0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE ? TEXAS LOTTERY COMMISSION ? 6 THURSDAY, APRIL 8, 2010 ? 7 8 COMMISSION MEETING 9 THURSDAY, APRIL 8, 2010 10 BE IT REMEMBERED THAT on Thursday, 11 the 8th day of April 2010, the Texas Lottery 12 Commission meeting was held from 9:05 a.m. to 13 12:55 p.m., at the Offices of the Texas Lottery 14 Commission, 611 East 6th Street, Austin, Texas 78701, 15 before CHAIRMAN MARY ANN WILLIAMSON and COMMISSIONERS 16 DAVID J. SCHENCK and J. WINSTON KRAUSE. The following 17 proceedings were reported via machine shorthand by 18 Aloma J. Kennedy, a Certified Shorthand Reporter of 19 the State of Texas, and the following proceedings were 20 had: 21 22 23 24 25 0002 1 APPEARANCES 2 3 CHAIRMAN: Ms. Mary Ann Williamson 4 COMMISSIONERS: 5 Mr. David J. Schenck Mr. J. Winston Krause 6 GENERAL COUNSEL: 7 Ms. Kimberly Kiplin 8 EXECUTIVE DIRECTOR: Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: 10 Mr. Philip D. Sanderson 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - THURSDAY, APRIL 8, 2010............. 8 4 AGENDA ITEM NO. I - Meeting Called to Order....... 8 5 AGENDA ITEM NO. II - Consideration of and possible discussion and/or action, 6 including adoption, on repeal of and/or new rule 16 TAC ?402.202 relating to 7 Transfer of Funds................................. 8 8 AGENDA ITEM NO. III - Consideration of and possible discussion and/or action, 9 including adoption, on amendments to 16 TAC ?402.400 relating to General Licensing 10 Provisions........................................ 10 11 AGENDA ITEM NO. IV - Consideration of and possible discussion and/or action, including 12 adoption, on amendments to 16 TAC ?402.403 relating to Licenses for Conduct of Bingo 13 Occasions and to Lease Bingo Premises............. 12 14 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action, including 15 adoption, on amendments to 16 TAC ?402.404 relating to License Fees.......................... 12 16 AGENDA ITEM NO. VI - Consideration of and 17 possible discussion and/or action, including adoption, on new rule 16 TAC ?402.408 18 relating to Designation of Members................ 13 19 AGENDA ITEM NO. VII - Report, possible discussion and/or action on 8-liners and/or 20 illegal gambling in Texas as it relates to the regulation of charitable bingo and the 21 operation of the Texas Lottery.................... 17 22 23 24 25 0004 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. VIII- Report by the Charitable Bingo Operations Director and 4 possible discussion and/or action on the Charitable Bingo Operations Division?s 5 activities, including updates on HB 1474 implementation, Bingo Advisory Committee 6 nominations, status of licensees, rulemaking and form revisions, audits, 7 pull-tab review, special projects, allocations, and upcoming operator training....... 95 8 AGENDA ITEM NO. IX - Report, possible 9 discussion and/or action on lottery sales and revenue, game performance, new game 10 opportunities, advertising, market research, trends, and game contracts, 11 agreements, and procedures........................ 96 12 AGENDA ITEM NO. X - Report, possible discussion and/or action on transfers 13 to the State...................................... 110 14 AGENDA ITEM NO. XI - Report, possible discussion and/or action on the 5% 15 biennial budget reduction for the 2010-2011 biennium................................ 111 16 AGENDA ITEM NO. XII - Report, possible 17 discussion, and/or action on Lottery Operations and Services Contract 18 Amendment No. 8 credit calculation................ 113 19 AGENDA ITEM NO. XIII - Consideration of and possible discussion and/or action on the 20 agency's Strategic Plan for FY 2011-2015.......... 113 21 AGENDA ITEM NO. XIV - Report, possible discussion and/or action on the lottery 22 operations and services procurement............... 119 23 24 25 0005 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XV - Report, possible discussion and/or action, including 4 extension, on the agency's advertising services contract, drawing audit services 5 contract, and/or instant ticket manufacturing and services contracts, 6 and/or procurement for outside counsel for intellectual property matters................. 122 7 AGENDA ITEM NO. XVI - Report, possible 8 discussion and/or action on the 81st Legislature....................................... 125 9 AGENDA ITEM NO. XVII - Consideration of 10 and/or report, possible discussion and/or action on external and internal audits 11 and/or reviews relating to the Texas Lottery Commission, and/or on the Internal 12 Audit Department?s activities..................... 127 13 AGENDA ITEM NO. XVIII - Report, possible discussion and/or action on GTECH 14 Corporation....................................... 127 15 AGENDA ITEM NO. XIX - Report by the Executive Director and/or possible 16 discussion and/or action on the agency?s operational status, agency procedures, 17 and FTE status.................................... 128 18 AGENDA ITEM NO. XX - Consideration of the status and possible entry of orders in: 19 A. Docket No. 362-10-2023 ? Joe?s Quick Stop #2. 20 B. Docket No. 362-10-2022 ? La Potosina Grocery Store. 21 C. Docket No. 362-10-2245 ? Boo Kooz, Inc. 22 D. Docket No. 362-10-2246 ? Eufemia?s Store & Yerberia. 23 E. Docket No. 362-10-2250 ? MM Express. 24 F. Docket No. 362-10-2249 ? Khwaza Market. 25 0006 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XX (continued 4 G. Docket No. 362-10-2244 ? Downtown Fuel Ser & Handcar Wash. 5 H. Docket No. 362-10-2248 ? Jason?s Shorthorn Drive-In. 6 I. Docket No. 362-10-0755.B ? Roland Garcia. 7 J. Case No. 2010-324 ? Harvey?s Exxon............................ 128 8 AGENDA ITEM NO. XXI - Public comment.............. 139 9 AGENDA ITEM NO. XXII - Commission may meet in 10 Executive Session: A. To deliberate the duties and evaluation 11 of the Executive Director pursuant to Section 551.074 of the Texas Government 12 Code. B. To deliberate the duties and evaluation 13 of the Internal Audit Director pursuant to Section 551.074 of the Texas 14 Government Code. C. To deliberate the duties and evaluation 15 of the Charitable Bingo Operations Director pursuant to Section 551.074 of 16 the Texas Government Code. D. To deliberate the duties of the General 17 Counsel pursuant to Section 551.074 of the Texas Government Code. 18 E. To deliberate the duties of the Human Resources Director pursuant to Section 19 551.074 of the Texas Government Code. F. To receive legal advice regarding 20 pending or contemplated litigation pursuant to Section 551.071(1)(A) 21 and/or to receive legal advice regarding settlement offers pursuant to 22 Section 551.071(1)(B) of the Texas Government Code and/or to receive legal 23 advice pursuant to Section 551.071(2) of the Texas Government Code, including 24 but not limited to: 25 0007 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XXII (continued) 4 First State Bank of DeQueen et al. v. Texas Lottery 5 Commission. Texas Lottery Commission v. 6 Leslie Warren, Texas Attorney General Child Support Division, 7 Singer Asset Finance Company L.L.C., and Great-West Life & 8 Annuity Insurance Company. Gametech International et al. 9 v. Greg Abbott. Employment law, personnel law, 10 procurement and contract law, evidentiary and procedural law, 11 and general government law. Lottery Operations and Services 12 procurement and/or contract........... 139 13 AGENDA ITEM NO. XXIII - Return to open session for further deliberation and 14 possible action on any matter discussed in Executive Session................................. 140 15 AGENDA ITEM NO. XXIV - Adjournment................ 141 16 REPORTER'S CERTIFICATE............................ 142 17 18 19 20 21 22 23 24 25 0008 1 P R O C E E D I N G S 2 THURSDAY, APRIL 8, 2010 3 (9:05 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting of the Texas Lottery to 7 order. Today is April 8, 2010; the time is 9:05. 8 Commissioner Schenck and Commissioner Krause are 9 present. We have a quorum. 10 AGENDA ITEM NO. II 11 CHAIRMAN WILLIAMSON: The first item on 12 the agenda is consideration of possible discussion 13 and/or action, including adoption, on repeal of and/or 14 new rule 16 TAC 402.202 relating to transfer of funds. 15 Sandy, this is your item. Actually, 16 goes from what, Items II through VI? And we'll just 17 go down that order. 18 MS. JOSEPH: Okay. 19 Good morning, Commissioners. For the 20 record, my name is Sandra Joseph. I'm Special Counsel 21 in the Legal Services Division. 22 As you stated, Items II through VI are 23 all rulemaking items. They are all recommended 24 adoptions of proposed rulemaking actions. These 25 proposals were all published in the January 22, 2010 0009 1 issue of the Texas Register. We received comments for 2 a period of 30 days. A public hearing was held on 3 February 16th. Individuals and a representative of 4 the Bingo Interest Group did appear at the hearing and 5 offered comments. 6 As a result of the comments, certain 7 portions of all of the rules, except for Rule 403, 8 under Tab IV, have been modified or changed in some 9 way. None of those changes require republication of 10 the rules, because they are not substantive changes of 11 which persons did not have notice. 12 And under Item II, that is the proposed 13 repeal and adoption of new rule 402.202 relating to 14 transfer of funds. In the new rule, in response to 15 comments in Subsection (i), the word unnecessary -- I 16 mean -- excuse me -- Subsection (i) was deleted 17 because comments pointed out that that subsection was 18 unnecessary in that it is covered by the statute and 19 other rules. 20 In addition, in Subsection (e), the word 21 "repayment" was changed to "reimbursed," to make that 22 language consistent with existing forms and to lessen 23 any implication of a loan. 24 I would be happy to answer any questions 25 about the repeal and recommend adoption of 402.202. 0010 1 CHAIRMAN WILLIAMSON: Commissioners, do 2 you have any questions? 3 COMMISSIONER SCHENCK: No. 4 CHAIRMAN WILLIAMSON: Is there a motion? 5 COMMISSIONER SCHENCK: I move we adopt 6 staff recommendation and adopt the rule. 7 CHAIRMAN WILLIAMSON: Second? 8 COMMISSIONER KRAUSE: Second. 9 CHAIRMAN WILLIAMSON: All in favor? 10 COMMISSIONER SCHENCK: Aye. 11 CHAIRMAN WILLIAMSON: Aye. 12 COMMISSIONER KRAUSE: Aye. 13 CHAIRMAN WILLIAMSON: Passes three to 14 zero. 15 MS. KIPLIN: Commissioners, I have 16 orders. Would you prefer that I hold off on all of 17 them and then submit them? 18 CHAIRMAN WILLIAMSON: Yes. 19 AGENDA ITEM NO. III 20 MS. JOSEPH: The next tab, III, concerns 21 adoption of amendments to 16 TAC ?402.400 relating to 22 general licensing provisions. 23 For this rule, the staff has recommended 24 a change in that we believe that (k)(5) should be 25 deleted. (k)(5) language pertained to a requirement 0011 1 that licenses on administrative hold must comply with 2 the net proceeds requirement. Based on comments and 3 further examination, the staff believes that that 4 language is not appropriate, since if a license is on 5 administrative hold, there would have been no bingo 6 operations and, therefore, no proceeds, so it doesn't 7 make sense to have a requirement that they have to 8 have proceeds, if they're not operating. 9 I would be happy to answer any questions 10 about amendments to this rule. 11 CHAIRMAN WILLIAMSON: Commissioners, any 12 questions? 13 COMMISSIONER SCHENCK: No questions. 14 COMMISSIONER KRAUSE: No questions. 15 CHAIRMAN WILLIAMSON: Is there a motion? 16 COMMISSIONER SCHENCK: I move we adopt 17 the staff recommendation and adopt the rule. 18 CHAIRMAN WILLIAMSON: Second? 19 COMMISSIONER SCHENCK: Second. 20 CHAIRMAN WILLIAMSON: All in favor? 21 Aye. 22 COMMISSIONER KRAUSE: Aye. 23 COMMISSIONER SCHENCK: Aye. 24 CHAIRMAN WILLIAMSON: Passes three to 25 zero. 0012 1 AGENDA ITEM NO. IV 2 MS. JOSEPH: Tab IV concerns amendments 3 TO 16 TAC ?402.403 relating to licenses for the 4 conduct of bingo occasions and to lease bingo 5 premises. 6 The staff does not recommend any changes 7 to this rule as proposed. I would be happy to answer 8 any questions. 9 CHAIRMAN WILLIAMSON: Any questions? 10 COMMISSIONER SCHENCK: I have no 11 questions. 12 COMMISSIONER KRAUSE: No questions. 13 CHAIRMAN WILLIAMSON: Is there a motion? 14 COMMISSIONER SCHENCK: I move we adopt 15 staff recommendation and adopt the rule. 16 COMMISSIONER KRAUSE: I second that. 17 CHAIRMAN WILLIAMSON: All in favor? 18 COMMISSIONER SCHENCK: Aye. 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 Passes three to zero. 22 AGENDA ITEM NO. V 23 MS. JOSEPH: Tab V concerns amendments 24 to 16 TAC ?402.404 relating to license fee. We 25 recommend adoption, with one change to the proposed 0013 1 text. That change occurs in Subsection (e)(1) where 2 we recommend that the word "shall" be changed to 3 "may," to give the Commission flexibility when there 4 is no legible postmark on a document so that we may 5 make a correct determination, with some flexibility. 6 CHAIRMAN WILLIAMSON: Questions? 7 COMMISSIONER KRAUSE: None. 8 COMMISSIONER SCHENCK: None. 9 CHAIRMAN WILLIAMSON: Is there a motion? 10 COMMISSIONER SCHENCK: I move we adopt 11 staff's recommendation and adopt the amendments. 12 CHAIRMAN WILLIAMSON: Second? 13 COMMISSIONER KRAUSE: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 COMMISSIONER SCHENCK: Aye. 16 COMMISSIONER KRAUSE: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 Passes three to zero. 19 AGENDA ITEM NO. VI 20 MS. JOSEPH: And Tab VI is adoption of 21 new 16 TAC ?402.408 concerning designation of members. 22 On this item for this rule, we recommend that 23 Subsections (a)(2) and (b) be deleted. Those portions 24 of the proposed rule had required a vote of existing 25 membership in order to designate a new member. 0014 1 Based on comments, we believe that that 2 is too cumbersome. There are many organizations which 3 meet perhaps only annually or less frequently, and 4 such a requirement would impose a burden. We have 5 changed it to include a requirement that a 6 designation-of-member form be signed by the bingo 7 chairperson instead. And the comment was that we 8 should load the bingo chairperson up with 9 responsibility, that's the purpose of having a bingo 10 chairperson, and staff agrees with that. 11 Also in Subsection (d)(2), the word 12 "request" was changed to "notification" regarding the 13 status of a member. The word "request" implies that 14 the Commission would have to approve the designation 15 or a change in status of a member, and that was not 16 the intent. So we have changed that to 17 "notification." 18 I would be happy to answer any 19 questions. 20 CHAIRMAN WILLIAMSON: Commissioners, do 21 you have any questions? 22 COMMISSIONER SCHENCK: I have one 23 question. Can you point me to the change in language 24 from the original proposal that designates the bingo 25 chairperson as the signatory? What section is that 0015 1 in? 2 MS. JOSEPH: Yes. Let's see. 3 COMMISSIONER SCHENCK: This is a long 4 one. It's -- 5 MS. JOSEPH: All right. Look in your 6 highlighted version in Paragraph (a). 7 COMMISSIONER SCHENCK: "8" or "(a)"? 8 MS. JOSEPH: (a). 9 COMMISSIONER SCHENCK: (a). 10 MS. JOSEPH: And you'll notice it 11 says -- the last line of that paragraph it says "and 12 signed by the bingo chairperson." So they will 13 complete the designated member form prescribed by the 14 Commission, and it will be signed by the bingo 15 chairperson. 16 COMMISSIONER SCHENCK: Can you remind me 17 what the consequences are of signing if the signatory 18 is contrary to the representations that are being 19 made? Does it matter whether it's the bingo 20 chairperson or anyone else, for these purposes? 21 MS. JOSEPH: False representation, I 22 think, would apply to anyone. 23 COMMISSIONER SCHENCK: Yes. Okay. And 24 who did we have in here before bingo chairperson that 25 was -- 0016 1 MS. JOSEPH: Before that we were 2 requiring a vote of the membership and signed minutes 3 or record of the vote of the membership. 4 COMMISSIONER SCHENCK: So we're not 5 putting ourselves at risk for someone saying, "Oh, the 6 bingo chairperson was acting ultra vires. I didn't 7 know what was going on," are we, Phil? 8 MR. SANDERSON: I don't believe so. I 9 think by the designation of the organization of an 10 individual being the bingo chairperson, that's the 11 person -- 12 COMMISSIONER SCHENCK: We've already 13 delegated whatever responsibilities and powers he 14 would have. So if he's gone off the reservation, 15 they're responsible for having given that power? 16 MR. SANDERSON: Yes. 17 COMMISSIONER SCHENCK: Okay. Thank you. 18 No further questions. 19 CHAIRMAN WILLIAMSON: In that case, is 20 there a motion? 21 COMMISSIONER SCHENCK: I do move that we 22 adopt the staff recommendation and adopt the rule. 23 COMMISSIONER KRAUSE: I second the 24 Commissioner's motion. 25 CHAIRMAN WILLIAMSON: Vote in favor? 0017 1 COMMISSIONER SCHENCK: Aye. 2 COMMISSIONER KRAUSE: Aye. 3 CHAIRMAN WILLIAMSON: Aye. 4 Three to zero. 5 MS. JOSEPH: Thank you. 6 CHAIRMAN WILLIAMSON: Thank you. 7 MS. KIPLIN: And, Commissioners, I have 8 those orders, and I'll pass them to you. 9 CHAIRMAN WILLIAMSON: Okay. 10 (Brief pause) 11 AGENDA ITEM NO. VII 12 CHAIRMAN WILLIAMSON: Item VII. The 13 next item is report, possible discussion and/or action 14 on 8-liners and on illegal gambling in Texas as it 15 relates to the regulation of charitable bingo and the 16 operation of the Texas Lottery. 17 As you may recall at our last meeting, 18 Commissioner Schenck requested the staff provide a 19 report on the scope of 8-liners and illegal gambling 20 in the state and to have this item placed on the 21 meeting agenda. 22 Commissioners, I have several witness 23 affirmation forms today for people who would like to 24 comment on this. With your permission, subject to 25 what y'all want to do, what I would like to do is let 0018 1 staff provide its information, get those comments and 2 then we can have questions, unless y'all object to 3 that format. 4 COMMISSIONER SCHENCK: That sounds like 5 a great idea. 6 CHAIRMAN WILLIAMSON: Okay. Is that 7 okay? 8 COMMISSIONER SCHENCK: Absolutely. 9 CHAIRMAN WILLIAMSON: In that case, 10 then, Phil and Kim, I think y'all can start, please. 11 MR. SANDERSON: All right. Good 12 morning, Chairman and Commissioners. As the Chairman 13 stated, Commissioner Schenck, at the March 9th 14 Commission meeting, had asked staff to report back to 15 the Board, and I quote his directive, is "the scope of 16 this eight-liner and illegal gambling problem that we 17 have in the state, the relationship to licensed 18 activities that are occurring under the auspices of 19 the Commission, our efforts to date to enforce the 20 existing laws on hand, and our objectives going 21 forward." 22 I want to emphasize that the amusement 23 device itself may or may not be considered a gambling 24 device. It all depends on how the operation of the 25 machine and the payout of that machine is handled. 0019 1 As it relates to bingo and the Bingo 2 Enabling Act, Section 2001.416 prohibits the game of 3 chance, other than bingo or a raffle, that is 4 conducted under Chapter 2002, Charitable Raffle Act, 5 during a bingo occasion. And the Act goes further and 6 defines a bingo occasion as a single gathering or 7 session at which a bingo game or series of bingo 8 games, including the selling and redeeming of pull-tab 9 bingo tickets are conducted at the times and day 10 listed on the license that's been issued to the 11 licensed authorized organization." 12 While Section 2001.416 prohibits the 13 game of chance, Subsection (d) states that it does not 14 prohibit the exhibition and play of an amusement 15 machine that is not a gambling device as defined by 16 Section 47.01 of the Penal Code. 17 To determine the scope of the activity, 18 I anecdotally asked the bingo staff, both the audit 19 staff in the field and the licensing and accounting 20 staff here at headquarters, based on their personal 21 knowledge of conducting game inspections and in 22 discussions with the bingo industry, to answer some 23 questions either with a "Yes" or a "No." 24 The first question was, "Are there 25 amusement type devices located in, on or near the 0020 1 proximity of a bingo playing location? If they are, 2 are they on the bingo premises? And if they are on 3 the bingo premises, are they being played during the 4 bingo occasion?" 5 Based on the responses that were 6 received, currently there are just under 500 bingo 7 playing locations in Texas. Out of those, 83 of these 8 locations had some sort of an amusement device either 9 on, near or in the proximity of the bingo hall. Of 10 the 83, 68 were located within the bingo hall, most of 11 which were in a separate room that either had an 12 entrance through the bingo hall or an entrance through 13 the bingo hall and outside. Other locations had 14 amusement devices located in the bar, such as at a 15 veterans' location. There were 30 of these 68 16 locations where the devices appeared to have been 17 being played by someone during the bingo occasion. 18 Now, over the course of the past three 19 years, we've only received 18 complaints on other 20 games of chance being conducted during a bingo 21 occasion. Five of these 18 were related to either 22 raffles or poker. Of the remaining 13 complaints that 23 were related to amusement devices, most were located 24 in a separate room that was not under the control of 25 the organization conducting bingo or that were not 0021 1 being played during the bingo occasion. 2 Most of the devices that we observed 3 were awarding coupons that were redeemable for 4 products located on the premises. And out of that, 5 we've also received an additional eight telephone 6 calls that did not contain enough information to 7 warrant any kind of investigation or opening up a 8 complaint. 9 We have one case that is currently open 10 and pending we're working with the San Antonio Police 11 Department on at this time, and we have one other case 12 that's in the process of being referred to Legal for 13 administrative action. 14 The agency has developed an enforcement 15 priority list of which is contained in your notebook. 16 And based on the violations of Act and rules, it was 17 initially developed in 2004 and then revisited and 18 revised again in May of 2009. 19 In late 2004 or early 2005, the 20 investigation of 8-liners were halted. The 8-liner 21 investigations were determined at that time not to be 22 cost efficient and did not address efficient use of 23 resources within the division. The Commission had 24 spent much time on these investigations, and the local 25 authorities were not getting the convictions that 0022 1 would be helpful in pursuing administrative actions. 2 We currently have a draft rule that is 3 being worked on with the Bingo Advisory Committee 4 sub-workgroup called Game of Chance, Other Game of 5 Chance Rule, and hopefully that rule will address some 6 problems as it relater to the game of chance and other 7 activities in a bingo hall. 8 That concludes my portion of the report. 9 I will be glad to answer any questions now or wait 10 till Kim gives her report. 11 COMMISSIONER SCHENCK: I'm sure I have 12 some questions, but I think Kim might answer them 13 during her report, so I am going to hold. 14 MS. KIPLIN: Good morning. And what I 15 wanted to put on the record was the fact that each of 16 you were provided a memorandum that was issued by an 17 attorney in the Legal Services Division. At the time, 18 the two Commissioners were Commissioner David Schenck 19 and then Chairman James Cox. And that was in 20 September of 2008. It's a very comprehensive 21 memorandum, tried to give historical overview along 22 with the state of the law. I don't believe the state 23 of the law has changed significantly since that time. 24 And I'll be glad to answer any questions 25 that you have regarding that particular memorandum 0023 1 or -- 2 COMMISSIONER SCHENCK: Is this the 3 memorandum that included the survey and analysis of 4 the likely volume of 8-liner revenue activity in the 5 state? 6 MS. KIPLIN: That's right. As one of 7 the attachments, it did. 8 COMMISSIONER SCHENCK: Okay. Are you 9 going to cover that or -- 10 MS. KIPLIN: Well, I'm happy to answer 11 any questions that you have regarding it. It's very 12 comprehensive. 13 COMMISSIONER SCHENCK: Yes. I -- 14 MS. KIPLIN: I think that report was 15 issued, I want to say in 2004. I think that's the one 16 you're talking about. 17 COMMISSIONER SCHENCK: Is that -- are 18 you done? 19 MS. KIPLIN: I am; I am done. 20 COMMISSIONER SCHENCK: So "Read the 21 memo." All right. Kim, if I'm remembering right, the 22 estimate was a pretty broad range of somewhere between 23 a low of five or $900 million and a high of $5 billion 24 for the take from these 8-liner machines across the 25 state? 0024 1 MS. KIPLIN: Yes, I think that's right. 2 COMMISSIONER SCHENCK: Okay. 3 MS. KIPLIN: That report, I think the 4 one that you're referencing has been generically 5 considered the Huff-Jarrett Report. But that's right, 6 it was a very broad range. 7 COMMISSIONER SCHENCK: And, Kim, am I 8 right in understanding that there is no state agency 9 or any comprehensive form of regulation of these 10 8-liner -- call them slot machines -- across the 11 state? 12 MS. KIPLIN: That's right. The real 13 crux or the tension point is the definition of 14 "gambling device" in the Texas Penal Code, and that's 15 Chapter 47. And the definition is 47.01(4), "Gambling 16 Device." It sets out what that definition is. And, 17 of course, within the State of Texas, gambling is 18 prohibited except as provided constitutionally. And 19 within the gambling device definition, there is an 20 exception to a device that is a gambling device, and 21 that is a bona fide amusement machine. 22 As a result of the language in the 23 definition of "bona fide amusement machine," it really 24 depends on the method of the operation and the payout 25 of each one of those machines, whether that particular 0025 1 device is a gambling device or a lawful bona fide 2 amusement machine. And that's been the tension 3 since -- I believe that exception was put into the 4 Penal Code I think in 1995 -- I want to say 1995 -- 5 and that's been the tension since then in terms of the 6 litigation, what is lawful as a bona fide amusement 7 machine and what is not and, therefore, a gambling 8 device? 9 COMMISSIONER SCHENCK: I may be asking 10 questions out of turn here, Madam Chairman. 11 CHAIRMAN WILLIAMSON: Well, I think that 12 while the staff is giving their report, we can ask. 13 And then as comments -- you know, it's kind of however 14 we want to do it. 15 COMMISSIONER SCHENCK: Okay. If it's 16 all right, I'll ask a few more questions. 17 CHAIRMAN WILLIAMSON: Sure. Go ahead. 18 COMMISSIONER SCHENCK: All right. Let's 19 just say, for sake of estimate -- we'll pick the 20 middle -- somewhere between $900 million and 21 $5 billion a year, there's $2 billion being run 22 through these machines. There's two kinds of machines 23 in this universe, as far as I'm understanding what 24 you're saying, machines that are within the definition 25 of the Penal Code, which is not the cleanest 0026 1 definition in the world or the easiest to apply, and 2 those that are without. Wherever that line is drawn, 3 they are either within it or without it. It's not our 4 job -- or maybe correct me if I'm wrong in 5 misunderstanding this -- to regulate either groups of 6 machines, per se, just the fact that they exist, nor 7 is it anyone else's job in this state. That is why we 8 don't know whether that $900 million is right or 9 $5 billion is right. 10 However, some significant portion of our 11 licensed community is conducting bingo or is having 12 bingo conducted under the roof of a premises in which 13 these gambling machines, be they legal or illegal, are 14 also operating. And there is not, unless I 15 misunderstand it, anyone assuring that these machines 16 are actually operating in a fair manner, in a legal 17 manner or anything else. Is that right, Phil, other 18 than local law enforcement? 19 MR. SANDERSON: Other than local law 20 enforcement, that is correct, yes, sir. 21 COMMISSIONER SCHENCK: Okay. And if 22 I'm -- can you help us to -- Phil, you pointed out 23 that our charge at this point is to deal with games of 24 chance that are occurring at the same time as a bingo 25 occasion? 0027 1 MR. SANDERSON: Yes, sir. 2 COMMISSIONER SCHENCK: Okay. So if 3 somebody wants to -- if somebody wants to run a game 4 of Russian roulette five minutes after a bingo 5 occasion occurs, within the same premises of bingo, 6 and to bet on it, or a cock fight or anything else, we 7 have no jurisdiction over that? 8 MR. SANDERSON: That is correct, yes, 9 sir. 10 COMMISSIONER SCHENCK: And the presence 11 of slot machines in the same building or under the 12 same roof at present is not a basis for us taking 13 license action against either the lessor, the person 14 who owns the building, the brick and mortar, or the 15 conductor, the charity who is responsible for the 16 actual operation of the game? 17 MR. SANDERSON: If they're not being 18 played during the bingo occasion, that is correct, 19 yes, sir. 20 COMMISSIONER SCHENCK: Or they get into 21 a cock fight five minutes after and we can't do 22 anything about it? 23 MR. SANDERSON: Correct. Yes, sir. 24 COMMISSIONER SCHENCK: Okay. Now, as I 25 understand the way we license these activities, quite 0028 1 often we have commercial operations, effectively a 2 turnkey operation where you have the lessor, the 3 person who owns the building, providing almost all the 4 services to the charity. And we don't like it, but 5 quite often the charities will be not as engaged in 6 the operation of the activities as we might like? 7 MR. SANDERSON: Anecdotally there's 8 probably some of those occurrences, yes, sir. 9 COMMISSIONER SCHENCK: Even for the ones 10 that are very actively engaged and very actively 11 involved and watching what's going on during their 12 bingo occasions, we don't have the right to insist 13 that they police the rent payments that they make to 14 the lessor, other than within the zone of what rent 15 might be collected from the charities within our 16 rules? 17 MR. SANDERSON: I believe that's 18 correct, yes, sir. 19 COMMISSIONER SCHENCK: Okay. So do you 20 think it's fair to say that we have people coming to 21 play licensed bingo in connection with the charitable 22 organization who are seeing, as they walk into the 23 facility, slot machines or 8-liner machines and the 24 charity is paying the rent for the roof, for the air 25 conditioning, for the upkeep of the facility and the 0029 1 licensed bingo activity is potentially a draw or 2 marketing point for potentially unlawful -- probably 3 often unlawful -- slot machine activity, and the 4 charities are fronting to some degree or other the 5 cost of maintaining the facility in which the slot 6 machines are being located? 7 MR. SANDERSON: It's probably highly 8 likely those situations are occurring. We've never 9 gone in and audited on a square foot basis as it 10 relates to a section carved out for the amusement game 11 room and where bingo is conducted. 12 Similarly, I think you even have the 13 same situation with snack bars. You know, we try to 14 get the organizations to monitor the expenses and the 15 utilities to make sure that there is a portion that is 16 set aside for either snack bar activity or other 17 activities within the location. 18 COMMISSIONER SCHENCK: Let's assume for 19 the sake of argument that I am -- or discussion that I 20 am a member of a church, I like my church, I want to 21 support my church. I'm bored on Friday evenings when 22 my church has bingo. I walk into the bingo hall; I 23 see the bingo. 24 Now, when I go to play instant tickets 25 or I buy a card-minding device, I'm assured, by I 0030 1 think stickers and other information that the Texas 2 Lottery Commission, has inspected the game, has 3 determined it to be consistent with our rules, fair to 4 the players and has got all kinds of -- I mean, we 5 have a stack of rules like this (indicating) to keep 6 track of who won the games, to make sure that they're 7 fair, to make sure that no one is skimming off the top 8 or anything else. They see that when they go to play 9 bingo for their church? 10 MR. SANDERSON: I would hope so, yes, 11 sir. 12 COMMISSIONER SCHENCK: I would, too. I 13 expect that they do. But they're also going to see 14 slot machines all over the -- in some of these 15 locations. And I forgot to ask one question, to close 16 down a loop, Phil. We have two kinds of operations. 17 We have commercial operations where the lessor is 18 effectively a turnkey, where the charity comes in and 19 the lessor, the person who owns the building, will 20 basically put on a bingo occasion for them, help them 21 with their staff, provide the rest. 22 And then we have lessor/conductors, 23 people who -- or charities that are running their own 24 bingo operations potentially out of their own hall or 25 someplace else. Do you think there are more -- you 0031 1 said you did a survey where you found 83 out of 493, 2 as I recall, facilities with 8-liner slot machines in 3 or around the bingo occasion. Are more of those slot 4 machines located in the commercial turnkey operations? 5 MR. SANDERSON: The majority of those 6 would be in what you term the commercial turnkey 7 operations. And then probably second to that would be 8 the ones that are located within veterans' posts. 9 COMMISSIONER SCHENCK: So maybe we're 10 getting close to one out of four or one out of five of 11 these operations, particularly -- I shouldn't say 12 inactive. But if the circumstances of my bingo are 13 more likely inactive than active. In other words, I'm 14 relying on someone else to run my operation, the 15 lessor to put on or help me to put on the bingo 16 occasion, I'm more likely to have, for my churchgoers 17 or somebody else, to confront slot machines, 8-liners, 18 when they come in to play? 19 MR. SANDERSON: I believe, based on the 20 survey, yes, sir. 21 COMMISSIONER SCHENCK: And if I'm a 22 member of the public and I walk in and I see that the 23 bingo is fair, it's regulated by the Texas Lottery 24 Commission, is it do you think somewhat likely that 25 the people are going to think that somebody, 0032 1 particularly the Lottery Commission, is monitoring 2 those slot machines to make sure that they're fair as 3 well? 4 MR. SANDERSON: I would say, based on 5 some of the phone calls we get and, you know, the very 6 few complaints that we get, I think they feel like 7 that we have some oversight of those devices. There's 8 the other type of device that's out there that's 9 called the sweepstakes machine. A couple of years 10 ago, there was a letter going around that we had 11 approved these devices. And we set them straight real 12 quick that we had not approved those devices. So I 13 would say there is probably that assumption out in the 14 public. 15 COMMISSIONER SCHENCK: And let's take 16 that scenario one step further. Let's take my -- 17 well, me. I'm a church-going bingo player, and I go 18 to see these slot machines. I play. I win; I don't 19 win. I get whatever they give me as a prize. Then 20 I'm driving down, let's say, I-35 to Laredo. I pull 21 over at the Love's truck stop at Encinal and 44, I go 22 in there and I see slot machines that look a lot like 23 the slot machines I see at the bingo hall when I go to 24 play. And there is a sign there -- which I assure you 25 there is -- that assures me that this is a legal 0033 1 activity. Okay? Who do I think is monitoring that 2 machine to make sure that it's complying with Texas 3 law and I'm not being cheated as I play it? 4 MR. SANDERSON: I don't know. 5 COMMISSIONER SCHENCK: I don't either, 6 but I'm assuming probably the same people who are 7 monitoring -- I was assuming were monitoring the 8 machine in the first place. Meanwhile, we've got 9 something like $2 billion running through these 10 machines, and we don't know what's going on, but 11 people may be assuming that we're responsible for it. 12 But at the present, unless I'm 13 misunderstanding, our tools to police this problem 14 insofar as it relates to bingo or operation of a 15 lottery is to revoke licenses or discipline licensees 16 for the allowance of this game to be occurring during 17 a bingo occasion. 18 MR. SANDERSON: If it's determined to be 19 in violation of the penal code, yes, sir. 20 COMMISSIONER SCHENCK: Okay. Can you 21 tell me today, Phil, how many licenses we've had 22 disciplinary action against in the last decade for the 23 operation of these machines that are generating 24 $2 billion a year? 25 MR. SANDERSON: I'm aware of one agreed 0034 1 order that we have signed with an organization that 2 had these devices. And as I mentioned in my report 3 earlier, there's two or three cases that are pending. 4 COMMISSIONER SCHENCK: Okay. That 5 completes my questions. 6 CHAIRMAN WILLIAMSON: Commissioner, do 7 you have any questions? 8 COMMISSIONER KRAUSE: I don't know if I 9 have really any questions, but it sounds like we don't 10 really have any tools to work with, you know. I mean, 11 we're responsible only if it was like in the hall, not 12 down the street. So people go to the entertainment 13 part of town, maybe go to a bingo hall, you know, and 14 they get waylaid by a casino that's got 8-liners in it 15 and other games of chance. 16 So, anyway, you know, I don't know 17 that -- because we have the rules that, you know, 18 these things are being situated outside of our 19 jurisdiction. And so that's about the only thing I'm 20 getting out of this. 21 COMMISSIONER SCHENCK: Well, there's one 22 avenue we're missing, which we went through last 23 meeting, which is if you are making it your business 24 to run these machines in the state, you are promoting 25 gambling? 0035 1 MR. SANDERSON: If they are gambling 2 devices, yes, sir. I think the determination of the 3 device itself is the key element. 4 COMMISSIONER SCHENCK: Well, that 5 depends on how you read our rule. Remember? There's 6 gambling that is not illegal in the state. If you are 7 promoting legal gambling, does that make you not a 8 professional gambler or a gambling promoter? 9 MS. KIPLIN: Well, the machine is either 10 going to be a gambling device or it's going to be a 11 bona fide amusement machine. 12 COMMISSIONER SCHENCK: Okay. 13 MS. KIPLIN: And so if it's a gambling 14 device, then I can see your line of reasoning, going 15 down there on a professional gambler. If it's a bona 16 fide amusement machine, I think it would be hard- 17 pressed to be able to say that it's a professional 18 gambler, because gambling is outlawed in this state, 19 with the exception of the things we talked about. 20 I will say there is a statutory scheme, 21 you know, statutory structure on coin-operated 22 amusement machine regulation and taxation, and that's 23 something that the Comptroller of Public Accounts 24 administers. 25 And when I took a look at it, it looked 0036 1 to me that it was more of a taxation and licensing of 2 coin-operated amusement machines. Specifically they 3 don't put stamps on machines that are gambling 4 devices, because gambling devices are illegal in this 5 state. So I haven't spoke -- 6 COMMISSIONER SCHENCK: Maybe we could 7 use that as a proxy, perhaps, for determining what's 8 legal and what is not legal, if it doesn't have the 9 sticker on it? 10 MS. KIPLIN: You know, ultimately I 11 think they tax, they're looking at that from that 12 point of view. I know that -- just from the history, 13 going back through the years, there has been -- the 14 discussion that's been raised on the, "Wait a second. 15 You know, there's a stamp that's been put on it by the 16 Comptroller." 17 I'll leave that, obviously, to their 18 office. That's their business in terms of how they're 19 administering their statutes. But when I took a look 20 at it, it's more of a taxation scheme. Now, to be 21 able to have a license to have coin-operated machines 22 as a business, there are some eligibility standards 23 and disqualifying criminal convictions. But in terms 24 of agencies, I wouldn't hold them out as the agency 25 regulating bona fide amusement machines either. 0037 1 COMMISSIONER SCHENCK: Yes. I'm sorry. 2 Winston -- 3 MS. KIPLIN: They may pull different -- 4 MR. SANDERSON: And, Commissioner, I 5 would also like to point out that the "gambling 6 promoter" and "professional gambler" language only 7 pertains to a manufacturer and a distributor. 8 CHAIRMAN WILLIAMSON: Any other 9 questions or comments at this point? 10 MR. SANDERSON: And, Commissioner 11 Krause, also to kind of elaborate a little bit more on 12 what you were discussing about our tools that are 13 available, there are a lot of these locations where, 14 when we've gone in, the devices are literally turned 15 off during bingo. And then once the occasion is over, 16 they turn them all back on. So it goes back to, you 17 know, the time period that we have the authority over, 18 you know, monitoring those devices, so to speak. 19 COMMISSIONER KRAUSE: So basically what 20 we've got is, you've got casinos out there. And it's 21 just that during a bingo game, that bingo is the only 22 game that's being played? 23 MR. SANDERSON: Yes, sir. 24 COMMISSIONER SCHENCK: But then as soon 25 as the bingo session is over with, then, you know, the 0038 1 rest of the casino is open for business? 2 COMMISSIONER SCHENCK: And there is 3 nothing to tell the players that this casino isn't 4 fully -- 5 COMMISSIONER KRAUSE: Well, and the 6 bottom line is, is that, you know, people don't go to 7 a casino to play an amusement game, they go to gamble. 8 I mean, people don't fly to Vegas, you know, to play 9 amusement games, among other things. But what they do 10 is, they go to gamble. And so they go to a gambling 11 hall that, you know, turns into a bingo parlor, you 12 know, for the two or three hours that bingo is going 13 on, and then it goes back into a casino, is what it 14 looks like. 15 MR. SANDERSON: Yes, sir. 16 CHAIRMAN WILLIAMSON: Any other 17 comments? 18 COMMISSIONER SCHENCK: One more 19 question. 20 Phil or Kim, do we know where this two 21 or one or $5 billion a year goes? 22 MS. KIPLIN: Well, I'm going to 23 speculate. But just on looking at the coin-operated 24 amusement machine -- there may be others, other folks 25 here that can comment on that -- but, you know, if 0039 1 it's a bona fide amusement machine, it's a coin- 2 operated machine, some of that money should be going 3 to taxes that are being collected by the Comptroller 4 of Public Accounts. 5 COMMISSIONER SCHENCK: With respect to 6 bingo, Phil -- and again I'm the churchgoer who likes 7 my church and wants to support it, and I go to the 8 bingo occasion, am I correct in assuming the money is 9 going to go to pay expenses like police, to pay for 10 the roof over which they may be covering slot machines 11 as well, but to the charity itself and then some 12 percentage of it goes to the county in which the 13 operations are conducted, to pay for roads, prisons 14 and everything else? 15 MR. SANDERSON: The portion that goes to 16 the county is what's called the prize fee, which is 17 actually withheld from the players that win. 18 COMMISSIONER SCHENCK: Correct. 19 MR. SANDERSON: And then the majority of 20 the other money that's paid to play the game then goes 21 to prizes, expenses and to the charity. 22 COMMISSIONER SCHENCK: And so if I'm 23 assuming that I like that, I want to support my church 24 or Kiwanis Club or Moose Lodge or anything else, and I 25 like my county to have jails that keep people in them, 0040 1 and I like to not drive on potholes, am I probably 2 assuming that when I go over and I play the slot 3 machine the instant the bingo occasion turns off and 4 the lights go on and the oxygen gets pumped into the 5 room at the casino? 6 MR. SANDERSON: I don't know. 7 COMMISSIONER SCHENCK: If I assume that, 8 would I be wrong? 9 MR. SANDERSON: You would be wrong, yes. 10 COMMISSIONER SCHENCK: Okay. Thank you. 11 CHAIRMAN WILLIAMSON: Any other 12 comments? 13 MR. SANDERSON: That assumption would be 14 an incorrect assumption. 15 CHAIRMAN WILLIAMSON: All right. We 16 have several witness affirmation forms. I think what 17 we'll do is -- Mr. Daily with Big Tex Bingo. 18 MS. KIPLIN: Chairman Williamson, I 19 received an extra witness affirmation form for 20 somebody who wishes to speak on this item. It was 21 received by me after you called the meeting to order. 22 CHAIRMAN WILLIAMSON: Oh, what the heck! 23 MR. DAILY: Let me know when you're 24 ready. 25 CHAIRMAN WILLIAMSON: All right. 0041 1 Mr. Daily, if you'll just introduce yourself into the 2 microphone and say which group you're with and -- 3 MR. DAILY: My name is Jim Daily. The 4 corporation I represent is called the Daily Group. It 5 has a d/b/a called Big Tex Bingo. We're located in 6 Houston, Texas. 7 COMMISSIONER SCHENCK: Mr. Daily, could 8 you maybe lean a little closer to the microphone so I 9 can hear you. 10 CHAIRMAN WILLIAMSON: Yes. Or can we 11 adjust it so we can -- 12 COMMISSIONER SCHENCK: I would like to 13 hear you. 14 CHAIRMAN WILLIAMSON: -- so she 15 (indicating court reporter) can hear as well as us, 16 please. 17 MR. DAILY: We have been in business a 18 little over two years. We have six charities that 19 play at our bingo hall. These charities are fairly 20 happy right now with the actual process that we use to 21 play bingo. And one of my charities or the charities 22 that play at Big Tex Bingo is my church, and they have 23 a function actually this Saturday, to come visit and 24 watch. Many of the members will be there to watch the 25 actual activities there. 0042 1 They're aware of the 8-liners that are 2 in the bingo hall. They know what these 8-liners 3 produce in terms of benefit for them. We were able to 4 add a new air-conditioning unit to the bingo hall to 5 keep our customers more comfortable. We have been 6 able to add tables. My corporation bought tables that 7 cost about $15,000. We have added five 65-inch flat 8 screen TVs which play some of the pull-tab games that 9 are now on video. So much of the money that we use to 10 make improvements on our bingo hall comes from the 11 amusement devices that we have. 12 So I would say in the last two years 13 that we have been open, we have made improvements that 14 have benefited the charities that play there greatly. 15 We are -- I guess out of the 500 bingo halls that are 16 in the State of Texas, we probably in the last few 17 years are in the top five bingo halls, which is a 18 fairly unusual thing that most people that participate 19 in bingo can't imagine that in a two-year period of 20 time that we could grow our revenues to be as 21 successful as we are. So we're doing something right 22 there. 23 One of the things that I think we 24 failed, as a whole, to understand 8-liners and the 25 8-liner activity that's going on around us. And 0043 1 competition now dictates that we have these machines. 2 Our customers command these machines to be there. 3 COMMISSIONER SCHENCK: That's exactly my 4 concern. 5 MR. DAILY: Well, they need for us to be 6 competitive with the illegal 8-liner activity that 7 goes on all around us or these customers will 8 gravitate away from bingo. 9 COMMISSIONER SCHENCK: So there's a lot 10 of illegal 8-liner activity all around you, then? 11 MR. DAILY: Well, in Houston alone, they 12 passed a lot of ordinances, and we're outside the city 13 limits. We're in Harris County. So most of these -- 14 and we're in Harris County for a purpose. One of the 15 reason is because many people who play bingo like to 16 smoke, so we had to move outside of the city in order 17 to make sure that we accommodated, because we can 18 accommodate both non-smokers and smokers. But we had 19 to be outside the city. 20 So when the city forced the ordinances 21 to push these activities outside of the city limits, 22 they now are -- now within probably a mile radius of 23 Big Tex Bingo, there are probably about two dozen of 24 these game rooms. 25 COMMISSIONER SCHENCK: Do you know how 0044 1 many of those games rooms are bingo operations as 2 well -- none of them? 3 MR. DAILY: Within the two-mile radius 4 around me, there are 24 game rooms that are -- 5 COMMISSIONER SCHENCK: Two miles, 24 6 game rooms? 7 MR. DAILY: Yes. 8 COMMISSIONER SCHENCK: And you were 9 about to tell me none of them are licensed bingo 10 operations? 11 MR. DAILY: No, they're not. 12 COMMISSIONER SCHENCK: Okay. And do you 13 know whether those people are putting in big screen 14 TVs for their customers and new air-conditioning and 15 making people's lives pleasant and you don't know 16 where the money goes? 17 MR. DAILY: The sad part about it is 18 that these game rooms we know are -- they're paying 19 illegal -- I mean, we know. Our customers come in the 20 door and they tell us, "We're being paid in cash at 21 these game rooms." So I can't compete with that at 22 all, because I can't pay cash, because if I did, I 23 would lose everything I had. 24 COMMISSIONER SCHENCK: You would go to 25 jail. Right? 0045 1 MR. DAILY: Yes. And I would lose 2 everything that I have. I know that as a fact. So 3 the only way that I can compete is to have these 4 machines to draw these customers in. Otherwise, bingo 5 is really going to, I think, in the State of Texas, 6 suffer quite a bit, because we won't have the 7 competition, effectively be able to compete with all 8 these game rooms. 9 COMMISSIONER SCHENCK: I agree with you. 10 Can you tell me what percentage do you think -- well, 11 two questions for you, if I might. 12 MR. DAILY: Yes. Sure. 13 COMMISSIONER SCHENCK: What, if 14 anything, have you done by way of signage to tell the 15 players when they leave the bingo and they start 16 playing your 8-liners, that these 8-liners aren't 17 regulated by either this Commission or anyone else in 18 the state? Is there signage on them? Is there 19 stickers? What, if anything, have you done? 20 MR. DAILY: Well, they have to have 21 stickers on them from Harris County and from the state 22 so they know that these -- I mean, these machines 23 clearly have to have these applicable -- 24 COMMISSIONER SCHENCK: Those are tax 25 stickers. Right? 0046 1 MR. DAILY: Right, these permits on 2 them. And those permits are the permits that say, you 3 know, these are machines that have been registered 4 with the state and the state has the knowledge that 5 they're in the bingo hall and the state can, if they 6 would like to, come investigate and look at these 7 machines at any time they want. I do have to make 8 certain pledges when I sign the form. 9 COMMISSIONER SCHENCK: Do you think some 10 of your players would assume that those stickers 11 indicate that someone has checked the machine to make 12 sure that no one has tampered with the payout or 13 anything like that? 14 MR. DAILY: My assumption from the 15 customers that I have would be that these machines are 16 compliant with the State of Texas. I mean, that's -- 17 COMMISSIONER SCHENCK: Right. But 18 what's -- well, if I'm the game-of-chance player in 19 Texas or somewhere else, if I've seen these machines 20 in Las Vegas or Atlantic City or if I've watched 21 television and watched some of the exciting police/ 22 cops episodes of people tampering with machines, I 23 would assume perhaps -- maybe your players don't -- 24 but somebody is out there walking around making sure 25 that the house isn't playing with the odds. 0047 1 MR. DAILY: Well, I think -- 2 COMMISSIONER SCHENCK: And I'm sure that 3 you don't; I'm sure that you don't. But I'm wondering 4 what the players are assuming vis-a-vis this 5 Commission in terms of assuring that that game is as 6 fair and conducted according to a set of rules to 7 assure fairness in the same way that the bingo is? 8 MR. DAILY: Well, most bingo players 9 understand -- I mean, the players that we have that 10 have been coming to us and playing at our bingo hall 11 for two years. They're customers that we've -- you 12 know, over the two-year period they become very loyal 13 to play bingo with Big Tex Bingo. They understand 14 those machines. They know why those machines are 15 there. They feel that they fairly pay out or they 16 would not play those machines. We tell them they're 17 compliant with the State of Texas, and I think that 18 they would not play them if they did not think with -- 19 COMMISSIONER SCHENCK: Well, that's my 20 point. They think they're compliant with the State of 21 Texas. 22 MR. DAILY: Yes. 23 COMMISSIONER SCHENCK: What is it that 24 they're thinking about that? Does that mean that they 25 think that someone is assuring a game is fair? 0048 1 Because I can assure you, there is not a state agency 2 out there to check your machine to make sure you 3 haven't tampered with the payout. 4 MR. DAILY: I think that they know the 5 consequences of a gambling establishment outside of a 6 bingo hall that have these machines in them that is 7 not compliant. They come in and tell me all the 8 time -- 9 COMMISSIONER SCHENCK: I'm sorry. I'm 10 asking a question perhaps not as clearly as I could. 11 What is compliant? Let's assume I've tampered with 12 the machine to make sure it will never pay. Am I 13 non-compliant with what law in the State of Texas? 14 MR. DAILY: Well, the folks that install 15 the machines in my business install them and told me 16 that they were compliant with the State of Texas. And 17 I know what -- I know myself what the payout is, so I 18 know that my customers are getting -- 19 COMMISSIONER SCHENCK: Whatever it is 20 the state has said they're supposed to get -- 21 MR. DAILY: Exactly. 22 COMMISSIONER SCHENCK: -- whatever that 23 might be -- 24 MR. DAILY: Right. 25 COMMISSIONER SCHENCK: -- which none of 0049 1 us know? 2 MR. DAILY: Well, we know that there is 3 illegal gambling with these machines, and we know that 4 there is compliant gambling with these machines. And 5 I think the biggest problem that the 8-liner gambling 6 establishments have is, they pay cash out. We know 7 they do. Our customers tell us when they come to our 8 bingo hall and play our machine, "Well, down the 9 street I can get cash." 10 COMMISSIONER SCHENCK: Do your customers 11 understand that the money that goes into those 12 machines does not go back to the charities? 13 MR. DAILY: They understand that they 14 have to use the money or the tickets they receive from 15 those machines to play bingo. They know they can't be 16 used for anything else. So -- 17 COMMISSIONER SCHENCK: Well, I'm talking 18 about the net proceeds from the game, because they're 19 not winning as much as they're losing. 20 MR. DAILY: The net proceeds from the 21 game is something I can tell my customers about. I 22 can say, "You see these $15,000 worth of tables in my 23 bingo hall? These came not because we took money out 24 of the charities' pocket to make this bingo hall more 25 successful. We used the money that we got from these 0050 1 machines to" -- 2 COMMISSIONER SCHENCK: Do you use all 3 the money that you got from the machines to buy new 4 tables and air conditioning, or is there some 5 additional -- 6 MR. DAILY: Well, no. I have a 7 corporation that -- 8 COMMISSIONER SCHENCK: That retains some 9 of the -- 10 MR. DAILY: -- some of the state taxes. 11 COMMISSIONER SCHENCK: And retains 12 earnings and pays the margin tax? 13 MR. DAILY: Right. Exactly. 14 COMMISSIONER SCHENCK: So not all that 15 money is going back into the -- 16 MR. DAILY: No. But I can tell you that 17 if you go from, you know, bingo hall to bingo hall, 18 you will see the investment that I made in my bingo 19 hall. And I can justify to my customers that, you 20 know, the funds that are being generated by my 21 business are actually going back into the business to 22 make it a more -- 23 COMMISSIONER SCHENCK: But there's 24 nothing on the machine and there's nothing that you 25 file with anybody else saying what percentage of the 0051 1 revenue that's run through that machine is getting 2 back to the charities? 3 MR. DAILY: There is not a requirement. 4 COMMISSIONER SCHENCK: Of course not. 5 MR. DAILY: Yes. Right. 6 COMMISSIONER SCHENCK: And I'm not 7 suggesting that you're out of compliance with 8 anything. All I'm asking is whether or not, if I'm a 9 player, just randomly walks into your bingo occasion 10 and decides to play the machine, if I'm assuming all 11 the money is going in in the same proportion and that 12 someone is tracking where that money is going to make 13 sure it's going to the charity or to the county, I 14 might be mistaken -- 15 MR. DAILY: You might not know if you 16 walked -- 17 COMMISSIONER SCHENCK: -- in my 18 assumption, because I don't -- 19 MR. DAILY: -- through the door. 20 COMMISSIONER SCHENCK: -- because I'm a 21 person interested in playing games of chance, I'm not 22 a lawyer -- 23 MR. DAILY: Right. 24 COMMISSIONER SCHENCK: -- I'm not 25 tracking these things. No one else is apparently 0052 1 either. 2 MR. DAILY: I can tell you, you know, 3 with certainty that the six charities that play at Big 4 Tex Bingo know what those machines do. They're 5 completely content with what those machines do and 6 they know that those machines are producing some 7 revenue that some of which is being pumped back into 8 Big Tex Bingo to further enhance it and make sure that 9 our customer base continues to play there and we draw 10 new customers in. So, I mean, they are very aware of 11 those machines and what they produce. 12 CHAIRMAN WILLIAMSON: Commissioner 13 Krause, any questions? 14 COMMISSIONER KRAUSE: I would like to 15 hear some more witnesses. 16 CHAIRMAN WILLIAMSON: Mr. Daily, thank 17 you very much. It's been most informative. 18 MR. DAILY: Thank you. 19 CHAIRMAN WILLIAMSON: All right. Let's 20 see. Mr. Whittington. 21 MR. WHITTINGTON: Commissioners, how 22 y'all doing? 23 COMMISSIONER SCHENCK: Larry, how are 24 you? 25 MR. WHITTINGTON: Good to see y'all 0053 1 today. I drove from Dallas. 2 We have been operating -- 3 CHAIRMAN WILLIAMSON: If you'll say your 4 name and who you're with. 5 MR. WHITTINGTON: My name is Larry 6 Whittington. I'm from Dallas, Team Bingo in Dallas, 7 Texas. 8 We have been operating 8-liners for a 9 long time. We went through Tim Gallagher, DA in 10 Dallas. He came down and checked out everything, 11 because they picked all the machines up, thought they 12 were illegal. Once he checked it out, he said, "No, 13 y'all are okay." The police department let us alone. 14 All we do is have something for our 15 customers to play extra when they're playing bingo. 16 They do not play when a bingo occasion is going on. 17 What they win out of those machines, it goes straight 18 to the charity and go buy paper or computer, and 19 that's it. It generates probably about three or 20 400,000 through bingo products that they buy in the 21 bingo hall. Okay? As far as making a profit, we 22 don't make a profit. If we do make a profit, one of 23 our charities get their little $1,000, $2,000 a year. 24 Last year we lost money on that side. 25 So you're welcome to come in our bingo 0054 1 hall and look at those 8-liners. They are strictly 2 legal. They don't make a profit, because only 3 somebody playing those machines are bingo players, not 4 somebody outside. If you walk in that door, if you 5 win our games on playing those 8-liners before bingo 6 or after bingo, then the next day we don't see you at 7 bingo, what you doing here? If you win those coupons, 8 it's strictly for bingo. 9 If you are not playing bingo, you're 10 trying to sell those coupons to one of our bingo 11 players, we kick those people out, because it's only 12 strictly for bingo only. We have legal lottery 13 machines. Why they don't pay out much anyway is 14 because they can't pay out much, dealing with the 15 $5.00 rule. 16 Like I say, y'all are welcome to come 17 see these machines. And I think most of these bingo 18 halls run them that way, bingo only or paper only. We 19 don't even -- they can't even buy nothing at the snack 20 bar with these coupons. They buy a 9 on, which is 21 cash, they cannot use that coupon and buy a 9 on, they 22 can only buy a 6 on which they can't buy for cash. 23 Our computers, they have 66 cards in 24 them for cash. You can use that coupon and have a 63 25 card computer, which is not the same as cash. Okay? 0055 1 They can't buy pull-tabs with the coupons, only bingo 2 paper, special bingo paper and a computer. That's the 3 way we've got it set up. And believe me, if somebody 4 with $50 cash come in, have a $50 budget for that week 5 to play bingo, they go in and win, saying they win 6 three or 400 credit on the coupons, they going to come 7 in and they're going to buy more computers, than one 8 computer that week. They're going to buy those 9 computers, and it goes strictly to the charities all 10 the time on those computers. The distributor makes 11 some. That's all that makes money on those. Okay? 12 And I promise you, you know how Tim 13 Gallagher is in Dallas, Texas? He is hard-nosed on 14 illegal 8-liners. He came out and he checked those 15 machines out himself, and he said, "I don't have a 16 case against y'all." He gave our money back and our 17 machines back. 18 The Richardson police, they come in all 19 the time to check it out. We are strictly legal. And 20 a lot of charities across the state have talked to me, 21 how do we run our game room? And I have told them, 22 and they are running their game room the same way. 23 It's no money to be made. It's just 24 entertainment for the customers that come there before 25 bingo. We do not play during bingo at all. We are 0056 1 only allowed about six hours a day to play. We don't 2 play all day, because we don't make no money. It's 3 just extra entertainment for our customers. And we 4 need something extra to deal with these casinos in 5 Oklahoma and Louisiana. 6 It's tough in Dallas. We've got smoking 7 bans on all our halls. They can't smoke. And I don't 8 know how these people are running the 8-liners. Okay? 9 I don't know. I wish I did know, because I would tell 10 them our problem, because we have been through the 11 process with the DA in Dallas, and I would tell them 12 that. 13 If they're doing it wrong, they're doing 14 it wrong. But we're doing it right, and I've told a 15 lot of these charities about it. It helps. Bingo, 16 man, tell you what, it's tough in Dallas. 17 You talk about church-going, I wish your 18 church would come to bingo, because they would be 19 coming to a legalized gambling institution, because 20 that's what bingo is, gambling. We can't get past 21 that. Bingo is gambling, guys. Okay? But our 22 machines are not gambling. They are totally legal, 23 trust me. 24 So I'll take any questions from y'all, 25 if y'all got any questions. 0057 1 CHAIRMAN WILLIAMSON: Do you have any 2 knowledge of, like Mr. Daily, those illegal ones that 3 have just strictly the slot machines? Do you have any 4 of those around your -- 5 MR. WHITTINGTON: It's a bunch of them. 6 They're everywhere now. 7 CHAIRMAN WILLIAMSON: Yes. 8 MR. WHITTINGTON: I mean, what you got 9 to do is, you go up to a door, and they invite a lot 10 of people, which are definitely -- they getting away 11 with this. They got two or three doors, they got 12 peepholes, they got everything. They're going to make 13 sure you're the right person. But once it gets spread 14 around, they do get busted. And that's where we got 15 busted, because of the illegal 8-liner game rooms. 16 And they came and busted our machines; they picked 17 them all up. They took them downtown. The DA met us. 18 COMMISSIONER SCHENCK: You would agree, 19 Larry, then with -- Mr. Whittington, with Mr. Daily, 20 that as a matter of competition, to got people to play 21 the bingo at all, you've got to have these machines 22 for them to play? 23 MR. WHITTINGTON: I am 90 percent sure 24 that it helps bingo in Texas. If they're legal and 25 ran right, they ain't going to pay out much anyway, 0058 1 No. 1. And it's just a proven fact. I mean, they get 2 these ticket, they going to buy -- they're going to 3 spend more on bingo products. That increases the 4 bingo sales. 5 COMMISSIONER SCHENCK: Well, if they run 6 the hall the way that you do, which means -- you're 7 talking about a closed pool -- 8 MR. WHITTINGTON: Yes. 9 COMMISSIONER SCHENCK: -- whatever they 10 win in the machines is going into the bingo. 11 MR. WHITTINGTON: Yes. 12 COMMISSIONER SCHENCK: There is no 13 payout other than bingo. But as you stand here today, 14 you're telling me that within a mile of you, there are 15 people that are completely ignoring even the bingo 16 connection, they're just running 8-liners. And we 17 can't -- 18 MR. WHITTINGTON: And do you know what? 19 Every time I see one, I call the police. 20 COMMISSIONER SCHENCK: And we can't know 21 what everyone is doing right now, because there's 22 nobody watching this. 23 MR. WHITTINGTON: Well, it's very easy 24 to watch bingo if you go to one of these halls. 25 COMMISSIONER SCHENCK: Bingo, yes, yes. 0059 1 That's right. 2 MR. WHITTINGTON: And that's all that 3 we're concerned about. I'm concerned about bingo and 4 y'all are dealing with charitable bingo in Dallas; I 5 mean, Dallas and all the surrounding counties. That's 6 it. I mean, we aren't concerned about illegal 7 8-liners that other people have outside the bingo 8 halls. That's no concern of mine. But if I find out 9 they're close to my bingo hall, I will call the cops 10 and tell them, "Hey, this place is illegal. Pick it 11 up, please, because y'all picked us up. Okay? 12 Please, please pick them up." 13 COMMISSIONER SCHENCK: That's a serious 14 problem. 15 MR. WHITTINGTON: Yes. 16 COMMISSIONER SCHENCK: Thanks. 17 CHAIRMAN WILLIAMSON: Commissioner, do 18 you have any? 19 COMMISSIONER KRAUSE: Do the cops come 20 when you call? 21 MR. WHITTINGTON: Yes. 22 COMMISSIONER KRAUSE: So they go and 23 raid these illegal bingo halls? 24 MR. WHITTINGTON: They don't know -- 25 they move around. Every six months they may move to a 0060 1 different location. 2 COMMISSIONER KRAUSE: Well, they've got 3 to get the word out somehow, you know, that, "We're 4 open for business for gambling," so that the customers 5 will know where to go. 6 MR. WHITTINGTON: Well, you would be 7 shocked. They've got a whole list and phone numbers 8 of customers that they call every time they move. 9 COMMISSIONER KRAUSE: They must be 10 pretty sophisticated. 11 MR. WHITTINGTON: They're pretty 12 sophisticated. They make a lot of money paying cash. 13 Bingo -- like I say, once you let them walk outside 14 the hall, Commissioner, those coupons are totally 15 non-valid. 16 COMMISSIONER SCHENCK: That's your 17 operation, though, Larry. 18 MR. WHITTINGTON: That's -- most of the 19 bingo halls -- 20 COMMISSIONER SCHENCK: And I know you 21 and I know your people. But the problem we have is, 22 there's a lot of people out there, a lot of them, and 23 they not all running the same way. And we've 24 got this -- and you've got a serious problem up there 25 in Dallas. But we've got 254 counties in the state. 0061 1 And I don't know if we pick up the phone and call the 2 police -- and I'm not going to name a county -- but, 3 you know, I drive into that Love's truck stop in 4 Encinal on 44 and 35 and I see that machine up there 5 and I see the sign assuring players that it's 6 consistent with the laws of the state and tell them 7 they can buy anything they want in the stove. You 8 know, if they've seen that like machine in your hall 9 or somebody else's, they need to know that no one is 10 watching this, other than the goodwill of whoever put 11 that machine in the building. 12 MR. WHITTINGTON: Well, when they come 13 in that hall, they know that strictly they're going to 14 win maybe a few bingo coupons to pay a computer or 15 paper. They can't buy pull-tabs, they can't buy food, 16 nothing. It's only for bingo only. 17 COMMISSIONER SCHENCK: If we could only 18 direct them all to your hall, that would be a lot 19 better. 20 MR. WHITTINGTON: Yes, please. Thank 21 you. 22 (Laughter) 23 CHAIRMAN WILLIAMSON: Thank you. 24 Okay. Next, Mr. Fenoglio, Mr. Bresnen, 25 I don't know if you want to come up together, 0062 1 separately, or -- 2 MR. FENOGLIO: Good morning. For the 3 record, my name is Stephen Fenoglio, and I think I was 4 just designated. 5 I have regulated both charitable bingo 6 halls, commercial lessors and operators of the 8-liner 7 redemption machines, slot machines. We could call 8 them a washing machine -- it doesn't really matter 9 what you call them -- all over the state since the law 10 was passed in 1995. And what I've seen is, there is 11 no universal shoe that fits everyone, from a VFW post, 12 which I represent, to have one machine in a bar, like 13 Mr. Sanderson was saying, to the game room in South 14 Texas that I gave a copy of the case I won, Cameron 15 County, where they had 55 machines. 16 And I brought copies of the case -- I've 17 given it to staff before -- in which both a criminal 18 case was tried, found not guilty in 15 minutes. And 19 then we went to a civil forfeiture route where the 20 owner of the machines, my client, has the burden of 21 proof start to finish to prove they're legal, and the 22 Judge ruled they were legal and gave back all kinds of 23 product. 24 The VFW post may be associated with 25 charitable bingo; it may not. In the case of the 0063 1 Cameron County case, that wasn't associated with any 2 charitable bingo. And they were giving away plush 3 animals, cheap stuff, up to color TV, DVD players, but 4 consistent with, as the Judge found, the ten times 5 five dollar non-cash prize limitation found in Texas 6 Penal Code, Section 47.01(4)(B). 7 In the case of bingo halls, I hope 8 you've gotten the point that because not one shoe will 9 fill all halls, but the common theme in 8-liner 10 machines that are operated in conjunction with a bingo 11 hall. And it may be within the four corners of the 12 defined bingo premises or it could be in a game room 13 outside of the four corners of the bingo premises. 14 Those coupons under the statute, representations of 15 value are redeemable for a bingo product that you 16 cannot otherwise purchase, and those go to the benefit 17 of the charities, without question, and so they get 18 that benefit. 19 And typically, Commissioner Schenck -- I 20 was not consulted on the report. I've actually read 21 the report a couple of times that you alluded to -- I 22 don't know what they were smoking, but my clients have 23 never seen anything like those numbers. My clients 24 are seeing holds or wins per day of anywhere from $14 25 a day to $70 a day. 0064 1 COMMISSIONER SCHENCK: How many machines 2 would you estimate -- 3 MR. FENOGLIO: It could be one machine. 4 At a location, a bar, it might have a higher hold 5 because, you know, there's one bar, average of 20 or 6 30 customers, seats in a hall. And it's, you know, 7 run a large number of hours a day, from, say, 8 11:00 a.m. till 1:00 a.m. 9 In the case of a bingo hall, it may be 10 run four hours a day. And typically what I see in 11 bingo halls, 10 to 15 to 20 machines, but they're not 12 run, you know, 12 hours a day, typically. They may be 13 run six hours a day. So the wins per day are going to 14 be lower. They're going to be on that 14 to 24 per 15 day in non-cash value, not talking about locations. 16 And I call them the knock-knock game 17 rooms where literally now you have to knock-knock to 18 get in. And if the big burly guy or guys at the door 19 don't like the way you look, you and I, dressed like 20 we are today, we won't get in. Those people are 21 paying cash. Their numbers may be a lot higher. Now, 22 they don't operate long because, as Larry said -- and 23 there are a number of complaints filed against those 24 locations -- they move around. 25 But back to the point on what it does 0065 1 for charitable bingo, which I would suggest to you is 2 what your focus should be, at least in connection with 3 this issue, the charities are benefiting because 4 they're getting redemption of bingo product, No. 1. 5 No. 2, what we also know -- and the previous 6 commissioners heard from Victoria, Texas. David 7 Heinlein, who is a bookkeeper for those charities, 8 reported that they were operating legal 8-liners, 9 redeeming only for non-cash. Immediately after the 10 bingo hall or the bingo time stopped, all the 11 customers left and went down the street in Victoria, 12 Texas, to a location that had 200 machines, and they 13 were openly paying cash. 14 Those charities, five charities of that 15 hall, lost about $500,000 in the course of 18 months. 16 They had legal 8-liners, but they can't compete with 17 someone that's down the hall. Now, if down the road 18 they had operated with the same principles, meaning 19 non-cash redemption, those charities would have made 20 good money, because, No. 1, again, they're redeeming 21 for the product and, No. 2, the customers have 22 something to do. 23 It's not any surprise that a business 24 wants to offer a whole host of entertainment to a 25 customer, be it the Lottery Commission with your 0066 1 plethora of scratch-off tickets. You know, customers 2 like different ones. Well, in a bingo hall, the 3 customers some -- they're gamblers, legal gamblers. 4 They are going to play bingo. And then after they're 5 over, if they've got a little money left, they'll go 6 into a legal 8-liner redemption location and they'll 7 play a little money. And if they redeem it back to 8 the bingo hall for bingo product, all the better for 9 the charities. 10 And that's what we see. There have 11 been, I'm sure -- I know Ms. Kiplin is aware of a 12 number of legislative battles on 47.01(4)(B) from the 13 time the law was passed to today. And, really, in 14 1997 to '01 was the height of what I call the 8-liner 15 wars. 16 And it's an awfully written statute. I 17 think the one thing that prosecutors and defense 18 attorneys can agree is, the statute is very cumbersome 19 and difficult to read. And there have been attempts 20 both by law enforcement and by the regulated industry, 21 if you will, to try to revise that. They can never 22 agree in a legislative session. And, as you know, if 23 the industry, quote unquote, industry doesn't agree, 24 typically nothing gets done in the Legislature. 25 So all that to say I don't think the 0067 1 numbers that the 2004 report addressed are realistic, 2 at least for the clients that I have seen -- 3 COMMISSIONER SCHENCK: Well, let me 4 ask -- 5 MR. FENOGLIO: But I'll tell you, I'm 6 not representing the 200-machine location that 7 notoriously and openly pays cash. So those numbers 8 might be correct for those type of locations. 9 COMMISSIONER SCHENCK: Okay. But let's 10 assume, as I do, that some members of the Legislature 11 or the Legislature as a whole is interested in this 12 issue. And we're going to have a session coming up in 13 January. You're suggesting, based on your 14 understanding of your clients, that the numbers from 15 that 2004 report of somewhere between, as I'm 16 remembering $900 million and $5 billion a year, are 17 wrong -- 18 MR. FENOGLIO: Yes. 19 COMMISSIONER SCHENCK: -- or at least -- 20 but are you saying that based on what you know about 21 your clients? Are you saying that based on the 22 clients that are openly and notoriously, as you put 23 it -- people who aren't your clients openly and 24 notoriously -- 25 MR. FENOGLIO: The problem with the 0068 1 openly and notorious is, they're not running 24 hours 2 a days, seven days a week, 365 days a year. 3 COMMISSIONER SCHENCK: Okay. 4 MR. FENOGLIO: But the study assumes 5 they are. 6 COMMISSIONER SCHENCK: Okay. 7 MR. FENOGLIO: So maybe for two weeks 8 out of a month, they might get those numbers. But 9 then they're either raided or they decide to close 10 down, regularly move. 11 COMMISSIONER SCHENCK: Let's assume I'm 12 a legislator who is interested in this issue. What 13 source would you point them to, to get an accurate 14 picture of the gambling activity, the legal or 15 illegal, that is going on in the state in connection 16 with these 8-liners? Can you point me to anything? 17 MR. FENOGLIO: I think there are a 18 number of prosecutors who develop cases that have 19 taken them to court where they have seized the 20 machines, the computers. 21 COMMISSIONER SCHENCK: But that would 22 be, by definition, one out of 254 counties? 23 MR. FENOGLIO: I don't think there is a 24 universal database you can look to. I mean, if you 25 ask DPS today how many machines there are, they'll run 0069 1 from you trying to give an estimate. If you ask the 2 Comptroller how many machines there are, they don't 3 know because -- 4 COMMISSIONER SCHENCK: Okay. So -- 5 MR. FENOGLIO: -- of the way they 6 register them -- 7 COMMISSIONER SCHENCK: As you stand here 8 today, you're speculating as much as anyone else is 9 about the correctness of that number between 10 $900 million and $5 billion a year? 11 MR. FENOGLIO: Well, the difference is, 12 I have access to hard data. And from what I read of 13 theirs, they're using estimates. 14 COMMISSIONER SCHENCK: And what is -- 15 MR. FENOGLIO: And so the hard data that 16 I have of my customers, it's much lower. If you're 17 then going to say, "Well, let's do an assumption," 18 well, then, where is a specific location that operated 19 for one year where they could get reliable data? And 20 I don't think they have it. 21 COMMISSIONER SCHENCK: Well, because no 22 one is watching it, no one is regulating it. 23 MR. FENOGLIO: And I agree with that. 24 There is not a comprehensive regulation, unlike Phil 25 Sanderson's division, your division, where they know 0070 1 practically to the penny how much in total bingo 2 product was consumed in the state for any particular 3 time period. I agree with you. 4 COMMISSIONER SCHENCK: I'll be honest 5 with you, Steve. It really bothers me. This is a 6 serious problem, and it irks me that it's going on in 7 our licensed establishments. And it concerns me 8 greatly when I see, even with the oversight that our 9 agency has over bingo, you can't have more rules over 10 an industry than we have over bingo in this state. 11 From time to time we still find cases 12 where somebody has popped open a safe in the floor, 13 taken all the money out and then running all kinds of 14 bingo occasions, with that level of oversight. God 15 knows what's going on without anybody watching this 16 stuff. And at this point, it's not our problem, and I 17 don't think I want it to be our problem. 18 But the fact of the matter is, 19 charitable bingo operations are being used not 20 necessarily in every hall or every location in the 21 state, but it's going on and we have no idea what's 22 happening. And we're being told by our licensed 23 operators they have no choice but to start running 24 these machines that no one is regulating, within the 25 same premises on which bingo is being operated. And 0071 1 the players may assume properly or probably do assume 2 that we're watching this stuff and making sure they're 3 being treated fairly, and we're not. 4 MR. FENOGLIO: I take issue with your 5 assumption that players assume that you're watching 6 everything. I have been in a lot of halls, and I've 7 interacted with a lot of customers, and they don't 8 assume that the Lottery Commission is regulating the 9 sale of -- 10 COMMISSIONER SCHENCK: Who do they 11 assume is? 12 MR. FENOGLIO: -- cheeseburgers and 13 french fries or if they have an alcoholic beverage 14 license or stuff that's not, quote, bingo. And so I 15 don't know. Some of them I believe are sophisticated 16 enough to know that there is someone else that's 17 regulating those machines. Some of them will say, 18 when I've asked them, "Who do you think regulates that 19 machine?" "Well, I don't know. It's got a permit on 20 the bottom. What does that say?" 21 But, you know, I would hate to say that 22 the agency should take action based on what it 23 perceives the public thinks. If you're going to do 24 that, the least you should do is go out and do a 25 comprehensive survey to determine if there is a 0072 1 perception problem within the public. I personally 2 don't think there is. But I'm sure if we got 20 3 different people around the state, we would get 4 perhaps 20 different answers. And if there were a 5 bunch of lawyers, you and I both know we might get 40 6 different answers. 7 But I don't think you can automatically 8 conclude that because they're in or near a bingo hall, 9 that the customers who go in there conclude that, 10 "This is regulated by Phil Sanderson or the 11 commissioners of the Texas Lottery Commission." 12 And so to sum up, if they're properly 13 run, the charities do benefit and they benefit 14 significantly. I would hope that the worst -- the 15 worst result that I hope you would avoid is to say, 16 "Well, because we perceive this problem, we're going 17 to regulate the heck out of them under 2001.416, the 18 Bingo Enabling Act, and we're going to chase them all 19 out of the bingo halls," because you would have the 20 perverse effect then, because the customers who want 21 to play bingo but also like to play legal redemption 22 machines, you chase them out of the hall and they go 23 down the street and in the case -- I agree with Larry 24 and the other gentleman, that there are a number of 25 locations that are near bingo halls, and they're 0073 1 trying to draw those customers. They're paying cash. 2 And so if you run them out of the bingo hall by your 3 regulation, you're going to run those customers down 4 the street to a cash-paying game room and the 5 charities go down the hill. 6 Victoria is the best example. Nothing 7 that the Lottery Commission did, by the way, in 8 Victoria. I'm not suggesting that. But it's well- 9 documented that those five charities lost a half a 10 million dollars in the course of 18 months, because 11 their customers would go down the street, so to speak, 12 to play illegal gambling. And there were a number of 13 complaints. I personally, on behalf of charities, 14 raised issues with the Victoria Police Department. 15 And sometimes law enforcement is very 16 responsive. It sounds like, on Larry's case, the 17 Assistant District Attorney in Dallas County was 18 extremely responsive. Other times, you know, DAs have 19 their priority of lists, and there are drugs and 20 serious crime cases. 21 COMMISSIONER SCHENCK: Well, we 22 appreciate your time. I think we understand your 23 position, Steve. Let me ask you one question before 24 you leave. It sounds like you agree that this illegal 25 cash-paying 8-liner machine problem is ubiquitous and 0074 1 all around our licensed charities. 2 MR. FENOGLIO: I wouldn't say it's in 3 every county. I mean, there are some counties 4 where -- 5 COMMISSIONER SCHENCK: But you did just 6 tell me that if we kick these machines out of the 7 bingo operations that people are going to go right 8 down the street, probably walking distance, to 9 somebody that's going to pay them cash? 10 MR. FENOGLIO: In at least a couple of 11 those locations I'm personally familiar with, they 12 will go right down the street. 13 CHAIRMAN WILLIAMSON: Commissioner, do 14 you have any? 15 COMMISSIONER KRAUSE: (Nods head) 16 COMMISSIONER SCHENCK: Thank you, Madam 17 Chairman. 18 CHAIRMAN WILLIAMSON: We have two more 19 witness affirmation forms. But however I think at 20 this point, we probably need to take about a 10-minute 21 break. So if we'll take a break, and then we'll start 22 back up at 10:30. 23 (Recess: 10:19 a.m. to 10:30 a.m.) 24 CHAIRMAN WILLIAMSON: Let's resume. It 25 is 10:30, and we are back in session. 0075 1 Let's see. our next affirmation form, 2 Mr. Minch. 3 MR. MINCH: Good morning. My name is 4 Jeff Minch. I'm speaking on behalf of Littlefield 5 Corporation and the Texas Association For the 6 Advancement of Charitable Bingo. 7 We were the largest owners, continue to 8 be the largest owner of bingo halls in South Carolina. 9 South Carolina had legal video poker. It was a 10 perfectly legal business. Video poker was typically 11 located next to or in close proximity to a bingo hall. 12 So the impact of the banning of video poker in South 13 Carolina is a very good analogy for the elimination of 14 illegal gaming, illegal 8-liner gambling in Texas. 15 In the bingo halls that we owned in 16 South Carolina over an extended period of time, over 17 decades, we typically lost two to $3 million a year on 18 charitable bingo and made ten to $12 million a year on 19 legalized video poker. After video poker was 20 outlawed, which was outlawed by the state -- everybody 21 knew it was coming -- those are now our most 22 profitable bingo halls out of 40 bingo halls that we 23 own. And so the impact from a macro perspective, from 24 a gross perspective of the elimination of illegal 25 8-liner gambling can only be positive. 0076 1 There is a great amount of information 2 to inform you as to what the numbers ought to be or 3 should be in Texas, and I would point to a couple of 4 specific examples. I believe Texas had a 5 proliferation of illegal 8-liners that were out in the 6 open. They were eliminated. There was a combined 7 raid, the combined local law enforcement, DPS and 8 other governmental agencies, which I believe was 9 headed by the AG's office ultimately. It was based 10 upon information that was acquired by an undercover 11 operation that was initiated by a private individual 12 that ended up with gambling probable cause affidavits, 13 which are very complex legal documents. 14 When they closed down the gaming, the 15 illegal gaming in Abilene, they seized that day a 16 quarter of a million dollars cash on hand -- a quarter 17 of a million dollars cash on hand. So if you do the 18 math and you say that that was a one-day take, you can 19 arrive at your own conclusions, but it's a big chunk 20 of $100 million as possibilities. 21 In South Carolina, a machine located 22 adjacent to a bingo hall generated between one $300 23 per day over the course of a year, depending upon the 24 quality of the bingo hall. And so I think in terms of 25 bingo halls as being like trout streams. If the trout 0077 1 are flowing into that bingo hall and anybody who puts 2 an illegal gaming operation next to it is going to 3 have access to the trout. 4 In Amarillo, Texas, we have a bingo 5 hall, and the Amarillo police from time to time will 6 come and shut down the adjacent 8-liners. I can spit 7 a watermelon seed from our parking lot in Amarillo to 8 those illegal gaming operations. You can chart the 9 cash flow impact on the bingo hall with whether or not 10 the doors of the illegal 8-liner operations are open 11 or closed. 12 The charities have a direct impact on 13 their bottom line within 24 hours of whether or not 14 they're open or closed. The local law enforcement is 15 very responsive. They do absolutely nothing to find 16 them. But once they're found, they will come and they 17 will shut them down. 18 We've had probably five iterations of 19 those illegal 8-liner locations being opened and 20 closed and opened and closed. And so the body of data 21 with which we deal -- and I tell you this -- that the 22 cash flow impacted immediately is very high. I want 23 to say to you that I disagree a little bit as relates 24 to what tools you have in order to be able to force 25 this. The first thing is that you possess the bully 0078 1 pulpit. And whatever you say, whether it's to the 2 AG's office or to other law enforcement, is listened 3 to and is heard. And the AG's office, while they say 4 from time to time that they do not have a pot of money 5 to enforce this, in fact, have taken a very active 6 role in a number of cases, and I point to the Aces 7 Wired case as an example, I point to the Abilene case, 8 and I point to the Austin case. And so when you speak 9 and you speak with one voice, they will, in fact, 10 listen. And local law enforcement will, in fact, do 11 something about it. But in the presence of silence, 12 they will do nothing. 13 That's the greatest troubling thing 14 about how illegal 8-liners are actually processed. 15 How they're used in a bingo hall is the fact that the 16 players win a chit. In the Bingo Enabling Act, there 17 is no provision for trading a chit or a bag of 18 chickens for bingo paper, electronics or pull-tabs. 19 And, yet, what they receive as a chit is a 20 representation of value. 21 When the recent rule was drafted by the 22 staff, they attempted to make this chit exchangeable 23 for a gift certificate. Of course, the Texas Supreme 24 Court case, the Hardy case, stands for the proposition 25 that you cannot receive as a winning a gift 0079 1 certificate. Bingo paper should only be traded for 2 cash, debit cards, a credit card or a check. There is 3 no provision to exchange it for a chit. 4 And so, therefore, what happens is that 5 at the point of sale inside the bingo hall, the 6 illegal gaming operation finds its fruition, and so 7 that conspiracy is drawn into the bingo hall and the 8 charity participates in it by swapping something of 9 value for that chit. 10 People have attempted to change the 11 nature of the value. They've said, "Oh, you're giving 12 63 cards as opposed to giving 66 cards." In fact, 13 what you're obtaining that's of value is the right to 14 participate in a game of bingo. If all three of the 15 Commissioners went and played bingo, one might decide 16 to buy one pack of paper, somebody else might decide 17 to buy two packs of paper, somebody else might decide 18 to buy three packs of paper. All that's changed is 19 the probability of their winning. The right that you 20 win, the right that you obtain is the right to 21 participate in that game in order to be able to win. 22 The last thing I want to say is that 23 while I certainly appreciate the comments that were 24 made that the proceeds from illegal gambling have gone 25 to help the bingo hall, I would point out to you that 0080 1 we own less than two percent of the licenses in Texas. 2 We generate more than 10 percent of all the charity 3 proceeds. We have no 8-liners. Every single thing 4 that was identified as an improvement to that bingo 5 hall is something that we do with the money that we 6 generate from the rent that's paid. And we have spent 7 over half a million dollars on a bingo hall here in 8 Austin, when all of our competitors in Austin have 9 8-liners. 10 Now, let me close by saying that if 11 8-liners used in a certain format were legal, we would 12 do it. And the reason we would do it, because we're 13 informed by our experience in South Carolina. We have 14 been represented by the best lawyers in town. We have 15 not been able to find a way to do it legally. And the 16 problem is with that chit, that gaming coupon, because 17 it is, in fact, a representation of value and it does 18 enable a person to be able to play bingo, which is 19 something you can only do by paying cash, credit card, 20 debit card or gift certificate. 21 Thank you very much. 22 COMMISSIONER KRAUSE: Mr. Minch, in 23 South Carolina, after they make the video -- video -- 24 MR. MINCH: Poker. 25 COMMISSIONER KRAUSE: -- game, poker 0081 1 illegal, then how did they enforce that and how 2 successful were they enforcing that? 3 MR. MINCH: They were 100 percent 4 successful in enforcing it, because if you possess a 5 machine the day after, you were going to jail. And 6 their enforcement came directly to all locations. 7 Now, you may be aware of something 8 called the Johnson Act. And you cannot transport 9 gaming devices across state lines. So what had to 10 happen is, everybody had to disassemble those 11 machines. An awful lot of them ended up in Alabama 12 and Florida and places like that. But I can assure 13 you, South Carolina Department of Revenue was not 14 kidding around. And people ended up paying fines and 15 going to jail for possessing illegal gaming devices in 16 South Carolina the day after they outlawed them. 17 COMMISSIONER KRAUSE: Why did they 18 outlaw them, because they were obviously giving up a 19 source of revenue? 20 MR. MINCH: Well, at the point in time 21 that they outlawed them, the state was running a 22 surplus, and so I think there's a lot of mischief that 23 happens, depending upon what a state's finances are. 24 COMMISSIONER KRAUSE: Yes. 25 MR. MINCH: The video poker people had 0082 1 been extremely active in the election of one governor. 2 He was then subsequently defeated, and I think that 3 there was a hard turn in the opposite direction. 4 The other thing is that there was a 5 class action lawsuit that stood for the proposition 6 that video poker owners had promoted gambling by 7 giving away free hot dogs, beer, et cetera, et cetera, 8 and there was about a $40 million settlement in which 9 persons who had been induced to gamble were then 10 rewarded. And I think that really took the air out of 11 the business. So it was a combination of all of those 12 things together. 13 COMMISSIONER SCHENCK: Mr. Minch, what 14 is your -- you've been studying this issue for quite a 15 while, as I understand? 16 MR. MINCH: Quite a while. 17 COMMISSIONER SCHENCK: Okay. What is 18 your view of the probability of the take from illegal 19 8-liners in Texas? We have a report from 2004 that 20 was -- I'm not sure who commissioned that, Kim. Was 21 it the Commission or was it something at the AG's 22 office or the Comptroller? 23 MS. KIPLIN: It was a subcontractor to 24 an outside counsel, a contract that the Office of the 25 Attorney General had at the time that video lottery 0083 1 was being -- 2 COMMISSIONER SCHENCK: And as I recall, 3 that was between $900 million and $5 billion a year. 4 Do you think that's a fair estimate of the activity? 5 MR. MINCH: Well, I think it's actually 6 something that's real easy to get at. The first thing 7 is that Steve Fenoglio's comments in regard to the 8 amount of the take at a bingo hall that operates for a 9 limited number of hours is absolutely correct. I 10 would temper it only by the fact that those hours are 11 quite likely to be some of the best hours, using my 12 trout stream analogy. That's firstly. 13 The second thing, I would point out to 14 you that you can't really stomp these things out, and 15 that tells me it's extremely lucrative. Our actual 16 experience, when we had every single machine and we 17 were able to identify what its take was, we could 18 calculate the entire revenue coming for the entire 19 State of South Carolina down to a penny. 20 Now, given that these things are 21 licensed by the Comptroller's office, you have the 22 ability to identify the number of licenses. A license 23 is going to be specific to a site. You're going to 24 know whether or not it's in a bingo hall, adjacent to 25 a bingo hall, down the street from a bingo hall. And 0084 1 I think the range of values applied to it between $100 2 to $300 per day are valid numbers. And I think that 3 a -- 4 COMMISSIONER SCHENCK: For the machines 5 that people bother licensing or the machines people 6 bother paying the taxes on? 7 MR. MINCH: Yes. But I also think you 8 could do a statistical study, you could pick some 9 sub-segment and identify what percentage of them are 10 licensed and what are not, you could apply that to it. 11 This is just statistical analysis. Based upon the 12 actual take in South Carolina, the middle range of 13 those numbers is not plausible. In other words, it's 14 quite plausible that those numbers are in the billion- 15 dollar range. And all you would be doing would be 16 grossing up South Carolina. South Carolina is only as 17 big as Dallas. 18 COMMISSIONER SCHENCK: Do you have a 19 sense of where the money is going? 20 MR. MINCH: Oh, I tell you where the 21 money is going is frightening. In the case in Austin, 22 Texas, public notice, we happen to have known 23 something about it. The money was being expatriated 24 to Pakistan. Cynic that I am, I don't think they were 25 building Episcopal churches in Pakistan. 0085 1 In the case of Abilene, there was one 2 person who owned bingo halls up there was on the 911 3 Watch List. There was another one who was under 4 observation by the local FBI office as organized 5 crime. There were two criminal lawyers, and then 6 there was an oil family in Abilene -- this is a city 7 with three Christian colleges -- that had about half 8 of the action. 9 And so I think that the money is going 10 to places that creates more mischief. In the case of 11 Abilene, it was very clear follow-on crime. One of 12 the gambling locations had an accusation of and an 13 investigation of selling crystal meth. There were 14 some very tawdry and unsavory stories that I would not 15 even repeat in public as to conduct that was induced 16 by women who found themselves in a position that they 17 owned money to these gambling locations. When you 18 have illegal gambling, every single thing that 19 possibly can be bad comes along with it. 20 COMMISSIONER SCHENCK: Would organized 21 crime be a part of the take there in Abilene? 22 MR. MINCH: Yes, absolutely. I mean, 23 you know, the investigation up there and all of these 24 things are things that we have found out in the public 25 that we had something to do with initiating it. There 0086 1 was an organized crime figure who was under 2 observation by the FBI who flew a Lear 65 to Abilene. 3 He picked up one of the guys who owned a couple of the 4 halls. They circled the Abilene airport at about 5 6,000 feet for 45 minutes. 6 Now, I'm a pilot and I know the burn 7 rate on a Lear 65. It's about $15,000 bucks' worth of 8 fuel. So you can only conclude whatever that 9 indicates to you. So based upon our contact with the 10 FBI office up there, this was some pretty messy 11 business. 12 COMMISSIONER SCHENCK: And again at the 13 moment, there is no agency of the state tracking this 14 on a statewide basis? 15 MR. MINCH: Well, you know, I'm not sure 16 that I agree about that. I mean, I would have to say 17 to you that it's like anything else, that, you know, 18 the squeaky wheel is going to get the attention. So 19 if you speak out on it, if the Commission speaks out 20 and says what I think is a fair statement, that this 21 is the No. 1 delusion of the only legalized gambling 22 in Texas, if you say that, people listen. 23 I personally met with the AG's Chief of 24 Staff and discussed this. I have provided information 25 to them. I can tell you that there is a receptive 0087 1 ear, and so part of it is just a matter of developing 2 it. Now, local DAs who have to make these cases in 3 some instances have been reluctant to do it, for 4 whatever reason. 5 I can assure that the fellow in Abilene 6 was very reluctant to do it initially. He was brought 7 around by virtue of what the police found out. And I 8 suspect that the police's sense of outrage might 9 actually have been more with the follow-on crime than 10 with the gambling. But I can tell you there is a 11 very, very receptive ear out there as it relates to 12 these -- 13 COMMISSIONER SCHENCK: Well, I 14 understand that, and I know we're pulling you over the 15 five minutes. But the point I'm making is, as we sit 16 here, we don't have the authority. We need the 17 Legislature to decide what they want to do about this, 18 if anything, in the next legislative session. We 19 can't pass a rule today saying what the payout rate 20 has to be on a 8-liner machine, what kind of 8-liner 21 machine they can have, other than the rule which the 22 Legislature has already passed, which is apparently 23 honored in the breach more than in the recognition -- 24 MR. MINCH: Well, let me -- 25 COMMISSIONER SCHENCK: -- or say that 0088 1 you can't change the payout rate by remote control or 2 something else where God knows what they're doing with 3 these machines. We don't have the authority, the 4 jurisdiction right now over machines, except to the 5 extent they're being played during a bingo occasion. 6 MR. MINCH: Well, let me say two things. 7 First off, I want to tell you something about the 8 machines. The payout on the machines is set by dip 9 switches behind them, so this fiction that the payout 10 is not controlled was exactly that. When we had these 11 kind of machines in South Carolina, we would set the 12 dip switches to very high levels of payout when we 13 wanted to attract play. At other times when we 14 thought there were going to be more people than there 15 were machines, you would set it to a lower amount. 16 So understand this is a completely 17 controllable business. This is not random number 18 generation. This is something which people open up 19 the back of a machine, set dip switches, and the 20 payout will be whatever it's set for. 21 COMMISSIONER SCHENCK: And there is no 22 one to tell them they can't do it? 23 MR. MINCH: Not only that. I would even 24 say the other side of the coin is that they routinely 25 manipulate it. I mean, it's no different than, you 0089 1 know, going to an oil change place. They're changing 2 oil. These guys -- everybody, ourselves included -- 3 remember, we were in the business legally. We were 4 setting those payouts, no ifs, ands or buts about it. 5 That was the No. 1 management decision that you would 6 make as it relates to operations. 7 And again I want to say to you that 8 while I understand your frustration as relates to the 9 global view of the 8-liners, in fact, you have very 10 complete control of the local -- of a bingo hall, 11 because they are converting these things into a gaming 12 coupon. They're converting into a chit. 13 In the rules that exist right now, that 14 is not something that can be swapped for paper. I 15 can't bring in a bag of chickens, and I can't bring in 16 a chit and get bingo paper. I shouldn't be able to. 17 COMMISSIONER SCHENCK: I see. 18 CHAIRMAN WILLIAMSON: All right. I have 19 two more. Mr. Bresnen, do you . . . 20 MR. BRESNEN: Madam Commissioner, I'm 21 going to waive most of my five minutes. I just want 22 to make one point. 23 CHAIRMAN WILLIAMSON: Would you mind 24 saying your name. 25 MR. BRESNEN: I'm Steve Bresnen on 0090 1 behalf of the Bingo Interest Group. 2 I think there's been one point that's 3 been left out here and how this system works in the 4 halls that are complying with the law and redeeming 5 for bingo product. And that is, that the operator of 6 the machine pays cash to the charity in return for 7 that bingo product. And that cash is recorded as 8 sales, the bingo product is withdrawn from the 9 inventory. 10 So there is a complete regulatory loop 11 for what happens in terms of payment for the product 12 and inventorying of the product and the sales and 13 prize winnings and all that that goes into it. I just 14 wanted -- sometimes it helps if you understand what's 15 actually going on at a practical level. Otherwise, I 16 subscribe to Mr. Fenoglio's comments. And I really, 17 really, appreciate the time that y'all are taking to 18 get into the details of this and understand it 19 completely. 20 Thank you very much. 21 CHAIRMAN WILLIAMSON: All right. And 22 Mr. Woods, I have one more. Are you interested in -- 23 MS. WOODS: No, thank you. 24 CHAIRMAN WILLIAMSON: I just have one 25 question. Phil, when they fill out their financial 0091 1 reporting to you, do they include the revenue from 2 these machines? 3 MR. SANDERSON: They do not. The only 4 thing they report to us is their paper, electronic, 5 and pull-tab sales. 6 COMMISSIONER SCHENCK: But they don't 7 report to you, because they don't own the machines. 8 It's the lessor who owns the machines and is kicking 9 over cash net of the transaction of the machine to 10 the -- 11 MR. SANDERSON: That's the basic 12 assumption, that we're not aware of any non-profits 13 theoretically owning the machines. 14 CHAIRMAN WILLIAMSON: But basically we 15 have no knowledge of what even that net amount might 16 be that goes to the charity out of these machines? 17 MR. SANDERSON: We do not. 18 COMMISSIONER SCHENCK: This is -- 19 COMMISSIONER KRAUSE: Is it very typical 20 that a bingo hall -- and I guess this would be the 21 corporate lessor -- is also a lottery licensee? 22 MR. SANDERSON: That -- 23 COMMISSIONER KRAUSE: It's very 24 untypical or is it common? 25 MR. SANDERSON: No. As a matter of 0092 1 fact, I think the lottery is also considered a game of 2 chance, and so it's not authorized to be played during 3 a bingo occasion. 4 COMMISSIONER KRAUSE: But the tickets 5 could be sold when the bingo game is not going on? 6 MR. SANDERSON: It could, yes, sir. 7 COMMISSIONER KRAUSE: But that doesn't 8 really answer my question about do we have very many 9 licensees? 10 MR. SANDERSON: I'm not aware of any -- 11 COMMISSIONER KRAUSE: Okay. 12 MR. SANDERSON: -- locations that are 13 co-licensed. 14 COMMISSIONER SCHENCK: Is there anything 15 in our, Gary or Phil or Kim, in our rules that would 16 prevent someone who has bought, let's say, 1,000 17 scratch-offs from the local Quicky Mart from reselling 18 them to somebody wherever they want to? 19 MS. KIPLIN: You have to be licensed to 20 sell lottery tickets. And if you're engaging in an 21 unlicensed sale of lottery tickets, it's a criminal 22 offense. 23 COMMISSIONER SCHENCK: So if I were to 24 buy five lottery tickets today and go to, let's say, 25 my hunting lease and meet my buddies, who say, "I want 0093 1 two of them. I'll give you two dollars par value," 2 I'm committing an offense if I sell them to them? 3 MS. KIPLIN: I think if you're selling 4 them, reselling them, you know, the issue is, are you 5 the buyer's agent? That's been litigated in Harris 6 County. There was an Internet that said, "All we're 7 doing is acting as the buyer's agent," took a dim 8 view. So I think it would come down to the facts and 9 circumstances. 10 I don't think that the statute was 11 written to address the, "Gee, I'm going down to, you 12 know, the gas station," and somebody is saying, "Hey, 13 can you get me a ticket while you're there?" I don't 14 think that that was the point of that statute. I 15 think it was intended for, you know, the commercial 16 resale. 17 COMMISSIONER SCHENCK: Okay. And, Phil, 18 at present, as I understand it, if somebody has a 19 video screen in a room adjacent to the bingo operation 20 that's showing parimutuel dog and horse track racing 21 from New Jersey or New York, we don't have the 22 jurisdiction to do anything about that? 23 MR. SANDERSON: We do not, no. 24 COMMISSIONER SCHENCK: Unless it's going 25 on during a second game of chance? 0094 1 MR. SANDERSON: Even at that, I don't 2 know that just showing the race itself would be a 3 violation. 4 COMMISSIONER SCHENCK: But taking action 5 on it beforehand? 6 MR. SANDERSON: I think if you're book- 7 making, it might be a little different. 8 COMMISSIONER SCHENCK: Okay. Thanks. 9 CHAIRMAN WILLIAMSON: All right. 10 Commissioners, any other comments or question? 11 All right. This is not any action item, 12 per se, but it's certainly been informative. 13 COMMISSIONER SCHENCK: I find it very 14 helpful. I think this is one of the most serious 15 issues this state and this Commission faces. And I 16 find it very troubling that we have very tightly 17 controlled and limited legalized gaming in this state 18 in the form of the lottery and bingo and that there is 19 a volume of activity occurring, much of it in plain 20 sight and under the roof and under the auspices of the 21 charities that we are regulating that we don't know 22 what's going on and we don't have the current 23 regulatory power to do enough about. 24 And it's fine with me if we want to 25 have -- well, I'm not even sure it's fine with me. 0095 1 But if the state decides that we want to have 2 legalized gambling in casinos and we've made a 3 conscious decision. But I don't think we've done any 4 of that with respect to what's going on with these 5 8-liners right now. And it's putting the charities in 6 a difficult position, and they're responding as best 7 they can to deal with that. 8 But I think we need to -- I found it 9 very helpful to get a sort of primer on where we are 10 in our current regulatory powers. And I think as we 11 go forward in the next legislative session, I'm very 12 glad that the members of the Legislature are showing 13 such interest in getting involved in this area, and I 14 think we can help as a resource in moving this 15 forward. 16 CHAIRMAN WILLIAMSON: All right. And 17 those of you that spoke, I appreciate that. It's been 18 very helpful. 19 AGENDA ITEM NO. VIII 20 CHAIRMAN WILLIAMSON: All right. Let's 21 go on to Item IX -- I'm sorry, Item VIII. Sorry, 22 Phil, I didn't mean to skip you -- report by the 23 Charitable Bingo Operations Director. 24 MR. SANDERSON: Commissioners, you have 25 been provided the report for the March activities of 0096 1 the Bingo Division. The one thing I want to point out 2 is that the Bingo Advisory Committee that was 3 originally scheduled for yesterday has been moved to 4 April the 28th. And I believe Commissioner Schenck 5 has expressed interest to attend. If Commissioner 6 Krause or Chairman Williamson, if either of y'all 7 would like to attend, let me know and we'll work 8 around a schedule. 9 CHAIRMAN WILLIAMSON: All right. 10 Commissioners, do you have any questions? 11 COMMISSIONER SCHENCK: No, thanks. 12 AGENDA ITEM NO. IX 13 CHAIRMAN WILLIAMSON: All right. Let's 14 go on. Item IX, report, discussion and/or action on 15 lottery sales, revenue, game performance, marketing. 16 Kathy and Robert, I believe this is 17 yours. 18 MS. PYKA: Good morning, Commissioners. 19 For the record, my name is Kathy Pyka, Controller for 20 the Lottery. With me to my right is Robert Tirloni, 21 our Products Manager and to my left, David Sizemore, 22 our Research Coordinator. 23 The first chart that we have for you 24 this morning reflects comparative sales through the 25 week ending March 3, 2010. Total Fiscal Year 2010 0097 1 sales for this 31st -- one-week period are 2 $2.23 billion, an increase of $48.6 million compared 3 to the $2.18 billion figure for Fiscal Year 2009. 4 Our Fiscal Year 2010 instant sales 5 reflected on the blue bar are at 1.660, compared to 6 $1.656 billion for the previous fiscal year, which is 7 a $4.3 million increase. 8 In our on-line product reflected on the 9 red bar are at $572.5 million for Fiscal Year 2010, 10 which is a $44.3 million increase over the 11 $528.1 million figure for Fiscal Year 2009. 12 Our next slide reflects cumulative 13 average daily sales for Fiscal Years 2008, 2009 and 14 2010. Through the 31st week of the fiscal year, our 15 daily averages sales for Fiscal Year 2010 are almost 16 $10.6 million, reflecting a 3.6 percent increase over 17 Fiscal Year 2008 sales and a 4.7 percent increase over 18 Fiscal Year 2009 sales. 19 Our jackpot games are highlighted in the 20 white font. And you can see that the on-line product 21 is just under $1.8 million as an average sales rate, 22 which is just over a 35 percent increase over the two 23 prior fiscal years. 24 Our Lotto Texas game continues to 25 reflect a significant increase over the prior year 0098 1 fiscal year sales. Our current Lotto Texas jackpot is 2 at $75 million. That's out second significantly large 3 jackpot this fiscal year for Lotto Texas, so that's 4 making up a large portion of that daily increase. 5 Our Mega Millions product is just -- 6 between the two prior fiscal years, it's under Fiscal 7 Year 2009, in which that fiscal year had two jackpots 8 over $200 million. We've only had one jackpot this 9 fiscal year over $200 million for Mega. 10 Texas Two Step is below our prior fiscal 11 year. We are faced with a -- or had a $2.15 million 12 jackpot for Two Step in '09, which represents that 13 large difference. 14 And then the balance of our increase in 15 daily sales is certainly due to the new Powerball and 16 Powerplay products that were introduced at the end of 17 January. 18 Our daily games are highlighted in the 19 white font -- or the green font, and you can see 20 they're just below our two prior fiscal years. 21 And then in closing, our instant ticket 22 product at $7.7 million is just between the two prior 23 fiscal years as well. 24 So with that, Robert is going to move 25 forward with actual sales by game. 0099 1 MR. TIRLONI: Good morning, 2 Commissioners. For the record, my name is Robert 3 Tirloni. I'm the Products Manager for the Commission. 4 This slide is very similar to what Kathy 5 just covered. It's the comparison of Fiscal 2010 to 6 Fiscal Year 2009. Again, all of the jackpot games are 7 at the top of the screen in white. Lotto, as Kathy 8 mentioned, the jackpots have helped us greatly this 9 fiscal year. And Lotto is up just under $45 million 10 for the year. And Mega Millions, Megaplier and Texas 11 Two Step, those slight deficits are a result of 12 previous fiscal year jackpots. 13 I did want to mention that Ohio is going 14 to be joining, and they're going to begin selling the 15 Powerball game on April 16th. So out of the 12 Mega 16 Millions states, once Ohio starts selling, all states 17 except California will now be selling Powerball. 18 There are 26 of the MUSL jurisdictions 19 that are now selling Mega Millions, so that process 20 continues. There are some other smaller states that 21 will be coming on in the next few weeks, such as 22 Arizona and Maine. And so almost everybody that's 23 going to be coming into the game is almost there. 24 Other than California, the other big 25 jurisdiction that's kind of a hold-out at this time is 0100 1 Florida. And they're somewhat new to the Powerball 2 game, so they've not yet made the decision about 3 joining in and selling Mega Millions. 4 Again, the green font is our daily 5 games. We are seeing a $10 million decline, fiscal 6 year over fiscal year in that products group. But 7 overall, our online category is up by $44 million. 8 And as I told you last month, we are 9 slightly down on our instant product last month. When 10 we had this meeting, I told you we were having some 11 good weeks, and we have. We're having a very good 12 instant week again this week. And as of the week 13 ending Saturday, April 3rd, we are up $4 million on 14 instants year-over-year. So we're real happy with the 15 sales we're seeing on the instant category over these 16 past few weeks. 17 We bring you this slide quarterly. This 18 is the instant sales broken down by price point. 19 Again, it's through the week that ended last Saturday, 20 April 3rd. This represents just over $1.6 billion in 21 instant sales. The $5.00 continues to be the best 22 selling price point for us. That's followed by the 23 $10.00. And then the $20.00 and the $2.00 are 24 practically equal, coming in in third place in terms 25 of sales. 0101 1 I have a brief update for you on some 2 other things of interest. When we launched Powerball 3 at the end of January, because of the short time 4 between the actual rule adoption and the launch, we 5 were not able to get our full-blown advertising 6 campaign up and running. We are ready to start that 7 campaign. It begins in just about 10 days, on Monday, 8 April 19th. That campaign includes TV, a TV campaign, 9 statewide radio campaign, statewide radio promotions 10 and a refresh of many of the point-of-sale materials 11 that are in our retail locations. 12 In addition, as of tomorrow, our 13 Powerball outdoor boards will be complete. We should 14 have 56 Powerball outdoor boards, and these were 15 converted from our Lotto Texas boards. And this is 16 just an example of one. 17 In addition to all the things that I 18 just mentioned, there's been many other activities 19 that we've planned and put in place to support 20 Powerball in Texas. We have a clerk voucher promotion 21 that starts on April 18th. That will run for about 22 three weeks. There is a nationwide Powerplay 10X 23 promotion that runs for the entire month of May, and 24 that's where -- Powerplay typically goes -- players 25 can increase their prizes by two, three, four or five 0102 1 times. That's their non-jackpot prizes. But during 2 the month of May, players have the opportunity to 3 increase their prizes by up to 10 times. And that's 4 being run by all states that sell Powerball. 5 We're also running a player free ticket 6 promotion pretty much for the entire month of June. 7 And then towards the end of June, we'll be mailing a 8 Powerball direct mail coupon out. That will go to a 9 million households in Texas, right at the end of June. 10 We also have a big instant ticket 11 initiative that is starting next month in May. This 12 is our Jumbo Bucks suite. We've run this suite of 13 tickets before. We've changed it up a little bit this 14 time, based on the success that we've had in the past. 15 We've done some bigger print runs, slightly elevated 16 payouts, and we have included second chance drawings 17 with this suite. And in the second chance drawings, 18 players will have the ability to win cash prizes. 19 Typically on a lot of our games like our 20 Dallas Cowboys game, our Houston Texans games, players 21 enter second chance drawings to win merchandise. We 22 have actually built cash prizes into the second chance 23 drawings for this game. And this whole suite of games 24 will have full media support starting right at the end 25 of May, including TV, radio, again statewide radio 0103 1 promotions, so this is our last big instant initiative 2 for this fiscal year. I mean, we hope that the 3 success of this suite will carry us through the summer 4 months and yield positive instant sales during that 5 time. 6 That's it from the Products side, but 7 Dr. Sizemore has a research update for you. 8 COMMISSIONER SCHENCK: Before we get to 9 that, if I might, Kathy, I know we've asked this 10 question before, or Chairman Cox asked this question. 11 We believe that we're losing revenue to illegal form 12 of gambling in the state but -- let me ask it as a 13 question. Do we believe that we are and do we have an 14 estimator or a way we could estimate how much money 15 the school children of Texas are losing to competing 16 forms of gaming? 17 MS. PYKA: Commissioner Schenck, we do 18 not have a mechanism to quantify that. As we have 19 filed previous fiscal notes on legislation that's been 20 filed, we don't have the data available to determine 21 the exact loss in revenue. 22 COMMISSIONER SCHENCK: But we know that 23 we are? 24 MS. PYKA: We would assume that we are, 25 but we don't know that for certain by a specific 0104 1 dollar amount. 2 COMMISSIONER SCHENCK: Okay. Thanks. 3 MS. PYKA: Yes. 4 DR. SIZEMORE: Good morning, 5 Commissioners, Chair Williamson. I am David Sizemore, 6 the Lottery's Research Coordinator, and I'm pleased to 7 present the opinion material that we provide to you on 8 a twice-a-year basis. And usually I give you some 9 perspective, and I would like to do that again today, 10 to give you a sense of where this data come from and 11 how we collect it. 12 Through our research vendor, we survey 13 roughly 400 Texans monthly, and in October we collect 14 data from 1,200 Texans. And they're asked a battery 15 of questions having to do with lottery participation, 16 opinion material, which you'll see today, as well as 17 add-on on questions, depending on operational needs or 18 interests from the Commission itself. We have been 19 doing this roughly since the 1990s. And again, it's a 20 larger project that includes quite a few questions 21 dealing with participation as well. 22 The following items are just several 23 questions that we asked in this survey. The first, 24 which you see here on the chart, deals with overall 25 opinion of the Texas Lottery, and the data have been 0105 1 relatively stable over time. As you can see, about 2 48 percent of respondents have a positive view of the 3 Texas Lottery. 31 percent have a negative view, and 4 that's from the second quarter of 2010. And it has 5 been relatively stable over time. 6 The next slide asks respondents whether 7 they considered the lottery to be operated fairly and 8 honestly. And here you see that about 57 percent 9 agree that the lottery is operated fairly and 10 honestly, from the most recent quarter. And I 11 apologize. These are quarterly roll-ups of the 400 12 monthly surveys, so you'll see the sample size at the 13 bottom. 14 And the first quarter for 2010, for 15 example, is 2,000. That includes the segmentation 16 study, which is 1,200 respondents. About 24 percent 17 disagree that the lottery is operated fairly and 18 honestly. 19 Now, the next two slides are essentially 20 follow-up questions dealing with why people disagree 21 that the lottery is operated fairly and honestly. And 22 the first slide which you see now is a set of open- 23 ended responses wherein respondents essentially say 24 whatever comes to their mind when asked the question 25 why do they feel that the lottery is operated or not 0106 1 feel that the lottery is operated fairly and honestly. 2 As has been the case for some time, the 3 first and most popular response is simply that the 4 lottery is dishonest and not operated fairly which, as 5 I've said in previous meetings, is essentially a 6 parroting of the statement itself. 7 There has been a relatively stable 8 decline in people referring to money not going to 9 schools or education as promised, which on this slide 10 is the third response from the top. However, it 11 should be noted that usually this category hovers 12 around 12 or 13 percent. 13 Finally, because we did receive 14 responses that essentially reflected the question when 15 it was open-ended, people repeated the question 16 basically. We also follow up with closed-ended 17 questions that lock respondents into a specific 18 answer. 19 COMMISSIONER SCHENCK: Can I ask you a 20 question about your research methodology? 21 DR. SIZEMORE: Certainly. 22 COMMISSIONER SCHENCK: I do this from 23 time to time. Are you asking these questions in the 24 same order every time you run this survey? 25 DR. SIZEMORE: Yes. 0107 1 COMMISSIONER SCHENCK: Okay. I think 2 that's skewing the results. You have 17 percent of 3 the people on the last slide saying they think the 4 lottery is operated as a fraud. This is a telephone 5 survey? 6 DR. SIZEMORE: Yes. 7 COMMISSIONER SCHENCK: Okay. So if I'm 8 not that eager to participate in a survey and I have a 9 choice of listening through I don't know how many more 10 questions there might be about why I just don't like 11 the lottery very much, am I not going to want to give 12 you the first prompted answer? 13 DR. SIZEMORE: Well these are 14 open-ended, so you can say whatever you want on this 15 question. 16 COMMISSIONER SCHENCK: No. On the one 17 before -- well, wait a minute. So this was not -- you 18 didn't give them a list? 19 DR. SIZEMORE: No, not on this one. 20 This is the first question that they're asked in 21 response to -- if they say they disagree that the 22 lottery is operated fairly -- 23 COMMISSIONER SCHENCK: Well, then, I 24 misunderstood. Do we then ask them a follow-up 25 question where we give them options to choose from? 0108 1 DR. SIZEMORE: Yes. 2 COMMISSIONER SCHENCK: Do we change the 3 order in which we ask those options? 4 DR. SIZEMORE: Are those randomized? 5 You know, I would have to actually look into that. 6 I'm not certain. 7 COMMISSIONER SCHENCK: I suggest they 8 should be randomized, because when I do -- on rare 9 occasions when I get tricked into doing a phone 10 survey, if I get the option of telling you "Yes" to 11 get on to the next question and get off the phone, I'm 12 going to pick the first "Yes" answer out of -- 13 DR. SIZEMORE: The easiest thing, yes. 14 I understand. I'll have to look into -- I believe 15 that they're randomized; however, I would want to 16 verify that just to be certain. 17 We do see some shifts around. 18 Specifically if you look at the bottom of the chart, 19 the lowest ranking response has actually been 20 increasing over time in the recent quarters. However, 21 I should note again that previously that this has been 22 around 30 percent or so as the response to the closed- 23 ended. 24 COMMISSIONER SCHENCK: This is my point 25 of randomizing. You see the slant down into the left 0109 1 of the "Yes" answers here on your chart? If that's 2 the order in which the questions are asked -- 3 DR. SIZEMORE: Oh, no. The way they're 4 placed on the chart is the most popular response. 5 COMMISSIONER SCHENCK: We have no idea 6 what the order is of the questions? 7 DR. SIZEMORE: No, not right now. 8 COMMISSIONER SCHENCK: And that's why it 9 appears -- 10 DR. SIZEMORE: Yes. Okay. I 11 understand. No, these are just set up so that the 12 most popular response is first, next and so on down 13 the line, so that the least popular response is on the 14 bottom. 15 There also seems to be some movement in 16 the third category from the bottom, the odds of 17 winning are unfair, which declined from 57 percent to 18 48 percent quarter over quarter. However, again, that 19 usually hovers around 50 percent or has been in recent 20 quarters. 21 That's all. Are there any questions? 22 CHAIRMAN WILLIAMSON: Commissioners? 23 DR. SIZEMORE: Thank you. 24 CHAIRMAN WILLIAMSON: Thank you. 25 Any other questions for Kathy or Robert? 0110 1 AGENDA ITEM NO. X 2 CHAIRMAN WILLIAMSON: All right. Then 3 let's go on to Item X, state transfers. 4 MS. PYKA: Thank you, Madam Chair. 5 Again for the record, Kathy Pyka, Controller for the 6 Commission. 7 Commissioners, the first report in your 8 notebook under Tab X reflects the transfers and 9 allocation to the Foundation School Fund, the Texas 10 Veterans' Commission and the allocation of unclaimed 11 prizes for the period ending February 28th of 2010. 12 Our total cash transfers to the state 13 amounted to $528.6 million for the first six months of 14 Fiscal Year 2010, and the detail of that 15 $528.6 million is reflected on the second page and 16 reflects $473.1 transferred to the Foundation School 17 Fund, $3.4 million transferred to the Texas Veterans 18 Commission, and then the balance of $52.2 million 19 transferred to the state's general revenue fund for 20 unclaimed lottery prizes. 21 This represents a 1.21 percent increase, 22 or $5.6 million over the amount transferred to the 23 Foundation School Fund through February of last fiscal 24 year. 25 And then the final document in your 0111 1 notebook includes the cumulative report of lottery 2 sales, expenditures and transfers from Fiscal Year 3 1992 to date. And the cumulative amount transferred 4 to the Foundation School Fund is now at $12.1 billion. 5 I would be happy to answer any questions 6 that you might have. 7 CHAIRMAN WILLIAMSON: Commissioners, any 8 questions? 9 COMMISSIONER SCHENCK: This is through 10 five or six months? 11 MS. PYKA: Six months. 12 COMMISSIONER SCHENCK: We're on pace not 13 quite to make a billion, despite the up number for 14 transfers to the Foundation School Fund? 15 MS. PYKA: We will make a billion. Our 16 transfers for the first nine months, of course, 17 include a transfer for administrative allocation to 18 fund our operating budget. Once we get that 19 $300 million budget funded, or at the end of the 20 fiscal year we're no longer making that admin 21 transfer, so I think we'll get there. 22 COMMISSIONER SCHENCK: Okay. 23 AGENDA ITEM NO. XI 24 CHAIRMAN WILLIAMSON: And let's go on to 25 Item No. XI, discussion on the five percent biennial 0112 1 budget reduction request. 2 MS. PYKA: Certainly. Again for the 3 record, Kathy Pyka, Controller for the Commission. 4 And, Commissioner, at the last I guess 5 two Commission meetings now, we've provided an update 6 on the five percent budget reduction that has been 7 mandated by state leadership. And last meeting, I 8 shared with you that we had been asked to supply 9 information for any of the areas that we believed we 10 needed to submit an exemption request on, and we did 11 do that. We submitted that to the Governor's office, 12 the Speaker's office and Lt. Governor's office. 13 I wanted to give you an update on the 14 status of our exemption for the Bingo Prize Fee 15 Allocation Fund. At this point in time, we have been 16 told that our exemption request is on the list for 17 consideration, but we don't have the specific time 18 frame for when we might have a decision regarding that 19 request. 20 So I wanted to give you that quick 21 update, and I'm happy to answer any questions that you 22 might have. 23 CHAIRMAN WILLIAMSON: Commissioners? 24 COMMISSIONER KRAUSE: No. 25 MS. PYKA: All right. Thank you. 0113 1 AGENDA ITEM NO XII 2 CHAIRMAN WILLIAMSON: The next item, 3 XII, the lottery operations and services contract 4 calculation. 5 MS. PYKA: Again for the record, Kathy 6 Pyka. And this particular item is an update on the 7 Amendment No. 8, lottery operations and service 8 contract, credit calculation for the second quarter of 9 Fiscal Year 2010. And, Commissioners, we don't have a 10 credit due to the Commission for the second quarter. 11 While our quarterly comparison of sales and transfers 12 were slightly down for that specific quarter, our 13 prize payout amount was flat, and so there's not a 14 credit due to the Commission for the quarter. 15 I would be happy to answer any 16 questions. 17 CHAIRMAN WILLIAMSON: Commissioners, any 18 questions? 19 Thank you. 20 AGENDA ITEM NO. XIII 21 CHAIRMAN WILLIAMSON: Then let's go on 22 to Item XIII, consideration of and discussion and/or 23 action on the agency's Strategic Plan for the Years 24 2011 through 2015. I understand that Robert Elwood -- 25 I'm sorry -- Elrod -- 0114 1 MR. ELROD: Okay. 2 CHAIRMAN WILLIAMSON: -- is providing 3 information on that and you have a presentation for 4 us. 5 MR. ELROD: Good morning, Commissioners. 6 I'm Robert Elrod from the Administration Division, 7 here to give you an update on the agency's 2011-2015 8 Strategic Plan. 9 Just to give you some background, since 10 1993, all state agencies have been required to submit 11 a strategic plan every two years and includes a 12 planning period of the upcoming fiscal year and the 13 next biennia. I think we've left a copy of the 14 2009-2013 plan up there if you need it for reference. 15 Our 2011-2015 plan will be due to the 16 Governor's Office of Budget Planning and Policy and 17 the LBB on July 2nd. 18 COMMISSIONER SCHENCK: On when? I'm 19 sorry. 20 MR. ELROD: July 2nd, Commissioner. 21 CHAIRMAN WILLIAMSON: Can you hear okay? 22 Can you hear this okay (to the Reporter)? 23 MR. ELROD: Can you hear me? Okay. 24 We formed a team and began working on 25 this project late last year. We're currently 0115 1 circulating a first draft, and we should have a draft 2 ready for your review in mid-May. We'll keep you 3 updated as this goes along. And if you have any 4 questions, I will be happy to answer them. 5 CHAIRMAN WILLIAMSON: Commissioners, do 6 you have any questions or -- 7 COMMISSIONER SCHENCK: Are we keeping 8 the Governor's office adequately informed of these 9 changes? Because it looks like we're going into a 10 biennium where money is going to be dear to the extent 11 we're proposing changes in our metrics or anything 12 else that might increase the budget demands. This 13 will not come as a surprise, I'm hoping? 14 MS. PYKA: It will not. And I'll 15 actually cover that next portion of the presentation 16 which does deal our strategic budget structure 17 changes. And, Commissioners, I'm seeking your 18 approval this morning to submit our budget structure 19 changes for Fiscal Years 2012 and 2013 to the 20 Legislative Budget Board and the Governor's Budget 21 Office. 22 And for background, the budget structure 23 is actually the starting point for our legislative 24 appropriations budget process. It gives us a chance 25 to add, modify, delete any strategies, goals, 0116 1 objectives or performance measures and/or their 2 definitions. 3 And so, Commissioners, we have looked at 4 our structure here in the Commission. All the 5 directors have had input. And rather than have any 6 changes to the structure this next legislative 7 session, because we did an extensive review two years 8 ago, we simply are requesting that you consider our 9 submission of measure definition changes for 15 of our 10 60 performance measure definitions. 11 And of those 15 items that we're 12 requesting, 10 of those relate to definition changes, 13 to change the definition to be in compliance with 14 legislative changes from last session. That's of the 15 15. There was 10 for that. There's three that are 16 just little minor grammar changes, and then there's 17 two that we're actually seeking a definition change 18 for various reasons. 19 So we have very few recommended changes 20 this go round. We have shared the information in 21 advance with the Governor's Budget office and spoken 22 to our legislative budget analyst about the changes. 23 And if you approve them, we'll submit them formally by 24 the deadline of April 16th for their consideration. 25 CHAIRMAN WILLIAMSON: Thank you. 0117 1 Commissioners, do you have any 2 questions? 3 COMMISSIONER SCHENCK: Quick question, 4 Kathy. 5 MS. PYKA: Yes. 6 COMMISSIONER SCHENCK: Is this going to 7 net an increase in our budget request, do we think, at 8 this point? 9 MS. PYKA: Commissioner, at this point 10 we haven't finalized our budget request document for 11 '12 and '13. This is the first phase of our work. 12 Our second -- 13 COMMISSIONER SCHENCK: But we're setting 14 our goals in a way that we should be able to basically 15 predict up, down or the same? 16 MS. PYKA: At this point we're looking 17 at a baseline request not much different than last 18 go-round. But we are still working on exceptional 19 items, should we have anything for capital outlay 20 budget or anything in the bingo area for capital 21 outlay as well. 22 COMMISSIONER SCHENCK: I know this is 23 early, but I want to get this out there to think 24 about -- and it's small. But we have very limited 25 enforcement and remedy powers with respect to a lot of 0118 1 the cases we're going to get to later -- every month. 2 We spend a lot of time and energy in the form of FTEs, 3 chasing NSF licensees and things and we don't have -- 4 we suspend these people, which just cuts off revenue 5 to the state. 6 I would really like to see us have 7 additional fine powers so that we can start financing 8 or maybe paying for some of these FTEs to chase after 9 these people, instead of asking for it as a separate 10 budget item. So as we go forward, try to keep that in 11 mind if we can, to make that request to the 12 Legislature so that we can perhaps cut down even to a 13 small degree what we're asking for from the 14 Legislature. 15 MS. PYKA: Thank you for that update on 16 that proposal. We'll have that document available to 17 the Commission in August, at that particular 18 Commission meeting. 19 I would be happy to answer any other 20 questions. 21 CHAIRMAN WILLIAMSON: Any other 22 questions? 23 And I understand this is an action item? 24 MS. KIPLIN: Yes. Kathy has requested 25 this as an action item. 0119 1 CHAIRMAN WILLIAMSON: So the motion is 2 to -- 3 COMMISSIONER SCHENCK: Approve the 4 action they request. 5 CHAIRMAN WILLIAMSON: Okay. Is there a 6 second? 7 COMMISSIONER KRAUSE: Second. 8 CHAIRMAN WILLIAMSON: All in favor? 9 COMMISSIONER SCHENCK: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 COMMISSIONER KRAUSE: Aye. 12 CHAIRMAN WILLIAMSON: Motion passed zero 13 to three. 14 MS. PYKA: Thank you, Commissioners. 15 AGENDA ITEM NO. XIV 16 CHAIRMAN WILLIAMSON: All right. Let's 17 move on to XIV, Mr. Fernandez, the report, discussion, 18 action on the lottery operations and services 19 procurement. 20 MR. FERNANDEZ: Good morning, 21 Commissioners, Madam Chairman. My name is Mike 22 Fernandez. I'm the Director of Administration. 23 Item No. XIV has been and will continue 24 to be our standard posted item regarding the lottery 25 operator procurement, and this gives us the 0120 1 opportunity to bring any new information or keep you 2 updated on that topic. 3 Now, there is one item I would like to 4 bring to your attention. Staff recently issued a 5 solicitation to obtain a contractor to provide 6 benchmarking, technical benchmarking services as part 7 of the review process. So I wanted to advise the 8 Commission that that solicitation has been posted. 9 And that's the only update I have on 10 this topic. 11 CHAIRMAN WILLIAMSON: Mike, would you 12 give a little bit more detailed explanation of what 13 that actually means. I know you gave it to me 14 yesterday, and I thought it made it really clear, so 15 what that actually means when you say benchmarking, 16 technical benchmarking. 17 MR. FERNANDEZ: One of the things 18 certainly that we anticipate, as you would well 19 imagine, is the response to bid will I'm sure have 20 many, many various technical components. And one of 21 the things that we want to clearly understand, that if 22 you put forward a proposal that talks about certain 23 specifications and certain performances of a 24 particular piece of equipment, we want to benchmark 25 that piece of equipment and see if it, in fact, 0121 1 performs to the required specification that's been 2 delineated in the RFP. 3 And so what this contractor will do is 4 that in those instances where we have technical 5 equipment being bid or performance pieces being bid, 6 then that contractor will benchmark that to see if, in 7 fact, it performs up to the requirement or as bid -- 8 CHAIRMAN WILLIAMSON: Okay. 9 MR. FERNANDEZ: -- and then report to 10 the Review Committee. 11 CHAIRMAN WILLIAMSON: Thank you. 12 MR. FERNANDEZ: Okay. 13 CHAIRMAN WILLIAMSON: Commissioners, 14 any -- 15 COMMISSIONER SCHENCK: Mike, do you have 16 any interesting bids coming up where I can complain 17 about how much we're paying and -- 18 MR. FERNANDEZ: Yes, I do; I do have 19 some. 20 COMMISSIONER SCHENCK: Will you make me 21 aware of it so I can -- 22 MR. FERNANDEZ: It will be our next 23 item, Commissioners -- 24 COMMISSIONER SCHENCK: Good, good. 25 MR. FERNANDEZ: -- and you and 0122 1 Commissioner Krause -- 2 AGENDA ITEM NO. XV 3 CHAIRMAN WILLIAMSON: Well, then, we 4 will go on Item No. XV, report, discussion and action 5 on any extension of contracts or procurements. 6 Mr. Fernandez. 7 MR. FERNANDEZ: Again, Commissioners, my 8 name is Mike Fernandez, the Administration Director. 9 And Item No. XV is to advise the 10 Commission of staff's intent to extend -- execute our 11 option for four contracts, to extend those contracts 12 for one year. And those four contracts are 13 TracyLocke, which is our advertising contractor; 14 Davila, Buschhorn & Associates, which is our drawing 15 audit services provider; Scientific Games 16 International, which is our instant ticket printing 17 company; and also Pollard Banknote, Limited, another 18 instant ticket printing company. So staff wanted to 19 advise you that we intend to amend and extend those 20 contracts for a 12-month period. 21 Lastly, we also wanted to advise the 22 Commission that we will be releasing an RFP to obtain 23 outside counsel services for IP and general litigation 24 matters. So those are the -- 25 COMMISSIONER SCHENCK: Are Davila 0123 1 Buschhorn, are they actually the people who weigh the 2 little ping-pong balls or is that someone else? 3 MR. FERNANDEZ: Michael Anger will 4 answer that. 5 COMMISSIONER SCHENCK: Michael is 6 telling me no, someone else weighs the ping-pong 7 balls. 8 MR. FERNANDEZ: Well, Weights & Measures 9 weighs them also. 10 MR. ANGER: That's right. Actually, 11 they're the audit firm that monitors and certifies our 12 drawing. So they're on-site. They watch the 13 activities that take place during the drawing process 14 and actually perform that certification. 15 The weighing of the balls -- an in-house 16 drawing staff in intervening periods of time weighs 17 the balls, but we also send those out to the 18 Department of Agriculture Weights & Measures 19 Meteorological facility, and they're weighed by an 20 independent body there. 21 COMMISSIONER SCHENCK: So we're paying 22 Davila Buschhorn to stand and watch the balls bounce 23 and make sure we call the right numbers when they pop 24 up? 25 MR. ANGER: Yes, and ensure that all of 0124 1 our processes are followed according to our 2 procedures. 3 MR. FERNANDEZ: And posted correctly. 4 COMMISSIONER SCHENCK: And they're doing 5 good work for us in that regard? 6 MR. ANGER: Yes, they are. 7 COMMISSIONER SCHENCK: Great! Thank 8 you. 9 MS. KIPLIN: That's Michael Anger, for 10 the record. 11 MR. ANGER: Thank you, Kim. 12 COMMISSIONER KRAUSE: I have been told 13 that the reason why we're exercising some of the 14 extensions on some of these things is because we don't 15 have the, I guess, capacity to put together new RFPs? 16 MR. FERNANDEZ: Well, Commissioner, I 17 would say that our contracts staff is devoting 18 100 percent effort right now to the current RFP that 19 we're in. 20 COMMISSIONER KRAUSE: Okay. Well, I'm 21 going to go ahead and go on the record with this, and 22 that is that I've been really somewhat underwhelmed 23 with, you know, some of the advertising services that 24 the Commission has been getting. And so, anyway, I 25 had been hoping, you know, in the last couple of 0125 1 months that we could take a look at that. But I'm 2 told that at least administratively, we don't have the 3 capacity to put together an RFP. So I want us to be 4 ready, starting now, to consider an RFP for the 5 advertising contract next year. 6 MR. FERNANDEZ: Yes, sir. 7 CHAIRMAN WILLIAMSON: All right. Thank 8 you, gentlemen. 9 MR. FERNANDEZ: Thank you. 10 MR. ANGER: Thank you. 11 AGENDA ITEM NO. XVI 12 CHAIRMAN WILLIAMSON: Next item, report, 13 discussion on the 81st Legislature. 14 Nelda, do you have anything to report? 15 MS. TREVINO: Commissioners, for the 16 record, I'm Nelda Trevino, the Director of 17 Governmental Affairs. And I have no updates to 18 provide today, but I'll be glad to try to answer any 19 questions that you might have. 20 COMMISSIONER SCHENCK: When does the 21 next legislature convene, Nelda? 22 MS. TREVINO: In January of 2011. 23 COMMISSIONER SCHENCK: And for how long 24 is that session, six months? 25 MS. TREVINO: 180 days. 0126 1 COMMISSIONER KRAUSE: Do we have some 2 things that we want to go to the Legislature for? 3 MS. TREVINO: Certainly our legislative 4 appropriations request that Kathy Pyka spoke to 5 earlier, that would be up into our agency's No. 1 6 priority. 7 COMMISSIONER KRAUSE: Okay. Anything 8 else that we're interested in? 9 (Laughter) 10 COMMISSIONER SCHENCK: There are a few 11 things. I wonder if we couldn't get the Lottery 12 Commission into a position where it was only allowed 13 to meet six months out of every two years. 14 COMMISSIONER KRAUSE: I like that. 15 MS. TREVINO: Actually, I think 16 statutorily -- Kim, correct me if I'm wrong -- but I 17 believe statutorily you're only required to meet -- 18 six times a year? 19 MS. KIPLIN: That's correct. 20 COMMISSIONER KRAUSE: Well, we're 21 working too hard. 22 MS. KIPLIN: The Commission decided to 23 meet monthly, generally. 24 CHAIRMAN WILLIAMSON: Remember, if we do 25 that, we will be here a long time. 0127 1 All right. Any other questions? 2 COMMISSIONER SCHENCK: Okay. 3 CHAIRMAN WILLIAMSON: All right. Thank 4 you, Nelda. 5 AGENDA ITEM NO. XVII 6 CHAIRMAN WILLIAMSON: Next item, No. 7 XVII, consideration of and report, possible discussion 8 of any external and internal audits or reviews. 9 Cat Melvin, I believe this is yours. 10 MS. MELVIN: Thank you, Chairman, 11 Commissioners. For the record, Catherine Melvin, 12 Director of the Internal Audit Division. 13 I also have no items of update this 14 month, but I'm happy to answer any questions. 15 CHAIRMAN WILLIAMSON: Commissioners, do 16 you have any questions? 17 COMMISSIONER SCHENCK: No. 18 CHAIRMAN WILLIAMSON: All right. Thank 19 you. 20 AGENDA ITEM NO. XVIII 21 CHAIRMAN WILLIAMSON: Item No. XVIII, 22 report, discussion and action on GTECH Corporation. 23 Director Grief, I believe this is yours. 24 MR. GRIEF: Thank you, Madam Chair. 25 Other than what is in your notebook this morning, I 0128 1 have nothing further to report on that matter. 2 CHAIRMAN WILLIAMSON: Any questions, 3 commissioners? 4 AGENDA ITEM NO. XIX 5 CHAIRMAN WILLIAMSON: All right. Then 6 proceed on to Item No. XIX, any report that you may 7 have as well. 8 MR. GRIEF: The same for that particular 9 item, madam Chair. Other than what's in your 10 notebook, I have nothing further to report this 11 morning. 12 CHAIRMAN WILLIAMSON: Commissioners, do 13 you have any questions? 14 AGENDA ITEM NO. XX 15 CHAIRMAN WILLIAMSON: All right. Item 16 XX, status, possible entry of orders and cases posted 17 on the agenda. 18 Kim, your item, please. 19 MS. KIPLIN: Commissioners, Letters A 20 through H are all lottery retail license revocations 21 due to insufficient funds being available at the time 22 the lottery swept the accounts for the monies owned, 23 convened at the Commission, hearing at the State 24 Office of Administrative Hearings. The Administrative 25 Law Judge in each one of those cases has recommended 0129 1 revocation. The staff recommends you adopt the order 2 revoking their licenses. 3 CHAIRMAN WILLIAMSON: And would you like 4 that motion -- I guess any questions? 5 COMMISSIONER SCHENCK: None of them have 6 showed up. Right? 7 MS. KIPLIN: Not that I'm aware of. 8 COMMISSIONER SCHENCK: Well, if they 9 don't contest it -- 10 MS. KIPLIN: I will say on one case, the 11 hearing convened, somebody showed up late and that 12 matter was concluded. They didn't put any evidence in 13 the record. They had sufficient opportunity. 14 COMMISSIONER SCHENCK: But they had the 15 opportunity. They have been noticed of this hearing 16 and they had the opportunity to -- 17 MS. KIPLIN: Absolutely. They had the 18 opportunity to appear and they did not. You know, if 19 you order and they want to challenge it, they 20 obviously can file a motion for rehearing and the 21 Commission can entertain listening to the motion for 22 rehearing. 23 COMMISSIONER SCHENCK: At a motion for 24 rehearing, we wouldn't hear any evidence, would we? 25 We wouldn't have witness, or could we? 0130 1 MS. KIPLIN: No. Really at that point 2 on the motion for rehearing -- 3 COMMISSIONER SCHENCK: Off the record. 4 MS. KIPLIN: -- it's the responsibility 5 of the movant -- you know, the respondent -- to show 6 where the order -- where there was error in the order, 7 and there has to be a degree of specificity there. 8 Now, if the Commission decided they 9 wanted to grant the motion for rehearing, then the 10 Commission could. One option would be to send it back 11 to the State Office of Administrative Hearings for 12 additional taking of evidence. 13 CHAIRMAN WILLIAMSON: All right. Is 14 this an action item? 15 MS. KIPLIN: Yes, it is. 16 COMMISSIONER SCHENCK: What were the 17 letters? 18 MS. KIPLIN: The letters were A through 19 H. 20 COMMISSIONER SCHENCK: May I make a 21 motion? 22 CHAIRMAN WILLIAMSON: Please. 23 COMMISSIONER SCHENCK: I move that we 24 adopt staff's recommendation and revoke the licenses 25 in the proceedings in our materials A through H. 0131 1 CHAIRMAN WILLIAMSON: Do I hear a 2 second? 3 COMMISSIONER KRAUSE: Second. 4 CHAIRMAN WILLIAMSON: All in favor? 5 COMMISSIONER SCHENCK: Aye. 6 CHAIRMAN WILLIAMSON: Aye. 7 COMMISSIONER KRAUSE: Aye. 8 CHAIRMAN WILLIAMSON: Motion passes 9 three/zip. 10 MS. KIPLIN: Commissioners, in Letter I, 11 that is a bingo worker matter. This was an applicant 12 who applied to be on the Registry of Bingo Workers. 13 He had disqualifying criminal convictions. And the 14 hearing convened. The Administrative Law Judge 15 recommended denial of that application. Staff 16 supports that and recommends that you approve that 17 order denying his application. 18 CHAIRMAN WILLIAMSON: Any discussion? 19 COMMISSIONER SCHENCK: I'm sorry, Kim. 20 The was someone with a criminal record? 21 MS. KIPLIN: Yes. In this case the 22 criminal record -- I believe it was aggravated assault 23 with a deadly weapon. 24 COMMISSIONER SCHENCK: And he forgot? 25 MS. KIPLIN: I'm not sure what his issue 0132 1 was. 2 COMMISSIONER SCHENCK: That would be 3 another example -- remember, I've brought this up a 4 few times, of these people keep applying with these 5 criminal convictions and forgetting. We spend time 6 and money and resources chasing them down. There 7 should be some sort of a -- 8 COMMISSIONER KRAUSE: A penalty. 9 COMMISSIONER SCHENCK: -- a fine, 10 something to collect with us. 11 COMMISSIONER KRAUSE: Well, and if they 12 get turned down for a job, they get to -- what? -- 13 complain about it and then we have to go to court to 14 say "No." Is that what's going on? 15 MS. KIPLIN: This is being placed on the 16 Registry of Bingo Workers. 17 COMMISSIONER SCHENCK: Or that they can 18 be workers. 19 MS. KIPLIN: The conductors would know 20 this person at least doesn't have a disqualifying 21 criminal conviction or another ineligibility. In this 22 situation, he was found guilty of theft, a third 23 degree felony, and aggravated assault with a deadly 24 weapon. And it's eight years in the Department of 25 Criminal Justice Institutional Division. 0133 1 COMMISSIONER SCHENCK: Well done if we 2 found it out before we put him around the bingo 3 players. But again, every meeting we have at least 4 one of these people. And I assume they're getting 5 hired by the conductor or the lessor/conductor, and 6 then the background check is being -- 7 MS. KIPLIN: This is an application, and 8 this person's application is being denied and is 9 not -- 10 COMMISSIONER SCHENCK: I know. But as a 11 practical matter, I have never met anyone who just 12 applied to be a bingo work for fun. They're always 13 doing it in connection with some ongoing job 14 application with a licensed entity, are they not, 15 Phil? 16 MR. SANDERSON: Well, there is -- House 17 Bill 1474 now allows for an individual to be hired and 18 work at a bingo hall while we're processing his 19 background. 20 COMMISSIONER SCHENCK: Great! 21 MR. SANDERSON: So they can go in and 22 start to work. They send in the application, and 23 there's 14 days that he can work until we get back 24 with him. 25 COMMISSIONER SCHENCK: I think the bingo 0134 1 hall is on the hook for that person, and they ought to 2 pay if they're making us go chase them. Who knows 3 what they're doing to the bingo players in the 4 interim? I don't like it. 5 COMMISSIONER KRAUSE: Well, it's their 6 employee. I agree. I mean, they need to have some 7 responsibility for hiring clean people. 8 COMMISSIONER SCHENCK: Particularly 9 taking other people's money. 10 So, Kim, Nelda, there you go on your 11 list for the next session. Or maybe this is something 12 we'll have to keep an eye on. 13 But I move that we adopt the staff's 14 recommendation, that this fellow not be placed on the 15 Bingo Worker Registry. 16 COMMISSIONER KRAUSE: Second. 17 CHAIRMAN WILLIAMSON: All in favor? 18 COMMISSIONER SCHENCK: Aye. 19 CHAIRMAN WILLIAMSON: Aye. 20 COMMISSIONER KRAUSE: Aye. 21 CHAIRMAN WILLIAMSON: All right. 22 MS. KIPLIN: And then, Commissioners, 23 your last matter, Letter J, that is a lottery retail 24 case. It's in the form of a consent order. It had to 25 do with pin-pricking of instant lottery scratch-off 0135 1 tickets by one or more employes at Harvey's Exxon. It 2 was a complaint that was received by this agency, 3 assigned to an investigator, investigation crew that 4 established that there were tickets that were pin- 5 holing, and it was brought to the attention of the 6 owner. 7 As I understand it, it was complete 8 cooperation in terms of the investigation. And then 9 there was an undercover follow-up investigation that 10 indicated no further instance of pin-holing at that 11 time. 12 The standard penalty for those kind of 13 elements, cooperation and so forth, is a 30-day 14 suspension, and that's what staff is recommending in 15 this matter. 16 CHAIRMAN WILLIAMSON: Do I hear a 17 motion? 18 COMMISSIONER SCHENCK: If I might ask a 19 question? I'm sorry. 20 CHAIRMAN WILLIAMSON: Oh, I'm sorry. Go 21 ahead. Yes. 22 COMMISSIONER SCHENCK: Kim, where was 23 this Exxon station? Do you know where it is 24 physically? I don't see that in the -- 25 CHAIRMAN WILLIAMSON: But I think 0136 1 Michael can answer that. 2 COMMISSIONER SCHENCK: Michael, do you 3 know where this was? And you know what question I'm 4 going to ask after that, so you can answer that one, 5 too. 6 MR. ANGER: I'm pulling my file now as 7 to the actual physical location. It is in Kemp, 8 Texas. 9 COMMISSIONER SCHENCK: Where? 10 MR. ANGER: Kemp, Texas. 11 COMMISSIONER SCHENCK: Kemp. I think 12 that's Kaufman County. 13 MR. ANGER: Yes. I hesitate. I'm not 14 certain. 15 COMMISSIONER SCHENCK: Have we referred 16 this gentleman or these people, I should say, to the 17 prosecuting authorities for trying to cheat our 18 players, so they can go to jail? 19 MR. ANGER: In most of these 20 circumstances, that's exactly what happens. 21 Unfortunately in this case, what we had was, we had an 22 anonymous complaint made to the agency, so we sent an 23 investigator out to the location. They examined the 24 inventory at the location. They also identified 25 tickets in the retailer's inventory that gave 0137 1 indications of pin-pricking and micro-scratching 2 efforts to compromise the tickets. 3 The retailer had video there. The owner 4 of the business isn't active in the day-to-day 5 operation of the business. The investigator worked 6 with them to have a review conducted of the video 7 tape, and they were not able to determine the 8 individual who actually was involved in this activity, 9 but they did fully cooperate with our investigation. 10 They, you know, conducted internal 11 efforts to try to ensure that such types of activities 12 don't occur in the future. I can't tell you 13 specifically what those are, but assumedly in keeping 14 a closer eye on monitoring their employees and making 15 commitments to us in monitoring their inventory more 16 closely. 17 We did subsequently go back out to this 18 location in an undercover capacity and then examine 19 tickets there at the location and did not find any 20 further evidence of such activity. And again, the 21 retailer has been cooperative and seems to be 22 interested in addressing this issue with us. 23 COMMISSIONER SCHENCK: Well, it seems 24 like we did the best we could under the circumstances 25 to identify the individuals responsible for this. 0138 1 I would suggest, if we're not already 2 doing this, when we find these circumstances, we pull 3 the inventory that's potentially subject to this and 4 inform the local law enforcement at the same time, to 5 decide whether or not they want to conduct a forward- 6 looking sting to see if the next batch of tickets is 7 scratched or pin-pricked or put their own video in 8 place so that they have that opportunity as well as 9 us. But under the circumstances, it seems like we did 10 everything right here. 11 MR. ANGER: I'll coordinate with Jim 12 Carney on that and we'll ensure that they conduct that 13 outreach. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 COMMISSIONER SCHENCK: I'm going to move 17 that we adopt the staff's recommendation and suspend 18 this license for 30 days. 19 CHAIRMAN WILLIAMSON: Is there a second? 20 COMMISSIONER KRAUSE: Second. 21 CHAIRMAN WILLIAMSON: All in favor? 22 COMMISSIONER SCHENCK: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Three-0. 0139 1 MS. KIPLIN: Commissioners, I have those 2 orders. 3 CHAIRMAN WILLIAMSON: All right. 4 AGENDA ITEM NO. XXI 5 CHAIRMAN WILLIAMSON: And then we'll go 6 on the XXI, which is public comment, and which we have 7 none. 8 AGENDA ITEM NO. XXII 9 CHAIRMAN WILLIAMSON: So at this time I 10 move the Texas Lottery Commission go into executive 11 session to deliberate the duties and evaluation of the 12 Executive Director, Internal Audit Director and 13 Charitable Bingo and deliberate duties of the General 14 Counsel and Human Resources Director and to receive 15 any legal advice regarding pending or contemplated 16 litigation. 17 Is there a second? 18 COMMISSIONER SCHENCK: I second the 19 motion. 20 CHAIRMAN WILLIAMSON: All in favor? 21 COMMISSIONER SCHENCK: Aye. 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Aye. The vote is 24 3-0. We will go into executive session. The time is 25 11:40. Today is April the 8th. 0140 1 (Executive session: 11:40 a.m. to 2 12:55 p.m.) 3 AGENDA ITEM NO. XXIII 4 CHAIRMAN WILLIAMSON: We are out of 5 executive session. The time is 12:55 p.m. 6 And there are two actions as a result of 7 the executive session. The first one is, I make a 8 motion to approve the evaluation of the Charitable 9 Bingo Operations Director. Is there a second? 10 COMMISSIONER SCHENCK: I second the 11 motion. 12 CHAIRMAN WILLIAMSON: All in favor? 13 COMMISSIONER SCHENCK: Aye. 14 CHAIRMAN WILLIAMSON: Aye. 15 COMMISSIONER KRAUSE: Aye. 16 CHAIRMAN WILLIAMSON: The vote is three 17 to zero. 18 And then the next motion? 19 COMMISSIONER SCHENCK: I have a motion. 20 I move that we adjust the salary of our Bingo Division 21 Director, Phil Sanderson, by increasing it in the 22 amount of four percent. 23 CHAIRMAN WILLIAMSON: Is there a second? 24 COMMISSIONER KRAUSE: Second. 25 CHAIRMAN WILLIAMSON: All in favor? 0141 1 COMMISSIONER SCHENCK: Aye. 2 CHAIRMAN WILLIAMSON: Aye. 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: Motion passes. 5 And are there any other actions? And the answer is 6 "No." 7 AGENDA ITEM NO. XXIV 8 CHAIRMAN WILLIAMSON: So at this time, 9 is there a motion to adjourn? 10 COMMISSIONER SCHENCK: I move that we 11 adjourn. 12 CHAIRMAN WILLIAMSON: Is there a second? 13 COMMISSIONER KRAUSE: Of course. 14 (Laughter) 15 CHAIRMAN WILLIAMSON: All in favor? 16 COMMISSIONER SCHENCK: Aye. 17 CHAIRMAN WILLIAMSON: Aye. 18 COMMISSIONER KRAUSE: Aye. 19 CHAIRMAN WILLIAMSON: Motion passes. 20 (Meeting adjourned: 12:55 p.m.) 21 22 23 24 25 0142 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Aloma J. Kennedy, a Certified 5 Shorthand Reporter in and for the State of Texas, do 6 hereby certify that the above-mentioned matter 7 occurred as hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings 9 of such were reported by me or under my supervision, 10 later reduced to typewritten form under my supervision 11 and control and that the foregoing pages are a full, 12 true and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set 14 my hand and seal this 19th day of April 2010. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/10 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 Cambridge Tower 1801 Lavaca Street, Suite 115 22 Austin, Texas 78701 512.474.2233 23 24 25