0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 COMMISSION MEETING ) 6 FOR THE TEXAS ) LOTTERY COMMISSION ) 7 8 9 10 COMMISSION MEETING 11 AUGUST 9, 2018 12 10:00 a.m. 13 AT 14 TEXAS LOTTERY COMMISSION 15 611 East 6th Street Austin, Texas 78701 16 17 18 19 20 21 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: J. Winston Krause 3 COMMISSIONERS: Doug Lowe Carmen Arrieta-Candelaria 4 Robert Rivera 5 GENERAL COUNSEL: Robert F. Biard 6 EXECUTIVE DIRECTOR: Gary Grief 7 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Michael Farrell 8 CONTROLLER: Katheryn J. Pyka 9 PRODUCTS MANAGER: Robert Tirloni 10 McCONNELL JONES 11 LANIER & MURPHY, LLP: Darlene Brown 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS PAGE 2 I. The Texas Lottery Commission will call the 3 meeting to order . . . . . . . . . . . . . 7 Pledge of Allegiance to the U.S. and Texas 4 flags. Texas Pledge: “Honor the Texas flag; I pledge allegiance to thee, Texas, one state 5 under God, one and indivisible.” 6 II. Report, possible discussion and/or action on agency major contracts, including amendment, 7 renewal or extension of the contracts for Instant Ticket Manufacturing and Services . 8 8 III. Report, possible discussion and/or action on 9 agency prime contracts, including the procurements for the contracts for 10 promotional products. . . . . . . . . . . . 9 11 IV. Report, possible discussion and/or action on agency prime contracts, including amendment, 12 renewal or extension of the contracts for Security Officer Services, Website Hosting 13 Services, and Lottery Drawings CPA Services 9 14 V. Consideration of and possible discussion and/or action regarding the Bingo Advisory 15 Committee (BAC) and the BAC’s annual work plan for FY 2019 . . . . . . . . . . . . 10 16 VI. Report, possible discussion and/or action on 17 the Charitable Bingo Operations Division annual report for calendar year 2017 . . 14 18 VII. Consideration of and possible discussion 19 and/or action, including adoption, on new 16 TAC §402.443 (Transfer of a Grandfathered 20 Lessor’s Commercial Lessor License) . . . 16 21 VIII. Consideration of and possible discussion and/or action, including proposal, on 22 amendments to 16 TAC §403.301 (Historically Underutilized Businesses) . . . . . . . . 18 23 IX. Consideration of and possible discussion 24 and/or action, including proposal, on amendments to 16 TAC §§401.307 (“Pick 3” Draw 25 Game Rule) and 401.316 (“Daily 4” Draw Game 0004 1 Rule) . . . . . . . . . . . . . . . . . . 19 2 X. Report, possible discussion and/or action on lottery sales and revenue, game performance, 3 new game opportunities, advertising, promotional activities, market research, 4 trends, and game contracts, agreements, and procedures . . . . . . . . . . . . . . . 25 5 XI. Report, possible discussion and/or action on 6 transfers to the State and the agency’s budget status . . . . . . . . . . . . . . 32 7 XII. Report, possible discussion and/or action on 8 the FY 2020-21 Legislative Appropriations Request . . . . . . . . . . . . . . . . . 33 9 XIII. Report, possible discussion and/or action on 10 external and internal audits and/or reviews relating to the Texas Lottery Commission, 11 and/or on Internal Audit activities, including approval of the FY 2019 Annual 12 Internal Audit Plan and Personal Identifiable Information Audit Report . . . . . . . . 39 13 XIV. Report by the Charitable Bingo Operations 14 Director and possible discussion and/or action on the Charitable Bingo Operations 15 Division’s activities, including licensing, accounting and audit activities, pull-tab 16 review, and special projects . . . . . . 42 17 XV. Report by the Executive Director and possible discussion and/or action on the agency’s 18 operational status, major contracts, agency procedures, awards, and FTE status . . . 43 19 XVI. Consideration of the status and possible 20 approval of orders in enforcement cases . 43 21 Lottery NSF License Revocation Cases (Default) A. Docket No. 362-18-3760 – EZ Stop 22 Lottery Agreed Orders B. Case No. 2018-397 – Tiger Express #6 23 C. Case No. 2018-600 – Northstar Food Mart 2 Bingo Agreed Orders 24 D. Docket Nos. 362-17-5956.B, 5957.B, 5958.B. 5959.B, 5960.B – Real Jobs for Youth Inc.; 25 FOE AERIE 4125 Aux. Longview; Pythian Sisters 0005 1 Longview Temple No. 26; Crims Chapel Volunteer Fire Department Inc.; and Paisanos 2 of East Texas E. Case No. 2018-246 – Diana Ford (Bingo 3 Worker) F. Case No. 2018-561 – John C. Ramos (Bingo 4 Worker) Other Bingo Cases 5 G. Docket Nos. 362-17-5016.B, 5279.B, 5280.B. 5281.B, 5282.B – BJN Enterprises, LLC; San 6 Antonio Northwest Lions Club; Southern Federation of Syrian Lebanese American Clubs, 7 Inc.; LULAC Council 4416; and SASSL (these cases may be resolved with an Agreed Order) 8 XVII. Public comment . . . . . . . . . . . . . 49 9 XVIII. Commission may meet in Executive Session 49 10 A. To deliberate personnel matters, including the appointment, employment, evaluation, 11 reassignment, duties, discipline, or dismissal of the Executive Director and/or 12 Charitable Bingo Operations Director pursuant to §551.074 of the Texas Government Code. 13 B. To deliberate the duties of the General Counsel and/or the Human Resources Director 14 pursuant to §551.074 of the Texas Government Code. 15 C. To receive legal advice regarding pending or contemplated litigation or settlement 16 offers, or other legal advice, pursuant to §§551.071(1) and (2) of the Texas Government 17 Code, including but not limited to legal advice regarding the following items: 18 Pending and potential litigation regarding Fun 5’s Scratch Ticket Game #1592, including 19 Travis Co. District Court Cause No. D-1-GN-14-005114, Third District Court of 20 Appeals Cause No. 03-16-00172-CV (Steele, et al. v. GTECH Corp.); and Dallas Co. District 21 Court Cause No. DC-14-14838, Fifth District Court of Appeals Cause No. 05-15-01559-CV 22 (Nettles v. GTECH Corp. and Texas Lottery Commission). 23 Julam Investments, Inc. v. Texas Lottery Commission (Travis Co. District Court Cause 24 No. D-1-GN-16-006124) State of Texas v. Equal Employment 25 Opportunity Commission et al. Legal advice 0006 1 regarding Texas Government Code Chapters 466 (State Lottery Act) and 467, the Bingo 2 Enabling Act, the Open Meetings Act, the Public Information Act, the Administrative 3 Procedure Act, employment and personnel law, procurement and contract law, evidentiary and 4 procedural law, ethics laws, and general government law. Legal advice regarding any 5 item on this open meeting agenda. 6 XIX. Return to open session for further deliberation and possible action on any 7 matter posted for discussion in Executive Session. Any matter posted for Executive 8 Session also may be the subject of discussion and/or action in open session prior to 9 Executive Session . . . . . . . . . . . . 49 10 XX. Adjournment . . . . . . . . . . . . . . . 50 11 Reporter Certificate . . . . . . . . . . . . . . . 51 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0007 1 P R O C E E D I N G S 2 AGENDA ITEM I 3 CHAIRMAN KRAUSE: Good morning. I call 4 this meeting of the Texas Lottery Commission to order. 5 Today is August the 9th and it is 10:01 a.m. We have 6 all of our Commissioners here and we have quorum. We 7 start off, as we always do, by honoring our flags. We 8 have a designated Pledge Commissioner to lead us in 9 that. 10 (Pledges recited) 11 CHAIRMAN KRAUSE: We have a special 12 statement by Commissioner Candelaria. 13 COMMISSIONER ARRIETA-CANDELARIA: Thank 14 you, Commissioner Krause. I was just saying how 15 appropriate it is today, when we honor the American 16 flag and the Texas flag, in light of the picture op 17 that we had this morning and the contribution to the 18 Texas Veterans fund, over a hundred million dollars 19 transferred to date. So congratulations to the Lottery 20 on that incredible achievement. 21 CHAIRMAN KRAUSE: Absolutely. We 22 happily begin this meeting by introducing our new Bingo 23 Director. Michael Farrell. This is his first 24 Commission meeting. Welcome. 25 MR. FARRELL: Thank you, sir. 0008 1 CHAIRMAN KRAUSE: He is our director, so 2 he's a direct report. And so I expect to have many 3 great reports for Mr. Farrell. 4 UNIDENTIFIED VOICE: And he is a 5 veteran. 6 CHAIRMAN KRAUSE: Oh, outstanding. 7 That's right. Coast Guard. 8 MR. FARRELL: Yes, sir. 9 COMMISSIONER ARRIETA-CANDELARIA: Thank 10 you for your service. 11 CHAIRMAN KRAUSE: Yes, absolutely. 12 MR. FARRELL: Thank you, Chairman. 13 AGENDA ITEM II 14 CHAIRMAN KRAUSE: The first three items 15 are contracts and Mr. Michael Fernandez is going to 16 take the hot seat. 17 MR. FERNANDEZ: Good morning, Mr. 18 Chairman, Commissioners. For the record, my name is 19 Michael Fernandez, the director of administration. 20 Item number two in your notebook is a 21 briefing item to advise the Commission of staff's 22 intent to amend and extend our current -- our current 23 instant ticket manufacturing and services contracts, 24 and with the companies Pollard Banknote, IGT Global 25 Solutions, and Scientific Games. 0009 1 Commissioners have independently 2 confirmed they do not have any financial interest in 3 any of the three instant ticket contract manufacturers. 4 I'd be happy to answer any questions, 5 Mr. Chairman, Commissioners. 6 CHAIRMAN KRAUSE: No questions. Carry 7 on. 8 COMMISSIONER RIVERA: No questions. 9 AGENDA ITEM III 10 MR. FERNANDEZ: Item number three in 11 your notebook is also a briefing item to advise the 12 Commission of staff's intent to issue a request for 13 proposal for promotional products. 14 I would also be happy to answer any 15 questions regarding this particular action -- or item, 16 briefing item. 17 CHAIRMAN KRAUSE: Hearing none, carry 18 on, please. 19 AGENDA ITEM IV 20 MR. FERNANDEZ: Thank you, Mr. Chairman. 21 Item IV in your notebook is a briefing 22 item to advise the Commission of staff's intent to 23 amend and/or extend three contracts. The first is 24 Security Officer Services contract with Smith 25 Protective Services, will be extended and amended by 0010 1 modifying services hours. 2 The second, website hosting services contract with 3 Technology Spa LLC, will be extended and amended to 4 reduce pricing. And the last contract, Lottery Drawing 5 CPA Services with DK Partners, will be extended for a 6 month -- for a month -- extended monthly for a period 7 not to exceed three months, and this is in order to 8 provide for contract vendor transition. 9 Commissioners have also independently 10 confirmed they have no financial interest in the three 11 aforementioned contracts. If you have any questions 12 I'd be happy to answer them. That's all I have, Mr. 13 Chairman. 14 CHAIRMAN KRAUSE: Thank you, sir. 15 AGENDA ITEM V 16 CHAIRMAN KRAUSE: Our next item is the 17 important work of appointments to the Bingo Advisory 18 Committee and approval of the Bingo Advisory Committee 19 work plan. And I'm going to ask Commissioner Lowe to 20 take the lead on that. 21 COMMISSIONER LOWE: Thank you, Chair. I 22 want to acknowledge the work that was done to get this 23 far. You know, I was not on board at first if anybody 24 remembers that, but I think this is going to be a good 25 thing for our division, I think it would be a good 0011 1 thing for the charities of the State of Texas to have 2 this advisory committee in place. 3 So I have a summary of the appointment 4 process it's in writing, and I'll make that a part of 5 the record for this meeting. 6 Essentially, though, we solicited 7 nominations, and I will tell you that we had 35 people 8 that were nominated to be on the advisory committee, 9 and we received 83 nomination forms. And so there were 10 some people that had multiple recommendations, and we 11 have a -- we had a great group of people that were 12 nominated. I think everyone -- everyone on the list 13 would have made a fine member, so it was hard -- it's 14 hard to narrow that down. 15 So at the Chair's recommendation, what 16 we did was we divided up the nominations between the 17 other two Commissioners and myself and as to the part 18 of the industry they represented. And thank you, 19 Chair, for your suggestion. 20 CHAIRMAN KRAUSE: I didn't want you to 21 have to shoulder the load. 22 COMMISSIONER LOWE: Well, I thank you 23 very much. I need -- I do need the help. And so -- so 24 I had the privilege of nominating conductor 25 representatives and commercial lessor representatives. 0012 1 And so, at this time, I'm going to nominate on behalf 2 of myself, the following individuals to be conductor 3 representatives and they are Mr. Will Martin, all 4 right. There he is. Janson Pohl and William Smith. 5 Will's going to represent the veterans portion of our 6 committee. Mr. Pohl would be the fraternal and 7 religious representative and you're from Bryan. Is he 8 here today; Mr. Pohl? Okay. And then William Smith is 9 the fraternal representative from Texarkana. And the 10 commercial lessor representative will be -- that I will 11 nominate is Ms. Melodye Green. She's been very active 12 in our stakeholders committee, she's from Dallas. And 13 one of the things that we wanted to achieve in our 14 process was to have some diversity, not just 15 geographic, but from the different areas of our 16 society. And so, I think one of things that -- that we 17 did achieve was some diversity in the nominations. 18 So those are my nominations. So 19 Commissioner Rivera will -- can you present your 20 nominations? 21 COMMISSIONER RIVERA: Uhm -- 22 COMMISSIONER LOWE: Do you need the 23 list? 24 COMMISSIONER RIVERA: Yeah. 25 COMMISSIONER LOWE: You're next. 0013 1 COMMISSIONER RIVERA: Okay. My 2 nominations; Laveda Brown from Waco and Tommy Duncan 3 from Houston. 4 COMMISSIONER LOWE: All right. 5 Commissioner? 6 COMMISSIONER ARRIETA-CANDELARIA: Yes. 7 I had the charity lessor representatives. I'm 8 nominating Kimberly Rogers from San Antonio, Brian 9 Malone from Lubbock. The manufacturer representative 10 Emile -- I'm going to go with Bourgoyne. I apologize 11 for that if I mispronounced her name, from Louisiana. 12 COMMISSIONER LOWE: So Chair, that's our 13 -- I'll defer going into our proposed topics if we have 14 the -- have approval of the nominations. So at this 15 time, I will nominate those individuals we've named to 16 be members of the Bingo Advisory Committee. 17 COMMISSIONER ARRIETA-CANDELARIA: 18 Second. 19 CHAIRMAN KRAUSE: Outstanding. All 20 right. We're going to call for a vote. All in favor 21 say aye. 22 (Chorus of "ayes") 23 CHAIRMAN KRAUSE: Hearing no nays, we -- 24 it is adopted. We're passing item number six, moving 25 on to item number seven. 0014 1 AGENDA ITEM VI 2 CHAIRMAN KRAUSE: Mr. Biard. 3 MR. BIARD: Chairman, I think -- did you 4 want to to address the work plan? 5 COMMISSIONER LOWE: If you don't mind. 6 COMMISSIONER ARRIETA-CANDELARIA: Yes. 7 MR. BIARD: Sure. 8 COMMISSIONER ARRIETA-CANDELARIA: Yeah. 9 CHAIRMAN KRAUSE: Oh, I'm sorry. 10 COMMISSIONER LOWE: Right. So I think 11 we have a lot of work to do, and we had some great 12 suggestions that, in fact, Mr. Bresnan sent us a letter 13 with their suggestions and I felt like we needed to 14 narrow that down to something that was manageable. And 15 so I'm going to make this a part of the records, but 16 let me just briefly would review what I would like to 17 see us do that -- and I think they're flexible enough 18 to where we can fit different things into those 19 categories. 20 But number one would be to conduct a 21 review of the Charitable Bingo administrative rules 22 Chapter 402, and recommend for the statutory required 23 rule review any proposed changes. 24 The second item that I would like to 25 take on is review components of the Bingo Annual Report 0015 1 and recommend elements and information to be included 2 in future annual reports. And I think we've had some 3 discussions about we want to make -- we want to make 4 the report that is -- reflects what's really going on 5 in the industry, in addition to the statutory 6 requirements. 7 And then number three would be to 8 identify recommended statutory changes. 9 And four will be develop the required 10 BAC annual report to the Commission on the state of the 11 Charitable Bingo industry and then consider other items 12 that may be later identified or approved by the 13 Commission. And so, as I restated then, I think that 14 is broad enough to encompass a lot of different things, 15 and I'm hopeful that -- that during the course of the 16 next year, that we can move forward, discuss openly the 17 issues, make -- make our Bingo Division transparent, so 18 that everybody knows what we're doing and improve the 19 status of the industry. 20 And so, with that, Chair, that would be my 21 proposed annual work plan for the Committee. And I'm 22 not sure, do we have a date set for the first meeting 23 yet? We don't? 24 MR. BIARD: I don't think a meeting date 25 has been set yet. 0016 1 COMMISSIONER LOWE: So we don't have a 2 meeting, but -- and I'm pretty sure that we'll 3 accomplish some great things. So with that, Chair, 4 I'll move to approve our work plan for the coming year. 5 CHAIRMAN KRAUSE: Outstanding. Do I 6 hear a second? 7 COMMISSIONER RIVERA: Second. 8 CHAIRMAN KRAUSE: All in favor say aye. 9 (Chorus of "ayes") 10 CHAIRMAN KRAUSE: Work plan is approved 11 and I want to thank Commissioner Lowe for all the 12 separate hard work that he does as the Bingo 13 Commissioner. And he's taken that on and he has really 14 put his shoulder to the wheel on that. And we 15 appreciate what he does. 16 COMMISSIONER LOWE: Thank you, Chair. 17 CHAIRMAN KRAUSE: As the Bingo 18 Commissioner. We're going to pass item six and move on 19 to item number seven. 20 AGENDA ITEM VII 21 MR. BIARD: Yes, Commissioners, that's - 22 - that's my item. Bob Biard, General Counsel. Staff 23 recommends that you adopt new Bingo Rule 402.443 titled 24 Transfer of a Grandfathered Lessor's Commercial Lessor 25 License. 0017 1 The purpose of the proposed rule is to 2 clarify that the broad leasing rights of a 3 grandfathered bingo commercial lessor cannot be 4 transferred to a new license holder under the license 5 transfer provisions of the Bingo Enabling Act. Under 6 current law, a grandfathered lessor may lease directly 7 to, and collect rent from, up to seven bingo conductor 8 organizations, whereas, a non-grandfathered lessor may 9 directly lease to only one organization. 10 We recommended this new rule in response 11 to Texas Attorney General Opinion Number KP-0202, 12 issued May 16th of 2018. The Commission requested this 13 opinion at the December 2017 Commission meeting. 14 We held a public hearing on the proposed 15 rule on July 18th. There were no commenters at the 16 hearing and we received no written comments. Staff 17 recommends adoption of the new rule. 18 COMMISSIONER LOWE: So can I ask a 19 question? 20 CHAIRMAN KRAUSE: You have the floor. 21 COMMISSIONER LOWE: I'm sorry, I keep 22 forgetting about the microphone. So did we have public 23 comment, were there comments made? 24 MR. BIARD: There were no comments 25 submitted. 0018 1 COMMISSIONER LOWE: All right. So I 2 assume that means everybody's happy with -- 3 MR. BIARD: I don't know if you can make 4 a positive or negative inference from that. 5 COMMISSIONER LOWE: Okay. I assume by 6 your silence this is what lawyers say. So, do we need 7 a motion to approve the -- 8 MR. BIARD: Yes. 9 COMMISSIONER LOWE: So I'll make that 10 motion, Chair. 11 CHAIRMAN KRAUSE: Okay. 12 MR. BIARD: To adopt the new rule. 13 COMMISSIONER ARRIETA-CANDELARIA: 14 Second. 15 CHAIRMAN KRAUSE: All in favor say aye. 16 (Chorus of "ayes") 17 CHAIRMAN KRAUSE: The Rule is adopted. 18 MR. BIARD: Thank you. I have an order 19 for your signature. 20 AGENDA ITEM VIII 21 CHAIRMAN KRAUSE: So let's see here. 22 The next item is a proposed HUB rule. And Tyler Vance 23 is going to present that to us. 24 MR. VANCE: Good morning, Commissioners. 25 My name's Tyler Vance, an Assistant General Counsel, 0019 1 and I have for your consideration today a possible 2 amendment to our Rule 403.301, which incorporates by 3 reference the Comptroller's rules on historically 4 underutilized businesses. The Comptroller moved those 5 rules, so we need to correct our citations to them. So 6 staff recommends that you agree to publish this 7 proposed amendment in the Texas Register. 8 COMMISSIONER ARRIETA-CANDELARIA: So 9 moved. 10 COMMISSIONER LOWE: Second. 11 CHAIRMAN KRAUSE: All in favor say aye. 12 (Chorus of "ayes") 13 CHAIRMAN KRAUSE: Adopted. 14 MR. VANCE: Thank you, Commissioners. 15 AGENDA ITEM IX 16 CHAIRMAN KRAUSE: Ms. Rienstra. 17 MS. RIENSTRA: Good morning, Commissioners. 18 Deanne Rienstra, Special Counsel. 19 In your notebook is staff's proposal for 20 amendments to the current Pick 3 and Daily 4 draw game 21 rules found at 401.307 and 401.316. Robert Tirloni is 22 going to present and explain the purpose for these 23 proposed amendments. 24 MR. TIRLONI: Thank you, Deanne. Robert 25 Tirloni, products manager. I'm going to show you a 0020 1 brief PowerPoint that'll run through how the Fireball 2 feature will work. The Fireball feature is an add on 3 feature, and it will replace the current add on feature 4 for Pick 3 and Daily 4, which is called Sum It Up. 5 The Fireball feature's totally optional. It's 6 not required. The base game play for both Pick 3 and 7 Daily 4 stays exactly the same and does not change. 8 Playing Fireball does double the cost of the player's 9 base game play, and we have detailed the Fireball prize 10 amounts in the rule. 11 I'm going to show you a brief, two- 12 minute video from New Jersey. They have implemented 13 the Fireball game feature, and I think this does a good 14 job of just giving a quick, basic overview of how the 15 game works. And it will save me about twenty 16 PowerPoint slides. 17 (Video played as follows:) 18 MS. YOUNG: Hello, Lottery Players. I'm 19 Erica Young. The New Jersey Lottery is giving your 20 Pick 3 and Pick 4 numbers more firepower with the new 21 Fireball add on that gives you more ways to win. 22 Here's how you play. Ask your retailer to add Fireball 23 or mark Fireball on your play slip look for any 24 available Pick 3 or Pick 4 bet type. Adding Fireball 25 doubles the cost of your base play and can be added to 0021 1 your regular Pick 3 or Pick 4 bet to create more 2 winning combinations. So if you play Pick 3 straight 3 for $.50, Fireball will cost an additional $.50, for a 4 total cost of $1. After the regular Pick 3 and Pick 4 5 drawings, one Fireball will be drawn from ten numbered 6 balls zero through nine. You can use the Fireball to 7 replace any one of the lottery drawn numbers to make 8 new Fireball winning combinations to match your lucky 9 numbers to win a Fireball prize. 10 Let's say a player selected 3, 6, 8, 11 straight, and added Fireball. The lottery drew 2, 6, 12 8, in the Pick 3 drawing, and the Fireball number drawn 13 was 3. The player can replace one of the lottery drawn 14 numbers with the Fireball number to create new Fireball 15 winning combinations. The player selected numbers 3, 16 6, 8 did not match the winning lottery numbers in the 17 drawing, however, the player was able to replace the 18 first winning number with the Fireball number to create 19 the 3, 6, 8 Fireball winning combination. 20 In this instance, the player would win 21 one Fireball straight prize. In this Pick 4 example, 22 the player won three times; once by matching the base 23 game straight, and twice by matching two Fireball 24 straight winning combinations. Remember, Fireball 25 prices are won in addition to base Pick 3 and Pick 4 0022 1 prizes. For more information about Fireball, visit 2 NJLottery.com and don't forget to give your numbers 3 more firepower today. Play Pick 3 and Pick 4 now with 4 Fireball twice daily, seven days a week, and give your 5 numbers more firepower. After all, anything can happen 6 in Jersey. 7 (End of video) 8 MR. TIRLONI: So in a nutshell, a player 9 that purchase Fireball gets to use an extra number 10 randomly drawn, which is the Fireball number, to create 11 more winning combinations. Our game will operate 12 slightly differently. We're going to actually draw a 13 Pick 3 Fireball number and a Daily 4 Fireball number. 14 You saw in the example from Jersey, they're using one 15 Fireball number for both games. 16 I think it's important to note, Pick 3 17 and Daily 4 players are loyal core number game players, 18 so they appreciate the strategy of how much they have 19 the option -- as to how much they want to wager, how 20 they want to play their numbers, in addition to 21 obviously picking their numbers. And we believe this 22 feature is going to be able to create a lot more 23 winning combinations and that both of those player 24 groups will find this interesting. 25 We did focus group this concept with 0023 1 daily numbers players and it was very well received and 2 they liked the concept. So the brief timeline; we're 3 asking you to allow us to publish this rule in the 4 Texas Register. It would publish at the end of the 5 month. We'll have a public comment hearing here at 6 headquarters on September 12th. The public comment 7 period would end at the end of September. We hope to 8 bring the rule back to you at your October meeting and 9 then we're projecting if you adopt the rule in October, 10 a start date in late March -- that seems like a kind of 11 long period between rule adoption and game start. But 12 if you adopt this rule, we need to procure drawing 13 machines in order to be able to launch this game 14 feature. 15 And that's the PowerPoint. Ms. Rienstra 16 has a couple of closing comments. 17 MS. RIENSTRA: I want to bring to your 18 attention that the preamble also includes notification 19 to the public that the staff may recommend changes 20 before adoption of the rule due to the potential need 21 for a liability limit requiring a parimutuel payout of 22 the Fireball prizes in both games in the event of an 23 unforeseen large number of plays, winning more than one 24 Fireball prize. Therefore, if staff determines this 25 liability limit is necessary, the proposed adopted rule 0024 1 language will reflect this change, as well as any 2 potential adjustments to the odds of winning a prize as 3 currently stated in the rule prize charts. 4 Questions? 5 CHAIRMAN KRAUSE: Questions? 6 COMMISSIONER RIVERA: So does that mean 7 that it would be retroactive or it would be after an 8 award that caused a trigger? 9 MR. TIRLONI: If -- if we determine that 10 a liability limit is necessary, that would be 11 implemented after the drawing results are finalized and 12 before any prizes are available to be paid to players. 13 COMMISSIONER RIVERA: Okay. 14 MS. RIENSTRA: Yes. And that will be 15 explained in the rule, what would cause that parimutuel 16 payout. 17 COMMISSIONER RIVERA: Okay. 18 MS. RIENSTRA: Okay. Staff recommends 19 the Commission initiate the rulemaking process by 20 publishing the attached proposal in the Texas Register 21 to receive public comment for a period of 30 days. I'm 22 happy to answer any other questions. 23 CHAIRMAN KRAUSE: Any questions or 24 comments? May I have a motion to begin the rulemaking 25 process? 0025 1 COMMISSIONER RIVERA: Move for approval. 2 COMMISSIONER ARRIETA-CANDELARIA: 3 Second. 4 CHAIRMAN KRAUSE: All in favor say aye. 5 (Chorus of "ayes") 6 CHAIRMAN KRAUSE: It's approved. 7 MS. RIENSTRA: Thank you. 8 MR. TIRLONI: Thank you. 9 AGENDA ITEM X 10 CHAIRMAN KRAUSE: Kathy Pyka's going to 11 have nothing but good news for us. 12 MS. PYKA: Mr. Chairman, if I might take 13 items out of order, I think we might be having a little 14 bit of a challenge -- 15 MR. TIRLONI: Well, there it goes. 16 MS. PYKA: Maybe not. I think we're 17 good to go. 18 CHAIRMAN KRAUSE: We're flexible and 19 we're happy to do whatever you request. 20 MS. PYKA: Good morning, Commissioners. 21 My name is Kathy Pyka, Controller for the Agency. With 22 me this morning is the Commission's Products Manager 23 Robert Tirloni. 24 Commissioners, the first chart that we 25 have for you this morning reflects comparative sales 0026 1 for the week ending August 4th, 2018. Total fiscal 2 year 2018 sales through this 49-week period are 3 $5,237,000,000, which is an increase of $566-million or 4 12.1 percent, as compared to last fiscal year. 5 With three full weeks remaining in the 6 fiscal year, we have already set a new sales record 7 beating the $5,077,000,000 record from last fiscal 8 year. Our fiscal year 2018 scratch ticket sales, which 9 are reflected on the second orange bar, are 10 $4,107,000,000, which is a $433-million increase over 11 fiscal year '17. This too is already a new sales 12 record, breaking the $3,935,000,000 record set last 13 fiscal year. 14 With a growth rate of over 11.8 percent 15 over last fiscal year, the Commission has reported 16 scratch ticket sales growth in every week of the fiscal 17 year and we've now had 38 consecutive weeks in which 18 our scratch ticket sales have exceeded $80-million. 19 It's noted on the slide, our scratch ticket sales 20 amount is 78.4 percent of total sales through this 21 period. 22 Our fiscal year 2018 draw sales 23 reflected on the second blue bar are $1,130,000,000, 24 which is $133-million increase over last fiscal year. 25 And with this Robert will now provide detail by 0027 1 individual product. 2 MR. TIRLONI: Thanks, Kathy. 3 Commissioners, this is the slide that we show you at 4 every meeting, same format. Up at the top we have our 5 jackpot games in white. Our jackpot games are up 6 almost $124-million in fiscal '18 compared to fiscal 7 '17. The majority of that is coming from Mega 8 Millions. We had a $522-million Mega Millions jackpot 9 at the end of July. We also have a $521-million Mega 10 Millions jackpot in March. So we're seeing a gain of 11 $94-million from the Mega Millions game. 12 But the good news is all of the jackpot 13 games and all of the add on features for all of the 14 jackpot games, are realizing growth. If we go down to 15 the middle of the slide, in blue are our daily games. 16 Those are up a total of 9.6-million. Most of that 17 growth is coming from Daily 4, but again, we see 18 positive results for almost all of the games. The only 19 two games that are down are Cash Five. 20 At the last meeting you adopted a rule 21 to change the Cash Five game. We're starting that at 22 the end of September. And the Texas Triple Chance game 23 is down. As we talked about at the last meeting, we 24 ended the Triple Chance game at the end of July. So 25 all told, the draw games are up $133.4-million. 0028 1 Just a quick footnote, at the end of 2 last fiscal year in August there was a $700-million 3 Powerball jackpot, so we -- the highest jackpot we have 4 right now is Powerball. When we get back together in 5 October and do the end of the year summary, the chances 6 are that we're going to lose some ground here because 7 of that very high jackpot that we had at the end of 8 last fiscal. We're still going to realize a gain, but 9 it will -- it will not be $133-million. 10 Scratch is up 430 -- almost $433- 11 million. We continue to have great sales results from 12 the scratch product category. And all told, we're up 13 $566-million for the year. 14 One last quick note for you; I gave you 15 a sample of our new Frogger scratch off ticket. 16 Commissioner Rivera, you asked us to look at some retro 17 scratch game concepts and so we have done that. This 18 game started in late June. It's doing well. 19 I've also given you a little sample of a 20 point of sale piece that we got when we produced that 21 game from our vendor Pollard. They also gave us some 22 other point of sale packages or pieces that we're using 23 in store. And so we're already working on another 24 retro game with Pollard for the spring and that's going 25 to be Pac Man. So I just wanted to show you all this 0029 1 and let you know, Commissioner Rivera, this is out and 2 doing well, so thank you. 3 COMMISSIONER RIVERA: All right. 4 COMMISSIONER ARRIETA-CANDELARIA: Thank 5 you. I have a quick question. 6 MR. TIRLONI: Yes, ma'am. 7 COMMISSIONER ARRIETA-CANDELARIA: So up 8 here on the Pick 3 and the Daily 4, so with a new 9 feature it's not necessarily down, right, on sales, so 10 with the new Fireball feature, what kind of analysis 11 have you done to -- to anticipate -- 12 MS. PYKA: Certainly -- 13 COMMISSIONER ARRIETA-CANDELARIA: -- 14 your -- what -- what that feature will do to these type 15 of sales? 16 MS. PYKA: Certainly. So looking over a 17 five year period, we're looking at about an $8.3- 18 million gain. 19 COMMISSIONER ARRIETA-CANDELARIA: Okay. 20 MS. PYKA: The first year that the game 21 is implemented, it'll be implemented we're projecting 22 at the end of march, so we'll see about a 700 -- about 23 a $750,000 gain, followed by about a $1.8-million gain 24 in future periods. 25 COMMISSIONER ARRIETA-CANDELARIA: Okay. 0030 1 MS. PYKA: So definitely seeing 2 incremental gain as a result of the new product. 3 COMMISSIONER ARRIETA-CANDELARIA: Okay. 4 And that would be offset -- what -- do you think that 5 that would be offset by a corresponding increase in 6 prizes expense? 7 MS. PYKA: Correct. 8 COMMISSIONER ARRIETA-CANDELARIA: 9 Because right here we just see the sales, but what do 10 you think our net gain would be? 11 MS. PYKA: And Commissioner, I have to 12 correct something. I was providing you revenue 13 numbers, I should've given you sales numbers. 14 COMMISSIONER ARRIETA-CANDELARIA: Okay. 15 MS. PYKA: So let's talk about sales for 16 a second. So yes, we're looking at -- for a full year 17 period, we're looking at about $18-million in new sales 18 from the Fireball product. 19 COMMISSIONER ARRIETA-CANDELARIA: Okay. 20 MS. PYKA: While we then show 21 cannibalization of the Sum It Up feature. And then of 22 course there is a slight increase in prize payout, thus 23 giving us for a full year revenue of about 1.8-million. 24 25 COMMISSIONER ARRIETA-CANDELARIA: Okay, 0031 1 thank you. 2 MS. PYKA: Sure. 3 COMMISSIONER LOWE: Chair, I would like 4 to -- excuse me -- well, I'm impressed with the year 5 over year comparisons, they're just amazing 6 differences. And I'm -- maybe not for purposes of this 7 meeting, but at some future time, I -- I'd like to know 8 how we stack up against other state lotteries. 9 MS. PYKA: Okay. 10 COMMISSIONER LOWE: With the sales and 11 something Gary maybe can address at some point in time, 12 because I know we don't compete with them, but we do -- 13 we're in the same industry, and I'd like to see, you 14 know, places like California, Massachusetts, that have 15 big lotteries and how we compare to them. 16 MR. GRIEF: That's a great question, 17 Commissioner Lowe and yeah, we like to say we don't 18 compete, but rest assured, we do. 19 COMMISSIONER LOWE: Right. 20 MR. GRIEF: And we'd be glad to give you 21 a brief presentation on that at the next meeting when 22 we close out our fiscal year. 23 COMMISSIONER LOWE: Thank you. 24 MS. PYKA: All right. If there are no 25 other questions -- 0032 1 CHAIRMAN KRAUSE: Any questions? 2 MS. PYKA: -- we'll -- 3 CHAIRMAN KRAUSE: Thank you. 4 MS. PYKA: -- we'll move on to item 5 number 11 then. 6 AGENDA ITEM XI 7 MS. PYKA: So Commissioners, this item 8 includes information on the Agency's transfers to the 9 State, as well as the Agency's budget status. While 10 the report in your notebook includes transfer 11 information through June, I wanted to highlight where 12 we are through the period of July 31st. 13 So Commissioners, our total revenue to 14 the state is now at $1,304,000,000 another -- more good 15 news for the state. And in looking at the detail of 16 that, transfers to the Foundation School Fund are at 17 $1,242,000,000, 14 and a half million to the Texas 18 Veterans Commission, with the remaining balance of 47- 19 million from unclaimed prizes. 20 There are no other real updates beyond 21 what's in your notebook on the operating budget for 22 fiscal year 2018, but I'd be happy to answer any 23 questions. 24 CHAIRMAN KRAUSE: Questions, comments? 25 Thank you. The next item's yours as well. 0033 1 MS. PYKA: Certainly. 2 AGENDA ITEM XII 3 MS. PYKA: Commissioners, the Draft LAR 4 is on the dais with you and so this morning what I'm 5 seeking approval of is about -- for the fiscal year 6 2020 and 2021 LAR, is a baseline request of 7 $535,268,317 with 323.5 FTEs and two exceptional item 8 requests of $10,215,137. This brings a total request 9 to $545,483.454, which is a 1.9 percent increase over 10 our current baseline appropriation levels. 11 When we prepared the document, we 12 prepared it in accordance with the guidelines from our 13 leadership offices, which stated that as a starting 14 point for budget deliberations, our Agency's baseline 15 request could not exceed the amount of amounts expended 16 in fiscal 2018, as well as the amounts budgeted for 17 fiscal year 2019. Any amounts that exceed those 18 baseline amounts have to be submitted as exceptional 19 item requests. 20 Our LAR does include two exceptional 21 item requests. The first item for your consideration 22 is for $1,815,137 for construction required for the 23 Commission's move to the Texas Capitol Complex building 24 in 2022. This item is necessary for building 25 construction to support our Agency's Lottery drawings 0034 1 production studio, as well as our specialized space 2 related to the claim center. Both of those areas have 3 unique infrastructure requirements that are not 4 included in the building construction appropriation 5 that was initially given to the Texas Facilities 6 Commission. 7 The second item for your consideration 8 in the LAR includes a request to restore the $4.2- 9 million annual retailer bonus budget in the fiscal year 10 2020 and 2021 biennium. The $4.2-million annual 11 retailer bonus budget was vetoed by the Governor and 12 was zeroed out in the second year of our current 13 biennium and as you're aware, bonus payments are earned 14 by our retailers for selling certain prize-winning 15 tickets. 16 We believe it's a key program utilized 17 for retailer sales promotion and motivation to carry 18 games, as well as retail recruitment, retention and 19 development opportunities. If funding's granted for 20 these two exceptional items, there would not be a cost 21 to the appropriation bill as our Lottery dedicated 22 account is exempt from the Comptroller of Public 23 Accounts certification process, and both of those items 24 would also remain within the allowable statutory 25 percentage to administer the Lottery. 0035 1 So I'd like to now move on to our rider 2 request. We've included the right of revisions on page 3 3B of the LAR. Not only do those include technical 4 revisions to our current riders, we're seeking a new 5 rider to transfer our Rider 11 appropriation between 6 the biennium. As a reminder, Rider 11 funds are 7 appropriated to the Agency once specific sales 8 thresholds projected in the Comptroller's biennial 9 revenue estimates are met and we use these funds to 10 fulfill contractual obligations and other 11 administrative costs of the Lottery. 12 The funds were not earned until late in 13 the fiscal year, so therefore, those funds that we 14 earned the second year of the biennium cannot typically 15 be used to address our Agency needs. Funding for this 16 rider is also part of the funds that do not count 17 towards certification by the Comptroller of Public 18 Accounts. 19 Also wanted to note in the LAR's 20 administrative statement, we have a request to increase 21 the agency exempt position to a salary group seven. 22 This is consistent with the State Auditor's report on 23 executive compensation and so that is included in the 24 LAR under the guidelines as set forth by the LBB. 25 And then last but not least, I wanted to 0036 1 share that we were required to also supplement -- to 2 submit a supplemental schedule in the LAR detailing how 3 we would reduce the baseline appropriation by an 4 additional 10 percent, so this 10 percent reduction 5 plan is limited to Bingo appropriation only, as again, 6 our Lottery funds are exempt from following the 7 reduction plan. 8 So on the Bingo side, we've got a 10 9 percent reduction plan that amounts to $3,405,963 and 10 the proposed plan for that reduction includes a 11 reduction of $2,896,100 from Bingo prize fees with the 12 balance of the reduction from Bingo staffing including 13 three positions in the audit area and one position from 14 accounting services within the Bingo Division. Again, 15 that is a plan, that's not an actual reduction. 16 The Commission's LAR is due to 17 leadership offices on August 17th. In addition to 18 filing the hard copies of the documents, we are 19 required to file those electronically and certify that 20 the print copy and the electronic copy are one in the 21 same. And in addition to that, provide a certification 22 of it. 23 Our Agency's joint budget hearing before 24 staff of the Governor's Office and LBB is scheduled for 25 Wednesday, August the 29th. And Commissioners, before 0037 1 I wrap up, I'd like to acknowledge one, the support of 2 Gary Grief, our Executive Director, and as well as our 3 division directors in preparing the LAR, and I'd like 4 to give special recognition to Kelly Stuckey in the 5 Office of the Controller. 6 She did an amazing job pulling together 7 this document along with her team, so hats off to Kelly 8 on this one. 9 So in closing, I'm seeking your approval 10 of the proposed LAR for fiscal years '20 and '21. The 11 Commission's baseline request is $535,268,317, with 12 323.5 FTEs, as well as an exceptional item request of 13 $10,215,137. 14 This concludes my presentation. I'd be 15 happy to answer any questions. 16 CHAIRMAN KRAUSE: Commissioners? 17 COMMISSIONER ARRIETA-CANDELARIA: I have 18 a question. Kathy, with regard to the 10 percent 19 reduction -- 20 MS. PYKA: Yes. 21 COMMISSIONER ARRIETA-CANDELARIA: I'm in 22 agreement with all the other proposals, but with 23 regards to that 10 percent reduction, that was at the 24 request of the -- of the Governor's Office; is that 25 what I understand? 0038 1 MS. PYKA: Correct. 2 COMMISSIONER ARRIETA-CANDELARIA: Okay. 3 MS. PYKA: The leadership offices have 4 asked each agency to file a 10 percent reduction, 5 unless they have an exemption. And so we were required 6 to file that plan for Bingo. 7 COMMISSIONER ARRIETA-CANDELARIA: For 8 Bingo. So last time we had a 4 percent reduction, in 9 which we implemented -- 10 MS. PYKA: Correct. 11 COMMISSIONER ARRIETA-CANDELARIA: -- the 12 last -- 13 MS. PYKA: The last session, we had an 14 across the board, 4 percent cut for both funding 15 sources and also had to file the 10 percent reduction 16 plan. So this time, there's not an across the board 17 cut. 18 COMMISSIONER ARRIETA-CANDELARIA: Okay. 19 So this is just a -- we're submitting like a plan that 20 if -- if they decide to move forward, then we would -- 21 these are the things that we would put on the table? 22 MS. PYKA: That is correct. 23 COMMISSIONER ARRIETA-CANDELARIA: Okay. 24 But it's not incorporated into the -- into the numbers 25 itself. It's just a plan if we needed to get there? 0039 1 MS. PYKA: That is correct. 2 COMMISSIONER ARRIETA-CANDELARIA: All 3 right. I understand. Okay. Thank you. 4 MS. PYKA: Uh-huh (affirmative). 5 CHAIRMAN KRAUSE: All right. We've got 6 a request. 7 COMMISSIONER ARRIETA-CANDELARIA: I'll 8 move to approve. 9 COMMISSIONER RIVERA: Second. 10 CHAIRMAN KRAUSE: All in favor say aye. 11 (Chorus of "ayes") 12 CHAIRMAN KRAUSE: Deem it submitted. 13 MS. PYKA: Thank you, Commissioners. 14 MR. BIARD: And I'll need to get your 15 signature, Chairman, on the LAR. 16 CHAIRMAN KRAUSE: Will do. Darlene 17 Brown. 18 AGENDA ITEM XIII 19 MS. BROWN: Good morning, Commissioners. 20 My name is Darlene Brown, and I'm the internal auditor 21 for the Agency. Today I have a status report on the 22 fiscal year '17 annual audit plan. I'm very happy to 23 tell you that we have completed all the audits on the 24 audit plan. We are in the process of going through and 25 vetting the closeout findings with the respective 0040 1 business owners, and we will have the draft reports to 2 you at the next meeting for review and approval. That 3 is a total of six audit reports we'll be bringing to 4 you next time. 5 We are going to be significantly under 6 budget this year and that is thanks to all agency staff 7 just helping us get through everything very quickly and 8 having documents ready for us easily to look at. So 9 that concludes my status report. 10 And the next item is my proposed 11 internal audit plan for next fiscal year. We are 12 proposing seven audits for a total of 2136 hours and 13 these audits include the implementation of House Bill 14 2578. We're going to look at the calculations behind 15 the prize fee distributions, we're going to also look 16 at the game change rules and make sure that those 17 changes are reflected all the way from policies to 18 actual distribution of funds, accounting for funds, 19 whatever is in that rule we're going to look at and 20 make sure that those are implemented. We're also going 21 to look at the drawing studios and look at the 22 transition from the independent auditors that are 23 overseeing the drawings now, make sure that the same 24 processes are being followed, and see if any of the 25 processes can be changed, without impacting the 0041 1 internal controls, but making life more efficient. 2 One of the bigger audits we're going to 3 do this year is we're going to do a cyber security 4 audit. We have some experts in our D.C. office that 5 we'll be bringing in to assist with that. We're also 6 going to look at the lottery operations/customer 7 service processes and we'll have significant hours 8 allocated towards assisting the Bingo Division to get 9 back on its feet and get some changes made. 10 We're constantly going to monitor user 11 access to your systems; that's not something we have 12 done in the past, but we will be doing it now with the 13 threat of cyber being as it is. 14 So that is our plan for this year. And 15 I am requesting approval on this, and I also want to 16 add that we have hours in here where we can be 17 flexible, so that if something comes up throughout the 18 year, we can adjust these hours and work on wherever 19 the needs are without going over budget. 20 CHAIRMAN KRAUSE: Outstanding. Comments 21 or questions? I just want to go on record as saying 22 that Darlene's firm has been doing an outstanding job. 23 And I'm personally thrilled at the great work that 24 they've been doing since we went outside. I'll give a 25 30 second history of it, and that is that we had an 0042 1 internal-internal auditor, that means on staff, it was 2 a direct report. And so, anyway, when we decided to 3 make a personnel change in that area, we decided to try 4 going outside and didn't know what we were going to 5 find, but what we found has been terrific. Thank you 6 very much. 7 MS. BROWN: Well, thank you. 8 CHAIRMAN KRAUSE: And so I'm going to 9 make my own motion to adopt this internal audit plan 10 for the next year. 11 COMMISSIONER RIVERA: Second. 12 CHAIRMAN KRAUSE: All in favor say aye. 13 (Chorus of "ayes") 14 MS. BROWN: Thank you. 15 COMMISSIONER ARRIETA-CANDELARIA: Thank 16 you, Darlene. 17 AGENDA ITEM XIV 18 CHAIRMAN KRAUSE: The next item is a 19 report from our brand new Bingo Director, Mr. Farrell. 20 MR. FARRELL: Good morning, Chairman and 21 Commissioners. Besides the information in your 22 notebooks, I have nothing additional to report. But I 23 really would like to say, I'm happy to be here and look 24 -- and I'm looking forward to working with our 25 teammates in Charitable Bingo for the benefit of the 0043 1 citizens of Texas. 2 CHAIRMAN KRAUSE: Outstanding. Thank 3 you, sir. Mr. Grief. 4 AGENDA ITEM XV 5 MR. GRIEF: Mr. Chairman, other than 6 what's in your notebooks, I also have nothing further 7 to report on. 8 CHAIRMAN KRAUSE: Very good. Mr. Biard. 9 AGENDA ITEM XVI 10 MR. BIARD: Yes, sir, item 16 in your 11 notebook are the enforcement orders. This item 12 contains seven lottery and bingo cases, tabs A through 13 G. In these cases, the Commission staff either found a 14 licensee violated a statute or rule or an applicant did 15 not qualify for a license. In many cases, either the 16 Respondent failed to appear at the hearing and it 17 proceeds by default or the staff and the Respondent 18 reached a settlement in the form of an agreed order. 19 I'll briefly describe the cases and you can take them 20 up in a single vote. 21 Tab A is the non-sufficient fund lottery 22 retailer license revocations. We just have one this 23 week. This was presented at the State Office of 24 Administrative Hearings for revocation of the retailer 25 license on the grounds the licensee failed to have 0044 1 sufficient funds in their bank account to cover 2 electronic fund transfers to the Commission's account. 3 The licensee failed to appear and the judge remanded 4 the case to the Commission to handle as a default. 5 Tabs B and C are Lottery agreed orders. 6 Tab B is Tiger Express #6 in 7 Jacksonville, that's Cherokee County. In this case, 8 the Commission investigated a complaint that the 9 retailer refused to sell lottery tickets unless the 10 customer purchased other merchandise from the store. 11 The investigator asked if he could buy tickets with a 12 credit or debit card. The clerk said he could use a 13 debit card to purchase a lottery ticket only with the 14 purchase of store merchandise. The clerk said this 15 requirement was a store policy to offset the cost of 16 debit card transaction fees. 17 The store manager also cited a store 18 policy just for lottery purchases that required a $3 19 minimum purchase of lottery tickets using a debit card. 20 21 The violation here is selling a ticket 22 at a price greater than the price fixed by the 23 Commission and the retailer agreed to a 10-day 24 suspension. 25 Tab C is Northstar Food Mart in Bexar 0045 1 County, San Antonio. In this case, the Commission 2 investigated a complaint concerning the purchase of 3 scratch tickets where the bonus play area was partially 4 scratched. The investigator inspected the store 5 inventory and found 13 tickets from four different 6 games with identical scratches in the bonus play area. 7 The store surveillance video showed that a clerk had 8 been responsible for the scratching. 9 The violation here is intentionally or 10 knowingly influencing the selection of the winner of a 11 lottery game. The licensee agreed to a 10-day 12 suspension and he fired the offending clerk and he 13 prohibit -- he was prohibited from further employment 14 at the store. 15 Tabs D through G are the Bingo agreed 16 orders. G is in your notebook as a contested case. It 17 has actually settled at the last moment, so these are 18 all settlements. 19 Tab D is Real Jobs for Youth, 20 Incorporated, et al., in Longview. In this case, the 21 conductor charities were members of a Bingo accounting 22 unit that awarded merchandise prizes consisting of a 23 party pack ticket. The party pack was worth $142 and 24 could only be used to buy bingo products at another 25 bingo hall conducted by members of another accounting 0046 1 unit. 2 The organizations misreported the party 3 packs as $150 cash prizes less prize fees withheld and 4 they under-reported the adjusted gross revenue by the 5 same amount. The amount at issue here totaled $26,128 6 and this amount was stored in a safe rather than the 7 Unit's bank account as generally required by the Bingo 8 Enabling Act. The charities later used that money to 9 pay the other accounting unit for the party back prizes 10 when they were redeemed. 11 The agreed order here requires the 12 charities that misreported the party packs to reimburse 13 the unit trust account in the amount of $10,000 and to 14 use that money for the members' charitable purposes. 15 Tabs E and F are Bingo worker cases. 16 Tab E is Diana Ford who is on the worker registry. In 17 November 2016, she pleaded guilty to misprision of a 18 felony, which means the failure to notify authorities 19 or concealing a felony. Imposition of sentence was 20 suspended and Ms. Ford was placed on community 21 supervision for three years. 22 Tab F is a Bingo worker applicant, John 23 Ramos, who in November 2014, pleaded no contest and was 24 found guilty of organized retail theft between 1,500 25 and $20,000, a state jail felony, and was sentenced to 0047 1 one year in jail. He received deferred adjudication 2 though and was placed on community supervision for five 3 years. 4 In both of those Bingo worker cases, the 5 individuals provided letters of recommendation and the 6 Bingo Director agreed to a limited registration where 7 the workers shall not act as a bingo chairperson, 8 manager, operator, bookkeeper, cashier or designated 9 agent for a licensed bingo conductor, for three years 10 following the date of the order. 11 The final item is Tab G, it's BJN 12 Enterprises, et al. We were preparing to bring this 13 case as a litigated SOAH case, but in the last week the 14 parties executed an agreed order, so we are presenting 15 this as a settlement. 16 In this case, the lessor charged the 17 bingo conductors in the Ingram Late Night Bingo Unit 18 for taxes, electricity and insurance, separate from and 19 in excess of the maximum amount of allowed rent which 20 is $600 per bingo occasion. The additional charge to 21 the conductors was $2,937 per month. These items, 22 taxes, electricity and insurance, are owed to a 23 building landlord and under the Bingo Act, the lessor 24 may charge each organization's pro rata share of these 25 expenses if they are properly documented, and if they 0048 1 are reasonable and necessary to the conduct of bingo. 2 But in this case, the ALJ -- this case did go to SOAH. 3 The ALJ found they were not properly documented, so 4 without proper documentation, the landlord is -- the 5 lessor is limited to charging the maximum $600 rent per 6 occasion. 7 As I said, the case was litigated at 8 SOAH, but at the final moment, the parties agreed to a 9 settlement, which basically implements the Judge's 10 recommendation. So the lessor will reimburse the 11 charities for the amounts that was over -- they were 12 overcharged. 13 And that concludes my presentation. You 14 may take these up in a single vote if you like, or I'll 15 be happy to answer any questions. 16 CHAIRMAN KRAUSE: I think we'd like to 17 take them up as a single vote. Robert, would you like 18 to -- 19 COMMISSIONER RIVERA: Yes, I move for 20 approval of all -- 21 COMMISSIONER ARRIETA-CANDELARIA: 22 Second. 23 CHAIRMAN KRAUSE: All in favor say aye. 24 (Chorus of "ayes") 25 AGENDA ITEM XVII 0049 1 CHAIRMAN KRAUSE: Now is the time when 2 our meeting -- well, we have no more -- no public 3 comment today. We always love public comment. But 4 nobody has any comment for us, and so we will move on 5 to executive session. 6 AGENDA ITEM XVIII 7 CHAIRMAN KRAUSE: And so at this time, I 8 move that the Texas Lottery Commission go into 9 executive session to deliberate personnel matters, and 10 to receive legal advice as posted in the open meetings 11 notice. 12 Is there a second? 13 COMMISSIONER RIVERA: Second. 14 CHAIRMAN KRAUSE: All in favor say aye. 15 (Chorus of "ayes") 16 CHAIRMAN KRAUSE: All right. We're 17 going into executive session, it was unanimous, and it 18 is 10 'til 11:00. 19 (Executive Session from 10:50 a.m. to 11:19 20 a.m.) 21 AGENDA ITEM XIX 22 CHAIRMAN KRAUSE: Texas Lottery 23 Commission is out of Executive Session at 11:21 a.m. 24 There is no action to be taken as a result -- 25 COMMISSIONER ARRIETA-CANDELARIA: There 0050 1 is an action. 2 CHAIRMAN KRAUSE: Oh, there is? 3 COMMISSIONER ARRIETA-CANDELARIA: Yes. 4 CHAIRMAN KRAUSE: We do have an action. 5 And I yield the floor. 6 COMMISSIONER ARRIETA-CANDELARIA: Yes. 7 I move that the Commission approve the Executive 8 Director's performance evaluation. 9 COMMISSIONER RIVERA: Second. 10 CHAIRMAN KRAUSE: All in favor say aye. 11 (Chorus of "ayes") 12 CHAIRMAN KRAUSE: Approved. 13 AGENDA ITEM XX 14 CHAIRMAN KRAUSE: On my own motion, I 15 make a motion to adjourn. Second? 16 COMMISSIONER RIVERA: Second. 17 CHAIRMAN KRAUSE: All in favor say aye? 18 (Chorus of "ayes") 19 CHAIRMAN KRAUSE: We are adjourned at 20 11:23. 21 (Adjourned and concluded at 11:23 a.m.) 22 23 24 25 0051 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF HARRIS ) 4 5 I, Kimberly C. McCright, Certified Vendor and 6 Notary in and for the State of Texas, do hereby certify 7 that the above-mentioned matter occurred as 8 hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of 10 such were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control and that the foregoing pages are a full, true 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 20th day of August, 2018. 16 17 /s/ Kimberly C. McCright Kimberly C. McCright 18 Certified Vendor and Notary Public 19 Verbatim Reporting & Transcription, LLC 1322 Space Park Drive, Suite C165 20 Houston, Texas 77058 281.724.8600 21 22 23 24 25