0001 1 2 3 * * * * * * * * * * * * * * * * * 4 5 6 TEXAS LOTTERY COMMISSION 7 MEETING 8 9 November 22, 2002 10 11 * * * * * * * * * * * * * * * * * 12 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 22ND of NOVEMBER, 20 2002, from 8:30 a.m. to 3:15 p.m., before Brenda J. 21 Wright, RPR, CSR in and for the State of Texas, 22 reported by machine shorthand, at the Offices of the 23 Texas Lottery Commission, 611 East Sixth Street, 24 Austin, Texas, whereupon the following proceedings 25 were had: 0002 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Ms. Elizabeth D. Whitaker Mr. James A. Cox, Jr. 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Acting Executive Director: Mr. Gary Grief 9 Charitable Bingo Operations Director: 10 Mr. Billy Atkins 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances...................................... 2 4 AGENDA ITEMS 5 Item Number 1.................................... 4 6 Item Number 2.................................... 16 Item Number 3.................................... 21 7 Item Number 4.................................... 28 Item Number 5.................................... 32 8 Item Number 6.................................... 44 Item Number 7.................................... 55 9 Item Number 8.................................... 58 Item Number 9.................................... // 10 Item Number 10................................... 4 Item Number 11................................... 13 11 Item Number 12................................... 58 Item Number 13................................... 59 12 Item Number 14................................... 62 Item Number 15................................... 65 13 Item Number 16................................... 67 Item Number 17................................... 71 14 Item Number 18................................... 95 Item Number 19................................... 87 15 Item Number 20................................... 102 Item Number 21................................... 108 16 Item Number 22................................... 109 Item Number 23................................... 116 17 Item Number 24................................... 118 Item Number 25................................... 128 18 Item Number 26................................... 130 Item Number 27................................... 119 19 Item Number 28................................... 120 Item Number 29................................... 124 20 Item Number 30................................... 127 Item Number 31................................... 133 21 Reporter's Certificate........................... 134 22 23 24 25 0004 1 NOVEMBER 22, 2002 2 CHAIRMAN CLOWE: Good morning. I 08:18 3 believe it's 8:30 a.m. I think our clock on the wall 08:29 4 is a little fast. Today is November 22nd, 2002. The 08:29 5 Texas Lottery Commission will come to order. 08:29 6 My name is Tom Clowe. Commissioner 08:29 7 Whitaker is here. Our resident expert is here. We're 08:29 8 glad that we have a commissioner with his background 08:29 9 and experience. 08:29 10 We're going to deal with some items on 08:29 11 the agenda this morning out of order in diffidence to 08:29 12 those who are from out of town and have a lengthy 08:29 13 travel. We'll go immediately to commissioner -- 08:30 14 pardon me. Item number ten, report, possible 08:30 15 discussion and/or action on Scientific Games 08:30 16 Corporation. Gary, do you want to begin that? 08:30 17 MR. GRIEF: Yes, sir. Good morning, 08:30 18 Commissioners. Scientific Games Corporation issued a 08:30 19 press release on October 31st, 2002, announcing that 08:30 20 the company had uncovered evidence of potential 08:30 21 employee wrongdoing at Autotote, a subsidiary of 08:30 22 Scientific Games. And since that time, Scientific 08:30 23 Games Corporation and I have been in contact, both by 08:30 24 letter and by phone on that matter and on some 08:30 25 subsequent events that have occurred. And in the 08:30 0005 1 interest of clear communication with our major 08:30 2 vendors, I've asked Mr. Lorne Weil, the chairman of 08:30 3 the board and chief executive officer of Scientific 08:30 4 Games Corporation, to appear today before the 08:30 5 Commission to explain the details of the situation 08:30 6 that has occurred and also be available for any 08:31 7 questions that the Commissioners may have. So I would 08:31 8 ask that Mr. Weil come forward, please. 08:31 9 MS. KIPLIN: And Commissioners, if I 08:31 10 can interject at this point and say, for this item and 08:31 11 another item, this is a public meeting and we are 08:31 12 reporting this meeting and our transcripts go on our 08:31 13 website. And so I want to caution not only the 08:31 14 speakers who intend to speak on this matter, as well 08:31 15 as another matter, I think Gtech is going to be coming 08:31 16 up on one, but also the Commissioners, that we do not 08:31 17 want information disclosed that would go to affecting 08:31 18 the security of the Lottery operations here at the 08:31 19 Texas Lottery Commission. And I'm going to ask those 08:31 20 folks who are the ones that are making the 08:31 21 presentations to use their best judgment to decide 08:31 22 what information should be disclosed in a public 08:31 23 arena. 08:31 24 CHAIRMAN CLOWE: Mr. Weil, we're happy 08:31 25 to have you today. We appreciate you coming here. I 08:31 0006 1 know you and I met before the meeting was called to 08:31 2 order. Have you met Commissioner Whitaker and 08:31 3 Commissioner Cox? 08:32 4 MR. WEIL: I just met Commissioner Cox. 08:32 5 I think maybe I've met Commissioner Whitaker the last 08:32 6 time I was here several months ago. 08:32 7 CHAIRMAN CLOWE: Very good. 08:32 8 MR. WEIL: Thank you. This is Janine 08:32 9 Whitenar. She's my resident expert. We're all 08:32 10 entitled to one, I guess, and Janine is our regional 08:32 11 director that includes the -- 08:32 12 CHAIRMAN CLOWE: She's appeared here 08:32 13 before and we're glad to have her back. 08:32 14 MR. WEIL: Anyway, thank you for the 08:32 15 opportunity of having me come up here and speak to you 08:32 16 people again. Actually, just following up something 08:32 17 briefly that General Counsel Kiplin just mentioned. 08:32 18 In my remarks, I need to not only consider, obviously, 08:32 19 the issue of the security of the Texas Lottery, but as 08:32 20 some of you may know or you may get into it, there is 08:32 21 a criminal matter going on back in New York regarding 08:32 22 the -- the subject that we're talking about this 08:32 23 morning, so I also need to be careful to consider the 08:33 24 security of that -- of that process. 08:33 25 Anyway, let me start by apologizing to 08:33 0007 1 Executive Director Grief and the Commission for the 08:33 2 fact that we were not -- or did not inform the Lottery 08:33 3 before we issued the press release a few weeks ago 08:33 4 concerning this matter. I know that the Lottery -- 08:33 5 the -- the Lottery protocol is -- is to be informed 08:33 6 first before anything is disclosed to the public in 08:33 7 order to not be surprised. I'm, you know, running a 08:33 8 fairly -- a large organization myself. There is 08:33 9 nothing I hate more than surprises. And I spend an 08:33 10 enormous amount of my time trying to run my own 08:33 11 organization in a way that minimizes that. So when I 08:33 12 take some action myself that causes a surprise to, 08:33 13 certainly, one of our two or three best customers in 08:34 14 the world, that disturbs me a lot. And I -- may I 08:34 15 apologize for, and actually, I take -- excuse me. 08:34 16 Full responsibility for it. 08:34 17 Just so you know how it happened, as 08:34 18 Director Grief said a second ago, and I'll describe 08:34 19 the event in a little bit more detail, but we did, as 08:34 20 a result of an investigation that we undertook at our 08:34 21 Autotote system subsidiary facility back east in 08:34 22 Delaware, we uncovered very compelling evidence of -- 08:34 23 of criminal fraud on the part of a programmer that was 08:34 24 employed by Autotote systems. We discussed this, as 08:34 25 soon as we discovered the information, with our 08:34 0008 1 outside counsel, and we were advised that for all of 08:34 2 the reasons that we have all been reading about in the 08:34 3 press constantly lately, that we were under an 08:34 4 obligation immediately to disclose this information in 08:34 5 a press release. Again, for all kinds of reasons that 08:35 6 you can appreciate. And I think in the -- in the 08:35 7 stress and pressure of having made a discovery and 08:35 8 being under a tremendous obligation to make that 08:35 9 information disclosed as quickly as possible as we 08:35 10 could to the public, the necessity of having informed 08:35 11 the Texas Lottery first before that press release was 08:35 12 issued just fell through the cracks and I -- there is 08:35 13 just no other explanation for it than that. And I'm 08:35 14 really sorry it happened. And one of the reasons that 08:35 15 I wanted to come here today was to tell you personally 08:35 16 that you have my word that that won't ever happen 08:35 17 again. And that just -- I'll make sure that it 08:36 18 doesn't. There is no excuse for it having happened, 08:36 19 but it did. And again, as I've said, I'll make 08:36 20 personally certain it doesn't happen again. Excuse 08:36 21 me. 08:36 22 The -- the ultimate resolution of the 08:36 23 matter was that as a result of the -- of the evidence 08:36 24 and information that we were -- that we turned over to 08:36 25 the New York state police, the individual in question 08:36 0009 1 eventually turned himself in, and as you may have read 08:37 2 in the newspaper in the last couple of days, after 08:37 3 pleading -- or claiming innocence for the last two to 08:37 4 three weeks, finally -- I guess it was the day before 08:37 5 yesterday, admitted guilt and -- and the judicial 08:37 6 system in New York will now deal -- or Delaware will 08:37 7 deal with him accordingly. 08:37 8 The upshot of it all is that no money 08:37 9 was paid -- the prize was held up, the people who 08:37 10 rightfully won the money will get it. The perpetrator 08:37 11 was caught. And in the course of that, I think he 08:37 12 exposed a weakness -- a really systemic weakness in 08:37 13 the way that the racing industry deals with certain 08:37 14 esoteric bets. I can go into more technical details 08:38 15 of it with you if you're interested, but let me just 08:38 16 say that we've taken, in Scientific Games, several 08:38 17 steps to be certain that this won't happen again. 08:38 18 We've hired Kroll & Company, probably the leading 08:38 19 security investigative firm in the world, to do a 08:38 20 top-to-bottom audit of all of our security procedures 08:38 21 to be certain that there aren't other areas that need 08:38 22 strengthening. 08:38 23 One of the things that we have done is 08:38 24 to -- made a decision to put on every one of our 08:38 25 racing industry systems what we call a third-party 08:38 0010 1 independent control system that is really virtually 08:38 2 universally mandatory in the Lottery industry, but in 08:38 3 the past, has never been a requirement in the racing 08:39 4 industry. It's what we refer to as putting, you know, 08:39 5 cellophane around the Tylenol bottle. And we've 08:39 6 actually gone ahead and made a commitment to install 08:39 7 third-party control systems on all of our racing 08:39 8 computer systems like the ones that we have routinely 08:39 9 in the Lottery industry. So we think we've taken all 08:39 10 of the steps that we can to be certain that this 08:39 11 doesn't happen again. 08:39 12 We're working with the other system 08:39 13 suppliers in the racing industry to -- to deal with 08:39 14 the -- as I said before, the sort of systemic problem 08:39 15 that -- that really cuts across the whole racing 08:39 16 industry. At least a good part of it is that the -- 08:39 17 the systems and procedures that we have in place, were 08:40 18 able to allow us to fairly quickly identify the -- the 08:40 19 presumed guilty party in this case and make that 08:40 20 information available to the police, and hopefully, 08:40 21 the matter has been brought to -- to a close. 08:40 22 I know that you may have some concern. 08:40 23 If you do, is there any issue -- or is there any 08:40 24 relationship between what recently happened in the 08:40 25 racing business and the Texas Lottery. I think you 08:40 0011 1 know that, in Texas, we are not involved in the system 08:40 2 side of things, the back office and so forth. That is 08:40 3 the responsibility of Gtech. What we do, as you know, 08:40 4 is make the tickets. But as far as the instant 08:40 5 tickets that we supply Texas is concerned, I think we 08:41 6 have had the most -- the most secure approach to 08:41 7 instant ticket design and manufacturing as certainly 08:41 8 exists in the instant ticket industry. We are taking 08:41 9 a number of new steps that we'll be discussing in more 08:41 10 detail with the Lottery staff in the next few months. 08:41 11 We're going to be spending several million dollars to 08:41 12 take the security of our instant ticket production 08:41 13 process to yet another level of -- of security that I 08:41 14 think the Lottery staff will be very enthusiastic to 08:41 15 hear about. 08:41 16 And, again, there really isn't any 08:41 17 relationship or involvement or even sharing of 08:41 18 facilities between the Delaware facility where this 08:41 19 racing event occurred and our lottery manufacturing 08:42 20 facility, which as you probably know, is located just 08:42 21 outside of Atlanta. 08:42 22 And that's really most of what I would 08:42 23 want to say at this point, but I'll be happy to answer 08:42 24 any questions that you have. 08:42 25 CHAIRMAN CLOWE: We want to thank you 08:42 0012 1 for coming this morning and speaking to us about this 08:42 2 issue, and I don't think the Commission has any 08:42 3 questions for you. I would simply like to reiterate 08:42 4 how important it is to hear from you when something 08:42 5 occurs that could possibly affect the Texas Lottery, 08:42 6 even in an image or perception way. We are so 08:42 7 sensitive about our image in this state, and the 08:42 8 business that we are involved in here, so when a major 08:42 9 vendor such as yourself encounters a situation, we 08:43 10 really do want to know promptly, and we have asked 08:43 11 every vendor to put us at the top of their list. And 08:43 12 we appreciate your personal assurance, which I 08:43 13 understand you're giving us, that you will see to it 08:43 14 that we're notified. We want our leadership in this 08:43 15 state to be aware as soon as we're aware and the 08:43 16 public to know what the facts are on any given 08:43 17 situation. Our image and our record of honesty and 08:43 18 fairness is utmost in our minds. 08:43 19 MR. WEIL: I understand that. I 08:43 20 completely appreciate it. And, again, I -- I give you 08:43 21 my assurances that you are at the top of our priority 08:43 22 list and we won't have another instance like this in 08:43 23 the future. 08:43 24 CHAIRMAN CLOWE: We thank you for being 08:43 25 here. Thank you both. 08:43 0013 1 Next we'll go to item number 11, 08:44 2 report, possible discussion and/or action on Gtech 08:44 3 Corporation. 08:44 4 MS. KIPLIN: And Commissioners, my 08:44 5 cautionary words continue with this item as well. 08:44 6 MR. GRIEF: Commissioners, I've asked 08:44 7 that this item be placed on the agenda in the event 08:44 8 that the Commissioners might have any questions of our 08:44 9 lottery operator, Gtech, regarding the events that 08:44 10 have occurred at the Breeders Cup in Chicago and how 08:44 11 this situation may or may not relate to Gtech's 08:44 12 operations in Texas. And, of course, our Gtech staff 08:44 13 are available to answer any other questions that the 08:44 14 commission might have of them. I think we have Ramon 08:44 15 Rivera from Gtech and Dave Lambert with us. 08:44 16 CHAIRMAN CLOWE: Good morning, 08:44 17 gentlemen. Do you have anything you want to comment 08:44 18 to us on this morning? 08:44 19 MR. RIVERA: Yes, Commissioner. For 08:44 20 the record, I'm Ramon Rivera, the account general 08:44 21 manager for Texas. 08:44 22 MR. LAMBERT: And my name is Dave 08:45 23 Lambert. I'm director of operations in Texas. 08:45 24 MR. RIVERA: I would just like to 08:45 25 comment generally, Commissioner, on the issue of 08:45 0014 1 system security and integrity. And I would like to 08:45 2 reassure the Commission that your staff, and 08:45 3 especially under the direction and leadership of 08:45 4 Acting Executive Director Grief, has acted promptly, 08:45 5 reasonably, and appropriately in every circumstance 08:45 6 and every issue that has occurred recently. But I 08:45 7 would like to also say to you that the security and 08:45 8 integrity of the games of Texas are not event driven. 08:45 9 It is a way of daily life between Gtech and the Texas 08:45 10 Lottery. We are under -- we continually investigate 08:45 11 and look at security in our systems to ensure that our 08:45 12 systems are secure and that the leadership and the 08:45 13 players and everyone associated with -- with the 08:45 14 Lottery in Texas are assured that the games are 08:46 15 secure. 08:46 16 The approach that was taken by your 08:46 17 staff was admirable. And it started initially with 08:46 18 early notification, which created some challenges 08:46 19 because not all information was known. It was an 08:46 20 evaluation of data as it became available, a 08:46 21 determination of risk, if there were any -- or was 08:46 22 any, excuse me, and then taking appropriate action. 08:46 23 And as a consequence of all of that activity, we have 08:46 24 been able to add additional layers of security over a 08:46 25 system that is already secure. We can reason -- we 08:46 0015 1 can say with reasonable certainty and assurance that 08:46 2 we have all -- we are confident that the games of 08:46 3 Texas are secure today. 08:46 4 I would also like to add that Acting 08:46 5 Director Grief, under his leadership, was able to 08:46 6 bring all of the parties together, ask everyone to put 08:47 7 competitive differences aside and to work 08:47 8 cooperatively for the benefit of the state. And as a 08:47 9 consequence of that, we sit here today with a secure, 08:47 10 reliable system that I think all of us can be proud 08:47 11 and enviable about. 08:47 12 I would be pleased to answer any 08:47 13 questions that you might have. 08:47 14 CHAIRMAN CLOWE: We thank you for being 08:47 15 here this morning and for your comments, and I think 08:47 16 the Commissioners are aware of the meetings that have 08:47 17 taken place in regard to problems which have developed 08:47 18 in this country and around the world relating to 08:47 19 gaming operations. And I would say the same thing to 08:47 20 you that I made the remark just a few minutes ago 08:47 21 about, that we want to know about these things when 08:47 22 they happen and we want to be on the top of the list 08:47 23 as far as notification, and that is essential to the 08:48 24 protection of our image in this state when occurrences 08:48 25 take place. You understand our sensitivity about our 08:48 0016 1 image in this state. 08:48 2 MR. RIVERA: Quite well, Mr. Chair. 08:48 3 CHAIRMAN CLOWE: Very good. Gentlemen, 08:48 4 we thank you both. 08:48 5 MR. RIVERA: Thank you. 08:48 6 CHAIRMAN CLOWE: We'll now return to 08:48 7 the agenda item number two, report by the Bingo 08:48 8 Advisory Committee chairman, possible discussion 08:48 9 and/or action regarding the Bingo Advisory Committee's 08:48 10 activities, including the November 21st, 2002 08:48 11 committee meeting. Ms. Virginia Brackett. Good 08:48 12 morning. 08:48 13 MS. BRACKETT: We met yesterday and 08:48 14 there is a lot of excitement and a lot of 08:48 15 encouragement over the new pull tabs. And that is 08:48 16 statewide. We have a lot of documentation on that. 08:48 17 Many of the members have visited bingo halls and 08:49 18 talked to a lot of the charities. And it's real easy 08:49 19 to talk to a lot of charities when they're excited 08:49 20 about what's going on with pull tabs as they are with 08:49 21 this. We have documented of evidence of like 50 to -- 08:49 22 50 is a very conservative -- 50 percent is a very 08:49 23 conservative estimation of the increase in pull tabs, 08:49 24 all the way up to 70 percent. And that's in a daily 08:49 25 or per session increase in sales of pull tabs. I 08:49 0017 1 talked with people connected with 30 charities in 08:49 2 Lubbock and they are all saying it's at least 70 08:49 3 percent, and they're very exited. The Cash Cow is a 08:49 4 very exciting -- is a very good seller in Lubbock. 08:49 5 Something about the cows that they really like. Tic 08:49 6 Tac Slots is a good one. Texas Blackout, Hot Ball, 08:49 7 and it's just really a lot of fun to go to the halls 08:49 8 and talk to people about something that they're very 08:50 9 excited about, including the customers, too. 08:50 10 In consideration of possible customer 08:50 11 building and enhancement yesterday, we had a 08:50 12 demonstration -- it was a video -- it was a video 08:50 13 demonstration of satellite or linked bingo by the 08:50 14 Canadian Bank Note Company. And this makes use of 08:50 15 technology with a flexible design which attracts new 08:50 16 players and thus increases the income. And that was 08:50 17 just something that we were looking at, but hope that 08:50 18 somewhere in the distance it is on the horizon. 08:50 19 We also had received some applications 08:50 20 from people who are interested in filling the public 08:50 21 position that's vacant on the Bingo Advisory 08:50 22 Committee, and we suggest Jack Dougherty. It's 08:50 23 D-o-u-g-h-e-r-t-y, for the vacant public position. He 08:50 24 is a retired civil engineer, lives in Austin, and 08:51 25 plays bingo six days a week. 08:51 0018 1 We heard public response to the items 08:51 2 adopted by the Sunset Review Commission, and we know 08:51 3 that a lot of the things, we have a long road ahead of 08:51 4 us on it. A lot of -- of course, a lot of the 08:51 5 recommendations were things that are fine with us, but 08:51 6 on things that won't change, we're prepared for the 08:51 7 long hard road. And we spent a lot of time on that, 08:51 8 but I think it was probably well-spent time because we 08:51 9 were able to hear from a lot of people. And that 08:51 10 really pretty much concludes my report of the meeting. 08:51 11 CHAIRMAN CLOWE: Virginia, I think that 08:51 12 in addition to the time that I attended your meeting 08:51 13 yesterday, Commissioner Cox attended some portion of 08:51 14 the meeting as well. And one of the things that I 08:51 15 spoke to the committee about was the recommendations 08:52 16 that Sunset has made about the activity of the Sunset 08:52 17 Committee. And I'm wondering, what is your thought 08:52 18 and what is the committee's thoughts about responding 08:52 19 to those comments and structuring a work plan for the 08:52 20 committee and focusing their activities as an advisory 08:52 21 group to the Lottery Commission to meet those stated 08:52 22 needs that the Sunset Committee has adopted for 08:52 23 legislation in this upcoming session? Have you had 08:52 24 time to dwell on that and do you have any remarks to 08:52 25 make to us at this time? 08:52 0019 1 MS. BRACKETT: You're talking about the 08:52 2 Bingo Advisory Committee? 08:52 3 CHAIRMAN CLOWE: Yes, ma'am. 08:53 4 MS. BRACKETT: Okay. The Bingo 08:53 5 Advisory Committee as whole is very supportive of that 08:53 6 and would be willing to support these issues. We all 08:53 7 see the importance of -- well, and like I said, you 08:53 8 know, we're ready to go to work on it as individuals, 08:53 9 and I think as a group we would be happy to do that, 08:53 10 too. We did not discuss doing it as a group. As an 08:53 11 advisory group, I wasn't real sure that this was 08:53 12 something that we could or should do. But we 08:53 13 certainly will if we have the green light on that. 08:53 14 There is no problem with that at all. In fact, there 08:53 15 would be a lot of enthusiasm for it. 08:53 16 CHAIRMAN CLOWE: Well, I think the best 08:53 17 effort will be a collaborative effort, and I think as 08:53 18 we go through the Sunset process and we get direction 08:53 19 on that from the legislature, the Commissioners will 08:53 20 want to understand what that direction is and deal 08:53 21 with that, and possibly rulemaking will be part of 08:53 22 that process. But I would like for the Bingo Advisory 08:54 23 Committee, and I think the Commissioners would share 08:54 24 in this, want there to be some participation and 08:54 25 collaboration, as I say, about that, to focus on how 08:54 0020 1 that group can best advise the Lottery Commission for 08:54 2 the work plan that will be adopted, if that's the 08:54 3 course we take, in the upcoming year. 08:54 4 It seems to me, and we spoke about this 08:54 5 yesterday in your meeting, we need to focus in on what 08:54 6 is the real purpose of the BAC, and what is in the 08:54 7 realm of the scope of that group to advise the 08:54 8 Commission and to create value for the time and effort 08:54 9 that those public folks give of themselves, the time 08:54 10 and the money commitment. And as chair, I would like 08:55 11 to ask you to put your mind to that and to discuss 08:55 12 that future role with the members of the committee so 08:55 13 that we can have your thoughts as we get into those 08:55 14 deliberations. 08:55 15 MS. BRACKETT: We will be happy to do 08:55 16 that, I can guarantee you. And we'll be happy to talk 08:55 17 to people in -- and operators all over the state, 08:55 18 since we're represent a lot of geographic locations, 08:55 19 and see how they're feeling about things and present 08:55 20 their ideas, too. 08:55 21 CHAIRMAN CLOWE: Okay. I believe there 08:55 22 are no questions. 08:55 23 MS. BRACKETT: Thank you for the 08:55 24 invitation for that. 08:55 25 CHAIRMAN CLOWE: Thank you. 08:55 0021 1 Next we'll go to item three, 08:55 2 consideration of and possible action on the 08:55 3 continuation of the Bingo Advisory Committee. 08:55 4 Billy Atkins. 08:55 5 MR. ATKINS: Commissioners, I believe 08:55 6 it was at the last commission meeting when there was a 08:55 7 somewhat detailed discussion of the advisory 08:55 8 committee, their functions, and the pending 08:56 9 administrative rule that has currently been published 08:56 10 for public comment as it relates to the advisory 08:56 11 committee. Many -- several of the recommendations 08:56 12 from the Sunset Advisory Committee that you mentioned 08:56 13 under the previous item, Mr. Chairman, are included in 08:56 14 that rule. We can continue our analysis of the Sunset 08:56 15 recommendations and the proposed rule to see if there 08:56 16 are other matters that can be incorporated in there, 08:56 17 and it's possible that at this time, we can begin a 08:56 18 discussion of that structure that the Commission may 08:56 19 have for the advisory committee in terms of their 08:56 20 future work products, or we can work with them or with 08:56 21 the chair and bring that forward to you at a future 08:56 22 time. 08:57 23 CHAIRMAN CLOWE: Billy, in my meeting 08:57 24 yesterday with the members of the Bingo Advisory 08:57 25 Committee as an observer, and then I spoke to them, I 08:57 0022 1 sensed in some of the members of the committee a 08:57 2 feeling of frustration about wanting to be more 08:57 3 productive in behalf of the industry, and my comments 08:57 4 to them attempted to point out to them that, in my 08:57 5 view, the bingo industry is private enterprise for the 08:57 6 benefit of charitable organizations regulated by the 08:57 7 State of Texas, which is different from the Lottery 08:57 8 operation, owned and operated by the State of Texas, 08:57 9 where the Bingo Division is funded by an 08:58 10 appropriation, and there is a statute, the Bingo 08:58 11 Enabling Act, that directs those activities. That is 08:58 12 vastly different than the Lottery, which is funded by 08:58 13 a percentage of revenue, and there is a statute that 08:58 14 guides it as well. And I sense in the members of the 08:58 15 BAC a desire for help to the industry, which I think, 08:58 16 from my personal observations, has some problems. A 08:58 17 declining market, which is certainly the number one 08:58 18 difficulty they're dealing with, and I want to find a 08:58 19 way, if it's possible, to help the Bingo Advisory 08:58 20 Committee members be broader spokespersons for the 08:58 21 industry, and focus in on those things which they can 08:59 22 advise the Commission about that will be beneficial 08:59 23 and doable under the Bingo Enabling Act. 08:59 24 There are some things which are not 08:59 25 doable, either by them being outside of the statute or 08:59 0023 1 there not being funding available, and I'm not sure 08:59 2 those differences are clearly defined enough for the 08:59 3 industry and for some of the members of the BAC. And 08:59 4 I'm reiterating now actually some of the things that I 08:59 5 expressed to the committee yesterday, and it's what I 08:59 6 want Chair Brackett to have in mind as she discusses 08:59 7 how to structure the future of the BAC and comes back 08:59 8 to us with whatever thoughts and recommendations they 08:59 9 might have. I would say the same thing to you. I 08:59 10 think the BAC has served a very fine purpose as we 08:59 11 have come as far as we have in the Sunset process. I 09:00 12 am told that it's been more effective more recently 09:00 13 than it was in some of the distant past. But I for 09:00 14 one am not satisfied at this point with where we are 09:00 15 with the development of that group. It's got to 09:00 16 improve and it's got to be more productive, and it's 09:00 17 got to focus on what it can do to effectively advise 09:00 18 this Commission in the future, and I want to help them 09:00 19 do that. And I'm kind of giving you my wish list, and 09:00 20 maybe you're the one to lead that effort, along with 09:00 21 Chair Brackett, but I don't think I as one 09:00 22 commissioner am satisfied with where we are with the 09:00 23 group right now. 09:00 24 Can you give us a response, and maybe 09:00 25 other Commissioners would express how they feel about 09:00 0024 1 it. 09:01 2 MR. ATKINS: Well, I think -- I think 09:01 3 your representation is accurate, Mr. Chairman, and I 09:01 4 just don't know -- I spent a great deal of time after 09:01 5 the meeting yesterday and last night -- I just don't 09:01 6 know right now what else to offer, what else to 09:01 7 suggest. I'm happy to get together with Chair 09:01 8 Brackett and try and work on some things, but I think 09:01 9 a prime example of what you're talking about is, there 09:01 10 was extended discussion yesterday about what was 09:01 11 referred to as the 40 percent rule. That is a 09:01 12 requirement in the statute that organizations can't 09:01 13 allow more than 40 percent of the card-minders to be 09:01 14 used during their bingo occasion, based on previous 09:01 15 attendance. There was extended discussion about that. 09:01 16 That's a statutory requirement. There is -- you know, 09:01 17 we're for it, we're against it. And if you're against 09:01 18 it, there is a proper forum for that to be discussed, 09:01 19 and I don't think it's here, because there is nothing 09:01 20 that you as the advisory -- as the Lottery Commission 09:02 21 can do about that change in the statute. 09:02 22 But, you know, there was also a lot of, 09:02 23 you know, continued discussion about why the Lottery 09:02 24 should advertise for bingo. And, you know, those 09:02 25 issues, I think, have been explained to the advisory 09:02 0025 1 committee. It seems like every time there is an 09:02 2 advisory committee meeting that occurs, those 09:02 3 explanations have to be given again. 09:02 4 I'm happy to work with the chair. We 09:02 5 could also look at possibly some training specifically 09:02 6 geared towards the advisory committee on, you know, 09:02 7 specifics in the statute versus specifics in the rule, 09:02 8 and how their meanings can result in more meaningful 09:02 9 information to you. 09:02 10 COMMISSIONER COX: Mr. Chairman, I have 09:03 11 attended a couple of these meetings, and I think what 09:03 12 I have observed is that the meetings may serve a 09:03 13 purpose beyond the purpose that they were intended 09:03 14 for, in addition to the purpose that they were 09:03 15 intended for. As I look through the agenda, I see 09:03 16 items there that seem to be the appropriate discussion 09:03 17 for an industry association. As you point out, this 09:03 18 is private industry, and I don't know what kind of 09:03 19 associations the bingo industry has, but many of the 09:03 20 items seem that they would be appropriate for the 09:03 21 industry association's discussion, but really aren't 09:03 22 relevant to advising us. And I think the kind of 09:03 23 thing Billy is talking about there, for instance, 09:03 24 things that are statutory, an association would talk 09:04 25 about those things and they would go to the 09:04 0026 1 legislature and explain their position. But we really 09:04 2 don't play a role in that. And I'm wondering if the 09:04 3 solution might be some sort of agenda control that 09:04 4 said that, okay, this one is an appropriate matter for 09:04 5 discussion because advice to the Lottery Commission on 09:04 6 this issue would be appropriate; this one, you had 09:04 7 better take to your trade association because that's 09:04 8 where it needs to be. 09:04 9 CHAIRMAN CLOWE: I think you're right 09:04 10 on target. And, you know, that's exactly in line with 09:04 11 the experience that I have as operating in a regulated 09:04 12 industry, and the experience that I have had. I'm 09:04 13 very respectful, as I know each of you all are, of the 09:04 14 time and effort that these citizens put into attending 09:05 15 these meetings. They give up time and it's expense to 09:05 16 them, whether they're compensated for travel or not. 09:05 17 It's an effort. And yet we have got to find a way, 09:05 18 and I think Sunset is pointing that out to us, to 09:05 19 create a work plan or an agenda that is more in line 09:05 20 with what the BAC is charted to do. And I think, 09:05 21 Billy, these comments hopefully will be helpful to 09:05 22 you, and we're going to need to respond to help the 09:05 23 members of the BAC be more productive, to comply with 09:05 24 the direction we're getting from Sunset. And I think 09:05 25 there is a sense from the Commissioners that we want 09:05 0027 1 and -- let's talk about this again between you and 09:05 2 each of the individual Commissioners, and then let's 09:06 3 keep this on the docket and continue to have 09:06 4 discussions in the conferences about this, and include 09:06 5 Chair Brackett and any other member of the BAC that 09:06 6 wants to be involved so that we can help this group be 09:06 7 more productive in the role they're cast in. 09:06 8 MR. ATKINS: And the only thing that I 09:06 9 feel compelled to respond to that, Mr. Chairman, is, I 09:06 10 don't think that we're going to be able to help them 09:06 11 any more than they're going to be willing to help 09:06 12 themselves, and that is to be responsive to the 09:06 13 Commission's direct requests for specific advice and 09:06 14 assistance on the issues that you have an interest in. 09:06 15 CHAIRMAN CLOWE: I think that's right. 09:06 16 And it may come to a point where the Commission lays 09:07 17 out a program of work and assigns projects where we 09:07 18 ask for input and we ask that all other matters which 09:07 19 are vital to the industry and important to the 09:07 20 industry be dealt with through you or individually 09:07 21 through Commissioners. And you're available on any 09:07 22 subject that troubles the bingo industry, and the 09:07 23 Commissioners are available. But it wouldn't be a 09:07 24 proper venue in some cases, as Commissioner Cox has 09:07 25 pointed out, to bring that through the BAC on their 09:07 0028 1 agenda. And maybe we can focus that group in that 09:07 2 manner to make them more productive. 09:07 3 Let's have some more discussions on 09:07 4 that. 09:07 5 MR. ATKINS: We will do that. 09:07 6 CHAIRMAN CLOWE: I think the next item 09:08 7 is also important, consideration of and possible 09:08 8 action on nomination and/or appointment to the Bingo 09:08 9 Advisory Committee. 09:08 10 MR. ATKINS: Commissioners, this was 09:08 11 one of the items that was on the advisory committee's 09:08 12 agenda yesterday. I outlined for you, at the last 09:08 13 commission meeting, several activities that had been 09:08 14 undertaken in order to publicize this vacancy. That 09:08 15 included one of the new -- one of the industry 09:08 16 newspapers, the Bingo Bugle, ran a story in their 09:08 17 October issue, we did a mail-out to all bingo 09:08 18 locations with a notice as well as I believe we 09:08 19 included some nomination forms, asking them to 09:08 20 publicize it perhaps to their players. We put the 09:08 21 nomination form on the Web site, and we actually made 09:08 22 a decision to leave the nomination form out there 09:08 23 permanently just so that form is available at any time 09:08 24 that a vacancy should occur. And also, I believe it 09:09 25 was recommended by you, Mr. Chairman, that the -- we 09:09 0029 1 actually ask the advisory committee for -- for them to 09:09 2 look for members, and I subsequently sent an e-mail to 09:09 3 them expressing your request. 09:09 4 The deadline to receive nominations was 09:09 5 October 31st and we only received two by that time 09:09 6 line. The two individuals were discussed and I've 09:09 7 left in front of you the information on those 09:09 8 individuals. One of the individuals, it turns out, is 09:09 9 listed on the record of, I believe, four different 09:09 10 organizations, including being an operator and 09:09 11 director for one, which would preclude that individual 09:09 12 from being a general public member of the advisory 09:09 13 committee. That left only one, Mr. Dougherty, which 09:09 14 Virginia Brackett mentioned earlier. The advisory 09:09 15 committee did vote to recommend him to you. We had no 09:10 16 record of him being listed on the record of any bingo 09:10 17 licensee. I did try his home number last night just 09:10 18 to make contact with him, but got a recording machine. 09:10 19 I left him my phone numbers and haven't heard from him 09:10 20 since. 09:10 21 I pointed out two things to the 09:10 22 advisory committee yesterday, and I will point them 09:10 23 out to you. One option is to extend the nomination 09:10 24 period in hopes of getting additional nominees. I 09:10 25 don't know right now what else we could do in order to 09:10 0030 1 generate additional nominees. 09:10 2 The second thing that I pointed out to 09:10 3 the advisory committee, and will also point out to 09:10 4 you, because the Commission in the past has expressed 09:10 5 interest in ensuring a geographic representation on 09:11 6 the advisory committee. Mr. Dougherty is, according 09:11 7 to his resume, located here in Austin. There is one 09:11 8 other advisory committee member, Saleem Tawil, who is 09:11 9 the SSP representative, who also resides in Austin. 09:11 10 COMMISSIONER WHITAKER: Does anybody 09:11 11 have personal knowledge of Mr. Dougherty? 09:11 12 MR. ATKINS: Not that I'm aware of. No 09:11 13 one on the advisory committee. 09:11 14 COMMISSIONER WHITAKER: And he hasn't 09:11 15 shown up in person or been interviewed? 09:11 16 MR. ATKINS: No, ma'am. 09:11 17 COMMISSIONER WHITAKER: So all we know 09:11 18 is on paper? 09:11 19 MR. ATKINS: Yes, ma'am. 09:11 20 COMMISSIONER WHITAKER: My reaction is, 09:11 21 I'm a little reluctant, under those circumstances, to 09:11 22 make an appointment like that. What can we do to 09:11 23 gather more nominations? 09:11 24 CHAIRMAN CLOWE: Well, I think the 09:11 25 effort has been fairly comprehensive at this point. I 09:11 0031 1 don't know what the answer to that question is, Billy. 09:11 2 Do you have recommendations? 09:11 3 MR. ATKINS: I don't. Like I say, 09:12 4 we're -- what we did this time that was different is, 09:12 5 in the past, we have mailed nomination forms to all 09:12 6 licensees. But since this was for the general public 09:12 7 category, we concentrated on halls specifically, with 09:12 8 the request that they publicize that, again, amongst 09:12 9 their players. 09:12 10 I'm not sure what else to do. We -- 09:12 11 you know, one thing we've never do done is public 09:12 12 notice in the Texas Register. I don't know how many 09:12 13 members of the general public routinely read the Texas 09:12 14 Register. 09:12 15 COMMISSIONER WHITAKER: How often do 09:12 16 you read it? 09:12 17 MR. ATKINS: As often as she tells me 09:12 18 to. Which is quite often. 09:12 19 I'm sorry, Commissioner Whitaker. I 09:13 20 don't know -- other than what we've done, I don't know 09:13 21 what else we could do. 09:13 22 COMMISSIONER COX: What about -- the 09:13 23 resume of Mr. Dougherty looks good. And Chair 09:13 24 Brackett, I think, said he is a regular player, and 09:13 25 that sounds like somebody we would like to have. 09:13 0032 1 Billy has tried to make contact with him. What if 09:13 2 Billy asked him to come in for an interview in person 09:13 3 and perhaps Chair Brackett could at least speak with 09:13 4 him by telephone and see if, after that, they still 09:13 5 recommend him. 09:13 6 CHAIRMAN CLOWE: And I would be happy 09:13 7 to be here when he comes in and interview him with 09:13 8 Billy, if that would give you comfort or discomfort. 09:13 9 COMMISSIONER WHITAKER: It would. 09:13 10 CHAIRMAN CLOWE: I would be happy to do 09:13 11 as well. And, of course, Commissioner Cox is a 09:13 12 resident of Austin, so he might as well have an 09:13 13 opportunity to interview him. 09:13 14 COMMISSIONER COX: Be pleased to. 09:13 15 CHAIRMAN CLOWE: Would that -- then 09:13 16 let's do that, and then let's have you bring this up 09:13 17 again at our next meeting in December. 09:14 18 MR. ATKINS: And we can, Commissioners, 09:14 19 conference Ms. Brackett in on a speaker phone when we 09:14 20 do that. 09:14 21 CHAIRMAN CLOWE: Very good. 09:14 22 The next item, item five, consideration 09:14 23 of and possible discussion and/or action, including 09:14 24 adoption, on new rule 16 TAC 402.558, relating to 09:14 25 bingo card paper, and/or including repealing of 16 TAC 09:14 0033 1 402.558 relating to seal required on disposable bingo 09:14 2 cards. 09:14 3 MS. KIPLIN: Commissioners, you have 09:14 4 got some Witness Affirmation Forms that have been 09:14 5 submitted and I've got them. People who may not wish 09:14 6 to testify, but wish to at least to lodge their 09:14 7 comment either for or against the adoption of 402.558. 09:14 8 And I must say that this is an ongoing issue for the 09:14 9 staff in terms of at what time do you cut comment off. 09:14 10 This is a situation where these rules, as I 09:14 11 understand, that were presented to the Bingo Advisory 09:14 12 Committee on at least two occasions, there is an 09:14 13 opportunity for a comment hearing, which did occur on 09:14 14 October 10th. I think we had one individual that 09:15 15 actually appeared at that comment hearing -- 09:15 16 MR. ATKINS: But did not comment. 09:15 17 MS. KIPLIN: -- and submitted written 09:15 18 comment. And then we only had one other individual 09:15 19 who commented on behalf of his clients. And now today 09:15 20 you have before you people who want to submit Witness 09:15 21 Affirmation Forms indicating that they are wanting to 09:15 22 comment, at least through the Witness Affirmation 09:15 23 Form, on the rules. 09:15 24 I don't know how Mr. Atkins feels about 09:15 25 giving them an opportunity, but I will say, from my 09:15 0034 1 perspective, it makes it very difficult to go forward 09:15 2 in terms of trying to conduct an orderly rulemaking 09:15 3 when people are given an opportunity to comment and 09:15 4 they don't take advantage of it during the comment 09:15 5 period. And I would like to make a recommendation, 09:15 6 and I don't know if Mr. Atkins will support it, that 09:15 7 at some point, you just have to say, we're going to 09:15 8 consider what is before us in terms of this comment 09:15 9 that has been summarized and the draft responses. 09:15 10 And, again, it is your rule, and you set policy 09:16 11 through that rulemaking. And if you read it and you 09:16 12 think that there are some holes in it or there are 09:16 13 some issues that you like to have explored, then 09:16 14 certainly there is an opportunity for that. But 09:16 15 that's, I guess, from my perspective where I land on 09:16 16 it. 09:16 17 COMMISSIONER WHITAKER: How many forms 09:16 18 do we have? 09:16 19 MS. KIPLIN: You have seven forms. And 09:16 20 what that will mean is that I'm going to have to go 09:16 21 in -- if you accept this comment, I'm going to have to 09:16 22 go and I'm going to have to change the rule to include 09:16 23 them in the preamble. 09:16 24 COMMISSIONER WHITAKER: Are any of them 09:16 25 going to give substantive comment or are they just 09:16 0035 1 saying they're in favor or opposed? 09:16 2 MS. KIPLIN: It's the latter. 09:16 3 COMMISSIONER WHITAKER: Okay. If 09:16 4 you're telling us that if the only purpose of their 09:16 5 statement is to say, I oppose it, that that 09:16 6 nonetheless gives you the problem? 09:16 7 MS. KIPLIN: Yes. Because I'm 09:16 8 considering that to be comment, and I'm not going to 09:16 9 say that they're in complete opposition to the entire 09:16 10 rule, but -- provisions. But it's a continuous 09:16 11 problem, and it's not only on the bingo side, but it's 09:16 12 on the Lottery side. And I guess what I would like is 09:17 13 there to be an orderly structure and people take 09:17 14 advantage of the comment period, as contemplated by 09:17 15 the Administrative Procedures Act. And that is, 09:17 16 submit the comment during the comment period, either 09:17 17 in written form or in an oral comment hearing, which 09:17 18 we noticed. We had a court reporter present that day, 09:17 19 and it was in the proposed text that that hearing was 09:17 20 going to occur. And it was also printed as a notice 09:17 21 in the Texas Register. 09:17 22 COMMISSIONER WHITAKER: How long had 09:17 23 that comment period been? 09:17 24 MS. KIPLIN: Let's see. The rule was 09:17 25 published in the Texas Register in the September 27th 09:17 0036 1 issue, and the hearing was held October 10th. A 09:17 2 reasonable comment period is 30 days. There are on 09:17 3 occasions a comment period that could be less than 09:17 4 that. But an agency is precluded from adopting a 09:17 5 proposed rule until 30 days has elapsed. 09:17 6 COMMISSIONER WHITAKER: And we've got 09:17 7 60 days in this instance. 09:17 8 MS. KIPLIN: Yes, that's correct. 09:17 9 MR. ATKINS: Commissioner Whitaker, 09:17 10 could I just point out that this rule was also first 09:18 11 presented to the advisory committee at their June 28th 09:18 12 meeting and subsequently provided to them at their 09:18 13 August 23rd. So Ms. Kiplin is representing the formal 09:18 14 comment period that is reflective of the publication 09:18 15 in the Texas Register, but I would like the Commission 09:18 16 to have the knowledge that this rule was also 09:18 17 available for informal comment for a period of time 09:18 18 prior to that. 09:18 19 COMMISSIONER WHITAKER: Are you asking 09:18 20 us to do this on a case-by-case basis or to impose a 09:18 21 general rule that has to be -- and there has to be 09:18 22 some good cause for changing or -- 09:18 23 MS. KIPLIN: I'm not prepared to ask 09:18 24 you to -- to do it on a wide sweeping approach right 09:18 25 now, because I think that is something that if we 09:18 0037 1 wanted to should do, we should take in the form of a 09:18 2 rule, as a matter of policy. We can obviously just 09:18 3 rely on the APA that you says you give them a 09:18 4 reasonable opportunity. But I am prepared to say 09:18 5 today that my recommendation, and Mr. Atkins, you 09:19 6 weigh in, is to move forward and take up the document 09:19 7 that's before you. 09:19 8 The other concern that I always have is 09:19 9 that when we make a draft available that's a draft for 09:19 10 adoption, then what you have is people who want to 09:19 11 comment on the preamble of the adopted -- of the 09:19 12 proposed adopted draft, which isn't necessarily what 09:19 13 was out for public comment during the rulemaking 09:19 14 process. 09:19 15 COMMISSIONER WHITAKER: My reaction is 09:19 16 to only ask people to speak if they want to address 09:19 17 the particular issue of whether they should be allowed 09:19 18 to comment instead of giving the comments, or else -- 09:19 19 in other words, if anyone one of those six says, here 09:19 20 is an extraordinary reason why my comment needs to be 09:19 21 heard, I would like to hear that. Otherwise, I would 09:19 22 propose that we cut off comment and go ahead and rule. 09:19 23 CHAIRMAN CLOWE: And in light of 09:19 24 Commissioner Whitaker's comment, what would the 09:19 25 consequences be if we get into this and the process is 09:20 0038 1 opened up and therefore delayed? 09:20 2 MS. KIPLIN: Well, the rule was 09:20 3 published September 27th, so you're well within the 09:20 4 six months time period within which, if you don't do 09:20 5 something, the rule would expire. So from a legal 09:20 6 perspective, the consequence would be nothing in terms 09:20 7 of an impact, adverse impact on the proposed 09:20 8 rulemaking. I'll let Mr. Atkins talk about it, I 09:20 9 guess, from a more global process. 09:20 10 I guess, from another perspective for 09:20 11 me is the fact that there is a process, and we have 09:20 12 seen people not take advantage of that process and 09:20 13 want to come before the Commission. And what I'm 09:20 14 trying to do is encourage people to work within a 09:20 15 structure that is contemplated and actually set out by 09:20 16 law. 09:20 17 CHAIRMAN CLOWE: I think I understand 09:20 18 that, even though I'm not a lawyer. But the point I 09:20 19 was trying to get to was, I think if this is pushed 09:21 20 back, the result is a delay in a beneficial rule being 09:21 21 passed for the bingo industry, isn't it? 09:21 22 MR. ATKINS: That's my opinion, 09:21 23 Commissioner Clowe. This follows on the tail of the 09:21 24 actions that the Commission took to adopt the new rule 09:21 25 relating to pull tabs, which would authorize 09:21 0039 1 additional games. Now you've heard comment today that 09:21 2 that has had a tremendous positive impact for the 09:21 3 charitable bingo. So we, through a natural 09:21 4 progression, extended that to bingo paper to authorize 09:21 5 additional styles of play through paper. We, at the 09:21 6 same time, put in many of the same regulatory 09:21 7 requirements in terms of record keeping, et cetera, 09:21 8 that we did for the pull tabs. So in the staff's 09:21 9 opinion, it's incredibly similar to the pull tab rule, 09:21 10 except this applies to paper. And the biggest impact 09:21 11 that we would see to not adopting that is that it 09:22 12 would delay the introduction of these new types of 09:22 13 paper into the bingo market. 09:22 14 COMMISSIONER WHITAKER: I think that's 09:22 15 a very important point, and I would think that there 09:22 16 wouldn't be an extraordinary reason for extending 09:22 17 comment. But if somebody thinks they can demonstrate 09:22 18 that without going into the content of their comment, 09:22 19 I would like to at least have them say, here is an 09:22 20 extraordinary reason. If they don't have that, then I 09:22 21 say, let's go ahead. 09:22 22 CHAIRMAN CLOWE: Do you object to that? 09:22 23 COMMISSIONER COX: Sounds fine. 09:22 24 CHAIRMAN CLOWE: I'm going to ask 09:22 25 Commissioner Whitaker to lead the questioning for the 09:22 0040 1 Commissioners of these individuals so you'll be 09:22 2 satisfied. 09:22 3 COMMISSIONER WHITAKER: I would only 09:22 4 just say that there are different folks that have 09:22 5 asked to speak. I don't want you to go into the 09:22 6 content of your comments. I am asking you that if you 09:22 7 think that you have extraordinary reason that gives 09:22 8 you good cause for not having commented within the 09:22 9 comment period, I would like you to at least say that 09:22 10 and articulate what that extraordinary reason is. 09:22 11 Otherwise, I will deem that there isn't and I would go 09:23 12 ahead and propose to vote. 09:23 13 So is there anybody who would like to 09:23 14 say, I have an extraordinary reason? 09:23 15 MR. FENOGLIO: Yes, ma'am. 09:23 16 COMMISSIONER WHITAKER: And what is 09:23 17 that extraordinary reason? 09:23 18 MS. KIPLIN: Would you identify 09:23 19 yourself? Sorry. 09:23 20 MR. FENOGLIO: For the record, my name 09:23 21 is Stephen Fenoglio and I'm the one who filed the 09:23 22 written comment. 09:23 23 The staff have now introduced a new 09:23 24 definition in the rule in their comment period, and it 09:23 25 has to do with a comment that I filed. 09:23 0041 1 COMMISSIONER WHITAKER: Pardon? 09:23 2 MR. FENOGLIO: It has to do with a 09:23 3 commented that I filed. 09:23 4 COMMISSIONER WHITAKER: And when did 09:23 5 you discover this? 09:23 6 MR. FENOGLIO: About 9:00 o'clock this 09:23 7 morning when I read this draft rule on bingo paper. 09:23 8 COMMISSIONER WHITAKER: Ms. Kiplin, 09:23 9 could I look at that -- 09:23 10 MS. KIPLIN: Sure. But let me respond 09:23 11 to that. This is exactly what I'm talking about. 09:23 12 Mr. Fenoglio wants to comment on what is contained in 09:23 13 the preamble of the draft adopted rule. That's what 09:23 14 he is trying to comment on. 09:23 15 MR. FENOGLIO: And I would like to 09:23 16 respond at the appropriate time. 09:23 17 COMMISSIONER WHITAKER: And without 09:24 18 going into the content, respond to what she said, 09:24 19 please. 09:24 20 MR. FENOGLIO: My comment, written 09:24 21 comment, was -- 09:24 22 COMMISSIONER WHITAKER: No, don't go 09:24 23 into the content of your comment. 09:24 24 MR. FENOGLIO: There is no way that you 09:24 25 can read the plain language of the draft rule and know 09:24 0042 1 that staff are using something other than what is in 09:24 2 plain ordinary English. 09:24 3 COMMISSIONER WHITAKER: But I want you 09:24 4 to address what she specifically said, which is, if 09:24 5 it's contained in the preamble, it's a different 09:24 6 consideration. 09:24 7 MR. FENOGLIO: Well, it's not when the 09:24 8 rubber meets the road in an enforcement matter or in 09:24 9 an audit. I mean, the argument is, well, what's the 09:24 10 definition of perpetual. 09:24 11 MS. KIPLIN: This is what I'm talking 09:24 12 about. Mr. Fenoglio actually submitted comment. He 09:24 13 was one of the two that actually submitted comment 09:24 14 during the comment period. But know now he's seen the 09:24 15 draft adopted version. He wants to come forward and 09:24 16 comment on what the staff is proposing as an adoption. 09:24 17 And so it's the never-ending song. 09:24 18 COMMISSIONER WHITAKER: In other words, 09:25 19 he has had a chance to comment, the staff has then 09:25 20 responded to that comment, and in light of that, you 09:25 21 don't think it's extraordinary cause. 09:25 22 MS. KIPLIN: No. I think he's had an 09:25 23 opportunity to comment on what was proposed for 09:25 24 comment. The staff has made a decision that they're 09:25 25 recommending that what was proposed be adopted with 09:25 0043 1 changes. 09:25 2 COMMISSIONER WHITAKER: In light of his 09:25 3 comment. 09:25 4 MS. KIPLIN: In light of the comment, 09:25 5 and also, in light of their further review. 09:25 6 COMMISSIONER WHITAKER: What's your 09:25 7 pleasure? 09:25 8 CHAIRMAN CLOWE: We're open -- if no 09:25 9 one else in this group of seven has anything further 09:25 10 to say, I think we're open to a motion. 09:25 11 COMMISSIONER WHITAKER: I'm going to go 09:25 12 ahead and move for the adoption of the rule. 09:25 13 CHAIRMAN CLOWE: I second. 09:25 14 Is there any comment? All in favor, 09:25 15 please say aye. No. 09:25 16 The vote is three-zero in favor. 09:25 17 MS. KIPLIN: Commissioners, you also 09:26 18 have, as part of that this matter, the staff's 09:26 19 recommendation to adopt the repeal of the existing 09:26 20 rule, 16 Texas Administrative Code, Section 402.558. 09:26 21 CHAIRMAN CLOWE: So moved. 09:26 22 COMMISSIONER WHITAKER: Second. 09:26 23 CHAIRMAN CLOWE: All in favor, please 09:26 24 say aye. 09:26 25 The vote is three-zero in favor. There 09:26 0044 1 are no no's. 09:26 2 The next item is number six, 09:26 3 consideration of and possible discussion and/or action 09:26 4 on increasing bingo revenue. 09:26 5 MS. KIPLIN: Mr. Chairman, I think 09:26 6 Mr. Whittington -- I don't know that he has submitted 09:26 7 a Witness Affirmation Form, and if he has not, we can 09:26 8 get that later. And I'll make sure that I get it from 09:26 9 him. But he has expressed an interest in having this 09:27 10 item on your agenda. And Mr. Chairman, if you'll 09:27 11 remember, you and I met with Mr. Whittington and he 09:27 12 wants to come forward and -- 09:27 13 CHAIRMAN CLOWE: I remember that, and I 09:27 14 saw my name down here by this item and I was wracking 09:27 15 my brain, Mr. Whittington, and I was wondering where 09:27 16 your item came, and this is it. Will you come forward 09:27 17 and share with us your thoughts, please. We're glad 09:27 18 to have you here this morning. 09:27 19 Would you identify yourself, please. 09:27 20 MR. KING: My name is Larry Clowe. No, 09:27 21 I mean, Larry Whittington. I'm going to pass these 09:27 22 memos out, which I'm going to go down one by one so 09:27 23 you can fully understand what I'm talking about. 09:27 24 The first thing I'm going to say, this 09:27 25 is something that is status quo, and I understand the 09:28 0045 1 rules and regulations under the topic I'm about to 09:28 2 speak on. I know the State has their rules, but I'm 09:28 3 just talking about something innovative and something 09:28 4 we can look forward to in the future as far as 09:28 5 increasing revenue for bingo as well as the Texas 09:28 6 Lottery as well as advertising. I have been in the 09:28 7 bingo, what? For 20 years and I have seen things come 09:28 8 and go. And what I'm going to talk about today is 09:28 9 basically, what has happened to bingo customers. 09:28 10 Where they're going and why these people -- where are 09:28 11 they spending money. 09:28 12 The pull tabs have been great. They 09:28 13 have increased revenue a lot. But we still have an 09:28 14 attendance we need in bingo. And, of course, the 09:28 15 dollars are so tight as far as when it comes to 09:28 16 spending -- the spending amount per customer because 09:28 17 of certain things you might have, Indian reservations, 09:29 18 freestanding game rooms, which is the main thing. The 09:29 19 focus is freestanding game rooms, and they're not 09:29 20 going to go away. We'll try, but they're everywhere, 09:29 21 as we know. At any given time, you can walk over to 09:29 22 any game room during bingo time and see 20 or 30 bingo 09:29 23 customers in that place. And I'm going to speak from 09:29 24 firsthand experience, what we had, and we have a drop 09:29 25 of about 40 percent as far as income because we don't 09:29 0046 1 have them any more, which is a game room. We had game 09:29 2 rooms in our bingo halls a few years ago. And the way 09:29 3 we operate our bingo game rooms, if you look at 09:29 4 page -- copy one on my memos, we went to the City of 09:29 5 Richardson and expressed that we had a game room, 09:29 6 could we operate this game room. And they said, 09:29 7 basically, no, at first until I explained, we're doing 09:29 8 it basically for charities. Okay? And at that point, 09:29 9 he adopted it and he said, okay, you can open it on 09:30 10 your bingo time only, which was basically eight and a 09:30 11 half hours a day. And we said, well, we can't 09:30 12 really -- can't make any money. And he said, the only 09:30 13 thing you can do is give away bingo gift certificates. 09:30 14 That will ensure your bingo people to come back in and 09:30 15 play bingo only for the charities. 09:30 16 I said, well, you know, that sounds 09:30 17 really good. But what the Wal-Marts and K-Marts, what 09:30 18 these other game rooms are doing? And he said, no, we 09:30 19 can't do that. I said, okay. We'll try bingo. And 09:30 20 lo and behold, we kept our bingo customers there, and 09:30 21 they was happy and they had something else to play. 09:30 22 They had another game of chance that they could play. 09:30 23 We opened our doors up at 12:30, allotted time for 09:30 24 that session, which is four hours, 12:30 to 4:30, and 09:30 25 lo and behold, when we opened that session up at 09:30 0047 1 12:30, the game room, the people went in and they won 09:30 2 their game -- they won their bingo gift certificates, 09:30 3 excuse me, then they came back and played pull tabs. 09:30 4 So that increased our pull tabs by probably about 80 09:31 5 percent. We sold about 3,000 dollars worth of pull 09:31 6 tabs before bingo even got started during the bingo 09:31 7 time because of the game room and the bingo gift 09:31 8 certificates. And the only way they could use these 09:31 9 gift certificates was to play bingo or buy pull tabs. 09:31 10 And the word eight-liner is not a bad word, you know, 09:31 11 when it comes to bingo, because it was a good word for 09:31 12 all these charities because we, in return, put about 09:31 13 2,000 dollars more in their pocket for -- it really 09:31 14 helped a lot. 09:31 15 And, basically, what I'm trying to say 09:31 16 is, all our bingo customers, they've got a choice. 09:31 17 And 30 percent of them would rather play the 09:31 18 eight-liner machines for whatever, they really don't 09:31 19 care what they're playing for. But all I'm saying is, 09:31 20 we need to get on the same playing field if we're 09:31 21 going to survive in bingo, because most of our 09:32 22 customers are going to these game rooms. And I just 09:32 23 feel that some time when these machines was regulated, 09:32 24 where we can have them in our bingo halls and give 09:32 25 bingo gift certificates only to play bingo only and 09:32 0048 1 pull tabs, knowing that we're not interfering with 09:32 2 nobody else, no race tracks or no casinos or nothing 09:32 3 like that, we just have these machines for our bingo 09:32 4 customers because that's the only thing they can win 09:32 5 is stuff to play bingo with. Okay? And if you don't 09:32 6 believe me, I've got proof of this. I can show you 09:32 7 that these game rooms are not going away. They're 09:32 8 popping up everywhere. If they're not going to play 09:32 9 the game rooms in the state, they're going to go out 09:32 10 of state and play some type of game, because they love 09:32 11 the game of chance. And we are under the Bingo 09:32 12 Enabling Act, which allows us to basically be a 09:32 13 gambling facility, to give away money for the 09:32 14 charities. Okay? So why not have some type of 09:32 15 regulation on these machines, eight-liners. Okay? To 09:32 16 help the bingo halls. You can look at all of the 09:32 17 demonstrations in the world of pull tab machines. 09:33 18 They're still eight-liners. Whenever you look at 09:33 19 something that have sevens and cherries, they're 09:33 20 eight-liners. No way you put it. 09:33 21 So I just feel that we are thinking 09:33 22 about what is happening to the customers in Texas. 09:33 23 People are playing in the game rooms. They're going 09:33 24 to play one thing or another. They're going to play 09:33 25 bingo or they're going to play the game rooms. But 09:33 0049 1 when we had the game room, they played the game room, 09:33 2 they came and played bingo, and then they went back 09:33 3 and played the game rooms again, but only for bingo 09:33 4 gift certificates. And that's all they want. Okay? 09:33 5 And then I looked around and I said, 09:33 6 lottery. I see these lottery dispensers in grocery 09:33 7 stores and K-Marts. Everywhere. Why not have them in 09:33 8 bingo halls? These people love the game of chance. 09:33 9 That will increase lottery sales. When they walk out 09:33 10 the door, let me buy me some lottery tickets. When I 09:33 11 come in, let me buy some lottery tickets. Bingo 09:33 12 people, they love the game of chance, so why not have 09:33 13 lottery machines in bingo halls, to increase revenue 09:33 14 for the Lottery as well as help the charities, on top 09:33 15 of it. I mean, I'm talking about innovation things. 09:34 16 I know what's happening now. I know what is in the 09:34 17 law. We can't do that because you've got to have a 09:34 18 special provision to do certain things when it comes 09:34 19 to the law in Texas. We need to move forward. We 09:34 20 need to be innovative. All the other states are being 09:34 21 innovative and they're capitalizing on what is better 09:34 22 for our state. 09:34 23 And then on top of the bingo machines 09:34 24 and bingo gift certificates, these machines make money 09:34 25 for the charities. They can be taxed just like bingo, 09:34 0050 1 five percent every day. Okay? And if you look at my 09:34 2 example as a check and balance system, on number six, 09:34 3 it shows you the amount of money that a hall can make 09:34 4 through these charities -- through these machines. 09:34 5 And that's tax on a daily basis for every hall in the 09:34 6 State of Texas. That's a lot of money coming in to do 09:34 7 advertising for lottery as well as bingo, and 09:34 8 everything else, plus pay somebody to manage this, 09:34 9 which really wouldn't take much to do. 09:35 10 It's so easy to manage a check and 09:35 11 balance system when it comes to these machines because 09:35 12 they can be read on a daily basis. And I'm not 09:35 13 saying, go out and put 50 machines in a hall. They 09:35 14 could have 20 machines. These people want something 09:35 15 to do when they walk in during the bingo time. And 09:35 16 our problem is, we've got four hours of bingo, but 09:35 17 we're only using one hour because nobody comes until 09:35 18 the bingo session starts. And that's been a big 09:35 19 problem. But I found out when we was doing this, 09:35 20 before we closed because of the State of Texas law 09:35 21 saying that y'all have got to close because y'all have 09:35 22 eight-liner machines. It wasn't the machines, it was 09:35 23 what the State of Texas says, five dollar max. And we 09:35 24 argued that point. Somebody come in, win a bingo gift 09:35 25 certificate for five dollars and go buy a bingo card 09:35 0051 1 or a computer, is that five dollars? I don't think 09:35 2 so, because they are playing a game of chance, which 09:36 3 it might be one person out of 150 win that game. So 09:36 4 how is that valued at five bucks? It's not. And we 09:36 5 argued that point, but they said, no, you've got to 09:36 6 close, and we went on and closed. And I went to the 09:36 7 Attorney Generals Office and talked to Jeff Bart. 09:36 8 I've been down to the Governor's Office talking to 09:36 9 Mike Giessen (phonetic), and they was just sitting 09:36 10 there saying, man, this is a great approach. We wish 09:36 11 we would have known about this, but the law says 09:36 12 eight-liners are five dollars or no -- or ten times 09:36 13 the bet. That's it. 09:36 14 And I said, well, I could argue the 09:36 15 point. But they said, no, if you have anything 09:36 16 dealing with five dollars or anything, we can close 09:36 17 you up. I said, no, we'll just close. But when I got 09:36 18 ready to close, we got raided, and the Richardson 09:36 19 police came and said, hey, Larry, we understand what 09:36 20 you're trying to do. We've worked for you a long time 09:36 21 as an off-duty policeman, and the law says, we've got 09:36 22 to pick these machines up. Okay? 09:36 23 And from that point -- and that 09:36 24 happened November 22nd, 2001. From that point, our 09:37 25 charities and donations have dropped 30 to 40 percent, 09:37 0052 1 and we have lost 20 to 30 people in every bingo hall 09:37 2 that we run, which is five different bingo halls. 09:37 3 It's just so much we can do. And I'm 09:37 4 speaking on behalf of myself, not as no member or 09:37 5 nothing like that of the BAC. It's just me, because I 09:37 6 know from firsthand experience what kind of loss we 09:37 7 incurred when we lost our little game room for eight 09:37 8 hours a day. Because they love to do it. If somebody 09:37 9 love to do something, I am American, I can do anything 09:37 10 I want. That's basically what they said. And I would 09:37 11 rather play the game. Most of them play bingo. 09:37 12 CHAIRMAN CLOWE: Thank you for that 09:37 13 clarification that you're here as an individual 09:37 14 citizen and a bingo operator. 09:37 15 MR. WHITTINGTON: Yes. 09:37 16 CHAIRMAN CLOWE: Would you take 09:37 17 questions? 09:37 18 MR. WHITTINGTON: Yes. 09:37 19 COMMISSIONER WHITAKER: I have no 09:37 20 questions. Thank you for the presentation. 09:37 21 CHAIRMAN CLOWE: We, as the General 09:37 22 Counsel commented, you and she and I have met, and we 09:38 23 have talked about the things that you have stated here 09:38 24 this morning, your concerns, which represent your 09:38 25 experience in the bingo industry. And you understand 09:38 0053 1 that the relief that you are seeking is legislative in 09:38 2 nature? 09:38 3 MR. WHITTINGTON: Yes. 09:38 4 CHAIRMAN CLOWE: Rather than something 09:38 5 that this Commission could act on within the statutes 09:38 6 that it currently operates within and the rules that 09:38 7 it has. But you want to make public your concern and 09:38 8 you wanted this time on our agenda, which I was happy 09:38 9 to grant you. We appreciate you coming today and 09:38 10 expressing your concerns. It is not dissimilar to 09:38 11 those that I have heard from others in the bingo 09:38 12 industry. The subject is widely discussed, and I want 09:38 13 to thank you for coming down from Dallas and making 09:38 14 this presentation to us this morning. 09:39 15 MR. WHITTINGTON: I want to just say 09:39 16 one more thing, Chairman Clowe, and I really 09:39 17 appreciate y'all listening to me. But if some kind of 09:39 18 way these little eight-liner machines, which is 09:39 19 fantastic, I think, if they are used in the proper 09:39 20 respect, they're fantastic. They are something that 09:39 21 most Americans, especially in Dallas, Texas and Texas, 09:39 22 they love to do. They just love these machines, and 09:39 23 they don't really care what they win. Okay? But they 09:39 24 just want to have something to do. And if these are 09:39 25 regulated, all we've got to be put under some note, it 09:39 0054 1 is a definition of a machine that pays a bingo gift 09:39 2 certificate to help the charities. And that's 09:39 3 basically what we're using it for, and it was an 09:39 4 in-hall deal. Once you walk out the door, it had no 09:39 5 value at all, not even to play bingo nowhere else. It 09:39 6 was only in the bingo hall. And we wasn't doing no 09:39 7 Wal-Marts and K-Marts especially, it was just bingo 09:39 8 gift certificates to help the charities to play bingo 09:40 9 that day. And we put it -- as you can note in the 09:40 10 notes, we had put up, please, thank you for your 09:40 11 donations for helping the charities. You can only win 09:40 12 bingo gift certificates. All that was up in red and 09:40 13 black ink all over the place. And we had rules and 09:40 14 regulations and it was great. And whoever licensed 09:40 15 these machines, basically, have to pay a fee, too. So 09:40 16 it's money coming in everywhere. If you want to be a 09:40 17 licensed -- licensee or a distributor of these 09:40 18 machines to go in the bingo halls, there's a fee 09:40 19 you've got to pay. So it's money coming in for the 09:40 20 state as well as the county, which have never been 09:40 21 done, because I think the problem is, there is no way 09:40 22 for nobody to know what is being made from these 09:40 23 machines. At least you can have five percent for all 09:40 24 the bingo halls in Texas coming in to help out, for a 09:40 25 lot of things. Advertising for bingo, number one. 09:40 0055 1 CHAIRMAN CLOWE: Very good. 09:40 2 MR. WHITTINGTON: Thank you. 09:40 3 CHAIRMAN CLOWE: Thank you, sir. 09:40 4 Next we'll go to item number seven, 09:41 5 report, possible discussion and/or action on calendar 09:41 6 year 2002 third quarter bingo financial information 09:41 7 and statistics. 09:41 8 MR. ATKINS: Thank you, Commissioners. 09:41 9 You have in your notebook information pertaining to 09:41 10 the third quarter 2002 bingo statistics. This is the 09:41 11 information that the division routinely presents to 09:41 12 you at the end of reporting quarters. Unfortunately, 09:41 13 the information continues to be essentially the same 09:41 14 as it's been in the past. However, there are two 09:41 15 items at the end of the presentation that I would like 09:41 16 to draw your attention to specifically and let you 09:41 17 know that we'll be looking at further. 09:41 18 First of all, gross receipts for the 09:41 19 third quarter of 2002 are down almost five percent, 09:41 20 about 6.9 million, from the third quarter of 2001. 09:41 21 The graph following that shows the first three 09:42 22 quarters for 1997 through 2002. That's followed by a 09:42 23 graph showing total prizes. Prizes were down almost 09:42 24 3.4 million dollars or about 3.3 percent from the 09:42 25 third quarter of 2001 to 2002. Charitable 09:42 0056 1 distributions were down approximately eight and a half 09:42 2 percent, or almost 700,000 dollars, from the third 09:42 3 quarter of 2001. And organizations, for their 09:42 4 attendance, reported a decrease of about 5.3, 5.4 09:42 5 percent from the previous year, from the -- now, what 09:42 6 I did want to point out is, if we look at the graph on 09:42 7 attendance comparing the first three quarters of '97 09:42 8 through 2002, we noted that there was an increase in 09:43 9 the third quarter of 2002 over the second quarter of 09:43 10 2002 of about 12,000 people. Another thing we noticed 09:43 11 is that the decreased -- or I'm sorry. Going back to 09:43 12 gross receipts, there was an increase in electronic 09:43 13 sales of about 440,000 dollars, about one percent, and 09:43 14 that is a small increase for card-minding sales. And 09:43 15 the reason I point that out is because there was 09:43 16 testimony at yesterday's advisory committee meeting 09:43 17 that they felt that the new pull tabs that have been 09:43 18 introduced may be taking some play from card-minding 09:43 19 devices. So that is information that we will look at 09:43 20 and continue to follow. We hope to have a better 09:43 21 picture of the full impact of the new pull tabs that 09:43 22 were recently introduced after the close of this 09:44 23 calendar quarter when those reports are filed in 09:44 24 January of next year. 09:44 25 I would be happy to answer any 09:44 0057 1 questions you have. 09:44 2 COMMISSIONER WHITAKER: How, in your 09:44 3 opinion, do these figures track the economy as a 09:44 4 whole? 09:44 5 MR. ATKINS: We have never done that 09:44 6 analysis, Commissioner Whitaker. There has been, I 09:44 7 believe, an assumption in the bingo industry that 09:44 8 actually the worst the economy is, the better bingo 09:44 9 draws. The reason being that people are less likely 09:44 10 to travel. They stay closer to home. Look for 09:44 11 entertainments in their immediate area, as opposed to 09:44 12 the economy is better and they're more likely to 09:44 13 travel out of state, et cetera. 09:44 14 COMMISSIONER WHITAKER: Do you think 09:44 15 that is a relevant factor that we should track? 09:44 16 MR. ATKINS: I do. I think there are a 09:44 17 number of factors that we should track, and to let the 09:44 18 Commissioners know, that is something that the staff 09:44 19 has been working on, and I even had the opportunity to 09:45 20 meet recently with T.C. Mallett, who the Executive 09:45 21 Director is going to be introducing to you later on, 09:45 22 and discussing a lot of the factors dealing with both 09:45 23 the data that we get as well as external economic 09:45 24 factors that we would like to examine together. And I 09:45 25 discussed with T.C. some of the places that we could 09:45 0058 1 go for expertise to conduct that analysis. 09:45 2 COMMISSIONER WHITAKER: Good. 09:45 3 CHAIRMAN CLOWE: Anything further for 09:45 4 Billy? Then we'll go on to item number eight, report, 09:45 5 possible discussion and/or action on lottery sales and 09:45 6 trends. Toni Smith. Good morning. 09:45 7 MS. SMITH: Good morning, 09:45 8 Commissioners. For the record, my name is Toni Smith 09:45 9 and I'm the marketing director of the Texas Lottery. 09:45 10 Total fiscal year 2003 sales to date are 584.7 09:45 11 million. This is up .8 percent from fiscal year 2002 09:46 12 total sales to date of 580.3 million. Bart and I have 09:46 13 also submitted additional sales information for your 09:46 14 review, and we both would be happy to answer any 09:46 15 questions that you might have. 09:46 16 CHAIRMAN CLOWE: Any questions? 09:46 17 I don't think there are. Thank you 09:46 18 very much. 09:46 19 MS. SMITH: Thank you, sir. 09:46 20 CHAIRMAN CLOWE: The next item, number 09:46 21 12, report, possible discussion and/or action on the 09:46 22 legislative appropriations request for fiscal year '04 09:46 23 and '05. Mr. Sanchez, good morning. 09:46 24 MR. SANCHEZ: Good morning, 09:46 25 Commissioners. For the record, my name is Bart 09:46 0059 1 Sanchez. I'm the financial administration director. 09:46 2 And basically, I am just going to give you a status 09:46 3 report. We're still responding to questions from the 09:46 4 legislative budget office, the LBB, and the governor's 09:46 5 budget office. And there hasn't been any substantive 09:46 6 changes. There has been some format changes into the 09:47 7 database, but nothing material as of now. We continue 09:47 8 to work with them so that they can prepare their 09:47 9 report and can -- in preparation for the legislative 09:47 10 session. If you have any questions, I would be happy 09:47 11 to address them. 09:47 12 CHAIRMAN CLOWE: Everything is on track 09:47 13 and you're moving along and no problems that you see? 09:47 14 MR. SANCHEZ: No. 09:47 15 CHAIRMAN CLOWE: At this point? 09:47 16 MR. SANCHEZ: At this point. 09:47 17 CHAIRMAN CLOWE: Thank you, sir. 09:47 18 Next is item 13, report, possible 09:47 19 discussion and/or action on the Sunset process 09:47 20 involving the agency. I believe Nelda Trevino is 09:47 21 absent today. Is someone going to make that report in 09:47 22 her place? 09:47 23 MR. GRIEF: Commissioners, Melissa 09:47 24 Villasenor-Dye will be coming forward to make that 09:47 25 report. 09:47 0060 1 CHAIRMAN CLOWE: Good morning. 09:47 2 MS. VILLASENOR-DYE: Good morning, Mr. 09:47 3 Chairman. Good morning, Commissioners. For the 09:47 4 record, my name is Melissa Villasenor. I'm the 09:47 5 governmental affairs representative. I work under the 09:47 6 direction of Nelda Trevino, the director of 09:47 7 governmental affairs, who is unable to be with us this 09:48 8 morning. 09:48 9 Commissioners, I would like to 09:48 10 acknowledge that with us are members -- a member of 09:48 11 the project team for this Sunset Advisory Commission. 09:48 12 On November 12th, decisions were rendered and made for 09:48 13 our agency. The decision document that notes the 09:48 14 Sunset Advisory Commission decision has been provided 09:48 15 to each of you, as well as executive management, the 09:48 16 directors, and agency staff. It can also be located 09:48 17 on the Sunset website. 09:48 18 Commissioners, our next step, or the 09:48 19 next step in the process, a Sunset bill will be filed. 09:48 20 It is our understanding that the bill authors for the 09:48 21 Sunset bills will not be identified until sometime in 09:48 22 January. If there is any questions specifically to 09:48 23 this, I can do my best of my ability to address them 09:48 24 at this time. 09:49 25 CHAIRMAN CLOWE: Melissa, I think I 09:49 0061 1 would like to say, and I am open to your comments as 09:49 2 well as Karen Latta, who is here from the Sunset 09:49 3 staff, I think that my recollection is that all three 09:49 4 Commissioners were present when we made our initial 09:49 5 presentation, and then Commissioner Cox and I were at 09:49 6 the meeting two weeks ago. Commissioner Whitaker was 09:49 7 unable to make that meeting, if I remember correctly. 09:49 8 COMMISSIONER WHITAKER: I was not 09:49 9 there, yes. 09:49 10 CHAIRMAN CLOWE: That's my 09:49 11 recollection. And my sense of it is that we had a 09:49 12 very good result and that the Sunset Committee staff 09:49 13 has taken us through that process very successfully. 09:49 14 Our staff has worked hard, I know. When the votes 09:49 15 were made and taken by the chair of the Sunset 09:50 16 Committee, I for one was very pleased with where I 09:50 17 think this agency stood at that point in time. 09:50 18 MS. VILLASENOR-DYE: Uh-huh. 09:50 19 CHAIRMAN CLOWE: I'm open to correction 09:50 20 on that, if you would care to comment. 09:50 21 MS. VILLASENOR-DYE: No. I think 09:50 22 you've documented it well, Chairman Clowe. 09:50 23 CHAIRMAN CLOWE: And Ms. Latta, would 09:50 24 you have anything to add to that? 09:50 25 MS. LATTA: No. I can answer 09:50 0062 1 questions, though, if you would like. 09:50 2 MS. KIPLIN: Off mike, Ms. Latta 09:50 3 indicated, no, that she could answer questions. 09:50 4 CHAIRMAN CLOWE: Well, I'm very pleased 09:50 5 with where we are in this process. And I understand 09:50 6 it continues and there is much more work to be done. 09:50 7 MS. VILLASENOR-DYE: Yes, sir. 09:50 8 CHAIRMAN CLOWE: But I want to again 09:50 9 thank the Sunset staff, and I want to thank our staff 09:50 10 for the good work that's gone into it at this point, 09:50 11 and I think the elements of whatever results in this 09:50 12 bill being introduced are going to be very beneficial 09:51 13 to the agency. 09:51 14 MS. VILLASENOR-DYE: Yes, sir. I 09:51 15 agree. 09:51 16 CHAIRMAN CLOWE: Then the next item 09:51 17 additionally I think is yours, Melissa, and that's 09:51 18 number 14, report, possible discussion and/or action 09:51 19 on the 78th legislature, including the agency's 09:51 20 legislative proposal and/or on legislative briefings. 09:51 21 MS. VILLASENOR-DYE: Yes, sir, if I 09:51 22 may. In regards to the 78th legislative prefiling, it 09:51 23 began November 11th. And the -- to be mindful, the 09:51 24 session begins January 14th, Tuesday. We continue our 09:51 25 subscription service with the Texas Legislative 09:51 0063 1 Service, and this is a service that we use to assist 09:51 2 us in tracking legislation that could be possibly 09:51 3 impacting our agency. Based on our initial review, as 09:51 4 of today, there has only been one bill filed. This 09:51 5 bill was prefiled November 18th. It's House Bill 209 09:51 6 by Representative Robert Fuentes, authorizing the 09:52 7 Texas Lottery Commission to enter into a 09:52 8 multi-jurisdictional game. Representative Puente's 09:52 9 office has been in contact and communications with us, 09:52 10 and we continue to do the appropriate research and 09:52 11 analyses in order to be a resource. 09:52 12 As far as charitable bingo, there are 09:52 13 no bills related to charitable bingo that have been 09:52 14 prefiled to date. 09:52 15 We have also had a legislative briefing 09:52 16 that we just had this -- held this past Wednesday, and 09:52 17 we had good attendance. And we're planning on holding 09:52 18 a freshman orientation briefing sometime in January. 09:52 19 I also would like to direct your 09:52 20 attention to a letter that we have received, it's a 09:52 21 copy of a letter from the Davin Group, from Naja 09:52 22 Barrett (phonetic) who is the CEO there that is 09:52 23 extremely complimentary in nature to our agency. It 09:52 24 is regarding the project of the Great Plains Software. 09:53 25 It brings -- it is complimentary in the fact that it's 09:53 0064 1 stating that this was identifying and acknowledging 09:53 2 that this was a labor-intensive project for both -- 09:53 3 for Davin Group and members of the Lottery Commission. 09:53 4 And it identifies that we have identified the 09:53 5 financial processing and record capabilities to be 09:53 6 paramount to running a more efficient operation and 09:53 7 guaranteeing the accuracy and reliability of the 09:53 8 numbers that we use here at the agency. It was a 09:53 9 complex project and had -- the coordination across all 09:53 10 departments was extremely paramount. She is extremely 09:53 11 complimentary on our executive -- excuse me. Our 09:53 12 financial director, Bart Sanchez, and Daniel Benjamin, 09:53 13 and Byron Fowlkes, who served as the IT project 14 manager in assisting this conversion process, as well 09:53 15 as Robert Hall, our minority development service 09:53 16 director, and his assistant and his HUB coordinator, 09:54 17 Joyce Bertolacini. This letter was addressed to 09:54 18 Representative Dawnna Dukes and to other members of 09:54 19 the legislature. And I just wanted to bring that to 09:54 20 your attention since it was extremely complimentary in 09:54 21 nature. 09:54 22 If there is anything else that I can 09:54 23 answer any potential questions you may have. 09:54 24 CHAIRMAN CLOWE: I believe there are no 09:54 25 questions or comments. Thank you very much. 09:54 0065 1 MS. VILLASENOR-DYE: Thank you, sir. 09:54 2 CHAIRMAN CLOWE: Next is item 15, 09:54 3 consideration of and possible action on the 09:54 4 appointment and employment of an Executive Director 09:54 5 and/or a Deputy Executive Director. 09:54 6 MS. KIPLIN: Commissioners, I'm 09:54 7 intending to keep this on as a standing item from 09:54 8 commission meeting to commission meeting. You'll 09:54 9 notice it's also noticed up for executive session in 09:54 10 giving you the opportunity to deliberate with regard 09:54 11 to this matter, and that's an appropriate item for 09:54 12 executive session. I really don't have anything new 09:54 13 to report in the Commission meeting at this time. We 09:54 14 are receiving evaluations. We have advertised in 09:55 15 trade magazines, and we're casting as wide a net as we 09:55 16 can, at your direction, to try to generate as much 09:55 17 interest as we can with regard to these positions. 09:55 18 Especially the Executive Director, with regard to the 09:55 19 advertising. 09:55 20 CHAIRMAN CLOWE: And I want to 09:55 21 reinforce what you've said by saying that the posting 09:55 22 has been up since when? 09:55 23 MS. KIPLIN: I'm sorry. I don't have 09:55 24 that correct date, but it's -- it was, if I'm not 09:55 25 mistaken, not too soon after the last commission 09:55 0066 1 meeting. And I may be wrong on the timing, but it's 09:55 2 been up, we are receiving applications. Ms. du'Mas is 09:55 3 here. 09:55 4 MS. DU'MAS: Good morning, 09:55 5 Commissioners. For the record, my name is Julie 09:55 6 du'Mas, and I'm available to respond to your 09:55 7 questions. The posting for the Executive Director 09:55 8 position was opened for application on November 4th. 09:55 9 CHAIRMAN CLOWE: And that was following 09:56 10 the intensive look at the job description so that it 09:56 11 was up to date and comprehensive in nature. 09:56 12 MS. DU'MAS: That's correct. 09:56 13 CHAIRMAN CLOWE: It is open until 09:56 14 filled? 09:56 15 MS. DU'MAS: That's correct. 09:56 16 CHAIRMAN CLOWE: There is no deadline 09:56 17 on the applicants coming in. And you are receiving 09:56 18 applications at this time. And you're receiving, as I 09:56 19 understand it, applications from Texas residents as 09:56 20 well as those outside of the state of Texas. 09:56 21 MS. DU'MAS: Yes, sir, we are. Our 09:56 22 advertisement was opened up nationally and 09:56 23 internationally, using some of the major recruiting 09:56 24 dot-coms. 09:56 25 CHAIRMAN CLOWE: So in fact, as 09:56 0067 1 Ms. Kiplin said, we are casting a wide net and trying 09:56 2 to inform everyone who might possibly be interested 09:56 3 and qualified in this position that it is open and 09:56 4 that we are open to an application. 09:56 5 MS. DU'MAS: Yes, sir, that's correct. 09:56 6 CHAIRMAN CLOWE: And it is posted for 09:56 7 the executive session and the Commissioners will 09:57 8 deliberate those applications that have been received 09:57 9 to date as a personnel matter in executive session. 09:57 10 MS. KIPLIN: Yes, that is an 09:57 11 appropriate item. Now, Commissioners, before we move 09:57 12 on, I do want to comment on the Deputy Executive 09:57 13 Director position. That posting has closed, and at 09:57 14 your direction, we are standing at abeyance on moving 09:57 15 forward on that position. 09:57 16 CHAIRMAN CLOWE: And is that posted for 09:57 17 executive session as well so the Commissioners can 09:57 18 review that as a personnel matter? 09:57 19 MS. KIPLIN: Yes, sir. 09:57 20 CHAIRMAN CLOWE: Good. Anything 09:57 21 further? Thank you very much. 09:57 22 Next is item 16, report and possible 09:57 23 discussion and/or action on the fiscal management and 09:57 24 development director position. Mr. Grief. 09:57 25 MR. GRIEF: Yes, sir. T.C., could you 09:57 0068 1 please come forward. 09:57 2 Commissioners, I asked for this item to 09:57 3 be placed on the agenda as an opportunity to introduce 09:57 4 to the Commission a gentleman who has filled this 09:57 5 particular position since early November, Mr. T.C. 09:57 6 Mallett. Prior to coming on board with the Lottery 09:58 7 Commission, T.C. served the State of Texas for about 09:58 8 34 years in the State Comptroller's Office, and prior 09:58 9 to retiring from the Comptroller's Office in the year 09:58 10 2000, T.C. served as the State's chief fiscal officer, 09:58 11 and T.C. had the distinction of working under four 09:58 12 different comptrollers during his tenure at that 09:58 13 office. Among his many responsibilities were the 09:58 14 certification of the State's General Appropriations 09:58 15 Act, management of the statewide accounting system and 09:58 16 statewide payroll system, and supervision of the 09:58 17 annual cash report and the comprehensive annual 09:58 18 financial report for the State of Texas. While at the 09:58 19 Comptroller's Office, T.C. was the staff director for 09:58 20 the first ever Texas performance review, which was 09:58 21 formed in 1991 by then-Comptroller John Sharp, and at 09:58 22 the time, the legislature faced a budget shortfall of 09:58 23 approximately six billion dollars. Under the 09:59 24 leadership of Deputy Comptroller Billy Hamilton and 09:59 25 with T.C. serving as the staff director, the Texas 09:59 0069 1 performance review process accomplished things in 09:59 2 State government that before had been virtually 09:59 3 unthinkable. And they set new standards that have 09:59 4 since been emulated by both federal government and 09:59 5 local governmental entities as well. 09:59 6 Since retiring from the Comptroller's 09:59 7 Office, if you want to call it that, T.C. has 09:59 8 continued to perform public service through consulting 09:59 9 work. And he has provided assistance to Comptroller 09:59 10 Rylander during the last legislative session and, more 09:59 11 recently, he worked with Mr. Elton Bomer in performing 09:59 12 a comprehensive business practices study at the Texas 09:59 13 Parks and Wildlife Department. At the completion of 09:59 14 his consulting work at Parks and Wildlife, T.C. took a 09:59 15 full-time temporary position with that agency in which 09:59 16 he helped implement many of the recommendations that 09:59 17 he and his consulting colleagues had made during the 09:59 18 course of that review. 10:00 19 I have hired T.C. on a short-term basis 10:00 20 to review and provide assistance to this agency in 10:00 21 certain areas, including financial administration, 10:00 22 cost benefit methodology, the agency's Legislative 10:00 23 Appropriations Request, and strategic operations and 10:00 24 planning. I wanted to let you know that T.C.'s work 10:00 25 is already paying dividends for this agency as we 10:00 0070 1 utilize his extensive experience in state government 10:00 2 in a manner to improve some of our processes. And I 10:00 3 know that T.C. would be happy to answer any questions 10:00 4 that the Commissioners might have for him. 10:00 5 CHAIRMAN CLOWE: T.C., we're happy to 10:00 6 have you here, and your reputation precedes you. I've 10:00 7 had a number of individuals who are employed in State 10:00 8 government, since they heard that you had come here, 10:00 9 speak very positively about the work you've done in 10:01 10 other agencies. And as I say, we're happy to have you 10:01 11 here and look forward to the work product that you're 10:01 12 going to create for us. I might say that your coming 10:01 13 here and working on the projects that Gary has 10:01 14 assigned you, as I see it, is in no way a criticism of 10:01 15 the work that's ongoing in various areas of this 10:01 16 Commission. But I think it's very timely in that the 10:01 17 Sunset report pointed out areas to us that we needed 10:01 18 to strengthen our operations in. And your expertise 10:01 19 and your field of experience is heavy in those areas. 10:01 20 This agency, in my opinion, can always do better than 10:01 21 it's been doing, although it's had a very fine rating. 10:01 22 And we ask you to enter into that and help us improve 10:01 23 in all areas, and I know that the members of the 10:02 24 agency, where you're interfacing with them, will be 10:02 25 cooperative and responsive to your requests and 10:02 0071 1 helpful as you show us from your experience how we can 10:02 2 do things better in this agency. So we welcome you 10:02 3 and we look forward to the beneficial results of your 10:02 4 work. 10:02 5 MR. MALLETT: Thank you, Mr. Chairman 10:02 6 and Commissioners, for the opportunity to come and 10:02 7 work with you temporarily. Gary Grief and I would 10:02 8 just like to say that under his direction, all of the 10:02 9 staff has been very easy to work with. In general, my 10:02 10 impression is this is a good place to work. People -- 10:02 11 your employees seem to like it here, and I hope that 10:02 12 I'll provide some assistance. I know I'm poking in a 10:02 13 lot of stuff, which is what I've been asked to do, and 10:02 14 I appreciate the opportunity. 10:02 15 CHAIRMAN CLOWE: Great. We're glad to 10:03 16 have you. Thank you very much. 10:03 17 Next is item 17, report, possible 10:03 18 discussion and/or action on the Lotto Texas on-line 10:03 19 game. 10:03 20 MR. GRIEF: If you'll bear with us, 10:03 21 Commissioners, we'll get set up quickly. 10:03 22 CHAIRMAN CLOWE: While we're waiting 23 for the screen to come down and everybody to get set 24 up, is Ms. Debra McLeod in the room? 10:03 25 MR. GRIEF: She was just here, 10:03 0072 1 Commissioners. We'll get her. 10:03 2 CHAIRMAN CLOWE: She has an item coming 10:03 3 up shortly and she wants to introduce some 10:03 4 individuals, and I'd like to have her arrange those 10:03 5 individuals, if it's possible, in the room. Thank 10:03 6 you, Toni. Go ahead. 10:03 7 MR. GRIEF: Commissioners, if I could 10:03 8 say a few opening comments. Since you appointed me as 10:03 9 the Acting Executive Director at the end of September, 10:03 10 one of my top priorities has been a thorough review of 10:03 11 the Lotto Texas game and careful consideration of 10:03 12 options available to the agency to improve that 10:03 13 particular game and possibly increase revenue to the 10:04 14 State of Texas. To that end, I charged the staff in 10:04 15 early October, led by marketing director Toni Smith, 10:04 16 to research the Lotto Texas issue very carefully. 10:04 17 Toni has coordinated this effort and she has utilized 10:04 18 the expertise of our in-house, financial and marketing 10:04 19 staff to prepare the information that you're going to 10:04 20 see today. Toni has also considered what has occurred 10:04 21 in other states under similar situations. In 10:04 22 addition, Toni has reached out to the State 10:04 23 Comptroller's Office to ensure that the appropriate 10:04 24 Comptroller staff involved in revenue estimation for 10:04 25 the State are kept in the loop as to our research and 10:04 0073 1 are given an opportunity to weigh in on such an 10:04 2 important revenue producer for the state of Texas. 10:04 3 And finally, Toni has asked also that our lottery 10:04 4 operator, Gtech, provide her with the research that 10:04 5 they have conducted on this issue in other states, 10:05 6 both with the Lotto Texas game here in Texas and with 10:05 7 other similar games throughout the United States and 10:05 8 the world. As the Commissioners know, total lottery 10:05 9 sales for the past three fiscal years have increased 10:05 10 each year. However, this success has been achieved 10:05 11 mainly as a result of the success that we've had in 10:05 12 our instant scratch-off product, and in spite of a 10:05 13 continued decline in the sale of Lotto Texas. My goal 10:05 14 in having Toni and her staff bring this to the 10:05 15 attention to the Commissioners today is to ultimately 10:05 16 propose a rule change to the Lotto Texas game in order 10:05 17 to increase revenue to the state. 10:05 18 And with that, I would like to turn it 10:05 19 over to Toni and her staff for their presentation. 10:05 20 MS. SMITH: Good morning, 10:05 21 Commissioners. And I also have with me this morning 10:05 22 to present, two of our marketing managers. I'll let 10:05 23 them introduce themselves for the record. 10:05 24 MR. TIRLONI: Good morning, 10:06 25 Commissioners. For the record, my name is Robert 10:06 0074 1 Tirloni. I am the on-line product manager for the 10:06 2 Texas Lottery. 10:06 3 MS. JAMBOR: Good morning. For the 10:06 4 record, I am Liz Jambor. I'm the marketing research 10:06 5 manager for the Texas Lottery. 10:06 6 CHAIRMAN CLOWE: Good morning. 10:06 7 MS. SMITH: Commissioners, the goal of 10:06 8 the marketing division is to maximize sales and 10:06 9 revenue by researching, developing, promoting and 10:06 10 educating players about Lottery products. Sales are 10:06 11 closely monitored to track the projected success of 10:06 12 our products. In order to keep these on-line games 10:06 13 fresh and exciting, game enhancements should be 10:06 14 implemented. We conduct research for player input on 10:06 15 game initiatives and analyze the existing product mix 10:06 16 to determine if a game needs to be changed. Like any 10:06 17 business enterprise, the Lottery must be able to 10:06 18 respond to the ever-changing dynamic nature of the 10:06 19 gaming industry. This presentation provides an 10:06 20 overview of the history of the Lotto Texas, the game's 10:06 21 performance, a look at possible options to enhance 10:07 22 sales and revenue in the future. 10:07 23 Our Lotto Texas game started in 10:07 24 November of 1992. It was a six-of-50 matrix, the odds 10:07 25 of winning the jackpot prize were one in 15.8 million, 10:07 0075 1 the lowest guaranteed prize paid was three dollars, 10:07 2 and the overall odds of winning a prize were one in 10:07 3 57. This graph shows us a look at the performance of 10:07 4 Lotto Texas from November 1992 to August of 1999. And 10:07 5 as you can see, it had very good start in the 10:07 6 beginning, which is pretty typical at the start-up of 10:07 7 this type of jackpot game. And then sales did 10:07 8 continue to decline and still have continued to 10:07 9 decline through this particular matrix. 10:07 10 In '99, we decided that we needed to 10:07 11 look into the Lotto Texas game, so in August we 10:07 12 researched possible changes. On August 28th, in the 10:08 13 Commission meeting, we requested publication of 10:08 14 proposed amendments increasing the matrix from 10:08 15 six-of-50 to six-of-54 with a bonus ball, which would 10:08 16 create winning combinations and newer lower-tier prize 10:08 17 categories. On September the 10th, 1999, amendments 10:08 18 to the Lotto Texas rule were published in the Texas 10:08 19 Register, and on the 27th, a public comment hearing 10:08 20 was held. And on October 7th, 1999, the proposed 10:08 21 Lotto Texas rule was withdrawn. 10:08 22 Then we followed up in November with 10:08 23 some player town meetings, in Dallas and in Houston, 10:08 24 to receive some further input from our players, and we 10:08 25 did not get a positive response at that time. But 10:08 0076 1 still, as you can see here, sales continued to 10:08 2 decline. While Lotto Texas operated within a range of 10:08 3 reasonable predictions during the 50 -- oh, I am 10:08 4 sorry, Commissioners. 10:08 5 Although comments received indicated 10:08 6 opposition to changes in the Lotto Texas game, the 10:09 7 players' spending continued to decrease. So then in 10:09 8 January of 2000, we looked at other game options. And 10:09 9 on February 29th, in the Commission meeting, Gtech 10:09 10 presented information on Lotto Texas and multi-state 10:09 11 games. 10:09 12 On March 14th, Gtech recommended to 10:09 13 increase the matrix from six-of-50 to six-of-54 and 10:09 14 increase the lowest prize level from three dollars to 10:09 15 five dollars. Then in March, the Lotto Texas rule 10:09 16 amendments were published in the Texas Register for 10:09 17 comment, and on April 13th, public appearances were 10:09 18 made and oral comments were made. Then April 19th, an 10:09 19 additional public comment hearing was held. On May 10:09 20 12th of 2000, the Commission adopted the amendments to 10:09 21 this Texas Lotto rule. 10:09 22 Sales of the new game changes began on 10:09 23 July 16th of 2000. It was a matrix of six-of-54, the 10:09 24 odds of winning the jackpot prize were one in 25.8 10:10 25 million, the lowest prize paid was a five-dollar 10:10 0077 1 guaranteed prize, and the overall odds were one in 71. 10:10 2 This graph shows us the impact of those changes in 10:10 3 July of 2000, and one thing that I think is important 10:10 4 to note here, and I don't know if you can see this 10:10 5 well up on the chart, and maybe Robert can point them 10:10 6 out, that in the beginning, when we had jackpots of 75 10:10 7 million, the sales were up close to 350 million. But 10:10 8 even now, and you look at the end in the red lines 10:10 9 that are there, jackpots of 85 million and 70 million 10:10 10 just gave us a little over 200 million. And so that 10:10 11 this is also a sign to us that the game has matured. 10:10 12 And while, as you can see in the first quarter of 10:10 13 fiscal '01 to the third quarter of fiscal year '01, 10:10 14 Lotto Texas operated within a range of reasonable 10:11 15 prediction during the first 52 weeks of the game 10:11 16 change. But the lack of higher level jackpot amounts 10:11 17 and frequent wins at the lower level jackpot amounts 10:11 18 created less than anticipated sales during that first 10:11 19 50 -- second 52 weeks. 10:11 20 MR. TIRLONI: Commissioners, we know 10:11 21 that Lotto is a jackpot-driven game. The number of 10:11 22 jackpots won and the levels at which those jackpots 10:11 23 are won are very important, and they give us a good 10:11 24 insight as to how the game is operating. I just want 10:11 25 to walk you through the first two full years and -- of 10:11 0078 1 the game change, and then take you from the beginning 10:11 2 of the third year to present day. You see, from July 10:11 3 of 2000 through July of 2001, the first full year of 10:11 4 the six-of-54 game, we had 18 jackpots won. One of 10:11 5 those jackpots was the 85 million. That was a 10:11 6 record-setting jackpot for Lotto Texas. That was in 10:12 7 March of 2001. And you see that there were six 10:12 8 jackpots won between the four and 15 million dollar 10:12 9 range. 10:12 10 Moving to the second full year, July of 10:12 11 2001 through July of 2002, you notice that the jackpot 10:12 12 was won 22 times, as compared to 18. We did have one 10:12 13 high-level jackpot during that year. That was a 70 10:12 14 million dollar jackpot in June of 2002. But something 10:12 15 very significant to point out is that there were 12 10:12 16 jackpots won between the four and 15 million dollar 10:12 17 range. That's double what we experienced in the first 10:12 18 year. What does this mean? Well, we typically see 10:12 19 our non-players, our non-regular Lotto Texas players 10:12 20 come into the game when the jackpot reaches 10:12 21 approximately the 20 million dollar threshold. When 10:12 22 the jackpot is consistently won at the lower levels, 10:12 23 it takes the Lottery longer to build our jackpots and, 10:13 24 therefore, we lack the excitement therefore the sales 10:13 25 that are typically generated when we do reach the 10:13 0079 1 higher levels. 10:13 2 We started the third year of the 10:13 3 six-of-54 game this past July. To date, we've had ten 10:13 4 jackpots won, and you see that seven of those ten are 10:13 5 between the four and 11 million dollar range. 10:13 6 MS. JAMBOR: To follow up on what 10:13 7 Robert was sharing. If we then take our current 10:13 8 history of jackpot rolls and weekly percent changes, 10:13 9 what we see for our projected FY '03 through FY '05 10:13 10 sales for Lotto Texas is a continual decline in the 10:13 11 overall sales in that time period. Without -- without 10:13 12 extreme jackpots that we saw earlier, we can predict 10:14 13 that our sales will continue a steady decline. 10:14 14 As Gary had mentioned, we have looked 10:14 15 at other states. If you look at other states that 10:14 16 have changed their Lotto Texas matrix, we've got 10:14 17 California, Florida, New Jersey, New York and Ohio, we 10:14 18 can see that in their first year of a -- a Lotto style 10:14 19 game matrix change, the average of these states was an 10:14 20 increase in their overall sales over the previous 10:14 21 year. And this follows along with what Texas had for 10:14 22 their first -- or our first year change when we went 10:14 23 to six of 54. The second year, however, does, on 10:14 24 average, show a decrease in the Lotto style game sales 10:14 25 over the first year. However, this second year is 10:15 0080 1 greater than the last year or the final year prematrix 10:15 2 change. So, basically, what we're seeing here is that 10:15 3 we get an increase, we get a good spike in sales in 10:15 4 the first year, we see a little bit of a decline in 10:15 5 the second year. However, overall, the change was a 10:15 6 good change because in that second year, sales are 10:15 7 still higher. 10:15 8 MS. SMITH: So the next step for us is 10:15 9 to look at some game change considerations. We looked 10:15 10 at examples of game types in other lotteries. There 10:15 11 is a traditional game type that is played here in 10:15 12 Texas. Also, in Florida and New Jersey. There is 10:15 13 two-field matrix type, and the Powerball multi-state 10:15 14 and one of those type of games. California and also 10:15 15 our own Texas Two Step is a two-field matrix type 10:16 16 game. Then there is a third type of game that most 10:16 17 states call a bonus ball game, and that's played 10:16 18 currently in New York, Ohio, and Michigan. Another 10:16 19 important consideration is the prize structure itself. 10:16 20 We have to look at the prize comparison to other Texas 10:16 21 on-line games. We want to make sure that each of our 10:16 22 games meets the needs of players' reasons for playing 10:16 23 those games, the odds of winning a jackpot, and the 10:16 24 overall odds of winning a prize. 10:16 25 Another important factor for us is the 10:16 0081 1 annuity rates. The average interest rate factor by 10:16 2 fiscal year is shown on this chart, and you can see 10:16 3 how it has fluctuated over time. And this also is an 10:16 4 important factor that we need to look at and consider 10:16 5 as these build those prize structures. 10:16 6 In doing this review, there are certain 10:16 7 parameters that we do want to keep in mind and stay 10:16 8 constant and one is that the -- remember that annuity 10:16 9 factor. We would want to maintain a 25-year annuity 10:17 10 with the cash value option for our players, a 10:17 11 one-dollar price per board, and a minimum of one board 10:17 12 per play on a -- a new Lotto Texas game. 10:17 13 To take a graphic look at the different 10:17 14 game types, you'll see that the first one, the 10:17 15 traditional matrix, here we see a six-of-59. In this 10:17 16 type of game, there is one drawing machine with 59 10:17 17 balls and all six balls are drawn from that one 10:17 18 machine. In the two-field matrix type game, there are 10:17 19 two drawing machines, and in this particular matrix, 10:17 20 one machine is 44 balls and five balls are drawn from 10:17 21 that machine. Then there is an additional drawing 10:17 22 machine that contains 44 balls and only one ball is 10:17 23 drawn from that machine. Then on the bonus ball type 10:17 24 matrix, for example, a six-of-59 plus bonus ball, 10:17 25 there is one drawing machine, six balls are drawn from 10:17 0082 1 that machine containing 59 balls, and then an 10:17 2 additional ball is drawn, but from that same machine. 10:18 3 MR. TIRLONI: Commissioners, I'm 10:18 4 basically going to walk you through some different 5 matrices that we went out and did focus group research 10:18 6 on. This is our current Lotto Texas matrix. I'm 10:18 7 going to kind of hit the high points. I won't walk 10:18 8 you through every prize tier. But this is our current 10:18 9 matrix. It's a six-of-54. The overall odds of 10:18 10 winning a prize are one in 71, the odds of winning the 10:18 11 jackpot prize are 25 million, and there is one 10:18 12 guaranteed prize level. That's the three-of-six prize 10:18 13 level and, again, that's a guaranteed five-dollar 10:18 14 prize. 10:18 15 Here is one version of the five-of-44, 10:18 16 one-of-44 matrix Toni just talked about. The bonus 10:18 17 ball or the second field provides additional prize 10:18 18 tiers for players to win. The overall odds of winning 10:19 19 a prize in two-field matrix is one in 57, the odds of 10:19 20 winning the jackpot prize are 41 and 47 million, and 10:19 21 you see that we have three guaranteed prize tiers in 10:19 22 this version of the matrix. 10:19 23 This is, again, a five-of-44, 10:19 24 one-of-44. There is one slight change from the 10:19 25 previous slide. We've added one additional prize 10:19 0083 1 tier, so this would provide our players with four 10:19 2 guaranteed prize tiers. The overall odds on this 10:19 3 matrix are one in 34, the odds of winning the jackpot 10:19 4 remain the same, one in 47 million. 10:19 5 Six-of-59 plus a bonus ball. Again, 10:19 6 the bonus ball in this matrix or in this game also 10:19 7 provides additional prize tiers for our players. The 10:19 8 overall odds of winning a prize are one if 55, the 10:19 9 odds of winning the jackpot in this matrix are 10:19 10 slightly less, one in 45 million, and this matrix 10:19 11 provides us with two guaranteed prize tiers, both of 10:20 12 those prizes being five dollars. Again, there is one 10:20 13 slight change from this slide to the previous slide. 10:20 14 We've added one additional guaranteed prize level. 10:20 15 It's a two-dollar guaranteed prize, so this version of 10:20 16 this matrix offers our players three guaranteed prize 10:20 17 levels. The overall odds of winning any prize are one 10:20 18 in 18, and again, the odds of winning the jackpot 10:20 19 remain the same, one in 45 million. 10:20 20 Last but not least, this is the most 10:20 21 similar matrix to what we currently offer in Texas on 10:20 22 our Lotto Texas game. It's just a straight six-of-59. 10:20 23 There is no bonus ball involved in this matrix. 10:20 24 Similar to the current game, the three-of-six prize 10:20 25 tier has a five dollar guaranteed prize. You see the 10:20 0084 1 overall odds are one in 92, and, again, the odds of 10:20 2 winning the jackpot remain the same, one in 45 10:21 3 million. 10:21 4 MS. SMITH: So as we continue to review 10:21 5 our options for the Lotto Texas game, the draft matrix 10:21 6 proposals have been sent to Doctor Randy Ewbank, an 10:21 7 independent statistician, for his review, and the 10:21 8 Lottery conducted player research of these proposed 10:21 9 matrix changes and a possible logo and name change in 10:21 10 Dallas and in Houston on October 29th and 30th. We're 10:21 11 still reviewing the results of that research. We are 10:21 12 also working with Gtech to conduct meetings with 10:21 13 retailers and players in San Antonio and Dallas to 10:21 14 discuss proposed Lotto Texas changes, also. We think 10:21 15 that it's important that we get some feedback from our 10:21 16 retailers, not only just from a player standpoint, but 10:21 17 from a selling standpoint, in how we might sell these 10:21 18 games -- a proposed change in to our players. 10:22 19 Sales projections and revenue estimates 10:22 20 will be compiled independently by lottery marketing, 10:22 21 finance and Gtech. The cost-benefit analysis will be 10:22 22 conducted by lottery finance division in preparation 10:22 23 for the fiscal note, and all information has been and 10:22 24 will continue to be shared with the Comptroller's 10:22 25 Office for their review and feedback. And I would 10:22 0085 1 like to take a moment to recognize that we have with 10:22 2 us today Gary Proyce (phonetic) from the Comptroller's 10:22 3 Office, and Mr. Proyce is one of their budget revenue 10:22 4 estimators. And we've been working with him and 10:22 5 sharing our information with Gary, and we appreciate 10:22 6 his being here with us today. 10:22 7 So Commissioners, what all this leads 10:22 8 up to is drafting a proposed rule for the December 10:22 9 commission meeting. And that is our plan. We, in the 10:22 10 next couple of weeks, continue to work together very 10:22 11 closely on sales projections, look at our research, 10:22 12 and determine which was the -- the best of those 10:22 13 games, and put together for you for the December 10:22 14 commission meeting proposed amendments to the Lotto 10:22 15 Texas rule. And we will also at that time present to 10:23 16 you the results of the research and all the supporting 10:23 17 information from the financial standpoint to support 10:23 18 why we are proposing a change to that game. And we 10:23 19 would be happy to answer any questions that you have. 10:23 20 COMMISSIONER WHITAKER: Are you saying 10:23 21 that at this time you're not zeroing in on one 10:23 22 particular type of change? 10:23 23 MS. SMITH: We're still looking. I 10:23 24 think what we did learn, that we need to do something 10:23 25 different than that traditional matrix that we 10:23 0086 1 currently have. In our review of the games and, I 10:23 2 think, in what we've seen in the previous charts, is 10:23 3 that they all start out very well, but then decline. 10:23 4 Even with the higher jackpots, sales still are not at 10:23 5 the levels that they are at the start-up of a lottery. 10:23 6 So I think that renewed freshness and some new, 10:23 7 exciting enhancement to the game is something that we 10:23 8 and other jurisdictions -- and I think we saw that in 10:23 9 the slide that Liz showed, continue and will continue 10:23 10 to have to do and to monitor to keep their on-line 10:23 11 games fresh. 10:24 12 COMMISSIONER WHITAKER: The interesting 10:24 13 page to me is the one with the other states. And it 10:24 14 would be nice to have Minnesota listed -- Michigan, 10:24 15 excuse me, which is not. Do you have the numbers for 10:24 16 Michigan? 10:24 17 MS. JAMBOR: I don't have them with me, 10:24 18 but I can provide them to you. 10:24 19 COMMISSIONER WHITAKER: But of all 20 those, the only one that steadily has gone up is 10:24 21 California. Do you find that significant? 10:24 22 MS. JAMBOR: Not in light of the fact 10:24 23 that they've had incredible jackpots. And it just 10:24 24 goes to show that a Lotto style game is reflective of 10:24 25 their jackpots. And they've had extremely high 10:24 0087 1 jackpots recently. 10:24 2 CHAIRMAN CLOWE: We thank you. I think 10:24 3 that's all of the questions we have. We look forward 10:24 4 to your recommendations. 10:24 5 MS. SMITH: Thank you, Commissioners. 10:24 6 CHAIRMAN CLOWE: Thank you all. 10:24 7 Next I would like to move to item 10:24 8 number 19, consideration of and possible discussion 10:24 9 and/or action on the State Auditor's Office, external 10:24 10 audit reports, and/or internal audit reports relating 10:25 11 to the Texas Lottery Commission and/or the Internal 10:25 12 Audit Department's activities, including fiscal year 10:25 13 '02 internal audit annual report. Ms. Debra McLeod. 10:25 14 MS. McLEOD: Good morning, 10:25 15 Commissioners. For the record, I'm Debra McLeod, 10:25 16 director of internal audit. Today, I would like to 10:25 17 take things a little bit out of turn, and I appreciate 10:25 18 you letting us go ahead of the agenda. 10:25 19 With us today are some Cedar Park high 10:25 20 school students. In February, we brought in two 10:25 21 students for that week. They came in with the skills 10:25 22 that we needed for the job. They were here for a 10:25 23 week. They turned out an excellent product. We had 10:25 24 such a great success with that, four divisions here in 10:25 25 the Lottery, and three in lottery and one in bingo, 10:25 0088 1 asked for students. And I would like to have the 10:25 2 students stand, but before I do, I would like to 10:25 3 recognize the Cedar Park High School counselors that 10:25 4 are here today. If you would please stand. On your 10:25 5 right is Susan Oaks and on your left is Veronica 10:26 6 Irwin, and they're here as counselors. We were over 10:26 7 in the HR conference room this morning getting sort of 10:26 8 an update of what these students did. It's absolutely 10:26 9 amazing what they've done for this organization. I 10:26 10 think from total count, they gave us about six to 10:26 11 eight weeks of professional work that would have taken 10:26 12 manpower away from our staff. So we greatly 10:26 13 appreciate the effort of the students. 10:26 14 And going on, I would like to introduce 10:26 15 the students and the project leaders. I would like to 10:26 16 start with Jacquelyn Chatham -- 10:26 17 CHAIRMAN CLOWE: As they are named, 10:26 18 would y'all come up and stand here so we can get a 10:26 19 little better look at you? Come over here, please. 10:26 20 MS. McLEOD: And certainly this project 10:26 21 wouldn't have been the great success it was if we 10:26 22 didn't have staff like we do. I would like to 10:27 23 recognize from the IT division Jacqueline 10:27 24 Chatham-Riggins. Just wave your hand there. And with 10:27 25 her was Andrew Jensen, and they worked on the user 10:27 0089 1 documentation for an access database that Jacquelyn 10:27 2 had built. 10:27 3 Then in retailer accounting services, 10:27 4 Dale Bowersock, and he's being represented today by 10:27 5 David Ramos, brought in Janie Yesnick (phonetic), is 10:27 6 that correct, and Kristie Kerchival (phonetic), and 10:27 7 the two of them worked on procedures. As you know, 10:27 8 the new retailer accounting services was recently 10:27 9 reorganized, so they've got some extensive procedures 10:27 10 they've put together and a checklist. 10:27 11 Then from bingo, we have Rick Frysinger 10:27 12 there on the end, and he had John Corneho (phonetic), 10:27 13 and Ganish Sivanik (phonetic), and the two of them 10:27 14 worked on approximately about 204 spreadsheets for the 10:28 15 Bingo Division, trying to get together physical 10:28 16 locations for the Senate and House committee and 10:28 17 mapping that to the database that is on-line for the 10:28 18 Representatives. Quite an extensive amount of work. 10:28 19 I think Rick said they saved about three weeks worth 10:28 20 of work. 10:28 21 Then going on, I would like to 10:28 22 introduce Leticia Vasquez with communications, and she 10:28 23 had two students, Trey Dailey (phonetic) and Meredith 10:28 24 Wuhl (phonetic). And the two of them were able to do 10:28 25 an add value list and quantify the agency's publicity, 10:28 0090 1 it also they put together for our future website how 10:28 2 to become a lottery retailer, and they went through to 10:28 3 try to simplify and organize those procedures. And 10:28 4 they also had the pleasure in presenting a video news 10:28 5 release that I understand from Letty will be coming 10:28 6 out next month. So I just want to say sincere thanks 10:28 7 and give them the recognition because we greatly 10:29 8 appreciate all of the efforts that you students have 10:29 9 brought to this. We asked them, Chairman, what they 10:29 10 got out of this, and I think they said they were 10:29 11 surprised at how friendly the environment was and just 10:29 12 how much they enjoyed working here. So I just wanted 10:29 13 to say, thank you very much for this opportunity. 10:29 14 COMMISSIONER WHITAKER: What did you 10:29 15 think the environment would be? I just want to say 10:29 16 thank you to coming in and hope you enjoyed your 10:29 17 experience. It's nice to see you here today. 10:29 18 CHAIR CLOWE: What grades generally are 10:29 19 you in in high school? 10:29 20 STUDENT: We're all juniors. 10:29 21 CHAIRMAN CLOWE: Seniors. All juniors. 10:29 22 And are you going to pursue the accounting profession? 10:29 23 Is that a goal you have, or are you still in the 10:29 24 process of making up your mind when you're a junior? 10:29 25 STUDENT: Still in the process. 10:29 0091 1 CHAIRMAN CLOWE: So maybe this 10:29 2 experience -- 10:30 3 COMMISSIONER WHITAKER: So am I. 10:30 4 CHAIRMAN CLOWE: You can do anything 10:30 5 you want to, I'm sure of that. 10:30 6 Commissioner Whitaker is an attorney, a 10:30 7 very successful attorney. She is president of the 10:30 8 Texas Bar Association, incoming president. She has 10:30 9 had a successful law career, and now she's heading up 10:30 10 the association of all the attorneys in this state. 10:30 11 Commissioner Cox is a CPA, very 10:30 12 successful. Worked for one of the largest accounting 10:30 13 firms in the United States, and then headed up a 10:30 14 tremendous company headquartered in Las Vegas, Nevada, 10:30 15 for the Howard Hughes family, and ran their gaming 10:30 16 operations. 10:30 17 I'm the maverick. I came in out of the 10:30 18 street and then sat down and started acting like I 10:30 19 knew something, and I don't. I have a general 10:30 20 business background. 10:30 21 One of the things I have learned in 10:30 22 business, and it's certainly true in government, is 10:30 23 you've got to have your numbers under control. And 10:30 24 you've got to have accuracy and credibility in the 10:31 25 numbers. And the work that you all are doing in your 10:31 0092 1 time here is of critical importance. You know, this 10:31 2 whole country is going through a revelation now as a 10:31 3 result of the scandals where they have determined 10:31 4 improper accounting in a number of publicly-held 10:31 5 corporations. And I think the accounting industry and 10:31 6 the accountability of CEOs and managements of 10:31 7 companies is going through examination that it hasn't 10:31 8 in years and years, particularly, especially 10:31 9 publicly-held companies. So you all have gotten a 10:31 10 real look at what is going on in a major operation. 10:31 11 This agency does almost three billion 10:31 12 dollars a year in business for the state and the 10:31 13 people of Texas. All these games -- and I'm glad you 10:31 14 got to see this Lotto Texas presentation. I hope you 10:31 15 found that interesting. Is one of the on-line games, 10:32 16 it's not the biggest part of the entire gaming 10:32 17 operation that the state is authorizing, but it's one 10:32 18 that probably has the highest profile. And the 10:32 19 numbers there are of critical importance. It's been 10:32 20 very delightful to have you all here working. We 10:32 21 appreciate your efforts. And we hope you take back 10:32 22 something as a result of this experience that will 10:32 23 help you in your further education. I would urge you 10:32 24 to complete your high school studies and then go on to 10:32 25 further education, continuing education, because when 10:32 0093 1 you get out in the business world or wherever you are, 10:32 2 the more education you have, the better off you'll be. 10:32 3 I wish I had done a little more along those lines. 10:32 4 We really thank you, and Debra, we 10:32 5 thank you for this effort in bringing these people -- 10:32 6 MS. McLEOD: Chairman, thank you very 10:32 7 much. I must admit, he is very shy, but he is an 10:32 8 extremely successful business person in his own right 10:33 9 and we are very fortunate to have him as our chairman. 10:33 10 And I just also want to extend a thank 10:33 11 you to Mike Fernandez, Michael Anger, Billy Atkins, 10:33 12 Gary Grief and Keith Elkins for allowing the students 10:33 13 to come in and do this work. I think it's been 10:33 14 mutually beneficial and I appreciate your support. 10:33 15 CHAIRMAN CLOWE: Great effort. 10:33 16 (Applause.) 10:33 17 CHAIRMAN CLOWE: We're going to take a 10:33 18 short break now and give our reporter a chance to 10:33 19 catch her breath and we'll come back very quickly and 10:33 20 continue the agenda. 10:33 21 (RECESS.) 10:33 22 CHAIRMAN CLOWE: We're going to come 10:48 23 back to order and continue on with the internal 10:48 24 auditor's items. I would like to note for the record 10:48 25 that the General Counsel has left the meeting and the 10:48 0094 1 Assistant General Counsel, Ridgely Bennett, is now in 10:49 2 that function. 10:49 3 Thank you, Debra. Go forward. 10:49 4 MS. McLEOD: Thank you, Commissioners. 10:49 5 One last note on the students. I just wanted to 10:49 6 clarify, even though I helped to coordinate this, what 10:49 7 we call Partnership for Success Program, we had 10:49 8 students that had a strong IT background, 10:49 9 communications background, English and writing 10:49 10 background, and that's why they were able to come here 10:49 11 fully skilled and perform so well for us. No, we did 10:49 12 not have any accounting majors. Maybe next time. 10:49 13 Moving on, I presented to the 10:49 14 Commissioners, through reports, annual internal audit 10:49 15 report for public distribution. I have heard no 10:49 16 comments back. Is there any comments at this time 10:49 17 about the annual internal audit report that covers 10:49 18 fiscal 2002? Okay. 10:49 19 And then two follow-up audits to SAO's 10:49 20 performance measures, one that was done -- the 10:50 21 original report was done July '96 and the second 10:50 22 report was done in November of 2000. And we did a 10:50 23 follow-up audit to that. We have three other reports 10:50 24 that are either in legal division or pending 10:50 25 management's responses that should be coming forward 10:50 0095 1 to the Commissioners very soon, and two others that 10:50 2 are in the draft writing stage. And I've listed down 10:50 3 below the remaining audits and the various stage that 10:50 4 they're in at the Lottery Commission. I understand, 10:50 5 from looking at the agenda, there will be comments on 10:50 6 the security audit and the financial and so I'll pass 10:50 7 at this time. But I did want to bring to your 10:50 8 attention that we have a couple of audits that we're 10:50 9 looking forward to getting from the State Auditor's 10:50 10 Office, one on the audited financial profiles and 10:50 11 another on the computer security report. And I think 10:50 12 that's it with what I need to present today. 10:50 13 CHAIRMAN CLOWE: Very good. Any 10:50 14 questions? Thank you, Debra. 10:50 15 Next we'll go to item number 18, 10:50 16 report, possible discussion and/or action on the 10:51 17 agency's business plan. Michael Anger. Good morning. 10:51 18 MR. GRIEF: Commissioners, as you know, 10:51 19 the Sunset staff report recommended the agency develop 10:51 20 a comprehensive agency business plan, and our agency 10:51 21 concurred with that particular recommendation. To 10:51 22 that end, I have assigned this very important project 10:51 23 TO Michael Anger, the acting director of the Lottery 10:51 24 Operations Division, and Michael is here today to 10:51 25 introduce himself and to brief you on his progress to 10:51 0096 1 date. 10:51 2 MR. ANGER: Good morning, Mr. Chairman 10:51 3 and Commissioners. For the record, my name is Michael 10:51 4 Anger, and I'm the acting director of Lottery 10:51 5 operations. 10:51 6 As you're aware, the Sunset staff, in 10:51 7 their August 2002 report, recommended that the agency 10:51 8 pursue the development of a comprehensive business 10:51 9 plan. As Acting Executive Director Grief has 10:51 10 indicated, I've been assigned to oversee this project 10:51 11 as the business plan development manager. As this is 10:51 12 the first time that I've spoken before you, I would 10:52 13 like to tell you a little bit about my background. 10:52 14 I've been employed with the Commission 10:52 15 since 1995, and have served in various roles within 10:52 16 the Lottery operations division. In addition to my 10:52 17 role as the acting lottery director, in operations, I 10:52 18 continue to oversee the statewide claim centers for 10:52 19 the Commission. Over the last year, I also managed 10:52 20 the games compliance section after the retirement of 10:52 21 the previous manager, Vicki Scott. Recently, I 10:52 22 coordinated with other management staff in the 10:52 23 reorganization of that section. During my tenure, I 10:52 24 have served on many committees and been involved in 10:52 25 several major projects here at the agency. I welcome 10:52 0097 1 this opportunity to apply my skills and experience 10:52 2 serving the Commission in this new role. 10:52 3 In your notebooks, I have provided a 10:52 4 draft project plan for your review, and I would like 10:52 5 to update you on my work thus far. The project plans 10:52 6 charts a course for the project that will take us 10:52 7 through a completion date of July 15th of next year. 10:52 8 This completion date would allow the Commission the 10:52 9 opportunity to closely monitor any legislative action 10:53 10 during the session that may have an impact on our 10:53 11 operations and that would be relevant for purposes of 10:53 12 our business planning. This completion date could 10:53 13 change depending upon any special sessions of the 10:53 14 legislature called by the Governor. As you can see in 10:53 15 the project plan, the project team will be formalized 10:53 16 shortly after the beginning of next year. I 10:53 17 anticipate that the plan will involve input from 10:53 18 throughout the agency. I'm currently in the research 10:53 19 phase of this project. I've reviewed the business 10:53 20 plan road map to success document developed by the 10:53 21 Small Business Administration, and referenced in the 10:53 22 Sunset staff report. I've also met with the 10:53 23 representatives of the management advisory services 10:53 24 group of the State Auditor's Office to obtain their 10:53 25 input on this project and explore how their 10:53 0098 1 organization may be able to assist us in the 10:53 2 development of this document. I am reviewing business 10:53 3 plans that have been developed by other state agencies 10:53 4 and other U.S. and international lotteries. I'm also 10:53 5 reviewing documents that the Commission has in place 10:53 6 related to the business plan. These include the 10:54 7 marketing plan, the agency's Strategic Plan, the 10:54 8 Legislative Appropriations Request, and the capital 10:54 9 and operating budgets. I'm also seeking input from 10:54 10 our vendors as to their ideas relating to our 10:54 11 long-term planning. My preliminary sense is that we 10:54 12 have a solid group of core documents to aid in the 10:54 13 development of a comprehensive business plan that will 10:54 14 clearly chart the course for the Commission over the 10:54 15 next several years. 10:54 16 I would greatly appreciate any advice 10:54 17 or feedback you might have for me with regard to this 10:54 18 project. That concludes my report this morning. I 10:54 19 would be glad to answer any questions or hear any 10:54 20 comments that you might have. 10:54 21 CHAIRMAN CLOWE: Michael, I would like 10:54 22 to hear you verbalize where you are at this point 10:54 23 insofar as formulation of the business plan and what 10:54 24 you see it encompassing. I understand you're in the 10:54 25 research phase right now and there is more work to be 10:54 0099 1 done. But from a global view, at this point in time, 10:54 2 what do you see as the goals that you're beginning to 10:55 3 clarify? 10:55 4 MR. ANGER: I think we need to start 10:55 5 from the top, Chairman. I think that's going to start 10:55 6 with the mission of the agency, and the mission of the 10:55 7 State of Texas, and I think we build down from there. 10:55 8 And I think, in looking at our documents, the agency's 10:55 9 Strategic Plan in particular, and our other documents 10:55 10 that we have in place, we're going to flesh out and 10:55 11 we're going to get into more detail about what our 10:55 12 core objectives are within this organization. And I 10:55 13 think that we need to identify what those are going to 10:55 14 be over the next few years, and I think we need to 10:55 15 flesh those out and develop a more comprehensive 10:55 16 explanation of how we're going to proceed on those 10:55 17 projects, who is going to be responsible, what type of 10:55 18 time frames we plan to follow with regard to 10:55 19 implementing those. So I think starting there and 10:55 20 identifying the objectives is going to be the key. 10:55 21 From that point, we will break things out into 10:55 22 subgroups and I think we'll have subcommittees that 10:55 23 will involve staff from various divisions that will 10:56 24 have important comment on those various different 10:56 25 topics. I've met with Billy Atkins regarding the 10:56 0100 1 Charitable Bingo Division and their interest in this 10:56 2 plan, and that group is going to have an impact 10:56 3 throughout the business plan and be involved probably 10:56 4 in most all of those subcommittees. Different 10:56 5 divisions, based on their involvement and interest in 10:56 6 different projects that we might identify as our top 10:56 7 goals, will have more or less involvement as we move 10:56 8 along. 10:56 9 CHAIRMAN CLOWE: So you see 10:56 10 compatibility between your work product and the 10:56 11 Strategic Plan and other work that's been done. I 10:56 12 just would like to say that -- to you, I think so much 10:56 13 of what agencies do and businesses do is become 10:56 14 reactive to events, and if you can really have a 10:56 15 business plan that proactively is put into place, and 10:56 16 people understand it and are guided by it, you end up 10:56 17 with a much better product in every case than you do 10:57 18 if you're just reacting to things that are happening 10:57 19 to you. That's probably difficult for a state agency 10:57 20 and, particularly, one like ours, because we're 10:57 21 getting direction from the legislature every two years 10:57 22 and it may change things. But if we can begin to 10:57 23 think more strategic and in a more planning and 10:57 24 result-oriented mode, I think it'll make everyone's 10:57 25 job at this agency more enjoyable and will make for a 10:57 0101 1 better product in the end. So a philosophic bent is 10:57 2 one I would like for you to keep in mind as you work 10:57 3 through the creation of this product and not just put 10:57 4 a report down and say, okay, this is it. It requires 10:57 5 communication with the employees and a commitment in 10:57 6 order to achieve the goals that are laid out in any 10:57 7 business plan. 10:58 8 And then, Gary, you know, once it's 10:58 9 adopted, it's got to be reiterated and refreshed 10:58 10 constantly. It's not an easy thing to get the mind 10:58 11 set of these folks that I'm talking about. The great 10:58 12 companies in this state and in this country have an 10:58 13 effective business plan. Southwest Airlines is one 10:58 14 that comes to mind. The culture that exists in that 10:58 15 company is a result of a true business plan that is 10:58 16 part of the way of life for every employee in that 10:58 17 company. And I think we have the excitement in this 10:58 18 agency about the games of Texas. We have certainly 10:58 19 the caliber of employee and the commitment. If we can 10:58 20 bring all that together, we can have the outstanding 10:58 21 agency for the State of Texas. And that's what I 10:59 22 would like us for shoot for. 10:59 23 Michael, you're the acting operations 10:59 24 division director. How are things going there as far 10:59 25 as that job is concerned? 10:59 0102 1 MR. ANGER: Very good, sir. I've been 10:59 2 in that position a little over a month now and I'm 10:59 3 acclimating to the role and enjoying it very much. 10:59 4 CHAIRMAN CLOWE: You haven't had a ball 10:59 5 roll out of the machine or anything like that? 10:59 6 MR. ANGER: No, sir. It's safe to say 10:59 7 that hasn't happened. 10:59 8 CHAIRMAN CLOWE: Well, I hope it 10:59 9 doesn't. 10:59 10 MR. ANGER: Thank you, Chair. 10:59 11 CHAIRMAN CLOWE: Thank you. 12 Next we're ready to go to item number 10:59 13 20, report, possible discussion and/or action on the 10:59 14 HUB and/or minority business status and/or contract 10:59 15 management. 10:59 16 MR. GRIEF: Commissioners, previously 10:59 17 the HUB and minority business status report had been 10:59 18 an item under the executive director's report and was 10:59 19 presented by Robert Hall. And as you know, Robert has 10:59 20 recently assumed the additional responsibility of 11:00 21 directing the agency's contract compliance function. 11:00 22 And in light of the importance of both of those agency 11:00 23 activities, I have asked for a separate agenda item to 11:00 24 provide Robert an opportunity to report on items of 11:00 25 interest in those two particular areas and allow the 11:00 0103 1 Commissioners to ask Robert any questions that you may 11:00 2 have about either one of those. So with that, I'll 11:00 3 turn it over to Robert. 11:00 4 MR. HALL: Thank you, Gary. Good 11:00 5 morning, Commissioners. For the record, my name is 11:00 6 Robert Hall, director of minority development 11:00 7 services. 11:00 8 Commissioners, I'm bringing forth today 11:00 9 three reports I would like to update you on. They 11:00 10 are, one, the monthly HUB/minority contract activity 11:00 11 report. We also would like to provide you a report, 11:00 12 number two, is regarding the statewide historically 11:00 13 underutilized business expenditures report for FY '02. 11:00 14 And the last report we want to bring to you is an 11:00 15 update on the contract management survey that was 11:00 16 recently released. 11:00 17 The first report that is attached is 11:00 18 the report as of October 2000, expenditures to October 11:01 19 31st as it relates to minority participation. On page 11:01 20 seven in your notebook, this report concludes that the 11:01 21 agency spending is over 21 million dollars. Our total 11:01 22 utilization to date is over 3.7 million dollars, which 11:01 23 equates to a percentage of 7.8 percent. In addition 11:01 24 to that report, I want to update you on the TVP -- 11:01 25 excuse me. Senator Barrientos had a HUB forum during 11:01 0104 1 the month of October which we were a co-sponsor of, 11:01 2 and during that sponsored activity, we awarded -- the 11:01 3 Lottery Commission actually awarded on the spot almost 11:01 4 2,000 dollars to HUB vendors. So I just wanted to 11:01 5 make you aware of that as well. 11:01 6 The second report in your notebook 11:01 7 relates to, again, the historically underutilized 11:01 8 business report tabulation or compilation that was 11:01 9 compiled by the Texas Building and Procurement 11:01 10 Commission as of August 31st, 2002. This report is 11:02 11 based upon -- these reports that I have for you are 11:02 12 based upon a summary of the Commission's total HUB and 11:02 13 minority utilization for FY '02. Report one 11:02 14 highlights the Commission's total expenditures by the 11:02 15 statewide procurement categories and the total 11:02 16 expenditures paid to HUD vendors directly and 11:02 17 indirectly. It is important to note for you that we 11:02 18 did exceed two of our procurement goals for those 11:02 19 procurement categories. 11:02 20 Report number two summarizes the total 11:02 21 expenditures paid to all HUB and minority-owned 11:02 22 businesses from treasury and also indirectly through 11:02 23 subcontracting expenditures. Our total utilization 11:02 24 for FY '02 was 12.49 percent. 11:02 25 Report number three summarizes the 11:02 0105 1 total expenditures by listing procurement categories 11:02 2 for each NSD (phonetic) which is paid under -- by 11:02 3 subcontracting -- excuse me. By direct expenditures. 11:03 4 And I want to note for you in this report three, 11:03 5 subcontracting expenditures are not included. 11:03 6 And the last report related to the HUB 11:03 7 utilization is the ten largest spending agencies, 11:03 8 which includes Texas Lottery Commission. I am happy 11:03 9 to report to you, compared to other State agencies in 11:03 10 this particular category, that we rank number three by 11:03 11 percent in FY '02 as compared to FY '01 where we 11:03 12 ranked sixth and also in FY 2000 we ranked number 11:03 13 eight. 11:03 14 The last report for you this morning, 11:03 15 as well as an update, is related to the contract 11:03 16 management customer service survey that you requested. 11:03 17 On October 28th, minority development services 11:03 18 contract management section has released the attached 11:03 19 customer service survey to all Texas -- excuse me. To 11:03 20 selected Texas Lottery staff. The purpose of the 11:03 21 survey was to obtain feedback regarding the Texas 11:03 22 Lottery Commission's contract management process. The 11:03 23 input that we will receive will help us identify and 11:04 24 facilitate the roles of everyone involved through 11:04 25 initiating, administering, and monitoring the Texas 11:04 0106 1 Lottery Commission's contracts. Responses to the 11:04 2 survey were received as of Friday, November 15th, and 11:04 3 we are currently tabulating those responses today. We 11:04 4 hope to come back next month and share with the 11:04 5 Commissioners and our Acting Executive Director, 11:04 6 Bingo, other division directors, and also staff, the 11:04 7 results of those surveys. I also think it's important 11:04 8 to let you know that we will be formulating a working 11:04 9 committee to develop a new planning methodology that 11:04 10 will encompass all roles, all responsible roles for 11:04 11 management of Texas Lottery Commission's contracts, 11:04 12 from determining the need for a contract to the 11:04 13 process of close-out of the contract. 11:04 14 And the last update I have for you in 11:04 15 relation to last month, we invited the Texas Building 11:04 16 and Procurement Commission to provide a presentation 11:04 17 to our division directors related to the HUB rule 11:04 18 change as it relates to HUB subcontracting. Ms. 11:05 19 Charlotte Bench (phonetic) with the Texas Building and 11:05 20 Procurement Commission came over and gave us a 11:05 21 presentation, and we have -- we feel that we 11:05 22 benefitted from that presentation, and have also sent 11:05 23 a follow-up letter to Mr. Randall Raleigh (phonetic), 11:05 24 who is executive director for TBPC. With that, that's 11:05 25 all the updates I have. I'll be happy to answer any 11:05 0107 1 questions that you may have regarding the reports or 2 the contract management survey. 11:05 3 COMMISSIONER WHITAKER: Robert, what do 11:05 4 you think will be the percentage we reach next year? 11:05 5 MR. HALL: I'm sorry. I'm getting 11:05 6 excited. We recently just discussed that. And we -- 11:05 7 I've just also discussed that with Gary. We have a 11:05 8 contract -- several new contracts that are starting, 11:05 9 and in that contract, in those contracts, we 11:05 10 envision -- or through the subcontracting plan, we can 11:05 11 see, based on the projection, there will be a huge new 11:05 12 utilization of HUB vendors. The contract, for 11:05 13 example, with the BDD Dallas, they have committed a 11:05 14 large portion of their contract to be subcontracted to 11:06 15 a HUB vendor. So we think, and we will be monitoring 11:06 16 also and providing feedback to Gary as well as 11:06 17 yourselves about that utilization for not just that 11:06 18 contract, but all the contracts. And we had hoped -- 11:06 19 we hope, our goal this year is to surpass every goal 11:06 20 associated with the Lottery Commission's contracts. 11:06 21 Now, we're also looking at some things for special 11:06 22 trade. Our lessors have agreed, some of our lessors 11:06 23 have agreed to work with us in reporting 11:06 24 subcontracting activity as it relates to remodeling, 11:06 25 as well as any other special trade items that are 11:06 0108 1 associated the our leasing buildings that we have. 11:06 2 And so with that, if we can -- if we get -- if staff 11:06 3 and all of us work together collectively, we can -- I 11:06 4 believe our utilization will probably exceed, and I 11:06 5 don't want to be quoted directly on this, but I think 11:06 6 it'll far exceed where we are right now, 12.49. 11:06 7 COMMISSIONER WHITAKER: And your best 11:06 8 estimate is? 11:07 9 MR. HALL: Unofficially, I would say I 11:07 10 would expect that we can do over 20 percent if 11:07 11 everything were to happen as we think right now. 11:07 12 COMMISSIONER WHITAKER: That is 11:07 13 exciting. 11:07 14 CHAIRMAN CLOWE: Thank you, Robert. 11:07 15 Appreciate your good work. Gary, I think it's a good 11:07 16 idea to have that as a separate agenda item and thank 11:07 17 you for doing that. 11:07 18 Next we are going to take up 21, 11:07 19 report, possible discussion and/or action on the 11:07 20 agency's annual financial audit. Mr. Sanchez. 11:07 21 MR. SANCHEZ: Commissioners, on your 11:07 22 package was included a draft of the annual financial 11:07 23 report. The annual financial report was submitted to 11:07 24 the Comptroller, based on their required guidelines. 11:07 25 The audited financial statement will be submitted 11:07 0109 1 December 20th. We expect to receive the draft of the 11:07 2 financial statements today. And we're in the final 11:07 3 process of the audit. Basically, I'm reviewing the 11:08 4 management representation letter that's supposed to be 11:08 5 executed by myself and Gary, as Acting Executive 11:08 6 Director, and resolving any other outstanding issues, 11:08 7 and we expect to probably have it within a couple of 11:08 8 weeks, before the December 20th deadline, and 11:08 9 presented in your December commission meeting, 11:08 10 hopefully, if we have one. 11:08 11 If you have any questions. 11:08 12 CHAIRMAN CLOWE: Very good, Bart. 11:08 13 Thank you, and I think there are no questions. 11:08 14 The next item, 23, possible -- 11:08 15 discussion, report and/or action on the drawings -- 11:08 16 I'm sorry, the agency security audit, number 22. 11:08 17 Commander Pitcock. 11:08 18 MR. PITCOCK: Thank you. My name is 11:08 19 Mike Pitcock, commander of security for the Texas 11:08 20 Lottery Commission. With me is Tom Tharp, project 11:08 21 coordinator for JeffersonWells. We have completed, as 11:08 22 of this Wednesday, four meetings. With your package, 11:09 23 you'll see that the -- overviews of the three 11:09 24 meetings, but November 20th we did complete another 11:09 25 meeting with JeffersonWells. But the key thing on the 11:09 0110 1 memo is at the end, and I'm going to read to you what 11:09 2 it says, the overall status from the auditors was 11:09 3 favorable. The security audit is progressing as 11:09 4 planned. Field work will be completed by Thanksgiving 11:09 5 week. There are no significant road blocks that have 11:09 6 been encountered and excellent cooperation. The 11:09 7 meeting we had on the 20th, he re-emphasized there has 11:09 8 still been no significant findings as of Wednesday. 11:09 9 We did ask them to look at some new items and they 11:09 10 have started looking at that, and there -- you know, 11:09 11 they are looking into those issues and we will report 11:09 12 back probably -- based on the end of the report. But 11:09 13 the key thing at the 20th meeting was the time line 11:09 14 and the dates that are significant. Their draft 11:09 15 reports will be provided on December the 4th, and 11:09 16 based on that, the report briefing meeting will take 11:09 17 place Friday, December the 6th, and the final reports 11:10 18 will be released Friday, December the 13th. 11:10 19 I'll be glad to answer any questions at 11:10 20 this time. 11:10 21 CHAIRMAN CLOWE: Mike, you touched just 11:10 22 briefly on some additional work. My understanding is, 11:10 23 based on some of the breaches of security that we've 11:10 24 been made aware of in the United States and in the 11:10 25 world, that you have expanded the scope of the audit 11:10 0111 1 to include looking at every area where -- we're 11:10 2 sensitive now about that sort of thing, and that 11:10 3 apparently can be added to the scope of the work 11:10 4 without delay. Is that right? 11:10 5 MR. PITCOCK: Yes, sir, that's true. 11:10 6 Mr. Rivera stated that, you know, we're not 11:10 7 event-driven either. We're trying to provide the 11:10 8 security for our games to the best of our ability on 11:10 9 an ongoing process. And as part of that, during the 11:10 10 time that they've been here, these events have taken 11:10 11 place. And I felt that it would be advantageous for 11:10 12 our agency for them to look at these issues and to 11:10 13 make sure, not only are we following up on the back 11:10 14 side to make sure we're doing our work and to oversee 11:11 15 and look at those issues to see if there is anything 11:11 16 there in addition that we need to be looking at. And 11:11 17 I'll let Mr. Tharp comment if he wishes to on that. 11:11 18 MR. THARP: Yes. We've definitely -- I 11:11 19 wouldn't say we expanded the scope. I think that was 11:11 20 actually to be included in the initial scope on the 11:11 21 part of us looking at the integrity of the games, so I 11:11 22 don't think that the scope necessarily expanded. But 11:11 23 in lieu of the -- you know, since the -- because of 11:11 24 the recent events, we've definitely put a lot more 11:11 25 focus in those areas than we probably would have 11:11 0112 1 initially. But the agency has been communicating to 11:11 2 us, you know, what's been going on and actions being 11:11 3 taken, and so we're definitely going to include that 11:11 4 as part of the report. 11:11 5 CHAIRMAN CLOWE: Good. Well, I want it 11:11 6 understood, Mike, that, you know, we rely on the 11:11 7 vendors and we expect them to be extremely 11:11 8 professional. But you are the homeland defense, and 11:11 9 we want you to be protecting this agency with your 11:11 10 investigators and your security, as the entity that 11:12 11 gives us the level of comfort that you're going to be 11:12 12 on top of anything that comes up. 11:12 13 MR. PITCOCK: I have a staff that is 11:12 14 very experienced and I have a staff that, I will tell 11:12 15 you, that is as knowledgeable as there is in the state 11:12 16 of Texas or the United States. As far as lottery, 11:12 17 they're on top of the issues. And on our own ability, 11:12 18 we're looking into that. And I want to compliment 11:12 19 Gary Grief also, because we spent some 20-hour days 11:12 20 here lately working with these issues, and the 11:12 21 leadership that he provided was outstanding, I think, 11:12 22 because it brought together these industry leaders 11:12 23 into one room. He oversaw those meetings, and I 11:12 24 think, based on that leadership, it was -- we were 11:12 25 able to have an open dialogue and discussion. Because 11:12 0113 1 I always like to sit there and listen to the issues, 11:12 2 and I think he made that happen and I compliment him 11:12 3 for doing that. 11:12 4 CHAIRMAN CLOWE: Good. Mike, I think 11:12 5 it also falls under your duties, although not this 11:13 6 particular subject. We received a six months report 11:13 7 on the scam that was directed at people, I think, 11:13 8 elderly people of Hispanic origin. Did you plan to 11:13 9 comment on that at this time? 11:13 10 MR. PITCOCK: I can if you wish. You 11:13 11 know, the latest -- the information that I received in 11:13 12 San Antonio, four of these individuals were caught by 11:13 13 San Antonio police department, which I will tell you 11:13 14 is very difficult. In the history of the world, 11:13 15 pension drop does not do -- pension drop scam is 11:13 16 something that has taken place for centuries, but it 17 was developed here recently in South America to take 11:13 18 in lottery type products. It was successful in South 11:13 19 America, so they have now moved up into the United 11:13 20 States. And for the last two years, in coordination 11:13 21 with other states, it's been one that's been very 11:13 22 difficult for us, because these people, they use 11:13 23 Interstates to travel up and down the Interstates, and 11:13 24 they hit in different locations very quickly, and then 11:13 25 they get out. So law enforcement, we're kind of 11:14 0114 1 handcuffed. We have to react quickly when we get 11:14 2 information about one of the groups. Fortunately, San 11:14 3 Antonio, they got caught down there, basically, 11:14 4 because there was a -- a unit that they have in San 11:14 5 Antonio that monitors neighbors for any kind of 11:14 6 illegal activity. They were just out in the area and 11:14 7 they actually saw these individuals leaving a house 11:14 8 and it looked suspicious, they stopped them, and in 11:14 9 their car they found 65,000 dollars which they had 11:14 10 just taken from the elderly couple and information 11:14 11 that related to their scam. But it's one of those, we 11:14 12 have found that's been more the standard of how they 11:14 13 get caught, but that group -- where we come into it 11:14 14 would be that we compile information from all over the 11:14 15 state of Texas where these people have hit and we've 11:14 16 gotten photographs and talked to law enforcement 11:14 17 agencies, so we're going to try to get with all these 11:14 18 other areas, from Lubbock to south Texas, and provide 11:14 19 information to San Antonio, hopefully, that we can get 11:14 20 the identity of these people in other scams throughout 11:14 21 the state. And I think we will, because the 11:14 22 information sounds -- the MO's sound to be the same, 11:15 23 the players sound to be same. But I'm going to tell 11:15 24 you, it's a very difficult situation. And our last 11:15 25 executive director, Linda Cloud, went out and tried to 11:15 0115 1 educate throughout the state of Texas. I think you 11:15 2 were aware of that. And I think that, you know, 11:15 3 throughout the training that I've had, that is what is 11:15 4 recommended is the -- on the back side, the cops 11:15 5 catching them, it's very difficult, but on the front 11:15 6 side, you can educate the elderly and the people that 11:15 7 are the victims. They have found that more effective 11:15 8 in trying to stop this type of operation. It's bad 11:15 9 that it's lottery tickets that they're using, but 11:15 10 these people have been highly successful. And as long 11:15 11 as -- in the crook world, if you're highly successful, 11:15 12 you're going to keep doing it. And in Houston alone, 11:15 13 we know that there is eight to ten to 15 groups of 11:15 14 these people operating. It's not one group. It's 11:15 15 several, and we know that they're out there. But 11:15 16 we're actively responding and cooperating to law 11:15 17 enforcement to try to help in this area. 11:15 18 CHAIRMAN CLOWE: And I think that falls 11:15 19 in our court. You know, they are using lottery 11:15 20 tickets, and I think you're right to again be 11:15 21 proactive and to go out into the community and educate 11:16 22 people who are obviously in the targeted group, is as 11:16 23 effective, and more so, than trying to catch them on 11:16 24 the back end of the scam. And that's as important to 11:16 25 me as the compulsive gambling effort that the 11:16 0116 1 commission is involved in. And I think, you know, if 11:16 2 the word gets around that our major cities are tough, 11:16 3 Texas is tough, the word is out, and there is a high 11:16 4 level of enforcement, those people move on somewhere 11:16 5 else. And that's what I would like to see happen. 11:16 6 MR. PITCOCK: We would, too. 11:16 7 CHAIRMAN CLOWE: Great. Anything 11:16 8 further? It was a good comprehensive report, and I 11:16 9 don't know who is responsible for compiling it, but I 11:16 10 want to thank you for it. 11:16 11 MR. PITCOCK: Thank you, sir. 11:16 12 CHAIRMAN CLOWE: Next we have item 23, 11:16 13 report, possible discussion and/or action on the 11:16 14 drawing studio and product services contract -- 11:16 15 production services contract. 11:16 16 MR. BENNETT: Commissioners, for the 11:17 17 record, my name is Ridgely Bennett. I'm the deputy 11:17 18 general counsel. 11:17 19 The Texas Lottery Commission is in the 11:17 20 process of negotiating an amendment to the drawing 11:17 21 studio and production services contract, with M&S 11:17 22 Works, to provide for live Internet streaming of the 11:17 23 Wednesday and Saturday night draws. We anticipate 11:17 24 that the cost of these services will be approximately 11:17 25 $166.50 per draw. We bring this to your attention 11:17 0117 1 today because during the protest of the award of this 11:17 2 contract by Commission's prior vendor, the agency took 11:17 3 the position that these services were included in the 11:17 4 base price of the contract. However, by memorandum 11:17 5 dated November 29th, 2001 from Linda Cloud to M&S 11:17 6 Works, the contract was modified to add live Internet 11:17 7 streaming at a price of $162.50 per draw. The 11:17 8 memorandum stated that the live Internet streaming 11:17 9 would last until August 31st, 2002. M&S Works is 11:17 10 currently providing live Internet streaming for the 11:17 11 Wednesday and Saturday night draws. 11:18 12 I'll be happy to answer any questions 11:18 13 regarding this issue that you may have. 11:18 14 CHAIRMAN CLOWE: Ridgely, this matter 11:18 15 was the subject of an examination by the Council on 11:18 16 Good Government, if I recall correctly. 11:18 17 MR. BENNETT: That is correct. 11:18 18 CHAIRMAN CLOWE: Does this item need to 11:18 19 be brought to their attention? 11:18 20 MR. BENNETT: We would be happy to 11:18 21 bring it to their attention if you think it needs to 11:18 22 be. 11:18 23 CHAIRMAN CLOWE: Well, I think in the 11:18 24 spirit of full disclosure, because this matter was 11:18 25 looked into by them, and my understanding is, you have 11:18 0118 1 discovered this as an after-the-fact event? 11:18 2 MR. BENNETT: That's correct. 11:18 3 CHAIRMAN CLOWE: That it might be well 11:18 4 to inform them of this discovery and make them aware 11:18 5 of it, and anyone else that has inquired about the 11:18 6 production studio, that has a need to know, should be 11:18 7 made aware of this. 11:18 8 MR. BENNETT: We did will do that, 11:18 9 Chair, and we have informed counsel for TPFV, the 11:19 10 party that filed the protest and subsequent lawsuit 11:19 11 that's still pending, of this issue. 11:19 12 CHAIRMAN CLOWE: Right. Very good. 11:19 13 Next is item 24, report, possible 11:19 14 discussion and/or action on the agency's advertising 11:19 15 contract. 11:19 16 MR. BENNETT: Commissioners, once 11:19 17 again, Ridgely Bennet, deputy general counsel. 11:19 18 The Commission entered into a contract 11:19 19 for minority market advertising services with The King 11:19 20 Group. The protest period has run on that and no 11:19 21 protest was filed. As you have been previously made 11:19 22 aware, we've entered into a DBB Dallas to perform 11:19 23 general market advertising services. Fogarty, 11:19 24 Klein Monroe did file a protest and that is currently 11:19 25 under review. 11:19 0119 1 I'll be happy to answer your questions. 11:19 2 CHAIRMAN CLOWE: Any questions or 11:19 3 comments? Commissioners, if you're agreeable, I would 11:19 4 like to go ahead and handle the cases and the reports 11:19 5 from the Acting Executive Director and the Bingo 11:19 6 Division Director while we're in the public session. 11:19 7 Ridgely, would you help us through item 11:20 8 number 27, the possible entry of orders on these 11:20 9 cases? 11:20 10 MR. BENNETT: Certainly, Commissioners. 11:20 11 Item A is unique because it is a request for an order 11:20 12 nunc pro tunc. There was a clerical error in the 11:20 13 first order that was signed, and this order will 11:20 14 clarify the correct party who the refund is supposed 11:20 15 to be made to. 11:20 16 Item number E is unique because it is a 11:20 17 failure to provide current licensing information for 11:20 18 lottery retail vendor. The licensing information they 11:20 19 failed to provide to us was that they went out of 11:20 20 business, so we're going to revoke their license. 11:20 21 All of the remaining items are the 11:20 22 failure to have sufficient funds available for 11:20 23 electronic transfer, and we are asking that you adopt 11:20 24 the proposal for decisions issued by the 11:20 25 administrative law judge of these cases. 11:20 0120 1 CHAIRMAN CLOWE: Are there any 11:21 2 questions on these cases? Is there a motion? 11:21 3 COMMISSIONER WHITAKER: I so move to 11:21 4 adopt the recommendation of staff. 11:21 5 COMMISSIONER COX: Second. 11:21 6 CHAIRMAN CLOWE: Moved and seconded to 11:21 7 adopt the recommendation of staff on cases letter A 11:21 8 through letter P, as I understand it. All in favor, 11:21 9 please say aye. Opposed, no. The vote is three-zero 11:21 10 in favor. We'll take a minute to sign these orders 11:21 11 now. And then I'm going to call on you, Gary, for 11:21 12 your report. 11:21 13 CHAIRMAN CLOWE: Ridgely, will you make 11:23 14 sure that we signed each and every one of those 11:23 15 orders? 11:23 16 MR. BENNETT: I certainly will. 11:23 17 CHAIRMAN CLOWE: Now we're ready to 18 move to item 28, report by the Acting Executive 11:23 19 Director. 11:23 20 MR. GRIEF: Commissioners, I have Bart 11:23 21 Sanchez, Julie du'Mas and Toni Smith ready to brief 11:23 22 you on the agency's financial and operational status, 11:23 23 the FTE status and retailer forums. But before they 11:23 24 provide you with that information, I want to brief you 11:24 25 on recently develops regarding the Texas Millionaires 11:24 0121 1 Family. I copied the Commissioners recently with a 11:24 2 letter that I sent to this organization. And after I 11:24 3 had an opportunity to meet with key staff, including 11:24 4 staff from governmental affairs, communications, 11:24 5 marketing, and the legal divisions, I just could not 11:24 6 justify continuing either the exclusive arrangement 11:24 7 that the agency has with that organization, or the 11:24 8 expense involved in putting on what is known as the 11:24 9 educational seminars. Of course, our agency is always 11:24 10 available to answer questions from winners if, indeed, 11:24 11 we have the answer to those questions. However, our 11:24 12 educational focus for our winners lies mainly on the 11:24 13 front end of the process. When we're contacted by a 11:24 14 winner, we do everything within our power to funnel 11:24 15 those people to appropriate legal and financial 11:24 16 counsel. And I wanted to let you know that that was 11:24 17 the focus of the letter that I sent to the Texas 11:25 18 Millionaires Family and I have not yet received any 11:25 19 comment back from them. 11:25 20 CHAIRMAN CLOWE: What is the annual 11:25 21 cost of that? 11:25 22 MR. GRIEF: I would ask Mike Anger, our 11:25 23 operations director. Mike, do you recall? 11:25 24 MR. ANGER: For the winners' 11:25 25 educational seminars, the approximate cost for the 11:25 0122 1 last session was 10,000 dollars. 11:25 2 MR. GRIEF: On the record. 11:25 3 MR. ANGER: This is Michael Anger. The 11:25 4 approximate cost for the last winners' educational 11:25 5 seminar was 10,000 dollars. 11:25 6 MR. GRIEF: And Commissioners, I'll 11:25 7 point out that that is the actual money that was 11:25 8 expended. That does not take into account the staff 11:25 9 time that's put into that particular function. 11:25 10 CHAIRMAN CLOWE: I don't believe there 11:25 11 are any questions on that, Gary. 11:25 12 MR. GRIEF: Very good. Then I will 11:25 13 turn it over to Bart first. 11:26 14 MR. SANCHEZ: Commissioners, the 11:26 15 transfer to the state for the month of November was 11:26 16 69.1 million. And if y'all don't have any questions, 11:26 17 I'll go to the next item, which is the budget. The 11:26 18 operating budget was included in your notebook, 11:26 19 presented three different report levels. One is very 11:26 20 global. And the second one was presented and -- to 11:26 21 separate the Lottery and bingo goals, and the third 11:26 22 was presented in division detail by comp object level. 11:26 23 And, basically, the budget is in compliance with the 11:26 24 appropriated amount for fiscal year '03. 11:26 25 Do you have any questions? 11:26 0123 1 CHAIRMAN CLOWE: Thank you, Bart. 11:26 2 MR. GRIEF: Judy. 11:26 3 DU'MAS: For the record, I'm Julie 11:26 4 du'Mas, HR manager. 11:26 5 Commissioners, the FTE report has been 11:26 6 provided for your packets and I will respond to any 11:26 7 questions you may have. 11:26 8 CHAIRMAN CLOWE: I don't think we have 11:27 9 any. Thank you. 11:27 10 MR. GRIEF: Very good. Toni. 11:27 11 MS. SMITH: Commissioners, we have 11:27 12 completed our ten visits in our retailer forums for 11:27 13 our retailer town meetings for this fiscal year. 11:27 14 Well, actually, the calendar year, and are taking 11:27 15 advantage of our time off in November and December 11:27 16 from conducting those meetings to do a review and 11:27 17 really study what would be the best type of meetings 11:27 18 to put together that would both benefit our retailers 11:27 19 and the lottery. And so we have had internal 11:27 20 meetings, we have met with Gtech district sales 11:27 21 managers to get their feedback, and we've contacted 11:27 22 some other lotteries, too, to see what they do. So we 11:27 23 have put together a proposal for Gary Grief's review 11:27 24 and depending on the results of his opinion on there, 11:27 25 I can report in the next meeting how we plan to move 11:27 0124 1 forward for January then. 11:27 2 CHAIRMAN CLOWE: Good. 11:27 3 MR. GRIEF: Commissioners, that 11:27 4 concludes my report. I'll be happy to answer any 11:27 5 questions. 11:27 6 CHAIRMAN CLOWE: I believe there are 11:27 7 none. Thank you. 11:27 8 Mr. Atkins, we'll move to item 29, 11:28 9 report by the Charitable Bingo Operations Director, 11:28 10 please. 11:28 11 MR. ATKINS: Thank you, Commissioners. 11:28 12 I wanted to talk briefly about the one vacancy that we 11:28 13 have in the Dallas regional office. I think I 11:28 14 discussed with you at the last commission meeting that 11:28 15 we were performing an analysis on our need for 11:28 16 positions in the different regional offices. We have 11:28 17 done that and based on our analysis, we have 11:28 18 transferred a position to Dallas. Our Dallas region 11:28 19 has 787 licensees, which -- in it, which is almost 11:28 20 double the size of any other region. So we think that 11:28 21 there is better use of staff time having them in that 11:28 22 area to cover that number of licensees. That will -- 11:28 23 that transfer will give us eight auditors in the 11:28 24 Dallas region, four in Houston, two in Odessa, five in 11:28 25 San Antonio, and then there are five here in Austin. 11:28 0125 1 That was posted as an internal posting. We have 11:28 2 received three applicants and those will be reviewed 11:29 3 and interviews conducted. 11:29 4 Real quickly, on the charitable bingo 11:29 5 system redesign. We have completed the design 11:29 6 specifications for the remaining modules. That 11:29 7 occurred towards the end of October. Keene has 11:29 8 indicated that they anticipate spending the next two 11:29 9 months writing code and performing their own unit 11:29 10 testing on those modules in the system itself. The 11:29 11 staff, in the meantime, has started to develop their 11:29 12 scripts for their user acceptance testing, and they're 11:29 13 also assisting the -- Keene with the data cleansing 11:29 14 that will be necessary for the conversion to occur. 11:29 15 Something has occurred since I've prepared my memo for 11:29 16 you. One of their business analysts has resigned. 11:29 17 They had submitted their proposal for the project plan 11:29 18 to their management for review the first part of 11:29 19 November. The resignation of that individual has 11:29 20 caused them to take that back and review it. They are 11:30 21 attempting to get one of the business analysts that 11:30 22 had worked on the project previously to come in and 11:30 23 fill that position. So we don't have the project plan 11:30 24 yet. I met with Bob Sinski's (phonetic) team 11:30 25 yesterday and expressed to him that we're ready for 11:30 0126 1 the project plan. We want to know what their time 11:30 2 line is going to be. And he has assured me that it 11:30 3 will be forthcoming to us to review. I did want to 11:30 4 let you know, under the Bingo Advisory Committee, I 11:30 5 had mentioned to you that I had put a call in to 11:30 6 Mr. Dougherty. He did call back earlier this morning. 11:30 7 He is out of town, but he did get the message. He is 11:30 8 interested in serving. He'll be back in Austin next 11:30 9 Tuesday, so at that time, we'll move forward on 11:30 10 scheduling the meeting, Mr. Chairman, to sit down and 11:30 11 speak with him about the advisory committee. 11:31 12 CHAIRMAN CLOWE: Remember, Thursday is 11:31 13 Thanksgiving. 11:31 14 MR. ATKINS: I do remember that, and I 11:31 15 will actually be out starting Tuesday afternoon. So 11:31 16 it may not be Tuesday, but we'll start. And that, 11:31 17 Commissioners, is all I had for my report. And I'm 11:31 18 happy to answer any questions. 11:31 19 CHAIRMAN CLOWE: I don't believe there 11:31 20 are any, Billy. 11:31 21 Back under Gary's report. I missed an 11:31 22 item I would like to go back to. Commissioner 11:31 23 Whitaker introduced a project about information on the 11:31 24 Lottery and how we're doing. And Gary, I think you 11:31 25 assigned Keith Elkins to that, and maybe others. 11:31 0127 1 MR. GRIEF: You'll have to pardon me. 11:31 2 Which project was that? 11:31 3 CHAIRMAN CLOWE: Information about the 11:31 4 lottery and what we are doing and the good results 11:31 5 that we are experiencing. 11:31 6 MR. GRIEF: Positive. 11:31 7 CHAIRMAN CLOWE: I don't know what the 11:31 8 title was. I have from Keith a memo resulting in 11:31 9 information. The headings are, success in tough 11:32 10 times, significant revenue to the state, and 11:32 11 correcting misinformation. 11:32 12 Keith, I believe you were the team 11:32 13 leader or the head of that. It's excellent 11:32 14 information. I think it's what Commissioner Whitaker 11:32 15 had in mind, and I am appreciative of having it. I 11:32 16 can't wait to get into an opportunity with a 11:32 17 legislator or someone, you know, where I could use 11:32 18 this. And I hope that you, Gary, and Keith will use 11:32 19 this information to tell our story in a beneficial 11:32 20 way. 11:32 21 MR. GRIEF: Yes, sir, we will. 11:32 22 CHAIRMAN CLOWE: Good work, Keith. 11:32 23 Is there any public comment from anyone 11:32 24 present? To my knowledge now, we have covered all of 11:32 25 the items on our agenda in the public meeting. I'm 11:32 0128 1 shortly going to move that we go into executive 11:32 2 session, and my impression is that unless we have 11:32 3 something that results in executive session that calls 11:33 4 for action in the public conference when we reconvene 11:33 5 here, we have completed the public agenda. 11:33 6 MR. BENNETT: Except for adjournment. 11:33 7 CHAIRMAN CLOWE: Except for 8 adjournment. 9 At this time, I'm move that the Texas 11:33 10 Lottery Commission go into executive session: 11:33 11 To deliberate the appointment, employment, and duties 11:33 12 of the Executive Director and/or Deputy Executive 11:33 13 Director pursuant to Section 551.074 of the Texas 11:33 14 Government Code. 11:33 15 To deliberate the duties of the Acting Executive 11:33 16 Director pursuant to Section 551.074 of the Texas 11:33 17 Government Code. 11:33 18 To deliberate the duties and evaluation of the 11:33 19 Charitable Bingo Operations Director and Internal 11:33 20 Audit Director pursuant to Section 551.074 of the 11:33 21 Texas Government Code. 11:33 22 To deliberate the duties of the General Counsel and 11:33 23 Security Director pursuant to Section 551.074 of the 11:34 24 Texas Government Code. 11:34 25 To receive legal advice regarding pending or 11:34 0129 1 contemplated litigation and/or to receive legal advice 11:34 2 pursuant to Section 551.071(1)(A) or (B) of the Texas 11:34 3 Government Code and/or to receive legal advice 11:34 4 pursuant to Section 551.071(2) of the Texas Government 11:34 5 Code, including but not limited to: 11:34 6 TPFV Group, Inc. versus Texas Lottery Commission; 11:34 7 Retired Sergeant Majors' Association, et al. versus 11:34 8 Texas Lottery Commission, et al.; 11:34 9 Loretta Hawkins versus Texas Lottery Commission; 11:34 10 States of Minnesota, et al. versus NIGC, et al.; 11:34 11 Scientific Games and Pollard Banknote versus Texas 11:34 12 Lottery Commission and Linda Cloud, Executive 11:34 13 Director; 14 Ideas, Inc. and Associates in Implants versus Texas 11:34 15 Lottery Commission and Linda Cloud; 11:35 16 TXTV versus Texas Lottery Commission; 11:35 17 Ieric and Chris Rogers versus Texas Lottery Commission 11:35 18 and Executive Director; 11:35 19 Keane versus Texas Lottery Commission; 11:35 20 Contract regarding the charitable bingo system; 11:35 21 Employment law and general government law relating to 11:35 22 the appointment, employment and duties of the 11:35 23 Executive Director; 11:35 24 Employment law, personnel law, procurement and 11:35 25 contract law, and general government law. 11:35 0130 1 Is there a second? 11:35 2 COMMISSIONER WHITAKER: Second. 11:35 3 CHAIRMAN CLOWE: All in favor, say aye. 11:35 4 No? 11:35 5 The vote is three-zero in favor. The 11:35 6 Texas Lottery Commission will go into executive 11:35 7 session. The time is 11:36 a.m. Today is November 11:35 8 the 22nd, 2002. 11:35 9 (EXECUTIVE SESSION.) 11:36 10 CHAIRMAN CLOWE: The Texas Lottery 15:09 11 Commission is out of executive session. The time is 15:09 12 3:09 p.m. Today is November the 22nd, 2002. 15:09 13 Is there any action to be taken as a 15:09 14 result of executive session? 15:09 15 Is there a motion to approve the 15:09 16 proposed settlement agreement in Ideas, Inc. and 15:09 17 Associates in Implants versus Texas Lottery Commission 15:09 18 and Linda Cloud? 15:09 19 COMMISSIONER WHITAKER: So moved. 15:09 20 COMMISSIONER COX: Second. 15:09 21 CHAIRMAN CLOWE: What is the vote? All 15:09 22 in favor, please say aye. Opposed, no. The vote is 15:09 23 three-zero in favor. 15:09 24 I make a motion to approve the 15:09 25 evaluation of the Internal Audit Director. Is there a 15:09 0131 1 second? 15:09 2 COMMISSIONER WHITAKER: Second. 15:09 3 CHAIRMAN CLOWE: Moved and seconded. 15:09 4 All in favor, please say aye. No for the opposed. 15:09 5 COMMISSIONER COX: I'm going to abstain 15:09 6 on that. 15:09 7 CHAIRMAN CLOWE: Let the record reflect 15:09 8 there are two ayes and one abstention on the part of 15:10 9 Commissioner Cox. 15:10 10 I make a motion to approve the 15:10 11 evaluation of the Charitable Bingo Operations 15:10 12 Director. Is there a second? 15:10 13 COMMISSIONER WHITAKER: Second. 15:10 14 CHAIRMAN CLOWE: All in favor, please 15:10 15 say aye. 15:10 16 COMMISSIONER COX: I'm going to abstain 15:10 17 on that one as well. 15:10 18 CHAIRMAN CLOWE: Opposed, no. Let the 15:10 19 record reflect there are two ayes and one abstention 15:10 20 on the part of Commissioner Cox. 15:10 21 Is there a motion regarding the 15:10 22 Charitable Bingo Operations Director's salary? 15:10 23 I so move. 15:10 24 COMMISSIONER WHITAKER: Second. 15:10 25 CHAIRMAN CLOWE: All in favor, please 15:10 0132 1 say aye. 15:10 2 MR. BENNETT: Commissioner, what action 15:10 3 are you taking on the salary? 15:10 4 CHAIRMAN CLOWE: Five percent increase. 15:10 5 I can give you the exact number if you want it for the 15:10 6 record. 15:10 7 MR. BENNETT: I think we need that for 15:10 8 the record. 15:10 9 CHAIRMAN CLOWE: We're going to pause 15:11 10 here for just a minute. 15:11 11 And the amount of the increase, for the 15:11 12 record, is an increase from a yearly amount of 15:11 13 $88,408.32 to an annual amount of 92,000 dollars 15:12 14 800 -- 900 -- $92,832. That's five percent. And that 15:12 15 is a -- an amount of $368.64 a month. Is that 15:12 16 adequate for the record? 15:12 17 MR. BENNETT: If that's part of your 15:12 18 motion. 15:12 19 CHAIRMAN CLOWE: It is indeed. And I'm 15:12 20 sorry. I lost -- do we have the vote on that motion 15:12 21 or where are we on that? 15:12 22 Commissioner Whitaker, I believe you 15:12 23 motioned for that, didn't you, or did you not? 15:12 24 COMMISSIONER WHITAKER: I'm sorry. 15:12 25 I -- 15:12 0133 1 CHAIRMAN CLOWE: I am, too. Let me 15:12 2 make a motion regarding the Charitable Bingo 15:12 3 Operations Director's salary, that the increase be 15:12 4 five percent, an increase from an annual sum of 15:13 5 $88,408.32 to an annual income of $92,832. 15:13 6 COMMISSIONER WHITAKER: I second. 15:13 7 CHAIRMAN CLOWE: All in favor, please 15:13 8 say aye. 15:13 9 COMMISSIONER COX: I'm going to abstain 15:13 10 on that one. Mr. Chairman, for the record, my 15:13 11 abstentions on these three matters relates to advice 15:13 12 from counsel because I was not here during the 15:13 13 period -- much of the period covered by those 15:13 14 evaluations. 15:13 15 CHAIRMAN CLOWE: Thank you, 15:13 16 Commissioner Cox. 15:13 17 All in favor, please say aye. The vote 15:13 18 is two-zero in favor, with one abstention on the part 15:13 19 of Commissioner Cox. 15:13 20 Are there any other motions? 15:13 21 Seeing none, hearing none, there is no 15:13 22 further business before this Commission. We will 15:13 23 adjourn. The time is 3:14 p.m. Thank you all very 15:13 24 much. 15:13 25 0134 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 Witness my hand on this the 10TH day of 16 DECEMBER, 2002. 17 18 19 20 BRENDA J. WRIGHT, RPR, 21 Texas CSR No. 1780 Expiration Date: 12-31-04 22 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 23 (512) 474-4363 24 JOB NO. 021122BJW 25