1 1 2 3 4 5 TEXAS LOTTERY COMMISSION 6 7 8 COMMISSION MEETING 9 10 11 12 June 1, 2017 13 14 10:00 a.m. 15 16 AT 17 18 TEXAS LOTTERY COMMISSION 19 20 611 East 6th Street 21 22 Austin, Texas 78701 23 24 25 2 1 APPEARANCES 2 CHAIRMAN: J. Winston Krause 3 COMMISSIONERS: Doug Lowe Carmen Arrieta-Candelaria 4 Robert Rivera 5 GENERAL COUNSEL: Bob Biard 6 EXECUTIVE DIRECTOR: Gary Grief 7 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Alfonso D. Royal III 8 LOTTERY OPERATIONS DIRECTOR: Michael Anger 9 ASSISTANT GENERAL COUNSEL: Deanne Rienstra 10 ADMIN. DIVISION DIRECTOR: Michael R. Fernandez 11 GOVERNMENTAL AFFAIRS 12 DIRECTOR: Nelda Trevino 13 CONTROLLER: Katheryn J. Pyka 14 McCONNELL JONES LANIER & MURPHY, LLP: Darlene Brown 15 PRODUCTS & DRAWINGS MANAGER, 16 LOTTERY OPERATIONS DIVISION: Robert Tirloni 17 18 --oo0oo-- 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 Page 3 I The Texas Lottery Commission will call the meeting to order. 4 Pledge of Allegiance to the U.S. and Texas flags........................................... 6 5 II Report, possible discussion and/or action on proposals for internal audit services (RFP No. 6 362- 17-0002), including approval of Evaluation Committee Recommendation and Announcement of 7 Apparent Successful Proposer, and approval to execute contract................................ 7 8 III Report, possible discussion and/or action on the agency's comprehensive business plan 9 pursuant to State Lottery Act 466.028........... 9 IV Consideration of and possible discussion 10 and/or action, including proposal, on (i) the repeal of existing 16 TAC 401.315 ("Mega 11 Millions" Game Rule), and (ii) new 16 TAC 401.315 ("Mega Millions" Game Rule)...... 11 12 V Consideration and possible discussion and/or action, including proposal, on amendments to 13 16 TAC 401.371 (Collection of Delinquent Obligations for Lottery Retailer Related 14 Accounts........................................ 19 VI Report, possible discussion and/or action on 15 lottery sales and revenue, game performance, new game opportunities, advertising, promotional 16 activities, market research, trends, and game contracts, agreements, and procedures........... 21 17 VII Report, possible discussion and/or action on transfers to the State.......................... 26 18 VIII Report, possible discussion and/or action on the 85th Legislature, including but not limited 19 to the agency's legislative appropriation for FY 2018-2019.................................... 27 20 IX Report, possible discussion and/or action on external and internal audits and/or reviews 21 relating to the Texas Lottery Commission, and/or on Internal Audit activities, 22 including approval of the retailer management audit report.................................... 42 23 X Report by the Charitable Bingo Operations Director and possible discussion and/or 24 action on the Charitable Bingo Operations Division's activities, including licensing, 25 accounting and audit activities, pull-tab review, and special projects.................... 44 4 1 TABLE OF CONTENTS (Continued) 2 Page 3 XI Report by the Executive Director and possible discussion and/or action on the agency's 4 operational status, major contracts, agency procedures, awards, and FTE status.............. 44 5 XII Consideration of the status and possible approval of orders in enforcement cases......... 45 6 Lottery NSF License Revocation Cases (Default) 7 A. Docket No. 362-17-2798 - OK Stop B. Docket No. 362-17-2799 - Hawk Cove Fuel Stop 8 C. Docket No. 362-17-3248 - Mary's Food Mart D. Docket No. 362-17-3250 - GMA Liquor 9 E. Docket No. 362-17-3441 - Spanish Shield Liquor Lottery Agreed Orders 10 F. Case No. 2016-1335 - Samy Food Store G. Case No. 2017-475 - Raceway #6947 11 Bingo Agreed Orders H. Case No. 2017-197 - Bexar County Opportunities 12 Industrialization Center, Inc. I. Case No. 2017-310 - AMVETS Post 4 13 Bingo Revocation and/or Denial Cases J. Docket No. 362-17-0790.B - American Legion 14 Post 361 XIII Public comment.................................. XX 15 XIV Commission may meet in Executive Session........ XX A. To deliberate personnel matters, including 16 the appointment, employment, evaluation, reassignment, duties, discipline, or 17 dismissal of the Executive Director and/or the Charitable Bingo Operations 18 Director pursuant to Section 551.074 of the Texas Government Code. 19 B. To deliberate the duties of the General Counsel and/or the Human 20 Resources Director pursuant to 551.074 of the Texas Government Code....... XX 21 C. To receive legal advice regarding pending or contemplated litigation or 22 settlement offers, or other legal advice, pursuant to 551.071(1) and 23 (2) of the Texas Government Code, including but not limited to legal 24 advice regarding the following items: Pending and potential litigation 25 regarding Fun 5's Scratch Ticket Game #1592, including Travis Co. 5 1 District Court Cause No. D-1-GN-005114, Third District Court of Appeals 2 Cause No. 03-16-00172-CV (Steele, et al. v. GTECH Corp.); Dallas Co. District 3 Court Cause No. DC-14-14838, Fifth District Court of Appeals Cause 4 No. 05-15-01559-CV (Nettles v. GTECH Corp. and Texas Lottery Commission); 5 and El Paso County Court Cause No. 2014-DCV-4113 (McDonald v. GTECH 6 Corp.), State of Texas v. Equal Employment Opportunity Commission et al. 7 Legal advice regarding Texas Government Code Chapters 466 (State Lottery Act) and 8 467, the Bingo Enabling Act, the Open Meetings Act, the Public Information Act, 9 the Administrative Procedure Act, employment and personnel law, procurement 10 and contract law, evidentiary and procedural law, ethics laws, and general 11 government law. Legal advice regarding any item on this 12 open meeting agenda. XV Return to open session for further 13 deliberation and possible action on any matter posted for discussion in Executive 14 Session. Any matter posted for Executive Session also may be subject of discussion 15 and/or action in open session prior to Executive Session............................. XX 16 XVI Adjournment................................... 49 17 Reporter's Certificate.............................. 50 18 19 20 21 22 23 24 25 6 1 P R O C E E D I N G S 2 AGENDA ITEM I 3 CHAIRMAN KRAUSE: Good morning. This 4 meeting of the Texas Lottery Commission is called to 5 order. It's June the 1st; and whether it is or not, 6 it's 10:00 o'clock in the morning. And so we have 7 everybody, all commissioners here, except for 8 Commissioner Peggy; and so we're going to commence 9 business because we have a quorum. 10 We're going to start off with the pledge 11 of allegiance, and Commissioner Candelaria is going to 12 lead us. 13 COMMISSIONER ARRIETA-CANDELARIA: Yes, 14 sir. 15 (Pledges recited.) 16 CHAIRMAN KRAUSE: The first and most 17 important piece of business that we're going to 18 undertake today is that I am going to congratulate my 19 fellow Commissioners on their confirmation. 20 Congratulations for being confirmed by 21 the Senate. 22 COMMISSION PANEL: Thank you. 23 CHAIRMAN KRAUSE: We're going to move on 24 to proposals for the internal audit contract. Mike 25 Fernandez, front and center, please. 7 1 AGENDA ITEM II 2 MR. FERNANDEZ: Good morning, 3 Mr. Chairman, Commissioners. For the record, my name is 4 Mike Fernandez. I'm the Director of Administration. 5 Item II in your notebook is an action item. Staff is 6 seeking Commission approval of a report and 7 recommendation naming the Apparent Successful Proposer 8 for internal audit services and requesting authorization 9 to open contract negotiations. 10 The Commissioners have independently 11 confirmed they do not have any financial interest in the 12 Apparent Successful Proposer. 13 If you have any questions, I'd be happy 14 to answer them. 15 CHAIRMAN KRAUSE: Commissioners, any 16 questions? 17 COMMISSIONER RIVERA: No. 18 COMMISSIONER LOWE: I'm good. 19 CHAIRMAN KRAUSE: Alrighty. Well, I've 20 got a short statement to make; and that is that there 21 was time when we had a direct report to the Commission 22 for Internal Audit and that was partially successful. 23 And partially, the reason why it was only partially 24 successful is there got to be some internal politics 25 about it, which I believe is completely absent from the 8 1 circumstance we have here. 2 The additional benefit we have of having 3 an outside firm is that the outside doesn't have just 4 one client. It doesn't have just the Lottery Commission 5 as its client. And so it audits and provides internal 6 audit services for other agencies, which gives it a 7 broad view; and from where I sit, it gives it a unique 8 perspective on the ability to identify areas that need 9 to be looked at and tested. And so I really appreciate 10 the work that Darlene's firm has done. 11 And with that said, do I have a motion on 12 this contract? 13 COMMISSIONER ARRIETA-CANDELARIA: So 14 moved. 15 COMMISSIONER RIVERA: Second. 16 CHAIRMAN KRAUSE: All in favor say aye. 17 (Chorus of "Ayes.") 18 CHAIRMAN KRAUSE: Hearing no nays, it is 19 adopted. Staff's recommendation is adopted. 20 MR. FERNANDEZ: Thank you. 21 COMMISSIONER ARRIETA-CANDELARIA: Thank 22 you. 23 CHAIRMAN KRAUSE: Next, we're going to 24 hear from Michael Anger. He's going to tell us about 25 our comprehensive business plan in the wake of all the 9 1 things that happened to us in the Legislature. 2 AGENDA ITEM III 3 MR. ANGER: Good morning, Mr. Chairman, 4 Commissioners. For the record, my name is Michael 5 Anger; and I'm the Lottery Operations Director for the 6 Texas Lottery. 7 Commissioners, each of you have a copy of 8 the Fiscal Year 2018 Comprehensive Business Plan and 9 Annual Report before you. You also received a copy of 10 the plan in your packets last week. The annual report 11 section of this document contains a summary of the 12 agency's fiscal year 2016 sales and revenue performance 13 results and our performance highlights from fiscal 2016. 14 This section of the report is followed by the Fiscal 15 Year 2018 Business Plan. The plan conforms with 16 requirements detailed in the Agency's Sunset 17 Legislation, passed during the 83rd Legislative Session. 18 The Business Plan contains nine key 19 performance factors identified by staff that capture key 20 measures of agency efficiency and performance. And the 21 Plan contains targets or projections for each of these 22 factors and reports on the agency's past performance 23 with regard to the prior business plan and targets that 24 we set previously. 25 I'm happy to respond to any questions or 10 1 comments you may have prior to seeking your approval of 2 the plan today. 3 CHAIRMAN KRAUSE: Commissioners? 4 COMMISSIONER LOWE: No. 5 CHAIRMAN KRAUSE: Has the plan been 6 tweaked at all since we got our final budget? 7 MR. ANGER: We were actively working on 8 the plan, Mr. Chairman, throughout the spring and 9 developing the plan at the same time the Legislature was 10 taking the actions they were taking with regard to our 11 budget. So we have accounted -- the targets that we set 12 and developed with regard to some of the performance 13 areas were based on existing budgetary frameworks that 14 were in place at that time; but we did revise and modify 15 the plan to note that there was Legislature work 16 occurring concurrently that could impact the projections 17 we had put in place, yes. 18 CHAIRMAN KRAUSE: Excellent. Thank you. 19 Alrighty. Well, so do we have a motion 20 to approve the plan? 21 COMMISSIONER RIVERA: Move for approval. 22 COMMISSIONER LOWE: Second. 23 CHAIRMAN KRAUSE: All in favor say aye. 24 (Chorus of "Ayes.") 25 CHAIRMAN KRAUSE: Hearing no nays, it is 11 1 adopted. 2 Next, we're going to hear from Deanne 3 Rienstra. 4 And I apologize for moving so quickly. 5 We're going to set a record today. 6 (Laughter.) 7 AGENDA ITEM IV 8 MS. RIENSTRA: Good morning, 9 Commissioners. Deanne Rienstra, Assistant General 10 Counsel. 11 In your notebook is a proposal for the 12 repeal of existing Rule 16 TAC 401.315, the "Mega 13 Millions" On-Line Game Rule, and the proposal for a new 14 "Mega Millions" Game Rule. One note of change from the 15 copy in your notebook is that the changes will be 16 implemented beginning October 28th, and the first 17 drawing is anticipated to occur on October 31st. 18 The purpose of the proposed new rule is 19 to conform the play of the "Mega Millions" lottery game 20 in Texas to the game changes recently adopted by the 21 "Mega Millions" group of lotteries. Due to the number 22 of changes, our recommendation is to repeal the existing 23 rule and propose the new rule. 24 Robert Tirloni is here to present the 25 changes to the game. 12 1 MR. TIRLONI: Good morning, 2 Commissioners. For the record, Robert Tirloni, Products 3 and Drawings Manager. 4 I'm going to give you a brief overview 5 this morning of the changes that are being made to the 6 "Mega Millions" game. On May 3rd, the "Mega Millions" 7 Consortium issued a game change description and 8 considerations document that detailed the changes that 9 would be made to the "Mega Millions" game starting this 10 fall. As Deanne mentioned, sales for this new version 11 of the game will start on Saturday, October 28th; and 12 the first drawing for that new game matrix will be 13 conducted a few days later on Tuesday, October 31st. 14 The goal of this game change is to offer 15 larger and faster-growing jackpots, resulting in 16 increased sales and revenue. As we've talked about in 17 previous meetings, there has been a drought of large 18 jackpots for the "Mega Millions" game; and the whole 19 goal of this change is to remedy that. 20 A quick overview: The new game is going 21 to increase to $2 per play from the current $1 per play. 22 The starting jackpot is going to increase to 23 $40 million. That's the same as the starting jackpot 24 for Powerball. The game will roll in 5-million-dollar 25 roll increments at a minimum. As the jackpot grows and 13 1 gets to higher levels, it, of course, can roll in higher 2 increments than that; but it will never roll in 3 increments less than $5 million. 4 The Megaplier is the add-on game, the 5 1-dollar add-on feature. It's the multiplier for "Mega 6 Millions." There's slight changes being made to that in 7 terms of the distribution of the numbers, but the 8 feature will remain intact. 9 The main change is the matrix change. 10 The matrix is changing from a 5 of 75, 1 of 15 to a 5 of 11 70, plus 1 of 25. And you will see on the next slide 12 what that does to the grand prize or the jackpot odds. 13 And a brand-new feature called Just the 14 Jackpot is being introduced, and in a couple of slides 15 I'll describe what that is for you. 16 So here is the brand-new matrix, the 5 of 17 70, 1 of 25. You will notice the jackpot odds are 1 in 18 302 million. And I'll show you a comparison to 19 Powerball on the next slide; but, again, the whole 20 purpose of this change is to drive jackpots and obtain 21 large jackpots for the game. The game continues to have 22 a second prize of a million dollars, and the odds of 23 winning that million dollars have improved from 1 in 24 approximately 18 million to 1 in 12.6 million. 25 Here's the comparison to Powerball. 14 1 Powerball is on the left, with the new "Mega Millions" 2 game on the right. Very similar, Commissioners. The 3 games both have nine prize tiers. The odds of winning 4 the jackpot in Powerball are approximately 1 in 5 292 million. 6 So "Mega Millions" will now have longer 7 top-prize or grand-prize odds. Again, that's to drive 8 jackpots for the game. There are subtle differences in 9 the prize amounts as you go down the different prize 10 tiers; but, all in all, these games are going to end up 11 looking very similar. 12 The new feature that "Mega Millions" is 13 introducing is called Just the Jackpot, and basically 14 this is a feature that lets players play for just that. 15 They're playing for just the jackpot tier. So you get 16 two chances for $3. So the base play is $2 in the "Mega 17 Millions" game. If you opt to play Just the Jackpot, 18 you're going to get two chances for $3 and you are 19 playing for the jackpot tier only and you are not 20 eligible to win any other prizes in the game. 21 The thought process behind this is as the 22 jackpots get up to hundreds of millions of dollars, 23 500 million, 600 million and higher, people come into 24 the game that don't ever play; and they're basically 25 chasing the jackpot. And so "Mega Millions" created 15 1 this feature specifically for people that are interested 2 in chasing the jackpot and playing for that prize tier. 3 Just a quick timeline: We're obviously 4 here today asking you to allow us to propose this rule 5 and publish it in the Texas Register. If you choose to 6 do that, it will publish on June 16th. We'll put a link 7 on the home page, as we always do, about a new draw game 8 rule that's being considered. 9 In July, middle of the month, right 10 around the 17th -- on the 17th, the public comment 11 period will end. We'll bring the rule back to you in 12 August and ask you to adopt it. And then, as I 13 mentioned, sales will start in late October, with the 14 first drawing being on the 31st. 15 And that's the quick summary of the 16 changes being made to "Mega Millions." 17 MS. REINSTRA: Okay. The new rule will 18 also update the existing "Mega Millions" rule, including 19 notice that the Texas Lottery sells the "Mega Millions" 20 game pursuant to rules and procedures of the Multi-State 21 Lottery Association, or MUSL, and subject to a cross- 22 sale agreement between MUSL and the non-MUSL "Mega 23 Millions" lotteries, as well as language to facilitate 24 the potential future sale of lottery tickets using 25 Commission-approved third-party point-of-sale systems. 16 1 The proposed language in the new rule 2 conforms to the required percentage of sales 3 contributions by the Texas Lottery to be held in certain 4 prize reserve and prize pool funds maintained by MUSL. 5 Therefore, staff recommends the 6 Commission initiate rulemaking process by publishing the 7 attached proposal in the Texas Register, to receive 8 public comment for a period of 30 days. 9 I'm happy to answer any questions. 10 CHAIRMAN KRAUSE: Yes, ma'am. 11 COMMISSIONER ARRIETA-CANDELARIA: I have 12 a couple of questions. So, Robert, anytime that we have 13 an increase on a price, right, we're going to have an 14 impact on sales. It's been my experience that anytime 15 you increase, we're going to have some people that don't 16 keep playing because the price point is not what it was 17 before. So we're going from a dollar to $2. What type 18 of analysis have you done to see what would the impact 19 be on sales? 20 MR. TIRLONI: Well, the experience that I 21 think the "Mega Millions" group is relying on is the 22 experience that MUSL had with Powerball in changing that 23 game from $1 to $2. You might have some people who were 24 core players who may not want to spend that $2; but 25 overall, that increased ticket price and the new matrix 17 1 are going to lead to larger jackpots, which should have 2 an overall positive impact on your sales. 3 COMMISSIONER ARRIETA-CANDELARIA: Okay. 4 And then my second question then is: Because the games 5 are beginning to look more similar, do you feel that -- 6 is that the trend that's coming, moving forward, that we 7 would just combine the games? Is that what the thought 8 process is, or do we want to make sure we keep doing 9 them separate in the longer term? 10 MR. TIRLONI: I think there's been 11 discussion long term in the industry about potentially 12 in the future going to one very large jackpot game, as 13 opposed to two. I don't think that's anywhere on the 14 horizon in the near term. 15 I think we have have to look at "Mega 16 Millions" and Powerball, we have to cluster them 17 together. We have to consider those our very large 18 jackpot games. As you said, they're very similar. They 19 look very similar. We have to market those as: These 20 are the big jackpot games. These are the games that can 21 generate jackpots upwards of 4-, 5-, $600 million; and I 22 think that's how we have to look at those, kind of 23 almost segment them into their own cluster as part of 24 the overall portfolio. 25 And the fact of the matter is we have a 18 1 lot of other games that are kind of in a hierarchy. 2 Lotto Texas is our own in-state game -- it can never 3 generate jackpots like these games can -- and we have a 4 smaller jackpot game in Texas Two Step, and then we have 5 our daily games. So we have a hierarchy of games, and I 6 think we just have to look at these as, these are the 7 two big guys on the street. They have the opportunity 8 to generate massive jackpots, and we kind of market them 9 together as the games that can do that. 10 COMMISSIONER LOWE: Well, I'm definitely 11 supportive of the rule change but just in the back of my 12 mind have that thought that, particularly because of the 13 drop in the sales because of the large jackpot that we 14 had in the prior year. So I think it's a good move. I 15 was just thinking about what would the impact be on the 16 sales, which, ultimately, is our goal, to get more money 17 into the Foundation School Fund. So that's something 18 that I was thinking about, what would be the impact on 19 these changes to our ultimate sales, so. Okay. 20 MR. TIRLONI: And I think for these games 21 when you make changes like this, what you're really 22 waiting for and what you're really hoping for by making 23 the odds 1 in 302 million for the jackpot tier, you're 24 waiting and you're hoping for what we experienced on 25 Powerball, a $1.5 billion, or jackpots of those levels 19 1 to kind of drive the sales. You know, at the starting 2 jackpot levels, people aren't playing. They're just 3 not. The bar has been raised so high that 40 million, 4 100 million, even 200 million, 300 million isn't really 5 appealing to players anymore because they've kind of 6 become desensitized just based on those really large 7 jackpots that we've seen. 8 COMMISSIONER ARRIETA-CANDELARIA: 9 Understood. Thank you. 10 CHAIRMAN KRAUSE: Other Commissioners? 11 (No response.) 12 CHAIRMAN KRAUSE: All right. Well, do we 13 have a motion on staff's recommendation to begin the 14 rulemaking process? 15 COMMISSIONER ARRIETA-CANDELARIA: So 16 moved. 17 COMMISSIONER RIVERA: Second. 18 CHAIRMAN KRAUSE: All favor say aye. 19 (Chorus of "Ayes.") 20 CHAIRMAN KRAUSE: Hearing no nays, it is 21 adopted. 22 CHAIRMAN KRAUSE: Outstanding. And then, 23 Deanne, you have the next one as well. 24 AGENDA ITEM V 25 MS. REINSTRA: Okay. Next in your 20 1 notebook, for your consideration, are proposed 2 amendments to 16 TAC 401.371, involving the collection 3 of delinquent obligations for lottery retailer related 4 accounts. The purpose of the proposed amendments is to 5 update the existing procedure regarding mailing demand 6 letters and to update the referenced citation to the 7 Texas Comptroller of Public Accounts Accounting Policy 8 Statement 28. 9 Staff recommends the Commission initiate 10 the rulemaking process by publishing the proposed rule 11 amendments in the Texas Register in order to receive 12 public comments for a period of 30 days. 13 I'm happy to answer any questions. 14 CHAIRMAN KRAUSE: Commissioners? 15 (No response.) 16 CHAIRMAN KRAUSE: Do I hear a motion to 17 begin the rulemaking process? 18 COMMISSIONER ARRIETA-CANDELARIA: So 19 moved. 20 COMMISSIONER RIVERA: Second. 21 CHAIRMAN KRAUSE: All in favor say aye. 22 (Chorus of "Ayes.") 23 (Gavel pounded.) 24 MS. REINSTRA: Thank you. 25 CHAIRMAN KRAUSE: You bet. 21 1 Ms. Pyka. 2 AGENDA ITEM VI 3 MS. PYKA: Good morning, Commissioners. 4 My name is Kathy Pyka, Controller for the Commission; 5 and with me to my right is Robert Tirloni, our Products 6 and Drawings Manager. 7 Commissioners, the chart before you this 8 morning that we have includes our comparative sales for 9 the week ending May 27th, 2017. Total Fiscal Year 2017 10 sales through this 39-week period are $3,694,000,000, 11 which is a decrease of $126 million or 3.3 percent 12 compared to the $3,819,000,000 in sales for last fiscal 13 year at this same point. 14 As discussed in the last couple of 15 Commission meetings, we continue to see the impact of 16 the record-setting 1.6-billion-dollar Powerball jackpot 17 in our year-over-year draw sales. 18 However, I wanted to note that due to 19 strong Scratch Ticket sales in the last couple of 20 months, our deficit that was $159 million when we last 21 met has now been reduced to $126 million, a net positive 22 change of $33 million over the previous eight weeks. To 23 put our recent Scratch sales in perspective, we had 13 24 consecutive weeks of 80-million-dollar sales for a total 25 of 14 weeks this fiscal year of 80-million-dollar 22 1 Scratch sales. As we look to last fiscal year, we had 2 three weeks of 80-million-dollar Scratch Ticket sales 3 during fiscal year 2016. 4 So fiscal year 2017 Scratch Ticket sales 5 are reflected on the orange bar and are at 6 $2,921,000,000. That's a 138-million-dollar increase 7 over fiscal year 2016. Scratch Ticket sales amount to 8 79.1 percent of total sales through this period. 9 Our fiscal year 2017 Draw sales, 10 reflected on the second blue bar, are $772.4 million, 11 which is a 264-million-dollar decline, or 26 percent, 12 under last fiscal year. 13 With that, Robert will now provide an 14 overview of sales by product. 15 MR. TIRLONI: So, Commissioners, this is 16 the sales through Saturday, May 27th. I'll drop down to 17 the Draw game total first. We are experiencing a 18 deficit of almost $264 million year over year for the 19 Draw game portfolio. As we have discussed -- and just 20 moments ago we discussed it -- due to the jackpot games, 21 that is the main cause for that deficit. Over $242 22 million of that 264-million-dollar decline is coming 23 from "Mega Millions", Megaplier, Powerball, and Power 24 Play. So, again, the drought from the jackpots is 25 really having an impact on the draw game portion of the 23 1 portfolio overall. 2 Luckily, we've had a very, very strong 3 Scratch Ticket year. We're just over 2.9 billion for 4 the year. We are up 138 million for the Scratch 5 portfolio, and we are seeing growth across almost all of 6 our price points; and as Kathy mentioned, we've had a 7 phenomenal 13-week run of $80 million in Scratch Ticket 8 sales. So we've been able to kind of balance, to the 9 best of our ability, that 264-million-dollar decline in 10 Draw, with Scratch; and so right now we're seeing a 11 decline of 125.6 million. Again, that's as of last 12 Saturday. 13 I do have a quick update for you, 14 Commissioners. In addition to being our advertising 15 agency, LatinWorks is the agency for Hispanic marketing 16 for Major League Baseball and they just won four 17 prestigious awards from Clio Sports. So Clio Sports 18 honors the best in sports marketing and advertising. 19 They won four awards for their Major League Baseball 20 campaign, hash tag "ponle acento" or "put an accent on 21 it." They won best in show. They won gold in 22 integrated campaign, gold in innovation, and silver in 23 public relations. 24 So this campaign focused on Hispanic MLB 25 players, and I'm just going to read you this. "In a 24 1 sport where 20 percent of players are Hispanic, 2 LatinWorks worked with MLB to honor the skill, drama, 3 and passion of Latinos and how they have helped shape 4 and accentuate baseball, like an accent mark accentuates 5 words in a language. The hash tag 'ponle acento' 6 campaign drove over 30 MLB players to embrace their 7 heritage by adding accents to the names on their 8 jerseys." And you can see that in some of the 9 photographs, and you can even see they put the accent 10 over the MLB logo. 11 And so we just wanted to call attention 12 to that and let you know about the awards that our ad 13 agency won, and we're proud of them and happy to have 14 them as a partner. 15 One other initiative I wanted to talk to 16 y'all about briefly, this is an initiative that 17 Commissioner Rivera asked us to pursue. He asked us to 18 look into and pursue marketing relationships with the 19 Texas MLB teams; and based on Commissioner Rivera's 20 request, we have relationships with the Astros and the 21 Rangers and we are a proud sponsor of the Silver Boot 22 Series between those two teams. 23 We also have an experiential marketing 24 package with the teams that provide us with in-stadium 25 signage, score board ads, PA copy, social media posts, 25 1 and a variety of other marketing elements. As part of 2 that package, we have a representative throwing out the 3 first ceremonial pitch at various games. 4 Commissioner Rivera threw out the first 5 pitch in Houston on May 1st, and he'll be throwing out 6 the first pitch in Arlington on June 2nd. The other 7 games will have teachers or veterans selected by 8 Commissioner Rivera to throw out those first pitches, 9 and our Media Relation Team put together a video that 10 I'm going to show you. 11 (Video playing.) 12 MR. TIRLONI: So we're happy about that 13 partnership with our two teams and that concludes our 14 presentation today and we're happy to answer any 15 questions. 16 CHAIRMAN KRAUSE: Do we have a 17 representative of LatinWorks here? 18 MR. TIRLONI: We do. Our Account 19 Director, Jaime Gonzales, is here in the audience. 20 CHAIRMAN KRAUSE: Jaime, please come up. 21 MR. GONZALES: Oh, sure. 22 CHAIRMAN KRAUSE: Please tell Mr. Flores 23 we're very proud of you all. 24 MR. GONZALES: Will do. Thank you, 25 Commissioner. Thank you, Mr. Chairman. 26 1 We're very proud of this award, and we're 2 very proud of what we do for the Texas Lottery. I have 3 to say that what we're doing for Texas schools and 4 veteran services are really a motivating factor for us 5 at the agency. 6 CHAIRMAN KRAUSE: For those of you who 7 haven't been around that long, it used to be that 8 LatinWorks was a subcontractor, not our prime 9 advertising contractor. And it just didn't make sense 10 that the subcontractor was winning all the awards and 11 our prime contractor was winning none. And so, anyway, 12 we had a little bit of role reversal; and it's working 13 out wonderfully for the Texas Lottery Commission. We're 14 grateful for what you guys do. Thank you. 15 MR. GONZALES: Thank you, Mr. Chairman. 16 We're very proud of the work we're doing. 17 MR. TIRLONI: Thank you. 18 CHAIRMAN KRAUSE: And, Ms. Pyka, you have 19 the next item. 20 AGENDA ITEM VII 21 MS. PYKA: Certainly. 22 Commissioners, Tab VIII [sic.] includes 23 information on the agency's transfers to the State. The 24 report in your notebook reflects accrued revenue 25 transfers and allocations to the Foundation School Fund 27 1 and the Texas Veterans Commission for the period ending 2 April 30th of 2017. Our total accrued revenue transfers 3 to the State amounted to $780.1 million for the first 4 eight months of fiscal year 2017. Of the 5 780.1-million-dollar transferred to the State, 6 $734.8 million was the amount of revenue transferred to 7 the Foundation School Fund. $11 million was the amount 8 transferred to the Texas Veterans Commission, with a 9 balance of 34.3 million transferred from unclaimed 10 prizes. Total cumulative transfers to the Foundation 11 School Fund through April of this year now total 12 $20.4 billion. 13 Commissioners, this concludes my 14 presentation. I'd be happy to answer any questions. 15 CHAIRMAN KRAUSE: Commissioners? 16 (No response.) 17 CHAIRMAN KRAUSE: Thank you very much for 18 your report. 19 Ms. Trevino. 20 AGENDA ITEM VIII 21 MS. TREVINO: Good morning, 22 Commissioners. For the record, I'm Nelda Trevino, the 23 Director of Governmental Affairs. 24 As you are aware, the 85th Legislative 25 Regular Session concluded this past Monday; and 28 1 June 18th is the last day for the Governor to act on 2 legislation. That is, he can either sign a bill, let 3 the bill become law without his signature, or veto the 4 legislation. 5 I want to provide a brief report on bills 6 that were passed related to the administration of the 7 lottery and the regulation of charitable bingo. 8 Regarding legislation specifically related to the 9 administration of the lottery, six different initiatives 10 or bills were filed this session. Two of these bills 11 passed the Legislature. These include House Bill 59, by 12 Representative Ryan Guillen, relating to certain lottery 13 prize winners' choice to remain anonymous. This bill 14 authorizes a person who wins a lottery prize in the 15 amount of one million or more to choose to remain 16 anonymous. 17 The other bill is House Bill 1555 by 18 Representative John Kuempel relating to the sale of 19 lottery tickets by certain wine and beer retailers. 20 This bill clarifies that traditional lottery retailers, 21 particularly grocery stores and certain convenience 22 stores, that have business models that offer on-premise 23 beer and wine consumption are eligible to be licensed as 24 a lottery retailer if less than 30 percent of the 25 location's gross receipts are derived from the sale or 29 1 service of alcoholic beverages. This bill has been 2 signed by the governor. 3 Moving on to legislation specifically 4 related to the regulation of charitable bingo, seven 5 different initiatives or bills were filed this session; 6 and three passed. These include Senate Bill 549, by 7 Senator Lois Kolkhorst relating to refunds of certain 8 bingo licensing fees or registration fees. This bill 9 provides express authority to the Commission to refund 10 license and registration fees and allows the Commission 11 to retain a portion to defray administrative costs. 12 This bill has also been signed by Governor Abbott. 13 House Bill 874, by Representative John 14 Kuempel relating to a charitable raffle ticket awarded 15 as a bingo prize. This bill authorizes a licensed 16 organization conducting bingo to award as a bingo prize 17 a ticket for a charitable raffle conducted under 18 Occupations Code Chapter 2002. The Governor has also 19 signed this legislation. 20 And then the last bill related to the 21 regulation of charitable bingo is House Bill 2578 by 22 Representative Senfronia Thompson relating to the 23 elimination of certain fees for licensure and the 24 disposition of certain fees collected by the Texas 25 Lottery Commission under the Bingo Enabling Act. 30 1 This bill contains numerous provisions 2 that include eliminating the requirement for charities' 3 bingo license fees and worker registration fees, 4 requiring the local share of prize fees currently 5 allocated to Counties and Cities to be reduced on a 6 pro rata basis as necessary to retain amounts required 7 for the administration of bingo, and eliminating the 8 prize fee on prizes of $5 or less. 9 Agency staff will now undertake the task 10 of implementing the provisions of bills that have been 11 enacted, and the agency's Legislative Implementation 12 Project will also include other enacted legislation that 13 impacts state agencies. As we go through this process, 14 there will be required rulemaking that will come before 15 the Commission for your action, particularly as it 16 relates to the bills that I noted. 17 This concludes my part of the report; and 18 Kathy will now provide an update on the agency's 19 appropriations for the next biennium, along with some of 20 the provisions that are also included in the general 21 appropriations act. 22 MS. PYKA: Thank you, Nelda. 23 Commissioners, again for the record, my 24 name is Kathy Pyka, Controller for the Commission. 25 Commissioners, the chart before you 31 1 includes the final status of our budget request before 2 the 85th Legislature. Beginning with the budget 3 reductions in which the Commission sought restoration, 4 the Senate's version of the bill included an 18.1- 5 million-dollar reduction to the lottery dedicated 6 account in which the Commission requested $16.1 million 7 of that reduction to be restored. 8 The House version of the budget included 9 a 6-million-dollar reduction to the lottery dedicated 10 act; and of that amount, the Commission requested 4 11 million dollars of the reduction to be restored. 12 The final decisions of the Conference 13 Committee, as outlined on this slide, equated to the 14 Senate's budget bill, which is an overall spending 15 reduction of 18.1 million dollars to the Lottery 16 Dedicated Account. Before reaching this final reduction 17 amount, the Conference Committee increased our 18 advertising budget by $4.7 million, only to reduce it by 19 $4.7 million as part of their Article 9 Contract Cost 20 Containment Provision. 21 So as we look at this slide, the 22 Commission's advertising budget received the bulk of the 23 reductions, including a reduction of $14.7 million or 23 24 percent from current budget levels. 25 The economic impacts we have estimated 32 1 from the reductions included a sales reduction of nearly 2 $400 million, a revenue reduction of $108 million to the 3 Foundation School Fund, and a reduction of $20 million 4 in compensation to our retailers. 5 Regarding the new Scratch Ticket rider 6 that addresses the funding of the strategy used to 7 pay for Scratch Ticket printing, the new rider was 8 not funded in the final version of the budget bill. Our 9 Scratch Ticket printing budget was funded at $30,150,000 10 for each year of the fiscal year 2018-19 biennium. 11 The Commission anticipates spending over 12 $50 million during the current fiscal year for Scratch 13 Ticket printing and related services, which takes into 14 account the growing demand for the Scratch Ticket 15 product. In order to be responsive to the market 16 preferences of consumers, the Commission has, 17 historically, actively explored new Scratch Ticket game 18 opportunities and unique product enhancements that hold 19 the most potential for generating incremental revenue to 20 the state of Texas. Based on the funding provided, the 21 Commission will not be able to maintain the current 22 level of enhanced product offerings that have 23 contributed to historical sales and revenue increases. 24 In fiscal year 2016, just as a recall, 25 Scratch Tickets were $3.72 billion of sales and 33 1 represented 73 percent of our total lottery sales, which 2 was also a sales growth of over $200 million over the 3 previous fiscal year. This growth was attributed to the 4 introduction of innovative Scratch products with special 5 features that generated almost $400 million during the 6 fiscal year. Revenues associated with these innovative 7 products amounted to $63 million during fiscal year 8 2016. 9 Commissioners, as projected, that 10 maintaining Scratch Ticket sales and revenue, along with 11 the ability to have continued growth in Scratch Ticket 12 sales and revenue is at risk based on the appropriation 13 authorized in Senate Bill 1 for Scratch Ticket printing. 14 In developing our budget for fiscal year 15 2018, we will take into account the budget tools 16 previously used to fund Scratch Ticket printing, 17 including the use of Article 9, Section 14.01, 18 Appropriation Transfers, which allows for the transfer 19 of up to 20 percent from each unrestricted strategy, or, 20 with approval from the Legislative Budget Board and the 21 Governor's Office of Budget and Planning, a greater 22 percentage transfer. We will also use Rider 11 should 23 we reach the required sales target of $4.9 billion, as 24 outlined in the appropriations bill. 25 Please note at the bottom of this slide 34 1 the Conference Committee also took an additional 2 $314,500 from Bingo's general revenue appropriation. 3 This is in addition to the mandatory 4 percent budget 4 reduction already incurred by our Bingo program. 5 Commissioners, I also want to remind you 6 of a new rider provision included in the budget bill. 7 Rider 15 requires the agency to notify the Legislative 8 Budget Board at least 30 calendar days before any 9 amendment or change order is executed on the Lottery 10 Operator Contract. 11 This concludes my presentation. I'd be 12 happy to answer any questions. 13 CHAIRMAN KRAUSE: Go ahead. 14 COMMISSIONER RIVERA: So the increase 15 that we've seen -- and maybe I should have asked this in 16 an earlier segment -- but the increase that we've seen 17 in the Scratch Offs, do you think that's directly people 18 that used to play the Draw games that are waiting then 19 for the higher jackpot; so in the interim, as opposed to 20 spending on the jackpots, they're going to spend it on 21 the Scratch games? 22 MS. PYKA: Commissioners, I think the 23 Scratch Ticket sales that we've had, because we've seen 24 incremental growth year over year, are true Scratch 25 Ticket players; but I do believe that as we have large 35 1 jackpots, it brings new players into the retailers who 2 may buy a Scratch Ticket product. So I like to focus 3 the Scratch Ticket sales separate from the Draw sales, 4 thus, the concern we have about -- 5 COMMISSIONER RIVERA: I guess what my 6 question is: Do you feel that people would be 7 playing -- instead of spending money on the Scratch 8 games, that if the jackpots were higher, that that 9 money, then, would be spent on the Draw games instead? 10 MR. GRIEF: No, sir. The answer is no to 11 that question. 12 COMMISSIONER RIVERA: Okay. Perfect. 13 COMMISSIONER ARRIETA-CANDELARIA: Can I 14 add something to that because I've had the same thought; 15 but I also think the marketing -- I've seen more 16 marketing of the games, the newer games. Some of the 17 look of the games are different, considerably different; 18 and I think that that has to do with what Kathy and Gary 19 just mentioned is that while I think there is some of 20 that, I think that there's more new players that come in 21 and that we're going to have people playing those larger 22 jackpots that never played before. 23 COMMISSIONER RIVERA: Right. So part of 24 the thinking -- and I know y'all are doing a great job 25 on -- with a very limited budget, doing as much as you 36 1 can with, again, very limited resources to try and 2 promote our Scratch games. So the question is that: Is 3 there potential opportunity, then, to reach out to those 4 that are exclusively Draw game players to try to entice 5 them in a way to kind of keep them active in 6 anticipation of the larger jackpots? So that's what 7 I've been kind of thinking about here for a while. 8 MR. GRIEF: And, Commissioner, I'll speak 9 to that. As efficiently as we can, we utilize dollars 10 to make sure our players know about the jackpot levels, 11 whether it's at the starting level of $40 million or 12 whether it's at 1.6 billion. As you know, we have 13 jackpot billboards that blanket the entire state that 14 advertise the jackpot amounts, no matter what amount 15 they are. 16 For the "Mega Millions" and Powerball 17 games in particular, it doesn't matter how much 18 advertising dollars you throw behind that at lower 19 jackpots. Players only play when the jackpots are high. 20 For the Scratch Ticket product, I think 21 back to my college days. You probably remember your 22 marketing classes, where you have the Five Ps of an 23 Effective Marketing Program: Price, product, place, 24 promotion, and people. Well, what we're losing in this 25 budget is product and promotion. 37 1 And I think the message we're trying to 2 communicate to the Board today is: Once the effects of 3 these budget cuts set in -- and it's not going to happen 4 overnight -- but once it sets in, you will not see the 5 results that we've seen for revenue generation. Scratch 6 Tickets now are approaching 80 percent of lottery sales 7 in total, and I see that trend continuing to grow 8 overtime. 9 So we've been cut. We've been hurt at 10 our strongest product line and our most important 11 product line; and, again, without product and promotion, 12 it's very difficult to have a successful program. But 13 we will do the best we can. 14 COMMISSIONER ARRIETA-CANDELARIA: If I 15 can add one more thing: So, Kathy, if I understand it, 16 so the revenue reduction to the Foundation School Fund 17 from the reduction is 108 million; and then, on top of 18 that, we had a 63-million reduction because of the 19 rider? 20 MS. PYKA: That is correct, Commission. 21 Those are the biennial amounts. 22 COMMISSIONER ARRIETA-CANDELARIA: So we 23 had a reduction in the budget for 16 million. So for 24 that 16 million, we could have had $170 million. 25 MS. PYKA: That is correct. 38 1 COMMISSIONER ARRIETA-CANDELARIA: And 2 that, to me, is really the biggest issue because our 3 mission is to fund the Foundation School -- I mean, the 4 net proceeds of what we do goes to the Foundation School 5 Fund; and I think that's, to me, the biggest story here 6 is that for 16 million, we're losing $170 million that 7 could go back into education. And I think that that's 8 where I'm having the hardest time with this budget is 9 that that has an impact on our funding our schools. I 10 think that's how I'm taking this reduction. 11 And I'm not sure that I -- I'm not sure 12 that I felt with that 16-million reduction, how it was 13 being -- I watched some of the discussions at the 14 Legislature when they were talking about that reduction 15 and I think that we have to look at our budget for the 16 lottery being self-sustaining, like separate and apart 17 from the budget. We cannot take $16 million of our 18 money and move it over to another program because we are 19 self-sustaining and that's how it was being portrayed 20 and I don't remember who the lady was talking at that 21 time; but I think that that's really the message is that 22 we are a self-sustaining budget and we should be looked 23 at -- our budget is that way, as opposed to being able 24 to just get an appropriation and being able to move 25 money in and out of that appropriation. 39 1 So I think that I'm just very 2 disappointed. 3 CHAIRMAN KRAUSE: Has anybody put a 4 number on our revenue loss projected? 5 MS. PYKA: That's it. 6 COMMISSIONER ARRIETA-CANDELARIA: Right 7 there, it's 800 million. 8 CHAIRMAN KRAUSE: $800 million. 9 COMMISSIONER ARRIETA-CANDELARIA: For the 10 sales and then -- 11 CHAIRMAN KRAUSE: And how much lost to 12 the Foundation School Fund? 13 MS. PYKA: We're looking at $170 million 14 for the biennium for those two items, between Scratch 15 Ticket printing budget authority, as well as the 16 advertising and marketing. 17 CHAIRMAN KRAUSE: Thank you for putting 18 that on the record. 19 MS. PYKA: Certainly. 20 MS. TREVINO: Commissioners, I just want 21 to add something as a reminder for the record in regards 22 to the reduction on the lottery side. Historically, if 23 you-all recall, the lottery has been exempt from 24 previous budget reductions. And this go-round for this 25 Legislative session and for direction that was given for 40 1 agencies to submit their Legislative appropriations 2 requests, this is the first time, based on the direction 3 from the Governor's Office, the lottery be included in 4 that reduction, recognizing, Commissioner, to the point 5 that you were just making, that we are self-sustaining; 6 that the Lottery Dedicated Account is not part of the 7 certification of the budget. And we tried to emphasize 8 that over and over again, but this was the outcome. 9 CHAIRMAN KRAUSE: Thank you. 10 Before we move on, are you finished on 11 this item? 12 MS. PYKA: Yes, I am. Thank you. 13 CHAIRMAN KRAUSE: All right. Well, we 14 have a witness that wants to speak on this item. 15 MR. FENOGLIO: Mr. Chairman and 16 Commissioners, my name is Stephen Fenoglio; and I'm an 17 attorney in town. And Steve Bresnan could not be here. 18 He's actually sleeping today and he wanted to say thanks 19 to Alfonso for his help in getting 2578, the right 20 information to the Legislators and their staffs, and it 21 will be immeasurably beneficial to charities. 22 Commissioner Lowe, we ran short on 2577 23 and 3611; we're not quite sure what happened to slow it 24 down. This would have given a new tool to eliminate 25 illegal gambling. We'll try again. 41 1 I represent both Bingo Interest Group and 2 the Texas Charity Advocates. 3 Thank you, Mr. Chairman, Commissioners. 4 COMMISSIONER LOWE: So can I respond? 5 CHAIRMAN KRAUSE: Yes, please. 6 COMMISSIONER LOWE: So we don't always 7 see eye to eye on everything. 8 MR. FENOGLIO: That's true. 9 COMMISSIONER LOWE: But we do see eye to 10 eye on the impact of illegal gambling in the sweepstakes 11 casinos or eight-line casinos has on bingo. I know we 12 definitely agree on that, and I do appreciate your 13 efforts and Mr. Bresnan's efforts with House Bill 3611, 14 which basically would have allowed the Commission to 15 reduce or withhold the local Government's share of the 16 bingo money if the County or the Government doesn't take 17 steps to fight illegal gambling in that county. And I 18 think that there were some implementation issues and I 19 was probably a little more aggressive than they thought 20 we should be; but, anyway, I think it was a good effort. 21 And I will tell you this, Chairman: 22 Recently I've become an Aggie, and Aggies never lose 23 football games. Do you know that? Any Aggies in the 24 group here? Aggies never lose a ballgame; time just 25 runs out. 42 1 (Laughter.) 2 COMMISSIONER LOWE: So the clock ran out 3 on us, Steve; and so we'll go again. How is that? 4 MR. FENOGLIO: Good deal. Thank you. 5 CHAIRMAN KRAUSE: Anything else before we 6 move on? 7 COMMISSIONER LOWE: No, sir. 8 CHAIRMAN KRAUSE: All right. Ms. Brown, 9 Darlene Brown. 10 AGENDA ITEM IX 11 MS. BROWN: Good morning, Commissioners. 12 My name is Darlene Brown, and I'm the Internal Auditor 13 from McConnell Jones. 14 First, I'd like to thank everybody from 15 the Commissioners to the agency staff for your support, 16 and I'd really like to thank the agency staff for all 17 their due diligence in every undertaking that they 18 incur. They have a lot of proactive controls, and we 19 see that time and time throughout every audit that we 20 present to you. Most of our audit reports result in 21 zero findings because if we do notice something minor 22 along the way, they've already taken corrective measures 23 before we actually adopt that report. So that makes our 24 job very easy. 25 Now, to tell you what's been going on 43 1 since the last commission meeting, we had started a Time 2 and Attendance audit. We've also started the Second 3 Chance Drawing audit. We're in the process of wrapping 4 those up, and we'll be presenting those items to you at 5 the next Commission meeting. 6 We're also going to be starting four 7 audits. One, we will be looking at the Crisis 8 Management Plan; the active directory audit; we'll be 9 looking at the jackpot estimate system; and then the 10 Scratch Ticket working paper workflow system. So we're 11 going to be very busy over the next couple of months, 12 still; and we are on target to complete our full audit 13 plan by August 31st. 14 We're currently at 50 percent of budget, 15 but those funds will be being exhausted rather quickly. 16 We anticipate coming in a little bit under budget as far 17 as the funding portion goes. 18 So I will be happy to answer any 19 questions. 20 CHAIRMAN KRAUSE: Commissioners? 21 COMMISSIONER LOWE: So let me clarify one 22 thing. I said I was an Aggie. That's true. I've gone 23 back to school to get an LLM from Texas A&M University 24 School of Law in Fort Worth, Texas; and it's in risk 25 management of all things. And so I look forward to 44 1 working with Darlene and that group to get a sense of 2 our comprehensive overall risk management policy, and I 3 look forward to incorporating some of that in my 4 intellectual process. 5 So thank you, and I look forward to 6 working with you some more. 7 MS. BROWN: Thank you. 8 CHAIRMAN KRAUSE: Outstanding. Any other 9 comments, questions? 10 (No response.) 11 CHAIRMAN KRAUSE: Thank you so much. 12 MS. BROWN: Thank you. 13 CHAIRMAN KRAUSE: Our next item is to 14 hear from Mr. Royal. 15 AGENDA ITEM X 16 MR. ROYAL: Good morning, Commissioners. 17 I don't have anything except for what's in your 18 Commission books. 19 CHAIRMAN KRAUSE: All right. 20 AGENDA ITEM XI 21 CHAIRMAN KRAUSE: Mr. Grief. 22 MR. GRIEF: The same for me, 23 Mr. Chairman. Other than what's in your notebooks, I 24 have nothing further to report. 25 CHAIRMAN KRAUSE: All right. We're going 45 1 to see if Mr. Biard can get this done in 8 minutes. 2 (Laughter.) 3 AGENDA ITEM XII 4 MR. BIARD: Thank you. 5 This is Item XII. These are the 6 Enforcement Orders. Tab XII contains ten lottery and 7 bingo enforcement cases, Tabs A through J. These are 8 cases where commission staff found the licensee violated 9 a statute or rule or an applicant did not qualify for a 10 license. I'll briefly describe the cases, and you can 11 take them up in a single vote if you like. 12 Tabs A through E are the non-sufficient 13 fund lottery retailer license revocations. They're 14 handled in a single order. Each case was presented at 15 the State Office of Administration Hearings for 16 revocation of the retailer's license on the grounds the 17 licensee failed to have sufficient funds in their bank 18 account to cover electronic fund transfers to the 19 Lottery Commission's account. In each case the licensee 20 failed to appear, so the matter was handled as a 21 default. That means that since the licensee failed to 22 appear, the allegations in the Commission's Notice of 23 Hearing were deemed admitted. 24 Next, Tabs F and G are lottery agreed 25 orders. Tab F is for Samy Food Store in Arlington. In 46 1 this case, the clerk was scratching the barcode on the 2 front of lottery tickets; this is also known as the 3 "void if removed number," and was keeping the winners 4 and returning the non-winning tickets to the inventory 5 sold to customers. The store manager fired this 6 employee upon learning of the conduct, and the licensee 7 was cooperative with the Commission and agreed to a 8 ten-day suspension. 9 Tab G is for Raceway #6947 of Sugar Land. 10 In this case, the customer tried to validate a ticket 11 with an apparent $100 prize at an HEB store. He was 12 notified the ticket had been paid earlier that day 13 before the customer had bought the ticket. So the 14 customer returned to the store where he bought the 15 ticket, and the clerk verified the ticket was previously 16 paid at that location. The owner offered to pay the 17 customer $10 or give them another ticket. The customer 18 complained to the Commission, and our investigator met 19 with the store owner. 20 The surveillance video showed a customer 21 at that time had purchased a large number of lottery 22 tickets and was scratching only the barcode area to 23 determine if they were winners. After validating the 24 tickets, the clerk picked up the ticket in question, 25 which he said appeared not to have been scratched in his 47 1 view, and placed it back in the dispenser, after which 2 it was sold to the customer by a different clerk. The 3 clerk told the Commission investigator it was an 4 accident, that he thought the ticket had not been sold 5 or validated. Again, this licensee was cooperative with 6 the Commission and agreed to a ten-day suspension. 7 Tabs H and I are bingo agreed orders, and 8 these are both net proceeds cases. Tab H involves the 9 Bexar County Opportunities Industrialization Center in 10 San Antonio, which had negative net proceeds of $9,293 11 from the third quarter of 2015 to the second quarter of 12 2016. 13 Tab I involved AMVETS Post 4 of Dallas, 14 which had negative net proceeds of $3,571 for the third 15 quarter of 2105 through the second quarter of 2016. 16 In both cases, the Bingo Director 17 initially denied the organization's request for a waiver 18 of the net proceeds requirement but agreed to give the 19 organizations another chance to demonstrate they can 20 generate a net positive proceed for the third and fourth 21 quarters of this year, 2017. These are agreed orders. 22 They're similar to the net proceeds agreed orders we've 23 brought to you at previous meetings. 24 And, finally, Tab J is a litigated case 25 where Commission staff denied a license renewal 48 1 application to American Legion Post 361 in Ennis, Texas. 2 The basic facts are not in dispute. The 3 Bingo Act requires an Organization to collect a 4 5 percent fee on bingo prizes paid and to remit the 5 collected fees to the Commission each quarter, and the 6 Organization has to post a bond to secure payment of the 7 prize fee and if the Organization is ever late in 8 submitting payment to the Commission, the bond will be 9 recalculated to a higher amount. That's what happened 10 in this case and the Organization has been unable to 11 obtain a new bond in the higher amount, which is why 12 staff denied the renewal application. 13 But the Organization is complaining that 14 the Commission kept sending its notices to an incorrect 15 address, both the notices regarding late filing and the 16 notices of this hearing. However, the evidence showed 17 that the Commission staff sent all the notices to the 18 last address the Organization provided to the Commission 19 and that the Organization, in fact, did not update its 20 address from a Post Office Box to a physical address, as 21 it should have done, until January of this year. 22 The judge found it was the Organization's 23 responsibility to update its address and further found 24 the Organization had actual notice of the hearing. The 25 Judge also found the Organization did not comply with 49 1 the bond requirement; and, therefore, the Commission was 2 authorized to deny the license renewal application. The 3 Organization did not file exceptions. 4 That concludes my presentation, and you 5 may take these up in single vote if you like. And I'll 6 be happy to answer any questions. 7 CHAIRMAN KRAUSE: Questions, comments? 8 COMMISSIONER LOWE: I make a motion to 9 approve the recommendation of Counsel. 10 COMMISSIONER RIVERA: Second. 11 CHAIRMAN KRAUSE: All right. All in 12 favor say aye. 13 (Chorus of "ayes.") 14 (Gravel pounding.) 15 AGENDA ITEM XVI 16 CHAIRMAN KRAUSE: All right. On my own 17 motion, I move that we adjourn. It is 10:52 a.m. 18 Anybody want to second that? 19 COMMISSIONER RIVERA: Congratulations. 20 COMMISSIONER LOWE: Second. 21 CHAIRMAN KRAUSE: All in favor say aye. 22 (Chorus of "Ayes.") 23 CHAIRMAN KRAUSE: We're adjourned. 24 (Proceedings concluded at 10:57 a.m.) 25 50 1 STATE OF TEXAS) 2 3 **************************** 4 REPORTER'S CERTIFICATE 5 **************************** 6 7 8 I, DEBBIE D. CUNNINGHAM, CSR, Certified 9 Shorthand Reporter in and for the State of Texas, do 10 hereby certify that the above and foregoing contains a 11 true and correct transcription of the above-referenced 12 meeting and was reported by me to the best of my 13 ability. 14 15 SUBSCRIBED AND SWORN TO under my hand and 16 seal of office on this the 12th day of June, 2017. 17 18 ______________________________ 19 DEBBIE D. CUNNINGHAM, Texas CSR 2065 Expiration Date: 12/31/2018 20 Kim Tindall & Associates 16414 San Pedro Avenue, Suite #900 21 San Antonio, Texas 78232 (210) 697-3400 22 23 24 25