1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 7 8 9 10 11 COMMISSION MEETING 12 Thursday, April 9, 2015 13 14 15 16 BE IT REMEMBERED THAT on Thursday, the 9th 17 day of April, 2015, the Texas Lottery Commission meeting 18 was held from 10:00 a.m. until 12:19 p.m., at the 19 Offices of the Texas Lottery Commission, 611 East 20 Sixth Street, Austin, Texas 78701, before J. WINSTON 21 KRAUSE, CHAIRMAN; and JODIE G. BAGGETT, MARY ANN 22 WILLIAMSON AND JOHN W. TOWNES, III, COMMISSIONERS; that 23 the following proceedings were reported via machine 24 shorthand by Lou Ray, a Certified Shorthand Reporter. 25 2 1 APPEARANCES 2 3 CHAIRMAN: Mr. J. Winston Krause 4 COMMISSIONERS: 5 Ms. Jodie G. Baggett 6 Ms. Mary Ann Williamson Mr. John W. Townes, III 7 GENERAL COUNSEL: 8 Mr. Robert F. Biard 9 EXECUTIVE DIRECTOR: Mr. Gary N. Grief 10 CHARITABLE BINGO OPERATIONS DIRECTOR 11 Mr. Alfonso Royal 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS, THURSDAY, APRIL 9, 2015 ............... 7 4 I. The Texas Lottery Commission will call the meeting to order .............................. 7 5 II. Report, possible discussion and/or action 6 on Lottery Player Motivations and Behaviors ..................................... 15 7 III. Consideration of and possible discussion 8 and/or action on rulemaking petition submitted by the Bingo Interest Group to 9 repeal rules prohibiting a licensed authorized organization from reserving seats 10 or cardminders for charitable bingo customers ..................................... 25 11 IV. Consideration of and possible discussion 12 and/or action, including proposal, on amendments to 16 TAC §401.368 (Instant Ticket 13 Vending Machines), §401.158 (Suspension or Revocation of License), and §401.160 14 (Standard Penalty Chart); and repeal of 16 TAC §401.369 (Online Self-Service 15 Terminals) .................................... 32 16 V. Report, possible discussion and/or action on lottery sales and revenue, game performance, 17 new game opportunities, advertising, promotional activities, market research, 18 trends, and game contracts, agreements, and procedures ................................ 34 19 VI. Report, possible discussion and/or action 20 on transfers to the State and the agency’s budget status ................................. 42 21 VII. Report, possible discussion and/or action 22 on HUB and/or minority business participation, including the agency’s Fiscal Year 2014 23 Minority Business Participation Report ........ 43 24 25 4 1 TABLE OF CONTENTS 2 PAGE 3 VIII.Report, possible discussion and/or action on agency prime contracts, 4 including amendments on the contract for lottery drawings CPA services ................. 48 5 IX. Report, possible discussion and/or action on 6 agency major contracts, including amendments on the contract for drawing studio and 7 production services ........................... 48 8 X. Report, possible discussion and/or action on the 84th Legislature ....................... 49 9 XI. Report, possible discussion and/or action 10 on external and internal audits and/or reviews relating to the Texas Lottery 11 Commission, and/or on Internal Audit activities, including revisions to the 12 FY 2015 Internal Audit Plan ................... 55 13 XII. Report by the Charitable Bingo Operations Director and possible discussion and/or 14 action on the Charitable Bingo Operations Division’s activities, including updates on 15 the Business Process Restructuring Project, licensing, accounting and audit activities, 16 pull-tab review, and special projects ......... 58 17 XIII.Report, possible discussion and/or action on GTECH Corporation .......................... 7 18 XIV. Report by the Executive Director and/or 19 possible discussion and/or action on the agency’s operational status, agency procedures, 20 awards, and FTE status ........................ 66 21 22 23 24 25 5 1 TABLE OF CONTENTS 2 PAGE 3 XV. Consideration of the status and possible entry of orders in: ........................... 67 4 Lottery NSF License Revocation Cases (Default Unless Otherwise Noted) 5 A. Docket No. 362-15-1267 – King Food Center B. Docket No. 362-15-1268 – Sampaguita, LLC 6 C. Docket No. 362-15-1269 – On the Route D. Docket No. 362-15-1662 – K’s Market 7 Bingo Agreed Orders E. Docket No. 362-15-0322.B – Ona Ellison 8 F. Case No. 2014-864 – Melodye Green G. Case No. 2014-868 – Win Place Show 9 Bingo Inc. H. Docket No. 362-14-4542.B – Registry 10 Application of Rakahayai Brown 11 XVI. PUBLIC COMMENT .......................... NOT HEARD 12 XVII.Commission may meet in Executive Session: ..... 71 13 A. To deliberate personnel matters, including the appointment, employment, evaluation, reassignment, 14 duties, discipline, or dismissal of the Executive Director and/or the Charitable Bingo Operations 15 Director pursuant to Section 551.074 of the Texas Government Code. 16 B. To deliberate the duties of the General Counsel and/or the Human Resources Director pursuant to 17 Section 551.074 of the Texas Government Code. 18 C. To receive legal advice regarding pending or contemplated litigation or settlement offers, 19 or other legal advice, pursuant to Sections 551.071(1) and (2) of the Texas 20 Government Code, including but not limited to legal advice regarding the following items: 21 State of Texas v. Equal Employment Opportunity Commission et al. 22 23 24 25 6 1 TABLE OF CONTENTS 2 PAGE 3 Pending and potential litigation regarding Fun 5’s Instant Game #1592, including but 4 not limited to Travis Co. District Court Cause Nos. D-1-GN-14-004345 (Rule 202 5 Petition) and D-1-GN-14-005114 (Steele, et al. v. GTECH Corp.); Dallas Co. District 6 Court Cause No. DC-14-14838 (Nettles v. GTECH Corp.); and El Paso District Court 7 Cause No. 2014-DCV-4113 (McDonald v. GTECH Corp.) 8 Legal advice regarding the State Lottery Act, 9 Texas Government Code Chapter 467, the Bingo Enabling Act, the Open Meetings Act, 10 the Administrative Procedure Act, employment law, personnel law, procurement and contract 11 law, evidentiary and procedural law, and general government law 12 Legal advice regarding any item on this 13 open meeting agenda 14 XVIII.Return to open session for further deliberation and possible action on any 15 matter posted for discussion in Executive Session. Any matter posted for Executive 16 Session also may be the subject of discussion and/or action in open session 17 prior to Executive Session .................... 72 18 XIX. Adjournment ................................... 72 19 PROCEEDINGS CONCLUDED ............................. 73 20 REPORTER'S CERTIFICATE ............................. 74 21 22 23 24 25 7 1 P R O C E E D I N G S 2 THURSDAY, APRIL 9, 2015 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN KRAUSE: The Texas Lottery 6 Commission meeting is called to order, April the 9th, 7 2015. It is exactly ten o'clock by my reading of the 8 clock. And so we have Commissioners Baggett, Townes and 9 Williamson present; we, therefore, have a quorum and are 10 ready to do business. 11 AGENDA ITEM NO. XIII 12 CHAIRMAN KRAUSE: I am going to take an 13 item out of order on the agenda. I'm going to start 14 with Item No. 13. 15 MR. GRIEF: Good morning, Mr. Chairman -- 16 I'm sorry, go ahead. 17 CHAIRMAN KRAUSE: Go ahead. 18 MR. GRIEF: My fault. May I -- may I 19 start on 13? 20 CHAIRMAN KRAUSE: Yeah, we're starting 21 with No. 13. 22 MR. GRIEF: Very good. Good morning, 23 Mr. Chairman and Commissioners. This is the GTECH item, 24 and let me be the first to say that going forward from 25 now on, this will be known as the IGT agenda item as the 8 1 acquisition and merger of IGT and GTECH has complete -- 2 has been completed. And the name of the new company 3 will be IGT. And as you-all know, IGT is the lottery 4 operator for the Texas Lottery. 5 And all that said, we have a guest with us 6 here today from IGT. Mike Chambrello was appointed 7 Chief Executive Officer of IGT North America Lottery 8 effective March 23rd, and Mike replaced Jaymin Patel, 9 who you-all knew and had met previously. 10 In Mike's new role, he'll be overseeing 11 the development and delivery of all lottery technology 12 solutions globally for IGT, as well as the strategic 13 development and management of lottery business in the 14 U.S. and Canada. And in addition to those 15 responsibilities, Mike will also oversee the IGT Global 16 Instant Ticket printing business. 17 I've given each Commissioner the IGT press 18 release where you can read more about Mike's experience 19 and background, but suffice it to say that Mike is a 20 very experienced industry professional with deep ties 21 and extensive experience, specifically here in Texas, 22 having served as President of GTECH Corporation at the 23 time the Texas Lottery began in 1992 until he left the 24 company in 1998. 25 More recently, Mike has served as CEO of 9 1 Scientific Games Corporation where he had overall 2 responsibility for managing Scientific Games' day-to-day 3 worldwide activities. Mike left Scientific Games 4 in 2013. 5 Having known Mike for many years, I 6 reached out to him immediately upon him being named to 7 his new position, and I asked that Mike come to Austin 8 and address the Commission and speak to you-all about 9 the newly form IGT, share with you his vision for the 10 company, his vision for GTECH Texas and for the Texas 11 Lottery. And, of course, I know Mike will be happy to 12 answer any questions as well. 13 I'm proud to say that the Texas Lottery 14 Commission is appropriately the first state lottery 15 board that Mike has addressed since he became the CEO. 16 And with that, Mike, I would like to ask 17 you to come forward and address the Commission, please, 18 sir. 19 MR. CHAMBRELLO: Thank you, Gary. And 20 there really was never any question or doubt which would 21 be the first Commission meeting that I'd be attending 22 anyway. And a lot of that certainly has to do with 23 the -- the success that the Texas Lottery has had over 24 the years, but it also has quite a bit to do with my 25 personal history here in Texas and my long-term history 10 1 with the former GTECH Corporation, now IGT. 2 I think the first thing that I'd like to 3 do is -- other than thank you very much for -- for your 4 time and the opportunity to spend a few moments with 5 you. You were all familiar with Jaymin. Jaymin and I 6 are actually very good friends, and I'm very privileged 7 to be the person that follows him in -- in this role. 8 And Jaymin is off to a fantastic opportunity. And I 9 will say that as Jaymin and I were transitioning and -- 10 and we went through a number of the key accounts, Texas 11 was very, very high on his list as well. And it is my 12 hope and expectation to continue to lead and provide the 13 same services that Jaymin did. 14 As Gary mentioned, the -- we are now IGT, 15 and I have been asked quite a bit over my two full 16 weeks now back with the company what exactly that means. 17 And you can look at it, I guess, from a financial 18 perspective and say you have two relatively large 19 companies come together, which we will have about 20 $6 billion in revenue. 21 If you were to break that revenue out in 22 what would be traditional WLA financials and traditional 23 sort of casino financials, very, very roughly -- and our 24 CFO would probably contradict me on this -- but the 25 reality is we're probably two-thirds lottery worldwide, 11 1 including BLTs and vending machines and things of that 2 nature. So while our name has changed and we've come 3 together with another company, I would view it in terms 4 of IGT has historically been a leader and provider of 5 content. 6 And what does that mean? It's new games. 7 It's new ideas. It's better graphics. It's things of 8 that nature which will help us -- not only help and 9 support the Texas Lottery in terms of your existing draw 10 games, but certainly as our global printing and services 11 operation grows, we will be able to provide tremendous 12 incremental and additional content for instant ticket 13 games, both from a technology perspective in game 14 programming and how you design, quote-unquote, the "map 15 of the game," but also, frankly, in -- in the enjoyment 16 and consumer pleasure. 17 So we think that that combination and 18 coupling is -- is something that's going to pay great 19 dividends. But one of the other benefits that I think 20 we as a lottery group -- and Jay and the team, I think, 21 will benefit from this greatly -- is that our focus now 22 is just lottery. Jaymin's focus was on a geography that 23 encompassed all of our products and services. 24 We've split that now so that we have a 25 focus on lottery, but what we have is the -- are the 12 1 resources, the technology, the control over product 2 development, new development and innovation that are 3 under the lottery umbrella -- and they fall under North 4 America, which I'll have responsibility for. 5 So I think in terms of incremental 6 research and development spending, in terms of greater 7 focus and granularity on all of our accounts, but 8 certainly our K accounts such as Texas, we should be 9 able to drive greater innovation and reduce time to 10 market while in no way whatsoever reducing the -- the 11 customer service that you have all become accustomed to. 12 And certainly in our customer-first approach, we expect 13 and anticipate that we'll continue to do that. 14 So while we changed our name yesterday, I 15 look at that as a necessary and good branding issue or 16 activity. What I would also say, though, is the things 17 that have made GTECH so great and prominent in the 18 industry over the last 30 years or so are the people, 19 the people that worked and served this lottery 20 yesterday, Monday, serve this lottery today and into the 21 future. 22 And personally, as someone who -- who 23 started with the very, very early days of GTECH in 1980 24 or '81, I have a special affinity for the culture that 25 was developed, for the passion for this business, and 13 1 for the ability to increase our customer satisfaction 2 through you-all. So we look forward to driving 3 ourselves to greater heights. 4 And I think I'll just end with a comment 5 in terms of where do we see the lottery going and where 6 can we help you, I was asked a question yesterday where 7 do you see the viability, if you will, of our current 8 17-plus-thousand retailers in this age of conversion 9 and -- and the ability to adapt digital tools to either 10 telephone apps, Internet and other, and I would suggest 11 that none of that goes away. Certainly the bedrock 12 of -- of a lot of our success starts at the retail 13 location, and that will remain the bedrock of our 14 infrastructure going forward. 15 However, I think together as a vendor, and 16 as a lottery commission and, in fact, as an industry, 17 the greater reliance in -- in expansion of digital 18 distribution is something that we are driving, we will 19 continue to drive, and if you add the content, which is 20 at the end of the day is what sells more tickets in 21 whatever mode that you have or we have, that will be -- 22 that will be something that is not 24, 36 or 48 months 23 out. That's something that I would anticipate in the 24 very near term, say 12 months out. 25 So we look forward to providing you great 14 1 customer service. I looked at this group and others and 2 we have a fantastic team. That team will not change. 3 The opportunities that we think we present in terms of 4 content and benefits from IGT you will have first and 5 open access to. And our commitment to you and to our 6 retailers and to the Lottery Commission and the industry 7 is not only intact, I think it will be redoubled. And I 8 look forward to enthusiastically participating at every 9 level of our organization. 10 And I'm -- on a personal note, view very 11 seldom to get to go home or back to where you started. 12 I've been given that opportunity. It doesn't happen 13 often, and I assure you I will take every advantage of 14 that to provide you-all and our team with everything we 15 need to get the job done together. 16 So brief comments, I thank you for that, 17 and obviously I'd be very happy to take any questions 18 anyone might have. 19 CHAIRMAN KRAUSE: Commissioners? 20 COMM. WILLIAMSON: No, I don't have any. 21 MR. CHAMBRELLO: Then I thank you very 22 much. 23 CHAIRMAN KRAUSE: Thank you. Thank you so 24 much. 25 15 1 AGENDA ITEM NO. II 2 CHAIRMAN KRAUSE: Moving on to Item 3 No. II, Mr. Fernandez. 4 MR. FERNSNDEZ: Good morning, 5 Mr. Chairman, Commissioners. For the record, my name is 6 Mike Fernandez, and I'm the Director of Administration. 7 With me today is Paul Lauzon, Senior 8 Vice-President and Managing Director of Marketing for 9 Ipsos Reid. Ipsos is one of the three largest consumer 10 marketing firms in the world. Ipsos has done extensive 11 consumer research regarding lottery players, not only in 12 the US, but oversees as well as. 13 I've asked Paul to address the Commission 14 this morning in response to questions we often hear. 15 They are: Why do people play the lottery? Do players 16 consider lottery playing entertainment or gambling? And 17 are lottery players capable of making good, sound 18 decisions about how they spend their money? 19 With that I will turn it over to Paul. 20 MR. LAUZON: Thank you for that 21 introduction, Mike, and I'm very happy to be here today 22 to do my best to answer those questions. Over the 23 years, we have collected a number of different metrics 24 in Texas and along in many other jurisdictions in the 25 U.S. that will help answer some of these questions. And 16 1 I'll take you through a very short presentation that's 2 very focused on the metrics that I feel are relevant to 3 the questions at hand. 4 And just to go back to the questions Mike 5 raised: Why do lottery -- why do people play lottery 6 games, the types of metrics I will look at to answer 7 these questions are various metrics along -- on gaming 8 and lottery motivations that we've been collecting. 9 Is lottery play considered entertainment 10 or gambling? Some of the metrics I'll rely on to answer 11 that question is some -- what we call perceptions of 12 lotteries and gaming. 13 The other thing I'll do is some analysis 14 on the participation rates and spend behaviors of 15 lottery players compared to the participation rate and 16 spend behaviors of gamblers, and it will be very clear 17 the difference between the two. 18 On the third question: Are lottery 19 players capable of making good choices on how they spend 20 their money, for several years we've been tracking one 21 particular metric here in Texas as it relates to impact 22 of the economic conditions on people's lottery play 23 behavior. And there's fairly clear evidence that people 24 do make fairly rational decisions when faced with 25 certain conditions in their lives. 17 1 So why do people play lottery games? The 2 metrics on the left are some of the key metrics we've 3 been tracking in Texas for a number of years. And there 4 are six other states as listed in the table there that 5 we have data from as well that we can compare. And what 6 we'll show you here is on the -- on the seven point 7 scale are the top three bars, those people who rate, 8 five, six or seven, which would qualify as a percentage 9 of people who say that this is important to them. 10 So just looking at the data from Texas 11 very briefly, for the most part -- and these are 12 arranged in order of importance to people -- playing 13 lottery for entertainment or fun, to win a little bit of 14 money or a chance to win big when the jackpot is 15 rolling, it's easy to play or to sort of have that 16 entertainment dreaming aspect of it for a few minutes 17 about what you would do if you won a thousand-dollar 18 prize or a hundred-thousand-dollar prize or more. These 19 are fairly important -- important motivations to people. 20 When we look at the data from other 21 states, it's very similar or even more pronounced in 22 terms of those types of motivations. So Texans are 23 somewhat unique in some respects, but we see some 24 very similar patterns to -- to why people play lotteries 25 in other jurisdictions. 18 1 Just moving on, we have a couple of more 2 metrics where we don't -- we are also comparing to other 3 states, although the level of agreement to the 4 motivations there will be slightly less. As I mentioned 5 earlier, they're arranged in order of importance. But 6 to support worthy causes is still important to nearly 7 half of lottery players. You're feeling lucky that day 8 or waiting to the anticipation of the draw, and just 9 to -- a sort of a fleeting entertainment, a short 10 distraction during their day just to think about what it 11 would be like to win a prize. 12 We see a bit more variability here with 13 other jurisdictions. Some states -- in some states we 14 find that more people agree with some of these 15 motivations and in some states we find it less. But 16 again, it sort of points to the fact that the reason 17 people play lottery games is varied. There are multiple 18 reasons they've played before, but the key ones are 19 definitely related to entertainment and fun and sort of 20 just that fleeting entertainment that people get out of 21 playing lotteries. 22 Just a couple more that we compare with a 23 few other states, to socialize with others and because 24 people find some of these games challenging are also 25 motivations for some Texas players and similarly for 19 1 players in other jurisdictions. 2 I'd like to move on to the second 3 question: Is lottery play considered entertainment or 4 gambling? Looking at what we call our policy or 5 attitude-type metrics, in Texas -- and this is not among 6 players. This is among the general population of Texas. 7 Roughly half of Texans believe the lottery is an 8 appropriate way to raise revenue. They believe that the 9 lottery is an innocent form of entertainment. It's fun 10 to play and that very few people believe more control 11 should be placed on gaming or on lottery play. 12 And we see some similarities in some 13 responses from other states. Some are a little higher 14 on these metrics and some are a little bit lower. But 15 again, just to point out that for the most part people 16 tend to see lottery as an innocent form of 17 entertainment. If we were to show the -- what we call 18 the neutral category or people who rate it a 4, it's 19 usually in Texas around 25 to 30 percent and very few 20 people are opposed to some of these metrics. 21 This is the analysis I was mentioning 22 earlier on participation and spending. On the left the 23 participation in any lottery game in Texas during this 24 tracking period that we conducted this research was 52 25 percent of Texans played any lottery game in the past 20 1 year, and that number sort of varies depending on when 2 we take the measurement between that 50 -- low 50s to 3 high 50s. And you can see the distribution among each 4 of the different game categories. So over half of 5 Texans played a lottery game at least once in the past 6 year. 7 When we look at gambling activities, it's 8 significantly less. We have less that 3 in 10 Texans 9 play any other kind of gambling activities. 12 percent 10 visit resort casinos, play cards or bet on sports pools 11 or other things like that. 12 The more interesting part to me comes when 13 we start to look at the spending that they can commit to 14 these types of activities. The 52 percent of Texans who 15 play lottery games on average per player spent $294 per 16 year; whereas, the 29 percent of people who spend money 17 on other forms of gambling are spending more than $4800 18 per year as an average per player, the very big 19 distinction we can draw from -- from just the spending 20 analysis on whether something is fleeting entertainment 21 versus core gambling. 22 When we look at the chart on the right, 23 the pie chart, the total amount of reported dollars 24 spent on lotteries or gambling activities, the 25 52 percent of Texans who contribute to lottery games 21 1 account for 31 percent of all that gaming spending in 2 Texas; whereas, the 29 percent who spend money on other 3 gambling contribute nearly 7 out of $10 spent on 4 gambling or lottery dollars. 5 And the last question: Are lottery 6 players capable of making good choices about how they 7 spend their money? One of the metrics we've been 8 tracking for a number of years here in Texas is this 9 question: "Have recent economic conditions affected 10 your purchases of lottery games?" 11 One of the things we see, this is the 12 percentage of people who say yes to that question. Over 13 the past couple of years, as economic conditions have 14 improved gradually over time, we see fewer people saying 15 that economic conditions impact their behavior. 16 This next question is just a shorter 17 timeframe than that, but what I really want to show was 18 how does it impact their spending, and that's the chart 19 on the right. So of the people who said, as we know, 20 has gradually been decreasing the percentage of people 21 who say yes to that question, the people who do claim 22 that economic impacts -- conditions are having an impact 23 on their lottery play on the right, the vast -- the 24 majority of them say that they are either spending less 25 on lottery games as a result of that, or they stop 22 1 spending all together. So people are making fairly 2 rational choices on that fleeting entertainment dollar 3 that if -- when times are getting tough, they do make 4 the choice not to spend on it. 5 So just some final remarks to wrap all 6 this up together. On the first question, the number of 7 motivations that people have for playing lottery games 8 are wide and varied. But for the most part, the ones 9 that rank near the top are things for fun, anticipation 10 to one a little money on a large prize, a short break in 11 their day, some fleeting entertainment, supporting 12 worthy causes, being able to socialize with their peers 13 or their colleagues at work, just talking about playing 14 the lottery, things like that. 15 Is lottery play considered entertainment 16 or gambling? It's -- again, even from a policy 17 perspective, people agree it's short of short-lived 18 entertainment. And when we compare the amount of money 19 that is being spent by lottery players vis-a-vis what we 20 would classify as core gamblers, is a vastly different 21 number. 22 And the last metric I discuss I think 23 provides fairly good evidence that people do make 24 rational decisions when they're pressed on facing 25 tougher times economically. They do make the decision 23 1 to not spend on lotteries just like they would on -- 2 perhaps on other types of entertainment goods as well. 3 And I'm happy to entertain any questions. 4 CHAIRMAN KRAUSE: Commissioners? 5 COMM. WILLIAMSON: I don't have any. 6 CHAIRMAN KRAUSE: The reason why we have 7 asked you to take a look at this is because there is a 8 very small segment of Texans who feel like they've got 9 the moral authority to dictate to all Texans what kind 10 of entertainment options they should have. And, of 11 course, they imagine their moral authority to come from 12 their perceived views on the topics that you have given 13 us evidence about. 14 And so what would you say to the person 15 that believes that people of minor means are mindless 16 automatons that march down to the convenience store and 17 spend all their rent money on lottery tickets? What 18 would you tell the person that believes that? 19 MR. LAUZON: I would tell them that we 20 have ample evidence from jurisdictions across the U.S., 21 including Texas and even in Canada, that says otherwise. 22 And -- and I can understand why they might believe that 23 because, if they're talking to people who have the same 24 opinion as they do and they never look at evidence like 25 this or talk to other people who have a different 24 1 opinion, their opinions are never going to change. 2 So it's -- it would be worthy for them to 3 have a look at this evidence with an open mind because 4 it is very clear and very convincing when we have these 5 metrics. And we've been tracking these metrics now 6 across jurisdictions in North America for nearly 20 7 years, and they're fairly reliable and valid metrics. 8 CHAIRMAN KRAUSE: So what I'm hearing is 9 that people that believe that are uninformed -- 10 MR. LAUZON: I would agree with that -- 11 CHAIRMAN KRAUSE: -- mostly ignorant. 12 MR. LAUZON: I would agree that they are 13 either uninformed or misinformed. 14 CHAIRMAN KRAUSE: Well, we -- this is 15 important for us because, you know, we believe that our 16 customers who are players are intelligent people that 17 play when they can, they play for entertainment 18 purposes, and that they slow down when times are tough. 19 That's what I've been getting out of, you know, the 20 reports that I hear year in and year out while I've been 21 on the Commission. 22 So I appreciate you, you know, actually 23 putting a focus on these particular issues because it 24 completely backs up what I have observed. And so we'll 25 be using this information. We may be needing your help 25 1 with it to communicate this to the people who need to be 2 educated about it, and I appreciate your work on it. 3 Thank you. 4 MR. LAUZON: Absolutely. Thank you. 5 AGENDA ITEM NO. III 6 CHAIRMAN KRAUSE: Mr. Person, Item No. 3. 7 We will have a public comment on that when you're 8 finished. 9 MR. PERSON: Thank you, Mr. Chairman. For 10 the record, my name is James Person, Assistant General 11 Counsel. 12 Earlier this year we received a rulemaking 13 petition from a representative of the Bingo Interest 14 Group. That petition requested the repeal of all rules 15 that prohibit bingo conductors from reserving seats or 16 cardminders for their players. Staff has identified two 17 current rules that would fall under that request. 18 Under the Administrative Procedure Act, an 19 agency presented with a rulemaking petition such as this 20 one has 60 days to either deny the petition or initiate 21 the rulemaking. And if an agency denies the petition, 22 it must state the reason for the denial. 23 Staff has reviewed the petition, and it is 24 our recommendation that you deny the petition at this 25 time. The Charitable Bingo Operations Division is 26 1 presently engaged with many other time consuming 2 priorities, including the legislative session and the 3 implementation of the Bingo Operating Service System. 4 But the agency will be conducting its comprehensive rule 5 review this summer, and that's mandated by law to occur 6 over four years. We believe that the requested 7 rulemaking action could be considered at that time. And 8 for those reasons, we believe the petition should be 9 denied, but I'd be happy to answer any questions. 10 CHAIRMAN KRAUSE: Questions? 11 COMM. WILLIAMSON: I have none. 12 CHAIRMAN KRAUSE: Okay. So Staff's not 13 opposed to it, it's just, you know, being asked -- we're 14 being asked to consider it at a time when we're really 15 focused on some other issues that may be more important. 16 MR. PERSON: Staff hasn't really looked at 17 the substance of the petition yet. We're not for it or 18 against it. It's really an inopportune time right now. 19 The bingo staff is really consumed with other 20 priorities. 21 CHAIRMAN KRAUSE: Well, why don't you stay 22 put and we'll hear from Mr. Fenoglio. And then maybe, 23 if, you know, you have a comment to respond to him that 24 might be helpful. 25 MR. PERSON: Okay. 27 1 MR. FENOGLIO: For the record, if I may, 2 my name Stephen Fenoglio. I'm an attorney in Austin and 3 I'm standing instead of Steve Bresnen who's at the 4 capitol on legislative matters. 5 I want to paint a picture of why we're 6 here. And I'm handing out to the Bingo Director and to 7 each of you five different -- and to the court reporter 8 and finally to Mr. Person -- the original -- the genesis 9 of this rulemaking. And I represent the Bingo Interest 10 Group and the fine charities that are identified in that 11 notice of violation: VFW Post 7523, Pilot Club of 12 Minneola, Inc.; Pilot Club of Tyler Foundation; American 13 Legion Post 296; and VFW Post 4002, Longview. 14 The facts are the following: The 15 investigator comes into a bingo hall, sees a dauber in 16 front of the card minder. Writes them up and writes all 17 five charities up. Not all five charities were 18 conducting that day, only one, and wants $150 fine, $750 19 for reserving cards. Lot of back and forth -- yes, sir. 20 CHAIRMAN KRAUSE: A dauber? 21 MR. FENOGLIO: A dauber. 22 CHAIRMAN KRAUSE: What do you mean a 23 "dauber"? 24 MR. FENOGLIO: A dauber is one of these 25 ink daubers where you mark your paper bingo -- 28 1 (Simultaneous discussion) 2 MR. FENOGLIO: Yes. Yes. 3 CHAIRMAN KRAUSE: It's next to a card 4 minder? 5 MR. FENOGLIO: It's next to a card minder. 6 CHAIRMAN KRAUSE: Okay. 7 MR. FENOGLIO: The session is over. The 8 auditor believed, well, you're reserving cards by 9 putting that dauber in front of a card minder, ignoring 10 the fact that the only way you can power up a card 11 minder is to go to the cashier, pay your money, get a 12 receipt, come over and enter that on that card minder, 13 and then the cards are loaded. We're not reserving 14 cards or reserving a seat. It's putting a dauber in 15 front of a card minder that no longer operates, is dead 16 until they go to the cashier. 17 So I'm happy to report that after we 18 brought this to Mr. Royal's attention, they decided to 19 cancel the notice of violation -- this is no longer a 20 contested case -- and instead the division sent a 21 warning letter don't do it again, which then brings to 22 the fore Mr. Bresnen's request for our petition for 23 rulemaking. 24 We don't think there's any good reason to 25 have that provision in effect today. The genesis of 29 1 that -- and I was here when we passed the card-minding 2 statutes. Initially there was a shortage -- there was 3 only one manufacturer initially that was authorized to 4 offer cardminders, and there was an extreme shortage of 5 cardminders in the early years. No longer the case. 6 You can get as many cardminders today as any hall wants 7 if they're willing to pay for them. 8 So we think it's antiquated. The division 9 hasn't changed. To our knowledge, it's policy, and 10 that's why we'd like to have the petition started now. 11 We recognize people are working long hours, but the 12 charities are at risk for a foolish rule. 13 I'd be happy to answer any questions. 14 CHAIRMAN KRAUSE: Commissioners? 15 COMM. TOWNES: Is there something 16 compelling at this exact time that precludes the Bingo 17 Operations from reviewing the rulemaking process during 18 the normal course of their business? 19 MR. FENOGLIO: Sure, Commissioner Townes. 20 The only thing that's pressing is, as far as we know, 21 the Division will continue to enforce this rule, and so 22 charities continue to be at risk. And the concern on -- 23 COMM. TOWNES: Besides the five that you 24 have presented today, are there other examples in the 25 works? 30 1 MR. FENOGLIO: I don't know of any. I've 2 not heard of any. 3 COMM. TOWNES: And these have been 4 resolved? 5 MR. FENOGLIO: In a warning letter. The 6 concern for charities is once you've got a warning 7 letter, there's a record that's made of a -- an alleged 8 violation. A warning -- the way the warning letter says 9 don't do it again -- 10 COMM. TOWNES: Right. 11 MR. FENOGLIO: -- you don't -- you're not 12 required to respond, but it stays in that agency -- or 13 that charity's file. So that's the concern. 14 COMM. TOWNES: Thank you. 15 CHAIRMAN KRAUSE: Mr. Persons, any comment 16 about that? 17 MR. PERSON: No, sir, I wasn't familiar 18 with this particular case. I wasn't involved, so I 19 don't have anything specific about that case, but 20 nothing to change my testimony. 21 CHAIRMAN KRAUSE: Well, what I'm going to 22 recommend is that we're going to visit with our Bingo 23 Director in executive session and see if maybe we can 24 kind of relax the vigilance on that particular thing 25 until we get a chance to look at it. 31 1 MR. FENOGLIO: That would be helpful, too. 2 CHAIRMAN KRAUSE: Be happy to do that. We 3 want happy customers, too. 4 MR. FENOGLIO: Appreciate that. 5 CHAIRMAN KRAUSE: But we do have the 6 Legislature that tells us what to do and -- 7 MR. FENOGLIO: Right. Well, this is a 8 rule. This is not the -- fortunately it's not in the 9 statute. 10 (Laughter) 11 MR. FENOGLIO: And then the other thing, 12 obviously, it impacts a charity's ability to deal with a 13 favored customer. You know, we have whales in lottery, 14 you've got whales -- customers -- who buy a lot of 15 product. So it interferes with our ability to satisfy 16 our customers. 17 Thank you. 18 CHAIRMAN KRAUSE: Thank you, gentlemen. 19 Ms. Rienstra? 20 MR. BIARD: I'm sorry, Commissioners, I 21 think we should have a vote on that to deny the petition 22 and we -- 23 CHAIRMAN KRAUSE: What happens if we don't 24 do anything? Does it go away? 25 MR. BIARD: That's right -- well, no, 32 1 actually, the statute requires you to either initiate or 2 to deny. So you have to do one or the other under the 3 statute. 4 CHAIRMAN KRAUSE: Okay. How about a 5 motion from somebody to deny? 6 COMM. WILLIAMSON: All right. I make a 7 motion to approve the recommendation to deny the 8 rulemaking petition for Item No. 3. 9 CHAIRMAN KRAUSE: Okay. 10 COMM. BAGGETT: I second that. 11 CHAIRMAN KRAUSE: Excellent. All in favor 12 say "aye." 13 (All those voting in favor so responded) 14 CHAIRMAN KRAUSE: All opposed? 15 (No response) 16 CHAIRMAN KRAUSE: Petition denied. 17 AGENDA ITEM NO. IV 18 CHAIRMAN KRAUSE: Ms. Rienstra? 19 MS. RIENSTRA: Thank you. Good morning, 20 Mr. Chairman, Commissioners. I am Deanne Rienstra, 21 Assistant General Counsel. 22 Currently, there are two rules for 23 self-service lottery vending machines, one for instant 24 tickets and one for draw-game tickets. The machines now 25 being used dispense both types of tickets. Therefore, 33 1 staff recommends combining the two rules into 401.368 2 and repealing 401.369 to conform the language to reflect 3 the current equipment profile. 401.158 and 401.160 make 4 minor conforming language changes. 5 The proposed amendments also clarify that 6 all equipment is deployed with remote shut-off 7 technology so that the retailers can control sales 8 transactions. The proposed amendments also clarify the 9 role of the retailers in assisting players with failed 10 purchase transactions on the self-service lottery 11 vending machines. 12 Staff recommends submitting these 13 amendments for publication in the Texas Register in 14 order to receive public comment for 30 days. 15 I'm happy to answer any questions. 16 CHAIRMAN KRAUSE: Commissioners? 17 COMM. WILLIAMSON: I have no questions. 18 COMM. TOWNES: I have no questions. 19 CHAIRMAN KRAUSE: Do you have a question? 20 COMM. TOWNES: No. 21 CHAIRMAN KRAUSE: Oh, okay. 22 Anybody want to make a motion? 23 COMM. BAGGETT: I make a motion to approve 24 publication of the rule proposal for public comment. 25 COMM. TOWNES: And I second. 34 1 CHAIRMAN KRAUSE: Excellent. All in favor 2 say "aye." 3 (All those voting in favor so responded) 4 CHAIRMAN KRAUSE: All opposed "nay." 5 (No response) 6 CHAIRMAN KRAUSE: Hearing no nays, it 7 passes by acclamation. 8 Thank you, ma'am. 9 MS. RIENSTRA: Thank you. 10 AGENDA ITEM NO. V 11 CHAIRMAN KRAUSE: Ms. Pyka? 12 MS. PYKA: Good morning, Commissioners. 13 My name is Kathy Pyka. I'm the Controller for the 14 Commission. And with me to my right is Robert Tirloni, 15 our Products and Drawings manager. 16 Commissioners, the first chart that we 17 have for you this morning reflects comparative sales 18 through the week ending April 4th, 2015. Our total 19 fiscal year 2015 sales through this period are 20 $2,711,000,000, and this is an increase of $17.6 million 21 as compared to our sales figure for fiscal year 2014. 22 Looking at our instant ticket sales for 23 2015, which is reflected on the second orange bar, we're 24 now at $2,058,000,000. This is a $72.4 million increase 25 over last fiscal year. And as noted, our instant ticket 35 1 sales now reflect 75.9 percent of our total lottery 2 sales for the fiscal year. 3 Our fiscal year 2015 draw sales, noted on 4 the second blue bar, are at 653.1 million, which is a 5 454.8 million decline from last fiscal year. And, 6 Commissioners, as we've mentioned before, this decline 7 is attributed to a lack of large jackpots as compared to 8 fiscal year 2014. Last year we had reached four 9 jackpots over $400 million for both Powerball and Mega 10 Millions, and to date we've been limited to one jackpot 11 over $400 million for our Powerball which -- with the 12 jackpot that had reached an advertised $500 million. 13 So move on to the next slide. With 14 cumulative average daily sales comparisons for fiscal 15 years 2013, '14 and '15, our total overall daily average 16 sales value for fiscal year 2015 is now at $12.6 17 million. This is $175,000 per-day increase over fiscal 18 year 2014, and it's a $539,000 per-day increase over 19 fiscal year 2013. 20 I'll focus on the jackpot games first, 21 highlighted with the white font. The reflected total 22 average daily sales value of $1,851,000. This is a 23 decline of 173,000 over last fiscal year and an increase 24 of $92,000 over fiscal year '13. As discussed on the 25 previous slide, we've had large multistate jackpots this 36 1 fiscal year, which is attributing to the large decline 2 that we see on the Mega Millions line item. 3 Our daily games, highlighted in blue, 4 reflect a daily average of $1.2 million this fiscal 5 year, with a $29,000 per-day decrease from last fiscal 6 year. Our variances have remained pretty constant 7 throughout the fiscal year with a slight decline in 8 Pick 3. But we do show -- continue to show a slight 9 increase on our Daily 4 product. 10 And last but not least, instant ticket 11 sales at the very bottom of the chart reflect average 12 daily sales rate of $9-1/2 million. This is an increase 13 of $377,000 over last fiscal year, and a $611,000 14 increase over fiscal year 2013. 15 So with that, Robert will now cover actual 16 sales by product. 17 MR. TIRLONI: Good morning, Commissioners. 18 For the record, Robert Tirloni, Products and Drawings 19 Manager for the Commission. 20 So this is our fiscal year '15 compared to 21 fiscal year '14 through the week ending the previous 22 Saturday, April 4th. I'm going to jump right down to 23 the bottom to talk about the draw games total sales. 24 Draw games in fiscal '15 are down 54.8 million compared 25 to fiscal '14. So I'm going to drill down as to what's 37 1 causing that. 2 You can see up here at the top in white 3 for our jackpot game category we're down slightly over 4 $47 million. And if we drill down a little further, you 5 can see the bulk of that is coming from Mega Millions. 6 Again, this is all due to lack of jackpots. 7 Now, I will note that Powerball is 8 actually seeing an increase in Fiscal '15 compared to 9 Fiscal '14. So this is due to the $500 million jackpot 10 that we just had a couple of months back in February. 11 And actually that jackpot really put a huge dent in the 12 draw game deficit that we were experiencing. When we 13 last met with you in February, we had about a 52 or 14 $53 million decline. That roll up to the $500 million 15 jackpot level brought this number down to just slightly 16 over $23 million. So it really helped our draw game 17 sales. 18 But last March Mega Millions rolled up to 19 $400 million. So all of the progress that we gained in 20 February from the large Powerball jackpot we, 21 unfortunately, lost pretty much last month because we 22 were competing with a very large Mega Millions jackpot 23 from the year before. 24 So we've been talking about this pretty 25 regularly now since the start of the fiscal year, and 38 1 our situation with the jackpot games has really not 2 changed very much. The good news is our instant 3 portfolio is doing extremely well. Our sales are up 4 just over $72 million for -- for the fiscal year, which 5 is resulting in a net gain of just under -- or, I'm 6 sorry, just about 17-1/2 million for this fiscal year. 7 I'll also note that when the jackpot did 8 reach $500 million, we were -- we would have liked 9 another roll, but the good news is, we did have a 10 jackpot winner in Texas for -- there were two winners, 11 and one of them was in Texas. So we were happy at least 12 that we got a jackpot winner out of that. 13 We provide this to you once a quarter. 14 This is our instant sales broken by price point. Again, 15 this is through the week ending April 4th. So this pie 16 chart represents slightly over $2 billion in instant 17 game sales. Not much change in our ranking of the price 18 points. The 5 continues to be the best selling price 19 point, followed by the 10 and then the 20. The 2 comes 20 in in fourth place. Again, we've not seen much change 21 in the ranking of the price points. 22 I have two other updates for you today. 23 The first one is a new product. I've given you a sample 24 of this ticket. I'm told we're the first jurisdiction 25 in the country to launch this super ticket concept. So 39 1 this is our super ticket 7s game. It's a $10 game. It 2 starts in a couple of weeks on Monday, April 20th. It 3 is a supersized ticket, so it's 8 inches by 12 inches. 4 Instant tickets are typically 4 inches in width. So if 5 you were to fold that in half, that would be the typical 6 width of an instant game. So it's double the width. A 7 $10 game is typically about ten inches in length, so 8 it's also a few inches longer. 9 This game offers players 42 different 10 chances to win. There's over 57 million in prizes in 11 the prize structure for this game. And this game, 12 because of its size, will be dispensed from the special 13 dispensers that were purchased to dispense our holiday 14 game book that you-all are familiar with. So we'll be 15 using those in-store dispensers to sell and promote this 16 product. So we think this will be a great way to 17 continue our instant sales success through the rest of 18 this fiscal year. 19 Mr. Grief asked me to give you all an 20 update on the Texas Triple Chance game because it's been 21 sometime since we talked about this game. So I'm going 22 to give you a little -- a little background. It was 23 over a year ago in January of 2014 that the Texas Triple 24 Chance Rule first published in the Texas Register. In 25 February of 2014, the Commission adopted the Texas 40 1 Triple Chance game rule. But due to the request for an 2 AG opinion, when you adopted that rule you directed 3 staff to not spend any agency funds to implement the 4 game or to start sales for the game. 5 We received a favorable AG opinion in 6 August, over the summer, and that opinion confirmed our 7 authority to offer the game as it was -- as it was 8 proposed. So what was going on back then, in spring 9 through the fall of 2014, Texas and a lot of 10 jurisdictions in the industry were gearing up for the 11 Monopoly Millionaires Club game. That game launched in 12 October, as you know. 13 As that work was going on, MUSL was 14 working to propose changes to the Powerball Game. So 15 from fall until just about now, there's been ongoing 16 discussions in the industry in preparation for a new 17 version of the Powerball Game, and that game was 18 originally anticipated to be starting right about now, 19 right in the spring of 2015. That game has been 20 delayed. Changes to Powerball have been delayed. There 21 are ongoing discussions taking place right now about 22 potential game changes. 23 So what this means for us is this actual 24 delay with Powerball has actually opened up a slot for 25 us in our product launch calendar. And so we have 41 1 slotted late September in as our opportunity to finally 2 be able to launch the Texas Triple Chance Game, and so 3 staff is working to make that happen right now as we 4 speak. And we'll just have to continue to monitor 5 developments with Powerball and see where that game 6 change or where those changes could integrate into our 7 calendar beyond that September date. And so I wanted to 8 give you that update. I know it's been some time since 9 we've talked about that game. 10 And that's it for our presentation. We're 11 happy to answer any questions for you today. 12 CHAIRMAN KRAUSE: Commissioners? 13 COMM. TOWNES: Robert, I just noticed the 14 super ticket that you provided me -- 15 MR. TIRLONI: Yes, sir. 16 COMM. TOWNES: -- it's got marked void on 17 the back. 18 MR. TIRLONI: Yes, sir. 19 (Laughter) 20 COMM. TOWNES: Is there any reason for 21 that? 22 MR. TIRLONI: These are voids. They're 23 nonwinners. 24 CHAIRMAN KRAUSE: That is profoundly 25 unfair. 42 1 (Laughter) 2 MR. TIRLONI: These are the only samples 3 that we get here in our offices, nonwinners. 4 COMM. TOWNES: I have no further 5 questions. 6 (Laughter) 7 MR. TIRLONI: Thank you, sir. 8 AGENDA ITEM NO. VI 9 CHAIRMAN KRAUSE: So, Ms. Pyka, you're in 10 the hot seat; might as well stay there. 11 MS. PYKA: All righty. I shall proceed to 12 the tab item which includes information on the agency's 13 transfers to the State, as well as the agency's 14 operating budget. 15 Commissioners, the report in your notebook 16 reflects accrued revenue transfers and allocations to 17 the Foundation School Fund and the Texas Veterans 18 Commission for the period ending February 28, 2015. Our 19 total revenue transfers to the State amounted to 20 $568.7 million through the first six months of fiscal 21 year '15. Of the $568.7 million transfer to the State, 22 523.5 million was the amount of revenue transferred to 23 the Foundation School Fund. And we transferred 24 $5.8 million to the Texas Veterans Commission. The 25 remaining balance of 39.4 million was transferred from 43 1 unclaimed prizes. 2 Commissioners, this represents a 1.1 3 percent decline, or $6 million, from the amount that we 4 had transferred to the Foundation School Fund through 5 February of last fiscal year. And our new balance of 6 cumulative transfer to the Foundation School Fund are 7 now at $17.65 billion. 8 Commissioners, the final item under this 9 tab is the agency's fiscal year 2015 method of finance 10 summary for the second quarter ending February 28, 2015. 11 The Commission's lottery account budget is 12 $204.4 million. Of this amount we had expended 75-1/2 13 percent through the end of the second quarter. And let 14 me clarify, that was expended and encumbered through the 15 end of the second quarter. And our Bingo Operations 16 budget funded by general revenue funds is $16.6 million 17 with an expenditure and encumbrance rate of 61.7 through 18 the end of the second quarter. 19 I'd be happy to answer any questions. 20 CHAIRMAN KRAUSE: Commissioners? 21 (No response) 22 CHAIRMAN KRAUSE: Thank you, ma'am. 23 MS. PYKA: Thank you, Commissioners. 24 AGENDA ITEM NO. VII 25 CHAIRMAN KRAUSE: We will now hear a 44 1 success story from our HUB Coordinator. 2 MS. BERTOLACINI: Good morning, 3 Commissioners, Chairman Krause. For the record, my name 4 is Joyce Bertolacini, and I am the Texas Lottery 5 Commission Historically Underutilized Business 6 Coordinator. I would like to provide a brief update 7 about our program this morning to you, just a few 8 points, general points, about what's going on with the 9 HUD program. 10 At the beginning of this fiscal year, the 11 agency set its annual internal HUB goals as required by 12 the Comptroller's HUB rules, and I believe we sent those 13 to you in a memo. In addition, we also continue to 14 submit the required quarterly assessments of HUB-related 15 activities to the Comptroller, and we just submitted one 16 at the end of last month. 17 The Texas Lottery's mental protege program 18 is also an ongoing initiative to match HUB vendors with 19 mentor companies that can assist with specific business 20 development goals. The Texas Lottery Commission 21 currently has two mentor protege relationships in place, 22 and those are both with GTECH -- now IGT -- and two 23 vendors, Business Assets Enterprises, LP, and 24 Diversified Computer Supplies, Incorporated. 25 And, finally, the agency is in the process 45 1 of planning its annual HUB forum, which will take place 2 on June the 25th in this room, so we will have HUB 3 vendors invited in to interact with our staff and also 4 with representatives from our largest contractors. 5 However, the main reason I'm here today is 6 to provide an opportunity for you to approve a report, 7 which is the fiscal year 2014 Minority Business 8 Participation Report. And that -- a copy of that is 9 included in your notebooks this morning. This report, 10 which is required by Section 4 point -- I'm sorry, 11 466.107 of the State Lottery Act must be made available 12 annually to the Governor, Lt. Governor, Speaker of the 13 House and Members of the Legislature. The report 14 requires your formal approval prior to being printed and 15 published on the TLC's website. 16 The current Minority Business 17 Participation Report documents the level of minority and 18 HUB participation in the agency's contracting activity 19 during fiscal year 2014. It also includes information 20 on the number of licensed minority retailers -- lottery 21 retailers, excuse me. During fiscal year 2014, the 22 agency achieved an overall participation rate in our 23 contracting of 29.02 percent. In addition, of the 17 24 largest spending agencies, the TLC ranked No. 1 by 25 overall HUB percentage. And finally, during FY '14 the 46 1 agency had 8,271 minority retailers, which represented 2 47.82 percent of the Texas Lottery's total retailer 3 base. 4 I would be happy to answer any questions 5 regarding the report at this time. And if you have 6 none, this is an action item and Bob has a letter that 7 would need your signature, Chairman. But that concludes 8 my remarks. I'd be happy to answer any question. 9 CHAIRMAN KRAUSE: Commissioners? 10 COMM. WILLIAMSON: None. 11 CHAIRMAN KRAUSE: So what happened to our 12 biggest minority contractor? 13 MS. BERTOLACINI: That has not been 14 reflected in the information I've given you today. 15 However, a draft report for the first six months of this 16 year has come out already. Our largest minority -- or 17 HUB contractor actually did graduate out of the HUB 18 program just at the end of last fiscal year. So that 19 means going into this fiscal year, their 20 participation -- their direct spending cannot be 21 counted. 22 CHAIRMAN KRAUSE: And who is that? 23 MS. BERTOLACINI: And that is LatinWorks. 24 So that is a success story in that it -- in that 25 LatinWorks has attained a certain amount of financial 47 1 success so that they're no longer eligible to be 2 considered a HUB vendor. I'd just like to mention that 3 although they are not a HUB vendor, they are continuing, 4 as they have done since the beginning of the contract, 5 to subcontract with HUB vendors. And that 6 subcontracting can be counted towards our participation, 7 so that is a helpful thing. 8 However, there's still a big difference 9 between paying the amount that LatinWorks was receiving 10 versus the amount of the subcontracting that's being 11 reported. So there's still a gap. So we are going to 12 see a decrease going forward, but it's due to the 13 graduation issue. 14 CHAIRMAN KRAUSE: Well, should we be 15 justifiably proud of this graduation issue? 16 MS. BERTOLACINI: I think so. LatinWorks 17 obviously has other contracts besides ours, but I 18 believe that the Lottery Commission has contributed to 19 their level of success. 20 CHAIRMAN KRAUSE: Excellent. Thank you. 21 Do we have a motion? 22 COMM. TOWNES: I so move that we accept 23 the report and have it published and printed. 24 COMM. BAGGETT: I second. 25 CHAIRMAN KRAUSE: All in favor say "aye." 48 1 (All those voting in favor so responded) 2 CHAIRMAN KRAUSE: All opposed "nay." 3 (No response) 4 CHAIRMAN KRAUSE: It is unanimously 5 approved. 6 MS. BERTOLACINI: Thank you, 7 Commissioners. 8 CHAIRMAN KRAUSE: Thank you for making us 9 look good. 10 (Laughter) 11 AGENDA ITEM NO. VIII 12 CHAIRMAN KRAUSE: Mr. Fernandez, come on 13 down. 14 MR. FERNSNDEZ: Again for the record, my 15 name is Mike Fernandez. I'm the Director of 16 Administration. This is a briefing item. It is to 17 advise the Commission of staff's intent to amend our 18 current contract for lottery operator drawings and CPA 19 services, and this amendment is in support of the Triple 20 Chance Game that you heard Mr. Tirloni speak about. 21 If you have any questions, I'd be happy to 22 answer them. 23 AGENDA ITEM NO. IX 24 CHAIRMAN KRAUSE: Next item? 25 MR. FERNSNDEZ: Item No. 9 is an action 49 1 item, Mr. Chairman. Staff is seeking Commission 2 approval to amend our current contract for drawing 3 studio and production services. And again, this 4 amendment is in support of the Triple Chance program. 5 So we're asking your approval to move forward with that 6 amendment. 7 CHAIRMAN KRAUSE: Any questions, comments? 8 COMM. WILLIAMSON: I don't have any. 9 CHAIRMAN KRAUSE: Can we have a motion? 10 COMM. WILLIAMSON: Yes, I make a motion to 11 approve the amendment on the contract for drawing studio 12 and production services as recommended by staff. 13 CHAIRMAN KRAUSE: Second? 14 COMM. BAGGETT: I'm second. 15 CHAIRMAN KRAUSE: All right. All in favor 16 say "aye." 17 (All those voting in favor so responded) 18 CHAIRMAN KRAUSE: All opposed say "nay." 19 (No response) 20 CHAIRMAN KRAUSE: No "nays." It carries. 21 AGENDA ITEM NO. X 22 CHAIRMAN KRAUSE: Ms. Trevino? 23 MS. TREVINO: Good morning, Mr. Chairman 24 and Commissioners. For the record, I'm Nelda Trevino, 25 the Director of Governmental Affairs. 50 1 We have provided you this morning with an 2 updated bill tracking report. And as you know, we are 3 tracking bills related to a variety of subjects. And 4 today I would like to highlight those bills specifically 5 related to the agency's business where there has been 6 some action since our last Commission meeting in 7 February. These include the following: House Bill 2642 8 by Representative Senfronia Thompson. This bill relates 9 to the regulation of charitable bingo and amusement 10 redemption machine game rooms. The bill was filed on 11 March the 9th and basically incorporates the 12 recommendations related to charitable bingo that were 13 adopted by the Joint Legislative Committee to review the 14 Texas Lottery and charitable bingo. The bill also 15 amends the local government code to establish permitting 16 requirements for amusement redemption machine game rooms 17 and to authorize all counties through their sheriff's 18 offices to issue those permits. 19 The bill was considered by the House 20 Licensing and Administrative Procedures Committee 21 earlier this week, at which time Representative Thompson 22 provided a committee substitute to the bill. The 23 committee substitute contains several significant 24 changes, including provisions that transfer the 25 regulation of charitable bingo from the Texas Lottery 51 1 Commission to the Texas Department of Licensing and 2 Regulation. The bill stipulates that before 3 September 1st, 2015 all functions and activities 4 performed by the Commission related to the regulation of 5 bingo are transferred to the Department of Licensing and 6 Regulation. 7 As you know, in preparation for this -- in 8 preparation of -- this bill may be enacted. And due to 9 the required timeline noted in the bill, agency 10 management is discussing and preparing for this 11 potential transition in accordance with the provisions 12 in the bill. A few days ago, staff from the Department 13 of Licensing and Regulation contacted me to begin the 14 discussions of information gathering. 15 Based on this conversation, I believe, if 16 this version of the bill is enacted, I can state that 17 there is a shared desire from both agencies to work and 18 coordinate for a very smooth transition. Again, any 19 discussions with the Department of Licensing and 20 Regulation and any work that this agency will be 21 performing regarding transferring the function of the 22 regulation of charitable bingo is only being done in 23 anticipation that the bill is enacted. 24 The next bill I'd like to mention is 25 Senate Bill 397 by Senator Jose Rodriguez. This bill 52 1 relates to marketing and advertising the Veterans 2 Instant Ticket Game. The bill as filed was originally 3 considered by the Senate Veteran Affairs Committee last 4 month. And since that time, at the request of Senator 5 Rodriguez' office, the agency has been working with his 6 office on some substitute language for the bill. 7 Yesterday the bill was once again 8 considered by the Veterans Affairs Committee, at which 9 time Senator Rodriguez did provide a committee 10 substitute to the bill and it was voted favorably out of 11 the committee. The committee substitute requires the 12 Commission to produce and place printed point as sale 13 materials promoting the Veterans Instant Ticket Game at 14 retailer locations that provide Lottery dedicated space. 15 It also requires the Commission to prominently feature 16 the veterans' ticket, and to provide information on the 17 benefits of the veterans' assistance funding from the 18 games on the Commission's website. 19 The next bill that I'd like to note is 20 Senate Bill 759 by Senator Lois Kolkhorst. This bill 21 relates to the appeal of two taxes. In addition to 22 repealing the liquefied gas motor fuels tax, the bill 23 also includes repealing the tax imposed on the rental of 24 premises for the conduct of bingo, and also makes 25 conforming changes to the Bingo Act resulting from the 53 1 repeal of the gross rental tax. 2 Earlier this week the bill was considered 3 by the Senate and passed on a vote of 29 to 2. 4 I also want to provide an update as it 5 relates to House Bill 1. This is the general 6 appropriations bill and the Legislature's consideration 7 of the agency's appropriations for fiscal years 2016 8 through 2017. Last week the House of Representatives 9 considered the appropriation bill. Representative 10 Scott -- excuse me -- Representative Scott Sanford 11 prefiled five floor amendments related to the lottery. 12 One of his amendments was modified on the House floor 13 and was ultimately adopted by the House on a vote of 91 14 to 52. 15 This amendment provides for a 10 percent 16 reduction in the agency's budget for the lottery 17 operations and central administration strategies. All 18 other floor amendments by Representative Sanford were 19 withdrawn and were not considered by the House. It is 20 anticipated the Senate will be voting out their version 21 of the appropriations bill, which at this time maintains 22 the funding for the lottery on those two strategies, the 23 lottery operations and central administration strategies 24 and its consistence with the agency's legislative 25 appropriations request. 54 1 Once the Senate passes their version of 2 the bill, a conference committee comprised of both House 3 and Senate members will be formed to work out all the 4 differences between the two versions of the bill. As we 5 have discussed, the agency has prepared an impact 6 analysis on the budget reduction adopted by the House, 7 and we will be providing this analysis to staff at the 8 Legislative Budget Board and to other legislative 9 office. 10 Lastly, there are several bills being 11 considered related to state contracting. As you know, 12 Governor Abbott issued a letter to all state agencies at 13 the beginning of the year addressing transparency in 14 state agency contracting and procurement, and 15 specifically mentioned one of Senator Nelson's bills on 16 this subject. 17 As you know, contracting for goods and 18 services is a core function of this agency, and we are 19 closely monitoring the actions related to the bills on 20 this subject. 21 This conclude my report, and I'll be glad 22 to try to answer any questions. 23 CHAIRMAN KRAUSE: Commissioners? 24 COMM. WILLIAMSON: I have none. 25 CHAIRMAN KRAUSE: Thank you for that great 55 1 and thorough report. 2 MS. TREVINO: You're more than welcome. 3 AGENDA ITEM NO. XI 4 CHAIRMAN KRAUSE: Darlene Brown? 5 MS. BROWN: Good morning, Commissioners. 6 My name is Darlene Brown, and I serve as the Internal 7 Auditor for the Texas Lottery Commission, and I have a 8 status report for you today. 9 Since the last meeting in February, all of 10 our efforts have been focused on the bingo activities, 11 that being still working on the restructuring project, 12 which is now about 66 percent complete. We also worked 13 on the testing of the new BOSS system, and that went 14 very well. The BOSS system has been designed around the 15 revised procedures and the revised rules, and we 16 confirmed that that's how it's working. 17 We've also been working on the ledger 18 reconciliation project. That's going very well thanks 19 to Alfonso's dedication of his audit team. There's six 20 members that are performing these audits. There were 21 originally 1700 ledger accounts to reconcile and they're 22 through with more than 500 of them right now. We are 23 reviewing every one that they've completed, and we've -- 24 because it's two of us against six of them reviewing, we 25 are behind, but we have changed up our staffing and 56 1 we're adding additional staffing to get through these 2 reconciliations. 3 As of our review completions, we're -- at 4 the time that I wrote this report, we were at 70. The 5 ledgers had originally noted $45,000 worth of credits on 6 these accounts. After the reconciliation, there's 7 actually $44,000 due to the agency, therefore due to the 8 State. 9 The common areas that we're seeing license 10 fees were incorrectly calculated based on gross receipts 11 submitted. Staff was performing recalculations of 12 license fees in error based on direction from 13 leadership. Annual license fees, when somebody would 14 withdraw their license, surrender it or it would be 15 denied, those license fees were transferred to zero, 16 even though they played that year. So basically they 17 received a refund or a credit of their license fees that 18 they had paid. When organizations received a temporary 19 license or an amendment that was issued and then 20 subsequently returned it, they received a credit for 21 that amount when it really should not have been a 22 credit. 23 Those are the common errors that we're 24 seeing in these reconciliations. We -- our original 25 intent was to random sample the audits of 57 1 reconciliations that were being completed. But due to 2 the complexity of these reconciliations, we are looking 3 at every one of these reconciliations before they go to 4 Alfonso for review and approval. 5 As a result, we are spending more hours 6 than we had originally anticipated, so I have prepared a 7 revised audit plan for 2015 that I'm asking your 8 approval on. We are recommending that we remove the 9 hours that we had anticipated to do for other audits 10 this year and dedicate all those hours towards this 11 reconciliation project. 12 By the addition of some more CPAs from our 13 firm, we were able to add hours to the contract and 14 still keep it within the originally approved amount. So 15 I'm seeking approval for the revised internal audit plan 16 today. 17 And if you have questions, I'd be happy to 18 answer them. 19 CHAIRMAN KRAUSE: Questions? 20 COMM. WILLIAMSON: I do. Yeah, I think 21 it's been very eye opening what we've discovered on 22 that, at least from my personal experience. So for 23 everybody that's been working on it, thank you. 24 CHAIRMAN KRAUSE: Any other comments? 25 COMM. TOWNES: No. 58 1 CHAIRMAN KRAUSE: All right. I'm looking 2 for a motion to approve the revision to the internal 3 audit plan. 4 COMM. BAGGETT: I make a motion to approve 5 the revisions to the internal audit plan. 6 COMM. TOWNES: And I second. 7 CHAIRMAN KRAUSE: All favor say "aye." 8 (All those voting in favor so responded) 9 CHAIRMAN KRAUSE: All opposed "nay." 10 (No response) 11 CHAIRMAN KRAUSE: Carries 100 percent. 12 Thank you, ma'am. 13 MR. BIARD: And I have a revised plan for 14 the Chairman's signature. 15 CHAIRMAN KRAUSE: Excellent. Excellent. 16 AGENDA ITEM NO. XII 17 CHAIRMAN KRAUSE: That brings up our 18 esteemed Bingo Director. 19 MR. ROYAL: Good morning, Commissioners. 20 Before I go to my report, I want to ask Joan Kotal and 21 Amy Schwartz to come forward and provide us an overview 22 of the Bingo Operations Systems Service that the agency 23 has been working on for the past 18 months. 24 MS. KOTAL: Good morning, Chairman, 25 Commissioners. For the record, I am Joan Kotal, the 59 1 Information Resources Manager. To my right is 2 Amy Swartz, who is an Information Resources Project 3 Manager for the Boss Project, or the bingo -- the 4 Charitable Bingo Operations Systems Services, better 5 known as BOSS. 6 As you know, in September 2013 the agency 7 began re-engineering the Charitable Bingo System, better 8 known as BOSS. This project was a joint effort, which 9 included charitable bingo staff as well as lottery staff 10 from information resources, Kathy Pyka's staff in the 11 Office of the Controller, and enforcement staff, 12 including Ed Rogers and his team, and as well as the 13 internal audit staff. A third-party contractor, RFD & 14 Associates, was selected to provide system design, 15 development and implementation services. 16 I'm pleased to report on March 30th the 17 Texas Lottery Commission successfully launched the first 18 phase of BOSS. The previous system was more than ten 19 years old, and the technology, as well as the business 20 requirements, needed significant updating. Over the 21 last 18 months, all bingo processes were reviewed and 22 modified and updated as necessary. 23 The new processes and system leverage 24 existing TLC applications. It reduces the number of 25 paper forms and reports, provides for upgraded levels of 60 1 system security and improved monitoring throughout the 2 business processes. 3 I've been asked to show you a few of the 4 screens from the new BOSS system. On this first screen, 5 which is the welcome screen that shows when a bingo 6 organization first logs in, you will see that this 7 screen shows that a user has the ability to see all 8 associated license and the renewals for the next 90 days 9 along with the renewals, which have not been received. 10 This next screen shows information related 11 to quarterly reports. The accounting screens, 12 specifically the application screen, shows accounting 13 staff the edits pending by licensed examiner prior to 14 the processing of an application. And this screen 15 provides an account ledger of all moneys associated with 16 the account and a running balance of available funds. 17 The next screens are licensing related and 18 show on the examiner application review screen on the 19 preview tab. This screen gives the complete picture and 20 what the renewal will look like once issued and has a 21 link to the playing schedule. 22 And this last screen, the examiner license 23 prescreen, shows verification of nonprofit status with 24 the Texas Secretary of State. 25 As a part of BOSS, the BSP or the bingo 61 1 services portal, was also launched. BSP provides a 2 website for active bingo licensees to apply for a 3 license, to register workers, to submit quarterly 4 reports and pay fees online. Additional functionality 5 is already being planned for the BSP. 6 We implemented this system less than two 7 weeks ago. Since we implemented, we have processed 169 8 applications, registered 106 new bingo workers and have 9 processed fees in the amount of $150,766. 10 That concludes my presentation, and I 11 would be happy to answer any questions you might have. 12 CHAIRMAN KRAUSE: Commissioners? 13 COMM. WILLIAMSON: My -- and I don't know 14 who needs to answer this. I mean, I see how many we did 15 in two weeks under this. What would be a comparable how 16 we would have done it prior to this being implemented 17 for this number? Does anybody have a feel for that or 18 an idea? 19 MR. ROYAL: It wouldn't be that fast, 20 Commissioner. You know, I don't necessarily have that 21 comparison. With automation, things are moving three, 22 four times faster than it would be in terms of hand 23 delivering and walking applications through and around 24 and waiting on the U.S. mail system to deliver 25 applications and payments to us. 62 1 This being just the first phase of what 2 this project team has done, and we are truly amazed at 3 what they're doing and what's been accomplished thus 4 far. 5 COMM. WILLIAMSON: So what sort of 6 feedback are we getting with our customers on this? 7 MR. ROYAL: The customers are liking it. 8 There's a little bit of difficulty in terms of switching 9 from something you have historically not used or had 10 access to, and so we've developed a group of folks that 11 are able to man the phones. And actually one of the 12 neat provisions in this system is that we can log onto 13 the system and see the same information that the 14 applicant or the licensee sees, and we can -- we're able 15 to walk them through it. 16 Some of our phone calls have led to some 17 of the added features that Joan has mentioned and 18 enhancements that are being made on spot. Sometimes 19 we've got three or four days or a week later that we're 20 able to make those functionality changes, but we're able 21 to address those immediately. 22 COMM. WILLIAMSON: Okay. And then I guess 23 the next question is obviously from -- going back to why 24 we're doing the account reconciliation, what sort of 25 constraints or requirements do we have in place to keep 63 1 from manually overriding whatever is going on? 2 MR. ROYAL: We have a true system of 3 internal controls and automation, a true segregation of 4 duties between licensing and accounting. The money 5 comes into accounting. The license examiners issue 6 licenses; account examiners deal with all the finances 7 that are associated with them. 8 COMM. WILLIAMSON: All right. Thanks. 9 Y'all have done -- this has just -- it's been nice to 10 know that this is finally coming to fruition. So thank 11 you. 12 MR. ROYAL: Just the first phase. 13 Thanks, Joan. 14 Commissioners, there's a couple of items I 15 want to highlight in your briefing books and update you 16 on a few other items. In the book there is a revised 17 audit plan and risk assessment. Due to staff vacancies 18 and the temporary reassignment of key staff on other 19 projects, license renewal and the account ledger 20 project, we have revised the 2015 plan. The overall 21 impact is a reduction in the number of audits planned 22 and inspections for 2015. 23 I'd like to update you on the progress of 24 resolving backlogs that were identified during my 25 assessment back in October. Pending licenses yet to be 64 1 issued has decreased by 93 percent. As of March 31st, 2 there were 51 pending applications for licensure. 3 That's a significant decrease from a high of 739 4 reported in October. 5 Overall there are 461 pending 6 applications. We will always have that group of 7 applications that are backlog, but what I'm concerned 8 about are anything more than 30 days old, of which there 9 are 184. 10 Audit activities have decreased from 153 11 to 83, or 54 percent, with 13 pending management 12 responses and the issuance of final reports due this 13 month. The compliance activity monitoring process cases 14 have decreased from 239 to 44, or 37 which are current 15 year. 16 Pull-tab testing is current for the second 17 consecutive month, previously reported as a high of 81. 18 We are at 32 pending with staff awaiting responses from 19 nine licensees. All pending items were submitted during 20 the month of March. 21 You heard from Darlene earlier about the 22 bingo account ledger project. It's on the way. It's on 23 task and we're scheduled to be done this fiscal year. 24 I am extremely proud of what staff has 25 done with these backlogs in addition to spending time 65 1 working on the BOSS project. They have maintained the 2 efforts and we will continue to forge ahead as we work 3 toward final disposition. 4 Back in October I spoke about the need to 5 reconnect and -- with our licensees, and we would 6 accomplish this by way of frequent and formal 7 communication in the form of director's message. The 8 second director's message was disseminated yesterday by 9 means of electronic mail and being posted to the bingo 10 services website. 11 Lastly, in February, as part of the 12 agency's sunset legislation from the 83rd session, there 13 was a requirement for the development of a schedule of 14 sanctions to include revocation, suspension and denial 15 of license renewals in addition to sanctions already 16 addressed in the agency's bingo penalty schedule. We 17 had hoped to bring this item back at this meeting, but 18 were unable to do so because of time constraints and my 19 desire to use that process to be more transparent as it 20 relates to fines and penalties associated with 21 violations of the Bingo Enabling Act. 22 We will engage our stakeholders in this 23 process, and it's going to take us several meetings to 24 do that. The process will be similar to what we did 25 with the set of rules associated with the BOSS project. 66 1 I'll keep you up to date on our progress. 2 That concludes my report for Day 281, and 3 I'm happy to answer any questions. 4 (Laughter) 5 CHAIRMAN KRAUSE: Questions? 6 COMM. WILLIAMSON: No. 7 CHAIRMAN KRAUSE: Well, I don't have a 8 question, but I'm going to stand up to say this, and 9 that is that bingo is the younger brother of the 10 lottery. But that doesn't mean it's any less important. 11 And bingo has had significant challenges. Alfonso has 12 done a great job in addressing that. 13 And I'm here to publicly confess a huge 14 error in judgment that I committed because I didn't hire 15 Alfonso at the first opportunity that I had a chance to. 16 I am grateful that you are here doing this job. You're 17 doing an outstanding job. Thank you for being here and 18 doing what you do. 19 MR. ROYAL: My pleasure. Thank you. 20 AGENDA ITEM NO. XIV 21 CHAIRMAN KRAUSE: Gary? 22 MR. GRIEF: Mr. Chairman, other than 23 what's in your notebooks today, I have nothing further 24 to report. 25 CHAIRMAN KRAUSE: Then we're going to take 67 1 a ten-minute break at this point -- well, I'm going 2 to -- we may just go into executive session and deal 3 with these enforcement items after that. So, anyway, 4 we're adjourned for at least ten minutes. 5 COMM. WILLIAMSON: Okay. 6 CHAIRMAN KRAUSE: It is 11:25. 7 (Recess: 11:25 a.m. to 11:37 a.m.) 8 CHAIRMAN KRAUSE: Back in session. It's 9 11:37. So 12 minutes, I'm sorry. 10 AGENDA ITEM NO. XV 11 CHAIRMAN KRAUSE: Anyway, we're going to 12 not go into executive session. We're going to go ahead 13 and do our orders first. And so that means that 14 Mr. Biard is up. 15 MR. BIARD: Thank you, Commissioners. 16 This is Tab XV -- excuse my voice. For the record, I'm 17 Bob Biard, General Counsel. 18 Tab 15 contains eight lottery and bingo 19 enforcement matters. I'll briefly describe the cases 20 and you can take them up in a single vote. 21 Tabs A through D are the nonsufficient 22 funds Lottery Retail License Revocations. Each of these 23 cases were presented at the State Office of 24 Administrative Hearings for revocation on the grounds 25 the licensee failed to have sufficient funds in their 68 1 bank account to cover electronic fund transfers to the 2 Lottery Commission's account. In each case the 3 Administrative Law Judge recommends revocation, and 4 staff recommends revocation. 5 Tabs E through H are bingo agreed orders. 6 Tab E is a settlement of an enforcement action to revoke 7 an individual, Ona Ellison, from the Bingo Worker 8 Registry. The Commission staff discovered that twice in 9 2007 Ms. Ellison pled guilty to credit card abuse, which 10 is a felony. Both times she received deferred 11 adjudication and was placed on community supervision. 12 This matter went to hearing at SOAH, and Ms. Ellison did 13 not appear. 14 However, after the hearing but before the 15 Judge issued his recommendation, the parties settled the 16 case. In lieu of removal from the registry, Ms. Ellison 17 agreed not to act as an operator or a bookkeeper for any 18 licensed organization for three years. After the 19 parties agreed on settlement, the Judge issued a 20 recommendation that the individual be removed from the 21 registry; however, staff recommends approving the agreed 22 order, in which event the Judge's recommendation would 23 become moot. 24 Tabs F and G are both cases where 25 commercial lessors allowed eight-liners and other games 69 1 of chance to be played during a bingo occasion. The 2 Bingo Enabling Act and the Commission's rules prohibit 3 any game of chance other than charitable bingo, a 4 charitable raffle or door prize to be conducted during a 5 bingo occasion. 6 In Tab F, the lessor in Irving, Texas, 7 allowed the operation of 28 illegal eight-liner machines 8 adjacent to the bingo hall. These machines awarded 9 players with coupons that could be exchanged for bingo 10 products during bingo occasions. In addition, the 11 lessor allowed use of a frequent player card reward 12 system that randomly awarded players with prizes, 13 including bingo products, and the lessor also allowed a 14 game of chance known as hot ball to be conducted 15 simultaneously with regular bingo games. 16 The lessor agreed to a 16,800 penalty, 17 which the Bingo Director agreed to suspend pending 18 completion of a three-year period of compliance. 19 In Tab G, this lessor allowed the 20 operation of 20 illegal eight-liner machines during 21 bingo occasions at the bingo hall in Duncanville. The 22 lessor also allowed the use of a frequent player card 23 reward system that randomly awarded prizes. 24 The lessor agreed to a $12,000 penalty, 25 which the Bingo Director agreed to suspend pending 70 1 completion of a three-year period of compliance with the 2 terms of the order. 3 And last, in Tab H, the bingo staff denied 4 an individual's renewal application for the bingo worker 5 registry because of a 2010 conviction for Class A 6 misdemeanor theft, a crime committed when the applicant 7 was 18 years old. The individual received deferred 8 adjudication for one year. While employed at a Target 9 store, this individual, over a period of time, used 10 coupons to credit money onto Target gift cards. She did 11 not take customers' cash, but she did steal merchandise 12 from the store using the cards. 13 The staff denied the application because 14 the crime of theft directly relates to the duties and 15 responsibilities of a bingo worker. The individual 16 requested a hearing. The Judge recommended approving 17 the application of the -- of this person, largely on the 18 basis that she was only 18 when the crime was committed. 19 The Commission staff was prepared to ask the Commission 20 to change the Judge's conclusion and either deny the 21 application or restrict the registration; however, two 22 weeks ago the parties agreed to a settlement where the 23 individual may be placed on the registry, but not 24 allowed to act as an operator, bingo chairperson or 25 bookkeeper for any organization for 120 days. 71 1 Staff recommends approval of these agreed 2 orders, and that concludes my presentation. And you may 3 vote to approve all of these in a single vote or, if 4 there's any you would like to pull out, we can do that. 5 CHAIRMAN KRAUSE: We're happy to take them 6 all in a single vote. May I have a motion? 7 COMM. WILLIAMSON: I make a motion that we 8 approve the orders in Item 15, Letters A through H, as 9 recommended by staff. 10 COMM. BAGGETT: I second that. 11 CHAIRMAN KRAUSE: All in favor say "aye." 12 (All those voting in favor so responded) 13 CHAIRMAN KRAUSE: Any opposed? 14 (No response) 15 CHAIRMAN KRAUSE: No opposition, carries 16 100 percent. 17 We have things to sign? 18 MR. BIARD: Yes. 19 CHAIRMAN KRAUSE: We'll sign them in 20 executive session. 21 AGENDA ITEM NO. XVII 22 CHAIRMAN KRAUSE: Let's see here. At this 23 time, I move that the Texas Lottery Commission go into 24 executive session to deliberate personnel matters, 25 including personnel matters related to the Executive 72 1 Director and the Bingo Director, as well as the duties 2 of the General Counsel and Texas -- and the Human 3 Resources Director, as well as to receive very sensitive 4 legal advice on a huge number of matters. 5 Is there a second? 6 COMM. WILLIAMSON: Second. 7 CHAIRMAN KRAUSE: All in favor say "aye." 8 (All those voting in favor so responded) 9 CHAIRMAN KRAUSE: All opposed say "nay." 10 (No response) 11 CHAIRMAN KRAUSE: We are in executive 12 session. It is 11:43. 13 (Recess: 11:43 a.m. to 12:18 p.m.) 14 AGENDA ITEM NO. XVIII 15 COMM. WILLIAMSON: We are out of executive 16 session. It is 12:18. And Commissioner -- Chairman 17 Krause has left, but we still have a quorum. There has 18 been no business conducted in executive session that 19 requires any action. 20 AGENDA ITEM NO. XIX 21 COMM. WILLIAMSON: So at this time, is 22 there a motion to adjourn? 23 COMM. TOWNES: Madam Chairman, I move that 24 we adjourn. 25 CHAIRMAN KRAUSE: Is there a second? 73 1 COMM. BAGGETT: I second that motion. 2 COMM. WILLIAMSON: All in favor? 3 (All those voting in favor so responded) 4 COMM. WILLIAMSON: Motion passes 5 unanimously. We are out of our meeting today at 12:19. 6 (Proceedings concluded at 12:19 p.m.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 74 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lou Ray, Certified Shorthand Reporter 5 in and for the State of Texas, do hereby certify 6 that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, 10 later reduced to typewritten form under my 11 supervision and control and that the foregoing pages 12 are a full, true, and correct transcription of the 13 original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 20th day of April 2015. 16 17 _______________________________ 18 LOU RAY Certified Shorthand Reporter 19 CSR No. 1791 - Expires 12/31/15 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 7800 N. MoPac Expressway, Suite 120 Austin, Texas 78759 22 512.474.2233 23 24 25