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 § MONDAY, AUGUST 5, 2013 § 9 10 11 12 COMMISSION MEETING 13 14 15 16 BE IT REMEMBERED THAT on Monday, the 5th 17 day of August 2013, the Texas Lottery Commission meeting 18 was held from 10:00 a.m. until 12:13 p.m., at 19 the Offices of the Texas Lottery Commission, 611 East 20 6th Street, Austin, Texas 78701, before CHAIRMAN MARY 21 ANN WILLIAMSON and COMMISSIONERS J. WINSTON KRAUSE and 22 VERONICA ANN EDWARDS; that the following proceedings 23 were reported via machine shorthand by Lou Ray, 24 Certified Shorthand Reporter. 25 2 1 APPEARANCES 2 CHAIRMAN: Ms. Mary Ann Williamson 3 COMMISSIONERS: 4 Mr. J. Winston Krause Ms. Veronica Ann Edwards 5 GENERAL COUNSEL: 6 Mr. Robert F. Biard 7 EXECUTIVE DIRECTOR: Mr. Gary N. Grief 8 CHARITABLE BINGO OPERATIONS DIRECTOR 9 Ms. Sandra K. Joseph 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 - MONDAY, AUGUST 5, 2013 ............... 7 4 I. The Texas Lottery Commission will call the meeting to order .......................... 7 5 II. Report, possible discussion and/or action 6 on lottery sales and revenue, game performance, new game opportunities, 7 advertising, market research, trends, and game contracts, agreements, and procedures .... 7 8 III. Report, possible discussion and/or action 9 on transfers to the State ..................... 14 10 IV. Report, possible discussion and/or action on FY 2014 Operating Budget ...................... 15 11 V. Report, possible discussion and/or action on 12 the 83rd Legislature, including implementation of legislation ................................ 17 13 VI. Consideration of and possible discussion 14 and/or action, including adoption, on amendments to 16 TAC §401.315 "Mega Millions" 15 On-Line Game Rule ............................. 22 16 VII. Consideration of and possible report, discussion, and/or action, including adoption, 17 on amendments to 16 TAC § 401.320 "All or Nothing" On-Line Game Rule .................... 23 18 VIII.Consideration of and possible discussion 19 and/or action, including proposal, on new 16 TAC §401.105 Major Procurement Approval 20 Authority and Responsibilities ................ 28 21 IX. Consideration of and possible discussion and/or action, including proposal, on 22 amendments to 16 TAC §401.203 Contested Cases and §401.211 Law Governing Contested Cases .... 31 23 24 25 4 1 TABLE OF CONTENTS 2 PAGE 3 X. Consideration of and possible discussion and/or action, including proposal, on new 4 16 TAC §403.102 Items Mailed to the Commission .................................... 33 5 XI. Report, possible discussion and/or action 6 on agency contracts, including extension and/or amendments on the contract for 7 drawings studio and production services and amendments on the contracts for surveillance 8 camera products and related services and lottery drawings CPA services ................. 35 9 XII. Consideration of and possible discussion 10 and/or action on external and internal audits and/or reviews relating to the Texas 11 Lottery Commission, and/or on the Internal Audit Division's activities ................... 36 12 XIII.Report, possible discussion and/or action 13 on GTECH Corporation .......................... 36 14 XIV. Report by the Executive Director and/or possible discussion and/or action on the 15 agency's operational status, agency procedures, awards, and FTE status ............ 37 16 XV. Report by the Charitable Bingo Operations 17 Director and possible discussion and/or action on the Charitable Bingo Operations 18 Division's activities, including updates on licensing, accounting and audit 19 activities, pull-tab review, and special projects ...................................... 39 20 XVI. Consideration of the status and possible 21 entry of orders in: ........................... 44 A. Docket No. 362-13-3927 - Alvin Tobacco 22 Mart #2 B. Case No. 2013-420 - GamePilot 23 Incorporated 24 25 5 1 TABLE OF CONTENTS 2 PAGE 3 C. Docket Nos. 362-12-4672.B; 362-12-4673.B; 362-12-4674.B; 4 362-12-4675.B; 362-12-4676.B and 362-12-4677.B - Texas Lottery 5 Commission versus Nathan Bullard d/b/a Golden Belle Bingo Hall, et al 6 XVII.Public comment ................................ 41 7 XVIII.Commission may meet in Executive Session: .... 49 8 A. To deliberate personnel matters, 9 including the appointment, employment, evaluation, reassignment, duties, 10 discipline, or dismissal of the Executive Director, the Charitable 11 Bingo Operations Director, and/or the Internal Audit Director pursuant to 12 Section 551.074 of the Texas Government Code. 13 B. To deliberate the duties of the General Counsel and/or the Human Resources 14 Director pursuant to Section 551.074 of the Texas Government Code 15 16 17 18 19 20 21 22 23 24 25 6 1 TABLE OF CONTENTS 2 PAGE 3 C. To receive legal advice regarding pending or contemplated litigation pursuant to 4 Section 551.071(1)(A) and/or to receive legal advice regarding settlement offers 5 pursuant to Section 551.071(1)(B) of the Texas Government Code and/or to receive 6 legal advice pursuant to Section 551.071(2) of the Texas Government Code, 7 including but not limited to legal advice regarding the following items: 8 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery Commission 9 et al. Willis Willis v. Texas Lottery Commission, 10 GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food Store #2, Barkat N. 11 Jiwani and Pankaj Joshi. The State Lottery Act, Texas Government 12 Code Chapter 467, the Bingo Enabling Act, the Open Meetings Act, employment law, 13 personnel law, procurement and contract law, evidentiary and procedural law, and 14 general government law. Any item on this open meeting agenda 15 XIX. Return to open session for further 16 deliberation and possible action on any matter discussed in Executive Session ......... 50 17 XX. Adjournment ................................... 50 18 REPORTER'S CERTIFICATE ............................. 51 19 20 21 22 23 24 25 7 1 P R O C E E D I N G S 2 MONDAY, AUGUST 5, 2013 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I'd 6 like to call this meeting of the Texas Lottery 7 Commission to order. Today is August 5, 2013. The time 8 is 10:00 a.m. Commissioner Krause and Commissioner 9 Edwards are present, so we have a quorum. 10 AGENDA ITEM NO. II 11 CHAIRMAN WILLIAMSON: The first item is 12 report, possible discussion and/or action on the lottery 13 sales and revenues, game performances and new game 14 opportunities, advertising, market research, trends, and 15 game contracts, agreements and procedures. 16 Kathy and Robert, please. 17 MS. PYKA: Good morning, Commissioners. 18 My name is Kathy Pyka. I'm the controller for the 19 Commission. And with me to my right is Robert Tirloni 20 our instant tickets -- excuse me, our Commission product 21 manager. Sorry about that. 22 MR. TIRLONI: That's okay. 23 MS. PYKA: Commissioners, our first chart 24 that we have for you this morning reflects sales or the 25 week ending July 27, 2013. Our total fiscal year 2013 8 1 sales are 3 billion 97 million (sic) billion dollars, an 2 increase of $156 million, or 4.1 percent compared to the 3 figure for last fiscal year. 4 Our fiscal year 2013 instant ticket sales 5 reflected on the second blue bar are at $2,934,000,000 6 which is a 120.6 million-dollar increase over last 7 fiscal year. 8 Commissioners, I wanted to note we 9 continue to see exceptional year-over-year, 10 week-over-week, month-over-month instant ticket sales 11 increases. We have now set another record for instant 12 ticket sales of the highest July sales in the history of 13 the Commission for the month of July. So very good news 14 there with that total value of 268 million for the total 15 month of July. 16 And then moving on to our draw sales, 17 which is the second red bar, we're now at a billion 39 18 million dollars, which is a $35 million increase above 19 the point that we were last fiscal year. 20 And then we'll move on to the next slide, 21 which includes our average daily sales for fiscal years 22 2011, '12 and '13. Commissioners, our overall average 23 daily sales value for fiscal year 2013 is $12.1 million. 24 That's a $617,000 increase over last fiscal year. And 25 it's a $1.6 million dollar per-day increase over fiscal 9 1 year 2011. 2 If we break it down by games, we can start 3 with our Jackpot game highlighted in the white font. 4 We're now at $1.86 million per day on jackpot games. 5 That's a $15,000 decline from last year and a $325,000 6 increase for fiscal year 2011. Within this category we 7 want to focus on the Powerball Game, which is currently 8 reflecting a $345,000 per-day sales increase over last 9 fiscal year. 10 Commissioners, Powerball is now advertised 11 at $400 million. That's our third highest Powerball 12 jackpot in the history of the game, and if this game 13 should continue to roll, we're certainly setting the 14 Commission up with this increased roll to setting an 15 all-time record in revenue transfers to the state in the 16 history of the Commission. 17 And then we want to move on down to daily 18 games. We've got the daily games presented in the green 19 font. We're at $1.36 million per day on daily games. 20 And that reflects more than a $200,000 increase over the 21 previous two fiscal years. And then our instant ticket 22 games have a daily sales value of $8.9 million. That's 23 an increase of 417,000 over last fiscal year, and it's 24 over $1 million greater than fiscal year 2011. 25 So with that, Robert will now provide an 10 1 overview of actual sales by game. 2 MR. TIRLONI: For the record, Robert 3 Tirloni, products and drawings manager. So this is our 4 year-over-year sales comparison through July 27th. Not 5 this past Saturday, but the previous Saturday. This 6 slide is the same format as the last slide. 7 Again, we're seeing great growth from 8 Powerball and Power Play because of the jackpots we've 9 experienced this fiscal year, and, of course, the 10 current roll that we're in right now that Kathy just 11 mentioned a moment ago. The deficit in the jackpot 12 games of 19 million is really a result of the lack of 13 jackpots from the Mega Millions Game this fiscal. So 14 last fiscal we had that $650 million Mega Millions 15 jackpot, and Mega Millions has just not experienced 16 those kinds of rolls this fiscal year. So that is a 17 major cause of that $19 million deficit on this -- in 18 the jackpot game category. 19 The daily games in green, we're seeing 20 growth of just under 55 million. The majority of that 21 is a result of the All or Nothing Game sales. Even 22 though that game is suspended, we do have almost $63 23 million in new sales this fiscal year from All or 24 Nothing. 25 Daily 4 continues to see growth. And the 11 1 industry trend is that Pick 3 players are moving to 2 Daily 4. So that's what we attributed the almost $5 3 million decrease to on the Pick 3 Game. 4 If you look at the drawing game category 5 as a total, our sales are up 35 million so far. And 6 again, this is through Saturday the 27th of July. The 7 very strong week that we just experienced this past week 8 for the week ending August 3rd, those sales are not even 9 represented here. So those numbers will be -- are 10 actually higher as of today. 11 Our instants are up, as Kathy mentioned, 12 almost $121 million this fiscal year. And all told the 13 portfolio is up just under $156 million. 14 I have an update on some new games that 15 are starting. This our brand new Weekly Grand annuity 16 suite. I wanted to give you a preview before this game 17 actually starts. 18 All four of these games will start on 19 Monday, September 9th. We've had weekly grands in our 20 portfolio since the early '90s. It's a $2 game. It's a 21 very strong game for us. Last fiscal year it was ranked 22 No. 9 in terms of instant ticket sales. So when you 23 consider that it's a $2 game and it's competing against 24 10, 20, $50 price-point games, the fact that it's ranked 25 No. 9 is very, very good. 12 1 We're trying to capitalize on the weekly 2 grand plan, and so we've created a whole annuity suite 3 utilizing that name and utilizing that brand. So we'll 4 have a $1 weekly half grand. Of course we'll continue 5 the weekly grand game. And we've created a $5 bonus 6 weekly grand and a $10 super weekly grand. 7 This fleet of games is going to have full 8 advertising support, TV, radio, outdoor and in-store 9 point of sale. And I'll share with you just an example 10 of what one of our POS pieces looks like. All of these 11 are annuity games, and if you win the top prize, you get 12 paid out over a 20-year time period. And the $10 games, 13 Super Weekly Grand, you can wind 5,000 a week for 20 14 years. 15 So we're excited about this suite and hope 16 to be talking more about that after it's launched and 17 give you some updates in the future. But that is our 18 sales presentation; we're happy to answer any questions 19 you might have. 20 CHAIRMAN WILLIAMSON: Commissioners, any 21 questions or comments? 22 COMM. KRAUSE: Well, do we know why our 23 instants are doing so well? 24 MR. TIRLONI: Economy -- I think it's the 25 economy -- 13 1 COMM. KRAUSE: -- game selection -- 2 MR. TIRLONI: We have a great game 3 solution. We're experiencing growth at all of our price 4 points except the one and the two. So we're seeing 5 great growth at the 3, the 5, the 10, 20 and 50. 6 COMM. KRAUSE: So having those options 7 let's us know more. 8 MR. TIRLONI: Correct. And the players 9 seem to like these type of games that have these annuity 10 features where you can be paid out over time. These 11 have always been popular. The annuities -- the annuity 12 style of instant game has been a popular game for us in 13 Texas. 14 COMM. KRAUSE: I guess it's just, you 15 know, random, but the -- the Mega Millions, you know, 16 they -- just pops all the time and the jackpot never 17 gets big. 18 MR. TIRLONI: Correct. That's what we've 19 experienced. Now, there's a rule proposal that will be 20 before you today that will -- if you adopt that -- will 21 change the Mega Millions Game here in Texas along with 22 all the other states in the country that play Mega 23 Millions. And that will increase the odds of winning 24 the jackpot. So the hope of making -- or the intent of 25 making that game change is to be able to generate 14 1 jackpots like we've been seeing on Powerball because 2 that has had a negative impact on sales, not only for us 3 but for many states, the lack of jackpots. 4 CHAIRMAN WILLIAMSON: Thank you. That's 5 great news. Congratulations to all -- everybody 6 involved in this. Y'all have done a fantastic job. 7 MR. TIRLONI: Thank you. 8 AGENDA ITEM NO. III 9 CHAIRMAN WILLIAMSON: The next item is 10 report, possible discussion and/or action on transfers 11 to the State. 12 Kathy? 13 MS. PYKA: Thank you, Madam Chairman. 14 Again for the record, my name is Kathy Pyka, controller 15 for the Commission. 16 Commissioners, Tab 3 of your notebook 17 includes information on the agency's transfers to the 18 state. The first report includes the revenues, 19 transfers and allocations to the Foundation School Fund, 20 the Texas Veterans Commission and the allocation of 21 unclaimed prizes for the period ending June 30, 2013. 22 Out total cash transfers to the state 23 amount to $968.1 million for the first ten months of the 24 fiscal year. And as we break out that in value, 921.6 25 million was the amount transferred to the Foundation 15 1 School Fund; 4.6 million was transferred to Texas 2 Veterans Commission, and a balance of 41.9 million was 3 from unclaimed lottery prizes. 4 Commissioners, this represents a 1 percent 5 increase, for $9.2 million over the amount transferred 6 to the Foundation School Fund through June of 2012. Our 7 cumulative transfers to the Foundation School Fund now 8 through June are at $15.66 million. 9 This concludes my presentation. I'll be 10 happy to answer any questions. 11 CHAIRMAN WILLIAMSON: Thank you. 12 Commissioners, do you have any questions? 13 COMM. KRAUSE: No. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 AGENDA ITEM NO. IV 17 CHAIRMAN WILLIAMSON: The next item is 18 report, possible discussion and/or action on fiscal year 19 2014 operating budget. 20 Kathy, this is your item. 21 MS. PYKA: Again for the record, Kathy 22 Pyka, controller for the Commission. 23 Commissioners, this morning I'm seeking 24 your approval of the fiscal year 2014 operating budget 25 in the amount of $217,927,881 and 332.5 full-time 16 1 equivalent positions. The budget was developed in 2 accordance with the guidelines outlined in Senate 3 Bill 1, adjusted for the Commission's rider and Article 4 9 funding provision. 5 Commissioners, Rider 14 of the General 6 Appropriations Act provides for $612,438 of budget 7 authority and the restoration of 14 positions in the 8 Bingo Division. And that is contingent upon, of course, 9 the Comptroller of Public Accounts providing approval of 10 the Finding of Fact that we submitted to them last 11 month. 12 At this point in time, we've not received 13 that approval. It's still in the works over there. So, 14 of course, I'm going to seek your approval of this 15 budget contingent upon receipt of that Finding of Fact. 16 If the Commission does not receive the 17 approval of the Finding of Facts, we'll certainly adjust 18 the budget accordingly. And when we do receive the 19 Finding of Facts, I will certainly communicate that 20 document to each of the three of y'all. 21 Commissioners, the budget was developed by 22 the Office of the Comptroller, and delivered to the 23 budget -- to division management for their direct input. 24 And after receiving their input, the final document was 25 reviewed with the Executive Director to incorporate any 17 1 modifications by the Executive Director. 2 This concludes my presentation. I'll be 3 happy to answer any questions. 4 CHAIRMAN WILLIAMSON: Thank you, Kathy. 5 Do y'all have any questions? 6 COMM. KRAUSE: No questions. 7 CHAIRMAN WILLIAMSON: Is there a motion? 8 COMM. KRAUSE: I make a motion that we 9 adopt the proposed fiscal year 2014 operating budget 10 presented to the commission. 11 CHAIRMAN WILLIAMSON: Is there a second? 12 COMM. EDWARDS: I second. 13 CHAIRMAN WILLIAMSON: All in favor? 14 (All those voting in favor so responded) 15 CHAIRMAN WILLIAMSON: Motion passes 16 three-zero. 17 MS. PYKA: Thank you, Commissioners. 18 AGENDA ITEM NO. V 19 CHAIRMAN WILLIAMSON: Thank you. The next 20 item is report and possible discussion and/or action on 21 the 83rd legislator -- Legislature, including 22 implementation of legislation. 23 Nelda, please? 24 MS. TREVINO: Good morning, Commissioners. 25 For the record I'm Nelda Trevino, the director of 18 1 governmental affairs. 2 Agency staff continues to work on the 3 implementation of legislation, particularly the agency 4 sunset bill, House Bill 2197. As you know, today's 5 meeting agenda includes the consideration of two 6 proposed rules as a result of implementing some of the 7 provisions of the agency's sunset bill. It is 8 anticipated that further proposed rulemakings will be 9 included in the September meeting agenda. 10 Additionally, the Sunset Advisory 11 Commission issued the agency's final report in July 12 entitled "Final Report with Legislative Action," which 13 details the results of the sunset review of the Texas 14 Lottery Commission. The Sunset Advisory Commission's 15 report was updated to reflect the statutory changes 16 adopted by the 83rd Legislature, as well as summarizing 17 the final results of the agency sunset review. 18 We have provided you with a copy of the 19 report, and I want to particularly highlight the section 20 of the report titled "Summary of Final Results," located 21 on Pages 6a to 6c. Specifically, the first paragraph 22 summarizes the unique outcome of the agency's sunset 23 review, and I'd like to read this excerpt into the 24 record. 25 It states that (as read) "The 83rd 19 1 Legislature passed the First Lottery Commission sunset 2 bill since the agency's inception in 1993, but the path 3 was anything but smooth. The controversial nature of 4 the agency's business, administering the state lottery 5 and regulating charitable bingo, contributed to the 6 failure of the Sunset bills in 2003 and 2005. While 7 these failures did not threaten the agency's ability to 8 continue operating the lottery, this time concern about 9 the lottery almost led to its abolishment. After 10 initially voting down House Bill 2197, the House 11 reconsidered, passed the bill, and required a 12 legislative study regarding eliminating the lottery and 13 the potential revenue impacts of doing so. The dramatic 14 pendulum swings again demonstrates the tightrope the 15 agency walks in balancing the legislators' disdain for 16 the lottery with a desire for the money it raises." 17 Again, I thought that was just a unique 18 summary of the agency's review, and I wanted to, again, 19 put that into the record. 20 Additionally, with regard to the review of 21 the summary, the regulation of charitable bingo, I also 22 wanted to read into the record an excerpt from this 23 summary. And it states, (as read) "The sunset review 24 highlighted the deep budget cuts experienced by the 25 agency's bingo program in recent years, and identified 20 1 strategies for improving regulation and recovering costs 2 of this regulatory effort. House Bill 2197 gives the 3 agency regulatory tools and fee flexibility to achieve 4 more effective bingo regulation. The Legislature also 5 enacted a Sunset Commission recommendation in Senate 6 Bill 1 to help ensure that appropriations provisions 7 regarding bingo regulation regular based on the true 8 cost of the program and not prize fee revenues passed 9 through to local governments. Senate Bill 1 also 10 expands on Sunset directives for the agency to seek to 11 cover the full cost of bingo regulation by approving 12 additional funding and staffing to restore the recent 13 budget cuts contingent on the agency increasing revenue 14 from licensing fees. These changes will help ensure the 15 agency can more effectively regulate the complex 16 cash-based bingo industry." 17 Again, this section of the updated Sunset 18 Advisory Report summarizes all the final results of the 19 agency sunset review. The report is available on the 20 Commission's website. It's also available on the Sunset 21 Commission's website. 22 This concludes my report, and I'll be glad 23 to answer any questions. 24 CHAIRMAN WILLIAMSON: Thank you, Nelda. 25 Are there any questions or comments? 21 1 COMM. KRAUSE: I need to ask -- I mean, if 2 what we do is so important, what is the rationale behind 3 that, the Legislature? 4 MS. TREVINO: The rationale behind -- 5 COMM. KRAUSE: Behind what we do being so 6 bad for the public. 7 MS. TREVINO: Commissioner Krause, I guess 8 I would -- the way I would respond to that, I think it's 9 just the nature of the gaming business that we're 10 involved in -- that, you know, this agency is involved 11 in. And I think the sunset staff worded that in their 12 summary in a way that reflects the way the 13 Legislature -- particularly right now -- the way they 14 look at gaming. 15 COMM. KRAUSE: So I just -- you know, I 16 guess the Legislature -- some of the Legislature look at 17 it as legalized gambling, and that's not good. 18 MS. TREVINO: I think again it goes to 19 whether the State should be involved in gaming as a -- 20 from a policy standpoint to raise revenue for the state. 21 COMM. KRAUSE: Okay. 22 CHAIRMAN WILLIAMSON: All right. Thank 23 you. 24 25 22 1 AGENDA ITEM NO. VI 2 CHAIRMAN WILLIAMSON: The next item is 3 consideration of and possible discussion and/or action, 4 including adoption, on amendments to 16 TAC 401.315, 5 "Mega Millions" On-Line Game Rule. 6 Andy? 7 MR. MARKER: Good morning, Commissioners. 8 My name is Andy Marker. I'm an attorney with the 9 agency. 10 This morning staff recommends that the 11 Commission adopt amendments to 16 Texas Administrative 12 Code 401.315, the Mega Millions On-Line game rule. We 13 propose that you adopt these amendments without changes 14 to the text as published in the June 28th edition of the 15 Texas Register. These changes change the Mega Millions 16 Game matrix and also the Mega Millions add-on game 17 feature. The anticipated effective date of the changes 18 is October 19th, with the first drawing under the new 19 matrix being on or around October 22nd. 20 Again we had a public comment hearing in 21 July. No one appeared at the public comment hearing, 22 and we received no comment during this period. So this 23 morning staff recommends that the Commission adopt the 24 proposed amendments without change. 25 CHAIRMAN WILLIAMSON: All right. Thank 23 1 you. 2 Commissioners, do you have any questions 3 or comments? 4 (No audible response) 5 CHAIRMAN WILLIAMSON: Is there a motion? 6 COMM. KRAUSE: I make a motion that we 7 adopt the proposed amendments to 16 TAC §401.315 as 8 proposed. 9 CHAIRMAN WILLIAMSON: Is there a second? 10 COMM. EDWARDS: I second. 11 CHAIRMAN WILLIAMSON: All in favor? 12 (All those voted in favor so responded) 13 CHAIRMAN WILLIAMSON: Motion passes 14 three-zero. 15 MR. BIARD: Thank you, Commissioners. I 16 have a final order for your signatures. 17 CHAIRMAN WILLIAMSON: All right. 18 AGENDA ITEM NO. VII 19 CHAIRMAN WILLIAMSON: The next item is 20 consideration of and possible report, discussion and/or 21 action, including adoption on amendments to 16 TAC 22 401.320, "All or Nothing" On-line Game Rule. 23 Bob? 24 MR. BIARD: Good morning, Commissioners. 25 I'm Bob Biard, General Counsel. 24 1 This item is a recommendation to adopt 2 amendments to the Commission's All or Nothing Rule with 3 slight changes to the proposed text as published. The 4 only change to the text are the replacement of the term 5 "top prize winners" with the term "top prize-winning 6 play" each place it appears in 401.302(g)(1)(H), one 7 section of the rule. This change clarifies how the 8 parimutuel prize will actually be calculated. 9 The purpose of these amendments is to 10 establish a liability cap of $5 million for top prize in 11 the game. Under the existing rule language, the top 12 prize is a guaranteed amount of $250,000. Under these 13 proposed amendments in any drawings for the top 14 number -- for the number of top-pize-winning plays is 15 greater than 20, the top prize shall be paid on a 16 parimutuel rather than a fixed prize basis, and the 17 liability cap of $5 million will be divided equally by 18 the number of top-prize-winning plays. The practice of 19 setting a liability cap is a common lottery practice for 20 games that offer fixed prizes. 21 We received two written comments from 22 players, and they're addressed in the preamble to the 23 rule adoption. The first comment was that the 24 Commission should allow players to choose which of four 25 the four daily drawings they want to play instead of 25 1 just the next immediate drawing. The Commission staff 2 has received similar feedback from other players, and 3 Staff is considering this change and will evaluate a 4 future rule change to address that. 5 The second comment was that the proposed 6 changes would make it harder for players to win. The 7 Commission staff disagrees with this comment. The odds 8 of winning the top prize in the All or Nothing Game have 9 not changed as a result of this proposal. 10 The staff recommends adopting the 11 amendment to the rule. If the Commission approves 12 adoption, we are prepared to file the rule changes with 13 the Secretary of State today, to be effective in 20 days 14 on August 25th. So sales of -- for All or Nothing could 15 resume on August 25th. I'll be happy to answer any 16 questions, and we may have -- Robert may have something. 17 CHAIRMAN WILLIAMSON: Robert, do you have 18 anything you want to add right now? 19 MR. TIRLONI: I'm just going to add 20 that -- Bob mentioned that if you adopt the rule today, 21 our goal is to resume sales or Sunday the 25th then our 22 four-times-per-day drawing schedule would resume the 23 next day, Monday, August 26th. 24 CHAIRMAN WILLIAMSON: Okay. 25 MR. BIARD: And I believe we do have some 26 1 people from Grant Thornton. 2 CHAIRMAN WILLIAMSON: Right. This is as a 3 result of a -- a calculation error that was made that we 4 were made aware of, and we had asked Grant Thornton to 5 come in and look at all this. So if you gentlemen, 6 whichever one who would come up, and we'll quiz you a 7 little bit and see what you found -- whoever needs to 8 speak, if you would introduce who you are and we'll 9 probably have a few questions for you. 10 MR. DEMPSEY: All right. Great. My name 11 is Bruce Dempsey. I'm with Grant Thornton. 12 CHAIRMAN WILLIAMSON: And -- 13 MR. KING: I'm Scott King with Grant 14 Thornton. 15 CHAIRMAN WILLIAMSON: Okay. Great. So 16 tell me exactly, when you were brought on, what sort of 17 an assessment did you do on this -- these game changes? 18 MR. DEMPSEY: We made an assessment -- we 19 made an assessment to GTECH's changes to the rule -- 20 game rules and the parameters to establish a liability 21 cap. 22 CHAIRMAN WILLIAMSON: Okay. And how did 23 you go about doing this? Where were y'all and give us a 24 little bit of background, just basically how you went 25 about doing all this? What was your plan as it were? 27 1 MR. DEMPSEY: Our assessment was done on 2 site at GTECH. We met with them and sat down with their 3 engineers. We had some technical people come in and 4 actually sit down and review the testing parameters, the 5 actual code, changes to the code to establish the game 6 rules, and the payout parameters. 7 CHAIRMAN WILLIAMSON: So you were 8 satisfied with the changes that they did implement or 9 what they were going to put in place in terms of the 10 liability cap. 11 MR. DEMPSEY: Correct. The game 12 (inaudible). 13 CHAIRMAN WILLIAMSON: Do you feel like you 14 got cooperation from everybody there? 15 MR. DEMPSEY: Oh, yes. We did. 16 CHAIRMAN WILLIAMSON: Okay. 17 Commissioners, do you have any other questions or 18 comments you want to add? 19 (No audible response) 20 CHAIRMAN WILLIAMSON: All right. Thank 21 you, gentlemen. 22 Is there a motion? 23 COMM. KRAUSE: I make a motion that we 24 adopt the proposed amendments to 16 TAC §401.320. 25 CHAIRMAN WILLIAMSON: Is there a second? 28 1 COMM. EDWARDS: I second. 2 CHAIRMAN WILLIAMSON: All in favor? 3 (All those voting in favor so responded) 4 CHAIRMAN WILLIAMSON: Motion passes 5 three-zero. 6 MR. BIARD: And, Commissioners, I have a 7 rule order for you to sign. 8 AGENDA ITEM NO. VIII 9 CHAIRMAN WILLIAMSON: The next item is 10 consideration of and possible discussion and/or action, 11 including proposal, on new 16 TAC 401.105, major 12 procurement approval authority and responsibility. 13 Andy, please? 14 MR. MARKER: This morning staff recommends 15 the Commission issue -- initiate a rulemaking process by 16 publishing proposed new rule 16 Texas Administrative 17 Code §401.105 in order to receive public comment for a 18 period of 30 days. This proposed rule was titled Major 19 Procurement Approval Authority and Responsibility. It 20 proposes to implement changes to Government Code Chapter 21 466 and was made pursuant to Section 3 of House Bill 22 2197, the Sunset Act. 23 Section 3 of House Bill 2197 amended the 24 government code Chapter 466 by adding on new section 25 466.1005 under procurements. This section allows the 29 1 Commission to make purchases needed or contracts 2 necessary for the purposes of carrying out the 3 requirements of the State Lottery Act. Furthermore, new 4 Section 466.1005 requires the Commission to review and 5 approve all major procurements as defined by Commission 6 rules. It also allows the Commission to delegate to the 7 executive director authority to approve other 8 procurements -- all other procurement other than major 9 procurements. 10 The proposed new rule outlines procedures 11 for approval of major procurements before the 12 Commission. It identifies what constitutes a major 13 procurement as defined procurements of $10 million or 14 above. It delegates all approval authority not reserved 15 to the Commission to the executive director (inaudible) 16 new contracts. 17 Lastly, the new rules, as far as the 18 contract planning, describes contract planning update 19 that would be provided to the Commission. 20 I'll be happy to answer any questions you 21 have. Also Mike Fernandez, our director of 22 administration, is here. 23 CHAIRMAN WILLIAMSON: Commissioners, do 24 you have any questions? 25 (No audible response) 30 1 CHAIRMAN WILLIAMSON: Isn't this just to 2 get everybody on the -- kind of on the same page in 3 terms of procurement? 4 I know there was a lot of stuff in the 5 sunset bill that kind of standardized what we did with 6 everybody else. 7 MR. FERNANDEZ: Yes. For the record, my 8 name is Mike Fernandez, Director of Administration. 9 I think that's exactly correct. I think 10 that if you look back over the last number of sessions, 11 there's been a concerted effort in questions by both the 12 Legislature and the Sunset Committee to move in this 13 direction, to have the boards involved in contracts 14 because of historic issues in some agencies for 15 purchases. 16 CHAIRMAN WILLIAMSON: All right. Okay. 17 Great. Is there a motion, please? 18 COMM. KRAUSE: I move that we start the 19 rulemaking process by publishing for public comment the 20 new proposed rule 16 TAC §401.105 (sic). 21 CHAIRMAN WILLIAMSON: Is there a second? 22 COMM. EDWARDS: Second. 23 CHAIRMAN WILLIAMSON: All in favor? 24 (Those voting in favor so responded) 25 CHAIRMAN WILLIAMSON: Motion passes 31 1 three-zero. 2 MR. BIARD: Thank you, Commissioners. I 3 have a (inaudible) for your initials. 4 AGENDA ITEM NO. IX 5 CHAIRMAN WILLIAMSON: All right. The next 6 item is consideration of and possible discussion and/or 7 action, including proposal on amendment to 16 TAC 8 401.203 contested cases, and 401.211 law governing 9 contested cases. 10 Steve? 11 MS. WHITE: Thank you, Chairman, 12 Commissioners. For the record my name is Stephen White, 13 Assistant General Counsel with the Texas Lottery 14 Commission. 15 The staff has proposed amendments to 16 16 Texas Administration Code §401.203 and 401.211, which 17 are in your binders at Tab 9. Both these rules relate 18 to contested cases. The purpose of the proposed rule is 19 to implement changes to Government Code Chapter 466 20 pursuant to Section 6 of House Bill 2197, specifically 21 to the deletion of the provision that the Government 22 Code Chapter 2001, commonly known as the Administrative 23 Procedure Act, does not apply to summary suspension 24 hearings. These changes in the Section 6 make it clear 25 that the Administrative Procedure Act does apply to 32 1 summary suspension hearings. 2 Section 45 of House Bill 2197 provides 3 that rules, policies and procedures required to be 4 (inaudible) pursuant to House Bill 2197 be adopted no 5 later than January 1, 2014. Therefore, the staff 6 recommends that the Commission initiate the rulemaking 7 process by publishing the proposed amendments to Rule 8 401.203 and 401.211. 9 CHAIRMAN WILLIAMSON: All right. Any 10 questions? 11 COMM. KRAUSE: This just makes in rule 12 form what we've been doing on the cases. 13 MS. WHITE: Yes, sir. And basically we've 14 been -- always applied the Administrative Procedure Act 15 to all hearings conducted at State Office of 16 Administrative Hearings. 17 CHAIRMAN WILLIAMSON: All right. 18 Commissioners, any questions? 19 COMM. EDWARDS: No. 20 CHAIRMAN WILLIAMSON: Is there a motion? 21 COMM. KRAUSE: I make a motion that we 22 approve the proposed amendments to 16 TAC §401.203 and 23 211 pertaining to contested cases. 24 CHAIRMAN WILLIAMSON: Is there a second? 25 COMM. EDWARDS: Second. 33 1 CHAIRMAN WILLIAMSON: All in favor? 2 (Those voting in favor so responded) 3 CHAIRMAN WILLIAMSON: Motion passes 4 three-zero. 5 MR. WHITE: Thank you. 6 MR. BIARD: Thank you, Commissioners. I 7 have a (inaudible) for your initials. 8 AGENDA ITEM NO. X 9 CHAIRMAN WILLIAMSON: Next item is 10 consideration of and possible discussion and/or action, 11 including proposals on new 16 TAC 403.102, items mailed 12 to the Commission. 13 James, this is your item, please. 14 MR. PERSON: Good morning, Commissioners. 15 For the record, my name is James Person, Assistant 16 General Counsel. 17 Staff is proposing to create a new rule 18 §403.102 titled items mailed to the Commission. As 19 you're probably aware, several provisions in the State 20 Lottery Act, Bingo Enabling Act, our Commission rules, 21 there are deadlines by which certain items need to be 22 mailed to the Commission. For example, winning tickets 23 claimed by mail have to be mailed in by a certain date. 24 We generally rely on postmarks to 25 determine, obviously, when something is mailed. Our 34 1 lottery operations division have recently informed us, 2 however, that they're receiving an increasing number of 3 items that lack any legible postmark. And with -- 4 obviously without that postmark, we have a hard time 5 determining whether the item was mailed within the 6 applicable deadline. 7 In response to this problem, the proposed 8 new rule would allow the Commission to assign a mailed 9 on date to any item received without a postmark. The 10 standard would be seven calendar days from the date we 11 received the item would be considered a mailed-by date 12 if it lacks a postmark. Some bingo rules currently use 13 the same standard, and we're just taking this and 14 applying it agency wide. And that's -- staff recommends 15 that you initiate the rulemaking process. 16 CHAIRMAN WILLIAMSON: Are there any 17 questions? 18 (No audible response) 19 CHAIRMAN WILLIAMSON: Is there a motion? 20 COMM. KRAUSE: I make a motion that we 21 accept the proposal by the staff on the new proposed 22 rule, Section 16 TAC -- 16 TAC §403.102. 23 CHAIRMAN WILLIAMSON: Is there a second? 24 COMM. EDWARDS: I second. 25 CHAIRMAN WILLIAMSON: All in favor? 35 1 (Those voting in favor so responded) 2 CHAIRMAN WILLIAMSON: Motion passes 3 three-zero. 4 Thank you. The next item is a report -- 5 MR. BIARD: I have a -- I'm sorry. I have 6 an order for y'all to initial. 7 AGENDA ITEM NO. XI 8 CHAIRMAN WILLIAMSON: Okay. Sorry about 9 that. I got a little ahead of the game. 10 The next item is report, possible 11 discussion and/or action on agency contracts, including 12 suspension and/or amendments on the contract for drawing 13 studio and production services, and amendments on the 14 contract for surveillance camera products and related 15 services the lottery drawing CPA services. 16 Mike? 17 MR. FERNANDEZ: Good morning. For the 18 record, my name is Mike Fernandez. I'm the Director of 19 Administration. 20 And your comments are exactly right. This 21 is to advise the Commission of staff's intent to amend 22 or extend three contracts. And as the Chair has just 23 read, Elephant Production, we're looking to execute a 24 one-year extension of that contract. 25 The studio security systems, which is 36 1 Knight Security Systems, their cameras, security 2 cameras, and we're looking to amend that contract. And 3 also Davila, which is the drawing studio -- drawing 4 studio audit group, and we're looking to also amend that 5 contract. 6 If you have any questions, I'd be happy to 7 answer them. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioners, do you have any questions? 10 (No audible response) 11 AGENDA ITEM NO. XII 12 CHAIRMAN WILLIAMSON: All right. Thank 13 you. 14 The next item is the consideration of 15 and/or possible discussion and/or action on external and 16 internal audits and/or reviews relating to the Texas 17 Lottery Commission and on -- and/or on the internal 18 audits division's activities. There is no report other 19 than the internal audit directer position has been 20 posted. 21 AGENDA ITEM NO. XII 22 CHAIRMAN WILLIAMSON: The next item is 23 report, possible discussion and/or action on GTECH 24 Corporation. 25 Gary? 37 1 MR. GRIEF: Commissioners, other than 2 what's in your notebooks, I have nothing further to 3 report on that item. 4 CHAIRMAN WILLIAMSON: Commissioners, do 5 you have any questions? 6 (No audible response) 7 AGENDA ITEM NO. XIV 8 CHAIRMAN WILLIAMSON: The next item is a 9 report by the Executive Director and or possible 10 discussion and/or action on the agency's operational 11 status, agency procedures, awards and FTE status. 12 Gary? 13 MR. GRIEF: Commissioners, I do have one 14 item to report to you on other than what's in your 15 notebook. 16 Our agency's sunset bill and the sunset 17 report require that the agency continue to produce a 18 business plan that was based on a previous sunset 19 recommendation, with some additional required elements, 20 with the goal being to approve the agency's overall 21 accountability. This revised business plan will include 22 evaluations of and goals tied to efficiency and 23 performance. 24 As Nelda said earlier under her report, 25 the sunset review said that the agency walks a tightrope 38 1 in balancing the many contradictions in the state's 2 attitudes toward gaming. We're charged with operating 3 the lottery like a business, generate revenue for the 4 state through gaming, but at the same time we have to be 5 mindful and respectful of those in our state who are 6 opposed to gaming. 7 We must be as innovative as possible in 8 designing and marketing our games, and we must do so 9 under strict caps for spending on advertising, and 10 statutory direction to not unduly influence anyone to by 11 a lottery ticket. And as Nelda said, the sunset review 12 found that despite those challenges, the agency 13 successfully balances the various demands placed on it. 14 So to ensure that we develop and produce 15 an agency business plan that will be both responsive to 16 the requirements of the sunset statute and helpful to 17 agency staff and to the Commission, I want to advise the 18 Commission that we will be going out with a request for 19 proposal, an RFP, to acquire consulting services to help 20 develop the business plan. 21 The agency sunset bill requires adoption 22 of a new business plan by September 1, 2014, but we 23 anticipate that we will bring this to you much sooner 24 than that for your consideration. 25 That concludes my report this morning. I 39 1 will happy to answer any questions. 2 CHAIRMAN WILLIAMSON: Thank you. Y'all 3 have any questions of Gary? 4 COMM. EDWARDS: No. 5 AGENDA ITEM NO. XV 6 CHAIRMAN WILLIAMSON: The next item is 7 report by the Charitable Bingo Operations Director 8 and/or possible discussion and/or action on the 9 Charitable Bingo Operations Division's activities, 10 including updates on licensing accounting and audit 11 activities, pull-tab review and special projects. 12 Sandy? 13 MS. JOSEPH: Good morning, Commissioners. 14 I would like to update you on the projects 15 I've mentioned at the previous two Commission meetings 16 in addition to what's in the notebook. 17 First of all, with approval of the budget 18 today, we are in a position to proceed with issuing the 19 statement of work for the procurements of the ACBS 20 redesign project. That's the automated charitable bingo 21 project. And that statement of work will be sent out to 22 the Department of Information Resources approved vendors 23 for them to submit cost proposals. We're excited about 24 that of course. 25 In addition, since the last meeting, we 40 1 have posted the positions for additional auditors, and 2 we've received, up to this morning, 21 applications. So 3 we'll be screening those, reviewing those applications 4 right away and moving on to the interview process. 5 In conjunction with that, we are still 6 working with facilities and IR to reconfigure the bingo 7 space. We want to make space for all these new people 8 we're going to have. We do have plans of how we can do 9 that, and so it's going to be a very busy time in the 10 bingo area -- not just for the bingo staff but for 11 others in the agency. 12 And also on our scanning project to scan 13 all of our old files, we're moving ahead with that. The 14 bingo staff is just completing boxing up about 300 boxes 15 of files in preparation for scanning. We believe we'll 16 be able to move ahead with that this next week. We need 17 to get those files out of the way to house some of our 18 new people, in addition to we want just to be more 19 efficient. 20 And then we are still working on our 21 rulemaking with -- working closely with legal and we'll 22 be proceeding on that. 23 CHAIRMAN WILLIAMSON: All right. Sounds 24 like you have a lot going on down there. 25 MS. JOSEPH: We do. 41 1 CHAIRMAN WILLIAMSON: Commissioners, do 2 you have any questions or comments? 3 Thank you. The next item is consideration 4 of the status and possible -- oh, we're going to skip 5 over to public comment, and there are none. So now 6 we'll go back to consideration of the status and 7 possible entry of orders in cases posted on the Open 8 Meeting agenda. 9 (Pause in the proceedings) 10 AGENDA ITEM NO. XVII 11 CHAIRMAN WILLIAMSON: I apologize. Okay. 12 We will go to Open Meeting comments. Mr. Jerry Kiser on 13 lottery sales game performance. 14 Please accept my apologies for -- 15 MR. KISER: -- got up awful early this 16 morning, about 1:30 up near Oklahoma. I got some 17 baggage here. Sorry. 18 I may have to go over this with someone 19 for further review to see, because I don't want to be 20 out of order or to cause any conflict or -- at least I'm 21 not supposed to because I'm familiar with all the rules 22 and regulations. 23 But I have an issue with -- it's either -- 24 I don't know how the lottery sales, what that includes, 25 or the game performance, what it includes, but I have an 42 1 issue with the Pick 3, the way it comes down when you 2 get your tickets, Quick Picks, and the results. 3 I have an issue with all that, and I've 4 been keeping score here. I've got scores of tickets in 5 the books on -- since October 1st of '11, 2011. But 6 I've become more alarmed with it, and that's why I'm 7 here today to see if there's something in there that 8 we're overlooking. Because I don't think y'all or 9 anyone sees what I see. Because when I go put my 10 tickets in, y'all don't have any tickets I play. And 11 what I see on my tickets, when y'all see the results -- 12 and I've got a handful of tickets here. I probably paid 13 for quite a few salaries -- I mean hundreds or thousands 14 of dollars of tickets those are. It's $5 a piece and I 15 paid for all of them. So that's just an issue. 16 But I would like for someone to -- maybe I 17 can go over with someone and see if there's something 18 that I need -- that I'm -- don't know about that was not 19 really anything that -- I paid my money. I'm smart 20 enough to play it and win, that's fine. If I'm dumb 21 enough to give my money and lose, that's my fault, too. 22 But I want to know if there's something in 23 the works or something that we could look at that would 24 maybe calm my concerns or see if there's something that 25 could be done. I'm not sure what. 43 1 CHAIRMAN WILLIAMSON: Okay. I can get -- 2 MR. KISER: How would I address that? 3 MR. GRIEF: Could I make a suggestion? 4 CHAIRMAN WILLIAMSON: Sure. 5 MR. GRIEF: It sounds like it would be 6 something under the purview of Mike Anger, our Lottery 7 Operations Director. 8 CHAIRMAN WILLIAMSON: Okay. And he's 9 here. 10 MR. GRIEF: I'm sure Mr. Anger would make 11 himself or his staff available to you while you're here. 12 MR. KISER: Super. 13 CHAIRMAN WILLIAMSON: Is that what you're 14 looking for? 15 MR. KISER: I don't know what I needed to 16 do and have someone to sit down and talk to and tell me 17 yes or no or -- 18 CHAIRMAN WILLIAMSON: Okay. Well, 19 Mr. Anger -- 20 MR. KISER: -- not pleading the Fifth or 21 anything -- 22 CHAIRMAN WILLIAMSON: Mr. Anger is here, 23 and I'm sure he'll catch you out here in the back and 24 promptly answer your questions or listen to your 25 concerns. 44 1 MR. KISER: I appreciate it. 2 CHAIRMAN WILLIAMSON: We'll go from there. 3 MR. KISER: Thank you very much. 4 CHAIRMAN WILLIAMSON: Thank you for 5 bringing that to our attention. 6 MR. KISER: Thank you. 7 AGENDA ITEM NO. XVI 8 CHAIRMAN WILLIAMSON: The next item is 9 consideration of the status and possible entry of orders 10 in cases posted on the Open Meetings agenda. 11 MR. BIARD: Thank you, Commissioners. We 12 have three enforcement items today. The third of these 13 items has four agreed orders associated with it. There 14 are no lottery insufficient funds cases today. 15 The item at Tab A is the proposed 16 revocation of a lottery retailer's license. The 17 licensee failed to disclose that one of his officers was 18 convicted of possession of a gambling device, and it has 19 not been 10 years since the sentence was served, which 20 is how our statute reads for eligibility purpose. This 21 renders the retailer ineligible for a license. 22 The case was presented at the State Office 23 of Administrative Hearings, and the Administrative Law 24 Judge recommends revocation, and staff recommends that 25 you vote to approve the order revoking the license of 45 1 Alvin Tobacco Mart No. 2. 2 CHAIRMAN WILLIAMSON: All right. Is there 3 a question or comment, Commissioners? 4 COMM. EDWARDS: No. 5 COMM. KRAUSE: I make a motion to approve 6 the order and revoke the license. 7 CHAIRMAN WILLIAMSON: Is there a second? 8 COMM. EDWARDS: I second. 9 CHAIRMAN WILLIAMSON: All in favor? 10 (Those voting in favor so responded) 11 CHAIRMAN WILLIAMSON: Motion passes 12 three-zero. 13 MR. BIARD: Thank you, Commissioners. I 14 have an order for you. 15 The second item, Tab B, is a proposed 16 agreed order with a bingo distributor, GamePilot, who 17 failed to require payment for goods within 30 days as 18 required by the Bingo Enabling Act and Commission rules. 19 The distributor agreed to pay a $2100 penalty, and staff 20 recommends that you approve the agreed order. 21 CHAIRMAN WILLIAMSON: All right. I assume 22 this is the result of an audit? 23 MR. BIARD: I believe so. 24 CHAIRMAN WILLIAMSON: It is. I have an 25 audit here. 46 1 Is there any questions? 2 (No audible response) 3 CHAIRMAN WILLIAMSON: Is there a motion? 4 COMM. KRAUSE: I make a motion that we 5 approve the proposed agreed order in this case. 6 CHAIRMAN WILLIAMSON: Is there a second? 7 COMM. EDWARDS: Second. 8 CHAIRMAN WILLIAMSON: All in favor? 9 (All those voting in favor so responded) 10 CHAIRMAN WILLIAMSON: Motion passes 11 three-zero. 12 MR. BIARD: Thank you, Commissioners. I 13 have an order in that matter. 14 The third item, Tab C, includes four 15 agreed orders in the Golden Belle Bingo Hall matter. 16 This case involved the use of eight-liner gambling 17 machines in two bingo halls, and -- one in Gun Barrel 18 City and one in Granbury. There's one commercial lessor 19 and five charities involved in this case. 20 We have reached a settlement with each of 21 the parties. As of today we have agreed orders with the 22 bingo hall owner, commercial lessor, and three of the 23 five charities ready for your consideration today. And 24 staff recommends that you approve these. This was a 25 matter that was litigated as the State Office of 47 1 Administrative Hearings. It involved allegations that 2 the commercial lessor and five charities were operating 3 illegal eight-liner machines in the bingo hall or 4 adjacent to bingo halls, and conducted an illegal 5 lottery in the form of a door prize. The eight-liner 6 machines awarded as prizes bingo supplies and products 7 players could use to play bingo in the same location. 8 And after this operation ceased, the machines awarded 9 tickets allowing players to participate in a door pize. 10 The Administrative Law Judge found that 11 the machines were illegal gambling devices that don't 12 fall into the statutory exemption for amusement 13 (inaudible) and recommended that each party pay a 14 separate $10,000 fine penalty. 15 In late June counsel for the lessor and 16 the charities approached the Commission about settling 17 the matter, and we have reached that -- staff has 18 reached settlement. Under the agreed orders, each of 19 these respondents would pay a thousand-dollar 20 administrative penalty. And additionally, the 21 commercial lessor has surrendered his license -- 22 commercial lessor license -- and has agreed to cease all 23 involvement in the charitable bingo business for 10 24 years. 25 And also -- and significantly, the parties 48 1 adopt the Administrative Law Judge's findings of fact 2 and conclusions of law regarding the operation of these 3 machines and that it did violate the penal statutes on 4 illegal gambling devices. And those findings are 5 included in the judge's proposal for decision. And I 6 also have a copy of that for your records as well. 7 The staff recommends that you sign the 8 Board agreed orders. I believe Mr. Fenoglio, counsel 9 for the charities, has filed a witness affirmation, so 10 he may wish to speak. 11 CHAIRMAN WILLIAMSON: Okay. Mr. Fenoglio, 12 do you want to speak? 13 MR. FENOGLIO: Madam Chair, if I may -- 14 CHAIRMAN WILLIAMSON: Sure. 15 MR. FENOGLIO: -- Stephen Fenoglio. I 16 will answer any questions. I don't need to speak. 17 CHAIRMAN WILLIAMSON: Okay. Do y'all have 18 any questions, Commissioners? 19 COMM. KRAUSE: I make a motion that we 20 adopt the proposed agreed orders in all these cases. 21 CHAIRMAN WILLIAMSON: Is there a second. 22 COMM. EDWARDS: Second. 23 CHAIRMAN WILLIAMSON: All in favor? 24 (All those voting in favor so responded) 25 CHAIRMAN WILLIAMSON: Motion passes 49 1 three-zero. 2 MR. BIARD: Thank you, Commissioners. I 3 have four agreed orders for your signature. 4 AGENDA ITEM NO. XVIII 5 CHAIRMAN WILLIAMSON: Okay. At this time 6 I move that the Texas Lottery Commission go into 7 executive session to deliberate personnel matters 8 including the appointment, employment, evaluation, 9 reassignment, duties, discipline or dismissal of the 10 Executive Director, Charitable Bingo Operations Director 11 and/or the Internal Audit Director, and the duties of 12 the General Counsel and/or the Human Resources Director 13 pursuant to Section 551.074 of the Texas Government 14 Code; to receive legal advice regarding pending or 15 contemplated litigation or settlement offers pursuant to 16 Section 551.0711, legal advice pursuant to Section 17 551.0712 of the Texas Government Code, including but not 18 limited to those items posted on the Open Meeting notice 19 for purposes of receiving legal advice. 20 Is there a second? 21 COMM. KRAUSE: Second. 22 CHAIRMAN WILLIAMSON: All in favor? 23 (Those voting in favor so respond) 24 CHAIRMAN WILLIAMSON: Motion passes 25 three-zero. At this time the Texas Lottery Commission 50 1 will go into executive session. The time is 10:55 a.m. 2 Today is August the 5th of 2013. 3 (Recess: 10:55 to 12:18 p.m.) 4 AGENDA ITEM NO. XIX 5 CHAIRMAN WILLIAMSON: Texas Lottery 6 Commission is out of executive session. The time is 7 12:18 p.m., and there is no action to be taken as a 8 result of the executive session. 9 AGENDA ITEM NO. XX 10 CHAIRMAN WILLIAMSON: So at this time is 11 there a motion on adjournment? 12 COMM. KRAUSE: I move we adjourn. 13 COMM. EDWARDS: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 (All in favor so responded) 16 CHAIRMAN WILLIAMSON: Motion passes 17 three-zero. This Lottery Commission meeting is 18 adjourned as of 12:18 p.m. Today is August the 5th, 19 2013. 20 (Proceedings concluded at 12:13 p.m.) 21 22 23 24 25 51 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lou Ray, Certified Shorthand Reporter 5 in and for the State of Texas, do hereby certify 6 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, 10 later reduced to typewritten form under my 11 supervision and control and that the foregoing pages 12 are a full, true, and correct transcription of the 13 original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 13th day of August, 2013. 16 _______________________________ 17 LOU RAY 18 Certified Shorthand Reporter CSR No. 1791 - Expires 12/31/13 19 Firm Registration No. 276 20 Kennedy Reporting Service, Inc. 1016 La Posada Drive, Suite 294 21 Austin, Texas 78752 512.474.2233 22 23 24 Job No. 111781 25