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 OCTOBER 3, 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 ADMINISTRATION DIRECTOR: Mike Fernandez 9 CONTROLLER: Katheryn J. Pyka 10 PRODUCTS MANAGER: Robert Tirloni 11 McCONNELL JONES 12 LANIER & MURPHY, LLP: Darlene Brown 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 of the lottery operator contract, and whether discussion relating to the negotiation of the 8 lottery operator contract in an open meeting would have a detrimental effect on the 9 Commission's position in the negotiations 12 10 III. Report, possible discussion and/or action on the Annual Contract Status Report and 11 Supplemental Information for all major and prime agency contracts . . . . . . . . . 14 12 IV. Consideration of and possible discussion 13 and/or action, including adoption, on amendments to 16 TAC §403.301 (Historically 14 Underutilized Businesses) . . . . . . . . 15 15 V. Consideration of and possible discussion and/or action, including adoption, on 16 amendments to 16 TAC §§401.307 (“Pick 3” Draw Game Rule) and 401.316 (“Daily 4” Draw Game 17 Rule) . . . . . . . . . . . . . . . . . . 16 18 VI. Report, possible discussion and/or action on lottery sales and revenue, game performance, 19 new game opportunities, advertising, promotional activities, market research, 20 trends, and game contracts, agreements, and procedures . . . . . . . . . . . . . . . 18 21 VII. Report, possible discussion and/or action on 22 transfers to the State . . . . . . . . . 52 23 VIII. Report, possible discussion and/or action on external and internal audits and/or reviews 24 relating to the Texas Lottery Commission, and/or on Internal Audit activities, 25 including approval of the following reports: 0004 1 Drawing Equipment Maintenance Processes, Scratch Ticket Game Closing Processes, Social 2 Responsibility Program, Mailroom Processes, and the FY 2018 Annual Internal 3 Audit Report . . . . . . . . . . . . . . 53 4 IX. Report by the Bingo Advisory Committee Chairman; possible discussion and/or action 5 on the Bingo Advisory Committee’s activities . . . . . . . . . . . . . . . 56 6 X. Report by the Charitable Bingo Operations 7 Director and possible discussion and/or action on the Charitable Bingo Operations 8 Division’s activities, including licensing, accounting and audit activities, pull-tab 9 review, and special projects . . . . . . 58 10 XI. Report by the Executive Director and possible discussion and/or action on the agency’s 11 operational status, major contracts, agency procedures, awards, and FTE status . . . 59 12 XII. Consideration of the status and possible 13 approval of orders in enforcement cases: 59 14 Lottery NSF License Revocation Cases (Default) A. Docket No. 362-18-2121 – Super Star #2 15 B. Docket No. 362-18-2122 – Z Grocery and Deli 16 C. Docket No. 362-18-3352 – Grapeland K.B. Xpress 17 D. Docket No. 362-18-3354 – Start Mart E. Docket No. 362-18-3989 – Oak Hills Food 18 Mart 2 F. Docket No. 362-18-4253 – Park Place #1 19 G. Docket No. 362-18-4442 – Tiny Stop H. Docket No. 362-18-4443 – Fast Track 20 I. Docket No. 362-18-4534 – La Haciendita Groceries and Meat Market, Inc. 21 J. Docket No. 362-18-4535 – Texas Travel Plaza 22 Lottery Agreed Orders K. Case No. 2018-553 – Bread and Butter Stop 23 L. Case No. 2018-635 – Creek Beverage M. Case No. 2018-660 – Sunrise Super Stop 24 N. Case Nos. 2018-791 and 2018-792 – Petromart #113 and #114 25 Other Lottery Cases 0005 1 O. Docket Nos. 362-18-2379 and 362-18-2380 – Jif-E Mart, Quick Stop Center 2 Bingo Agreed Orders P. Docket Nos. 362-18-1180.B, 362-18-1181.B, 3 362-18-1182.B, 362-18-1183.B,362-18-1184.B, and 362-18-1185.B – Concho Rainbow, Inc.; 4 Jesus is Lord Church, Inc.; VFW Post 7108 Aux., St. Thomas More Catholic School, VFW 5 Post 4815 Aux., and TG 102, Inc. (Southeast Bingo Unit) 6 XIII. Public comment . . . . . . . . . . . . . XX 7 XIV. Commission may meet in Executive Session: 8 A. To deliberate personnel matters, including the appointment, employment, evaluation, 9 reassignment, duties, discipline, or dismissal of the Executive Director and/or 10 Charitable Bingo Operations Director pursuant to §551.074 of the Texas Government Code. 11 B. To deliberate the duties of the General Counsel and/or the Human Resources Director 12 pursuant to §551.074 of the Texas Government Code. 13 C. To receive legal advice regarding pending or contemplated litigation or settlement 14 offers, or other legal advice, pursuant to §§551.071(1) and (2) of the Texas Government 15 Code, including but not limited to legal advice regarding the following items: 16 Pending and potential litigation regarding Fun 5’s Scratch Ticket Game #1592, including 17 Travis Co. District Court Cause No. D-1-GN-14-005114, Third District Court of 18 Appeals Cause No. 03-16-00172-CV, Tex. Supreme Court No. 18-0159 (Steele, et al. v. 19 GTECH Corp.); and Dallas Co. District Court Cause No. DC-14-14838, Fifth District Court 20 of Appeals Cause No. 05-15-01559-CV, Tex. Supreme Court No. 17-1010 (Nettles v. GTECH 21 Corp. and Texas Lottery Commission). Julam Investments, Inc. v. Texas Lottery Commission 22 (Travis Co. District Court Cause No. D-1-GN-16-006124) State of Texas v. Equal 23 Employment Opportunity Commission, et al. State of Texas v. C.D. (On Petition for 24 Review from the Twelfth Court of Appeals) Prescott Lovern, Sr., Private Attorney 25 General v. Texas Lottery Commission, et al. 0006 1 Legal advice regarding Texas Government Code Chapters 466 (State Lottery Act) and 467, the 2 Bingo Enabling Act, the Open Meetings Act, the Public Information Act, the 3 Administrative Procedure Act, employment and personnel law, procurement and contract law, 4 evidentiary and procedural law, ethics laws, and general government law. 5 Legal advice regarding any item on this open meeting agenda . . . . . . . . . . . . . 65 6 XV. Return to open session for further 7 deliberation and possible action on any matter posted for discussion in Executive 8 Session. Any matter posted for Executive Session also may be the subject of discussion 9 and/or action in open session prior to Executive Session . . . . . . . . . . . . 66 10 XVI. Adjournment . . . . . . . . . . . . . . . 66 11 Reporter Certificate . . . . . . . . . . . . . . . 67 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'm 4 calling to order this meeting of the Texas Lottery 5 Commission. It is October 3rd and it is 10:00 a.m. We 6 have all of our Commissioners here. Despite the fact 7 that there is a vacancy, we have a quorum and we intend 8 to do business today. The very first thing that we do 9 is we pledge allegiance. So we have a designated 10 Pledge Commissioner that is going to lead us in our 11 pledges to our flags. 12 (Pledges recited) 13 CHAIRMAN KRAUSE: Before we move on to 14 regular business, we have important business and I want 15 to recognize State Trooper Garcia who is here to 16 provide security to us all. We now have, as a 17 Commission, a full-time state trooper assigned to us by 18 the Department of Public Safety and, you know, you 19 would think that that wouldn’t be a hard thing to do 20 but policies being what they are, we’re not part of the 21 Capital complex and so we apparently did not 22 automatically rate that kind of protection. 23 However, thank you to DPS Commissioner 24 Manny Flores, a great Texas American, and I want to 25 thank the DPS for acquiescing to his request that we be 0008 1 extended that protection. Thank you, Officer, and you 2 are here today for Hussain Roussell and we thank him as 3 well. So thank you, sir. 4 Next we have a special guest, and so 5 anyway, it is IGT’s CEO of North America. Would you 6 please come and speak to us. Introduce yourself. 7 MR. ASCOLI: Good morning, Mr. Chairman. 8 Good morning, members of the Commission. It’s really 9 an honor for me to be here before you today and if 10 you’ll allow me, I would like to introduce myself as 11 leading IGT to continue what I believe is a successful 12 relationship with the lottery in Texas. So I am 13 Renato Ascoli. I’m Italian of origin. I was born in 14 the northern part of Italy, believe it or not is a cold 15 part of Italy, so I’m more to a Swiss than an Italian 16 to some extent. My grandmother actually was from 17 Geneva so she was Swiss. 18 I was born and raised in that area. 19 That’s a place where I had my study. I hold a degree 20 in economics. I started my professional life as a 21 consultant in business administration. Then I spent 22 some time in a publishing company in Italy. At that 23 point in time I was competing with the Agostini family 24 as you may know who are the major shareholder of IGT 25 today. So I’m still wondering how could they hire me 0009 1 knowing that I was actually playing hardball on them 2 some years ago. So life is strange. 3 I then spent some time in the Italian 4 railway business and then I move into -- so I started 5 dealing with regulated markets to some extent and 6 apparently that was the reason why Marco Sala, our CEO 7 at that point in time, is still our global CEO, elected 8 to hire me in IGT. At that point Lottomatica and then 9 GTECH. 10 I spent 12 years in the gaming business. 11 My background is basically lottery. I began operating 12 in Italy in a B to C mode, so in Italy actually we are 13 managing, at the beginning, lotteries on behalf of the 14 State and thanks to the regulation that progressively 15 opened up additional opportunities in Italy, we started 16 from lotto, from instant tickets, and then VLTs, at 17 some point in time AWPs and the sports betting and 18 interactive. So anything. I think all the segments 19 are now regulated in Italy and I followed that process. 20 After five years I was asked by the 21 company to move to the States and join the big family 22 lottery team in Rhode Island so that’s where I moved my 23 family from Rome to -- from sunny Rome, yes, to not so 24 sunny Rhode Island and we spent -- and I was leading, 25 say, a marketing and technology team on a global basis 0010 1 from there. 2 You may have heard that GTECH merged 3 with IGT three years ago. I was chosen to go and merge 4 the two companies. GTECH was holding participation in 5 gaming and IGT was mainly focused in gaming so I was 6 the one who had to move, then, myself and the family to 7 Vegas to manage that turnaround and combine the two 8 entities. 9 Recently I was appointed as responsible 10 for all the American business, gaming and lottery, so 11 you may consider that I come back to my turf which is, 12 as I said, mostly lottery. My family lives in Boston 13 today. I divide my time between Boston and Vegas and 14 that is how my life is going on. 15 On a personal basis I want to say, also 16 on behalf of my colleagues, how proud we all are for 17 serving you in the continued story of success. I’m 18 impressed by the performance that we see in Texas and 19 we consider the Texas Lottery as one of our best 20 customers on a worldwide basis and this is not just 21 because of the size of the business or the size of the 22 amazing growth and I understand it’s still two digit 23 this year, but it’s because of the conditions in where 24 you operate that we believe are quite unique. 25 So having that capacity to be successful 0011 1 in the Texas model so being able to leverage all the 2 opportunity that you’re given by the regulatory 3 environment is amazing. It says a lot about the 4 attitude towards innovation, towards the idea of 5 finding always new roads, new ways, new technologies to 6 support growth in a socially responsible way and I 7 believe that what we are doing here, in supporting you, 8 is giving us opportunity to develop new features, new 9 devices, new tools, new success stories that can be 10 even transferred in other states in North America but I 11 will say even internationally. 12 I think we are proud to serve you and we 13 benefit a lot in terms of improving our knowledge of 14 the business working with you. 15 I’m open to provide any additional 16 information about my personal life, my business. As I 17 said it’s really a pleasure for me to be here before 18 you today. 19 COMMISSIONER KRAUSE: Commissioners? 20 COMMISSIONER ARRIETA-CANDELARIA: Welcome 21 and thank you so much. 22 MR. ASCOLI: Thank you. 23 COMMISSIONER KRAUSE: Yeah. Welcome to 24 Texas. It’s been a great partnership and we believe 25 that the model that has been developed between your 0012 1 company and our Commission is one that, you know, can 2 and should be emulated by other states because the 3 efficiencies, you know, and, frankly, the fairness 4 would be really difficult for a government body like 5 ours to actually execute, you know, out in the business 6 world and so your company is what enables that to 7 happen. 8 MR. ASCOLI: Thank you very much. I do 9 appreciate that. 10 COMMISSIONER KRAUSE: It’s a great 11 partnership and we value it. Thank you, sir. Welcome 12 to Texas. 13 MR. ASCOLI: Thank you. Thank you. 14 COMMISSIONER KRAUSE: That’s it? 15 MR. ASCOLI: Thank you very much. Have 16 a great day. 17 AGENDA ITEM II 18 COMMISSIONER KRAUSE: Mr. Fernandez, we 19 have a couple of contract items. 20 MR. BIARD: Commissioners. For the 21 record, I’m Bob Biard, General Counsel. Before Mike 22 starts his first item it is the lottery operator 23 contract. It’s an amendment to the lottery operator 24 contract and I just wanted to call your attention that 25 whenever the Commission takes up the negotiation of the 0013 1 lottery operator contract you have the opportunity, 2 under the Government Code, to discuss the negotiations 3 in Executive Session. 4 Mike can correct me but it’s my 5 understanding he does not recommend Executive Session 6 today? 7 MR. FERNANDEZ: That’s correct. 8 MR. BIARD: Okay. Thanks. 9 COMMISSIONER KRAUSE: Well, we don’t 10 really have any way to know if we want to do that and 11 so let’s just hear from Mr. Fernandez. 12 MR. FERNANDEZ: Very good. Good 13 morning, Mr. Chairman, Commissioners. For the record 14 my name is Mike Fernandez. I’m the Director of 15 Administration. Item II in your notebook is a briefing 16 item to advise the Commission of staff’s intent to 17 amend the Lottery Operations and Services Contract with 18 IGT Global Solutions Corporation. 19 The purpose of this amendment is to 20 align contractual provisions with current business 21 processes. It’ll have no associated cost increase to 22 the contract. As you know in accordance with the 23 General Appropriations Act, Rider 16, for the Texas 24 Lottery Commission, the agency is required to notify 25 the Legislative Budget Board of its intent to amend the 0014 1 Lottery Operations and Services Contract 30 days prior 2 to executing any amendment and, as you also are aware, 3 this notification was made in early September. 4 Commissioners have independently 5 confirmed they do not have any financial interest in 6 IGT Global Solutions. If you have any questions, we 7 would be happy to answer them. 8 COMMISSIONER KRAUSE: Commissioners? 9 UNIDENTIFIED VOICE: So we didn’t hear 10 anything from the LBB? 11 MR. FERNANDEZ: No, sir, we did not and, 12 in fact, there’s no requirement in that rider for them 13 to respond. 14 UNIDENTIFIED VOICE: Right. Okay. 15 MR. FERNANDEZ: Only for us to respond. 16 COMMISSIONER KRAUSE: Right okay. Well, 17 if it had been important they would have and their 18 absence of a response is important to us. 19 AGENDA ITEM III 20 MR. FERNANDEZ: Yes, sir. Item 3 in 21 your notebook is also briefing item. Texas 22 Administrative Code 401.105 requires agency contracts 23 be presented to the Commission annually for 24 informational purposes. This requirement was further 25 expanded in Texas Government Code 2261.254, including 0015 1 additional contract reporting requirements regarding 2 compliance with financial provisions, performance 3 issues and sanctions or liquidated damages assessed. 4 A report detailing agency contracts was 5 included in your notebooks. If you have any questions, 6 we would also be happy to answer them. That’s all I 7 have, Mr. Chairman. 8 COMMISSIONER KRAUSE: Commissioners? 9 Well, said. Thank you. 10 MR. FERNANDEZ: Thank you. 11 AGENDA ITEM IV 12 COMMISSIONER KRAUSE: Mr. Tyler Vance. 13 MR. VANCE: Morning Commissioners. 14 Tyler Vance with the Legal Division. I have for your 15 consideration this morning the adoption of Rule 403.301 16 which, at the last meeting, y’all proposed to amend. 17 It’s a reference to the Comptroller’s rules on 18 historically underutilized businesses and the 19 Comptroller changed their citations. They just moved 20 it around to a different section. 21 So our old rule had an incorrect 22 citation. So the proposal was to correct that citation 23 and, like I said, we proposed it at the last Commission 24 meeting and we received no comments so staff recommends 25 that you adopt this rule as proposed. 0016 1 COMMISSIONER KRAUSE: I can’t think of 2 anything less, you know, controversial than this. 3 MR. VANCE: Right. 4 COMMISSIONER KRAUSE: Borders on boring 5 and so anyway -- 6 MR. VANCE: Right. Right. 7 COMMISSIONER KRAUSE: Do I hear a 8 motion? 9 COMMISSIONER ARRIETA-CANDELARIA: I’ll 10 move. 11 COMMISSIONER RIVERA: Second. 12 COMMISSIONER KRAUSE: All in favor say 13 aye. 14 (Chorus of "ayes") 15 AGENDA ITEM V 16 COMMISSIONER KRAUSE: Ms. Rienstra. 17 MS. RIENSTRA: Good morning, 18 Commissioners. Good morning. Deanne Rienstra, Special 19 Counsel. In your notebook is a proposal to adopt 20 amendments to current Pick 3 and Daily Four draw games 21 rules which are found at 16 TAC Sections 401.307 and 22 401.316, respectively. 23 The purpose of the amendments is to end 24 the current Sum It Up add-on feature and replace it 25 with a new add-on feature called Pick 3 plus Fireball 0017 1 and Daily Four plus Fireball which was presented to you 2 at the last Commission meeting. 3 The adopted version includes non- 4 substantive changes from the proposed version that was 5 published in the Texas Register on August 24th. In the 6 adopted version of the rule, the prize amounts and the 7 odds have been updated to provide players with 8 additional detail about all of the possible winning 9 combinations and the prizes associated with those 10 combinations. In your notebook, you’ll see the legal 11 size pieces of papers which are the graphics that show 12 those combinations. 13 In addition, examples of the Daily Four 14 plus Fireball prizes in subparagraphs 1 and 4 of 15 Subsection J have been corrected to use the "straight- 16 play order" term instead of "exact order". 17 The Commission anticipates the changes 18 to the Pick 3 and Daily Four games to be implemented in 19 April of 2019. However, a specific implementation date 20 for the Fireball feature has not been established at 21 this time. A public hearing was held on September 12th 22 at Commission Headquarters. No members of the public 23 were present and no written comments have been 24 received. Staff recommends the Commission adopt the 25 proposed rule amendments to the Pick 3 and Daily Four 0018 1 draw games rules. I am happy to answer any questions. 2 MR. BIARD: And Commissioners, I want to 3 just add one more note and that is that the document in 4 your notebooks states an anticipated implementation 5 date of March 2019. Just in the last couple of days 6 we’ve come to realize it’s actually going to be April 7 probably before the implementation. So the order that 8 we have prepared for your signatures changes that date 9 in the first paragraph of the preamble from March to 10 April. 11 COMMISSIONER KRAUSE: Excellent. 12 Commissioners? All right. This is something we’re 13 going to take action on so I’m open to a motion. 14 COMMISSIONER LOWE: So moved. 15 COMMISSIONER ARRIETA-CANDELARIA: 16 Second. 17 COMMISSIONER KRAUSE: All in favor say 18 aye. 19 (Chorus of "ayes") 20 COMMISSIONER KRAUSE: Done. 21 MS. RIENSTRA: Thank you. 22 AGENDA ITEM VI 23 COMMISSIONER KRAUSE: Ms. Pyka, the next 24 two items are yours. 25 MS. PYKA: Good morning, Commissioners. 0019 1 My name is Kathy Pyka, the Controller for the Agency 2 and with me, to my right, is Robert Tirloni, our 3 Products Manager. Commissioners, this morning we will 4 be presenting for you our final fiscal year 2018 5 revenue and sales data but before we do so, Robert has 6 got an update for you on a recent event. 7 MR. TIRLONI: Thanks, Kathy. Good 8 morning, Commissioners. Commissioners, our new Dallas 9 Cowboys scratch tickets started on August 20th. This 10 is the tenth consecutive year for us to launch a 11 Cowboys scratch ticket. Commissioner Rivera was 12 present and represented the agency at a press 13 conference in Frisco, at The Star, the Cowboys' 14 headquarters, along with Dallas Cowboys' owner, Jerry 15 Jones, recognizing the launch of the new game and the 16 contributions to Texas education as a result of our 17 partnership with the Cowboys and we have a brief video 18 presentation for you all to see. 19 (Video played as follows:) 20 MR. JONES: I really can’t believe that 21 we’re going into our tenth year with our relationship 22 with the Texas Lottery. The very place we’re sitting, 23 this very building, what it means to us to be attached 24 at the hip with education, what it means for us to be 25 attached at the hip with amateur athletics which, in a 0020 1 way, has a big segue into education is why I’m so 2 excited over our long-term partnership with the Texas 3 Lottery. 4 (End of video) 5 COMMISSIONER RIVERA: The partnership 6 with the Jones family and the Cowboys organization is 7 one that has been extraordinary from day one by 8 aligning itself with one of the greatest brands in the 9 world, Dallas Cowboys, the Texas Lottery has been able 10 to integrate itself into the patchwork of what people 11 love about Texas. This year’s Cowboys scratch ticket 12 returns with, again, second-chance prize opportunities. 13 The players that do not win instantly are entered into 14 five promotional second-chance drawings that are 15 unique. The Dallas Cowboys Wild Weekend package for 20 16 which features a suite at Cowboys stadium in Arlington, 17 private tours of The Star here in Frisco and a pregame 18 party and travel and hotel accommodations. Also the 19 draft room on draft day. It’s truly a once in a 20 lifetime opportunity to take an inside look at player 21 draft decisions and spend some time close to the 22 Cowboys organization. 23 (Video played as follows:) 24 MR. JONES: Those winners are in there, 25 they’re engaged, we have a big time with them. I would 0021 1 think that that’s a fun day for many. I’ve been doing 2 that now for 30 years in that draft room and I’m sure 3 it shows with these lottery winners. So it’s a big 4 part of what we think we’re doing when they reach over 5 there and buy their lottery ticket and it’s got Cowboys 6 lottery on it. 7 Again, I’ve always been such a believer 8 in taking the interest and affinity of sports football 9 in the State of Texas as well as what the Cowboys can 10 bring to it and maximize that interest. I don’t know 11 of any related, sports-related partnership in the 12 entire NFL that has had the success that we’ve had. 13 (End of video) 14 MR. TIRLONI: So we wanted to share that 15 with you. We’re obviously very proud of our 16 association with the Cowboys and to have our brand 17 associated with a brand such as the Cowboys. 18 CHAIRMAN KRAUSE: I’d like to say that 19 we’re indeed lucky that we have a relationship like 20 that with them because we have similar relationships 21 with other organizations that do not promote, you know, 22 the relationship in the same way that Cowboys do and so 23 when you find a good partner like that, you know, you 24 stick with them. You appreciate them. We appreciate 25 the Dallas Cowboys a lot. 0022 1 MS. PYKA: All right. We’ll begin our 2 presentation with our revenue highlights from fiscal 3 year 2018. 4 The Commission completed the fiscal year 5 with $1,450,000,000 in accrued revenue transfers to the 6 state. This is the highest revenue transfer in Texas 7 Lottery history, breaking the previous record set in 8 fiscal year 2016 by more than $58-million, and that is 9 when Powerball reached the record-setting $1.6-billion 10 jackpot. Fiscal year 2018 marks our 15th consecutive 11 year that we have reached the one billion mark in 12 overall revenue transfers. Of that overall revenue 13 transfer amount $1,432,000,000 went to the Foundation 14 School Fund also establishing a new record of lottery 15 contributions to public education in Texas. Our 16 revenue for fiscal year 2018 exceeded the previous 17 record set in fiscal year 2016 by $59-million. 18 Additionally, of the total revenue 19 transfer, $18.1 million went directly to the Texas 20 Veteran’s Commission from the sell of a scratch-off 21 game dedicated the Fund for Veteran’s Assistance and 22 this, too, is the largest annual transfer to the 23 veteran’s fund since the designated scratch-off games 24 began. 25 Another record was prizes paid to our 0023 1 players with more than $3,737,000 won by Texas lottery 2 players. This broke the previous record set in fiscal 3 year 2017. Our retailers were paid more than $281 4 million in commission payments. This was another 5 record in payments to our retailers. And then last we 6 concluded the fiscal year with an administrative rate 7 of 3.99 percent which is one of the lowest 8 administrative expenditure rates of percentage of gross 9 sales in the country and also is our lowest 10 administrative rate in the Commission’s history. 11 So now we’ll move on to our sales data. 12 For the third time in Texas Lottery history sales have 13 exceeded the $5 billion mark. Final sales for fiscal 14 year 2018 were $5,627,000,000 which surpassed the 15 previous sales record set just last year by 16 $549 million. We ended the fiscal year with 17 $4,418,000,000 in scratch ticket sales. 18 This is a new sales record marking the 19 best year of scratch ticket sales since we began 20 selling tickets and this reflects a sales increase of 21 more than $483 million. Our draw sales concluded the 22 year with $1,209,000,000 and this is an increase of $66 23 million over our last year’s value of $1,142,000,000, 24 and this was established without having any multi-state 25 jackpots during fiscal year 2018. 0024 1 Our next slide provides an overview of 2 our 27-year history of scratch and draw sales for the 3 Commission. Scratch sales are noted in the orange bar 4 and our draw sales are noted with the blue bar. We 5 began in fiscal year 1992 with $591,000 in scratch 6 sales and has grown now to $5,627,000 in fiscal year 7 2018. 8 So with that, Robert will provide an 9 overview of additional sales detail. 10 MR. TIRLONI: Thanks, Kathy. 11 Commissioners, this is the slide we are used to 12 reviewing at every meeting. The jackpot games are at 13 the top in white. We are seeing great growth from 14 almost every game in the jackpot category. Most of the 15 growth was from Mega Millions. That game was up almost 16 92 or slightly over $92 million in ‘18 compared to ‘17. 17 The only game experiencing decline year over year was 18 Powerball. Interestingly enough, even though Mega had 19 a very large increase and Powerball did have a decrease 20 year over year, Powerball did sell more than Mega 21 Millions. Both games actually had quite a few triple- 22 digit jackpots last fiscal, in ‘18, and we were pleased 23 to see that. 24 Mega Millions made a game change in 25 October. It took place right at the end of October of 0025 1 ‘17 which is in fiscal ‘18 and that certainly 2 contributed to the $92 million worth of growth that we 3 experience. 4 All told, the jackpot games were up $52 5 million, the daily games are up $14.3-million total. 6 Again, really good growth coming from almost every game 7 in the category. You’ll remember Triple Chance was 8 discontinued this summer and Cash 5 is experiencing a 9 slight decline year over year of $1.2 million. We just 10 changed that game. We introduced the new game on 11 Sunday, September 23rd, so it’s in its infancy. It’s 12 only been out for a week but it’s off to a very good 13 start. 14 We’re pleased to see the continued 15 growth from Pick 3 and Daily 4. 16 So all told, the jackpot games are up 17 $66 million and then we continue to have fantastic 18 scratch sales. Scratch is up just over $483 million, 19 giving us an overall surplus of $549 million for the 20 year. 21 This is just a quick pie chart to show 22 the split between the two product categories; scratch 23 and draw. Scratch is representing 78.5 percent of the 24 sales. Draw's coming in at 21 and a half. Very 25 similar to what we’ve seen. Very consistent year over 0026 1 year. Last year it was one percentage off of that. 2 Scratch was 77 and a half and draw was 22 and a half. 3 Again, this is very consistent. 4 This pie chart shows the total draw 5 sales broken down by game so this represents $1.2 6 billion in draw sales. This slide includes the add-on 7 games. So when we’re looking at Powerball and saying 8 it sold $289 million, that’s including Powerball and 9 the add-on game Power Play. So that’s also true for 10 Mega Millions, Pick 3 and so on and so forth. So if 11 we’re looking at it in this regard, Powerball is the 12 best selling game followed by Pick 3 then Mega Millions 13 and Lotto. If you take out, and I’m going to back up 14 for a quick second, if you take the add-on games out 15 you’ll notice that Pick 3 is actually the best selling 16 draw games which is quite surprising to many people 17 because the large jackpots are what garners most of the 18 public’s attention. But Pick 3, if you’re just looking 19 at the games and the add-on games, individually, Pick 3 20 is the best-selling game at $200 and almost 57 million 21 and that’s really important for us because that builds 22 and establishes our core sales. We’re not waiting for 23 jackpot rolls in order to achieve that level of sales. 24 Another note of importance is Daily 4. 25 This game continues to grow year after year. This is 0027 1 the first year that Daily 4 has climbed over $100 2 million in sales. Again, that helps establish our base. 3 Same pie chart. It’s now just 4 representing scratch ticket sales by price point so 5 this represents $4.42 billion in scratch sales. We 6 start at the five. That is our best selling price 7 point. Work our way around. The ten is the second 8 best selling price point followed by the 20 and then 9 the 50. Not much change from last year, Commissioners. 10 This last slide that I’m going to share 11 with you are our top 15 selling scratch ticket games 12 for the year. I’ll make just a couple of points. 13 You’ll notice the number one selling game is our $10 14 Mega Loteria game. The number three game is another 15 Loteria game. It’s at the $5 price point. This is 16 very popular four us. They are four games. We also 17 have a $3 version. We’re introducing a 20 in just 18 about a month so that will be expanding that family 19 into a higher price point. The number four best 20 selling game is our $30 game. In fiscal ‘18 we brought 21 that price point back. We had not had a $30 game in 22 quite some time. We reintroduced it and it obviously 23 performed well coming in at number four. 24 Just one other note. You’ll see a lot 25 of sevens up here. Mega 7, Super 7, Lucky 7. That’s 0028 1 part of a family of games that we introduced. A 7's 2 themes and multiplier themes always seem to do very 3 well. We have more of those in the plan for this 4 coming year. 5 And Kathy is now going to wrap up with 6 some information that was requested at our last 7 meeting. 8 MS. PYKA: Right. The next three slides 9 have been prepared in response to Commissioner Lowe’s 10 request at the last meeting regarding how Texas sales 11 compare to other state lotteries. So the first slide 12 that we have for you provides a comparison of lotteries 13 across the U.S. ranked by sales during fiscal year 14 2018, and for comparison purposes the sales information 15 includes traditional lottery with the exclusion of VLT, 16 keno, pull-tabs as well as instant terminal games. 17 So we’ll start with the first table on 18 the left-hand side of the slide, which includes a 19 ranking of total lottery sales along with their 20 respective populations. 21 So with sales of $5,627,000,000 in 22 fiscal year 2018, Texas ranks fourth in total sales 23 behind New York, California and Florida. 24 So then we’ll move to the table in the 25 middle of the slide which includes ranking by per 0029 1 capita lottery sales and you’ll see that Massachusetts 2 is noted as the highest per capita in sales of $631 and 3 that’s based on a population of 6.9 million and total 4 sales of $4.4-billion. So within this category Texas 5 ranks 22 in per capita sales with $199 in per capita. 6 The table on the far right-hand side of 7 the chart or the slide includes U.S. lotteries ranked 8 by their percentage change in total lottery sales and 9 this is comparing fiscal year 2018 with growth over 10 fiscal year 2017. So the top ranking state on this 11 slide is Oklahoma who had growth of 46 percent. Their 12 2018 sales were $221-million and that’s compared to 13 their 2017 sales of $152. 14 In this particular table Texas ranks 15 11th on the chart with sales growth of 10.8 percent and 16 you’ll see that the only other lottery appearing in the 17 top ten was sales greater than $1 billion was 18 California, who had growth of 12 percent. 19 Now I’d like to go down to the bottom of 20 the slide and this provides you an overview of our 21 fiscal year 2018 sales growth over both fiscal years 22 ‘17 and ‘16 and looking at the top five ranked 23 lotteries by total sales. 24 So I think of interest here you have 25 both Texas and California with double digit sales 0030 1 growth over both fiscal years 2017 and ‘16. 2 So before we go on to the next series of 3 tables I want to focus on the per capita and the fact 4 that Texas has per capita sales of $199. So we have a 5 visual for you on the next slide. So we thought the 6 visual of the U.S. map might be helpful. So the states 7 shaded in the three shades of blue reported per capita 8 sales greater than $200 with the darkest shade of blue 9 reporting per capita sales greater than $400. Those 10 that are shaded in the orange shading had per capita 11 sales of $100 to $200 or the lightest shade had sales 12 below $100. 13 So as a reminder from the previous chart 14 Massachusetts had per capita sales of $631 while 15 Georgia had per capita sales of $421. Texas had $199 16 in per capita sales, just shy of being ranked with the 17 states in the $200 category. 18 So the point of this chart is with the 19 exception of Missouri, who had per capita sales of 20 $206, there’s a clear distinction in per capita sales 21 for those states that are east of the Mississippi 22 versus those that are west of the Mississippi. You can 23 see all the smaller states that have established 24 lotteries, that are much more mature than the Texas 25 Lottery are those states that have generally the 0031 1 rankings above $200 per capita. 2 So we’ll then move on to the original 3 slide format and we’ll focus on scratch ticket sales. 4 So the table on the top left with Texas having scratch 5 ticket sales of $4,418,000,000, we ranked third in the 6 U.S. behind both California and Florida, and then 7 looking at the table in the middle, our per capita 8 ranking there is 13th with per capita sales of 156 and, 9 again, you’ll note Massachusetts had scratch ticket per 10 capita of $532. And then we’ll move to the table on 11 the far right-hand side and this, again, includes the 12 percentage change in total scratch sales in comparing 13 our fiscal year 2018 with the growth over fiscal year 14 2017, and so our Texas growth on scratch was 12.3 15 percent and you can see the states that led in that 16 category are much smaller states with much lower sales. 17 And then moving to the chart at the bottom of the page, 18 again, that is the top five ranking lotteries and you 19 can see that Texas had growth of 12.3 percent over 20 fiscal year 17 and 18.9 percent over fiscal year 2016 21 and I think the important item to note here is, again, 22 as you look at the top five states, California had 23 growth of 11.2 and 16.9 percent and so we had the 24 greatest growth in scratch tickets as compared to the 25 top five ranking of states. 0032 1 So then we’ll move on to draw sales. On 2 this charge, in looking at the far left-hand side 3 table, Texas ranks sixth behind New York, Florida, 4 California, New Jersey and Georgia and with our total 5 draw sales of $1.2 billion and this particular chart or 6 this category, moving to per capita, we ranked 26 with 7 per capita sales of $43 and then looking at growth over 8 fiscal year 2017, our growth of 5.8 percent put us in 9 the ranking of 35th and then, again, looking at the 10 bottom chart comparing our fiscal year 2018 draw sales 11 to fiscal year 2017 and ‘16, we had growth of 5.8 12 percent and, again, the only state with growth that was 13 significantly higher than us is California here and 14 then Florida is a bit higher than us but we did have 15 higher growth in draw sales than both New York, New 16 Jersey and Georgia. 17 So that concludes our presentation. 18 We’d be happy to answer any questions that you might 19 have. 20 COMMISSIONER KRAUSE: I’d like to invite 21 my fellow Commissioners to ask their questions then I’m 22 going to ask Mr. Grief to make a comment and then I’m 23 going to conclude my comments. Commissioners? 24 COMMISSIONER LOWE: Thanks, Kathy, for 25 -- 0033 1 MS. PYKA: And I’m sorry. I know that 2 Gary wants to definitely make some comments. I’m 3 sorry. 4 COMMISSIONER KRAUSE: Well, let him ask 5 the questions. Go ahead. 6 COMMISSIONER LOWE: So Kathy, thanks for 7 pulling this together. I know that it is tedious to do 8 to look at these numbers like that, but I think it 9 reveals how successful we are compared to the other 10 places in this country. It strikes me that you 11 mentioned that we -- our expense -- our administrative 12 expense row is less than 4 percent. In the -- and you 13 didn't show those numbers with the states above us, but 14 are we -- do we have a less expense rates than those 15 three states? 16 MS. PYKA: At this point, I don't have 17 the fiscal year 2018 data for those dates, but I know 18 that we're the lowest in comparing to their 2017 data. 19 We are one of the lowest in the country. 20 COMMISSIONER LOWE: That's impressive. 21 COMMISSIONER ARRIETA-CANDELARIA: It is 22 impressive. 23 COMMISSIONER LOWE: Speaks to our 24 partnership and our staff and the effort that everybody 25 puts in on this. And then the -- it strikes me that 0034 1 it's impressive that in Massachusetts the number was -- 2 per capita was $639, and that's for every man, woman 3 and child in that state, right? 4 MS. PYKA: Correct. 5 COMMISSIONER LOWE: That they're 6 spending that -- that average a year per person in that 7 state. That's just shocking to me. Maybe it 8 shouldn't, but do you have a theory why on the East 9 Coast why it's so strong over there and -- and is it 10 just the -- the age of the lottery that's -- 11 MR. GRIEF: Commissioner Lowe, we just 12 happen to have an expert along those lines in Jay 13 Gendron here from IGT. Jay, would you mind addressing 14 that? You'll know from the first words out of his 15 mouth why he's an expert. 16 MR. GENDRON: Yes, thank you. Jay 17 Gendron, Chief Operating Officer of Lottery at IGT, for 18 the record. 19 Massachusetts has been around probably I 20 think since the early '70s. And I think the primary 21 reason why they have the highest instant ticket per 22 capita in the United States because the payout is 23 probably the highest as well. 24 COMMISSIONER LOWE: Okay. 25 MR. GENDRON: They do extremely well 0035 1 across the board. Again, northeast lotteries perform 2 exceedingly well, keno in the state of Massachusetts 3 probably does 800-million a year, that's with a 4 population of about 7-million people. So when you look 5 at the -- for comparison purposes, the state of New 6 York that has about 20-million people, does about $750- 7 million a year in keno sales. So you can see almost 8 across the spectrum of gaming in Massachusetts, they 9 perform exceedingly well on a per capita basis. 10 COMMISSIONER ARRIETA-CANDELARIA: Can I 11 go back to the -- can we go back to that -- the map, 12 though? 13 So I -- I think one of the reasons -- is 14 that -- I don't know my states really well, I'm sorry, 15 the -- the one that's -- Massachusetts, then there's 16 this little white spot to the south of that. 17 MR. GENDRON: Might be Rhode Island. 18 COMMISSIONER ARRIETA-CANDELARIA: Rhode 19 Island. So does Rhode Island not have a lottery? 20 MR. GENDRON: No, Rhode Island does. 21 COMMISSIONER ARRIETA-CANDELARIA: Okay. 22 It's not applicable. So you might want to -- you might 23 see like the same impact in the dark blue state down at 24 the bottom, that's Georgia. 25 MR. GENDRON: That's Georgia. 0036 1 MS. PYKA: That's Georgia. 2 COMMISSIONER ARRIETA-CANDELARIA: Right. 3 MR. GENDRON: Yes. 4 COMMISSIONER ARRIETA-CANDELARIA: 5 Georgia. So the -- the next -- I thought on the side 6 if they don't have a lottery, you're going to have a 7 lot of, you know, intra or interstate lottery players 8 that come over from the other two states. I know 9 that's what happened when Texas didn't have a lottery 10 and New Mexico had a lottery, the numbers were really, 11 really high. Now you've got New Mexico sales are less 12 than $100 per capita, but it -- I know back when before 13 our Lottery started, New Mexico was very, very high, 14 very successful state, right? Renato's saying yes, 15 right? 16 MR. ASCOLI: That is correct. 17 COMMISSIONER ARRIETA-CANDELARIA: So 18 that's why I thought perhaps that Massachusetts is -- 19 is -- is getting more of the sales from neighboring 20 states just like Georgia, so it would be curious to 21 see, I don't want you to do the work though, I know 22 that would be tedious, but you know, along the border 23 of Georgia how many people are crossing over, you know. 24 Same thing with Texas and some of the border, how many 25 people from Mexico are coming up to purchase tickets 0037 1 from the lottery, which may be driving the sales per 2 capita number. 3 COMMISSIONER LOWE: I have a friend that 4 lives on the -- he lives in Tennessee just on the -- on 5 the border there. 6 COMMISSIONER ARRIETA-CANDELARIA: Yeah. 7 COMMISSIONER LOWE: In a little town, he 8 says in the Georgia lottery, there'll be people in the 9 street -- the town -- the street divides the town -- 10 COMMISSIONER ARRIETA-CANDELARIA: Uh- 11 huh. 12 COMMISSIONER LOWE: -- and just you 13 can't even find a place to park. 14 COMMISSIONER ARRIETA-CANDELARIA: Yeah. 15 COMMISSIONER LOWE: So many people 16 coming over the state line. 17 COMMISSIONER ARRIETA-CANDELARIA: Uh- 18 huh. 19 COMMISSIONER LOWE: From Tennessee to 20 Georgia to buy -- to buy those tickets. 21 COMMISSIONER ARRIETA-CANDELARIA: And 22 that's exactly how it is in Texas, so we border New 23 Mexico, Sunland Park area there is a lit -- there is a 24 corner store on the state line of New Mexico and Texas 25 and whenever we have like our Texas, there's a long 0038 1 line, you can't even find parking sometimes. So very 2 similar. 3 MR. GENDRON: I know California benefits 4 quite a bit from no lottery in Nevada, in fact, the 5 largest retailer in -- 6 COMMISSIONER ARRIETA-CANDELARIA: Yes. 7 MR. GENRON: -- the United States is on 8 the California/Nevada border. 9 COMMISSIONER ARRIETA-CANDELARIA: Uh- 10 huh. 11 MR. GENDRON: Where they have like seven 12 vending machines and like eight terminals that are 13 consistently operating because of all the people from 14 Nevada coming to -- 15 COMMISSIONER ARRIETA-CANDELARIA: Yes. 16 MR. GENDRON: -- California. But I can 17 tell you in your example on Massachusetts, the Rhode 18 Island Lottery is challenged given geographically how 19 small Rhode Island is and the payout in Rhode Island is 20 significantly less than it is in Massachusetts. So 21 theoretically, Rhode Island play is -- sophisticated 22 players cross the border into Massachusetts and play 23 the instant tickets because the payout is significantly 24 higher. 25 So as the most recent jurisdiction that 0039 1 has announced they're going to have a lottery is 2 Mississippi, so the number of U.S. states that do not 3 have a lottery I believe will be down to four -- three 4 actually after Calendar 2019, so the -- the ability to 5 get cross-border play is -- is diminishing as we speak. 6 COMMISSIONER LOWE: So do you -- 7 Massachusetts is one of the states that has legalized 8 sports betting; is that correct? 9 MR. GENDRON: That is not correct. 10 COMMISSIONER LOWE: They didn't -- 11 MR. GENDRON: Rhode Island just did. 12 COMMISSIONER LOWE: Rhode Island did. 13 So -- so looking at that, the states that have, is 14 there going to be a pull from the -- that -- from the 15 lottery over to those people who bet on the sports or 16 is it different sort of people that play different 17 games or does anybody know? 18 MR. GENDRON: I -- well, I think the 19 honest answer is nobody knows. But I will tell you 20 that the jurisdiction that operates aside of Nevada, 21 and Delaware has been operating sports betting in a 22 limited capacity for the past nine years in parlay 23 betting, you have to do events of three, and it's only 24 on the National Football League. So they've done it 25 for the prior nine years. 0040 1 They recently expanded that post-PASPA, 2 to do traditional wagering probably a couple of months 3 ago. New Jersey is now doing it as well. The -- like 4 anything else, how you configure the operation is going 5 to determine its success or lack thereof. 6 When you look at the State of Rhode 7 Island, despite the fact that it's a small state in the 8 country, when it starts sports betting at the two 9 casinos that are under the lottery in November of this 10 year, you will only be able to wager at those 11 facilities. So if you were to configure it best for 12 success, you would have a distributing environment 13 where actually the best way to do it would be via your 14 mobile phone, because the amount of people in the -- in 15 the middle of winter in New England and in Rhode Island 16 that's going to drive 20 or 30 miles to go place their 17 wager and sports betting I think is going to hamper the 18 success of the operation, but at least out of the gate 19 there's going to be two facilities and it's my 20 expectation that certainly in Connecticut and 21 Massachusetts, that in the next 24-months you will see 22 those states approve sports betting as well. So that 23 will -- that will, you know, inhibit the success of 24 Rhode Island a bit when the neighboring states are 25 doing it as well. 0041 1 COMMISSIONER LOWE: Thank you very much. 2 COMMISSIONER ARRIETA-CANDELARIA: Yeah, 3 thank you. That's great information. 4 CHAIRMAN KRAUSE: Mr. Rivera, all right, 5 well, now that our Commissioners have satisfied their 6 curiosity, Mr. Grief has some important comments for 7 us. 8 MR. GENDRON: Thank you. 9 MR. GRIEF: A couple of things I want to 10 make about this before I talk about our record year. 11 It's fun and interesting to make these comparisons 12 between states, but there are such significant 13 differences in the nuances of each state. I give you 14 just a couple of examples. 15 We heard California and Oklahoma 16 mentioned today. I think you saw Oklahoma's numbers; 17 they're astronomical. Their growth is off the chart. 18 Well, since that lottery started a few years ago, 19 they've been limited by their legislation in the fact 20 that they have to have a mandatory percentage returned 21 to state. I think that was 35 percent. It's a back 22 breaker. 23 Because of that mandatory percentage 24 returned to state, things would occur in Oklahoma, for 25 example, where they would issue a -- a $5 scratch game 0042 1 at a 57 percent prize payout percentage, it would be 2 wildly successful and they would pull the game because 3 they were selling too many tickets at that percentage 4 payout that would cause that mandatory return to state 5 to not be met. So they had just had legislation passed 6 last year that took effect this year where their 7 Director, Rollo Redburn, who's a good friend of mine, 8 he's quoted in magazines as saying now they have a real 9 lottery and they're able to offer $5 games, $10 games, 10 even $20 games, with real lottery payouts. Because no 11 one was purchasing those tickets, they were going 12 across the various borders to buy their lottery 13 tickets. Hence, you see 60, 70 percent growth in one 14 year as compared to the norm. 15 California has a similar story. A few 16 years ago they were unable to offer any higher price 17 point games as well in the scratch portfolio because of 18 a mandatory return to state that was in place. I could 19 go down the list on almost every jurisdiction and if 20 those directors were sitting in this room, they could 21 tell you the details of all that; competition from 22 tribal gaming, I mean, you name it. There are -- there 23 are a thousand different variables. 24 So we -- we in the industry do have a 25 friendly competition in this area, but we certainly do 0043 1 recognize that there are constraints and advantages 2 that states have that -- that make their environment 3 either better or more challenging for the traditional 4 lottery play as well. 5 So -- so back to -- to our record year, 6 Mr. Chairman, but before I turn it over to you, I did 7 want to make a few comments about this past year and 8 the success we had. 9 And as I was trying to put my thoughts 10 together, I thought it might be helpful for me as I 11 look back over the last ten years. So when I -- I look 12 back at our last ten years of sales, in fiscal year 13 '09, we did $3.72 billion. And then going forward we 14 did 3.74, 3.81, 4.19, 4.37, 4.38, and then in '15 we 15 did 4.53. 16 Then '16 came along and the $1.6-billion 17 Powerball jackpot and we jumped from 4.53 to 5.06, 18 another half billion dollar increase. And I knew going 19 in to '17, that was going to be a really hard mountain 20 to climb, but we ended up doing 5.08 in '17, eking out 21 another gain. And then the results you saw this 22 morning, we beat '17 by more than $500-million for the 23 fiscal year. 24 That's ten consecutive years of sales 25 growth here in our state. If you put that another way, 0044 1 we've been able to grow sales in Texas more than $2- 2 billion over that ten-year period or 54 percent in the 3 last ten years. That's with no new products, no keno, 4 no breakout from our traditional scratch and draw games 5 over that period of time. 6 Over that same period of time, this 7 Agency has suffered through cuts in advertising, 8 scratch ticket printing, marketing, the number of 9 positions that we're able to fill, research, retailer 10 promotions, and effective September 1st of this year, 11 we no longer have retailer bonuses to offer to 12 retailers who sell top prizes in any of our games. You 13 pick almost any budget category for the Texas Lottery 14 and the odds are pretty good that we've taken a 15 significant cut in that category over this ten year 16 period of time. 17 Within the organization and I give lots 18 of kudos to Kathy, we've done an amazing job of 19 managing through those budget cuts. For example, on a 20 daily basis, over the last several years, we have 21 strategized to find every penny to put into our scratch 22 ticket portfolio, just to make sure that we have 23 affective scratch ticket games out there in the market. 24 And the results of that strategy speak for itself. 25 Texas now has a $4.4-billion a year 0045 1 scratch ticket lottery. We've moved passed the state 2 of New York which many years ago I would have never 3 thought we would ever see, and we're closing the gap 4 every day as we sit here on California and Florida for 5 scratch ticket sales. And I have a personal goal to be 6 the number one scratch ticket selling lottery in the 7 country within the next three years. 8 The methodology, how we put together our 9 scratch ticket plan, that includes deciding on which 10 innovations that we're going to use, what types of play 11 styles we're going to put out in the market, the 12 release dates, all those things, that methodology that 13 we use, that is unsurpassed and it is a model for the 14 lottery industry and that's one of the other things 15 that's allowed us to continue to prosper in the face of 16 all those budget cuts that I just mentioned. 17 I can say with confidence, even though 18 we've had tremendous sales and revenue, that the 19 results would be at least tens of millions of dollars 20 more if we had a full complement of budgetary tools at 21 our disposal. But of course, that will be our battle 22 to fight when we go into the next legislative session. 23 Another factor that's contributed to our 24 ongoing success is our refusal to ever be satisfied 25 with our performance. Although we are a state agency, 0046 1 we operate within those parameters, we approach the 2 business of lottery with a private sector mentality, 3 and that's helped along by our partners at IGT. And we 4 assume that our shareholders, the people of Texas, are 5 never satisfied with our performance and that they are 6 always demanding more money for public schools and for 7 veterans here in our state. 8 My team has heard this next point before 9 ad nauseam. But when you strip away all the sales 10 records, all the material accomplishments that we've 11 made, all the sales and revenue records, all the 12 innovations that Texas Lottery and our colleagues have 13 made, what we're really celebrating with these year end 14 results, the only thing that really matters, is the 15 people that have made this all happen. That's what 16 we're here for. 17 We celebrate our people and their 18 accomplishments, both individually and as a team, 19 because I know and what I've learned, is that if you 20 bring in great people, and you nurture those people and 21 you foster a team environment, and you treat them with 22 respect, all that other stuff follows, all the records, 23 all the accolades, all the recognition, those things 24 follow great people into an organization. 25 So when I talk about our team, the Texas 0047 1 Lottery team, I'm talking about obviously the people 2 here at this Agency, but I'm also talking about IGT, 3 our lottery operator, and I'm talking about Scientific 4 Games, and Pollard Banknote and IGT printing, the three 5 vendors who print our scratch ticket products. And I'm 6 talking about LatinWorks, our advertising agency who 7 does such a great job of helping us market our product 8 to Texans. 9 That team, all those organizations put 10 together, has -- they've done an extraordinary job in 11 four areas. One is aligning our goals. Two is 12 collaborating on strategy to make sure we get the best 13 ideas out of every one of those organizations every 14 single day. Third is being flexible, understanding 15 that not everything can be dealt with just through a 16 contractual requirement, but sometimes, our vendor 17 partners just have to do what's best for the Texas 18 Lottery on that particular day. And fourth, executing 19 our strategy and our sales plan, keeping our goals 20 foremost about maximizing revenue to public schools and 21 to veterans. Those four things; alignment, 22 collaboration, flexibility and execution, that's what 23 makes this team so successful and truthfully, so 24 admired in the national and the international lottery 25 community. 0048 1 Commissioners, just four or five years 2 ago, $5-billion in one year, that was a pie in the sky 3 comment that someone made at a sales conference. But 4 now when we think in terms of sales goals for next 5 year, we should be talking about $6-billion, 5-billion 6 alone in scratch ticket sales. And the question is, 7 how are we going to get there next year? 8 Well, quite frankly, we're already doing 9 it. If you look at our September results for this 10 fiscal year, we're already setting new records for the 11 month of September. But all that said, we do have 12 specific plans, strategies, to reach that goal. 13 One, we've got to expand our retailer 14 base, we've got to be in more locations. And we're 15 deep into a project, my team, IGT's team, we're focused 16 on trying to get in-lane at big box locations, trying 17 to print out draw games on your receipts that you get 18 at the grocery store, at Target, at Walmart, CVS, HEB, 19 et cetera. That will eliminate one of the major 20 roadblocks to expanding our retailer base. But we've 21 got to be flexible in that. 22 It's come to our attention we may have 23 some shortcuts to get to that point and we hope to 24 achieve in-lane sales by spring of next calendar year, 25 which will impact this current fiscal year's results 0049 1 when we sit down at a meeting like this next year. 2 In addition, you heard about Mega 3 Millions and the increases that were made there. The 4 game change that took place recently, that was long 5 overdue and I'm predicting it may be in the roll we're 6 in now, we're at a $400-million plus Mega Millions 7 jackpot, with the game change that was made, I predict 8 this fiscal year we may see a new record for Mega 9 Millions. $656-million is the highest jackpot ever 10 achieved for that game, we may break that, it may be in 11 this roll that we're in right now. 12 And finally, I continue to be the 13 biggest, the loudest, the most obnoxious proponent in 14 the industry of trying to expand Powerball 15 internationally. If we don't expand the player base 16 for Powerball, and that is put it in front of more 17 people in the world, we will never again approach that 18 $1.6-billion jackpot. And players inevitably will get 19 jackpot fatigue and our sales for that important 20 component of our portfolio will start to go down. So 21 we're pushing that as hard as we can as well. 22 But all that said Commissioners, 23 regardless of all the great plans we have, the 24 products, the marketing, the big jackpots, whatever 25 might happen over in the Legislature, please make no 0050 1 mistake, it's the people in these organizations that 2 are the number one drivers of sales and revenue in our 3 state and I congratulate our team, our whole Texas 4 Lottery team, for achieving such a great year of 5 increases for those good causes. 6 That concludes my report, Mr. Chairman, 7 I'd be happy to answer any questions. 8 CHAIRMAN KRAUSE: Commissioners, any 9 questions for our ED? 10 COMMISSIONER LOWE: That was awesome. 11 CHAIRMAN KRAUSE: Yeah. So anyway, I 12 want to echo what Gary had to say and, you know, it is 13 the people and we have the greatest people. I just 14 want to maybe take one minute to detour through a 15 little bit of history and that is, is that the Lottery 16 was established in the late '90s. In 1997, the 17 Legislature, in its wisdom, decided that the payouts 18 were too rich and they legislatively altered the 19 payouts. That precipitated a nosedive, a nosedive, in 20 participation amongst our players, that took ten years, 21 to 2007, to pull out of that trough just to get back to 22 where we were in 1997. 23 And so, once we got back to ground zero 24 finally, then that's what began the march to where we 25 are right now. And so, in the 12 years, 11 years since 0051 1 then, you know, it's been this phenomenal growth and I 2 just want to thank the people, which are our staff and 3 our vendor staff and all that, for having the faith and 4 for dreaming big and, you know, I'll tell you one thing 5 that scares me, and that is, is that Gary likes to take 6 our people out to, you know, conferences where there 7 are other lotteries and I'm asking, Gary, I mean, are 8 they going to be poaching our staff? I mean, you know, 9 everybody admires our dream team. I mean, are -- 10 you're just putting them out there. He says, oh no, 11 you know, our staff loves being here, and I want to 12 help make sure they stay here by letting you know how 13 much we appreciate you and I'm going to ask my fellow 14 Commissioners to join me in a standing ovation for our 15 staff. Thank you very much. 16 (Applause) 17 CHAIRMAN KRAUSE: And our vendors. 18 (Applause) 19 CHAIRMAN KRAUSE: So with all that said, 20 I think the next item is still yours. 21 MS. PYKA: It is. 22 CHAIRMAN KRAUSE: Here, let me punctuate 23 that. 24 MS. PYKA: Mr. Chairman, Tab 7 is a 25 report on the Agency's transfers to the State. You 0052 1 have heard that report. The only thing that I will add 2 to it is our cumulative transfers to the Foundation 3 School Fund are now $22-billion. 4 So with that, I do not have any other 5 items on that agenda, unless you have any questions. 6 CHAIRMAN KRAUSE: I think it's all been 7 said. 8 MS. PYKA: Thank you. 9 COMMISSIONER ARRIETA-CANDELARIA: Thank 10 you. 11 AGENDA ITEM VII 12 CHAIRMAN KRAUSE: Darlene, tough act to 13 follow. 14 MS. BROWN: It is. Good morning, 15 Commissioners. I'm Darlene Brown, the Internal 16 Auditor. I also have some good news to report, but 17 first, I'm going to go through my status report. 18 We completed the fiscal year 2018 audit 19 plan as approved and we actually came in at 20 approximately 40 percent under budget. We're well into 21 the fiscal year '19 audit plan, with one audit underway 22 and a couple of other audit activities that were 23 approved, and that is consolidating all the audit 24 findings to a centralized database. We're monitoring 25 the drawing studio transition of the independent 0053 1 auditors and we continue working with the Bingo 2 Division. That's it, that's the last of my status 3 update. 4 If you have any questions on my status, 5 I'll be happy to answer those before we move on to the 6 reports. Okay. 7 CHAIRMAN KRAUSE: Questions, comments? 8 Please go. 9 AGENDA ITEM VIII 10 MS. BROWN: Okay. So I have four, four 11 audit reports that I'm presenting to you for approval, 12 in addition to the fiscal year 2018 annual internal 13 audit report. 14 The first one of the reports is the 15 Social Responsibility Program. We rated that as a best 16 practices. You've heard a lot of good news today about 17 the -- the revenues that have gone to fund good causes 18 in this State, but in addition to that, as part of the 19 Social Responsibility Programs within this Agency, this 20 Agency has managed to achieve World Lottery Association 21 Level 3 certification for the responsible gambling 22 program, despite not having dedicated funding from the 23 Legislature for that. And when I attend these 24 conferences, the NASPL conferences, I hear other 25 lotteries talking about their hundreds of thousands of 0054 1 dollars that they receive for their responsible 2 gambling program, and this Agency doesn't receive any, 3 so that's a really great accomplishment. 4 But in addition to that, staff are also 5 contributing to the -- to their social responsibility. 6 This staff contributes to the statewide employee 7 charitable drive every year and they sponsor a hundred 8 children through the Salvation Army's Angel Tree 9 Program at Christmastime and the -- they have a 10 quarterly blood drive. So all of that's very positive 11 news for this Agency. 12 Next I'll move on to the drawing 13 equipment maintenance audit that we did. And that's we 14 looked at the maintenance program and schedule in place 15 for the drawing equipment and the ball sets that are 16 used. We -- we monitored that there were physical 17 controls in place to make sure that the ball sets and 18 the equipment is not tampered with during that process 19 and so there's still integrity within that whole 20 program. 21 We rated that one as a best practices 22 also, that other lotteries could model. 23 The third one is the mail room processes 24 and that's where all of the -- the mail, including the 25 tickets that are sent in and payments that are sent in, 0055 1 license applications and general correspondence, 2 there's physical security controls around all of that. 3 We did have two findings in -- related to the way bingo 4 processes their mail and posts their transactions. 5 Michael took action immediately to address those and 6 there's now adequate segregation of duties within that 7 process. 8 Finally, the last report is the Scratch 9 Ticket Game Closing. We weighted that one as a -- that 10 the internal controls are effective. There are -- all 11 the lotteries use the Texas Lottery model for closing 12 their games and some of them the lotteries I've found 13 out through these conferences don't even have a formal 14 process in place, so that's a really good process. 15 The final is our fiscal year 2018 annual 16 internal audit report. That's a statutory required 17 report. State Auditor's Office dictates what the 18 contents are and it's a summary of what we did in 2018 19 and what we plan to do for fiscal year 2019. 20 So I have five reports for your 21 approval. 22 CHAIRMAN KRAUSE: Big lift. Questions, 23 comments? 24 COMMISSIONER ARRIETA-CANDELARIA: No, no 25 comments. 0056 1 CHAIRMAN KRAUSE: Okay. 2 COMMISSIONER ARRIETA-CANDELARI: I'll 3 make a motion. 4 CHAIRMAN KRAUSE: Well, we are really 5 happy with the results and we appreciate what you do, 6 because it's important to, you know, make sure that we 7 have transparency, that we are always using best 8 practices. I am proud that we are a leader in -- in 9 having -- using best practices. 10 So anyway, I'm looking for a motion to 11 approve these reports. 12 COMMISSIONER RIVERA: Move for approval 13 on all five. 14 COMMISSIONER ARRIETA-CANDELARIA: 15 Second. 16 CHAIRMAN KRAUSE: All in favor say aye. 17 (Chorus of "ayes") 18 CHAIRMAN KRAUSE: So approved. 19 MS. BROWN: Thank you. 20 CHAIRMAN KRAUSE: Thank you, ma'am. 21 COMMISSIONER ARRIETA-CANDELARIA: Thank 22 you, Darlene. 23 AGENDA ITEM IX 24 CHAIRMAN KRAUSE: We have Mr. Trace 25 Smith is going to offer us some information on the 0057 1 Bingo Advisory Committee. 2 MR. SMITH: Good morning, Commissioners. 3 First of all, I'd like to thank you all for 4 reinstituting the Bingo Advisory Commission. That is a 5 huge step towards helping Bingo -- Charitable Bingo in 6 the state of Texas. 7 As Chairman, one of the -- four of the 8 things that we want to try to do is create some goals 9 to work towards and create a comprehensive work plan 10 that's agreeable with the staff. The other thing is, 11 we want to collaborate with the staff and the industry, 12 be flexible, put ourselves last, and Charitable Bingo 13 first. And then we want to execute our 14 recommendations. 15 I'll be very brief. There are just 16 several items really quick that we addressed at our 17 first meeting. Tab sales and instant winners, negative 18 net proceeds, progressive pull tab bingo, temporaries 19 on demand and paperless reporting, and last but not 20 least, it was left off the item in your book, but 21 definitely not least, was the criminal background 22 checks. 23 Commissioners, that's all I have. If 24 you've got any questions, I'd be glad to answer them 25 for you. 0058 1 COMMISSIONER LOWE: We had a good 2 meeting I thought -- I thought we had a good meeting -- 3 MR. SMITH: Absolutely. Absolutely. 4 COMMISSIONER LOWE: -- Trace, and I did 5 not control it. I backed off, kept my mouth shut for 6 the most part, so we -- it worked out well. 7 MR. SMITH: It absolutely did. 8 COMMISSIONER LOWE: Thanks, Trace. 9 MR. SMITH: We were very pleased to have 10 everybody there. Michael was there, he helped as well; 11 Bob Biard, Commissioner Lowe, and we are grateful and 12 looking forward to more meetings. 13 CHAIRMAN KRAUSE: Well, for those who 14 don't know, Commissioner Lowe is our designated Bingo 15 Commissioner and that's a responsibility that Governor 16 Abbott has imposed on him and so, appreciate, you know, 17 him devoting extra time to be involved with the Bingo 18 Advisory group, so -- 19 MR. SMITH: Absolutely. 20 CHAIRMAN KRAUSE: -- thank you, sir. 21 MR. SMITH: Thank you. 22 COMMISSIONER ARRIETA-CANDELARIA: Thank 23 you. 24 AGENDA ITEM X 25 CHAIRMAN KRAUSE: Michael Farrell, do 0059 1 you have a report for us, sir? 2 MR. FARRELL: Yes, sir. I -- I do want 3 to add to Trace's that the next Bingo Advisory 4 Committee meeting is on November 15th, just -- 5 CHAIRMAN KRAUSE: Okay. 6 MR. FARRELL: -- so you know they're 7 continuing their meetings. 8 I'd like to note that you have a copy of 9 the Bingo 2017 annual report up there. It'll be 10 published on the internet by Friday this week. And 11 after that, I have nothing additional to add that's not 12 in the binder. Yes, sir. 13 CHAIRMAN KRAUSE: Outstanding. Thank 14 you, sir. Next item. 15 AGENDA ITEM XI 16 CHAIRMAN KRAUSE: Mr. Grief. 17 MR. GRIEF: I have nothing further to 18 report, Mr. Chairman. 19 CHAIRMAN KRAUSE: Alrighty. 20 (Pause) 21 AGENDA ITEM XII 22 CHAIRMAN KRAUSE: All right. Mr. Biard. 23 MR. BIARD: Yes, sir. 24 CHAIRMAN KRAUSE: We're going to 25 challenge you to see if you can get this done in about 0060 1 seven minutes. 2 MR. BIARD: I'll do it faster than that. 3 Commissioners, this is Item 12, the 4 enforcement orders. I'm Bob Biard, General Counsel. 5 Item 12 contains 16 lottery and bingo enforcement 6 matters, Tabs A through P. 7 In these cases, Commission staff either 8 found a licensee violated a statute or rule or an 9 applicant did not qualify for a license. In many 10 cases, either the Respondent failed to appear at the 11 hearing and it proceeds by default or the staff and the 12 Respondent reached a settlement in the form of an 13 agreed order. I'll briefly describe the cases and you 14 can take them up in a single vote if you'd like. 15 And as I want to note, we recommend 16 passing Tab N as I will explain more in just a moment. 17 Tabs A through J are the non-sufficient 18 fund lottery retailer license revocations that are 19 handled in a single order. Each case was presented at 20 the State Office of Administrative Hearings for 21 revocation of the retailer license on the grounds the 22 licensee failed to have sufficient funds in their bank 23 account to cover electronic fund transfers to the 24 Commission's account. 25 In each case, the licensee failed to 0061 1 appear and the Judge remanded the case to the 2 Commission to handle as a default matter. Your 3 notebook contains a single order to revoke each of 4 these ten licenses. 5 Tabs K through N are lottery agreed 6 orders. Tab K is Bread and Butter Stop in Henrietta, 7 that's Clay County near Wichita Falls. 8 In this case, the Commission 9 investigated a retailer who allowed the operation of 10 eight-liner gaming machines in the store. The machines 11 awarded tickets worth $1 that could be exchanged for 12 merchandise, including Texas Lottery tickets. The 13 investigator confirmed these facts with the clerk on 14 duty. The violation is accepting an unauthorized form 15 of payment for a Lottery ticket. The retailer agreed 16 to a 10-day suspension. 17 Tab L is Creek Beverage in Plano. In 18 this case, the Commission investigated a complaint that 19 the retailer accepted credit cards for Lottery 20 purchases and charged a fee for credit card 21 transactions. The investigator visited the store and 22 he was told he could not use a credit card for Lottery 23 transactions, but that he could use a debit card, 24 subject to a $2 minimum purchase of store merchandise. 25 The clerk said the minimum purchase did not apply if a 0062 1 customer purchased $50 or more in Lottery tickets. 2 Here the violation is selling a ticket 3 at a price the retailer knows is greater than that 4 fixed by the Commission. The retailer agreed to a 10- 5 day suspension. 6 Tab M is Sunrise Super Stop in Houston. 7 In this case a retailer employee tried to claim a 8 thousand dollar prize on a ticket that was torn in half 9 and taped together. The employee said the ticket was a 10 gift from a friend. A Commission investigator talked 11 to the store's assistant manager who said a customer 12 had presented the ticket and the manager did not 13 realize it was a winner and mistakenly tore it in half. 14 The manager gave the torn ticket back to the customer, 15 but the customer did not want to have to explain to the 16 claim center why the ticket was torn and asked the 17 retailer to handle it. So one of the store's employees 18 agreed to claim the prize for the customer. Afterward, 19 the employee who tried to claim the ticket corroborated 20 this story. 21 The violation here is offering to claim 22 a lottery prize for another person and the retailer 23 agreed to a 10-day suspension. 24 Tab N is – Petromart stores 133 (sic) in 25 Kountze and 114 in Orange. We would like to pass these 0063 1 cases. We were hopeful we would reach a settlement by 2 this morning, but that has not happened and we have a 3 hearing scheduled to suspend these licenses tomorrow 4 and will then seek revocation of the licenses. 5 Moving on to Tab O, this is a litigated 6 lottery case for Jif-E Mart in Walker County and Quick 7 Stop Center in Madison County. 8 In this case, in 2017, the sole owner of 9 these two licensed locations was found guilty of a 10 misdemeanor gambling offense. He entered a plea of 11 guilty and was assessed a $500 fine. The State Lottery 12 Act requires the Commission to revoke a retailer's 13 license and deny an application if a licensee's been 14 convicted of a gambling or gambling-related offense and 15 less than ten years has elapsed since the termination 16 of the sentence, parole, mandatory supervision or 17 probation served. 18 Here, there was really no question 19 regarding the licensee's eligibility. One of the 20 licenses had been granted by the staff and the other 21 had a renewal application that was being held for this 22 hearing. The Judge's recommendation is to revoke the 23 granted license and to deny the pending application. 24 The licensee did not file exceptions, so the staff 25 recommends adopting the Judge's recommendation. 0064 1 Finally, Tab P is a Bingo agreed order 2 involving Concho Rainbow, which is a commercial lessor, 3 and the Southeast Bingo Unit which is made up of five 4 conductor organizations. 5 This case is similar to a case you had 6 at the last Commission meeting where the lessor charged 7 the bingo conductors in the unit for taxes, electricity 8 and insurance separate from and in excess of the 9 maximum allowed rent, which is $600 per bingo occasion. 10 These items-taxes, electricity and insurance, are owed 11 to the building landlord and under the Bingo Act, the 12 lessor may charge each organization its prorated share 13 of those expenses if they are properly documented and 14 if they are reasonable and necessary to the conduct of 15 bingo. But in this case, the Bingo staff found these 16 expenses were not properly documented. Without proper 17 documentation, the landlord is limited to charging the 18 maximum $600 rent per occasion. This 19 agreed order requires the lessor to reimburse the 20 conductors for the excess charges paid during the audit 21 period, which is $4,391.97 and requires the lessor to 22 change its practice on a prospective basis. 23 Commissioners, that concludes my 24 presentation, and you may take the enforcement orders 25 up in a single vote if you'd like and we'll be happy to 0065 1 answer any questions. Again, we are passing Item N, so 2 the orders up for approval are A through M and O and P. 3 CHAIRMAN KRAUSE: Questions, comments? 4 COMMISSIONER ARRIETA-CANDELARIA: No. 5 CHAIRMAN KRAUSE: Alrighty. 6 COMMISSIONER RIVERA: Move for approval 7 on A through M and O and P. 8 COMMISSIONER ARRIETA-CANDELARIA: 9 Second. 10 CHAIRMAN KRAUSE: All in favor say aye. 11 (Chorus of "ayes") 12 CHAIRMAN KRAUSE: Done. 13 MR. BIARD: Thank you, Commissioners. I 14 have orders for your signature. 15 CHAIRMAN KRAUSE: Outstanding. Okay. 16 AGENDA ITEM XIV 17 CHAIRMAN KRAUSE: At this point I move 18 that the Lottery Commission go into Executive Session 19 to deliberate personnel matters and receive legal 20 advice as posted in the open meeting notice. Is there 21 a second? 22 COMMISSIONER RIVERA: Second. 23 COMMISSIONER ARRIETA-CANDELARIA: 24 Second. 25 CHAIRMAN KRAUSE: All in favor say aye. 0066 1 (Chorus of "ayes") 2 CHAIRMAN KRAUSE: Done. 3 (Executive Session begins at 11:13 a.m. and 4 concludes at 11:45 a.m.) 5 AGENDA ITEM XV 6 CHAIRMAN KRAUSE: The Lottery Commission 7 is out of Executive Session at 11:45. I don't recall 8 when we went in, and there is no action to be taken as 9 a result of Executive Session. Consequently, that 10 concludes the business of the Commission for this 11 meeting. 12 AGENDA ITEM XVI 13 CHAIRMAN KRAUSE: Is there a motion to 14 adjourn? 15 COMMISSIONER RIVERA: So moved. 16 COMMISSIONER ARRIETA-CANDELARIA: 17 Second. 18 CHAIRMAN KRAUSE: All in favor say aye. 19 (Chorus of "ayes"). 20 CHAIRMAN KRAUSE: Thank you. 21 COMMISSIONER ARRIETA-CANDELARIA: Thank 22 you. 23 (Adjourned and concluded at 11:43 a.m.) 24 25 0067 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 12th day of October, 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