1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 COMMISSION MEETING OF THE § 8 TEXAS LOTTERY COMMISSION § TUESDAY, AUGUST 12, 2014 § 9 10 11 12 13 COMMISSION MEETING 14 TUESDAY, AUGUST 12, 2014 15 16 17 BE IT REMEMBERED THAT on Tuesday, the 12th day 18 of August 2014, the Texas Lottery Commission meeting was 19 held from 10:00 a.m. until 12:23 p.m., at the Offices of 20 the Texas Lottery Commission, 611 East 6th Street, 21 Austin, Texas 78701, before CHAIRMAN J. WINSTON KRAUSE 22 and COMMISSIONERS JODIE G. BAGGETT and MARY ANN 23 WILLIAMSON; that the following proceedings were reported 24 via machine shorthand by Dalia F. Inman, a Certified 25 Shorthand Reporter. 2 1 APPEARANCES 2 CHAIRMAN: Mr. J. Winston Krause 3 COMMISSIONERS: 4 Ms. Jodie G. Baggett Ms. Mary Ann Williamson 5 GENERAL COUNSEL: 6 Mr. Robert F. Biard 7 EXECUTIVE DIRECTOR: Mr. Gary N. Grief 8 CHARITABLE BINGO OPERATIONS DIRECTOR: 9 Mr. Alfonso D. Royal III 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 - TUESDAY, AUGUST 12, 2014 ......... 7 4 I. The Texas Lottery Commission will call the meeting to order...................... 7 5 II. Report, possible discussion and/or action 6 on GTECH Corporation...................... 7 7 III. Consideration of and possible discussion and/or action, including adoption, on 8 Petition of K&B Sales Inc. and Dept. of Texas Veterans of Foreign Wars for 9 Adoption of Rule Changes to 16 TAC §§ 402.321 Card-Minding Systems – 10 Definitions, 402.322 Card-Minding Systems – Site System Standards, 402.323 Card-Minding 11 Systems – Device Standards, and 402.325 Card-Minding Systems – Licensed Authorized 12 Organizations Requirements................ 19 13 IV. Report, possible discussion and/or action on the agency’s comprehensive business plan 14 pursuant to State Lottery Act § 466.028... 26 15 V. Consideration of and possible discussion and/or action, including adoption, on new 16 16 TAC § 401.323 “MONOPOLY MILLIONAIRES' CLUB™” Game Rule.......................... 31 17 VI. Consideration of and possible discussion 18 and/or action, including adoption, on amendments to 16 TAC §§ 401.158 Suspension 19 or Revocation of License and 401.160 Standard Penalty Chart.................... 34 20 VII. Report, possible discussion and/or action 21 on lottery sales and revenue, game performance, new game opportunities, 22 advertising, market research, trends, and game contracts, agreements, and procedures. 40 23 VIII. Report, possible discussion and/or action 24 on transfers to the State and the agency’s budget status............................. 45 25 4 1 TABLE OF CONTENTS 2 PAGE 3 IX. Report, possible discussion and/or action on the FY 2016-2017 Legislative 4 Appropriations Request.................... 47 5 X. Report, possible discussion and/or action on the 83rd Legislature, including 6 implementation of legislation............. 50 7 XI. Report, possible discussion and/or action on agency prime contracts, including 8 amendments on the contract for drawings CPA services.............................. 52 9 XII. Report, possible discussion and/or action 10 on agency major contracts, including amendments on the contract for drawings 11 studio and production services............ 53 12 XIII. Report by the Charitable Bingo Operations Director and possible discussion and/or 13 action on the Charitable Bingo Operations Division’s activities, including updates 14 on the Business Process Restructuring Project, licensing, accounting and audit 15 activities, pull-tab review, and special projects.................................. 54 16 XIV. Consideration of and possible discussion 17 and/or action on external and internal audits and/or reviews relating to the 18 Texas Lottery Commission, and/or on Internal Audit activities................. 59 19 XV. Report by the Executive Director and/or 20 possible discussion and/or action on the agency’s operational status, agency 21 procedures, awards, and FTE status........ 66 22 XVI. Consideration of the status and possible entry of orders in: 23 Lottery NSF License Revocation Cases (Default Unless Otherwise Noted) 24 A. Docket No. 362-14-3332 – Navarro Mills General Store 25 B. Docket No. 362-14-3333 – Tiger Mart #58 5 1 TABLE OF CONTENTS 2 PAGE 3 C. Docket No. 362-14-3334 – Brenham Food Store 4 D. Docket No. 362-14-3335 – 8 Zero 1 Convenience Store 5 E. Docket No. 362-14-3337 – Khulna Brothers, Inc. (Not Default) 6 F. Docket No. 362-14-3475 – One Stop Mart G. Docket No. 362-14-3485 – Century Fuels, Inc. 7 H. Docket No. 362-14-3486 – Speedy Mart I. Docket No. 362-14-3760 – Big A Food Mart 8 J. Docket No. 362-14-3761 – Big Daddy’s K. Docket No. 362-14-3762 – Country Stop 9 Lottery Agreed Orders L. Case No. 2014-436 – Stripes #82 10 M. Docket No. 362-13-5737 – James Mini Mart..................................... 72 11 XVII. Public comment........................... xx 12 XVIII. Commission may meet in Executive Session: 13 A. To deliberate personnel matters, including the appointment, employment, 14 evaluation, reassignment, duties, discipline, or dismissal of the Executive Director and/or 15 the Charitable Bingo Operations Director pursuant to Section 551.074 of the Texas 16 Government Code. B. To deliberate the duties of the General 17 Counsel and/or the Human Resources Director pursuant to Section 551.074 of the Texas 18 Government Code. C. To receive legal advice regarding 19 pending or contemplated litigation or settlement offers pursuant to Sections 20 551.071(1)(A) and (B), and/or legal advice pursuant to Section 551.071(2), of the 21 Texas Government Code, including but not limited to legal advice regarding the 22 following items: Department of Texas, Veterans of Foreign 23 Wars et al. v. Texas Lottery Commission et al. 24 25 6 1 TABLE OF CONTENTS 2 PAGE 3 State of Texas v. Equal Employment Opportunity Commission et al. 4 Attorney General Opinion Request No. 1185-GA (Whether a Game Proposed by the Lottery 5 Commission Through Title 16, Section 401.322 of the Administrative Code Qualifies as a 6 Lottery Under the Texas Constitution) and any Opinion pursuant thereto regarding the 7 “Texas Triple Chance” game or other Texas Lottery games. 8 Legal advice regarding the State Lottery Act, Texas Government Code Chapter 467, the Bingo 9 Enabling Act, the Open Meetings Act, the Administrative Procedure Act, employment law, 10 personnel law, procurement and contract law, evidentiary and procedural law, and general 11 government law. Legal advice regarding any item on this 12 open meeting agenda...................... 75 13 XIX. Return to open session for further deliberation and possible action on any 14 matter posted for discussion in Executive Session........................ 76 15 XX. Adjournment.............................. 77 16 17 REPORTER'S CERTIFICATE.......................... 78 18 19 20 21 22 23 24 25 7 1 P R O C E E D I N G S 2 TUESDAY, AUGUST 12, 2014 3 (10:00 a.m.) 4 AGENDA ITEM I 5 CHAIRMAN KRAUSE: Good morning. The Texas 6 Lottery Commission meeting is called to order. It is 7 August the 12th. It is 10 a.m. Commissioners Baggett 8 and Williamson are present. We have a quorum. We are 9 open for business. 10 The first thing I'm going to do is, I'm 11 going to introduce our new bingo director, Mr. Alfonso 12 Royal. 13 Would you like to -- do whatever you want 14 to do to make yourself at home here. 15 MR. ROYAL: Thank you, Mr. Chairman. I am 16 glad to be here at the Lottery Commission. 17 CHAIRMAN KRAUSE: Very happy to have you. 18 Thank you very much. 19 AGENDA ITEM II 20 CHAIRMAN KRAUSE: The first item is a 21 report on GTECH. And we have a witness. 22 Mr. Patel. 23 MR. GRIEF: Mr. Chairman, if I could make 24 some opening comments. 25 Go ahead, Jaymin, if you'd like to take a 8 1 seat. 2 In addition to what we have in your 3 notebook this morning regarding the GTECH item, I do 4 have one other point that we want to discuss today. 5 In mid-July, our lottery operator, GTECH, 6 announced that it had agreed to purchase International 7 Game Technology, or IGT as it's known, in a 8 multibillion-dollar transaction. What this did was 9 effectively combined the world's biggest operator of 10 lottery systems, GTECH, with the world's biggest slot 11 machine manufacturer, IGT. GTECH provided us notice in 12 a timely fashion as provided for in their contract. 13 But, Commissioners, this is a very 14 significant development in the gaming industry. And I 15 felt it was important for the Commission to hear from 16 GTECH as soon as possible as to what, if any, impact 17 that the transaction may have on the Texas Lottery, 18 because that's what we care about. So I've invited 19 Jaymin Patel, the CEO and President of GTECH Americas, 20 who's no stranger to the Commission, to appear here 21 today and to brief you on the transaction to the degree 22 that he can, given public disclosure restrictions, at 23 this point in time. 24 And also here today, but not testifying, 25 is Alan Eland, the Senior Vice President and Chief 9 1 Operating Officer of GTECH. 2 And if it suits the Commission, I would 3 like to turn it over to Jaymin for his comments. 4 CHAIRMAN KRAUSE: Outstanding. Please. 5 MR. PATEL: Thank you. Thank you very 6 much, Mr. Grief, for your opening comments. 7 Good morning, Mr. Chairman and 8 Commissioners. Thank you very much for the opportunity 9 to address you this mourning. It's a pleasure to, once 10 again, be in front of the Texas Lottery Commission. 11 As Mr. Grief mentioned, I am Jaymin Patel, 12 the President and CEO of GTECH Americas; and I'm also a 13 board member of GTECH S.p.A. 14 I'd like to begin my comments today by 15 offering some brief comments on the IGT transaction. As 16 you are aware by now, GTECH entered into an agreement to 17 acquire IGT for a total transaction value of 18 $66.4 billion. By entering into this transaction, we 19 will be joining two iconic gaming companies and our 20 leaders in their respective categories and have really 21 driven the growth and innovation of 22 government-sponsored, in the case of GTECH, and 23 commercial gaming, in the case of IGT, since the very 24 beginning. 25 When you think about lotteries, we hope 10 1 you think about GTECH. And certainly when you think 2 about slot machines, you think of IGT. But, in truth, 3 we are much more than that. In addition to providing 4 lottery solutions, GTECH has, over the years, become a 5 leading gaming operator. And we have also built an 6 interactive gaming business, both internationally and 7 here in North America. 8 Likewise, IGT has added to its portfolio 9 to become a driving force in the growing social casino 10 industry, which is becoming bigger and bigger around the 11 world, and certainly has grown in some -- a position in 12 North America. Together, we believe that we are very 13 well positioned to provide our customers in each of 14 those segments with greater choices, more flexibility, 15 and increased resources that I will talk about. 16 Importantly, for the Texas Lottery, we 17 will have greater scale in a business where scale 18 matters. We will have the most diversified product 19 portfolio. We'll have the largest research and 20 development budget in the gaming industry that's much 21 larger than all of our competitors combined. That will 22 enable us to make the investments that we have been 23 making over the years in innovation, new games and 24 systems that bring games to consumers. 25 One of the most compelling aspects of this 11 1 deal is that we have highly complementary businesses. 2 There's not much overlap that we have seen so far. 3 We think that we will create some synergies. In total, 4 we have announced that there will be $280 million of 5 annualized cost synergies and revenue synergies that we 6 will capture over the next three years. 7 For our customers, there are significant 8 advantages. Content, which is a significant driver of 9 success of any gaming business, will be an important 10 aspect of the combination going forward. As I am sure 11 you are aware, IGT is a leading player in developing 12 content and has a library of games that surpasses any 13 other company in the industry. And it's very important 14 for us to be able to take that content, those game 15 titles, to find ways of distributing them across all of 16 our gaming businesses. And later on in my remarks, I'll 17 talk about the introduction of MONOPOLY® Millionaire, 18 which is a very good example of a brand -- a title that 19 is being used in the lottery industry to really attract 20 new consumers and to drive sales product and returns to 21 good causes. 22 This transaction's just been announced. 23 We expect to close it in the second -- first or second 24 quarter of 2015. There are some restrictions around the 25 comments I can make, because we are in the process of an 12 1 SEC registration. We will be moving GTECH's listing 2 from the Milan Stock Exchange in Europe to the New York 3 Exchange; hence the reason for SEC registration. So I 4 am somewhat restricted in the comments that I can make, 5 because whatever I say becomes of public record. 6 However, you certainly have my commitment to come before 7 you and apprise you of developments as they -- as 8 they -- as they develop over the next several months. 9 Now, with a transformational transaction 10 of this nature for GTECH, naturally there are concerns 11 about management's ability to remain focused on our 12 co-lottery business. And I've spent some time with -- 13 with Mr. Grief in addressing these matters. Let me, 14 first of all, assure you that the Texas Lottery is, and 15 will remain, a major priority for GTECH. We have a 16 dedicated management team led on the ground here by Joe 17 Lapinski. And I can assure you that his 18 responsibilities as the general manager for our 19 operations here will not change. 20 In addition, the Texas Lottery will 21 continue to receive proper oversight from senior 22 management at GTECH, including personal attention from 23 me as necessary. 24 Simply put, the Texas Lottery is one of 25 GTECH's largest and most important customers in the 13 1 world, and I will not allow the IGT transaction to take 2 our focus away from servicing the Texas Lottery. 3 If I may now, I would like to turn to 4 GTECH's recently announced 2014 second quarter and first 5 half results to give you some comfort on how our 6 business is progressing overall. 7 You'll be pleased to hear that our 8 business is progressing very well around the globe. 9 Looking at the second quarter, we were able to achieve 10 results that were generally comparable to the similar 11 quarter last year, which is a very good accomplishment. 12 In the second quarter of last year, we had tremendous 13 one-time sales in Canada. And so despite those one-time 14 sales last year, this year, we were able to sell other 15 products in the Americas business and internationally to 16 basically balance the performance of last year. 17 We had strong sales growth in our 18 businesses around the world. So overall, despite the 19 fact that we also had tough comparisons with high 20 jackpots in the second quarter of last year, our 21 business performed very, very well. 22 So we feel that the business is doing very 23 well competitively. We are growing in all of our 24 segments. Our customers are awarding us new business 25 that gives us confidences that the trust in GTECH, you 14 1 know, is strong and is growing. 2 Notably, in the Americas, we were the 3 successful bidder to provide the online system in 4 Tennessee, where we have been the incumbent provider 5 since the beginning of that lottery. And we signed an 6 extension in West Virginia. You may be interested to 7 note that in Georgia, we have begun the test of some 8 expanded games on the Internet, where we are now selling 9 Keno and electronic instants. Players are taking those 10 games very well, and we expect to have a fuller rollout 11 beginning later this year. 12 As I mentioned earlier, we are -- work is 13 progressing towards the October 19th launch of a 14 national premium game that will be known as the 15 MONOPOLY® Millionaires' Club. The Texas Lottery, 16 through the active leadership of Mr. Gary Grief, has 17 been instrumental in driving forward this new, 18 innovative game launch. We expect it will create some 19 new interest and excitement in the industry. 20 Our lottery management service agreements 21 that we have in Indiana, New Jersey, and Illinois are 22 performing well. We expect that both in Indiana and 23 New Jersey our performance will be in line with the 24 expectations we set when we won those new style private 25 management agreements. You may have read about some 15 1 activities in Illinois where we have some differences 2 with the Illinois Lottery on the way in which games are 3 being launched. I feel confident those differences will 4 be resolved in due course. We're having active 5 discussions with the lottery and with regulators about 6 how we resolve the relationship that we have in the way 7 of the private managing contract there is being 8 operated. So all underway, and things there, I think, 9 are under our control. 10 Overall, we're very pleased with the 11 business. And I think that this transaction is going to 12 help us, you know, strengthen our position in the 13 industry. As we grow, I think there will be a direct 14 benefit to the Texas Lottery in the experience that we 15 gain. And, of course, you know, we -- we also take the 16 experience from Texas and make sure that we are advising 17 our other customers around the world of the great things 18 that you are doing here. So there's a good cross 19 sharing of ideas. 20 I do want to take the opportunity to point 21 out, Mr. Chairman, if I may, that I did write to you a 22 few months ago to talk about the excellent work that is 23 being done by the Texas Lottery and its performance. 24 Over the last several years, you have increased returns 25 to good causes by more than 20%, driven by the 16 1 innovation and new games that have been launched in the 2 Texas market. And we -- I must tell you that we at 3 GTECH use the Texas Lottery as a model for how we 4 explain to other customers how lottery should be run. 5 So we think the Texas Lottery Commission and the 6 management team led by Mr. Grief do an excellent job 7 here, and it's a model to be upheld in terms of running 8 a business well, transparency, and how to think about 9 the future growth of the business in the industry. 10 So if I -- I'm sure that you've -- you've 11 read this letter, and I -- I wanted to make it public at 12 this meeting. 13 CHAIRMAN KRAUSE: Thank you. 14 MR. PATEL: So in some summing up, we have 15 had a great busy few months. I wanted to take the 16 opportunity to thank you for the trust that you have 17 placed in us and assure you of my personal commitment 18 and the company's commitment that the Texas Lottery will 19 remain a key priority for us going forward. I'm here 20 to -- I'm here on this occasion to place particular 21 emphasis on that point today. Our relationship is the 22 bedrock of the strength that we have, and we don't 23 forget that. So you could take my word for it that we 24 will remain focused, and we will continue to provide the 25 strong service that we feel that we do today. But, 17 1 obviously, we are open here to take your suggestions and 2 criticisms and comments for how we might improve that 3 service. 4 Thank you very much for your time this 5 morning, Mr. Chairman and Commissioners. And now I'd be 6 happy to take your questions. 7 COMM. WILLIAMSON: You addressed 8 everything that I brought up the other night about what 9 I feel like the State of Texas' concerns would be and 10 the Texas Lottery concerns. And I appreciate you -- you 11 doing that. I mean, obviously, I know Gary will stay 12 very on top of everything that goes on as this 13 transaction transpires. And I know that he will 14 communicate any concerns that we might have. But thank 15 you for coming and sharing that and ensuring us of your 16 constant attention to this state and to our lottery. 17 MR. PATEL: Thank you, Commissioner. 18 CHAIRMAN KRAUSE: I want to acknowledge 19 the congratulation that you gave the Texas Lottery 20 Commission. And in doing that, I want to deflect to the 21 great staff that we have. Now, my commissioners and I 22 will probably love to take credit for all this, but we 23 can't, because we didn't do it; our great staff did. 24 And so I think that our great staff working with your 25 great staff together do great things. And so I think 18 1 that we're to be both congratulated for the good people 2 that we have working for us benefiting school children 3 of Texas. 4 Also, I'm glad to hear about the -- the -- 5 the acquisition that you described because of two 6 particular things; and one is that our agreement -- the 7 Lottery Commission's agreement with GTECH envisions 8 evolving technologies to be deployed when they are an 9 improvement on what we provide to our -- our customers. 10 And so it sounds like that your acquisition is going to 11 enrich that, as well as the content, because you're 12 acquiring a -- a diverse content provider. And so we 13 look forward to the benefit that GTECH will be able to 14 provide to the Lottery Commission because of this 15 acquisition. 16 We appreciate you coming down and chatting 17 with us. 18 MR. PATEL: Thank you, Mr. Chairman. And 19 let me just say, if I may, in response to that that you 20 are certainly correct in observing that the acquisition 21 will enhance our ability to offer better systems and 22 better content in the industry. We are here, of course, 23 to serve the Texas Lottery Commission; that would be our 24 focus. 25 The management and sale of casino machines 19 1 will be a different part of our business. So what I see 2 is our ability to use the experience from IGT to really 3 help us further our cause here, which is to assist the 4 Texas Lottery Commission in raising money for good 5 causes. 6 Thank you very much, Mr. Chairman. 7 CHAIRMAN KRAUSE: Outstanding. Thank you 8 very much. 9 MR. PATEL: Thank you. 10 MR. GRIEF: That concludes that item. 11 AGENDA ITEM III 12 CHAIRMAN KRAUSE: All righty. Thank you 13 very much. Moving on to bingo. 14 Mr. Persons, we have discussion, action, 15 and possible adoption of some rules. 16 MR. PERSON: Good morning, Commissioners. 17 For the record, James Person, Assistant 18 General Counsel. 19 As you may recall, back in January, the 20 Commission received two rule-making petitions requesting 21 various amendments to several bingo rules. The first 22 petition requested amendments to Rule 402.300, which 23 would've allowed, among other things, video confirmation 24 for instant pull-tab tickets. The second petition 25 requested amendments to Rules 402.321, .322, .323, 20 1 and .325, which would allow charities to offer bingo 2 patrons the opportunity to set up customer accounts from 3 which they can purchase bingo products during a bingo 4 occasion. As a result of those petitions, you voted to 5 publish the petition for amendments at your February 6 public meeting to -- in order to receive public comment. 7 Staff is bringing the proposed amendments 8 to Rules 402.321, .322, .323, and .325 back for 9 your consideration for the recommendation that you vote 10 to adopt these amendments. The proposed amendments to 11 Rule 402.300, which involve video confirmation, are not 12 before you today. And I want to stress that the 13 proposed amendments that are before you have nothing to 14 do with video confirmation. 15 The petitioners strongly believe that 16 these rule amendments will result in increased proceeds 17 for the charities because of a cutdown on the amount of 18 time needed for -- currently needed for patrons to get 19 up and go to a point of sale station to purchase 20 additional regular bingo cards for play on their card 21 minders. And I also note that the petitioners had 22 submitted many signatures from representatives of 23 various charities in support of these amendments. 24 After the proposed amendments were 25 published, we held two public hearings on the 21 1 proposed -- on -- one on March 19th and one on 2 August 4th. At these hearings, we received several 3 comments in support of the amendments and one comment in 4 opposition. We also received several written comments, 5 all but two being in support. 6 We have addressed all properly submitted 7 comments in the document before you, which will also be 8 included in the publication in the Texas Register, 9 should you decide to vote for these amendments. I do, 10 however, want to address some of the principal comments 11 in opposition to these amendments. Most of the 12 arguments against the adoption of these rules center on 13 a commenter's opposition to video confirmation of 14 instant pull-tab tickets. But, as I stressed earlier, 15 these rules before you have nothing to do with video 16 confirmation. And we have even added an additional 17 language into one of the rules that expressly prohibits 18 video confirmation of instant pull-tab tickets on card 19 minders. So I believe that comment has been addressed. 20 One commenter has specifically expressed 21 his opposition to allowing these types of customer 22 accounts. The commenter has pointed to several pieces 23 of failed bingo-related legislation in past legislative 24 sessions to support his claim that the legislature did 25 not intend to allow these types of customer accounts. 22 1 But even if we were to accept that legislative intent 2 can be discerned from the failure of a particular piece 3 of legislation in the past, that legisla- -- the 4 legislation cited by this commenter did not involve the 5 same type of customer accounts that these proposed rules 6 allow for. So staff does not believe there is a clear 7 legislative intent against these type of customer 8 accounts. And we also believe that we have clear 9 rule-making authority to adopt these amendments. 10 And that's my presentation. But I'd be 11 happy to answer any questions you may have. 12 COMM. WILLIAMSON: First of all, thank 13 everyone that participated in this process. I know 14 having two public comment periods is a little bit out of 15 the norm; but in light of everything, I thought it was 16 appropriate. 17 I was aware, and I watched the -- the 18 second one -- there were comments made about the 19 enhanced audit capacity of doing this, which of course 20 interests me a great deal, because, as we all know, 21 trying to audit a cash-basis business is challenging at 22 best. So, you know, Alfonso or whomever can actually 23 elaborate on what that would allow us to do if we were 24 to pass this rule. 25 How would that enhance that capacity to do 23 1 that? 2 MR. ROYAL: Sure. Thank you, 3 Commissioner. 4 It's my understanding, with the use of the 5 customer account, all the transactions are tracked 6 through an account, as opposed to the current whereby 7 transactions are handled separately; for example, sales 8 handled by a floor runner in conjunction with a cash 9 register, and amounts are reported and shown as total 10 sales. With a customer account, all transactions are 11 independently verified. There's a report that would be 12 available to us, and we would no longer rely solely on 13 the floor worker to ensure the sales are accurately 14 reported. So this would be a benefit for the State, as 15 well as the hall operator, to, I guess, heed [sic] off 16 any slippage that may occur. 17 COMM. WILLIAMSON: Right. And you and I 18 have had discussions about this in the past. I mean, 19 for me, that is a huge positive in -- in doing this. 20 That -- anything that can enhance our -- our compliance 21 and oversight capacity in terms of cash transactions I 22 think is a plus, as long as it's within our -- you know, 23 our purview of what we can do. So, from my perspective, 24 I thought that was a very positive aspect of this. 25 That's all I have. 24 1 CHAIRMAN KRAUSE: Commissioner Baggett? 2 It sounds like we get to take advantage of 3 the enhanced technology from our BOSS system by adopting 4 this rule. 5 The other thing is, is that we are -- our 6 ear is always attuned to what the legislature has to say 7 about what we're doing, because we get all of our 8 authority from the legislature. And so I'd like to ask 9 Nelda to come up and tell us whether or not we've heard 10 from the legislature about this particular issue. 11 MS. TREVINO: Good morning, Commissioners. 12 For the record, I'm Nelda Trevino, the 13 director of governmental affairs. 14 And, Mr. Chairman, to answer your 15 question, we have heard from a couple of members of the 16 legislature; a letter addressed to you from Chairman 17 Charlie Geren and also a letter from Chairman Senfronia 18 Thompson. Both wrote -- the letter is dated August the 19 7th. Both wrote to the Commission expressing their 20 support of the adoption of these rules. Also, back in 21 April, when the Commission was first considering the 22 potential adoption of these rules, Representative Byron 23 Cook also submitted a letter to the Commission in 24 support of the rules. 25 I would also add that in addition to these 25 1 letters, agency staff communicated with various 2 legislative offices, particularly our oversight 3 committees, and also with the Texas Conservative 4 Coalition staff, to let them know that there was a 5 reopening of the comment period, to let them know that 6 the Commission was going to be considering the potential 7 adoption of these rules. And I believe we shared 8 information with them and have not to this date received 9 any negative feedback. 10 CHAIRMAN KRAUSE: Outstanding. Can you, 11 just for the record, explain the significance of the two 12 public officials that wrote these letters? 13 MS. TREVINO: Yes. Both Representative 14 Senfronia Thompson and Representative Charlie Geren are 15 members of the agency's oversight committee, the House 16 Licensing & Administrative Procedures Committee. 17 Additionally, Representative Thompson was just recently 18 appointed by the Speaker of the House to the review 19 committee that was established under the Sunset Bill. 20 So those are -- are two members, obviously, that have 21 had great interest in this agency for some time. Both 22 of them have been members of the licensing committee 23 for -- for a period of time and are very familiar with 24 our agency's business. 25 Representative Byron Cook, during the 26 1 legislative session, had an amendment specific to bingo. 2 I know he has got great interest in the charitable bingo 3 industry. And again his -- his letter also expressed 4 support for the adoption of the rules. 5 CHAIRMAN KRAUSE: Outstanding. Any other 6 questions or comments? 7 Is there a motion to approve staff's 8 recommendation to adopt the amendments? 9 COMM. BAGGETT: I move that we adopt the 10 amendments. 11 CHAIRMAN KRAUSE: Well, I call for a vote. 12 All in favor say "aye." 13 COMM. BAGGETT: Aye. 14 COMM. WILLIAMSON: Aye. 15 CHAIRMAN KRAUSE: Aye. 16 Any opposed? 17 Passes by acclamation. 18 UNIDENTIFIED: Commissioners, I have an 19 order I'll bring you later for signature. 20 AGENDA ITEM IV 21 CHAIRMAN KRAUSE: Mr. Michael Anger, do 22 you have something for us today? 23 MR. ANGER: Absolutely, Mr. Chairman. 24 Good morning. 25 Good morning, Commissioners. 27 1 For the record, my name is Michael Anger, 2 and I'm the Lottery Operations Director for the 3 Commission. 4 Commissioners, during the Sunset Advisory 5 Commission's review of the Texas Lottery Commission, 6 Sunset presented recommendations for modifications and 7 enhancements to the agency's commission Comprehensive 8 Business Plan. These recommendations were detailed in 9 Issue 3 of the Sunset Commission staff report and were 10 later adopted as a part of the agency's Sunset 11 legislation. The legislation requires the Commission to 12 develop a comprehensive business plan, including the 13 establishment and evaluation of specific agency 14 efficiency and performance goals. This bill requires 15 the agency to development the plan by September 1st of 16 this year. 17 The staff has worked for several months on 18 modifications to the existing business plan consistent 19 with Sunset's recommendations. This included engaging 20 an outside consultant, Grant Thornton, to assist with 21 the development of the plan and to ensure compliance 22 with Sunset requirements. 23 At this time, I would like to introduce to 24 you Joey Longley. Mr. Longley is a director for Grant 25 Thornton and led the Grant Thornton Advisory Services 28 1 team to help the agency with this project. 2 Additionally, I would like to note that in addition to 3 being a director with Grant Thornton, Mr. Longley also 4 served for 30 years working with the legislature at the 5 Sunset Commission and spent the last 14 of those as the 6 executive director for the Sunset Commission. 7 Mr. Longley has a few comments for you to 8 share about Grant Thornton's work with the agency on the 9 project. 10 MR. LONGLEY: Thank you, Mr. Chairman and 11 members. It's a pleasure to be here with you this 12 morning. 13 Grant Thornton was pleased to assist your 14 agency on this project. And as you noted earlier today, 15 your staff did a great job on that, as they have done in 16 many -- on many other fronts. 17 We had really two objectives to help 18 the -- the staff in working on this project. And I will 19 also say that the -- the business plan work that y'all 20 had before, in my opinion, was very good based on the 21 experience that we've had in doing -- doing business 22 planning with -- with agencies and with -- with 23 companies. 24 But our two objectives were, first, to 25 provide sort of an outside perspective on how the agency 29 1 does its work, how the Lottery operates, and how it 2 compares to other states. And we used the -- the 3 expertise that we have in -- in doing business planning 4 and doing work with state government, as well as our 5 knowledge of government operations, and some expertise 6 that we had in -- in doing statistical analysis and 7 comparative analysis. We obviously think we added value 8 to the project. You have a great draft report in front 9 you for consideration. 10 The second thing we -- we offered was 11 the -- the ability to -- to make sure that -- that you 12 were reading the letter and the intent of the Sunset's 13 recommendations. And I -- as Mr. Anger said, I -- I've 14 had some experience with that process. And I think I 15 was able to -- to help you with that. I was actually 16 the director at Sunset during some of the previous 17 Lottery Commission Sunset reviews and enjoyed all of 18 that to very degrees of success. 19 But we believe that what you have before 20 you meets the expectations of Sunset, and that it -- it 21 should comply with and meet all of the requirements that 22 they expect. And we would be glad to continue to work 23 with you as necessary, depending on how they actually 24 receive this. 25 And I will yield back my time and answer 30 1 any questions that you might have. 2 COMM. WILLIAMSON: I have no questions. I 3 have looked through the plan. I think it's a very good 4 plan -- a very good document. And y'all did a great 5 job. 6 MR. ANGER: Thank you very much. 7 Commissioners, just briefly, the -- I'll 8 walk through the structure of the plan. The plan is 9 structured with two sections: an annual report section, 10 which contains our fiscal year 2013 actual sales and 11 performance results and other information about the 12 agency's performance through fiscal year '13, because 13 we're not completed with fiscal year '14 at this time. 14 The business plan, the second section of 15 the document, contains our planned goals and our key 16 performance factors that we identified and set targets 17 and efficiency measures for fiscal year 2015. There's 18 10 of those items in the plan. And it's our intention 19 to update that information on a routine basis; bring the 20 plan back to you on -- at least an annual basis or more 21 frequently, if you wish to review our performance and -- 22 and measure our performance against those measures. 23 And so with that, if you have any further 24 questions, we would be happy to answer those. If not, 25 we would request your adoption and approval of the plan 31 1 today. 2 CHAIRMAN KRAUSE: Well, if our consultant 3 says it's good, then it must be good. 4 Do we have a motion to adopt this 5 report -- or this plan? 6 COMM. WILLIAMSON: Yes. I move that we 7 adopt the 2015 comprehensive business plan and annual 8 report. 9 CHAIRMAN KRAUSE: Call for a vote. All in 10 favor say "aye." 11 COMM. WILLIAMSON: Aye. 12 COMM. BAGGETT: Aye. 13 CHAIRMAN KRAUSE: Aye. 14 None opposed. 15 It passes by acclamation. 16 Thank you very much. 17 AGENDA ITEM V 18 CHAIRMAN KRAUSE: Deanne Rienstra, 19 MONOPOLY® Millionaires'. 20 MS. RIENSTRA: Yes, sir. 21 Good morning, Commissioners. 22 Let's see. In your -- in your notebook is 23 the proposed MONOPOLY® Millionaires' Club Game Rule for 24 your review and possible adoption as 16 TAC § 401.323. 25 This rule is submitted to you with non-substantive 32 1 changes to the proposed text as published in the 2 July 4th, 2014, issue of the Texas Register. Most of 3 the revisions are to conform with this rule to the MUSL 4 game rule which was amended on July 11th. All changes 5 are set out in the preamble. 6 A public comment hearing was held on 7 Tuesday, July 22nd, 2014. No members of the public were 8 present at the hearing. The Commission has received no 9 written comment to the public -- during the public 10 comment hearing period. Let's see. Sales for the new 11 game are anticipated to begin October 19th, 2014. And 12 the first drawing for the new game should be 13 October 24th, 2014. 14 Staff recommends the Commission adopt new 15 16 TAC § 401.323, MONOPOLY® Millionaires' Club Game 16 Rule. 17 I am happy to answer any questions. 18 CHAIRMAN KRAUSE: Questions? 19 I think that we're looking for a motion to 20 adopt this rule change. 21 COMM. BAGGETT: I move -- 22 COMM. WILLIAMSON: Okay. Go ahead. 23 COMM. BAGGETT: I make a motion that we 24 adopt it. 25 CHAIRMAN KRAUSE: Excellent. 33 1 Call for a vote. All in favor say "aye." 2 COMM. WILLIAMSON: Aye. 3 COMM. BAGGETT: Aye. 4 CHAIRMAN KRAUSE: Aye. 5 None in opposition. 6 It carries. 7 Thank you, ma'am. 8 UNIDENTIFIED: Mr. Chairman, I do have an 9 order I'll bring you later for signature. 10 CHAIRMAN KRAUSE: Beautiful. 11 MR. GRIEF: If I could add just a couple 12 of comments about this game. I was going to save these 13 for my report, but I think now would probably be the 14 better time. 15 With that adoption that the Commission 16 just did, we're now in high gear to get this game going 17 and up and running in October. As I said in our last 18 meeting, this MONOPOLY® game is the most innovative and 19 entrepreneurial thing that the lottery industry has ever 20 undertaken. The revenue that's going to be generated by 21 the game is -- is going to be significant. But just as 22 important is going to be the TV game show that will be a 23 part of this starting in February and the advertising of 24 the lottery brand that we're going to get from that. 25 Just this week, Scientific Games and the participating 34 1 lotteries announced that comedian and actor Billy 2 Gardell, who is the star of the hit CBS comedy series 3 Mike & Molly, has been chosen as the game show host for 4 the MONOPOLY® Millionaires' Club game. 5 As an indication of the kind of press that 6 this game is going to generate, just this morning I was 7 driving to work, and I was listening to KLBJ AM News 8 Radio. And there's a guy named Mike Evans who has a 9 five-minute daily syndicated show. It's a Hollywood 10 minute, if you will. He's a Hollywood insider, as it 11 goes. And his opening comment this morning was that he 12 had just heard that Billy Gardell, this actor, had 13 signed to be the game show host for the MONOPOLY® TV 14 game show. And he had heard this was going to be the 15 biggest TV game show on television in many years. 16 And that really kind of put it all in 17 perspective for me. We're very excited about this game. 18 We're looking forward to it. And we're going to be 19 reporting to you-all on a regular basis once this game 20 gets going as to the success that we're having. 21 So I just wanted to add that to the record 22 today. 23 CHAIRMAN KRAUSE: Outstanding. Thank you 24 very much. 25 AGENDA ITEM VI 35 1 CHAIRMAN KRAUSE: Next item, we're going 2 to hear from Lea Burnett. 3 MS. BURNETT: Good morning. 4 For the record, my name is Lea Burnett, 5 Assistant General Counsel with Legal Services. 6 I present to you for consideration a draft 7 submission for publication to the Texas Register that 8 authorizes the adoption of amendments to Rule 16, 9 Section 401.158, Suspension or Revocation of License; 10 and 16 TAC, Section 401.160, Standard Penalty Chart. 11 The purpose of the amendments is to 12 clarify the Commission's authority with regard to 13 certain unauthorized purchases of lottery tickets by 14 licensed retailers; in particular, that retailers may 15 not purchase winning lottery tickets from customers to 16 claim the prize in the place of a customer claimant. 17 The amendments also propose non-substantive grammatical 18 and language changes to align the rules with current 19 terminology and operating practices. 20 A public comment hearing was convened on 21 Tuesday, July 22nd, 2014, at 10 a.m. No members of the 22 public attended. Additionally, we received no written 23 comments on the proposals. These amendments are 24 presented without changes to the proposed versions that 25 were published in the Texas Register on July 4, 2014. 36 1 Staff recommends that the Commission adopt 2 the draft amendments as presented in your notebooks. 3 And I'm available to answer any questions you might 4 have. 5 CHAIRMAN KRAUSE: What are you going to do 6 to publicize this rule after we pass it, since it is 7 designed to help us with enforcement and also to protect 8 the public? 9 MS. BURNETT: I might have to defer on 10 that to Michael Anger. 11 CHAIRMAN KRAUSE: Mr. Anger. 12 MR. ANGER: Good morning, again, 13 Commissioners. 14 We -- we will publish and update this 15 information on our -- 16 CHAIRMAN KRAUSE: Can you put this in 17 context real quickly? 18 MR. ANGER: Yes. 19 CHAIRMAN KRAUSE: Okay. 20 MR. ANGER: Sure. With regard to the 21 change here? 22 CHAIRMAN KRAUSE: Well, why are we doing 23 it? And why is it [inaudible]? 24 MR. ANGER: Sure. Okay. So we have a 25 rule in place today, and the rule today focuses on that 37 1 a person commits an offense if the person offers for 2 compensation to claim the prize of another person. 3 Okay. And so we, from time to time, encounter 4 situations where licensees engage in this activity where 5 they offer to claim a prize for another individual at -- 6 by discounting the ticket. So if a player walks into 7 the store, has a thousand-dollar prize that the retailer 8 cannot, through our validation system, validate it and 9 should not, you know, exchange moneys for, they may 10 extend an offer and offer to discount the ticket, offer 11 that individual, say, $700 in exchange for the ticket. 12 They then come forward and claim the prize as the 13 claimant. 14 There's both the offense that I just read 15 to you, and then there's also a violation on the claim 16 side by signing our claim form and representing that 17 they're the sole person who has a right to that prize. 18 But we recently had a hearing over at SOAH involving a 19 retailer, and it all hung on a person commits an offense 20 if the person offers for compensation. 21 And "offers" is the key issue here. The 22 retailer submitted in their pleadings with SOAH that 23 they did not extend the offer; the player extended the 24 offer to sell the ticket at a discount. And the SOAH 25 judge wasn't comfortable with supporting what we had 38 1 traditionally done in the past with regard to pursuing 2 suspensions or revocations of licenses associated with 3 these matters. 4 So this effort is really to clean up that 5 language, to make it clear that it really doesn't matter 6 who extends the offer; this is an activity that we don't 7 want retailers engaging in. 8 CHAIRMAN KRAUSE: Can you, very 9 succinctly, explain why we think this is important to 10 provide a fair game to the public? 11 MR. ANGER: Absolutely. So prizes of 12 $600 or more must come to the Commission to be claimed, 13 and that's because of IRS tax rules. But the State has 14 also put into the State Lottery Act a number of things 15 that we must do in paying out prizes, paying the moneys 16 of the State out to the public; and that is, we need to 17 check claims for holds for moneys owed to the State; we 18 need to verify that the individuals that are submitting 19 the claims are -- are actually the people who should be 20 submitting those claims. And so we have a number of 21 procedures in place to ensure those things. 22 An individual might attempt to avoid 23 payment of moneys owed to the State by giving their 24 ticket to someone else and asking that person to come 25 forward and claim their prize, which is a violation of 39 1 our rules. So this is really to clarify and tighten up 2 those rules in such a way that it's very clear to 3 licensees that, irregardless of who's making an offer, 4 this is inappropriate activity. 5 CHAIRMAN KRAUSE: Very good. 6 MR. ANGER: Going back, though, to your 7 original question, we will post this information on our 8 website and our retailer forum. All of these violations 9 of administrative rules are also included as part of our 10 retailer training that we have for all of our retailers. 11 So whenever a retailer or the employees go through the 12 training, they receive a list of all of the potential 13 licensee violations, rules, and requirements that we 14 have that they must follow. 15 CHAIRMAN KRAUSE: Outstanding. 16 Comments? Questions? Is there a motion? 17 COMM. WILLIAMSON: I make a motion that we 18 adopt amendments to 16 TAC § 401.158 and 401.160. 19 CHAIRMAN KRAUSE: Call for a vote. All in 20 favor say "aye." 21 COMM. WILLIAMSON: Aye. 22 COMM. BAGGETT: Aye. 23 CHAIRMAN KRAUSE: All opposed say "nay." 24 No nays. 25 It carries by acclamation. 40 1 Thank you very much. 2 UNIDENTIFIED: I have an order I'll bring 3 you later for signature. 4 AGENDA ITEM VII 5 CHAIRMAN KRAUSE: Now for all of our 6 reports. 7 And, Ms. Pyka, you are welcome to just 8 segue through all three agenda items. 9 MS. PYKA: Yes, sir. 10 Good morning, Commissioners. My name is 11 Kathy Pyka. I'm the Controller for the Commission. And 12 with me to the right is Robert Tirloni. He is our 13 Products and Drawings Manager. 14 So, Commissioners, the report that we have 15 for you this morning includes sales through the week 16 ending August 2nd, 2014. Our total fiscal year 2014 17 sales through this 48-week period are now at 18 $4,065,000,000, which is a $2.1 million increase, or a 19 tenth of a percent, over last fiscal year. 20 Our fiscal year 2014 draw -- or instant 21 sales are -- reflected on the -- the -- the second 22 orange bar are now at $3,035,000,000, which is a 23 36-and-a-half-million-dollar increase over fiscal year 24 2013. And our instant ticket sales at this point in 25 time account for 74.7% of total commission sales. 41 1 Moving on to our draw sales, those are 2 reflected at the second blue bar. We're now at a 3 billion, 30 million dollars, which is a 4 34-and-a-half-million-dollar decline from the billion, 5 64 million reported for last fiscal year. 6 Commissioners, as we noted in the previous 7 commission meeting, our year-over-year sales on the draw 8 side are comparing to last fiscal year's sales in which 9 we had two very large Powerball jackpots that were each 10 550 and $600 million. And we've not had Powerball 11 jackpots at that level this fiscal year. 12 So now we'll move on to our next slide to 13 compare sales data by product. Looking at the bottom 14 row of the -- the slide, you'll note that our cumulative 15 average daily sales for fiscal years 2013 -- or '12, 16 '13, and '14 are at the bottom. The overall daily 17 average sales value for fiscal year 2014 is 18 $12.1 million. This is a $37,000-per-day decline for 19 fiscal year '13 and a $609,000 increase over fiscal year 20 2012. 21 We'll now move up to the top of the slide, 22 looking at jackpot games, which are highlighted in the 23 white font. Jackpot games reflect a daily average total 24 of $1.8 million for '14, and that's declines of 41,000 25 from last fiscal year and 39,000 from the previous 42 1 fiscal year. 2 Again, looking at this chart, you can see 3 the daily average for Mega Millions is $512,000, which 4 is an increase over the previous fiscal year; however, 5 Powerball's daily average is $557,000, which is a 6 decline from the almost 800,000 that we had last fiscal 7 year. 8 We'll move down to the daily games. Those 9 are highlighted in the blue font. We have a daily 10 average of $1.23 million for the fiscal year. And 11 within this category, I would like to highlight Daily 4, 12 which is showing a four -- a 12% increase over prior 13 year sales. We continue to set exceptional Daily 4 14 sales year over year. 15 And then we'll close out on this chart 16 with instant tickets at the bottom of the chart, which 17 are just over $9 million for the fiscal year. That's an 18 increase of $135,000 per day over last fiscal year and 19 an increase of $564,000 over fiscal year 2012. 20 And so, Commissioners, Robert will now 21 take us through actual sales by product for fiscal year 22 2014. 23 MR. TIRLONI: Good morning, Commissioners. 24 For the record, Robert Tirloni, Products 25 and Drawings Manager. 43 1 I'll start off by going to the draw games 2 total. We are experiencing a decline of just under 3 $35 million. Again, the real story in fiscal '14 is 4 jackpots. Mega Millions did deliver large jackpots this 5 fiscal. And it's realizing an almost $69 million gain 6 over fiscal '13. But as we've discussed, and as you've 7 heard, the Powerball game just did not generate the 8 level of jackpots that were achieved in the previous 9 fiscal year; and so that game is experiencing a decline 10 of just over $82 million this fiscal compared to last 11 fiscal. 12 So we have games that are up and games 13 that are down. But really the story of draw game sales 14 this year is -- is really focused and -- and surrounded 15 by the -- the jackpots and non-jackpots on those two 16 national games. 17 Our draw games -- I'm sorry. Our daily 18 games are down about $30 million. We are seeing, as 19 Kathy mentioned, continued growth of the Daily 4 game, 20 and we're pleased with that. 21 All or Nothing is down just under 22 $20 million. We continue to support that game. And we 23 have a brand-new instant game that is called Instant All 24 or Nothing. And the hope is that that game -- that 25 instant game can help us boost the draw version of the 44 1 All or Nothing game. 2 Our scratch-offs are doing well. We're up 3 almost $37 million. Our new $10 Cash Blowout game, 4 which I showed you in the last meeting, is doing very 5 well and delivering very strong sales performance which 6 is contributing to that surplus. 7 So all told for the year, we are up just 8 over $2 million. 9 And that's our presentation on sales. 10 We're happy to answer any questions. 11 COMM. WILLIAMSON: Well, I -- I think the 12 fact that the instants are up speaks well for the 13 product mix that we keep bringing forth. And so, you 14 know, that's what struck me about all of this. 15 MR. TIRLONI: Yes, ma'am. And we have -- 16 we -- this data is through Saturday, August 2nd; so it's 17 about a week old. We had a very good week on instant 18 ticket sales last week. 19 COMM. WILLIAMSON: So we really have three 20 more for the end of the year? 21 MR. TIRLONI: Yes, ma'am. We're not done 22 yet. We hope to continue to mitigate the loss on the 23 draw game side by increases on the instant side to the 24 best of our ability. 25 CHAIRMAN KRAUSE: Well -- and so in the 45 1 jackpot area, size matters; doesn't it? 2 MR. TIRLONI: Yes, sir. It absolutely 3 does. 4 CHAIRMAN KRAUSE: Big jackpots. 5 MR. TIRLONI: Yes, sir. 6 CHAIRMAN KRAUSE: All right. And then 7 legislative appropriation request, is that the next one? 8 MS. PYKA: How about -- can we go back to 9 tab eight real quick and do that one first before we do 10 the -- 11 CHAIRMAN KRAUSE: Just buzz through it. 12 AGENDA ITEM VIII 13 MS. PYKA: We'll go quickly through tab 14 eight. 15 So, Commissioners, tab eight does include 16 our accrued revenue transfers and allocations to the 17 Foundation School Fund, the Texas Veterans Commission, 18 as well as the allocation of unclaimed prizes for the 19 period ending June 30th, 2014. 20 Commissioners, our total accrued revenue 21 transferred to the State amounted to $995.5 million for 22 the first 10 months of the fiscal year. Of that value, 23 we transferred $928.8 million to the Foundation School 24 Fund, 8.3 million was transferred to the Texas Veterans 25 Commission, with a balance of 58.4 million transferred 46 1 from unclaimed prizes. This represents a 1.2% increase, 2 or $11.2 million, over the amount transferred to the 3 Foundation School Fund last fiscal year through June. 4 And our cumulative transfers now to the Foundation 5 School Fund are at $16.87 billion. 6 Also included under this tab is our fiscal 7 year 2014 method of finance summary providing you a 8 budget update through the third quarter ending May 31st. 9 Our lottery account budget for '14 is 202.8 million. 10 And of that budget, 88.4% was expended and encumbered 11 through the end of the third quarter. And our bingo 12 budget funded by general revenue is 16 and a half 13 million, with 80.7% expended and encumbered through the 14 third quarter. 15 I'm happy to answer any question on this 16 particular item. 17 CHAIRMAN KRAUSE: Questions? 18 COMM. WILLIAMSON: Just the observation of 19 the -- the increase that's -- that's going to the 20 veterans. And I'm aware that we've changed the game mix 21 there. So I think that's significant. 22 MS. PYKA: That is correct. And -- and, 23 Commissioner, through the month of June, we have now 24 broken the all-time record revenue transfer value to the 25 Texas Veterans Commission with that change in product 47 1 mix. 2 COMM. WILLIAMSON: Good. 3 MS. PYKA: Some great results there. 4 AGENDA ITEM IX 5 MS. PYKA: So we'll now move on to tab 6 nine, legislative appropriations requests. 7 Commissioners, this morning, I'm seeking 8 your approval of the Commission's Legislative 9 Appropriation Request for fiscal years 2016 and '17. 10 Our L.A.R. was developed in accordance with guidelines 11 from the leadership offices, which stated that each 12 agency's baseline request for general revenue-related 13 funds may not exceed the sum of the amounts expended in 14 fiscal year 2014 and budgeted in fiscal year 2015. 15 In accordance with these submission 16 guidelines, the Commission's baseline request for fiscal 17 years 2016 and '17 is $446,571,927 and 326.5 full-time 18 equivalent positions. 19 Commissioners, this is a reduction of 20 $11,796,998 from current baseline level. Our 21 Commission's Legislative Appropriation Request does not 22 include any exceptional items for the next biennium. 23 And I wanted to quickly highlight our rider revisions. 24 Those are reflected on page 3B of L.A.R., as well as 25 page 2 of your cover memo. Other than our mini -- 48 1 our -- our normal modifications for fiscal year changes, 2 there's only one new rider revision. We're seeking a 3 new rider related to the unexpended balances in capital 4 budget authority for the Automated Charitable Bingo 5 System. This reflects a new rider requesting any 6 unspent moneys from this current biennium to be carried 7 to fiscal year 2016, should the system work not be 8 completed and we to need carry forward that work into 9 the next biennium. There's no cost to the rider because 10 those dollars are allocated in this biennium. 11 The final item on the L.A.R. with regard 12 to monetary items is the 10% reduction plan. 13 Commissioners, again, we were requested by leadership 14 offices to submit a 10% reduction plan outlining how we 15 would reduce the Commission's budget if there were a 16 need to do so during the session. So we had to develop 17 a plan of $3.3 million for the bingo division out of 18 their $5.5 million administrative budget. So the 19 proposed plan for bingo includes $3.32 million, which 20 includes a staffing reduction of 31 FTEs. And, 21 Commissioners, the reason that this value is so large is 22 because their bingo prize fees are still included in the 23 base calculation to develop the overall reduction 24 amount. So consistent with the LBB's directive, the 25 agency funded the entire 10% reduction from bingo 49 1 administrative strategies exempting the bingo prize fee 2 allocation from the reduction. 3 And then last, our L.A.R. is due to 4 leadership offices on August the 18th. And in addition 5 to filing the hard copy of the document, we're required 6 to file the document electronically and certify that, as 7 well as place it on the Commission's website. 8 This concludes my presentation. I'd be 9 happy to answer any questions on the Legislative 10 Appropriation Request for fiscal years 2016 and 2017. 11 CHAIRMAN KRAUSE: Questions or comments? 12 MS. PYKA: And I'm seeking your approval. 13 CHAIRMAN KRAUSE: I'm going to get you a 14 motion here in a moment. 15 COMM. WILLIAMSON: I make a motion that we 16 approve the L.A.R. as presented. 17 CHAIRMAN KRAUSE: Call for a vote. 18 All in favor say "aye." 19 COMM. WILLIAMSON: Aye. 20 COMM. BAGGETT: Aye. 21 CHAIRMAN KRAUSE: Aye. 22 No nays. It passes. 23 MS. PYKA: Thank you, Commissioners. 24 UNIDENTIFIED: I have a document for the 25 Chairman's signature I'll bring later. 50 1 AGENDA ITEM X 2 CHAIRMAN KRAUSE: All right. So we have 3 the all-knowing, all-seeing, all-understanding Nelda 4 Trevino, who's going to [inaudible] the goings-on. 5 MS. TREVINO: I'm not sure how to follow 6 that. 7 Good morning again, Commissioners. 8 For the record, I'm Nelda Trevino, the 9 Director of Government Affairs. 10 As you are aware, the Speaker of the House 11 and the Lieutenant Governor recently made their 12 appointments to the 10-member Legislative Review 13 Committee established as a result of the agency's Sunset 14 Legislation. 15 For the record, the following are the 16 members appointed to the review committee: 17 Representative John Kuempel, who will serve as the 18 co-chair of the committee; Senator Charles Schwertner, 19 who will also serve as the co -- as a co-chair. And I 20 would like to point out that Senator Schwertner's staff, 21 Cade Norton, is here at the meeting. 22 COMM. WILLIAMSON: Where is he? Oh. 23 You've got to stand up. 24 MS. TREVINO: Also appointed to the Review 25 Committee are Senfronia Thompson, Representative Garnet 51 1 Coleman, Representative Rick Miller, Representative 2 Giovanni Capriglione, Senator John Whitmire, Senator 3 Larry Taylor, Senator Kelly Hancock, and Senator Eddie 4 Lucio. 5 We anticipate hearings to be scheduled in 6 the near future and are working with members of the 7 committee in preparation for the committee's work. We 8 will continue to advise you of any developments related 9 to this review committee. 10 Additionally, the Senate Government 11 Organization Committee chaired by Senator Judith 12 Zaffirini will be holding a hearing later this week on 13 Tuesday, August the 14th. The hearing is being held to 14 address the committee's interim charge to review and 15 recommend improvements to state agency training, 16 policies and procedures for monitoring and reporting 17 performance of state contracts, including the review of 18 exemptions to state contracting oversight. Eight state 19 agencies, including the Lottery Commission, have been 20 invited to participate on a panel to address the 21 committee. 22 As you know, the agency has a centralized 23 contract department within our administration division 24 for the management of all the agency's contracts. 25 Mike Fernandez, the Director of Administration, will be 52 1 the Lottery Commission's representative testifying at 2 the hearing later this week. 3 This concludes my all-knowing report. And 4 I will be glad to answer any questions. 5 CHAIRMAN KRAUSE: Thank you. 6 While Mr. Michael Fernandez approaches so 7 that we can hear from him, I want to congratulate him on 8 providing wonderful air conditioning in here. 9 COMM. WILLIAMSON: One other thing, Nelda. 10 Don't you have someone else you want to introduce? 11 MS. TREVINO: Yes. I've recently hired -- 12 I had a vacancy in the Governmental Affairs Division and 13 recently hired Fritz Reinig, who's also here in 14 attendance, who's worked at the House of Representatives 15 for many years. And I'm glad to have him joining 16 Melissa Villasenor and Felicia Harris and myself as part 17 of the Governmental Affairs team. 18 CHAIRMAN KRAUSE: Welcome. 19 MR. REINIG: Thank you, sir. 20 AGENDA ITEM XI 21 MR. FERNANDEZ: Good morning, 22 Commissioners. 23 For the record, my name is Mike Fernandez. 24 I'm the Director of Administration. 25 And first I'd like to thank the Chair for 53 1 his comments about the air conditioning, but I don't 2 know if that is universally shared by agency staff, and 3 particularly Mr. Anger. 4 CHAIRMAN KRAUSE: Well, I'm wondering if 5 that's because -- why there are so many that are in 6 attendance in here, because the air conditioning is so 7 much better this way. 8 COMM. WILLIAMSON: Particularly after 9 walking down the stairs, since we all know we're waiting 10 for the elevator. "Ver." Remember, just one. 11 MR. FERNANDEZ: We're on top of that right 12 now. 13 Item -- Item No. 11 in your -- your packet 14 is a briefing item. And this item is to advise the 15 Commission of staff's intent to amend the current 16 contract for drawing CPA services. And this amendment 17 is to provide for the addition of the MONOPOLY® game. 18 AGENDA ITEM XII 19 MR. FERNANDEZ: Item No. 12 in your packet 20 is a -- is a major contract which requires more 21 approval. And what this is, is, this is -- staff is 22 seeking permission, approval to amend major contract for 23 the drawings studio and production services. And this 24 is to do two things. One is to accommodate dual interim 25 communications. And what's occurring right now is, 54 1 we're relocating that broadcasting unit so we'll have 2 more room downstairs on the drawing studio floor. And 3 the other is also in support of the MONOPOLY® game 4 implementation. 5 So we're seeking your approval to move 6 forward with those amendments. And we would be 7 delegating the signature authority to Mr. Grief under 8 the major rule. 9 CHAIRMAN KRAUSE: Wonderful. 10 Do we have a motion? 11 COMM. BAGGETT: I move that we accept 12 those amendments. 13 CHAIRMAN KRAUSE: Call for a vote. 14 All in favor say "aye." 15 COMM. WILLIAMSON: Aye. 16 COMM. BAGGETT: Aye. 17 CHAIRMAN KRAUSE: There's no nays. It 18 passes. 19 We're going to take a short break, about 20 10 minutes, and reconvene. 21 (Recess: 10:59 a.m. to 11:20 a.m.) 22 CHAIRMAN KRAUSE: The Lottery Commission 23 is back in session. Not that we adjourned, but we just 24 took a break. 25 AGENDA ITEM XIII 55 1 CHAIRMAN KRAUSE: Anyway, the next agenda 2 item is -- we're going to hear from Mr. Royal. 3 Welcome aboard. 4 MR. ROYAL: Thank you, sir. 5 Good morning again, Commissioners. 6 In addition to the bingo output matrix 7 included in your briefing booklets, I would like to 8 share with you some of the activities from my first 9 40 days as director. 10 First of all, a heavy emphasis was placed 11 upon staff relations. I met individually with all staff 12 in Austin, San Antonio, Odessa, and Houston. I'll be 13 traveling to Dallas in the next few weeks. The purpose 14 was to learn about staff background and rules within the 15 bingo division and any areas of concerns or 16 recommendations for improvement. 17 I want to tell you-all we have a group of 18 dedicated employees who are striving for excellence in 19 regulating bingo in this state. There are some areas 20 and processes that we need further review. However, the 21 overall desire and understanding was the implementation 22 of the Bingo Operating Service System, BOSS, would 23 improve processes tremendously. I'll be talking about 24 BOSS at the end of my report. 25 Secondly, in an effort to minimize travel 56 1 costs, improve training, and increase our presence in 2 the field, I have decentralized the audit function. 3 Auditors will be stationed in the region locations. 4 Presently there are open positions posted for auditors 5 in Dallas. There are two positions; one in Houston and 6 one in Odessa. There's one employee in Austin who will 7 transfer to San Antonio September 1st and another who 8 has expressed interest in transferring March 1st. We 9 will continue to support the field from Austin with 10 current staff but will not fill positions for Austin. 11 As positions become vacant in Austin, those positions 12 will be posted in the region. In addition to the open 13 audit positions, there is a posting for an audit manager 14 who will be located in Austin. 15 Finally, as an update to our Bingo 16 Operating Service System, which consists of five 17 modules -- licenses, accounting, audit, special 18 projects, and an online Web portal -- the licensing and 19 audit modules have been released for testing with the 20 understanding that new functionality will be added as 21 internal business processes are finalized. Special 22 projects and accounting are in development. And the 23 online Web portal is in requirements gathering. All key 24 deliverables are on schedule. 25 As you recall, this project has led to a 57 1 secondary project whereby the alignment of the bingo 2 division's processes and procedures, the administrative 3 rules, and general accepted accounting principles was 4 needed. In order to accomplish that goal, rule making 5 will be required. To facilitate that process, a 6 stakeholder rule group making rule -- pardon me -- 7 stakeholder rule-making group -- work group has been 8 formed and a series of meetings scheduled to collaborate 9 with the industry on the impact of BOSS, all 10 BOSS-related rules of revision process changes on our 11 licensees. 12 We had our first meeting last week, and 13 the valuable insight and outflow of communication was 14 incredible. I want to thank the members of the work 15 group for their time and commitment to the BOSS project: 16 Steve Bresnen, who was not able to attend last week's 17 meeting but gave his support; Glenda Shields; Steve 18 Fenoglio; Kim Kiplin; and Phil Sanders. These work 19 sessions are critical to developing the rules and 20 procedures as we strike a balance to regulate the 21 energy -- the industry, while minimizing barriers for 22 them to conduct the game of bingo. Also, as the new 23 director, it is my hope that this work-through concept 24 lends itself to creative foundation whereby we may 25 address future rules, processes, challenges, or 58 1 improvements that may arise. I do thank them and look 2 forward to our continued working relationship. 3 As I close, I would like to thank everyone 4 here who has been involved in my preparation for my 5 arrival here at the agency, as well as the folks in 6 other divisions working on bingo-related activities. I 7 will not call names, because I don't want to miss 8 anyone, but I truly appreciate all the efforts from 9 executive, human resources, facilities, fiscal, 10 administration, legal enforcement, and well accord of 11 bingo. 12 That concludes my report. I'm happy to 13 answer any questions. 14 COMM. WILLIAMSON: I'm aware y'all are 15 making some really good, good progress on the BOSS 16 system, and so that -- that was, I think, a -- a very 17 important thing for us up here. And so we appreciate 18 what you've brought to the table. And we appreciate all 19 of the bingo staff and the other folks that you talked 20 about that -- we're now starting to move forward on this 21 project at -- at a -- at a much better pace. 22 MR. ROYAL: Thank you. We are on target. 23 COMM. WILLIAMSON: And that's nice to 24 hear. 25 CHAIRMAN KRAUSE: Outstanding. 59 1 COMM. BAGGETT: Excellent. 2 AGENDA ITEM XIV 3 CHAIRMAN KRAUSE: All right. Darlene 4 Brown. 5 MS. BROWN: Hello. I'm Darlene Brown, 6 internal auditor, for the record. And I have two items 7 to present to you today. One is informational, and 8 that's the status report. This -- this period, in 9 addition to the bingo operating project, we also have 10 started conducting three individual audits, and those 11 audits are in the allocation of bingo prize fees, the 12 information system active directory, and then the 13 instant game sales to transfer audits. All of those 14 audits are planned to be completed by the end of this 15 month so that we will have met our internal audit plan 16 for 2014. 17 With the business -- the bingo business 18 process restructuring product -- project, which is a 19 mouthful to say, we have made great strides since 20 Alfonso has come on board. We are now at 48% completion 21 of reviewing the 170 different business processes. Most 22 of those we've identified improvements in either 23 efficiencies; paperwork shuffling, where we're 24 eliminating a lot of paperwork and we're automating the 25 processes; and even some of those, without BOSS coming 60 1 up, staff are starting to implement these changes where 2 they can. 3 For example, when quarterly reports are 4 sent out to the license holders, it used to be they 5 would just get their report and they would fill it out 6 and send it in; and then they would be informed of 7 problems with their account. But now these -- the 8 examiners are reviewing the -- the accounts; going 9 through a checklist that we developed that will be 10 automated going forward in the BOSS system. But, for 11 now, that -- this part is manual. But they're getting 12 it -- the information up front of what's wrong with 13 their account so they can address all those [inaudible] 14 license renewals that are on the back end and 15 continuously [inaudible]. 16 Some other things we've accomplished. 17 We've redesigned the renewal process. We've also 18 redesigned the amendment process, where it's going to be 19 more automated. The allocation -- the prize fee 20 allocation process will also be more automated. And 21 then we've -- looking at the forms, there's over 22 90 different forms. We're in the process of 23 consolidating those forms where we can and eliminated 24 forms that we've determined are not necessary. So far, 25 all the great strides. 61 1 There -- unfortunately, as we've stated 2 before, there are data integrity issues. And these data 3 integrity issues are now really starting to make an 4 impact on our progress. First of all, the causes. 5 There's bad data imported to the system two different 6 times now through different conversions. And there's 7 also lack of supporting documentation because of the age 8 of some of these transactions. And then there's a lack 9 of audit trails in some instances because transactions 10 may have been deleted without thinking through the 11 ramifications years down the road. 12 However, it is also important to note that 13 staff did these things in an attempt enhance their 14 customer service. They needed to get items done, things 15 processed, and they did not really understand what the 16 impact was going to be one, two, three, five years down 17 the road of what they were doing. There was no 18 malfeasance or intent to wrongfully do anything. It's 19 just, how can we get this done? But the impact of that 20 is, we've got to get this data cleaned up before it goes 21 into the BOSS. 22 We also are experiencing delays in the 23 reconciliation project because we don't have full 24 confidence in the data and the support of what's in 25 there. There are also some delays in responding to 62 1 licensee requests for refunds because we have to go 2 through and analyze our accounts in detail before we'll 3 issue out that refund. Okay. And then it delayed our 4 prize fee audit. 5 But, overall, our 2014 audit plan, we are 6 35% complete. And as I stated, by the end of this 7 month, we will be pretty close to 100% complete with our 8 audit plan. 9 And that concludes what I have to give you 10 for the status update. If you have any questions on the 11 status report, I'll be happy to answer those. 12 CHAIRMAN KRAUSE: You say that we have 13 some bad data from two prior conversions. How -- how 14 long ago were each of these prior conversions? 15 MS. BROWN: Back in the 19- -- before 16 early 1990s. 17 CHAIRMAN KRAUSE: How is any information 18 from the 1990s really relevant to what we're doing 19 today? Why can't we just say "sayonara" to that? 20 MS. BROWN: Well, we are -- we are 21 actually working on bringing a proposal to the 22 Commission on various alternatives on how to handle this 23 data. But, first of all, we have to figure out what 24 we're truly looking at and then tell you our 25 recommendation on which way to go on this data; whether 63 1 we just say, we're going to accept it as is; we're going 2 to make some assumptions -- 3 CHAIRMAN KRAUSE: What -- what kind of 4 data is it? 5 MS. BROWN: Accounts receivables. There's 6 some balances on -- on the ledgers that are credit 7 balances, where it looks like the Commission may owe 8 license holders. And some of them are debit balances, 9 where it looks like license holders may owe the 10 Commission. However, there's no documentation to 11 support these transactions. 12 CHAIRMAN KRAUSE: Okay. Thank you. 13 MS. BROWN: Any other questions? 14 The next item, we -- I'm asking you to 15 take a motion on this to approve the 2015 audit plan. 16 And I'll explain to you on how we got to where we're at. 17 Basically, we have our -- our risk 18 assessment methodology, where we look at your financial 19 statement. We complete -- administer a survey to all 20 the employees of the Commission, and we received 21 110 responses back. We also use the employee 22 satisfaction survey that was conducted by the University 23 of Texas to give us an idea of where your operating 24 environment is as far as ethics and controls and stuff. 25 From that, we use the same -- the risks are basically 64 1 the same. You have a reputational risk, an integrity 2 risk, a security risk, cash, and new compliance risks. 3 You have to manage all of those risks in order to 4 maintain your business and meet your mission. 5 So, as a result of the risk assessment 6 survey and the financial statements, we developed a -- 7 updated the three-year annual internal audit plan. And 8 so we have laid out before you some audits that we 9 propose to do for 2015. In total, there are six 10 different audits; that includes two of the 11 implementations, the BOSS and the LSP. And then in 12 2016, we also have some additional audits, and in 2017. 13 Out of these audits for the 2015 year period, we propose 14 2,380 hours; and the fees for those are within the 15 budget that's been allocated. The bulk of those hours 16 are going to the bingo project again. We -- we don't 17 anticipate that we're going to have to use all of those 18 hours, but they're there in case we come close to 19 needing those as we wrap up the project. 20 If you have any questions, I'd be more 21 than happy to answer them. 22 CHAIRMAN KRAUSE: Questions? 23 COMM. WILLIAMSON: This isn't really 24 directly about the audit plan. But are you -- is your 25 staff receiving cooperation and all that you need from 65 1 the people that you interact with as you're performing 2 your audits, the BOSS activity aside? 3 MS. BROWN: Correct. We are getting full 4 cooperation from -- from everybody within the 5 Commission. I feel like we're working really well with 6 them. And we've become more of a -- a part of their 7 team. And that's -- that's the concept that our firm 8 takes. We -- we work with management. We -- we -- we 9 are their team, rather than just somebody looking out to 10 get you. And so because of that working relationship, 11 we get everything that we need in a very timely manner. 12 COMM. WILLIAMSON: All right. Because I 13 always viewed an internal audit as just another good 14 tool, particularly for this agency, to -- because we are 15 so transparent. And I think any time that we have 16 something we can improve upon, that advances our cause. 17 And I think that that's just a benefit. So thank you. 18 CHAIRMAN KRAUSE: Anything else? I'm 19 looking for a motion to approve the 2015 internal audit 20 plan. 21 COMM. BAGGETT: I make a motion that we 22 approve the 2015 internal audit plan. 23 CHAIRMAN KRAUSE: Second? 24 COMM. WILLIAMSON: Second. 25 CHAIRMAN KRAUSE: Call for a vote. 66 1 All in favor say "aye." 2 COMM. WILLIAMSON: Aye. 3 COMM. BAGGETT: Aye. 4 CHAIRMAN KRAUSE: Aye. 5 None opposed. It passes. 6 Thank you, ma'am. 7 MS. BROWN: Thank you. 8 AGENDA ITEM XV 9 CHAIRMAN KRAUSE: Now it comes to the time 10 of the meeting where we get to hear from our Executive 11 Director. 12 MR. GRIEF: Thank you, Mr. Chairman. 13 Other than what's in your notebook this morning, I do 14 have several items I would like to report on. 15 First, I'd like to talk about industry 16 events. And the first one I want to touch on is the 17 report on the recent national professional development 18 seminar that took place the week of July 21st. And that 19 was hosted by the South Carolina Lottery. Over 20 350 lottery industry professionals participated in that 21 conference, including many members of our Texas team. 22 We had breakout sessions, networking opportunities, and 23 all types of seminars that occurred at that conference. 24 That's now quickly becoming the -- the number one 25 lottery conference for staff, as it offers the 67 1 disciplines of accounting, security, marketing and 2 sales, public relations, and all of the other 3 disciplines that are engaged in the lottery business. 4 Our next big industry event will be the 5 Public Gaming Research Institute's -- they call it the 6 Expo -- Lottery Expo to be held in Miami, Florida. That 7 will be September 9th through the 12th. I'll be giving 8 the keynote address at that event. And our focus is 9 going to be on the continuation of building our brand, 10 the lottery brand, both at the state level and 11 nationally now with the introduction of the MONOPOLY® 12 game. We're going to really hit on the future of the 13 Mega Millions and Powerball game that are going to be 14 discussed quite a bit, along with, of course, all of the 15 preparations that all of the states involved in 16 launching the MONOPOLY® game are involved with as well. 17 And then following quickly on the heels of 18 that PGR -- PGRI conference will be the annual NASPL 19 conference and trade show. It will be in the end -- end 20 of September of this year. It will be hosted by the 21 New Jersey Lottery in Atlantic City. It's the largest 22 lottery conference of the year. It'll be a very unique 23 opportunity for lottery industry staff to interact with 24 all of the vendors in the industry at a much deeper and 25 richer level than we typically have the opportunity to 68 1 do. Attendees are going to have the chance to observe 2 the latest vendor technology, look at all of the latest 3 innovations in the industry, and get a real firsthand 4 view of the latest products and services available to 5 us. 6 I know that Carole Hedinger, my friend and 7 the Director of the New Jersey Lottery, and her staff, 8 along with all of the staff from NASPL are working very 9 hard to put together a rich and meaningful conference 10 for us. They have some amazing speakers. And they're 11 really preparing an experience that's going to benefit 12 all of the attendees. 13 And then, somewhat ironically and just by 14 chance, having Atlantic City as the host of the NASPL 15 2014 conference really dovetails nicely with the launch 16 of our MONOPOLY® Millionaires' Club game. The original 17 classic board game was actually individual developed in 18 Atlantic City, the game that we grew up with. It was 19 developed in the '30s, and it's customized with Baltic 20 Avenue, Atlantic Avenue, all of those things. Those are 21 real streets taken directly from Atlantic City. So 22 we're going to have a big tie-in with the launch of the 23 MONOPOLY® game and the fact that the conference will be 24 in Atlantic City at the same time. 25 And then the last industry conference of 69 1 the year is going to be held right here in Austin, 2 Texas. And I've mentioned this at previous meetings. 3 That's going to be the La Fleur's Conclave & Interactive 4 Summit that will take place at the InterContinental 5 Stephen F. Austin hotel November 16th through the 19th. 6 We met just last week with Terri Markle and Bruce 7 La Fleur, who are the organizers of that conference; and 8 they have a terrific program planned for all of the 9 attendees. We expect over 200 attendees, including more 10 than 30 lottery directors from around the country. And 11 I'm hopeful that, with proper planning, that all of our 12 commissioners will be able to attend that event. 13 On another matter, Commissioners, I 14 mentioned briefly that at the PGRI conference, we're 15 going to be talking about the future of the Powerball 16 and Mega Millions game. Powerball, in particular, needs 17 some refreshing. Again, we were just hit at a 18 $90 million jackpot within the last week. That's an 19 extremely low level to be hit at, and it impacts our 20 bottom line, as you saw in the presentation today, on 21 the draw sales, and the jackpot games in particular, 22 whenever our jackpots don't roll like we need them to. 23 So, to that end, this Friday I'll be in 24 Atlanta. I'm a member of the MUSL Game Development 25 Committee. And we're going to be reviewing some 70 1 possible game changes for Powerball; and if we get a 2 census on those changes, we will likely be coming back 3 in either the next commission meeting or the one after 4 that to put forward for your consideration some game 5 change proposals. So look for that to hopefully occur 6 in the next meeting or two. 7 And speaking of game changes and new 8 games, I know you're all aware that we received the 9 Attorney General's opinion just last week on the Texas 10 Triple Chance game. That was an opinion that the AG put 11 forward as the result of a request from Senator Bob 12 Deuell when that game was adopted by the Commission. 13 We have waited on that outcome of that AG opinion; and 14 in short, the AG has opined that the Texas Triple Chance 15 game does, indeed, qualify as a lottery under the Texas 16 Constitution. 17 I know that Bob is prepared to give you 18 significant legal advice on that AG opinion in executive 19 session today. And although we're very pleased by the 20 outcome of that AG opinion, the delay that -- and time 21 lapse that occurred in waiting for that opinion to come 22 out has caused us to reconsider the launch of that game. 23 We're now looking at -- at likely launching that game 24 next fall, the fall of 2015. It doesn't require any 25 Commission action. You've already adopted the game 71 1 rule. But, obviously, we'll continue to communicate 2 with you and let you know well in advance once we have 3 that launch date firmed up. 4 And, Commissioners, the last item I want 5 to bring to your attention today involves our always 6 ongoing Play Responsibly campaign. And I hope you have 7 these in front of you somewhere nearby. We're an active 8 member -- "we," the Texas Lottery -- of both NASPL and 9 the World Lottery Association. And we take a great deal 10 of interest in the robust responsible game programs that 11 both of those organizations have in place. I also 12 recently reported to you that we're now a full-fledged 13 member of the National Council on Problem Gambling. So 14 as a result of our deep interest in emphasizing to our 15 players the need to play lottery responsibly and -- and 16 be -- and do that in a very responsible manner, we're 17 implementing various initiatives in this regard for 18 public education, retailer training, and our very own 19 employee training as well. Just one example is that 20 brochure that I'm pointing your attention to. 21 That's our Play Responsibly brochure. 22 These were developed in-house by our very own Teresa 23 Edwards, who works for Michael Anger in the Lottery 24 Operations Division. We plan to have these brochures in 25 the hands of all our more than 17,000 retailers by the 72 1 end of this calendar month. We're also posting this 2 information to our website, along with a video that's 3 focused on responsible gaming. These brochures, as you 4 can see, contain information about the signs of a 5 gambling problem, as well as several hotlines and other 6 resources that are available for people who may have an 7 issue with gambling. This has been, and will continue 8 to be, a very important part of our overall public 9 message. And we're very proud out of our partnerships 10 with NASPL, with the World Lottery Association, and with 11 the National Council on Problem Gambling. 12 Commissioners, unless you have any 13 questions, that concludes my report this morning. 14 CHAIRMAN KRAUSE: Thank you. Report 15 received. 16 AGENDA ITEM XVI 17 CHAIRMAN KRAUSE: Mr. Biard. 18 MR. BIARD: Good morning, Commissioners. 19 Tab 16 in your notebooks contains 20 13 lottery and bingo enforcement matters. These are 21 cases where the Commission staff found the violation of 22 statutes or rules; and most of the time, either the 23 lottery or bingo licensee failed to appear at the 24 hearing, or the staff and the licensee have reached a 25 settlement. I'll briefly describe the cases, and you 73 1 can take them all up in a single vote. 2 The first 11 cases, tabs A through K, are 3 NSF lottery retailer license revocations. These cases 4 were presented at the State Office of Administrative 5 Hearings for revocation of the retailer's license on the 6 grounds that licensee failed to have sufficient funds in 7 their bank account to cover electronic fund transfers to 8 the Lottery Commission's account. The administrative 9 law judge recommends revocation in each case. And the 10 staff recommends that you vote to approve the order 11 revoking the licenses. 12 Tab L and M in your notebooks are agreed 13 orders, both lottery-related. L is a -- involves a 14 Corpus Christi retailer who accepted payment by credit 15 card for the purchase of three $10 lottery tickets for a 16 total of $30, in violation of the state Lottery Act and 17 Commission's rules, and the retailer has agreed to a 18 10-day suspension. 19 Tab M is James Mini Mart. This is a 20 Mount Pleasant retailer, who, on four occasions, claimed 21 the prize of a customer for compensation in violation of 22 the state Lottery Act and Commission rules. In this 23 case, the retailer agreed to accept a warning for the 24 violation and an agreement that it -- in the future, it 25 will comply with the Commission's interpretation of the 74 1 statute and neither initiate nor accept an offer to 2 claim a prize for compensation for another person. This 3 is the case that Michael Anger referred to earlier that 4 went to SOAH. And we received an unfavorable 5 recommendation, because the judge found that the 6 customer, not the retailer, made the offer. And under 7 the judge's reading of the statute, the retailer didn't 8 commit the violation. In other words, it was not a 9 violation if the retailer agreed to claim the prize if 10 the customer made the offer. 11 So with the rule change that you approved 12 earlier today, that shouldn't be an issue in the future. 13 And this -- this agreed order on top of it is also an 14 expression of the Commission's policy that it does not 15 condone either the making or acceptance of an offer to 16 claim a prize for another person. 17 And those are the 13 items in your 18 notebook. 19 CHAIRMAN KRAUSE: So do we have a motion 20 to approve all these enforcement agreed orders? 21 COMM. WILLIAMSON: I'm going to make it in 22 two motions. First I want to make a motion to approve 23 all the entry of orders as recommended by the staff on 24 Item 16, letters A through K, the NSF cases. 25 CHAIRMAN KRAUSE: I second. 75 1 Call for a vote. 2 Everybody say "aye" or "nay." 3 COMM. WILLIAMSON: Aye. 4 COMM. BAGGETT: Aye. 5 CHAIRMAN KRAUSE: Aye. 6 Carries by acclamation. 7 And the second motion? 8 COMM. WILLIAMSON: I make a motion in 9 Item 16, letters L and M, lottery agreed orders, that we 10 concur with the staff recommendation and -- we concur 11 and we approve their recommendation. 12 CHAIRMAN KRAUSE: Second? 13 COMM. BAGGETT: I second that. 14 CHAIRMAN KRAUSE: Call for a vote. 15 All in favor say "aye." 16 COMM. WILLIAMSON: Aye. 17 COMM. BAGGETT: Aye. 18 CHAIRMAN KRAUSE: Aye. 19 It carries. 20 AGENDA ITEM XVIII 21 CHAIRMAN KRAUSE: At this point in time, 22 we, the Commissioners, are going to go into executive 23 session. And on my own motion, sua sponte, I move that 24 the Texas Lottery Commission go into executive session 25 to deliberate personnel matters, including the 76 1 appointment, employment, evaluation, reassignment, 2 duties, discipline, or dismissal of the Executive 3 Director and/or the Charitable Bingo Operations 4 Director, and the duties of the General Counsel and of 5 the Human Resources Director, as well as to receive 6 legal advice regarding pending or contemplated 7 litigation and settlement offers, all in connection with 8 the Texas Government Code. 9 Is there a second? 10 COMM. WILLIAMSON: Second. 11 CHAIRMAN KRAUSE: All in favor say "aye." 12 COMM. WILLIAMSON: Aye. 13 COMM. BAGGETT: Aye. 14 CHAIRMAN KRAUSE: We are adjourned 15 momentarily for executive session. It is 12 minutes 16 'til 12:00. We'll be back. 17 (Executive Session: 11:48 a.m. to 12:22 18 p.m.) 19 AGENDA ITEM XIX 20 CHAIRMAN KRAUSE: The Lottery Commission 21 is out of executive session at 12:22. 22 Is there any action to be taken as a 23 result of executive session? 24 COMM. BAGGETT: Yes. I would like to make 25 a motion that we approve the Executive Director's EPE; 77 1 and that effective September 1st, 2014, the Commission 2 grant an increase in the Executive Director's annual 3 salary to $206,040, as authorized by the 2014-2015 4 General Appropriations Act at Article 7, page 8. The 5 salary increase will be funded by existing budget 6 authority within the Lottery dedicated account. 7 CHAIRMAN KRAUSE: Hear a second? 8 COMM. WILLIAMSON: Second. 9 CHAIRMAN KRAUSE: All in favor say "aye." 10 COMM. WILLIAMSON: Aye. 11 COMM. BAGGETT: Aye. 12 CHAIRMAN KRAUSE: Aye. 13 There are no nays. It carries. 14 AGENDA ITEM XX 15 CHAIRMAN KRAUSE: I'll make a motion that 16 the -- that this session of the Texas Lottery Commission 17 be adjourned. 18 Hear a second? 19 COMM. WILLIAMSON: Second. 20 COMM. BAGGETT: Second. 21 CHAIRMAN KRAUSE: All in favor say "aye." 22 COMM. WILLIAMSON: Aye. 23 COMM. BAGGETT: Aye. 24 CHAIRMAN KRAUSE: We're adjourned. 25 (Proceedings concluded at 12:23 p.m.) 78 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Dalia F. Inman, Certified Shorthand Reporter 5 in and for the State of Texas, do hereby certify that 6 the above-mentioned matter occurred as hereinbefore set 7 out. 8 I FURTHER CERTIFY THAT the proceedings of such 9 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 hand 14 and seal this Date 20th day of Month August 2014. 15 16 17 18 19 20 _______________________________ Dalia F. Inman 21 Certified Shorthand Reporter CSR No. 7423 - Expires 12/31/15 22 Firm Registration No. 276 23 Kennedy Reporting Service, Inc. 7800 N. MoPac Expressway, Suite 120 24 Austin, Texas 78759 512.474.2233 25