1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 COMMISSION MEETING OF THE § 7 TEXAS LOTTERY COMMISSION § THURSDAY, FEBRUARY 5, 2015 § 8 9 10 COMMISSION MEETING 11 THURSDAY, FEBRUARY 5, 2015 12 13 14 15 BE IT REMEMBERED THAT on Thursday, the 5th day of 16 February 2015, the Texas Lottery Commission meeting was 17 held from 10:00 a.m. until 11:38 a.m., at the offices of 18 the Texas Lottery Commission, 611 East 6th Street, 19 Austin, Texas 78701, before COMMISSIONERS JEFF MEADOR, 20 MARY ANN WILLIAMSON, JODIE G. BAGGETT, and JOHN W. 21 TOWNES, III, and the following proceedings were reported 22 via machine shorthand by Lorrie A. Schnoor, Certified 23 Shorthand Reporter, Registered Merit Reporter, Certified 24 Realtime Reporter and Texas Certified Realtime Reporter. 25 2 1 APPEARANCES 2 COMMISSIONERS: 3 Mr. Jeff Meador 4 Ms. Mary Ann Williamson Ms. Jodie G. Baggett 5 Mr. John W. Townes, III 6 GENERAL COUNSEL: 7 Mr. Robert F. Biard 8 EXECUTIVE DIRECTOR: 9 Mr. Gary Grief 10 CHARITABLE BINGO OPERATIONS DIRECTOR: 11 Mr. Alfonso D. Royal, III 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - THURSDAY, FEBRUARY 5, 2015 ....... 7 4 I. The Texas Lottery Commission will call the meeting to order....................... 7 5 II. Consideration of and possible discussion 6 and/or action, including adoption, on amendments to 16 TAC §§ 402.400 General 7 Licensing Provisions, 402.401 Temporary License, 402.404 License and Registry 8 Fees, 402.410 Amendment of a License – General Provisions, 402.411 License 9 Renewal, and 402.412 Signature Requirements; and on new 16 TAC § 402.104 Delinquent 10 Obligations................................ 7 11 III. Consideration of and possible discussion and/or action, including adoption, on 12 amendments to 16 TAC § 401.317 “Powerball®” On-Line Game Rule.......................... 12 13 IV. Consideration of and possible discussion 14 and/or action, including adoption, on amendments to 16 TAC § 401.101 Lottery 15 Procurement Procedures..................... 14 16 V. Report, possible discussion and/or action on agency prime contracts, including 17 extension and/or amendments on the contract for audit services......................... 17 18 VI. Report, possible discussion and/or action 19 on agency major contracts, including amendments on the contracts for instant 20 ticket manufacturing and services, and the contract for drawing studio and production 21 services................................... 18 22 VII. Report, possible discussion and/or action on lottery sales and revenue, game 23 performance, new game opportunities, advertising, market research, trends, and 24 game contracts, agreements, and procedures................................. 25 25 4 1 TABLE OF CONTENTS 2 PAGE 3 VIII. Report, possible discussion and/or action on transfers to the State and 4 the agency’s budget status................ 30 5 IX. Report, possible discussion and/or action on the 84th Legislature.................... 32 6 X. Consideration of and possible discussion 7 and/or action on external and internal audits and/or reviews relating to the 8 Texas Lottery Commission, and/or on Internal Audit activities, including 9 approval of the Instant Ticket Sales to Transfer to State audit report.......... 35 10 XI. Report by the Charitable Bingo Operations 11 Director and possible discussion and/or action on the Charitable Bingo Operations 12 Division’s activities, including updates on the Business Process Restructuring 13 Project, licensing, accounting and audit activities, pull-tab review, and 14 special projects........................... 40 15 XII. Consideration of and possible discussion and/or action on the Texas Lottery 16 Commission’s participation in the MONOPOLY MILLIONAIRES’ CLUB™ game.......... 43 17 XIII. Report, possible discussion and/or action 18 on GTECH Corporation...................... 43 19 XIV. Report by the Executive Director and/or possible discussion and/or action on the 20 agency’s operational status, agency procedures, awards, FTE status, and update 21 regarding the Multi-State Lottery Association................................ 43 22 23 24 25 5 1 TABLE OF CONTENTS 2 PAGE 3 XV. Consideration of the status and possible entry of orders in:........................ 54 4 Lottery NSF License Revocation Cases 5 (Default Unless Otherwise Noted) A. Docket No. 362-15-0132 – Star Liquor 6 B. Docket No. 362-15-0362 – MB’s Liquor & Wine 7 C. Docket No. 362-15-0363 – Toddy Shoppe D. Docket No. 362-15-0364 – Gary’s Liquor 8 E. Docket No. 362-15-0365 – Toddy Shoppe #2 F. Docket No. 362-15-0668 – Ace Liquor 9 G. Docket No. 362-15-0669 – Quik Stop H. Docket No. 362-15-0851 – Village Food 10 Store #2 I. Docket No. 362-15-0852 – Neighborhood 11 Food Mart J. Docket No. 362-15-0854 – E Mart Fuel 12 Investments 13 Other Lottery License Revocation Cases K. Docket No. 362-15-0424 –Normandy Food 14 Store 15 Lottery Agreed Orders L. Docket No. 362-15-0935 – Star Stop 93 16 Bingo Agreed Orders 17 M. Case No. 2015-46 – MICCIO Enterprises, Inc. 18 N. Case No. 2015-135 – DAKA Business Enterprises, Inc. 19 O. Case No. 2015-165 – Smith, Debra 20 XVI. Public comment............................ 58 21 XVII. Commission may meet in Executive Session: A. To deliberate personnel matters, 22 including the appointment, employment, evaluation, reassignment, duties, 23 discipline, or dismissal of the Executive Director and/or the Charitable Bingo 24 Operations Director pursuant to Section 551.074 of the Texas Government 25 Code. 6 1 TABLE OF CONTENTS 2 PAGE B. To deliberate the duties of the General 3 Counsel and/or the Human Resources Director pursuant to Section 551.074 4 of the Texas Government Code. C. To receive legal advice regarding 5 pending or contemplated litigation or settlement offers, or other legal 6 advice, pursuant to Sections 551.071(1) and (2) of the Texas Government Code, 7 including but not limited to legal advice regarding the following items: 8 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery 9 Commission et al. State of Texas v. Equal Employment 10 Opportunity Commission et al. Pending and potential litigation 11 regarding Fun 5’s Instant Game #1592, including but not limited to Travis 12 Co. District Court Cause Nos. D-1-GN-14-004345 (Rule 202 13 Petition) and D-1-GN-14-005114 (Steele, et al. v. GTECH Corp.). 14 Legal advice regarding the State Lottery Act, Texas Government Code 15 Chapter 467, the Bingo Enabling Act, the Open Meetings Act, the Administrative 16 Procedure Act, employment law, personnel law, procurement and contract 17 law, evidentiary and procedural law, and general government law. 18 Legal advice regarding any item on this open meeting agenda................... 58 19 XVIII. Return to open session for further 20 deliberation and possible action on any matter posted for discussion in Executive 21 Session. Any matter posted for Executive Session also may be the 22 subject of discussion and/or action in open session prior to Executive 23 Session.................................. 59 24 XIX. Adjournment.............................. 59 25 REPORTER'S CERTIFICATE.......................... 61 7 1 P R O C E E D I N G S 2 THURSDAY, FEBRUARY 5, 2015 3 (10:00 a.m.) 4 AGENDA ITEMS I & II 5 COMMISSIONER WILLIAMSON: Good morning. 6 I'd like to call this meeting of the Texas Lottery 7 Commission to order. Today is February the 5th, 2015. 8 The time is 10 a.m. 9 I will be -- this is Commissioner 10 Williamson. I will be conducting the meeting today. 11 Commissioners Baggett, Meador, and Townes are present, 12 so we do have a quorum, and we can commence with 13 business. 14 Let's go on to Item No. II. It's the 15 consideration of adoption of amendments to six bingo 16 rules and one new bingo rule. 17 James, if this is your item, if you'd 18 please come forward and share that with us. 19 MR. PERSON: Thank you, Commissioner. 20 For the record, my name is James Person, 21 assistant general counsel. 22 At the Commission's December public 23 meeting, you voted to propose amendments to Rules 24 402.400, 402.404, 402.401, 402.410, 402.411, and 25 402.412. And you also voted to propose New Rule 8 1 402.104. Staff is now recommending that you vote to 2 adopt those amendments and new rule without any changes 3 to the proposed text of those amendments and rule. 4 The amendments are designed to bring the 5 bingo rules and various business processes and 6 procedures of the bingo division in line with applicable 7 statutes and generally accepted accounting principles. 8 Among other things, the amendments will cover how the 9 Commission will handle requests for refunds from 10 licensees, how the Commission will credit overpayments 11 to licensees, how escrow account funds will be utilized, 12 and how licensees will be placed on administrative hold 13 status. 14 The new rule outlines procedures for the 15 collection of delinquent bingo-related obligations owed 16 to the Commission, and we are required by statute to 17 have such a rule. 18 The rule covers when the Commission will 19 refer a delinquent obligation to the attorney general's 20 office for collection and when the Commission will 21 utilize the comptroller of public accounts' warrant hold 22 procedure. 23 We did not receive any written comments on 24 these rules, but two members of the public did provide 25 comments at a hearing we held on January 14. We have 9 1 addressed each of their comments in the materials in 2 your notebooks, which will also be placed in the Texas 3 Register should you vote to adopt these rules. But I'm 4 happy to discuss any of the comments if you'd like, but 5 ultimately Staff did not believe any of the comments 6 warranted changing the amendments or rule. 7 And that is my presentation, but I'd be 8 happy to answer any questions. 9 COMMISSIONER WILLIAMSON: Commissioners, 10 do you have any questions? 11 COMMISSIONER BAGGETT: No questions. 12 COMMISSIONER MEADOR: No questions. 13 COMMISSIONER WILLIAMSON: Just to refresh 14 us, go in just a little bit of detail specifically what 15 these rules will do. 16 MR. PERSON: Okay. Well, as you know, we 17 are in the process of designing and implementing the 18 Bingo Operating Service System. During that design, 19 some work was done by the new auditors and various bingo 20 Staff. We found some issues with some of the rules that 21 caused some accounting issues and discrepancies, and we 22 saw some conflicts with some of the rules and statutes. 23 For example, we were giving refunds when 24 we weren't authorized to do so under the law. So that's 25 one of the big things we're changing here is restricting 10 1 when refunds can be given, because under the statute, 2 we're not allowed to give them in certain circumstances. 3 We're also dealing with the administrative 4 hold status. We've had issues where people will -- or 5 licensees will get on administrative hold status just so 6 they can conduct 24 temporary -- conduct 24 temporary 7 occasions. That kind of circumvented the intent of the 8 rules behind the administrative hold status, so we've 9 kind of pared that back and said, "Okay, once you're on 10 administrative hold status, you can't conduct any 11 bingo," which was the original intent. So those are 12 just a few of the examples that these rules will be 13 doing. 14 COMMISSIONER WILLIAMSON: Just globally, 15 it's not just this issue but all of the new things we're 16 doing in bingo that there is a -- the stakeholders are 17 participating and have opportunities. And I'm aware 18 that there have been a lot of meetings with a lot of 19 folks to get to these different decision points. 20 MR. ROYAL: Commissioner Williamson, 21 you're exactly correct. This process began shortly 22 after my arrival here in July. We've had weekly 23 meetings with the stakeholders, four, six weeks, going 24 over different aspects of the rules and them having the 25 ability to provide input and look at drafts and whatnot. 11 1 COMMISSIONER WILLIAMSON: Okay. 2 MR. ROYAL: They were definitely a part of 3 the process throughout. 4 COMMISSIONER WILLIAMSON: Okay. Thank 5 you. 6 Commissioners, do you have any comments or 7 questions or anything? 8 (No response) 9 COMMISSIONER WILLIAMSON: If not, do I 10 hear a motion? 11 COMMISSIONER MEADOR: I move that we adopt 12 the amendment to the bingo rules as proposed by Staff. 13 COMMISSIONER WILLIAMSON: For this Item 14 No. II? 15 COMMISSIONER MEADOR: II. 16 COMMISSIONER WILLIAMSON: Okay. Is there 17 a second? 18 COMMISSIONER BAGGETT: I second that. 19 COMMISSIONER WILLIAMSON: All in favor? 20 (All those voting in favor so responded) 21 COMMISSIONER WILLIAMSON: Opposed? 22 (No response) 23 COMMISSIONER WILLIAMSON: Motion passes 24 unanimously. 25 MR. BIARD: Commissioners, I have two rule 12 1 orders that I'll present for your signature. 2 COMMISSIONER WILLIAMSON: All right. 3 Thank you. 4 AGENDA ITEM III 5 COMMISSIONER WILLIAMSON: The next item is 6 consideration of amendments to 16 TAC 401.317, Powerball 7 On-line Game Rule. 8 Deanne, I believe -- 9 MR. GRIEF: Commissioners, I'm going to 10 handle that one this morning. 11 COMMISSIONER WILLIAMSON: Okay. 12 MR. GRIEF: As you know, you have before 13 you today a rule change that is ripe for adoption 14 regarding the Powerball game. We can certainly go over 15 those and remind you of the specifics of the process 16 thus far, but I wanted to advise the Commission this 17 morning that I believe there may be some additional 18 revisions made to the game rule by the Multi-State 19 Lottery Association, or MUSL as it's known, based on 20 some additional research that's being conducted. 21 The results of that research won't be 22 known until later this month, and it will be discussed 23 by our MUSL board on the 24th of February. If we do 24 decide to make substantive changes to the game rule 25 that's been proposed, then those types of changes will 13 1 require us to restart our process here in Texas, and 2 we'll have to bring before you a new Powerball game rule 3 for your consideration, go through the comment period, 4 et cetera. 5 If the changes that may occur on the 24th 6 are deemed to be nonsubstantive, then we may be able to 7 adopt the currently proposed rule with those minor 8 modifications; but either way, I would strongly 9 recommend that the Commission pass on this item today 10 and plan to receive more information from us for 11 potential action in the April Commission meeting. As we 12 sit here today, if you were to adopt that game rule, and 13 if no other changes were made to the Powerball game, we 14 would look to launch that game in July. 15 In addition, we plan to launch Texas 16 Triple Chance, which is a draw game that was approved 17 back in February of 2014, in October. Those game rules 18 were held up for Texas Triple Chance because of a 19 request for an attorney general's opinion that has since 20 been resolved. 21 So all that said, if there are substantive 22 changes made by MUSL later this month to the currently 23 proposed Powerball game rule, changes that would require 24 us to push that July launch date back, then our plans 25 will change. And what we'll likely do is start the 14 1 Texas Triple Chance game in the July time frame rather 2 than Powerball. 3 So to sum up all that confusion, I just 4 won't know for certain what our plans will be until 5 after we have that MUSL meeting on February 24th. Once 6 that meeting occurs, I'll advise each of the 7 commissioners individually what the next steps will be. 8 COMMISSIONER WILLIAMSON: Okay. So 9 basically, we're going to pull down this consideration 10 for this amendment is what you're asking us? 11 MR. GRIEF: Yes, ma'am. Please. 12 COMMISSIONER WILLIAMSON: Okay. I -- 13 Commissioners, do you have any other questions or 14 comments or concerns on this? 15 (No response) 16 COMMISSIONER WILLIAMSON: Ms. Nettles, I 17 know you signed up to make a comment. 18 MS. NETTLES: In light of this 19 information, no, I have nothing to say. 20 COMMISSIONER WILLIAMSON: Okay. 21 MS. NETTLES: Thanks. 22 AGENDA ITEM IV 23 COMMISSIONER WILLIAMSON: All right. Next 24 item is consideration of adoption of the minutes of 25 the -- of the amendments to the Lottery Procurement 15 1 Procedures Rule, 16 TAC 401.101. 2 Lea, this is your item, please. 3 MS. BURNETT: Good morning. For the 4 record, by name is Lea Burnett. I'm assistant general 5 counsel with legal services, and I'm here to present to 6 you, for your consideration, a draft submission for 7 publication to the Texas Register that authorizes the 8 adoption of an amendment to Rule 16 TAC 401.101(c)(6), 9 concerning procedures regarding proprietary purchases 10 and when those must be posted on the Electronic State 11 Business Daily. 12 The purpose of the amendment is to bring 13 the language into conformity with Agency practice and 14 statutory requirements, namely, that any proprietary 15 purchase of $25,000 or more must be posted on the 16 Electronic State Business Daily. 17 The amendment is presented without changes 18 to the proposed version that was introduced to you at 19 the December meeting. We have received no comments on 20 the proposal as published in the December 26, 2014, 21 issue of the Texas Register; therefore, Staff recommends 22 that the Commission adopt the draft amendment as 23 presented in your notebooks. And I'm available to 24 answer any questions regarding it. 25 COMMISSIONER WILLIAMSON: Thank you. 16 1 Commissioners, do you have any questions 2 or comments? 3 (No response) 4 COMMISSIONER BAGGETT: No questions. 5 COMMISSIONER WILLIAMSON: Just a quick 6 question. What is a proprietary purchase? What's the 7 definition of that for state government? 8 MS. BURNETT: Sure. It's a purchase that 9 is available from only one source, essentially, in -- so 10 what would happen is you would be looking for a 11 particular service or an item, and it is proprietary to 12 one vendor. 13 COMMISSIONER WILLIAMSON: Okay. Thank 14 you. 15 MS. BURNETT: So it would not be 16 necessarily openly procured amongst different vendors, 17 because it's only available at that particular vendor. 18 COMMISSIONER WILLIAMSON: All right. 19 Thank you. I was just curious. 20 All right. Is there a motion? 21 COMMISSIONER BAGGETT: I'll make a motion 22 that we approve the adoption of the rule amendment. 23 COMMISSIONER WILLIAMSON: Is there a 24 second? 25 COMMISSIONER TOWNES: Second. 17 1 COMMISSIONER WILLIAMSON: All in favor? 2 (All those voting in favor so responded) 3 COMMISSIONER WILLIAMSON: Motion passes 4 unanimously. 5 MR. BIARD: Thank you, Commissioners. I 6 have a rule order for you to sign. 7 COMMISSIONER WILLIAMSON: Thank you. 8 AGENDA ITEM V 9 COMMISSIONER WILLIAMSON: The next item is 10 a report on Agency prime contracts, including extensions 11 and/or amendments on the contract for audit services. 12 Mike Fernandez. 13 MR. FERNANDEZ: Good morning, Madam Chair, 14 Commissioners. For the record, my name is Mike 15 Fernandez. I'm the director of administration. 16 Item V in your notebook is a briefing 17 item, and it's Staff's intent to advise the Commission 18 that we're getting ready to amend and extend our current 19 contract for annual financial audit services. We intend 20 to amend it for a one-year period, or extend it for a 21 one-year period, and amend it to eliminate a current 22 requirement for agreed-upon procedures for Mega Millions 23 and Powerball and Power Play. If you have any 24 questions, I'd be happy to answer. 25 COMMISSIONER WILLIAMSON: Thank you. 18 1 Commissioners, do you have any questions 2 or comments? 3 (No response) 4 COMMISSIONER BAGGETT: No. 5 COMMISSIONER WILLIAMSON: Is there a 6 motion? Oh, wait. That doesn't require a motion. 7 MR. FERNANDEZ: No, it does not. I'm 8 sorry. You're correct, Commissioner. 9 AGENDA ITEM VI 10 COMMISSIONER WILLIAMSON: All right. Go 11 ahead. Item No. VI is a report on Agency major 12 contracts, including amendments on the contracts for 13 instant ticket manufacturing and services and the 14 contract for drawing studio and production services. 15 MR. GRIEF: Commissioners, before Mike 16 presents on this item, I want you to know that I've 17 asked him to share with you, under this item, 18 information relating to a recent letter from Governor 19 Abbott that all state agency heads received. This 20 letter was dated January 28, and the subject of the 21 letter was transparency in state agency contracting and 22 procurement. 23 I emailed each of the commissioners a copy 24 of this letter, and I've also provided you this morning 25 a copy of my response letter to Governor Abbott as well. 19 1 I wanted you to hear from Mike today, as Mike is our 2 agency contracting officer regarding the agency status 3 and plans in this area after he reports to you on his 4 particular contract matter. 5 Mike? 6 MR. FERNANDEZ: Thank you. 7 The first action item on this agenda item 8 is that we were -- we are seeking approval to amend our 9 three Instant ticket printing contracts. And what that 10 amendment entails is to add what I would refer to as 11 oversized tickets, which would range from 8-by-8s up to 12 12-by-16s. So if you have any questions regarding that, 13 I'd be happy to answer it. 14 COMMISSIONER WILLIAMSON: Thank you. 15 Commissioners, do you have any questions 16 or comments or anything? 17 (No response) 18 COMMISSIONER WILLIAMSON: Okay. Do you 19 have any? 20 MR. FERNANDEZ: That's an action item. 21 COMMISSIONER WILLIAMSON: Okay. 22 MR. FERNANDEZ: Unless you want to -- 23 COMMISSIONER WILLIAMSON: Yeah, we'll go 24 ahead and take the action item, then you can -- then you 25 share with us. 20 1 All right. Is there a motion? 2 COMMISSIONER BAGGETT: I'll make a motion 3 to approve the Staff's recommendation. 4 COMMISSIONER WILLIAMSON: Is there a 5 second? 6 COMMISSIONER MEADOR: Second. 7 COMMISSIONER WILLIAMSON: All in favor? 8 (All those voting in favor so responded) 9 COMMISSIONER WILLIAMSON: Motion passes 10 unanimously. 11 All right, Mike. Thank you. 12 MR. FERNANDEZ: The next action item is 13 we're seeking approval to amend our current drawing 14 studio and production services contract to relocate the 15 broadcast and draw studio operations. And I'd like to 16 give you a little more information about that, if I may, 17 Commissioner. 18 What we intend to do is we intend to 19 relocate our drawing studio operations. The target date 20 to move that operation is next month -- or May the 18th. 21 And that will be out for approximately 42 days. We're 22 going to relocate that to our -- to another site at 23 Cameron Road, 2008 (sic) Cameron Road, while we're doing 24 some renovations in the current studio. 25 As each of you know, the drawings are 21 1 conducted under very tight and very prescribed security 2 as well as strict broadcast standards. And I want to 3 assure the Commission that those standards will be 4 maintained on this alternate site. 5 We will advise -- this should be 6 transparent to the viewing audience and the public. I 7 want to advise you that we will post that information on 8 our website. We'll put signage on our studio. The 9 difference would be, obviously, is that anyone that 10 would have come down to see a live draw now will have to 11 go to that site, which we will again have posted on our 12 website. We will have a viewing area set aside out at 13 that alternative location. 14 Any questions? 15 COMMISSIONER TOWNES: You feel very good 16 about the security arrangements that you've got at the 17 alternate site? 18 MR. FERNANDEZ: I do, Commissioner. The 19 fact is all of the equipment that's used here will be 20 moved out there, including all the machines, all the 21 precautions in terms of safes, et cetera. 22 The thing that's occurring right now is 23 that the security folks that provide the camera security 24 here are working with Michael Anger's staff, my facility 25 staff, and they're walking that site, because now you're 22 1 going to have different camera angles. You're going to 2 have different halls that they're moving equipment down. 3 But I would say that that facility is a 4 fairly well buttoned-up facility, just generally, and 5 that the addition of these security cameras that are 6 being moved, I believe that we will have the same level 7 of security. I have no reason not to believe that. 8 COMMISSIONER TOWNES: Okay. 9 COMMISSIONER WILLIAMSON: All right. 10 MR. BIARD: Mike, I'm sorry, would you 11 mind restating the address of that other location, just 12 for the record? 13 MR. FERNANDEZ: That is 8006 Cameron Road. 14 MR. BIARD: Okay. Thank you. 15 MR. FERNANDEZ: And again, Bob, that will 16 be posted on our website, and there will be signage 17 placed on the current studio. 18 COMMISSIONER WILLIAMSON: So people can go 19 and watch it if they so -- 20 MR. FERNANDEZ: Yes, ma'am. 21 COMMISSIONER WILLIAMSON: Okay. Great. 22 MR. FERNANDEZ: That is an action item. 23 COMMISSIONER WILLIAMSON: This is an 24 action item. 25 Is there a motion to approve Staff's 23 1 recommendation on the drawing studio change on the 2 contract? 3 COMMISSIONER MEADOR: I'll move that we 4 adopt and accept the proposed amendment to the drawing 5 contract. 6 COMMISSIONER WILLIAMSON: Is there a 7 second? 8 COMMISSIONER TOWNES: Second. 9 COMMISSIONER WILLIAMSON: All in favor? 10 (All those voting in favor so responded) 11 COMMISSIONER WILLIAMSON: Motion passes 12 unanimously. 13 Thank you. 14 MR. FERNANDEZ: And lastly, Commissioner, 15 following up on Mr. Grief's comments, I wanted to advise 16 the Commission of the letter -- or speak to the letter 17 that was received by all agency heads regarding 18 transparency and accountability in state contracts. 19 As you know, that was in response to 20 Senator Nelson's bill, SB 353, which really elaborated 21 on the contracting operations of state agencies. In the 22 governor's letter, he refers to five specific points in 23 Senator Nelson's bill. And I wanted to assure the 24 Commission that the Agency has -- in the letter, the 25 governor asked that all agencies implement that by the 24 1 1st of February. And I wanted to assure the Commission 2 that the Agency has taken the necessary steps to 3 implement -- to ensure the implementation of those five 4 areas. 5 COMMISSIONER WILLIAMSON: Thank you. 6 You know, I know we do a lot of the things 7 that they talked about already. Generally about -- 8 where are we in terms of -- we've already done this 9 stuff for quite a few years already. I mean, we don't 10 have to get down in the weeds yet, because I know 11 there's some new things that probably nobody in state 12 government does yet. These are kind of new ideas. But 13 generally, where do we stand already doing a lot of 14 this? 15 MR. FERNANDEZ: What I would say when you 16 look at Senator Nelson's bill, Commissioner, I would say 17 that the Agency has already in place the preponderance 18 of the requirements in that bill. And that is is that 19 we require certification from our contracting folks. 20 They receive training. They receive ethics training. 21 They sign conflict of interest statements as they go 22 through that process. So many of those things are 23 already in place. 24 I think for us, the things that we're 25 going to need to do is to expand some of those areas, 25 1 hone them, if you will, or address them more clearly 2 perhaps in our procedures. 3 But I feel very comfortable. We're 4 analyzing that bill. You may hear more about it from 5 Nelda in her presentation, but we will work very closely 6 with Nelda's staff and also with our legal staff, with 7 Bob's staff. 8 COMMISSIONER WILLIAMSON: Thank you. 9 Commissioners, do you have any questions 10 or comments? 11 (No response) 12 COMMISSIONER WILLIAMSON: Thank you, Mike. 13 AGENDA ITEM VII 14 COMMISSIONER WILLIAMSON: Let's see, Item 15 No. VII is a report on lottery sales and revenue, game 16 performance, new game opportunities, advertising, market 17 research, trends, and game contracts, agreements, and 18 procedures. 19 Kathy and Robert, please? 20 MS. PYKA: Good morning, Commissioners. 21 My name is Kathy Pyka, controller for the Commission. 22 With me this morning is the Commission's products and 23 drawings manager, Robert Tirloni. 24 Commissioners, the first chart that we 25 have for you this morning reflects comparative sales for 26 1 the week ending January 31, 2015. Our Fiscal Year 2015 2 sales through this 22-week period are now at 3 $1,844,000,000, which is a decline of just under 4 $1.3 million compared to Fiscal Year 2014 for this same 5 period. 6 Our Fiscal Year 2015 Instant ticket sales, 7 which are reflected on the second orange bar, are at 8 $1,402,000,000, which is a 51.6 million-dollar increase 9 over last fiscal year. Commissioners, at this point in 10 time our, Instant ticket sales are at 76.1 percent of 11 total lottery sales for Fiscal Year 15. 12 Our Fiscal Year 2015 draw sales, reflected 13 on the second blue bar, is at $441.3 million, which is a 14 52.9 million-dollar decline as compared to last fiscal 15 year. This decline is attributed to a lack of large 16 multi-state jackpots for Fiscal Year 2015 as compared to 17 last fiscal year. Last year at this point in time, we 18 had already had a Mega Millions jackpot at 636 million. 19 We had had a Powerball jackpot that had reached 20 400 million. 21 Commissioners, at this point in time this 22 fiscal year, we've had one jackpot over 300 million for 23 Mega Millions, and our Powerball jackpot is now at 24 360 million. 25 So moving on to the next slide, this is 27 1 our slide that reflects cumulative average daily sales 2 for Fiscal Years 2013, 2014, as well as 2015. The 3 overall daily sales average for Fiscal Year 2015 is now 4 at $12.1 million. This is a hundred 5 thousand-dollar-per-day increase over Fiscal Year 2014, 6 and it's a 528,000-dollar-per-day increase over Fiscal 7 Year 2013. 8 We'll begin with the jackpot games, which 9 are highlighted in the white font, reflect a total daily 10 average of $1.7 million, with declines of $259,000 from 11 last fiscal year and a 75,000-dollar decline from Fiscal 12 Year 2013. 13 And as we discussed on the previous slide, 14 we've not had the multi-state jackpots this fiscal year, 15 which has attributed to a decline in the draw sales 16 area. And you can see this clearly in looking at Mega 17 Millions, which is at $463,000 per day, as well as 18 Powerball, which is at $516,000 per day in comparing 19 those to last fiscal year. 20 Our Daily games are highlighted in blue, 21 reflect a daily average of $1.18 million per day, with a 22 35,000-dollar-per-day decline from last fiscal year. 23 Within this category, we'd like to highlight Pick 3, 24 which is just under last fiscal year, and Daily 4 at 25 $232,000 per day, which is continuing to show a year 28 1 over year increase over prior year fiscal year sales. 2 Moving down to the bottom of the page are 3 our Instant ticket sales, reflecting a daily average of 4 just under $9.2 million per day. This is an increase of 5 $394,000 over last fiscal year and a 6 783,000-dollar-per-day increase over Fiscal Year 2013. 7 So with that, that provides a summary of 8 our average daily sales. And Robert will now provide an 9 update on actual sales by product. 10 MR. TIRLONI: Good morning, Commissioners. 11 For the record, Robert Tirloni, products and drawings 12 manager for the Commission. 13 This chart is the same layout as the one 14 that Kathy just covered. We have our jackpot games at 15 the top, our Daily games in the middle in blue, and our 16 Instant games at the bottom in orange. This sales data 17 is through the week ending last Saturday, January 31. 18 So I'm going to jump down to the bottom and look at the 19 grand total for our draw games. 20 As Kathy mentioned, due to a lack of large 21 jackpots, we are experiencing an almost 22 53 million-dollar decline in our draw game portfolio. 23 Again, the contributing factors are lack of jackpots 24 from the multi-state games. You'll see Mega Millions is 25 down slightly over $27 million year over year, and 29 1 Powerball is down just under $11 million year over year. 2 Powerball did roll last night, so the 3 jackpot is now $360 million for Saturday. That's very 4 beneficial for us, because at this time last year, 5 Powerball was climbing up to a 400 million-dollar 6 jackpot in mid-February. So the roll last night will 7 hopefully allow us to keep pace with the sales that we 8 were seeing a year ago. 9 Our jackpot -- I'm sorry, our Daily games 10 in blue, most of them are in slight decline. Daily 4 11 continues to see year over year increases. 12 Moving down to our Instant games, they are 13 up almost $52 million, Commissioners. We have seen 14 very, very strong holiday sales. We had a brand-new 15 product offering this past holiday season. That was our 16 20-dollar Holiday Game Book. It was very, very 17 favorably received by retailers and players alike. 18 We've also just recently launched our new 19 multiplier suite or family of games. Those started in 20 late December and early January. Right now those are 21 our top selling Instant games. So the bottom line is, 22 while we're experiencing some large declines on the draw 23 games side as a result of lower jackpots, the Instant 24 portfolio is doing very good, very strong sales. And so 25 it's kind of making up for that large decrease that 30 1 we're seeing on the draw games side. 2 As of right now, year over year, we are 3 down just about $1.3 million. We are having a very, 4 very strong Instant sales week again this week, so we're 5 positive that the new games on the Instant side are 6 going to position us well and carry us into the spring. 7 So we expect to see that Instant sales increase to 8 continue. 9 MS. PYKA: That concludes our 10 presentation. We'll be happy to answer any questions. 11 COMMISSIONER WILLIAMSON: Thank you. 12 Commissioners, do you have any questions 13 or comments or -- 14 COMMISSIONER TOWNES: No. 15 COMMISSIONER BAGGETT: I have none. 16 COMMISSIONER WILLIAMSON: All right. 17 Thank you very much. 18 AGENDA ITEM VIII 19 COMMISSIONER WILLIAMSON: All right. The 20 next item is a report on transfers to the State and the 21 Agency's budget status. 22 Kathy? 23 MS. PYKA: Thank you, Madam Chair. 24 Commissioners, while the notebook before 25 you includes the revenue transfers and allocations to 31 1 the Foundation School Fund and the Texas Veterans 2 Commission, as well as the allocation of unclaimed 3 prizes for the period ending December 31, 2014, we 4 completed the revenue transfer for the month of January 5 this week. And so I wanted to provide you current 6 information this morning on actual revenue transfers to 7 the state. 8 At this point in time, through January 31, 9 our total accrued revenue transfers to the state amount 10 to $443.5 million for the first five months of the 11 fiscal year. Of the 443.5 million-dollar transfer to 12 the state, $423.4 million was the amount transferred to 13 the Foundation School Fund, with $4.9 million 14 transferred to the Texas Veterans Commission and the 15 remaining balance of $15.2 million transferred from 16 unclaimed lottery prizes. 17 Commissioners, this represents a 18 2.9 percent decrease, or $12.7 million from the amount 19 transferred to the Foundation School Fund through 20 January of 2014. Our total cumulative transfers to the 21 Foundation School Fund, through January, now amount to 22 $17.52 billion. 23 And, Commissioners, the final item under 24 this tab is the Agency's Fiscal Year 2015 method of 25 finance summary for the first quarter ended November 30, 32 1 2014. Our Commission's lottery account budget for 2015 2 is $204.1 million, and of this amount, 68.2 percent was 3 expended and encumbered through the end of the first 4 quarter. 5 Our bingo operations budget funded by 6 general revenue is $16.6 million, and we have expended 7 and encumbered 42.3 percent through the end of the first 8 quarter. I'd be happy to answer any questions, 9 Commissioners. 10 COMMISSIONER WILLIAMSON: Thank you. 11 Commissioners, do you have any questions 12 or comments? 13 (No response) 14 COMMISSIONER TOWNES: No. 15 MS. PYKA: Thank you, Commissioners. 16 COMMISSIONER WILLIAMSON: Thank you. 17 AGENDA ITEM IX 18 COMMISSIONER WILLIAMSON: Our next item is 19 the report on the 84th Legislature. Nelda? 20 MS. TREVINO: Good morning, Commissioners. 21 For the record, I'm Nelda Trevino, the director of 22 governmental affairs. 23 The 84th Legislature convened its regular 24 session on January the 13, 2015. In your Commission 25 meeting notebook, we provided a copy of the Agency's 33 1 legislative bill tracking report, and we've provided you 2 this morning with an updated copy of the report. 3 There have been more than 1600 legislative 4 measures filed, and we are currently tracking 5 approximately 125 measures. Many of the bills that we 6 track and monitor impact all state agencies. These 7 measures could include and relate to subjects regarding 8 open meetings of governmental bodies, open records and 9 the Public Information Act, state purchasing and 10 contracting, and matters related to human resources and 11 state employee benefits. 12 At our Commission meeting in December, I 13 highlighted those bills that had been filed as of that 14 time that were specifically related to the Agency's 15 business. Since our last meeting, there have been three 16 additional bills filed that relate to the lottery, and 17 I'd like to note those for you today. 18 These include House Bill 854, by 19 Representative Scott Sanford. This bill relates to the 20 abolishment of the state lottery. This legislation 21 states that the bill takes effect only if a 22 constitutional amendment to abolish the lottery is 23 approved by the voters. 24 The next bill is HJR 59, by Representative 25 Richard Raymond. This joint resolution would amend the 34 1 constitution to dedicate lottery proceeds to support 2 educational programs that benefit classroom teaching and 3 public schools and would prohibit any advertising that 4 would promote the purchase of tickets for the purpose of 5 supporting public education. 6 The last bill that I wanted to mention is 7 Senate Bill 397, by Senator Jose Rodriguez. This bill 8 would require the Lottery Commission to spend an 9 equivalent amount of its advertising and marketing 10 budget to promote the veterans game as the Commission 11 spends on any other Instant ticket. As of this date, no 12 legislation has been filed related to the regulation of 13 Charitable Bingo. 14 I want to also provide an update as it 15 relates to the legislature's consideration of the 16 Agency's appropriations for Fiscal Years 2016 and 2017. 17 Both the Senate Finance Committee and the House 18 Appropriations Committee will be considering the 19 appropriations bill for the biennium and will hear 20 testimony from each state agency. The Lottery 21 Commission is scheduled to appear before the Senate 22 Finance Committee on February the 24th to provide 23 testimony regarding the Agency's budget -- budgets 24 request for the upcoming biennium. 25 We also anticipate receiving notice from 35 1 the House Appropriations Committee regarding the 2 committee's schedule for their budget hearings. 3 This concludes my report, and I'll be glad 4 to answer any questions you might have. 5 COMMISSIONER WILLIAMSON: Thank you. 6 Commissioners, do you have any questions 7 or comments? 8 COMMISSIONER TOWNES: No. 9 COMMISSIONER WILLIAMSON: All right. 10 Thank you. 11 AGENDA ITEM X 12 COMMISSIONER WILLIAMSON: Item X is 13 consideration of external and internal audits and/or 14 reviews and/or on internal audit activities, including 15 approval of the Instant ticket sales to transfer to 16 state audit report. 17 Darlene, this is your item, please. 18 MS. BROWN: Good morning, Commissioners. 19 I'm Darlene Brown with McConnell and Jones, serving as 20 your internal auditors. 21 Today I'm presenting our status report for 22 you. And so since the last period, we have issued the 23 Charitable Bingo allocation report to the state agencies 24 that are oversights. We've also drafted the Instant 25 ticket -- Instant game sales to transfer of funds audit 36 1 report, which we are presenting to you later for 2 approval. We trained the bingo staff on how to conduct 3 the reconciliations of the ledger accounts, and we began 4 that project. I'm happy to report that in less than two 5 weeks' period, we've reconciled almost a hundred 6 ledgers, and they are in progress in the various stages 7 of being reviewed. 8 COMMISSIONER TOWNES: Excuse me, you said 9 you've got about how many total? 10 MS. BROWN: We've got almost a hundred out 11 of the 1700 that we will be looking at. So we 12 anticipate statements to start being mailed out towards 13 the end of March as we complete these reconciliations, 14 but we also anticipate that the project overall will 15 take about four to six months to complete. 16 We've also continued to work on the 17 restructuring project with the bingo staff, and then 18 also we're continuing to work with the BOSS programming. 19 We will begin our testing on the BOSS programming next 20 week to make sure that everything is programmed as 21 planned and that the internal controls are within the 22 system. 23 Okay. As far as the bingo restructuring 24 project goes, we are 65 percent complete with that 25 project, and we have reviewed 71 percent of the business 37 1 processes. So it's 170 business processes that we 2 looked at, and we're 71 percent completed with those. 3 Okay. Our audit plan, FY 15 audit plan 4 status, we are at 35 percent complete with that audit 5 plan since September 1, and we have 33 percent of the 6 funds expended. So we're spending a little less than 7 anticipated, but we are on target for completing our 8 audits. 9 The Instant ticket sales to transfer funds 10 to state audit report, we looked at every single 11 business process in the whole cycle from the time that 12 the tickets are received in the warehouse to the time 13 that the sales are reported, the claims are validated, 14 the retailer incentive program. We also looked at the 15 promotional ticket program, any adjustments on retailer 16 accounts. We looked at the processes for bringing that 17 money of sales revenue back into the treasury, and then 18 we looked at a hundred percent of the transfer of funds 19 to the -- to the state. And for FY '14. 20 Our results are that all of the Instant 21 tickets are fully accounted for in every single process 22 along the way and that 100 percent of the funds are sent 23 to the state on time, and they're accurate. 24 We did have one small observation, and 25 that was just in the sequencing of retailer adjustments. 38 1 And our recommendation's already been implemented. It 2 did not have an impact on the reporting of the sales 3 itself. It's just for better efficiencies, we 4 recommended a different progress. 5 Three of the seven prior audit findings 6 were still partially open. And since our audit 7 completed, management has addressed those, and those 8 are -- we consider closed now. 9 Okay. Overall, the internal controls are 10 effective and working. 11 Our activities for next period are we will 12 continue the procure to pay audit, and that audit was 13 already planned in our FY '15 audit plan. What we are 14 going to do, we're also going to incorporate Governor 15 Abbott's letter to make sure, and we'll identify any 16 possible gaps and report those to you. 17 We will continue with the ledger 18 reconciliation project, and we'll also continue with the 19 restructuring project. 20 Okay. That is the end of my status 21 report. And the next item is item requesting that you 22 approve the Instant ticket sales to transfer audit 23 report. 24 COMMISSIONER WILLIAMSON: All right. 25 Thank you. 39 1 First of all, Commissioners, do you have 2 any questions or comments or anything on anything 3 Darlene has discussed up to this point? 4 (No response) 5 COMMISSIONER WILLIAMSON: All right. Then 6 is there a motion to approve the audit report? 7 COMMISSIONER BAGGETT: I'll make a motion 8 to approve the Instant ticket sales to the transfer to 9 the state audit report. 10 COMMISSIONER WILLIAMSON: Great. Is there 11 a second? 12 COMMISSIONER MEADOR: I second. 13 COMMISSIONER TOWNES: Second. 14 COMMISSIONER WILLIAMSON: All in favor? 15 (All those voting in favor so responded) 16 COMMISSIONER WILLIAMSON: Motion passes 17 unanimously. 18 MS. BROWN: Thank you. 19 COMMISSIONER WILLIAMSON: Thank you, 20 Darlene. 21 Good job to everyone. And is there -- 22 again, on the BOSS and the Charitable Bingo activities, 23 I've said this many times, you know, everybody in this 24 agency, from bingo group and those in the lottery that 25 are supporting this activity, I've been impressed with 40 1 what has happened. So thank you, thank you, thank you 2 from the Commission. 3 AGENDA ITEM XI 4 COMMISSIONER WILLIAMSON: All right. 5 Let's go to the next item, is a report by the Charitable 6 Bingo operations director on the Charitable Bingo 7 Operations Division's activities, including updates on 8 the business process restructuring project, licensing, 9 accounting and audit activities, pull-tab review, and 10 special projects. 11 Alfonso? 12 MR. ROYAL: Good morning, Commissioners. 13 In addition to the output metrics included in your 14 briefing books, I'd like to update you all on the 15 progress of resolving backlogs that were identified 16 during my assessment of the division and reported to the 17 Commission in October. 18 Pending licenses yet to be issued 19 decreased by 47 percent. As of February 3, there were 20 389 pending applications for licensure. That is a 21 decrease from a high of 739 reported in October. In 22 terms of a backlog, what I consider a true backlog are 23 original or renewal applications more than 30 days old, 24 of which total 204. 25 Audit activities have decreased from 153 41 1 to 94, with a number of scheduled audit exit conferences 2 and final reports due this month. 3 The compliance activity monitoring process 4 cases have decreased from 239 to 74, which include 27 5 that are pending payment as a result of agreed orders. 6 The remaining 47 include 31 which are current year 7 cases. 8 Pull-tab testing was current as of 9 February 2. Previously reported as a high of 81, we are 10 currently at 22 with Staff pending awaiting responses 11 from licensees. 12 Darlene mentioned the bingo account ledger 13 project which is underway. Staff have been assigned 14 throughout the region to work on these projects. This 15 project, as she indicated, will take several months. We 16 are committed to providing a summary of the ledger 17 review to each licensee, regardless if they are active 18 or inactive, at the conclusion of the project. So 19 they're going to be aware of what the status is of their 20 accounts. 21 I am extremely proud of the progress the 22 staff has made in rising to the challenges and deadlines 23 imposed on the work to resolve the backlog. I 24 appreciate all of their efforts as well as the continued 25 support from other divisions within the Agency as we 42 1 work together toward final disposition. 2 Commissioners, as part of the Agency's 3 sunset legislation, we were required to adopt guidelines 4 for using criminal history information in bingo 5 licensing and worker registry. Those guidelines were 6 published last month. The legislation also required the 7 development of a schedule of sanctions to include the 8 revocation, suspension, and denial of license renewal in 9 addition to sanctions currently addressed in the 10 Agency's bingo penalty schedule. We will be engaging 11 stakeholders yet again to participate in this process 12 and bring this draft back for you at the next meeting. 13 Finally, an update on the Bingo Operating 14 Services System, BOSS. We are on track, as Darlene 15 mentioned. All key deliverables are on schedule. Bingo 16 staff are actively testing and providing feedback to the 17 development team. Last week the team provided a 18 demonstration of the bingo services portal to a group of 19 licensees and received great feedback and suggestions on 20 the portal. We're scheduled to go live with the 21 licensing phase of BOSS in March. 22 That concludes my report for Day 218. 23 (Laughter) 24 I'm happy to answer any questions. 25 COMMISSIONER WILLIAMSON: Thank you. 43 1 Commissioners, do you have any questions 2 or comments or -- 3 COMMISSIONER BAGGETT: I don't think 4 Alfonso has wasted one single day. 5 (Laughter) 6 Good job. 7 COMMISSIONER TOWNES: And I will second 8 that. 9 COMMISSIONER WILLIAMSON: Well, I know it 10 was kind of a tough thing to get kicked off. And I'm 11 pleased with the progress that we've made, and I 12 appreciate all of the input from stakeholders. I know 13 it's been challenging, and when you start doing things 14 differently and properly and according to statute that 15 we have no control over as a Commission, you know, I 16 understand it's tough. 17 And like I said, I appreciate your input 18 and your patience and -- you know, not everybody's going 19 to be happy about everything, so something must be 20 right, if that's the case. So thank you. 21 AGENDA ITEMS XII, XIII AND XIV 22 COMMISSIONER WILLIAMSON: All right. 23 Let's go on to item -- you know, Gary, let's just do XII 24 through XIV all together. 25 MR. GRIEF: Okay. 44 1 COMMISSIONER WILLIAMSON: That will be the 2 consideration of the Texas Lottery Commission's 3 participation in the MONOPOLY MILLIONAIRES' CLUB game, 4 report on GTECH, and the report on the Agency's status, 5 Agency procedures awards, FT status, et cetera. I'll 6 just let you segue into each one as appropriate. 7 MR. GRIEF: Very good. 8 For Item No. XII, which has to do with the 9 MONOPOLY MILLIONAIRES' CLUB game, I advised the 10 Commission in December that Texas was terminating the 11 sale of tickets for the MONOPOLY MILLIONAIRES' CLUB game 12 on Friday, December the 12th. And shortly thereafter, 13 all 22 other states who were participating in that game 14 followed suit and discontinued selling the game as well 15 on December 26. 16 As I also explained to the Commission in 17 your December meeting, the financial liability risk in 18 continuing to participate in the MONOPOLY game was just 19 untenable. By shutting sales down on December 12, we 20 were able to forego a 3.2 million-dollar advertising 21 spend for MONOPOLY. We were able to cancel our plans to 22 set aside $2 million to incentivize retailers for 23 selling the MONOPOLY game. And we were able to preclude 24 several other miscellaneous expenses like Staff travel, 25 printing, and some audit expenses as well. 45 1 As I also reported to you in the December 2 meeting, the Agency had already expended approximately 3 $1.4 million directly related to the MONOPOLY game for 4 advertising, fees to the MUSL organization, and some 5 miscellaneous printing and audit expenses prior to the 6 game shutdown taking place. 7 To further mitigate our losses, and in 8 hopes of cutting our exposure for any ongoing cost for 9 the MONOPOLY TV game show, we did not authorize any 10 Texas players who were selected to participate in the TV 11 game show to actually travel to Las Vegas and do so. 12 Instead, we awarded those players $10,000 cash prizes as 13 substitute prizes, an amount that we determined was fair 14 market value for the trip to Las Vegas and the chance to 15 be on the TV game show. And we obtained releases from 16 each one of those players -- there were 30 total -- for 17 any future claim of liability against the Texas Lottery. 18 I communicated the Texas Lottery's 19 position on the MONOPOLY game to the full MUSL 20 membership -- or in a letter that was dated December 19, 21 2014 -- and I provided each of the commissioners a copy 22 of that letter. This letter also laid out a proposal to 23 try to resolve the issues relating to any potential 24 liabilities that MUSL and the participating states might 25 have to go through in regards to monies owed to 46 1 Scientific Games, the vendor who is actually managing 2 and producing the MONOPOLY TV game show. 3 Unfortunately, that proposal was not 4 adopted by MUSL, and the agreement with Scientific 5 Games, an agreement that is between the MUSL 6 organization and Scientific Games, that remains in 7 place. 8 That said, there are 14 of the original 23 9 state lotteries who are still interested in moving 10 forward with the MONOPOLY TV game show, using a MONOPOLY 11 scratch game as a vehicle in which players are able to 12 enter for a chance to be on that TV game show. Texas 13 will not be one of those states. 14 The objective of doing a new national 15 premium game of any kind, at a 5-dollar price point, was 16 to generate incremental net revenue for each 17 participating state. Here in Texas, our net revenue 18 goes to public education. I see no opportunity to 19 generate that incremental revenue by participating in a 20 MONOPOLY scratch game. Rather, I see the risk of that 21 being a losing proposition for us in two different ways. 22 The first is obviously a MONOPOLY theme 23 scratch game may not resonate well with our players who 24 right now have a negative image of that MONOPOLY brand 25 here in Texas, due to the bad experience they just went 47 1 through with the MONOPOLY MILLIONAIRES' CLUB game. And 2 trying to shoe-horn in a MONOPOLY scratch game into our 3 very carefully planned and thought-out Instant ticket 4 game plan runs the risk of denigrating our overall 5 performance on scratch sales, which, as you saw from 6 Kathy's earlier presentation, account for more than 7 76 percent of our overall revenue. 8 Secondly, the states that are 9 participating in a MONOPOLY scratch game are still being 10 required to contribute six-and-a-quarter percent of 11 their total sales to paying Scientific Games for 12 producing the TV game show. That's going to lower the 13 percentage. That's going to net profit to a way that it 14 almost guarantees that scratch game will be an 15 underperformer for any jurisdiction who chooses to run 16 it. 17 I do remain concerned about potential 18 claims that Scientific Games may make against MUSL or 19 the Texas Lottery and other states involved in that game 20 related to the expenses of the television game show. I 21 do have a long and positive business relationship with 22 Scientific Games, and I have had several discussions 23 with their top management team about those potential 24 issues, but we have reached no resolution as yet. 25 I'll continue to keep the Commission 48 1 informed as progress is made along those lines, and I 2 would be happy to answer any questions about that. 3 COMMISSIONER WILLIAMSON: Commissioners, 4 do you have any questions? 5 COMMISSIONER TOWNES: If I understand 6 correctly, Gary, in response to your letter of 19 7 December, a vote was taken, and your recommendations not 8 adopted. But we have not received -- you have not 9 received -- any kind of official response to your 10 letter? 11 MR. GRIEF: That is correct, Commissioner. 12 COMMISSIONER TOWNES: That's all. 13 COMMISSIONER WILLIAMSON: All right. 14 COMMISSIONER MEADOR: Gary, I'm most 15 grateful for your diligent attention to this in turning 16 a bad situation -- resolving a bad situation as quickly 17 as you can. I appreciate you paying attention to it. 18 MR. GRIEF: Thank you, Commissioner. 19 If no other questions, Madam Chair, I'll 20 move on to the GTECH item. 21 COMMISSIONER WILLIAMSON: Okay. 22 MR. GRIEF: Commissioners, other than 23 what's in your notebooks this morning, I don't have 24 anything further to report under the GTECH item, but I 25 did want to recognize Jay Gendron, who is down from 49 1 Rhode Island. As you know, Jay is the senior vice 2 president of GTECH Americas. Jay has joined us today, 3 and I think Jay is beginning to make a habit of joining 4 us for every meeting. I'm grateful for that, and I know 5 Jay would be happy to answer any questions, if the 6 commissioners had any of him. 7 COMMISSIONER WILLIAMSON: Well, Jay, just 8 briefly would you come up and just share a little bit 9 about yourself, besides the fact that you're a Patriots 10 fan? 11 (Laughter) 12 COMMISSIONER WILLIAMSON: A big Patriots 13 fan. 14 MR. GENDRON: Yes. Well, thank you very 15 much for that. That is certainly true. 16 But my name is Jay Gendron. I'm the 17 senior vice president of the United States operations at 18 GTECH. I've been at GTECH for 20 years now, holding 19 various government relations, sales, video lottery, 20 video lottery operations positions for the company. 21 Prior to 2014, I handled Eastern region 22 operations, which is basically the eastern half of the 23 United States and all of Canada. And starting last 24 year, I had the privilege to be elevated to the senior 25 vice president of all the United States, and that is 50 1 when I've had the pleasure of taking on responsibilities 2 here in Texas. And it's been a pleasure getting 3 involved in this account and meeting everybody here. 4 COMMISSIONER WILLIAMSON: Thank you. 5 Commissioners, do you have any questions 6 of Jay? 7 COMMISSIONER TOWNES: No. We'll just see 8 how anxious he is to come back for some of our summer 9 meetings. 10 (Laughter) 11 COMMISSIONER WILLIAMSON: And we'll see if 12 he has any custom-made boots. 13 COMMISSIONER TOWNES: It's great to get 14 out of new England this time of year, but we'll see 15 about summer. 16 MR. GENDRON: Yes. Thank you. Thank you 17 very much. 18 COMMISSIONER WILLIAMSON: Thank you. 19 MR. GRIEF: Very good. I'll move on, 20 then, to my report, Commissioners. In addition to 21 what's in your notebook, I do have a couple of items to 22 report to you on this morning. 23 As you know, Texas is a member of the 24 Multi-State Lottery Association, MUSL. MUSL is based in 25 Iowa, and Texas is one of 38 lottery jurisdictions who 51 1 make up that organization. 2 In mid-January, the security director from 3 MUSL was arrested in connection with a 4 14.3 million-dollar unclaimed lottery ticket from a game 5 called Hot Lotto. I placed a copy of one of those news 6 articles related to the matter in your materials 7 yesterday. 8 Hot Lotto is another multi-state game. 9 It's played amongst 15 different lottery jurisdictions, 10 and Texas does not participate in the Hot Lotto game. 11 We are not a member of that game group. 12 This gentleman's name was Eddie Tipton, 13 and he has been terminated from MUSL. He faces two 14 felony counts of fraud related to this particular Hot 15 Lotto ticket. 16 My understanding from my colleagues in 17 Iowa is that the case is still being developed, and the 18 investigation into the matter continues. I'll continue 19 to keep the Commission informed as more information 20 becomes available. 21 And finally, my last item, Commissioners, 22 as I try to do always, I want to inform you about our 23 next major industry conference. That is the annual 24 Public Gaming Research Institute, or PGRI as it's known. 25 It's their SMART-TECH conference coming up in New York 52 1 March 30 through April the 1st. This conference will 2 bring together lottery directors and staff from around 3 the country, together with representatives from all the 4 major vendors, to discuss issues of importance in our 5 industry. 6 I've been asked to moderate a panel for 7 this conference as well as serve on another panel or 8 two. And, Commissioners, I hope you know by now that 9 you are always invited to our industry conferences, and 10 I'll make sure that we provide you with all the details 11 on this one. 12 Madam Chair, that concludes my comments 13 this morning. I'd be happy to answer any questions. 14 COMMISSIONER WILLIAMSON: Thank you. 15 Commissioners, do you have any questions 16 or comments for Gary? 17 (No response) 18 COMMISSIONER WILLIAMSON: And Ms. Nettles, 19 I know you signed up for Item XII. Are you still 20 interested -- okay. And that's the one on the MONOPOLY 21 MILLIONAIRES' CLUB item. 22 MS. NETTLES: Good morning, Commissioners. 23 My name is Dawn Nettles. I'm with the Lotto Report out 24 of Dallas. 25 And on the MONOPOLY game, I feel 53 1 compelled -- oh, get it closer? Okay. 2 I feel compelled to make this statement. 3 I've heard from a number of the second-chance winners 4 back from the December drawing -- or late November 5 drawing -- and the January drawing. I feel like Texas 6 should have honored their commitment on that game. They 7 won the second chance. There was a press release put 8 out. 9 These people felt cheated, and that's 10 putting it mildly. They think that they have no other 11 recourse but to have accepted that $10,000. When they 12 see this game -- I'm pretty sure it probably won't air 13 in Texas -- but when they see the game, they're going to 14 really be disillusioned. And I just can't believe that 15 Texas would pull out when they've told the people that 16 that's what they're going to do is go to Vegas, get this 17 money, five days all expenses paid. 18 I'm just real disappointed that the 19 Commission would do that. I don't understand how y'all 20 can promise somebody something and then take it away. 21 And they're really not aware -- I didn't even know until 22 Gary said something a while ago -- that they signed 23 releases. They're not aware of that. In fact, some of 24 them actually believe that the money that they received 25 was reimbursement for their airfare and that they still 54 1 have something coming from Sci Games or MCI. I spoke to 2 one last night who thinks that she's got more coming. 3 So I'm just really disappointed that our 4 state lottery would do that to the people. That hurts. 5 That hurts your image. That hurts your reputation. 6 So I just don't understand why we didn't 7 go that far, to at least let those people go that had 8 won. I understand the game was a losing game. I knew 9 that from the beginning, but that's about my only 10 comment. 11 COMMISSIONER WILLIAMSON: All right. 12 Thank you for sharing. 13 AGENDA ITEM XV 14 COMMISSIONER WILLIAMSON: All right. 15 Commissioners, the next item are enforcement cases. 16 And, Bob, I'll let you lay those out how 17 you wish. 18 MR. BIARD: Sure. Thank you. Thank you, 19 Commissioner. 20 Commissioners, Tab 15 in your notebooks 21 contains 15 lottery and bingo enforcement matters. 22 These are cases where the Commission Staff found a 23 violation of statutes or rules, and most of the time 24 either the licensee failed to appear at the hearing or 25 the Staff and the licensee have reached a settlement. 55 1 I'll briefly describe the cases, and you can take them 2 up in a single vote, if you like. 3 The first ten cases, Tabs A through J, are 4 nonsufficient fund lottery retailer license revocations, 5 and they're handled in a single order. Each of these 6 cases were presented at the State Office of 7 Administrative Hearings for revocation of the retailer's 8 license on the grounds the licensee failed to have 9 sufficient funds in their bank account to cover 10 electronic fund transfers to the Lottery Commission's 11 account. 12 In each case, the administrative law judge 13 recommends revocation, and Staff recommends that you 14 vote to approve the order in each case revoking the 15 license. 16 Tab K is a lottery license revocation case 17 on another ground other than NSF. In this case, a 18 current licensee, the owner and president of the 19 licensee, had pled guilty in 2014 to possession of 20 gambling devices, equipment, and paraphernalia and was 21 sentenced to three days' confinement in the Harris 22 County jail. 23 Due to this conviction, and because ten 24 years have not elapsed since termination of the 25 sentence, the retailer is not eligible to hold a lottery 56 1 sales agent license. The retailer did not appear at the 2 hearing, and the judge recommended revocation of the 3 license. And the Commission agrees -- Commission Staff 4 agrees. 5 Tab L is a lottery agreed order. In this 6 case, an employee of a retailer sold a customer $13 in 7 lottery tickets and charged tax on the purchase, which 8 is a violation of the lottery statutes. The customer 9 complained and was told it was store policy to charge 10 tax for lottery purchases. The Commission Staff settled 11 this matter with the retailer, who agreed to a seven-day 12 suspension. The Staff recommends that you approve the 13 agreed order. 14 Tabs M through O are bingo agreed orders. 15 These are all 8 liner cases involving commercial 16 lessors. Tab M involves a commercial lessor who allowed 17 the operation of 248-liner gambling machines inside his 18 bingo hall in Arlington. These machines awarded tickets 19 that could be exchanged for bingo products during bingo 20 occasions. The Bingo Enabling Act and the Commission's 21 rules prohibit any game of chance other than Charitable 22 Bingo, a charitable raffle, or door prize to be 23 conducted during a bingo occasion. 24 In this case, the lessor agreed to a 25 $14,400 penalty, which the bingo director agreed can be 57 1 suspended pending completion of a three-year period of 2 compliance with all the other terms of the order, which 3 is not to allow other games of chance during a bingo 4 occasion and to take action against any of their lessees 5 who don't comply. 6 Tab N is a similar case involving a 7 commercial lessor who allowed the operation of 27 8 illegal 8-liner gambling machines inside its bingo hall 9 in Humble, Texas. However, in this case, the lessor 10 agreed to pay a 16,000 -- $16,200 penalty. They 11 preferred to pay that now rather than to suspend the 12 penalty and agreed to a three-year probation period. 13 And the director has agreed to that. 14 Tab O is similar to Tab M. This case 15 involved another commercial lessor who allowed the 16 operation of 24 8-liner gambling machines inside his 17 bingo hall in Mansfield. The lessor agreed to a $14,400 18 penalty, which the bingo director agreed can be 19 suspended pending completion of a three-year period of 20 compliance with all the other terms of the order. 21 And those are the 15 cases. And if you'd 22 like to take them up in a single vote, you may. 23 COMMISSIONER WILLIAMSON: Okay. Then is 24 there a motion to approve the entry of orders as laid 25 out by Bob in Items A through O? 58 1 COMMISSIONER BAGGETT: I make a motion to 2 approve those Orders A through O. 3 COMMISSIONER WILLIAMSON: Is there a 4 second? 5 COMMISSIONER MEADOR: I second. 6 COMMISSIONER WILLIAMSON: All in favor? 7 (All those voting in favor so responded) 8 COMMISSIONER WILLIAMSON: Motion passes 9 unanimously. 10 AGENDA ITEMS XVI AND XVII 11 COMMISSIONER WILLIAMSON: And I don't 12 believe there are any other public comments that I'm 13 aware of. So at this time, we will go into executive 14 session after a 15-minute break. So I move that we go 15 into executive session to deliberate personnel matters, 16 including the appointment, employment, evaluation, 17 reassignment, duties, discipline, or dismissal of the 18 Executive Director and Charitable Bingo operations 19 director and the duties of the general counsel and human 20 resources director pursuant to Section 551.074 of the 21 Texas Government Code and to receive legal advice 22 regarding pending or contemplated litigation or 23 settlement offers and other matters pursuant to Section 24 551.0711 and two of the Texas Government Code, including 25 but not limited to those items posted on the open 59 1 meetings notice. 2 Is there a second? 3 COMMISSIONER BAGGETT: I second. 4 COMMISSIONER WILLIAMSON: All in favor? 5 (All those voting in favor so responded) 6 COMMISSIONER WILLIAMSON: The vote is 7 unanimous. The Texas Lottery Commission will go into 8 executive session at 11:20 a.m. 9 (Recess: 11:05 a.m. to 11:20 a.m.) 10 (Executive Session: 11:20 a.m. to 11:38 11 a.m.) 12 AGENDA ITEMS XVIII AND XIX 13 COMMISSIONER WILLIAMSON: The Texas 14 Lottery Commission is out of executive session at 15 11:38 a.m., and there are no actions to be taken as a 16 result of the executive session. So do I hear a motion 17 to adjourn? 18 COMMISSIONER MEADOR: I move to adjourn. 19 COMMISSIONER WILLIAMSON: Is there a 20 second? 21 COMMISSIONER BAGGETT: Second. 22 COMMISSIONER TOWNES: Second. 23 COMMISSIONER WILLIAMSON: All in favor? 24 (All those voting in favor so responded) 25 COMMISSIONER WILLIAMSON: Motion passes 60 1 unanimously; therefore, the Texas Lottery Commission 2 adjourns as of 11:38 a.m. on February the 25th, 2015. 3 (Proceedings concluded at 11:38 a.m.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 61 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lorrie A. Schnoor, Certified Shorthand 5 Reporter in and for the State of Texas, Registered Merit 6 Reporter, Certified Realtime Reporter and Texas 7 Certified Realtime Reporter, do hereby certify that the 8 above-mentioned matter occurred as hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of such 10 were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control, and that the foregoing pages are a full, true, 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my hand 15 and seal this 13th day of February, 2015. 16 17 _________________________________ LORRIE A. SCHNOOR, RMR, CRR, TCRR 18 Certified Shorthand Reporter CSR No. 4642 - Expires 12/31/15 19 Firm Registration No. 276 20 Kennedy Reporting Service, Inc. 7800 North Mopac, Suite 120 21 Austin, Texas 78759 512.474.2233 22 23 24 25