1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 REGULAR MEETING OF THE § 8 TEXAS LOTTERY COMMISSION § THURSDAY, FEBRUARY 17, 201l § 9 10 11 12 COMMISSION MEETING 13 THURSDAY, FEBRUARY 17, 2011 14 15 16 17 BE IT REMEMBERED THAT on Thursday, the 17th 18 day of February 2011, the Texas Lottery Commission 19 meeting was held from 9:10 a.m. until 10:30 a.m., at the 20 Offices of the Texas Lottery Commission, 611 East 6th 21 Street, Austin, Texas 78701, before CHAIRMAN MARY ANN 22 WILLIAMSON and COMMISSIONER J. WINSTON KRAUSE. The 23 following proceedings were reported via machine 24 shorthand by Aloma J. Kennedy, a Certified Shorthand 25 Reporter of the State of Texas. 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONER: Mr. J. Winston Krause 5 GENERAL COUNSEL: 6 Ms. Kimberly L. Kiplin 7 EXECUTIVE DIRECTOR: Mr. Gary Grief 8 DIRECTOR, CHARITABLE BINGO OPERATIONS: 9 Mr. Philip D. Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - THURSDAY, FEBRUARY 17, 2011,.......... 6 4 AGENDA ITEM NO. I - Meeting Called to Order......... 6 5 AGENDA ITEM NO. II - Report by the Charitable Bingo Operations Director and possible 6 discussion and/or action on the Charitable Bingo Operations Division’s activities, 7 including updates on staffing, licensing, accounting and audit activities, pull-tab 8 review, special projects, and upcoming operator training................................... 14 9 AGENDA ITEM NO. III - Report, possible 10 discussion and/or action on lottery sales and revenue, game performance, new game 11 opportunities, advertising, market research, trends, and game contracts, agreements, and 12 procedures.......................................... 15 13 AGENDA ITEM NO. IV - Report, possible discussion and/or action on transfers 14 to the State........................................ 22 15 AGENDA ITEM NO. V - Report, possible discussion and/or action on the 82nd 16 Legislature.......................................... 24 17 AGENDA ITEM NO. VI - Report, possible discussion and/or action on amendments 18 to the 2001 lottery operations and service contract and amendments to the drawings 19 audit services contract and/or procurement........... 26 20 AGENDA ITEM NO. VII - Consideration of and possible discussion and/or action on external 21 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or on the 22 Internal Audit Department’s activities............... 30 23 AGENDA ITEM NO. VIII - Report, possible discussion and/or action on GTECH Corporation........ 6 24 25 4 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. IX - Report by the Executive Director and/or possible discussion and/or 4 action on the agency’s operational status, agency procedures, and FTE status.................... 31 5 AGENDA ITEM NO. X - Consideration of the 6 status and possible entry of orders in: A. Docket No. 362-11-1384 – Scalco’s 7 Supermarket B. Docket No. 362-11-1385 – Texas Grocery 8 C. Docket No. 362-11-1386 – Tyler Truck Stop D. Docket No. 362-11-1396 – Family Food Store 9 E. Docket No. 362-11-0988 – Beta C Store F. Docket No. 362-11-0989 – Las Comidas Meat 10 Market G. Docket No. 362-11-0990 – A&D Food Market 11 H. Docket No. 362-11-0992 – Lucky Truck Stop I. Docket No. 362-11-0991 – El Compa 12 J. Docket No. 362-11-1192 – Cox’s Foodarama Inc. #7 13 K. Docket No. 362-10-4779.B – Blair Hibbert L. Case No. 2009-929 – Longhorn Bingo Corral, 14 Inc........................................... 32 15 AGENDA ITEM NO. XI - Public comment.................. 32 16 AGENDA ITEM NO. XII - Commission may meet in Executive Session: 17 A. To deliberate the duties and evaluation of the Executive Director pursuant to Section 18 551.074 of the Texas Government Code. B. To deliberate the duties and evaluation of 19 the Internal Audit Director pursuant to Section 551.074 of the Texas Government Code. 20 C. To deliberate the duties and evaluation of the Charitable Bingo Operations Director 21 pursuant to Section 551.074 of the Texas Government Code. 22 D. To deliberate the duties of the General Counsel pursuant to Section 551.074 of the 23 Texas Government Code. E. To deliberate the duties of the Human 24 Resources Director pursuant to Section 551.074 of the Texas Government Code. 25 5 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XII (continued) 4 F. To receive legal advice regarding pending or contemplated litigation pursuant to 5 Section 551.071(1)(A) and/or to receive legal advice regarding settlement offers 6 pursuant to Section 551.071(1)(B) of the Texas Government Code and/or to receive 7 legal advice pursuant to Section 551.071(2) of the Texas Government Code, including but 8 not limited to: Texas Lottery Commission v. Leslie 9 Warren, Texas Attorney General Child Support Division, Singer Asset Finance 10 Company L.L.C., and Great-West Life & Annuity Insurance Company 11 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery 12 Commission et al. John Doe v. Texas Lottery Commission 13 and Greg Abbott, Texas Attorney General 14 Employment law, personnel law, procurement and contract law, 15 evidentiary and procedural law, and general government law.................. 41 16 AGENDA ITEM NO. XIII - Return to open session 17 for further deliberation and possible action on any matter discussed in Executive Session........ 42 18 AGENDA ITEM NO. XIV - Adjournment................... 42 19 REPORTER'S CERTIFICATE.............................. 43 20 21 22 23 24 25 6 1 P R O C E E D I N G S 2 THURSDAY, FEBRUARY 17, 2011 3 (9:10 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting of the Texas Lottery 7 Commission to order. Today is February 17, 2011. The 8 time is 9:10. Commissioner Krause is present. We have 9 a quorum. 10 AGENDA ITEM NO. VIII 11 CHAIRMAN WILLIAMSON: We are going to 12 started with Item VIII, and this is the report, 13 discussion and/or action on GTECH Corporation. And we 14 have GTECH with us today that wanted to make some 15 comments. 16 So, Gary, if you'll start, please. 17 MR. GRIEF: Thank you, Madam Chair. 18 We have with us today Mr. Jaymin Patel 19 from GTECH, CEO, and I believe Jaymin would like to make 20 some comments to the Commission. 21 MR. PATEL: Thank you, Gary. 22 Good morning, Madam Chairman, Commissioner 23 Krause. Thank you for allowing me to speak this 24 morning. For the record, my name is Jaymin Patel. I am 25 the President and CEO of GTECH Corporation, and it's my 7 1 pleasure to be here today. 2 With your permission, I would like to 3 update the Commission on four subjects and, of course, 4 answer your questions. The subjects, I would like to 5 update you first of all on the performance of GTECH and 6 Lottomatica, our parent company, for 2010, to give you a 7 perspective of how the year went for us. I would like 8 to briefly address a reorganization that I have just 9 gone through at GTECH and appointed some new duties to 10 certain individuals that will affect our Texas business, 11 all in a positive way, then spend some time talking 12 about the new lottery operator contract just awarded to 13 GTECH, and then finally update you on a report on how 14 the project is going for the conversion in Texas here. 15 So if that meets with your approval, then I'll just 16 proceed along those four subjects. 17 First of all, the performance of our 18 business, both for GTECH and Lottomatica, in 2010 was 19 very good. In the last few days, we pre-announced our 20 result to the public markets, and we reported that both 21 from a revenue and operating profit point of view, we 22 met our expectations. We are in the process of speaking 23 to investors about some new ideas and growth ideas, and 24 so it was important for us to pre-announce earnings. 25 And so I thought it was important to advise you that 8 1 from a business point of view, things are going very 2 well for us. 3 Despite the tough market conditions that 4 we find ourselves in, our businesses around the world 5 are performing well. GTECH in and of itself met 6 expectations, despite what I think was quite a tough 7 year for same-store sales growth for North American 8 lotteries, we still were able to meet our plans for 9 2010, both for a revenue and profit standpoint. 10 In addition to that, most recently both 11 Moody's and Standard & Poor's rating agencies reaffirmed 12 our investment grade credit rating for Lottomatica. Our 13 board has determined that it's a very important 14 objective for the group to remain an investment grade 15 company so that we can operate with sufficient financial 16 flexibility and assure our customers that we always have 17 enough financing to be able to invest capital and to 18 make sure that our customers feel comfortable with the 19 financial strength of our business. I'm very pleased to 20 report that most recently the rating agencies have 21 reapproved our investment grade rating. 22 For 2011, I think we have a good plan. 23 One of our top priorities, of course, in North America 24 is that we have a smooth conversion in Texas. This 25 remains a top priority for me personally and for my 9 1 staff and is a top priority for the group. We also have 2 a priority of helping the Executive Director and his 3 team in helping to grow same-store sales, so that 4 remains a very important priority for 2011. I think we 5 have a good plan. And based upon the performance in 6 2010, I feel very comfortable that the business is in a 7 solid position. 8 Moving on to the reorganization of duties 9 at GTECH, in the last several weeks, you may have seen a 10 press announcement that came out just a few days ago. I 11 have taken some steps to strengthen the management team 12 around the globe, because our business is now moving in 13 a new direction in the next three years versus the last 14 three years. We have gone through a period of 15 substantial re-bid activity including, of course, the 16 Texas contract. As a group, we have renewed over 90 17 percent of our business in the last several years, such 18 that as we look forward, we have great visibility as to 19 our contract portfolio over the next seven to eight 20 years. 21 So the objective going forward is to make 22 sure that we help our customers grow sales and we 23 deliver services and roll out projects as we have 24 committed to. So in line with that, the process that 25 I'm going through is to align senior executive 10 1 management to selected geographies to make them more 2 responsible and accountable to manage fewer but larger 3 sized geographies. So in that regard, Alan Eland, who 4 was previously the Senior Vice President for the 5 Americas, has been promoted to the Senior Vice President 6 and Chief Operating Officer for our North American 7 business. So he will now be responsible for all of our 8 businesses in North America, including our printing 9 division. So in that regard, Alan will spend more time 10 working on very large customers, Texas being the top of 11 the list, and will be much more involved in sales and 12 operations in North America and throughout our groups. 13 I'm very pleased about that. Alan is a very well-known 14 entity, I believe, in Texas, and somebody who has worked 15 with you for many years, so I hope that that promotion 16 and his duties meet with your approval. 17 Also, as you know, Joe Lapinski has taken 18 over as the General Manager for operations in Texas. 19 Ramon Rivera, despite trying to keep him on board, is 20 supposed to retire, so he is now -- he's working with us 21 as a consultant for a while and is very much involved, 22 but Joe has taken over as the official General Manager 23 of our operations here. 24 With respect to the new contract, first of 25 all, I would like to thank the Commission for the 11 1 confidence you've expressed in selecting GTECH as your 2 lottery vendor. We very much appreciate that. I want 3 to give you my absolute assurance that you have the full 4 commitment of myself, GTECH and Lottomatica and our 5 board in fulfilling our obligations and commitments to 6 the State of Texas. We don't take these commitments 7 lightly at all. And your business we don't take for 8 granted; we take it very, very seriously. 9 I receive reports from Alan and Joe on a 10 regular basis as to what's happening in Texas, to make 11 sure that things are moving along and the investments 12 that we're making in the state are ones that we should 13 be making, and we're fulfilling our commitments. We 14 want to continue to earn your trust and respect every 15 day and we don't want to take your business at all for 16 granted. 17 I also, if I may, want to take the liberty 18 of complimenting the Executive Director and his team and 19 his staff on running such a world class rigorous 20 procurement process. And I have worked with many RFPs 21 over the years, and I would say that the RFP that we saw 22 in Texas was the best that I've ever seen in terms of 23 the detailed requirements, the expectations that were 24 set in the RFP and the scoring mechanisms that required 25 us to be very precise in the way that we responded to 12 1 requirements. So it was an excellent document, a very, 2 very well thought-out process, and the process I believe 3 was very well run. 4 And I must say also that in responding to 5 the RFP, it stretched GTECH and it made us a better 6 company. So I believe that from a competitive 7 standpoint, it was a good document in stretching 8 competition to make sure that you had the best 9 requirements and best expectations of vendors. But 10 again, we want to thank you for your confidence and you 11 have my word that we will deliver upon all of our 12 expectations. 13 Finally, talking about the project, Joe 14 works with Executive Director Gary Grief and his staff 15 on a daily basis, reporting on the project, and I check 16 in with Alan, you know, on a regular basis. I think 17 things are going very well from what I can see. In 18 terms of the three main streams, the system conversion 19 is on track for August of this year, in accordance with 20 the requirements. The communications network conversion 21 began in January, and that is proceeding well. There 22 are no hiccups to report. Everything is moving along. 23 And then we expect to start rolling out terminals next 24 week -- actually, on the 28th of February -- so that 25 will take several months to roll out. 13 1 Of course, there are day-to-day issues 2 that arise in the project, which are dealt with at the 3 working level. But in terms of the overall scope of the 4 project moving along for August conversion, I'm very 5 comfortable that we're on track. 6 So those are my remarks this morning. I 7 would be happy to take your questions at this point. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioner, do you have any questions? 10 COMMISSIONER KRAUSE: I don't really have 11 any questions. But, you know, I agree with you, that 12 the RFP process with, you know, I guess as sophisticated 13 as it ended up being, you know, produced a great result 14 for us. And, you know, I think that in the end, because 15 of its focus on, you know, productivity, that it's going 16 to make it better for GTECH as well as for the 17 Commission, and that the specificity and objectivity 18 with the scoring is one of the things that I attribute 19 to the fact that no protest, no protest, along with 20 GTECH's response, which appeared to be head and 21 shoulders -- there is a significant amount of separation 22 in my view between GTECH's proposal and the next best. 23 MR. PATEL: Thank you, sir. 24 CHAIRMAN WILLIAMSON: All I can say is 25 thank you for your help. And, as you know, we'll call 14 1 on you constantly. 2 MR. PATEL: We expect that. 3 CHAIRMAN WILLIAMSON: So, anyway, thank 4 you for coming down. 5 MR. PATEL: Thank you very much for your 6 time. Thank you. 7 AGENDA ITEM NO. II 8 CHAIRMAN WILLIAMSON: All right. Let's go 9 back, then, to Item No. II, report by the charitable 10 Bingo Operations Director and possible discussion and/or 11 action on their activities, including updates on 12 staffing, licensing, accounting and audit activities, 13 pull-tab review, special project, operator operating. 14 Phil. 15 MR. SANDERSON: Good morning, Chairman and 16 Commissioner. In your notebook is the report of the 17 January activities from the Bingo Operations Division. 18 I would like to point out two items. One is, in the 19 middle of January, we went live with an email 20 subscription service for individuals to subscribe to 21 getting email notifications of activities with the 22 Commission as it relates to either Commission meeting 23 posting notices, BAC notices, rulemaking, the Bingo 24 Bulletin being issued and other items. And to date we 25 have 70 individuals that have signed up for that. 15 1 Hopefully we'll get more. 2 And then also another item is, the BAC 3 meeting is tentatively scheduled for March the 9th. And 4 also the call for nominations to fill the expiring terms 5 of three members will go out March 1st and run through 6 April 30th. 7 That's all I have. 8 CHAIRMAN WILLIAMSON: Phil, on the email 9 sign-up, is that for anybody in the public or is that 10 just specifically for the industry? 11 MR. SANDERSON: Anybody in the public can 12 sign up for that. There is a link our home page on the 13 www.tx.bingo.org that they can register and select which 14 topis they're interested in getting notices on. 15 CHAIRMAN WILLIAMSON: Thank you. 16 Commissioner, do you have any questions? 17 COMMISSIONER KRAUSE: No, ma'am. 18 CHAIRMAN WILLIAMSON: All right. Thank 19 you. 20 AGENDA ITEM NO. III 21 CHAIRMAN WILLIAMSON: Let's go on to the 22 next item, report, possible discussion and/or action on 23 lottery sales and revenue, game performance, new game 24 opportunities, advertising, market research, trends and 25 game contracts, agreements and procedures. Kathy and 16 1 Robert, please. 2 MS. PYKA: Good morning, Commissioners. 3 My name is Kathy Pyka. I'm the Controller for the 4 Commission. And with me to my right is Robert Tirloni, 5 our Products Manager. 6 Commissioners, the first chart that we 7 have for you this morning reflects our comparative sales 8 data through the week ending February 12, 2011. Total 9 Fiscal Year 2011 sales through this 24-week period are 10 $1.695 billion, which is an increase of $849,000 11 compared to the $1.694 billion figure for the same 12 period in Fiscal Year 2010. 13 Our Fiscal Year 2011 instant ticket sales 14 are at $1.261 billion, which is a one and a half million 15 dollar increase over the $1.259 billion for the same 16 period last fiscal year, and then our on-line sales 17 reflected on the second red bar, at $433.6 million, 18 which is a $620,000 decline from the same period last 19 fiscal year. 20 Commissioners, the next slide that we have 21 for you reflects our cumulative average daily sales for 22 Fiscal Years 2009, 2010 and 2011. As reflected by the 23 total cumulative sales, our daily sales average for 24 Fiscal Year 2011 is $10.3 million, which is a 25 3.7 percent decrease from Fiscal Year 2010 sales and a 17 1 3.7 percent increase over Fiscal Year 2009 sales. 2 Now, moving up to the jackpot games, which 3 are highlighted in the white font, at this point in time 4 in Fiscal Year 2011, we're at $1.5 million, which is 5 $332,000 below the same period last fiscal year and is 6 $306,000 over the same period in Fiscal Year 2009. 7 I wanted to note, of course, much of the 8 sales increase is attributed to the Lotto Texas 9 variance. We see $736,000 last fiscal year at this 10 point. We had in Fiscal Year 2010 a $76,000 jackpot 11 roll, we were at a $45 million jackpot at this point in 12 time. 13 Moving down to the green font, which is 14 our daily game subtotal, we're at $1.1 million as our 15 daily average. Again, it's just above our Fiscal Year 16 2010 sales figure and just below our Fiscal Year 2009 17 sales figure. 18 I wanted to highlight within this grouping 19 our Pick 3 sales which are trending up. We're now at 20 $747,000, which is 1.7 percent over our prior fiscal 21 year. And then I would also like to highlight the sales 22 for our Daily 4 game, at $154,000, which are up almost 23 9 percent over last fiscal year. 24 Next on the item of listing games is the 25 instant ticket game at $7.6 million down at the bottom 18 1 of the chart, which does surpass our prior two fiscal 2 years. I'm including a $55,000 increase over Fiscal 3 Year 2010. 4 So with that, Robert will now move on to 5 actual sales by game. 6 MR. TIRLONI: Good morning, Commissioners. 7 For the record, I'm Robert Tirloni, Products Manager for 8 the Commission. 9 So this slide is a comparison of the 10 current fiscal year compared to the previous, and it's 11 through the week ending Saturday, February 12th. Same 12 layout as the previous slide, up at the top we have the 13 jackpot games. As a whole, that category is down 14 $2.3 million. As Kathy just mentioned, it's mainly a 15 result of the Lotto jackpots in Fiscal 2010 that we have 16 not experienced this current fiscal year. 17 The middle of the table in green are the 18 daily games. That category is up $1.6 million this 19 fiscal year. And our instant games are also up for the 20 fiscal year by $1.5 million. We were seeing some really 21 good, strong instant sales trends. The severe weather 22 the week ending February 5th really hurt us. I believe 23 that that gain would be much larger than $1.5 million. 24 But we've already started to rebound from that, so I 25 believe that we'll see that gain continue to increase. 19 1 Total sales are up just under one million dollars for 2 the fiscal year. 3 We show you this pie chart about once 4 every quarter. This shows our instant sales broken 5 down -- or broken out by price point. So this is 6 through the week ending, again, February 12th. This 7 represents just under $1.3 billion in instant game 8 sales. The five dollar price point is our best-selling 9 price point. The two is our second best-selling price 10 point. But you'll notice the two and the ten are very 11 close, a very minor difference between those two. 12 At the end of Fiscal 2010, the ten dollar 13 price point was our second best-selling price point. 14 And with the very positive sales we're seeing from our 15 Texas Lottery Black game -- that was the game I have you 16 a sample of last month -- I believe that ten dollar 17 price point will probably pull ahead and once again 18 become probably the second best-selling instant price 19 point for us. 20 A little information on Texas Lottery 21 Black. It has been our No. 1 best-selling game every 22 week since the week ending January 22nd. So roughly 23 about four or five weeks now it's been the best-selling 24 game. And when looking at our ten dollar games, after 25 four weeks, the first four weeks, Texas Lottery Black is 20 1 the third best-selling ten dollar game that we have ever 2 introduced. So we're very pleased, obviously, with 3 those results. 4 We are almost out of warehouse inventory, 5 so we have scurried and worked with Scientific Games to 6 get a second version of that game reprinted. So Texas 7 Lottery Black Series 2 will be arriving in about the 8 next two weeks. So we've worked hard to get that game 9 here, and we're working with GTECH on when we're going 10 to distribute that game and get it out into the 11 marketplace so we can keep those positive sales trends 12 going with that game and at that price point. 13 The last thing I have for you today is, 14 you have samples of our new $20 game that's going to be 15 our new spotlight game. It's $500 Million Frenzy. It's 16 a scenes game, or it's color-pulsed, I should say. And 17 so I've given you both versions of that, of the tickets 18 in that game. That game starts on Monday, March 7th, 19 and there will be full advertising support for that 20 game. The TV shoot is occurring right now, as we speak, 21 up in Dallas, and so we're looking forward to a 22 successful launch for that game. 23 And that's all we have, but we're happy to 24 answer questions if you have them. 25 CHAIRMAN WILLIAMSON: Thank you. 21 1 Commissioner, do you have any questions? 2 COMMISSIONER KRAUSE: Well, our new game 3 with the black tickets -- 4 MR. TIRLONI: Yes, sir. 5 COMMISSIONER KRAUSE: -- is there anything 6 in particular you can put your finger on that makes that 7 so successful so we can replicate that? 8 MR. TIRLONI: I just think it's unique 9 looking and very different looking from all of the other 10 games, so I think it stands out. 11 COMMISSIONER KRAUSE: Ticket appearance? 12 MR. TIRLONI: Yes. I really do believe 13 that that's -- you know, that's what is interesting 14 about that and different about it. It's kind of chic 15 looking. And, you know, our tag line is, it's the look 16 of luxury, and we've got some billboards to support 17 that. So I really do, I think it's the appearance of 18 the ticket, very unique. 19 COMMISSIONER KRAUSE: How about our target 20 audience? 21 MR. TIRLONI: Well, you know, we're 22 putting an ad in Texas Monthly for that game. 23 COMMISSIONER KRAUSE: So they hadn't run 24 yet? 25 MR. TIRLONI: I don't know the exact run 22 1 date. And I'm thinking it's probably going to be in 2 March Texas Monthly. That's the first of this month. 3 COMMISSIONER KRAUSE: That doesn't have an 4 effect on it, then, because it hasn't happened yet? 5 MR. TIRLONI: That hasn't run yet, no. 6 CHAIRMAN WILLIAMSON: All right. Good. 7 Thank you both. 8 MS. PYKA: Thank you. 9 MR. TIRLONI: Thank you. 10 AGENDA ITEM NO. IV 11 CHAIRMAN WILLIAMSON: All right. Kathy, 12 the next item is yours, the transfers to the State. 13 MS. PYKA: Thank you. Again for the 14 record, Kathy Pyka, Controller for the Commission. 15 Commissioners, the first report in your 16 notebook includes our transfers to the Foundation School 17 Fund, the Texas Veterans Commission and the allocation 18 of unclaimed prizes for the period ending December 31, 19 2010. 20 Total cash transfers to the State through 21 this period amounted to $309 million. The second page 22 in your notebook includes the detail on that 23 $309.3 million figure. 24 $291.9 million was the amount transferred 25 to the Foundation School Fund. $2.3 million was 23 1 transferred to Texas Veterans Commission, with a balance 2 of $15.1 million transferred from unclaimed lottery 3 prizes. 4 Commissioner, this represents an 8.91 5 percent decrease, or $28.6 million under the amount 6 transferred to the Foundation School Fund for the same 7 period last fiscal year. 8 And I did want to give you an update. We 9 did wrap up the January transfer and made that transfer 10 last week. Our transfer was $76 million to the 11 Foundation School Fund, which gave us a cumulative 12 $368 million transferred to the Foundation School Fund 13 through January 31. And that now leaves us with 14 cumulative total transfers to the Foundation School Fund 15 of over $13 billion. We're at $13,420,000,000. 16 Let me restate that. 13 million -- 17 42 million. I'm adding the zero in the wrong place. I 18 apologize. 19 I would be happy to answer any questions 20 that you might have. 21 CHAIRMAN WILLIAMSON: Thank you. 22 Commissioner, do you have any questions? 23 COMMISSIONER KRAUSE: No, ma'am. 24 CHAIRMAN WILLIAMSON: All right. Thank 25 you. 24 1 AGENDA ITEM NO. V 2 CHAIRMAN WILLIAMSON: Let's on go to the 3 next item, report, possible discussion or action on -- 4 I'm sorry. That's the wrong item. 5 Report, possible discussion and/or action 6 on the 82nd Legislature. 7 Nelda. 8 MS. TREVINO: Good morning, Commissioners. 9 For the record, I'm Nelda Trevino, the Director of 10 Governmental Affairs. 11 We have provided you this morning with a 12 copy of an updated legislative bill-tracking report. 13 And for your information, there have been almost 2,300 14 bills filed this session so far, and we are currently 15 tracking 81 of those bills. 16 Since last month's Commission meeting, 17 there has been one additional bill that has been filed 18 that specifically related to the agency, and this is 19 Senate Bill 626 by Senator John Carona which relates to 20 the assignment of lottery prizes and the deduction of 21 child support delinquency amounts. 22 For some background and in an attempt to 23 speak in more detail to this, the agency currently has 24 162 prize winners who have assigned their installment 25 payments, some of them multiple times. The agency, the 25 1 Office of the Attorney General and the assignees have 2 been burdened with litigation over current provisions 3 governing prize assignments. 4 The Lottery Commission and the Attorney 5 General's office were recently involved in ten cases at 6 the District Court level, while two other cases dealing 7 with assignments were recently before the Texas Supreme 8 Court and the Third Court of Appeals here in Austin. 9 The intent of this legislative is to provide some 10 clarity to all parties and avoid costly and burdensome 11 litigation. 12 The next update I would like to provide 13 you relates to the Legislature's consideration of the 14 agency's appropriations for the next biennium. As you 15 are aware, the agency made its appearance before the 16 House Appropriations Subcommittee this past Monday to 17 provide testimony regarding the budget recommendations 18 for the upcoming biennium. The subcommittee will make 19 its recommendations to the full House Appropriations 20 Committee next Tuesday, so it's anticipated that we will 21 be before the full committee next Tuesday. 22 The agency is also scheduled to make an 23 appearance before the Senate Finance Committee on 24 March the 1st to provide testimony regarding budget 25 recommendations. 26 1 And, lastly, it is our understanding that 2 the House Licensing and Administrative Procedures 3 Committee -- this is the agency's oversight committee -- 4 will hold its organizational meeting next week. 5 Chairman Mike Hamilton is requesting agencies under the 6 committee's jurisdiction to appear before the committee 7 to provide a brief overview of the agency, and both Gary 8 and Phil are planning to attend to address the 9 committee. 10 This concludes my report, and I will be 11 glad to answer any questions. 12 CHAIRMAN WILLIAMSON: Thank you, Nelda. 13 Commissioner? 14 COMMISSIONER KRAUSE: No, ma'am. 15 CHAIRMAN WILLIAMSON: I understand Senator 16 Carona is carrying that bill for us on the -- 17 MS. TREVINO: Assignment of prizes. 18 CHAIRMAN WILLIAMSON: -- assignment of 19 prize fees. All right. Good. All right. We will have 20 to be sure and thank him. 21 Thank you. 22 MS. TREVINO: Thank you. 23 AGENDA ITEM NO. VI 24 CHAIRMAN WILLIAMSON: Let's go on to the 25 next item, report, possible discussion and/or action on 27 1 amendments to the 2001 lottery operations and service 2 contract and amendments to the drawings audit services 3 contract or procurement. 4 Mike, please. 5 MR. FERNANDEZ: Good morning, Madam 6 Chairman, Commissioner Krause. For the record, my name 7 is Mike Fernandez. I'm the Director of Administration. 8 And this item on your agenda is an 9 information item to advise you of staff's intent to 10 amend two current contracts, the first being an 11 amendment to the current lottery operator contract to 12 take advantage of a reduction, a voluntary reduction in 13 cost. 14 Mr. Grief, have you got any comments? 15 MR. GRIEF: I would, Mike. Thank you. 16 Commissioners, as Mike has said to you in 17 past meetings, we've made a very concerted effort over 18 the last several months to renegotiate current contract 19 rates with our major vendors, especially in light of the 20 extremely tight budgetary times that the state is 21 enduring right now. Although the Texas Lottery was not 22 formally asked by the Legislature to reduce costs this 23 fiscal year, we do take our stewardship responsibility 24 very seriously, and we decided early on to take this 25 approach. 28 1 Mike and his team have done a wonderful 2 job in working with our major vendors on this matter. 3 And I also appreciate the understanding and the 4 willingness to work with us on the part of the vendors 5 as well. But I want to make special mention of our 6 current lottery operator contract with GTECH, and that's 7 the one that expires this August 31st. 8 After we concluded the negotiations for 9 the new lottery operator contract, I then turned my 10 attention to the current contract. And over the course 11 of several days, Alan Eland from GTECH and I met several 12 times to discuss how best GTECH could assist the agency 13 in finding additional savings within the current 14 contract. 15 And we ultimately agreed that GTECH would 16 provide the Texas Lottery with an immediate rebate of 17 $2 million, with the possibility that this could grow 18 incrementally up to $3 million by the end of this fiscal 19 year, if we achieve certain sales targets. And, of 20 course, this will be additional revenue that will be 21 transferred directly to the Foundation School Fund. 22 I appreciate GTECH's willingness to 23 negotiate in good faith, given the tight budgetary times 24 that I mentioned, and I'm very pleased with the outcome 25 of those negotiations. 29 1 Thanks, Mike. 2 MR. FERNANDEZ: Thank you. 3 The other contract that staff intends to 4 amend to extend is with Davila, Buschhorn & Associates, 5 our drawing audit services contractor, and we are doing 6 that also. We will be taking advantage of a cost 7 reduction in our contract rates. 8 That's all I have, Commissioners. 9 CHAIRMAN WILLIAMSON: Thank you. 10 Commissioner, do you have any questions? 11 COMMISSIONER KRAUSE: No, ma'am. 12 CHAIRMAN WILLIAMSON: Mike, about how many 13 vendors have agreed to do some sort of a -- see, I want 14 to throw something at you; you're not prepared -- 15 generally about how many have agreed to give us some 16 sort of a break on our contracts? 17 MR. FERNANDEZ: I would say right now a 18 little over half a dozen have agreed. Now, we've asked 19 for more than that. In fact, we just ran that -- 20 Ms. Pyka just ran that list not too long ago. So I 21 would say it's a little over a half a dozen that we've 22 received a response from. And we're still receiving 23 responses, because we're going through all our prime 24 contractors, all our high-risk contractors, and we see 25 responses every day. We received two yesterday, two 30 1 companies for a rate reduction. So we'll continue to 2 compile those. 3 But as Gary pointed out, you know, I think 4 that there is a -- there has certainly been a 5 willingness to work with the agency. And I suspect that 6 some of these vendors, if not many of them, are hearing 7 the same request coming in from other organizations 8 across the state. 9 CHAIRMAN WILLIAMSON: All right. Thank 10 you. 11 And for those of you here that are 12 representing those vendors that have agreed to do that, 13 as a business person, I know that's not always an easy 14 decision to make, because you're under your own economic 15 stress as well, and I appreciate that very much. So 16 thank you, all of you, whoever. 17 AGENDA ITEM NO. VII 18 CHAIRMAN WILLIAMSON: All right. Let's go 19 on to the next item, please, consideration and/or 20 discussion and action on external and internal audits 21 and reviews relating to the Texas Lottery and the 22 Internal Audit Department's activities. 23 Catherine. 24 MS. MELVIN: Thank you. Good morning, 25 Chair; good morning, Commissioner. 31 1 This morning I don't have any items of 2 update, but I'm happy to answer any questions you might 3 have. 4 CHAIRMAN WILLIAMSON: All right. Thank 5 you. 6 Commissioner, do you have any questions? 7 COMMISSIONER KRAUSE: No, ma'am. 8 CHAIRMAN WILLIAMSON: That was short and 9 sweet. 10 MS. MELVIN: Thank you. 11 CHAIRMAN WILLIAMSON: All right. Then 12 we've already done Item VIII. 13 AGENDA ITEM NO. IX 14 CHAIRMAN WILLIAMSON: So we will go on to 15 Item IX, report by the Executive Director and any 16 discussion or actions on the agency's operational 17 status, procedures, FTE status. 18 Gary. 19 MR. GRIEF: Commissioners, other than the 20 information I've provided to you in your notebooks, I 21 have nothing further to report this morning. 22 CHAIRMAN WILLIAMSON: All right. Thank 23 you. 24 Commissioner, do you have any questions of 25 Gary? 32 1 COMMISSIONER KRAUSE: No, ma'am. 2 AGENDA ITEM NO. XI 3 CHAIRMAN WILLIAMSON: All right. We will 4 skip over to Item XI. It's just public comments, and 5 there is none. 6 So at this time we will take a 10-minute 7 break and then we'll get back. And the time is 9:40. 8 (Recess: 9:40 a.m. to 9:50 a.m.) 9 CHAIRMAN WILLIAMSON: We'll go back in 10 session, and it is 9:50. 11 AGENDA ITEM NO. X 12 CHAIRMAN WILLIAMSON: The next item is 13 consideration of the status and possible entry of orders 14 in cases posted on the agenda. 15 Kim, this is your item, please. 16 MS. KIPLIN: Yes, thank you. 17 Commissioners, with your permission, I 18 would ask that you pass Letter A, Scalco's Supermarket. 19 We have just been informed that either that retailer or 20 somebody in connection with that retailer has filed 21 bankruptcy. We did not receive notice of the 22 bankruptcy. And so we are working with the Office of 23 the Attorney General's Bankruptcy Division. And in 24 proceeding with that, we certainly don't want to do 25 anything that would appear to be violating any kind of 33 1 federal automatic stay. So we may be bringing this back 2 to you at a future Commission meeting, once we analyze 3 the bankruptcy law in that matter. But with your 4 permission, we would like to pass that. 5 CHAIRMAN WILLIAMSON: Okay. That doesn't 6 require a formal -- 7 MS. KIPLIN: No, it does not. 8 CHAIRMAN WILLIAMSON: Okay. 9 MS. KIPLIN: I just want to make sure you 10 know. 11 CHAIRMAN WILLIAMSON: Okay. 12 MS. KIPLIN: Then if I could, I would like 13 to take Letters B through I. And in each one of those 14 matters, Letters B through I, they were a lottery 15 retailer who, when the Lottery swept the lottery 16 retailer's account for funds owing to the Lottery, 17 insufficient funds were available. Staff presented all 18 of those cases at the State Office of Administrative 19 Hearings. And in each one of those cases, the 20 Administrative Law Judge has recommended revocation. 21 Staff recommends that you adopt the proposal for 22 decision in each of those cases and vote to revoke each 23 of those licenses. 24 We can take them up at the end or I can 25 wait and you can take action now if you would like on 34 1 Letters B through I. 2 CHAIRMAN WILLIAMSON: Let's go ahead and 3 take action now. 4 Do you have any questions, Commissioner? 5 COMMISSIONER KRAUSE: No. 6 CHAIRMAN WILLIAMSON: Would you like to 7 make a motion? 8 COMMISSIONER KRAUSE: I make a motion that 9 under Item X, Items B through I, those docket numbers 10 which staff has provided us a proposal for decision, 11 that we adopt staff's proposal to revoke those licenses. 12 CHAIRMAN WILLIAMSON: Second. 13 All in favor? 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Motion passes 2-0. 16 MS. KIPLIN: Commissioners, I have an 17 order in each one of those cases that I'll give to 18 Commissioner Krause. 19 If I can then direct y'all's attention to 20 Letter J, Cox's Foodarama Inc. #7, Commissioners, this 21 is a proposed agreement, settlement agreement between 22 the Lottery Division and the respondent, Cox's Foodarama 23 Inc. #7. The violation was the retailer allowing a 24 minor to purchase a lottery ticket. Lottery retailers 25 are responsible to make sure that minors do not purchase 35 1 tickets in their retail locations. The recommended 2 disposition of this case is a 10-day suspension. 3 I would be happy to go into the facts if 4 you would like. It was a minor, but it was a 5 two-and-a-half year old. 6 COMMISSIONER KRAUSE: Two-and-a-half year 7 old? They couldn't tell? 8 MS. KIPLIN: I would say it was probably a 9 child prodigy apparently -- trying to -- 10 COMMISSIONER KRAUSE: For the 11 entertainment value, we need to hear this. 12 MS. KIPLIN: Yes. The father was actually 13 trying to obtain a money order and I think was 14 side-tracked near an instant ticket vending machine. 15 The two-and-a-half year old somehow or another got ahold 16 of a 20-dollar bill and inserted it into the instant 17 ticket vending machine. The father complained, and the 18 retailer did not address the issue at that time. He 19 complained in the retail location. 20 This matter actually did go to hearing and 21 I think went up through the chain of command within this 22 organization, retailer's organization. I think it 23 became very clear that they should have made amends at 24 the time of the transaction. 25 So the standard disposition for a case 36 1 like this is a 10-day suspension, and we were happy to 2 enter into an agreed order, and the staff will recommend 3 that you vote to approve the settlement and the agreed 4 order for a 10-day suspension. 5 COMMISSIONER KRAUSE: So the two 6 and-a-half year old was tall enough to go access a 7 machine? Big kid, huh? 8 MS. KIPLIN: Well, I'm not sure that we 9 got the height of the two and-a-half year old. Maybe he 10 was on a shopping cart, but very clever, very clever. 11 COMMISSIONER KRAUSE: Future staff member. 12 MS. KIPLIN: Yes, very clever. Child 13 prodigy. 14 CHAIRMAN WILLIAMSON: Okay. 15 COMMISSIONER KRAUSE: I make a motion that 16 for this docket number, 362-11-1192, involving Cox's 17 Foodarama that we adopt the staff's proposal for a 18 settlement agreement. 19 CHAIRMAN WILLIAMSON: Second. 20 All in favor? 21 COMMISSIONER KRAUSE: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 Motion passes 2-0. 24 MS. KIPLIN: Commissioners, I have an 25 order to that effect. I'll present that to Commissioner 37 1 Krause. 2 If I can then go to Letter K. 3 Commissioners, this is the matter of Larry Hibbert who 4 is on the Registry of Bingo Workers. This is a 5 contested case proceeding. Mr. Hibbert has a 6 disqualifying criminal history. Staff proceeded to have 7 him removed from the Registry of Bingo Workers due to 8 his disqualifying criminal history. 9 He was represented by counsel; I will tell 10 you that. At the contested case proceeding, and in your 11 notebook, which is really the size and magnitude of the 12 exceptions that his counsel filed, presented his 13 arguments which were rejected by the Administrative Law 14 Judge in terms of the legal conclusions that 15 Mr. Hibbert's counsel made at the time. Mr. Hibbert's 16 counsel has since withdrawn from representation and asks 17 that we make a note of that in the order, which we have 18 done. 19 Staff does recommend that you do vote to 20 remove Mr. Hibbert from the Registry of Bingo Workers, 21 because of his disqualifying criminal history. 22 CHAIRMAN WILLIAMSON: Correct me if I'm 23 wrong, but we have a pretty clear rule in place about 24 that, I mean, about the length of time or whatever, if 25 I'm understanding correctly? 38 1 MS. KIPLIN: In my opinion, yes, I think 2 the law is clear. I think the agency's position has 3 been, even if one were to be able to argue that there is 4 discretion on the part of the Commission to not remove, 5 I think the agency's position has been very clear that 6 removal, if there is a disqualifying criminal history. 7 In this case he was sentenced for felony 8 DWI and he was put on parole and violated the conditions 9 of his parole. They revoked his parole; they put him 10 back into the system. And it's ten years from the date 11 of the last sentence. 12 Mr. Hibbert's counsel made legal arguments 13 to suggest that you-all had the discretion, you could if 14 you wanted to, keep him on the registry, taking into 15 consideration the circumstances. The real issue -- and 16 this is what the staff presented as legal arguments, and 17 the Administrative Law Judge agreed with -- is the need 18 to harmonize the statutes that we have in the Bingo 19 Enabling Act, because there is a statute on who can be a 20 conductor. 21 And for a conductor to be able to be 22 issued a license, it's not viewed -- people working in 23 positions that have this disqualifying criminal history, 24 and so you have to harmonize those statutes. And that's 25 what the Administrative Law Judge agreed with, and the 39 1 conclusions of law were set out as such. 2 Mr. Hibbert was notified by -- as best I 3 can tell, we received the request to -- the notice of 4 withdrawal representation February 16th, and Mr. Hibbert 5 was copied on that notice, and the representations by a 6 licensed attorney in the State of Texas is that he made 7 numerous attempts to try to contact him. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioner, do you have any questions. 10 COMMISSIONER KRAUSE: I'm ready to make a 11 motion. 12 CHAIRMAN WILLIAMSON: Go ahead, please. 13 COMMISSIONER KRAUSE: I make a motion that 14 the proposal for decision involving Larry Hibbert be 15 adopted by the Commission. 16 CHAIRMAN WILLIAMSON: I second. 17 All in favor? 18 COMMISSIONER KRAUSE: Aye. 19 CHAIRMAN WILLIAMSON: Aye. 20 Motion passes 2-0. 21 MS. KIPLIN: And, Commissioners, I have no 22 other on that matter. 23 And that leaves us with the remaining 24 item, Letter L. This is the matter of Longhorn Bingo 25 Corral, Inc. This is the proposed settlement agreement 40 1 and agreed order between the Bingo Division and Longhorn 2 Bingo Corral, Inc. And the effect of the order would be 3 that you would issue a formal warning to this particular 4 entity, and it had to do with not reporting accurately 5 janitorial expenses as part of -- I believe it was the 6 rental expenses. And the staff is requesting that you 7 actually enter into an order warning so that in the 8 event there are any kind of future violations by this 9 particular entity, then this order can be introduced 10 into evidence as an enhancement for an additional 11 disciplinary action. 12 With that, staff recommends that you vote 13 to enter into the order reaching an agreement and issue 14 an order with those conditions in it. 15 CHAIRMAN WILLIAMSON: All right. 16 Commissioner, any questions? 17 COMMISSIONER KRAUSE: No. I make a motion 18 that we adopt staff's recommendation to enter into this 19 agreement and consent order involving Longhorn Bingo 20 Corral, Inc. 21 CHAIRMAN WILLIAMSON: All in favor? 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 Motion passes 2-0. 25 41 1 AGENDA ITEM NO. XII 2 CHAIRMAN WILLIAMSON: At this time I move 3 that the Lottery Commission go into executive session to 4 deliberate the duties and evaluation of the Executive 5 Director, Internal Audit Director and Charitable Bingo 6 Operations Director and to deliberate the duties of the 7 General Counsel and Human Resources Director pursuant to 8 Section 551.074 of the Texas Government Code and to 9 receive any legal advice regarding pending or 10 contemplated litigation pursuant to Section 11 551.071(1)(A) and to receive legal advice regarding 12 settlement offers pursuant to Section 551.071(1)(B) of 13 the Texas Government Code and to receive legal advice 14 pursuant to Section 551.071(2) of the Texas Government 15 Code, including but not limited to those items posted on 16 the open meetings notice for purposes of receiving legal 17 advice. 18 Is there a second? 19 COMMISSIONER KRAUSE: Yes. Second that 20 motion. 21 CHAIRMAN WILLIAMSON: All in favor? 22 COMMISSIONER KRAUSE: Aye. 23 CHAIRMAN WILLIAMSON: Aye. 24 The vote is 2-0. The Lottery Commission 25 will go into executive session. The time is 10:00 a.m., 42 1 and today is February 17, 2011. 2 (Off the record for executive session: 3 10:00 a.m. to 10:30 a.m.) 4 AGENDA ITEM NO. XIII 5 CHAIRMAN WILLIAMSON: The Texas Lottery 6 Commission is out of executive session. The time is 7 10:30 a.m. And there is no action to be taken as a 8 result of the executive session. 9 AGENDA ITEM NO. XIV 10 CHAIRMAN WILLIAMSON: There are no more 11 agenda items. 12 So at this time, Commissioner, I believe 13 this concludes our business. Is there a motion to 14 adjourn? 15 COMMISSIONER KRAUSE: I make a motion we 16 adjourn. 17 CHAIRMAN WILLIAMSON: I second the motion. 18 All in favor? 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 The motion carries 2-0. 22 (Commission meeting adjourned at 23 10:30 a.m.) 24 25 43 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 Shorthand 5 Reporter in and for the State of Texas, do hereby 6 certify that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 28th day of February 2011. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/12 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 8140 North Mo-Pac Expressway Suite II-120 22 Austin, Texas 78759 23 24 25