 0094 1 our phone banks here at the Texas Lottery Commission to give 2 you a clear answer on that, Commissioner. 3 MR. ANGER: To answer it, it's the time 4 when -- and for the record, my name is Michael Anger. I'm 5 lottery operations director. 6 CHAIRMAN CLOWE: You might want to turn 7 your mike on there. 8 MR. ANGER: Oh. Can you hear me? How 9 about now? Can you hear me now? 10 CHAIRMAN CLOWE: Yeah. 11 MR. ANGER: The answer is the time when an 12 actual live operator picks up on the line and then abandon 13 is a hang up. That's when someone has hung up the phone 14 and -- and abandons their attempt to reach a person on the 15 line. And abandons occur for a number of different 16 reasons. What we experience on an internal retailer 17 hot line, it can be due to wait time waiting for an operator 18 to come on the line. It can also occur, for instance, in 19 dealing with retailers where they are at their business, 20 they pick up the phone to call the lottery or contact the 21 GTECH retailer hot line and in the course of their business 22 something comes up. They have to hang up the phone and call 23 back later because they're busy with another business 24 activity. 25 COMMISSIONER COX: Okay. So GTECH's system 0095 1 is capable of tracking every single call and tracking how 2 quickly it was answered or if it was abandoned or hung up, 3 they would have this done before 45 seconds or after 45 4 seconds. 5 MR. ANGER: That's correct. And we will 6 also have the ability to monitor those activities as well 7 from their system. 8 COMMISSIONER COX: From their system? 9 MR. ANGER: That's correct. 10 COMMISSIONER COX: Okay. Second question 11 is what do we know about how this standard compares with 12 present actual conditions? Is it now 60? Is it now a 13 hundred? 14 MR. ANGER: As far as response times on the 15 telephone? 16 COMMISSIONER COX: Uh-huh. Is -- 17 MR. ANGER: GTECH's current response time 18 in an average given month generally is under 20 seconds. 19 Now what -- what was calculated in and the difference is we 20 move from our current phone bank to the new phone center is 21 that the current phone bank, a live operator picks up the 22 phone immediately. So when a person calls into the line, 23 they go into a cue and they start hearing a voice recording 24 that -- that plays in the background talking about 25 activities that may be going on at the lottery and things 0096 1 like that. And you wait on the line and eventually an 2 operator picks up the line and at that point that -- that 3 stops the call time. 4 In the new center what will happen is it is 5 a more sophisticated software system, phone system, where 6 there's interaction. The retailer can actually key in their 7 retailer number, provide information about the reason for 8 their call. And the advantage there is that the operator 9 when they pick up that line, they also receive all that data 10 right there on their computer screen. They already know who 11 the retailer is. They had that information pop up on their 12 screen, and they have some idea as to the nature of the 13 call. So when they get to a live person, it expedites the 14 speed of the call when talking to the operator. So there's 15 front end time waiting on the line but that's involving 16 activities where the retailer is actually doing activities 17 relating to the reason for their call to provide 18 information. 19 COMMISSIONER COX: Okay. Let me put it 20 another way. If GTECH were to handle exactly 80 percent of 21 all calls in 45 seconds, would our sales agents be receiving 22 better service or not as good service as they're receiving 23 presently. 24 MR. ANGER: I would believe that they would 25 be receiving service as good as the service that they're 0097 1 receiving now, given the difference in the two phone 2 systems. I -- I believe that those are equal services. 3 Basically the time on line with the operator shrinks. The 4 time in the cue entering data information may expand a 5 little bit. And -- and we did visit the call center, and I 6 will tell you that during our visits to the GTECH national 7 call center at that time they were monitoring their call 8 systems for all the states in which they do this type of 9 business. And they are averaging times in approximately 30 10 seconds or less during that time. 11 COMMISSIONER COX: Okay. Is it possible 12 that 80 percent of the calls could be handled with 45 13 seconds -- within 45 seconds and the other 20 handled within 14 an hour? In other words, could the -- could a gain be 15 played with this so that this standard could be met but 20 16 percent of our agents would be receiving very bad service. 17 MR. ANGER: No. Not by the way the numbers 18 compile. In other words, the system doesn't split out all 19 the numbers and you can put your 20 percent of bad calls off 20 to one side and you can put your 80 percent of good calls 21 off to the other side. All calls are compiled together. So 22 if 20 percent of the calls were experiencing very poor 23 service that would be beyond the 45-second standard that's 24 been set, that would affect all the numbers. So it would 25 expand the service time on all the calls on an average. So 0098 1 we're looking at the average over the course of a month. 2 COMMISSIONER COX: Okay. So this is an 3 average? 4 MR. ANGER: Yes, sir. 5 COMMISSIONER COX: Okay. 6 MR. ANGER: That's correct. 7 COMMISSIONER COX: And then the -- the 8 other question I have is on Section 4, Gary. And that is 9 what -- how do we expect to use to our significant advantage 10 the 3,000 hours a year program. 11 MR. GRIEF: For that I would like to call 12 Mike Fernandez up, our IT director. We have some projects 13 ongoing right now and we anticipate good use of those 14 hours. 15 MR. FERNANDEZ: Good morning, 16 Commissioners. For the record, my name is Mike Fernandez. 17 I'm the director of technology. 18 Right now based on the plan, we have -- we 19 have budgeted of those 3,000 hours all but 300. So in 20 the -- in the remaining, let's say, eight months of this 21 year we can use those. And what we need to be focusing on 22 is our new strategy projects for the licensing project. And 23 I suspect that we will -- we will be able, Commissioner, to 24 budget those hours for the remaining five years also. 25 COMMISSIONER COX: So these are not 0099 1 specific to anything like the call center or the like. 2 They're just general purpose hours that you can use as you 3 choose. 4 MR. FERNANDEZ: That's correct. 5 MR. BENNETT: And if I may clarify, it's 6 general purpose hours relating to the work that GTECH does 7 for us as a lottery operator tech. So it's subject to your 8 general terms and conditions of the contract. 9 COMMISSIONER COX: Okay. We can't do 10 accounting software through this. 11 MR. BENNETT: GTECH does do some accounting 12 for use. For -- for instance, we can't implement a new 13 bingo system under -- under this. 14 COMMISSIONER COX: Thank you. 15 CHAIRMAN CLOWE: What's the motion that you 16 want on this? 17 MS. KIPLIN: Mr. Bennett, what motion would 18 you like? 19 MR. BENNETT: As you're aware, 20 Commissioners, the executive director of the agency has the 21 statutory authority to execute and then brings contracts for 22 goods and services, and so that authority rests with him. 23 What you have asked is that he brings contracts, significant 24 contracts, to your attention, and he's done that today. And 25 so I believe that Mr. Greer is looking for guidance from the 0100 1 commission on whether or not -- 2 CHAIRMAN CLOWE: So we don't have to make a 3 motion? 4 MS. KIPLIN: Well, I think in the past, 5 Mr. Bennett, they have made motions in terms of authorizing 6 the executive director to go forward based on previous 7 relations they provided as -- as -- and I'm thinking -- 8 MR. BENNETT: I think that would be 9 appropriate. 10 MS. KIPLIN: So if there is a motion and 11 I -- you know, my -- my recommendation is that there is a 12 motion that you do authorize the executive director to enter 13 into the amendment consistent with what's been presented to 14 you today. 15 CHAIRMAN CLOWE: Okay. If we make that 16 motion and it's approved, then, you know, certainly it's not 17 establishing here. It's reinforcing the precedence along 18 these lines. 19 MS. KIPLIN: And I think it's consistent 20 with your past -- your past actions. 21 CHAIRMAN CLOWE: Is there a motion? 22 COMMISSIONER COX: Mr. Chairman, I have one 23 more question. 24 CHAIRMAN CLOWE: Yes, sir. I'm sorry. 25 COMMISSIONER COX: Michael, I've now read 0101 1 3.58.36, what you were talking about, and I think you said 2 that this would be the average of 45 seconds and thus we 3 couldn't have 20 percent of them an hour and the others 4 under 45 seconds. I don't see that in this language. 5 MR. ANGER: What we would do is we will 6 receive the data on the response times for the telephone 7 calls for the month. And I don't have that language in 8 front of me, Commissioner. But we will receive that -- the 9 totals for the month, and if the average call response time 10 exceeds the 45 seconds, that would initiate the sanctions. 11 COMMISSIONER COX: But does it say that 12 here. 13 MR. ANGER: I could -- 14 MR. BENNETT: Commissioner, I think we 15 would have to look at that in conjunction with the entire 16 contract. If you would like, we can clarify that language. 17 I believe Mr. Rivera is here, and we can sit down and work 18 on clarifying language to be certain that that intent is 19 embodied in the amendment. 20 COMMISSIONER COX: But if that is the 21 intent, it seems to me that it should be embodied. 22 MR. BENNETT: We'll be happy to work on the 23 language and bring that back to you. 24 COMMISSIONER OLVERA: Well, and -- and that 25 brings up another question. Does the remainder of the 0102 1 contract have some cap as to a higher percentage of calls, 2 for example, 99 percent is a minute and a half or something 3 like that. 4 MR. BENNETT: It does not. 5 CHAIRMAN CLOWE: Okay. So we'll -- we'll 6 have time for you to work on that and bring it back to us? 7 MR. BENNETT: Certainly. 8 CHAIRMAN CLOWE: So we'll pass this item 9 for the time being. 10 MS. KIPLIN: Mr. Chairman, there maybe 11 another -- another approach which is just the staff draft 12 language consistent with the issue that was raised and it 13 seems to me what needs to be inserted is the word 14 "average." Unless you -- 15 CHAIRMAN CLOWE: I would suggest that that 16 be done. Would that satisfy you, Commissioner Cox? 17 COMMISSIONER COX: Well, it seems to me 18 that there are two things -- as Michael described it to me, 19 there are really two tests. One is that they answer 85 -- 20 80 percent of all calls in 45 seconds, without regard to 21 what they do with the other 20 percent. And then I heard 22 something that seemed like a separate provision that says 23 the average for all calls will be 45 seconds or less. 24 MR. ANGER: Let me clarify, Commissioner. 25 What we'll receive is we'll receive data for 100 percent of 0103 1 the calls taken and the average response time for those. 2 In -- in other words, to meet the standard that's laid out 3 here, 80 percent of those calls must have occurred within 4 the 45 seconds, so it's -- it's not a pure average, and I 5 may have misled you in explaining that. You're not taking a 6 100 percent of the calls and -- and averaging those out and 7 if it's over 45 seconds, it's -- it's at least 80 percent of 8 those calls must have been answered in that 45-second time. 9 So it's -- it's a shifted average, I guess, if you will, 10 you're taking four fifths of the calls and ensuring that 11 they're meeting that average. 12 And as I understand it, we had some 13 consultations with the outside groups and this is kind of an 14 industry standard approach to measuring call centers and 15 their service levels. And it's also the manner that we 16 measure and that we use internally. 17 COMMISSIONER COX: Well, I need to ask my 18 question again. 19 MR. ANGER: Okay. 20 COMMISSIONER COX: Is it possible that 80 21 percent is taken in 45 seconds or less and the other 20 put 22 on permanent hold and GTECH still be in compliance with this 23 provision? 24 MR. ANGER: No, sir, not in my 25 understanding because those calls even though they wouldn't 0104 1 be meeting the 80 percent, the other calls in that 20 2 percent, I think they would skew the averages if we get the 3 totals of that. And I'll -- I'll get you the data on that 4 and confirm that. 5 COMMISSIONER COX: Okay. I don't know any 6 data. I just really need -- you keep using the word 7 "average," but I don't see that in the contract. 8 MR. ANGER: And we may need to revisit that 9 language. 10 MR. BENNETT: We can work put it to work on 11 the language for you, Commissioner. And to your pleasure, 12 we can either give direction to Reagan to clarify that 13 language and give them the authority to sign the contract or 14 we'd be happy to work on the language now for you and bring 15 it back later. 16 COMMISSIONER COX: Let's see if we can do 17 it today. 18 MR. BENNETT: Certainly. Thank you, 19 Commissioners. 20 CHAIRMAN CLOWE: Okay. So you're saying 21 you don't want to have that brought back? 22 COMMISSIONER COX: No. I'm saying let's 23 see if we can get the language changed and bring it back. 24 CHAIRMAN CLOWE: And that -- that was what 25 I thought, and I would like for you to do that too. I think 0105 1 Commissioner Cox is making the right point. I understand 2 your answer that you've given, but if the 20 percent took an 3 hour, that would throw the average off but there is no 4 penalty, as I read the contract, for that 20 percent that 5 takes more than 45 seconds. You've omitted that. You've 6 let the rate of those 20 percent go to establishing the 80 7 percent average under 45 seconds. 8 MR. ANGER: That's correct, Sir. 9 CHAIRMAN CLOWE: So we're going to pass 10 this item for the time being, and we'll invite you to bring 11 it back if you're ready after the commission comes out of 12 executive session. 13 MR. BENNETT: Thank you, Commissioners. 14 CHAIRMAN CLOWE: Next, Commissioners, with 15 your approval we'll stay in the open agenda and go right to 16 XXII, consideration of two dockets which the legal staff 17 wants to present to us. 18 MS. KIPLIN: Commissioners, if I may, you 19 do have two dockets before you. These are both lottery 20 cases. In each of these case -- the contested case 21 proceedings occurred at the State Office of Administrative 22 Hearings. In each of these cases, the administrative law 23 judge has recommended license revocation for a violation of 24 the State Lottery Act, in particular, not having the funds 25 available at the time that the commission swept the 0106 1 accounts. And I would recommend that you adopt the proposal 2 for decision and the order contained in your notebooks. 3 I would be happy to answer any questions. 4 CHAIRMAN CLOWE: Are there any questions? 5 Is there a motion? 6 COMMISSIONER COX: So moved. 7 CHAIRMAN CLOWE: The motion is to adopt the 8 recommended orders of the S.A.O. on the dockets listed under 9 agenda Item XXII shown as items A and B. 10 Is that specific enough? 11 MS. KIPLIN: Yes. But you said S.A.O. 12 CHAIRMAN CLOWE: I -- I'm sorry. 13 MS. KIPLIN: You meant State Office of 14 Administrative Hearings, I'm certain. 15 CHAIRMAN CLOWE: Thank you. Is there a 16 second? 17 COMMISSIONER OLVERA: I second. 18 CHAIRMAN CLOWE: All in favor, please say 19 aye. 20 THE COMMISSIONERS: Aye. 21 CHAIRMAN CLOWE: Opposed, no. 22 Vote is 3-0 in favor. 23 And next, Mr. Greer, we'll hear from you. 24 Give us just a minute to sign these orders. 25 MR. GREER: Okay. 0107 1 CHAIRMAN CLOWE: All right. Thank you. 2 MR. GREER: Commissioners, consistent with 3 the agenda item I'm going to begin by asking Lee Deviney to 4 step forward and discuss the FTE information matters. 5 MR. DEVINEY: Commissioners, again, I'm Lee 6 Deviney, financial administration director. 7 Under tab 23, executive director's report, 8 then behind the blue tab entitled agencies operating and 9 financial status, you will find the summary and operations 10 expense budget reports for the lottery operations and the 11 Charitable Bingo Division from September 1, 2003 through 12 November 30th, 2003. This is a relatively new report that 13 we've been putting into your monthly folder. And the 14 auditors, one of the recommendations they made was to 15 include some variant budget, variance analysis. This is 16 something that we were already working on; and in the coming 17 months, perhaps as early as your next board meeting, we'll 18 start showing you some budget variance analysis. We've got 19 some different models we're looking at on how to do that. 20 CHAIRMAN CLOWE: Lee, I think I'm confused. 21 We're not in the FTEs, are we? Where are we? 22 MR. DEVINEY: We're in the tab prior to the 23 FTE. 24 CHAIRMAN CLOWE: Okay. 25 MR. DEVINEY: Yes. 0108 1 CHAIRMAN CLOWE: Reagan said -- I thought 2 FTE, but we're at the agency's financial and operation 3 status? 4 MR. DEVINEY: Yes, sir. 5 CHAIRMAN CLOWE: Okay. Go on. 6 MR. GREER: We're bouncing back, but that's 7 the topic. 8 CHAIRMAN CLOWE: We're just trying to stay 9 up. 10 MR. GREER: Good. 11 MR. DEVINEY: And that's really all I had 12 on -- on the agency's operating budget. 13 Behind the agency operating budget, there's 14 a -- a -- I call it a teal divider for lack of a better 15 description. There's another divider, and behind that 16 divider is the monthly report on the transfers made to the 17 foundation school fund and allocations of unclaimed prize 18 money. The November transfer to the foundation school fund 19 amounted to $61.6 million. And I think you'll find that on 20 both the first and the second page of the report. And then 21 finally you'll find the report of lottery revenues, 22 expenditures, and transfers from fiscal year 1992 to date. 23 And I'll be happy to answer any questions 24 have you regarding these items. 25 CHAIRMAN CLOWE: Thank you, Lee. 0109 1 Any comment on the FTE or -- or who's going 2 to do that? 3 MR. GREER: Basically, that was a part of 4 the overall process that was more oriented around things 5 that I have on an operational aspect that I wanted to 6 address. I did want to make a few other points. 7 Specifically I appreciate the opportunity to visit with you 8 this morning in reference to our on-line lottery games, just 9 reassure each of you that we are monitoring that pretty much 10 on an hourly -- sometimes daily, sometimes hourly basis. 11 The sales and focus recently obviously have 12 been oriented around Mega Millions. We want to just report 13 on the fact that we did have a great kickoff press 14 conference of that and that Chairman Talmedge Hathaway was 15 present and purchased symbolically the first ticket of Mega 16 Millions and had some nice remarks to make. We were pleased 17 that he could join us on that. 18 Toni Erickson touched on a moment the fact 19 that our ads and billboards and all the marketing aspects of 20 what goes on with Mega Millions were up and running. The 21 coverage of the event was unprecedented for me personally 22 and I think from the lottery's perspective, probably similar 23 to what took place when the lottery kicked off and that 24 first ticket was sold. We tracked a total on the first day 25 of 429 TV and cable stories in reference to the Texas 0110 1 drawing in the Mega Millions game. I personally was 2 extremely busy, did a number of live interviews, a total of 3 35 interviews. 20 percent of those were done live, cable, 4 and TV and radio and print. It was -- it was really 5 something. 6 I wanted to issue my personal thanks to -- 7 I don't see him in here, but he'll know -- the media 8 director Bobby Heap and his team for a great job in putting 9 all that together. To drive up to a grocery store at 5:20 10 in the morning, which we did -- the first ticket was sold at 11 6:00 o'clock -- and to see a parking lot full of TV trucks 12 with satellites going and see that Bobby had everything 13 basically oriented to a five- or ten-minute time span from 14 the moment I got there. I sort of followed him around and 15 went from interview to interview. Obviously we have got 16 some great capable people in that area, and I was very 17 appreciative of their work particularly on getting Mega 18 Millions kicked off. It was interesting. 19 I will keep you apprised of jackpot 20 information and where we are as far as sales in the Mega 21 Millions organization as we move ahead. 22 We have been shifting our attention, as I 23 mentioned earlier, now and continue to be a resource on the 24 video lottery terminals. I touched on that with you, and I 25 just wanted to reinforce the time that I spent on that and 0111 1 will continue to do what is needed to be done as asked by 2 the different branches of government. The state agency 3 council, I have a letter here from the governor, and they 4 came forward and asked -- the governor came forward and 5 asked that we participate in the program that was 6 established in 1983 which is the governor's commission for 7 woman. It provides professional development and training 8 for state employees in a forum for them to discuss issues 9 concerning woman today in Texas, employment areas, and other 10 areas, I think, as well. The letter asked me to appoint two 11 individuals from the Texas Lottery Commission, and I wanted 12 you to be aware that our TLC representatives will be 13 Catherine Melvin who will be our primary point of contact, 14 and then our alternate will be our general counsel, Kim 15 Kiplin. That's a good thing. 16 As far as our corporate outreach which is 17 one of the things that I'm focused on getting out of Austin 18 and out of the office to be able to visit with the different 19 institutes around the state, I did visit with the Valero 20 Corporation in San Antonio recently. Valero has 744 21 outlets, and I wanted to just kind of have a dialogue 22 running with them about issues and have a very good meeting 23 with them overall. Ramone Rivera was thinking about being 24 with me and the odds and issue for addressing that the 25 retailers how to monitor and also make site visits to 0112 1 Obervert. They are one of our instant ticket vending 2 contractor, secondary providers. And I just wanted to go on 3 record and just reinforce to each of you I plan to visit the 4 various sites of the instant ticket providers to be sure and 5 reassure myself of all that's going on there behind the 6 scenes and to their establishments. So I've done one of 7 three or four of them. So hopefully we'll be doing that. 8 We touched earlier on the marketing 9 director position and continue to focus on that position. I 10 do want to let you know that we are going to re-post that in 11 a variety of different publications. I've been very 12 appreciative of the work that's been done by Toni Erickson 13 in her acting capacity and we'll continue to work with her 14 as we move forward in the marketing area. 15 Our theme for the month is time management 16 and priorities. I just want to keep you up to speed on what 17 I'm focusing on with the staff. One of those priorities for 18 me this last year has been to come up with a new winners 19 brochure that you have in your possession over here. I love 20 this design. It's great. When somebody calls in and says, 21 well, we think we won, but we're not sure or if they know 22 they've won, then we want to be able to provide them with 23 the necessary information they need to be able to make some 24 educated decisions as they move through the process. This 25 was a collaborative effort. I'm very pleased with the final 0113 1 product by marketing, legal, and the executive management 2 team. 3 Finally, in conclusion, I just wanted to 4 reinforce to each of you how honored I am to be in this 5 position as we move into this holiday season and wish each 6 of you a happy holiday. 7 CHAIRMAN CLOWE: Reagan, when do you give 8 the brochure to the -- a claimant. 9 MR. GREER: Sylvia was here, but she's 10 not -- a lot of times people will call in and we'll mail 11 that to them. Other times, they'll just show up and we'll 12 be providing it to them at that point. It's basically just 13 available regardless of that area might be. Diane can help 14 me with that. Most of the time people call in and we're 15 going to send it to them before they get here because 16 there's a checklist in there of things they need to do to 17 prepare for getting to this venue. We have had a few people 18 that just show up. This is a great piece of information. I 19 like the look and think that it will be very helpful and 20 informative to those in that position, which is a good 21 position to be in. 22 CHAIRMAN CLOWE: Diane, I know you -- you 23 work and coach these claimants a lot. I'm just wondering. 24 You know, I've seen that process and people come in I think 25 many times and we talk to them and they go away and they 0114 1 come back again. And I just wonder what practical use, in 2 your legal opinion as a lawyer -- I know Reagan is 3 enthusiastic about that, and I appreciate it. But are 4 people really going to sit down and read this and are they 5 going to go through the checklist? Are they going to come? 6 Are we still going to have to do the briefing that I've sat 7 in on and seen? What's your honest take on this process? 8 MS. MORRIS: I like the brochure. We have 9 people who constantly call the lottery. We post it 10 generally on the Wednesday after a draw or something, and 11 they just drive right down and they show up. And as you 12 know, for most of those folks that do that, at least after 13 Sylvia has visited with them for a little while and verified 14 what they have, the agency's position -- usually when one of 15 the lawyers goes down and we encourage them to please take 16 time, please be patient, please consider legal and financial 17 advice, go away. 18 CHAIRMAN CLOWE: Yeah. I know all that, 19 but that's not my question. 20 MS. MORRIS: This brochure to me -- you 21 know, some folks like to read. Some folks like to hear 22 things. I think there will always be a segment of the 23 population that you can hand anything to you them, but they 24 want to talk to you. To me, the brochure, I like the 25 format. I like the way it's laid out. I think it's very 0115 1 reader friendly. But generally I wish Sylvia were here 2 to -- but as I understand it, it is overnighted or very 3 quickly mailed as soon as possible. I like the checklist 4 format. I think it's -- the user friendliness to it, I 5 think it will be very well received. 6 CHAIRMAN CLOWE: So you think it's going to 7 cut down on some of the things that you had to do in the 8 past and help the claimants come in better prepared. 9 MS. MORRIS: Yes, sir, I do. 10 CHAIRMAN CLOWE: Where is the checklist? 11 Is it under preparing the claim and prize . 12 MS. MORRIS: Here. Let me come up there. 13 Under these tabs that talk about preparing your claim and 14 prize. Okay. I'm sorry. Here. Acceptable forms of ID. 15 Sylvia will tell you that she spends a lot of time -- well, 16 let me go back. Let me go check my wallet. Let me go check 17 my drawer. And Sylvia would say, well, go down the 18 checklist. 19 As far as preparing to claim the prize, 20 Sylvia and I do spend time with folks. How do you want to 21 claim the prize? How are you choosing? Do you want to 22 claim it as an individual, a partnership, or trust. And if 23 you look on the preparing to claim the prize, the first part 24 of it says -- you know, most times people think they're 25 coming in as an individual. There are boxes for people to 0116 1 check. I know it sounds silly, but we have to constantly 2 remind them to bring the ticket. You go through the boxes, 3 and you can just invision people checking these boxes and -- 4 CHAIRMAN CLOWE: And you think they will. 5 MS. MORRIS: Yes, sir. People come with 6 folders and envelopes so you can almost invision how they 7 are going to have it and bring it all together. If you look 8 on the flip side of number five, that's the trickier side. 9 That's where personally my own resources are spent trying to 10 explain to people you're coming in as a legal entity and 11 what all you need. The different payment options, that's a 12 resource type. It's laid out. 13 CHAIRMAN CLOWE: Good. 14 MS. MORRIS: So I do think it will be 15 helpful. 16 CHAIRMAN CLOWE: So you think they are 17 going to read this thoughtfully. And they are going to have 18 the opportunity to do some of the things that you have to 19 coach them on and then they have to go back and do it again 20 and -- and return to the commission and it will be something 21 that will make their experience here more pleasant and get 22 them to the prize, assuming they're a valid claimant. 23 MS. MORRIS: Yes, sir, I do. 24 CHAIRMAN CLOWE: Great. Now, Reagan, we've 25 stopped the Winners Club if I remember correctly. How do we 0117 1 have a list today that if a request is made who our winners 2 are, how do we meet that request? 3 MR. GREER: Well, obviously, this is a 4 legal issue and we have been working together on that. I 5 have addressed a letter recently to the leader of the Texas 6 Millionaire Family, and I've met with them. And actually 7 this brochure is a part of what came out of that meeting. 8 There were some definite concerns that came out of that. 9 Specifically, I would like to defer to legal counsel to 10 address the issue of how to handle those lists. 11 MS. MORRIS: Well, the Texas Millionaire 12 Family, I'm thinking that's what you're talking about. They 13 are not a governmental body. They are not, if you will, a 14 part of this agency. And so if they were to ask us the 15 names or addresses of current lottery winners that they 16 would like to include on the mailing list, the difficult 17 part is they are like any other member of the public and 18 unless the particular lottery winner has agreed to allow us 19 to give out their street address, their mailing address, we 20 can't give it to the Texas Millionaire Family. And I know 21 that Mr. Jacobey -- we have discussed this with him, and I 22 believe he understands the constraints of that. But that 23 concern has remained and still remains. 24 CHAIRMAN CLOWE: So if a request is made is 25 a public records request required? 0118 1 MS. MORRIS: If a request is made for the 2 mailing address and how to contact a lottery winner, yes, 3 sir, it is. 4 CHAIRMAN CLOWE: And then we are responsive 5 to that request as you're guided by the law. 6 MS. MORRIS: Yes, and on contact it's 7 confidential by law and we will not provide that. 8 CHAIRMAN CLOWE: And we cannot disclose it? 9 MS. MORRIS: No, we will not. 10 CHAIRMAN CLOWE: Okay. That's fine. That 11 answers my questions. Thank you very much. Okay. 12 Anything further, Reagan? 13 MR. GREER: No, sir. 14 CHAIRMAN CLOWE: Great. Next item is a 15 report of the Charitable Bingo Division director, 16 Mr. Atkins, Number XIV. 17 MS. MORRIS: Chairman Clowe, I forgot to 18 identify -- identify myself for the record. 19 CHAIRMAN CLOWE: Please do so. 20 MS. MORRIS: I'm sorry to interrupt 21 Mr. Atkins. My name is Diane Morris. I'm assistant general 22 counsel. 23 CHAIRMAN CLOWE: Thank you. 24 MR. ATKINS: Commissioners, you have all 25 had the opportunity to meet Marshall McDade who is the new 0119 1 senior audit manager in the bingo division, who started on 2 December 1st, and we are very happy to have him with us. 3 I am also very happy to report that on 4 Friday, December 12th, the division ended dual enter entry 5 into both of the systems in the bingo division. And 6 effective Monday, December 15th we are using the new 7 automated charitable bingo system exclusively, and I wanted 8 to make sure to thank Mike Fernandez and his staff for all 9 of their assistance in getting us to this point. 10 The last thing I wanted to draw your 11 attention to is we are still continuing to gather nomination 12 forms for the vacancy on the Bingo Advisory Committee, and 13 we received up to this point three nomination forms. The 14 one last thing that I was asked by my staff to draw your 15 attention to, we have a copy of news article from a December 16 6th publication from England that announces, which my staff 17 was very glad to see, that the queen of England and the 18 royal family are apparently all addicted to the game of 19 bingo. So we are happy to be in that type of company, and 20 that concludes my report. 21 CHAIRMAN CLOWE: Very good. And I want to 22 thank Commissioner Cox for attending the last Bingo Advisory 23 Committee meeting. And I believe the next BAC meeting is in 24 February, is it not? 25 MR. ATKINS: February 26th, yes, sir. 0120 1 CHAIRMAN CLOWE: 26th. Great. 2 We're now at Item XXV on the agenda, public 3 comment. Is there anyone wishing to appear before the 4 commission and make a comment? 5 Seeing no one, Commissioners, with your 6 permission I am prepared to move that we go into executive 7 session. 8 At this time I move the Texas Lottery 9 Commission go into executive session to deliberate the 10 duties and evaluation of the executive director and/or 11 deputy executive director, internal audit director, and 12 charitable bingo operations director pursuant to Section 13 551.074 of the Texas Government Code; to deliberate the 14 duties of the general counsel and security director pursuant 15 to Section 551.074 of the Texas Government Code; to receive 16 legal advice regarding pending or contemplated litigation 17 and/or to receive legal advice pursuant to section 551.071, 18 paren, one, close paren, paren, A, close paren, R, paren, B, 19 close paren of the Texas Government Code; and/or to receive 20 legal advice pursuant to Section 551.071, paren, two, close 21 paren of the Texas Government Code; including but not 22 limited to Retired Sergeant Majors' Association, et al. 23 versus Texas Lottery Commission, et al; Patsy Henry versus 24 Texas Lottery Commission; Sandy Surber, et al. versus GTECH 25 Corporation; Linda Cloud versus Mike McKinney, et al; Bruce 0121 1 Suza versus Texas Lottery Commission, et al.; employment 2 law; personnel law; procurement and contract law; 3 evidentiary and procedural law; and general government law; 4 lottery operator -- no, not the lottery operator. 5 MS. KIPLIN: I don't -- I don't think 6 you'll need to do that or the -- or deliberate the 7 negotiation. I think you're done. 8 CHAIRMAN CLOWE: Thank you. Is there a 9 second? 10 COMMISSIONER OLVERA: Second. 11 CHAIRMAN CLOWE: All in favor say aye. 12 THE COMMISSIONERS: Aye. 13 CHAIRMAN CLOWE: Opposed, no. 14 The vote is 3-0. 15 The Texas Lottery Commission will go into 16 executive session. The time is 11:59 a.m. The day is 17 December the 18th, 2003. 18 (Recess.) 19 CHAIRMAN CLOWE: We'll come back to order. 20 The time is 1:36 p.m. The Texas Lottery is out of executive 21 session. Is there any action to be taken as a result of 22 executive session? 23 And I make the motion that the evaluation 24 of the charitable bingo operations director be approved. Is 25 there a second? 0122 1 COMMISSIONER COX: Second. 2 CHAIRMAN CLOWE: All in favor say aye. 3 THE COMMISSIONERS: Aye. 4 CHAIRMAN CLOWE: Kim. 5 MS. KIPLIN: Yes, sir. 6 CHAIRMAN CLOWE: I want to ask you a 7 procedural question before I record the vote. Would 8 Commissioner Olvera abstain on this or is -- what would be 9 the proper protocol because of his time in office? 10 MS. KIPLIN: I think it's his choice on 11 whether he wants to or not. I don't believe he 12 participated. 13 COMMISSIONER OLVERA: I -- I did opt out of 14 the evaluation so I -- I stand corrected. I will 15 withdraw -- 16 CHAIRMAN CLOWE: So you will -- 17 COMMISSIONER OLVERA: I will withdraw my 18 affirmative vote and not participate. 19 CHAIRMAN CLOWE: Thank you, sir. So the 20 vote would be 2-0 in favor. And that evaluation is 21 approved. 22 Next I make a motion to approve a salary 23 increase for the charitable bingo operations director, such 24 as the annual salary is $97,476 and that's an annual salary, 25 such action to be effective December the 1st, 2003. 0123 1 Is there a second? 2 COMMISSIONER COX: Second. 3 CHAIRMAN CLOWE: All in favor please say 4 aye. 5 THE COMMISSIONERS: Aye. 6 CHAIRMAN CLOWE: The vote is 2-0 in favor. 7 Next we'll return to the agenda item that 8 we passed, and it doesn't leap to my sight immediately. 9 Gary, what is our -- 10 COMMISSIONER COX: I believe it's number -- 11 CHAIRMAN CLOWE: Has anybody got it? 12 MR. GRIEF: Number XIX, I believe. 13 CHAIRMAN CLOWE: XIX. Got it. All right. 14 Item Number XIX. Gary. 15 MR. GRIEF: And we have Ridgely Bennett and 16 Michael Anger with some updated information. 17 CHAIRMAN CLOWE: Go ahead, gentlemen. 18 MR. ANGER: Commissioners, for the record 19 my name is Michael Anger, and I'm the lottery operations 20 director. And Commissioner Cox had raised some questions 21 regarding some of the language in the amendment that you had 22 previously. The new draft has been provided to you, and we 23 had gone back and looked at the service level requirement 24 with regard to that amendment and made a modification which 25 we have discussed with GTECH's representative. And the 0124 1 amendment to that and change represents that we would look 2 at a hundred percent of the calls to ensure that the service 3 level would be within 45 seconds or less. And, 4 Commissioners, I believe that addresses the concern that was 5 raised, but we're going to look at the entire body of calls 6 to ensure that there aren't any calls that would be left out 7 and would not be considered for purposes of the calculation 8 with regard to the sanction. 9 COMMISSIONER COX: This looks to me like it 10 would provide us with better assurance that our sales agents 11 are being dealt with quickly, and that's what we're looking 12 for here. 13 MS. KIPLIN: Commissioners, if I might ask 14 a question of Mr. Bennett. I want to make sure. I see that 15 there was a signature from the GTECH rep December 15th, but 16 you've changed the text under number two. I just want to 17 make sure that the -- the person who had the authority to 18 sign -- you know, I don't want there to be somebody thinking 19 that we swapped language in and out. 20 MR. BENNETT: Yes. I -- I believe we have 21 Mr. Rivera from the GTECH Corporation who can speak to the 22 authority and the notifications that GTECH Corporation has 23 been made aware of. 24 MS. KIPLIN: I -- I would like that 25 because, Mr. Rivera, I see that it was Mr. Nyman that signed 0125 1 the draft amendment that was presented earlier. I just want 2 to make sure we're all on the same page. 3 MR. RIVERA: Yes. For the record, my name 4 is Ramone Rivera. I'm the account general manager for 5 GTECH, and I'm here to assure counsel I -- I was on the 6 telephone with Tim Nyman in discussing this arrangement as 7 well as other parties and -- and Mr. Nyman is fully aware of 8 the changes that we made to the proposed contract amendment. 9 MS. KIPLIN: Sir, do you anticipate getting 10 his initials by this changed language or how are you going 11 to cover this for -- for historical purposes, Mr. Rivera. 12 MR. RIVERA: We can have the contract 13 initialed to show that he's agreeing to the language. 14 MS. KIPLIN: And dated it to verify the 15 changes? 16 MR. RIVERA: Right. 17 MS. KIPLIN: I -- I would like that. 18 COMMISSIONER OLVERA: And for 19 clarification, you're referring to the initials of 20 Mr. Nyman, not Mr. Rivera, correct. 21 MS. KIPLIN: Yes. That's absolutely 22 correct. Yes, Commissioner. 23 CHAIRMAN CLOWE: What is -- what's the 24 motion going on this? 25 MS. KIPLIN: The motion would be to 0126 1 authorize the executive director to enter into this -- this 2 amendment. 3 COMMISSIONER COX: So moved. 4 MS. KIPLIN: And then approve it. 5 COMMISSIONER OLVERA: Seconded. 6 CHAIRMAN CLOWE: All in favor please say 7 aye. 8 THE COMMISSIONERS: Aye. 9 CHAIRMAN CLOWE: Opposed, no. 10 The vote is 3-0 in favor. 11 Is there any other business to come before 12 the commission at this time? 13 Counselor, there is some documentation that 14 Commissioner Cox and I need to sign. We do not need to be 15 in session to sign that, do we? 16 MS. KIPLIN: I think that's purely 17 ministerial at this point. You already -- does this have to 18 do with -- 19 CHAIRMAN CLOWE: The evaluation of -- 20 MS. KIPLIN: -- the evaluation? 21 CHAIRMAN CLOWE: -- the director of the 22 charitable bingo operations. 23 MS. KIPLIN: Your vote is your vote, and in 24 terms of getting a signature, I think that's ministerial. 25 Your action is on the record. 0127 1 CHAIRMAN CLOWE: Therefore we are 2 adjourned. Thank you-all very much. 3 (Recess.) 4 CHAIRMAN CLOWE: The commission is back in 5 session, and we want to correctly state the time coming out 6 of the executive session is 1:26 p.m. Thank you. 7 (Adjourned at 1:30 p.m.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0128 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SHELLEY N. JONES, 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 on this 5th day of January, 16 2004. 17 18 19 ________________________________ Shelley N. Jones, RPR, CSR #8058 20 Expiration Date: 12/31/04 Firm Registration #225 21 1801 North Lamar Boulevard Mezzanine Level 22 Austin, Texas 78701 (512) 474-4363 23 24 JOB NO. 031218SNJ 25