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 June 6, 2019 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: Mark A. Franz Robert Rivera 4 GENERAL COUNSEL: Robert F. Biard 5 EXECUTIVE DIRECTOR: Gary Grief 6 CHARITABLE BINGO OPERATIONS 7 DIVISION DIRECTOR: Michael Farrell 8 LOTTERY OPERATIONS DIRECTOR: Ryan Mindell 9 ASSISTANT GENERAL COUNSEL: Tyler Vance 10 CONTROLLER: Katheryn J. Pyka 11 PRODUCTS MANAGER: Robert Tirloni 12 McCONNELL JONES LANIER & MURPHY, LLP: Darlene Brown 13 BINGO ADVISORY COMMITTEE: Trace Smith 14 15 SENIOR CONTRACTS ATTORNEY: Lea Garey 16 GOVERNMENTAL AFFAIRS DIRECTOR: Nelda Trevino 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. 4 II. Report, possible discussion and/or action on Commissioner training, including ethics, 5 administrative procedure, and open government laws pertaining to the Texas Lottery 6 Commission. 7 III. Report by the Bingo Advisory Committee Chairman; possible discussion and/or action 8 on the Bingo Advisory Committee’s activities, including removal and appointment of 9 committee members. 10 IV. Report, possible discussion and/or action on the agency’s comprehensive business plan 11 pursuant to State Lottery Act §466.028. 12 V. Consideration of and possible discussion and/or action, including adoption, on 13 amendments to 16 TAC §402.403 (Licenses for Conduct of Bingo Occasions and to Lease Bingo 14 Premises). 15 VI. Report, possible discussion and/or action on lottery sales and revenue, game performance, 16 new game opportunities, advertising, promotional activities, market research, 17 trends, and game contracts, agreements, and procedures. 18 VII. Report, possible discussion and/or action on 19 transfers to the State and the agency’s budget status. 20 VIII. Report, possible discussion and/or action on 21 the 86th Legislative Session. 22 IX. Report, possible discussion and/or action on external and internal audits and/or reviews 23 relating to the Texas Lottery Commission, and/or on Internal Audit activities. 24 X. Report by the Charitable Bingo Operations 25 Director and possible discussion and/or 0004 1 action on the Charitable Bingo Operations Division’s activities, including licensing, 2 accounting and audit activities, pull-tab review, and special projects. 3 XI. Report by the Executive Director and possible 4 discussion and/or action on the agency’s operational status, major contracts, agency 5 procedures, awards, and FTE status. 6 XII. Consideration of the status and possible approval of orders in enforcement cases: 7 Lottery NSF License Revocation Cases (Default) A. Docket No. 362-19-2527 – Neighborhood Food Mart 8 B. Docket No. 362-19-2699 – Kuick Check C. Docket No. 362-19-2700 – Cap’s Mini Mart 9 D. Docket No. 362-19-2702 – Wildcat Donuts #3 E. Docket No. 362-19-2703 – Super Mart One 10 F. Docket No. 362-19-3494 – D Savannah Food & Deli Lottery Agreed Orders 11 G. Case No. 2019-39 – Star Stop 34 H. Case No. 2019-160 – Star Stop 42 12 I. Case No. 2019-442 – Saddlehorn Market Other Lottery Cases 13 J. Docket Nos. 362-18-2320 and 362-18-2321 – Quick Stop and Panther Quick Stop 14 K. Docket No. 362-19-0857 – Stephens Country Corner (Motion for Rehearing) 15 L. Docket No. 362-19-1517 – Pinehurst Country Store 16 XIII. Public comment. 17 XIV. Commission may meet in Executive Session: A. To deliberate personnel matters, including the 18 appointment, employment, evaluation, reassignment, duties, discipline, or dismissal of the Executive 19 Director and/or Charitable Bingo Operations Director pursuant to §551.074 of the Texas 20 Government Code. B. To deliberate the duties of the General Counsel 21 and/or the Human Resources Director pursuant to §551.074 of the Texas 22 Government Code. C. To receive legal advice regarding pending or 23 contemplated litigation or settlement offers, or other legal advice, pursuant to §551.071(1) and 24 (2) of the Texas Government Code, including but not limited to legal advice regarding the 25 following items: 0005 1 Pending litigation regarding Fun 5’s Scratch Ticket Game #1592, including Tex., Supreme Court 2 Docket No. 18-0159 (Steele, et al. v. GTECH Corp.) and Tex., Supreme Court Docket No. 17-1010 3 (Nettles v. GTECH Corp. and Texas Lottery Commission); Julam Investments, Inc. v. Texas 4 Lottery Commission (Travis Co. District Court Cause No. D-1-GN-16-006124); State of Texas v. 5 Equal Employment Opportunity Commission, et al. (U.S. Fifth Circuit Court of Appeals Docket No. 6 18-10638); State of Texas v. C.D. (On Petition for Review to Texas Supreme Court - Docket No. 7 18-0808); Legal advice regarding Texas Government Code Chapters 466 (State Lottery Act) and 467 8 (Texas Lottery Commission), the Bingo Enabling Act, the Open Meetings Act, the Public Information 9 Act, the Administrative Procedure Act, employment and personnel law, procurement and contract law, 10 evidentiary and procedural law, ethics laws, and general government law. Legal advice regarding any 11 item on this open meeting agenda. 12 XV. Return to open session for further deliberation and possible action on any 13 matter posted for discussion in Executive Session. Any matter posted for Executive 14 Session also may be the subject of discussion and/or action in open session prior to 15 Executive Session. 16 XVI. Adjournment. 17 Reporter's Certificate . . . . . . . . . . . . . . . . 18 19 20 21 22 23 24 25 0006 1 P R O C E E D I N G S 2 THURSDAY, JUNE 6, 2019 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN KRAUSE: Good morning. I'm 6 Winston Krause, I'm the Chairman of the Lottery 7 Commission and I call this meeting to order. It is 8 10:00, 10:00 a.m., and we have a new Commissioner 9 today, so we finally have a quorum. Commissioners 10 Franz and Rivera are present. 11 At the last meeting, the Governor 12 appointed Mark Franz. Stand up and take a bow. 13 (Applause) 14 CHAIRMAN KRAUSE: For a term to expire 15 in February of 2025. He's already been confirmed by 16 the Senate, so he's a full-fledged member of our 17 Commission. We anticipate there will be other 18 appointments, so we will have a full Commission and we 19 look forward to that. Anyway, do you have a few words 20 that you'd like to say? 21 COMMISSIONER FRANZ: I do not other than 22 I want to thank Gary and the staff here at the 23 Commission again and Bingo, for the time they've spent 24 with me getting me up to speed as much as they possibly 25 can. And I look forward to working with them. 0007 1 Just from my brief time with them, it 2 appears we've got a very good team here. The long 3 tenure speaks well of the culture here and I'm looking 4 forward to the next few years. Thank you, Chairman. 5 CHAIRMAN KRAUSE: You bet. Well, Mr. 6 Franz has not officially been appointed by the Governor 7 as the Bingo Commissioner and so we don't know whether 8 or not he will be serving in that capacity, but so 9 anyway, more things for the Governor to do. 10 We also have a new Media Relations 11 Director. Lauren Callahan. 12 MR. GRIEF: And Mr. Chairman, if I could 13 say a few words about -- 14 CHAIRMAN KRAUSE: Absolutely. 15 MR. GRIEF: -- Ms. Callahan. Where is -- 16 there's Lauren. Lauren, if you would just stand for 17 just a moment. 18 It's my pleasure to introduce our 19 Commissioners and the general public to our new media 20 relations director. This is Lauren Callahan. She 21 joined us on May 20th and Lauren comes to us from the 22 Texas Education Agency where she served for the last 23 five years as a media relations specialist and she also 24 led that Agency's social and digital media efforts. 25 Prior to her time serving in Texas 0008 1 government, Lauren also has spent several years as a 2 journalist in both the television and digital print 3 mediums. So she brings excellent experience to us from 4 both sides of the media world. 5 Lauren holds bachelor's degrees in 6 English and Political Communication from the University 7 of Texas at Austin, as well as a master's of Journalism 8 from the University of California-Berkeley, so we're 9 delighted to have Lauren on our team, Commissioners. 10 Thank you, Lauren. 11 CHAIRMAN KRAUSE: Outstanding. Well, 12 our tradition here is to start with a pledge to the 13 flags and Commissioner Rivera is going to lead us. 14 (Pledges recited) 15 AGENDA ITEM NO. II 16 CHAIRMAN KRAUSE: First we start with 17 Bob Biard who's going to give us a very -- or give our 18 new Commissioner a very succinct open meeting training 19 on ethics, administration procedure and open government 20 laws. 21 MR. BIARD: Thank you, Chairman. 22 CHAIRMAN KRAUSE: And succinct is going 23 to be a challenge. 24 MR. BIARD: Well, for the record -- 25 CHAIRMAN KRAUSE: I know he’s up to 0009 1 it -- 2 MR. BIARD: -- I'm Bob Biard, General 3 Counsel. 4 Whenever there's a new Lottery 5 Commissioner, this Agency has a tradition of briefly 6 reviewing the laws that govern the Lottery Commission 7 at that Commissioner's first open meeting. Also, since 8 2013, the State Lottery Act has required new appointees 9 to complete a training program before they vote, 10 deliberate or be counted as a member in attendance at a 11 Commission meeting. The training must provide the 12 appointee with information regarding the legislation 13 that created the Commission; the programs, functions, 14 rules and budget of the Commission; the results of the 15 most recent formal audit of the Commission; the 16 requirements of laws relating to open meetings, public 17 information, administrative procedure, and conflicts of 18 interest; and any applicable ethics policies. 19 I want to state for the record that 20 prior to this meeting, Commissioner Franz had the 21 required training session to go over these items with 22 Kathy Pyka and myself. For purposes of today's 23 meeting, I only want to provide a brief overview of the 24 highlights regarding the ethics, procedural and open 25 government laws governing the Commission. 0010 1 At the training session, I provided a 2 document titled, "A Guide to Ethics Laws for State 3 Officers and Employees." This is an Ethics Commission 4 publication and because the Lottery Commission has a 5 number of more specific requirements, we annotate it 6 using blue ink to highlight provisions specific to the 7 Lottery Commission. 8 These Lottery-specific provisions are 9 generally more restrictive than the requirements that 10 apply to other state agencies. For instance, here 11 there is a restriction against accepting employment or 12 remuneration from a person that has a significant 13 financial interest in the lottery, which is a defined 14 term that includes vendors of lottery goods and 15 services, including their officers and certain 16 employees, and retailers licensed to sell lottery 17 tickets. Or on the bingo side, that includes a bingo 18 commercial lessor, distributor or manufacturer. 19 Next, with respect to accepting gifts, 20 while other agencies are subject to a de minimis 21 exception that allows agency members and employees to 22 accept gifts under $50 in value; for instance, to 23 cover the cost of a meal, Lottery Commissioners and 24 employees are prohibited from accepting any gift, 25 defined to include anything of value, from a person 0011 1 that has a significant financial interest in the 2 lottery, which is also a defined term, and certain 3 persons associated with them, or a person who's won a 4 lottery prize exceeding $600 within the last two years. 5 The Lottery Commission does have an 6 exception, however, for Commissioners and employees to 7 accept a gift that is given on account of a 8 relationship that is independent of your commissioner 9 status, such as kinship or a personal, professional or 10 business relationship. Those gifts are allowed. 11 Also, the Agency does not have authority 12 to accept gifts, so you cannot accept gifts on behalf 13 of the Commission. 14 Next, there's a restriction against 15 certain political fundraising activities that is unique 16 to this Agency. A Lottery Commissioner may not 17 directly or indirectly coerce, attempt to coerce, 18 command, or advise a person to pay, lend, or 19 contribute, anything of value to another person for 20 political persons. There are two Attorney General 21 opinions that discuss this provision, which applies 22 only to the Lottery Commission, and I have provided 23 those to you. This does not prevent you from 24 personally donating to political candidates or causes. 25 These are just a few of the ethics 0012 1 points I wanted to highlight. 2 Next, with respect to procedural laws, 3 under the Administrative Procedure Act, the Commission 4 has two key roles: First, to propose and adopt rules 5 relating to the Lottery and Bingo; and Second, to 6 decide contested cases involving specific licensees. 7 Rules are general statements of policy 8 or practice that are generally applicable to all 9 persons. When you propose and adopt rules, you are 10 acting in a legislative capacity and you may talk to 11 anyone you wish in connection with agency rules or rule 12 proposals. However, you also have a judicial function 13 because you decide contested cases where the legal 14 rights and duties of particular licensees are 15 determined after an opportunity for hearing. 16 At the Lottery Commission, contested 17 cases usually involve a Lottery or Bingo licensee and 18 the issue is usually whether to deny or revoke a 19 license; and, on the Bingo side, possibly to assess 20 monetary penalties for violations of the Agency's 21 governing statutes or rules; or to approve settlements. 22 In contested cases, ex parte 23 communications are prohibited, which means you may not 24 communicate with any person or party to the case about 25 an issue of fact or law in the case unless all parties 0013 1 have the opportunity to participate. There is an 2 exception to this prohibition that allows you to 3 communicate with staff members that have not 4 participated in the case, to use the Agency's special 5 skills or knowledge in evaluating the evidence. 6 Contested cases are heard at the State 7 Office of Administrative Hearings, which we call SOAH, 8 another state agency, and they're heard by an 9 independent administrative law judge who prepares a 10 proposal for your consideration. Although the proposal 11 is only a recommendation, the law protects the 12 impartial role of the judge by limiting the reasons why 13 the Commission may change the judge's recommendation. 14 There are three reasons. These are: 15 One, to correct a technical error such 16 as a wrong name, address, date or a basic fact; 17 Two, if the judge fails to properly 18 apply the law, agency rules, policies or prior 19 decisions; or 20 Three, if the Commission decides to 21 overrule a prior agency decision relied on by the 22 judge, either because it's incorrect or because the 23 Commission has decided it should be changed. 24 Next, I'll touch briefly on additional 25 required training. A new Commissioner is required to 0014 1 complete the Attorney General's online training on the 2 Open Meetings Act and the Public Information Act within 3 90 days of taking the oath of office. Commissioner 4 Franz and I discussed the Open Meetings Act and the 5 Public Information Act, and I won't go into detail on 6 them here. 7 There is a separate required webinar 8 training course on contract management conducted by the 9 Texas Comptroller's Office. And I am pleased to report 10 that Commissioner Franz has already completed all the 11 additional required training. 12 Last, I will note that because the 13 Lottery Commission is a five-member board, three 14 Commissioners are required for a quorum and there must 15 be at least three Commissioners present to conduct 16 business in an open meeting. With just three 17 Commissioners as a quorum, that means it only takes two 18 of you to decide a matter. Clearly, if we had four or 19 five Commissioners, any two Commissioners could meet 20 and discuss public business without violating the Act. 21 Now, I'm not aware of any specific AG 22 opinion that expressly addresses the situation where 23 you have a five-member board where there are only three 24 Commissioners and two vacancies and whether two 25 Commissioners can still meet without violating the Open 0015 1 Meetings Act, but my cautious sense is that because it 2 only takes two of you to bind the Agency with a 3 decision, you should avoid such communications until we 4 have a fourth Commissioner. Then, it is generally 5 acceptable for any two of you to talk outside a public 6 meeting. 7 But even then, there's an important 8 caveat that I should mention. It would be a violation 9 of the Open Meetings Act to deliberately have a set of 10 two-Commissioner meetings with different Commissioners 11 to decide a matter of public business outside of a 12 public meeting. This is referred to as a walking 13 quorum and it's not allowed. 14 But in the end, whether you are 15 circumventing the Act is a question of intent, which is 16 always going to be a fact question. 17 Commissioners, this is a very broad 18 overview of some of the topics we went over with 19 Commissioner Franz. There is a lot of information and 20 the laws governing the Commission's activities, so 21 please feel free to contact me or anyone in Legal 22 Services if you ever have any questions about these 23 laws or how they apply. 24 Thank you. 25 COMMISSIONER FRANZ: Thank you. 0016 1 CHAIRMAN KRAUSE: Thank you, Mr. Biard. 2 AGENDA ITEM NO. III 3 CHAIRMAN KRAUSE: Item Number 3, Trace 4 Smith is going to give us a report on the Bingo 5 Advisory Committee. All the way from Texarkana. 6 MR. SMITH: All the way. All the way. 7 Good morning, Commissioners. Thank you for allowing us 8 to speak today. The BAC would first like to welcome 9 Commissioner Franz. Congratulations on your 10 appointment and we look forward to working with you in 11 the future. 12 Justin Logan has resigned from the BAC 13 and we would like the Commissioners to formally remove 14 him from the Conductor/Lessor position and reopen the 15 application process to fill his seat. 16 Also, we have another vacancy in the BAC 17 for a public member. If you'll remember, the last 18 meeting we had, we had quite a discussion about what 19 constitutes a public member. We just need to have that 20 reopened. We again would like to request for you to 21 reopen that application process. 22 The BAC elected not to meet in May due 23 to the 2019 Legislative Session. We look forward to 24 working with the Commissioners and the staff during the 25 rulemaking process that will follow the 2019 0017 1 Legislative Session. We are currently working on our 2 year end report for the August Commission meeting, at 3 which time we will ask for your support to continue the 4 Bingo Advisory Committee. 5 The consensus among the BAC and most of 6 the industry is that we support the proposed rule on 7 limiting back rent to 120 days. 16 TAC 402.403. There 8 are some in the industry who have great concerns with 9 this. The BAC will -- we will be working with the 10 bingo community to contact our local officials about 11 keeping the local share of the prize fees with the 12 charities and in accordance with HB 914 Section 5. 13 Sincerely Trace Smith, Chairman, Bingo 14 Advisory Committee. 15 CHAIRMAN KRAUSE: Thank you very much. 16 Questions, Commissioners? 17 COMMISSIONER RIVERA: None. 18 CHAIRMAN KRAUSE: Mr. Biard, is this 19 actually an action item for us or can we just take 20 notice of the fact that there is a vacancy and that the 21 Bingo Advisory Committee can go forward with seeking to 22 fill it? 23 MR. BIARD: That's fi -- there is -- 24 yeah, there's no action to be taken today. At the 25 point they propose a -- this public member and the 0018 1 maybe one other position open, they'll have to come 2 back to you and y'all will approve that, but that's not 3 today. 4 CHAIRMAN KRAUSE: Be happy to do that. 5 Thank you very much. 6 MR. SMITH: Thank you. 7 AGENDA ITEM NO. IV 8 CHAIRMAN KRAUSE: Ryan Mindell. 9 MR. MINDELL: Good morning Chairman, 10 Commissioners. For the record, my name is Ryan 11 Mindell, I'm the Lottery Operations Director. 12 Commissioners, each of you have a copy 13 of the 2019-2020 Comprehensive Business Plan and 2018 14 Annual Report. The 2018 Annual Report contains a 15 summary of the Agency's sales and revenue results, 16 along with performance highlights from fiscal year 17 2018. 18 Next, is the 2019-2020 Business Plan, 19 which conforms to the statutory requirements from 20 sunset legislation. The Comprehensive Business Plan 21 contains key performance factors that capture measures 22 of agency efficiency and performance, as well as 23 targets or projections for these factors. 24 I like to call this document the single 25 best source for information about the Commission, both 0019 1 what we've done in the past and what we plan to do in 2 the future. And I'd also like to note the significant 3 work across the Agency that goes into preparing this 4 report. 5 I'm happy to respond to any questions 6 you have prior to consideration of the plan today. 7 CHAIRMAN KRAUSE: Commissioners, 8 questions, comments? Is there a motion to approve the 9 Business Plan? 10 COMMISSIONER RIVERA: Move for approval. 11 COMMISSIONER FRANZ: I'll second. 12 CHAIRMAN KRAUSE: All in favor say aye. 13 (Chorus of "ayes") 14 CHAIRMAN KRAUSE: This Business Plan is 15 approved. 16 MR. MINDELL: Thank you, Commissioners. 17 AGENDA ITEM NO. V 18 CHAIRMAN KRAUSE: Tyler Vance. 19 MR. VANCE: Good morning, Commissioners. 20 My name is Tyler Vance, Assistant General Counsel. 21 I have for you today the consideration 22 and possible discussion of the adoption of an amendment 23 to Rule 402.403. This is regarding loaning money to an 24 organization. The Bingo Enabling Act prohibits a 25 lessor or prohibits a person from getting a lessor's 0020 1 license if they've ever loaned money to an 2 organization. So this rule is defining a loan to 3 include the acceptance of a rental payment more than 4 120 days after the date of the occasion for which it is 5 attributed. 6 This rule that's before you today for 7 adoption is different than the rule that was proposed 8 in that the proposed rule also included a prohibition 9 of accepting payments for taxes, insurance and 10 utilities more than 120 days after. That provision was 11 dropped in response to a comment that we received from 12 River City Bingo that said that that would prohibit a 13 very common business practice of charging triple net 14 expenses and kind of escrowing taxes over the year. 15 So that provision's been dropped. The 16 only thing we have left is the rental payment 17 prohibition, which has been recommended by the Bingo 18 Advisory Committee. There was another comment from 19 Fort Worth Bookkeeping and Ms. Sharon Ives. That was 20 kind of more of a clarification about how this rule 21 would be interpreted. And there was a comment from the 22 Texas Veterans of Foreign Wars that opposed the rule as 23 written and ask that we accept payment plans that were 24 mutually agreeable by the organizations and lessors. 25 We oppose that comment because a payment plan is 0021 1 essentially a loan, which is prohibited. 2 So the rule before you for adoption is 3 for the prohibition against accepting a payment 120 4 days after the occasion and staff recommends that you 5 adopt that rule amendment. 6 CHAIRMAN KRAUSE: Questions for this 7 witness? 8 COMMISSIONER FRANZ: No questions. 9 CHAIRMAN KRAUSE: We have a witness who 10 would like to come testify. Mr. Fenoglio? I guess 11 you're not going to testify, you're just going to give 12 us a piece of your mind. 13 MR. FENOGLIO: Yes. 14 CHAIRMAN KRAUSE: You're not under oath 15 or anything. 16 MR. FENOGLIO: Yes, Mr. Chair. I've got 17 30 seconds, I believe. 18 CHAIRMAN KRAUSE: You can have 45. 19 MR. FENOGLIO: Thank you. So generous. 20 So I filed on behalf of River City 21 Bingo, the rule, and we fully support what the staff 22 has come up with. We think that's very workable and we 23 support the staff's changes. Thank you. 24 CHAIRMAN KRAUSE: Well, outstanding. 25 We're always happy when the rules that we make are 0022 1 rules that everybody can live with; staff, bingo 2 community, et cetera, et cetera. So I'm glad to hear 3 about that. 4 MR. FENOGLIO: Thank you. 5 CHAIRMAN KRAUSE: You betcha. So 6 anyway, is there a motion to adopt the rule changes? 7 COMMISSIONER FRANZ: I'll move. 8 COMMISSIONER RIVERA: Second. 9 CHAIRMAN KRAUSE: All in favor say aye. 10 (Chorus of "ayes") 11 CHAIRMAN KRAUSE: Changes are approved. 12 AGENDA ITEM NO. VI 13 CHAIRMAN KRAUSE: Kathy Pyka. 14 MS. PYKA: Good morning, Commissioners. 15 My name is Kathy Pyka, Controller for the Agency. With 16 me this morning is the Commission's Products Manager 17 Robert Tirloni. 18 Our first chart for you this morning, 19 Commissioners, reflects the comparative sales data 20 through the week ending June 1st, 2019. Fiscal year 21 2019 sales through the forty -- this forty week period 22 are $4,816,000,000, which is an increase of just under 23 $560-million or 13.2 percent, as compared to fiscal 24 year 2018. 25 Fiscal year 2019 scratch ticket sales 0023 1 reflected on the second orange bar, are $3,687,000,000, 2 which is a $346-million increase over the sales figure 3 for fiscal year 2018. With a growth rate of 10.4 4 percent in scratch ticket sales over last fiscal year, 5 the Commission has reported scratch ticket sales growth 6 in every week of the fiscal year, continuing the trend 7 that we had last fiscal year. 8 And I wanted to note that beginning with 9 the week ending November the 24th, every week has 10 generated a minimum of $90-million with eight weeks 11 generated over $100-million. So as we look at then the 12 totals, our scratch ticket sales represent 76.6 percent 13 of total sales through this period. 14 Fiscal year 2019 draw sales, which are 15 reflected on the second blue bar, are $1,129,000,000 16 and that is a $213.8-million increase or 23 percent 17 over the 915-million reported for fiscal year 2018. 18 Robert will now provide an overview of 19 additional sales detail. 20 MR. TIRLONI: Thanks, Kathy. Good 21 morning, Commissioners. 22 Commissioners, let's break down the 23 $560-million surplus we're realizing year over year by 24 product. So at the top of this slide are the jackpot 25 games. We are realizing a $219-million gain year over 0024 1 year. Most of that gain is coming from Mega Millions 2 and from Powerball. This is due to large jackpots that 3 have been experienced in fiscal '19. 4 The add-on games for both Powerball and 5 Mega Millions are also experiencing a sales gain, which 6 we would expect. 7 Lotto Texas is experiencing decline, 8 that's due to a lack of jackpots in fiscal '19 compared 9 to '18. 10 The middle of the slide in blue is the 11 daily games. We kind of have a lot going on here. 12 I'll point out some highlights. Triple Chance is 13 showing a $9.2-million deficit. That's because that's 14 a discontinued game that we no longer offer. We ended 15 that right at the end of fiscal '18. So once we move 16 into the new fiscal year we'll no longer be tracking 17 this and this will drop off. 18 You're also seeing declines for Pick 3 19 sum it up and for Daily 4 sum it up. Those two are now 20 discontinued features and they've been replaced with 21 Pick 3 Fireball and Daily 4 Fireball. So we've 22 realized -- these are new sales, so we've realized 2.5- 23 million from Pick 3 Fireball and 1.7-million from Daily 24 4 Fireball. We're very pleased with the sales that 25 we're realizing from those brand new add-on features. 0025 1 They've only been out for about five to six weeks, so 2 we're thrilled with the sales that we're seeing from -- 3 from this new feature. 4 In addition, we're very pleased with the 5 $3-million gain on Cash 5. That, too, is a new game. 6 It was tweaked back at the beginning of the fiscal year 7 in September. So we're really pleased with the draw 8 game changes that we've been able to make this year to 9 the daily game portion of the draw portfolio and we're 10 realizing some great sales from those changes. 11 So overall, we're down about 5.2-million 12 on daily games when you consider all of the items I 13 just went through, but overall, we're up 213-million 14 for the draw game portion of of the portfolio. As 15 Kathy mentioned, we continue to see phenomenal scratch 16 sales week after week. Scratch sales are up $346- 17 million through last Saturday, June 1st. And that's 18 the summary of the portfolio with the overall surplus 19 $560-million this year. 20 And we're happy to answer any questions 21 you all may have. 22 CHAIRMAN KRAUSE: Commissioners? 23 Robert, I'm curious. How do you gather intel on what 24 our customers like beyond just simply looking at the 25 numbers? I mean, do we talk to people, how does that - 0026 1 - how does that work? 2 MR. TIRLONI: Sure. So when we have a 3 new draw game idea, we work with IGT, IGT Texas, and 4 their corporate resources. We do research before we 5 even bring you those rules for consideration. We talk 6 to players and we talk to retailers typically about 7 those changes. So we kind of get the intel on the 8 front-end about what people will like and then it's an 9 ongoing process. 10 We get feedback from the IGT sales 11 management team, we meet with them every other week, to 12 find out what the trends are, what people like, how new 13 -- new game -- or new game changes such as Fireball, 14 are going. And we also get feedback from our retailer 15 community as well. 16 So, you know, we compile all of that and 17 that's how we continue to make decisions or make tweaks 18 to our games and make enhancements. 19 CHAIRMAN KRAUSE: Well now you mentioned 20 that's for the draw games, but we seem to have 21 particular talent in developing scratch games that 22 people are -- really that our customers really enjoy, 23 so is it the same process or is it a little bit 24 different? 25 MR. TIRLONI: A little bit different on 0027 1 the scratch ticket side. So we work with Pollard, IGT 2 Printing, and Scientific Games. We go through an 3 annual game planning process with them where they all 4 come in and meet with us individually and we tell them 5 we want them to bring us their best concepts that they 6 have, from any other customer that they've been doing 7 business with in the United States, it can be from 8 overseas customers. We ask them to bring new concepts 9 that they may have developed that may not have been 10 launched anywhere as of yet. 11 They bring us those concepts, we sit 12 down with them, we go through those concepts, we pick 13 the ones that we like so we kind of pare down, and then 14 again, we sit down with Ryan, Gary, the IGT Texas team, 15 and then we basically select and build our scratch 16 ticket game plan for the entire fiscal year based on 17 that large population of games that we've received. 18 And that's also an ongoing process, 19 though, too. Like I mentioned, we get feedback from 20 the IGT sales team regularly about maybe a feature 21 we've put on a scratch game or a bonus box that we've 22 put on to a scratch game. And if we know that that's 23 successful and people like that, we sure duplicate that 24 and put it on other games in the future. 25 MR. GRIEF: Mr. Chairman, could I add 0028 1 something -- 2 CHAIRMAN KRAUSE: Absolutely. 3 MR. GRIEF: -- to Robert's response? I 4 think Robert's being a little bit modest also. Robert 5 and Dale Bowersock who reports to Robert, these two 6 gentleman have -- each have more than 20 years 7 experience, deep product experience, in the scratch 8 ticket market. 9 When we have conferences around the 10 country, whether they be put on by the Public Gaming 11 Research Institute or La Fleur's Lottery Group or 12 NASPL, these two gentlemen are the go-to people in the 13 country when they're looking for people to make 14 presentations or bring their best ideas. So in 15 addition to all those things that Robert mentioned, in- 16 house we have the most talented staff when it comes to 17 game development and understanding what our customers 18 want and our retailers will accept. 19 CHAIRMAN KRAUSE: Well now, Mr. 20 Executive Director, you just kind of stole my thunder, 21 because I was going to say how great our staff is and 22 how proud we are of them. So, you know -- 23 MR. GRIEF: Yeah. 24 CHAIRMAN KRAUSE: -- thank you guys very 25 much. 0029 1 MR. TIRLONI: Thank you, sir, Gary and 2 you, Mr. Chairman. 3 CHAIRMAN KRAUSE: Yeah, go ahead. 4 COMMISSIONER RIVERA: Quick question on 5 the discontinued games and the rolling out of the new 6 ones, was that seamless or was there a gap where 7 players who no longer had that option for a 8 discontinued game where they were left without any new 9 options or how was that transition handled? 10 MR. TIRLONI: So whenever we're ending a 11 feature, we time it so that it ends and the new one is 12 available. So since our business week ends on 13 Saturday, we typically end features or we end games on 14 Saturday and we bring up our new game at the start of 15 our business week the next day on Sunday. So yes, it 16 was seamless. 17 COMMISSIONER RIVERA: So typically 18 whenever a new game is unveiled, does it have a 19 trajectory of increased growth once the public is aware 20 of it and familiar with it versus a brand new entrance 21 into the market where it's immediately embraced? 22 MR. TIRLONI: Well, what we find is 23 because we do a lot of promotion, a lot of advertising 24 at the start, you know, things typically start off 25 really strong because there's such a focus -- 0030 1 COMMISSIONER RIVERA: Okay. 2 MR. TIRLONI: -- with -- at -- in retail 3 with our point of sale and with our promotional 4 efforts. And then after a time, things typically 5 settle a little bit and kind of reach the -- you know, 6 the -- like the mid-level of what we'd expect it to do. 7 So it usually starts off very strong and 8 settles and settles. And you do have people that try 9 something right out of the gate. You know, long-term 10 they may not like it. But we typically see higher 11 trial, higher sales at the beginning with a settling-in 12 period a few weeks in. 13 COMMISSIONER RIVERA: What would be your 14 feeling about the -- the daily draw games moving 15 forward in terms of its performance? 16 MR. TIRLONI: Well, the daily draw games 17 are super important to us, because we have, you know, 18 on the jackpot side of the portfolio, we have 19 absolutely no control over what happens there. 20 COMMISSIONER RIVERA: Right. 21 MR. TIRLONI: So we -- we can't predict 22 when a jackpot's going to roll or when it's going to 23 get hit. The daily games are kind of our base, so they 24 allow us -- 25 COMMISSIONER RIVERA: Right. 0031 1 MR. TIRLONI: -- to establish that base. 2 I mentioned that Pick 3 is down $6.3-million, but if 3 you look through this column for Fiscal '19, if you 4 take the two big multi-jurisdiction jackpot games out, 5 Pick 3 is our best selling draw game. So it's very 6 important, we work very hard to make sure that those 7 games are getting support. 8 That was one of the reasons we really 9 liked the addition of Fireball to Pick 3 and Daily 4, 10 because they are so important for base level draw game 11 sales. We like the fact that not only was it a new 12 feature, but it was also calling and bringing attention 13 back to Pick 3 and Daily 4, which don't typically get a 14 lot of advertising support -- 15 COMMISSIONER RIVERA: Right. 16 MR. TIRLONI: -- on a yearly basis. 17 COMMISSIONER RIVERA: Okay. Thank you. 18 MR. TIRLONI: Did I -- did that answer 19 your question? 20 COMMISSIONER RIVERA: Perfect. 21 MR. TIRLONI: Very good. 22 CHAIRMAN KRAUSE: Thank you very much. 23 MR. TIRLONI: Thank you. 24 CHAIRMAN KRAUSE: Let's move on to the 25 next item. 0032 1 AGENDA ITEM NO. VII 2 CHAIRMAN KRAUSE: Ms. Pyka? 3 MS. PYKA: Certainly. Tab 7 includes 4 information on the Agency's transfers to the State and 5 the Agency's budget status. The report in your 6 notebook reflects accrued revenue transfers and 7 allocations to the Foundation School Fund, the Texas 8 Veterans Commission, and the allocation of unclaimed 9 prizes, for the eight-month period ending April 30th, 10 2019. 11 Total accrued revenues transfer to the 12 State amounted to $1,049,000,000 for the eight months 13 of Fiscal Year 2019. Of the $1,049,000,000 transferred 14 to the State, $1,010,000,000 was the amount of revenue 15 transferred to the Foundation School Fund, 11.3-million 16 was the amount transferred to the Texas Veterans 17 Commission, and $27.8-million the amount transferred 18 from unclaimed prizes. The amount transferred to the 19 Foundation School Fund from sales now reflects a 20.8 20 percent increase or $174-million over the same period 21 last fiscal year. 22 Commissioners, total cumulative 23 transfers to the Foundation School Fund are now at 24 $23.5-billion following this month's revenue transfer. 25 The final item under this tab is the 0033 1 Agency's fiscal year 2019 method of finance summary for 2 the second quarter ending February 28th, 2019. The 3 Commission's Lottery account budget for fiscal year 4 2019 is $237.1-million. Of this amount, 77.6 percent 5 was expended and encumbered through the end of the 6 second quarter. 7 The bingo operations budget funded by 8 the Bingo Administration dedicated account is $17- 9 million, with 12.9 percent expended and encumbered 10 through the end of the second quarter. 11 Commissioners, this concludes my 12 presentation. I'd be happy to answer any questions. 13 CHAIRMAN KRAUSE: Questions? 14 COMMISSIONER FRANZ: No, sir. 15 CHAIRMAN KRAUSE: Questions? 16 COMMISSIONER RIVERA: Thank you. 17 CHAIRMAN KRAUSE: Thank you, ma'am. 18 MS. PYKA: Thank you. 19 AGENDA ITEM NO. VIII 20 CHAIRMAN KRAUSE: Our next item is the 21 report on the legislative session. Nelda Trevino. 22 MS. TREVINO: Good morning, 23 Commissioners. For the record, I'm Nelda Trevino, I'm 24 the Director of Governmental Affairs. I'm going to 25 provide a final report regarding the legislative 0034 1 session and Kathy will provide a final status as it 2 relates to the Agency's legislative appropriations for 3 the next biennium. 4 As you are aware, the 86th regular 5 legislative session concluded on May the 27th. There 6 were over 7500 bills filed during this session and 7 approximately 19 percent passed the Legislature. The 8 Governor now has until June the 16th to either sign or 9 veto legislation or let those bills become law without 10 his signature. 11 The Agency tracked over 300 of the bills 12 filed this session. In addition to Lottery, Bingo and 13 Gaming-related legislation, many of the bills we 14 tracked covered a variety of subjects, including the 15 Open Meetings Act, the Public Information Act, State 16 Purchasing and Contracts, Cyber Security, and matters 17 related to human resources and employee benefits. 18 In your Commission meeting notebook, we 19 have provided you a copy of the Agency's full 20 legislative bill tracking report and today we have 21 provided you an abbreviated agency bill tracking 22 report. The 28 bills noted on this report were passed 23 by the Legislature and are being reviewed by 24 appropriate Agency staff as part of the Agency's 25 legislative implementation project, to determine what 0035 1 action, if any, the Agency may need to take. 2 For the record, I want to mention the 3 two Bingo-related bills that were passed by the 4 Legislature and are noted on the implementation bill 5 tracking report. These include House Bill 882 by 6 Representative Cecil Bell and Senator Lois Kolkhorst. 7 And this is the bill that extends the hours of a bingo 8 occasion from four to six hours. 9 Also, House Bill 914 by Representative 10 Senfronia Thompson and Senator Judith Zaffirini. Some 11 of the provisions in the final version of this bill 12 include shifting the responsibility from the license 13 holder to the Commission regarding written notification 14 to the local governing body and to appropriate law 15 enforcement authority on the issuance of a license; 16 modifying the process for the distribution of bingo 17 prize fees for payments to local governments, would be 18 made directly by the licensed organization as opposed 19 to those allocations being made by the Commission; 20 stipulating that local governments that currently 21 receive their 50 percent share of the prize fee will 22 only be entitled to continue receiving it if they vote 23 again to impose the fee by November the 1st, 2019; and 24 lastly, if a local government does not vote to impose 25 the fee by the November 1st deadline, their 50 percent 0036 1 share of the prize fee will be deposited into the 2 charitable fund of the licensed organization to be used 3 for charitable purposes. 4 As Agency staff works on implementing 5 these bills and to comply with the requirements of the 6 legislation, it is anticipated that staff will be 7 bringing forward at future Commission meetings proposed 8 rulemaking for your consideration. 9 This concludes my portion of the report 10 and I'm going to turn it over to Kathy who will provide 11 a final status on House Bill 1 and the appropriations 12 for the Agency. 13 MS. PYKA: Thank you, Nelda. For the 14 record again, Kathy Pyka, Controller for the 15 Commission. 16 As Nelda mentioned, I'll be providing an 17 update related to the Agency's budget request from the 18 last session. 19 At our meeting in April, I shared that 20 there were three items within the fiscal year 2020-'21 21 budget which would be deliberated by the budget 22 conference committee. The first item relates to the 23 Commission's advertising budget. 24 Our advertising appropriation was 25 reduced to $35.5-million for the biennium, which is a 0037 1 $15-million reduction from the $50.5-million currently 2 available to the Commission. 3 The second item up for deliberation was 4 the Commission's retailer bonus appropriation of $8.4- 5 million. The final budget reflects one-half of our 6 budget request or $4.2-million for the biennium. 7 Finally, the house version of the budget 8 included a decrease of $500,000 which was allocated 9 across all lottery and bingo strategies. The 10 conference committee elected to adopt this 11 appropriation decrease. 12 In closing, as Nelda mentioned, the 13 Governor's period to veto is up to June the 16th. This 14 includes line item veto authority or the authority to 15 veto individual items in the appropriation bill. 16 This concludes my portion of the report 17 and I will turn it over to Gary for additional remarks. 18 MR. GRIEF: Thank you, Kathy. 19 Commissioners, you've heard Kathy lay out the impact to 20 our budget for the next biennium as a result of the 21 legislative session, and I wanted to add some important 22 facts related to that budget, focusing in particular on 23 the advertising impact to our budget. 24 As Kathy has noted in previous meetings, 25 two years ago the Agency's annual advertising budget 0038 1 suffered a legislative cut from $32-million to 2 approximately $24.6-million annually. That was a 23 3 percent cut. 4 At that time, the most significant 5 impact of that particular cut was to force us to 6 discontinue all television advertising for the Texas 7 Lottery. Of course, that's one of the staples for any 8 effective advertising program. 9 This session, as Kathy said, our 10 advertising budget now on an annual basis has been cut 11 an additional 28 percent, from 24.6-million to $17.7- 12 million annually. This latest round of cuts is 13 certainly going to force us to take more drastic action 14 to comply with the needed reductions. 15 So some of the highlights of those 16 reductions that we're going to be taking over the next 17 two years. We're going to see the removal of a number 18 of our jackpot and scratch ticket-related billboards 19 around the state. We're going to see the elimination 20 of approximately 50 percent of our presence on radio 21 stations statewide. We're going to see the elimination 22 of one of our five or six critically important media 23 campaigns for families of scratch tickets. And you've 24 heard those described in previous meetings. 25 We're going to see the discontinuation 0039 1 of more than 80 percent of our advertising reach 2 through digital mediums and apps like Spotify, ESPN, 3 Pandora, all of which are critical to reaching a 4 younger demographic in our state. 5 And finally, we're going to see the 6 discontinuation of several of our existing sponsorship 7 partnerships with notable sport brands and other media 8 worthy events. While we certainly respect the 9 decisions made by the Legislature in this regard, I 10 need to be clear to my board and clear to the public, 11 these cuts are going to make our job of generating 12 revenue for education and veterans much more 13 challenging. 14 The Texas Lottery and our performance 15 are held in very high regard, both nationally and 16 internationally, within the lottery industry. While 17 you've heard Kathy today speak about the tremendous 18 sales growth we're seeing this year, and while both 19 Chairman Krause and Commissioner Rivera, are very 20 familiar with the record-breaking sales and revenue 21 we've had over the past several years, we could be 22 doing so much more if we had an effective advertising 23 budget in our toolbox. 24 Over the years we've engaged with both 25 the University of Texas and Texas A&M University to 0040 1 analyze the effect of advertising on lottery sales. We 2 provided those analyses to the Legislature and to state 3 leadership, and even given the conservative nature of 4 those analyses, the State of Texas has clearly missed 5 out on millions of dollars in revenue for education and 6 veterans. 7 Going forward, those losses in revenue 8 will almost certainly grow. And while we might, and 9 indeed I hope and expect, to see continued solid growth 10 going forward, know that the staff and I can't help but 11 have a feeling of what could have been and what should 12 have been accomplished were we just allowed to 13 advertise within the norms of the lottery industry. 14 And to that point, the norms of the 15 industry, based on these latest cuts to our advertising 16 budget, lottery ad spending per capita in Texas will 17 now be the third lowest in the country of the 45 states 18 who have authorized a state lottery, trailing only 19 Montana and West Virginia in per cap spending. And the 20 per cap spending in Texas will be less than one-half of 21 the per cap spending in 40 of the 45 jurisdictions that 22 allow lottery. 23 Commissioners, all that said, our team 24 understands the job ahead of us. And when I talk about 25 our team, I'm talking not only about our Lottery 0041 1 Commission staff, I'm talking about our partners at IGT 2 Texas, our advertising partners at Third Ear, formerly 3 known as LatinWorks, and our three scratch ticket 4 printers; Scientific Games, IGT Printing and Pollard. 5 That team will continue to press onward and focus on 6 the things that we can control. Most importantly, 7 making sure we continue to put forward the absolute 8 best mix of products possible into the market. 9 In addition, I'm going to continue to 10 work diligently at the national and the international 11 level, to ensure that we attempt to leverage any and 12 all opportunities to grow our multi-jurisdictional 13 portfolio, and we will do all of this, and I want to 14 emphasize this last point, we will do all of this while 15 making sure we stay within our statutory framework. 16 Thank you, Commissioners. That 17 concludes our presentation. 18 CHAIRMAN KRAUSE: We do have a witness. 19 Mr. Bresnen. 20 MR. BRESNEN: Is this all right? 21 CHAIRMAN KRAUSE: Absolutely. 22 MR. BRESNEN: Thank you, Mr. Chairman. 23 Everybody seems so surprised, I just didn't know I was 24 going to be following such bad news. Really appreciate 25 that, Gary. 0042 1 My name is Steve Bresnen here on behalf 2 of the Bingo Interest Group. And I wanted to tell you 3 a little bit about what happened during the session, 4 some very good things. And Commissioner Franz, welcome 5 to the Agency; really look forward to coming and 6 briefing you from the Agency's perspective at a 7 convenient time for you. 8 Most significantly we passed House Bill 9 914. I say we passed it, Chairwoman Senfronia Thompson 10 and Senator Judith Zaffirini were our bill sponsors. 11 And if you’ve got them working for you, you’re on the 12 two-yard line and all you can do is mess it up. And so 13 -- and we didn't. They have some very fine staff 14 members who I hope as the Agency interacts with those 15 offices you’ll give them your appreciation: Brian King 16 for Ms. T., and Andrew Hendrickson for Senator 17 Zaffirini did an outstanding job. And a lot of what 18 they did was interacting with the Agency to make sure 19 that the Agency's needs were met and that if we were in 20 error on something we were doing on the bill it got 21 corrected. 22 We worked very, very well with the 23 Agency staff. I'd like to provide my apologies if my 24 temperament wasn't cool and smooth during the entire 25 legislative session, but I think we maintained our good 0043 1 relations. And I really want to thank in particular 2 Tyler Vance. 3 Mr. Vance came to the Agency very 4 shortly before the legislative session. Regulation of 5 charitable bingo is not in everybody's wheelhouse, it's 6 in very few people's wheelhouse, and Mr. Vance really 7 got up to speed fast and when there were holes in the 8 bills and things that needed to be fixed, not only did 9 he recognize them, but he was able to explain how to 10 fix them. We worked very closely with the governmental 11 relations staff and Michael Farrell, so we got a 12 successful result. 13 I want to talk about three different 14 items. Two as a matter of explanation of about how 15 things, when the rubber meets the road in charitable 16 bingo kind of for your edification, Commissioner Franz, 17 because some of these types of issues we'll be talking 18 to you about later. 19 The price fees on merchandise prizes was 20 eliminated by the legislation. That doesn't sound like 21 much, but if you think about it, if you give away $100 22 TV to a bingo winner, you have to get $5 in cash back 23 from them to get the prize fee. If you take that $5 24 that the average spend in a bingo hall is 30, 35, $40, 25 you've taken $5 out of that person's wallet that can't 0044 1 be spent in the bingo hall. So it's very, very 2 important simple nuts and bolts kind of thing that will 3 make a big difference in the business. 4 Similarly, under current law, if a 5 charity conducts back-to-back occasions and they sell 6 pull-tabs during each occasion, right now they have to 7 stop and do accounting at the end of each occasion. 8 This bill will allow them to do the accounting all at 9 the end of the second occasion, so they don't have to 10 slow down and interfere with the customers and make a 11 gap in there and you lose customers. 12 So those are a couple of the nuts and 13 bolts types of things, there were others in the bill 14 that were addressed that will make a difference. 15 The thing with the biggest potential to 16 make a difference, right now, Commissioner Franz, local 17 governments receive about 11-million, $12-million a 18 year in local prize fee. They don't do anything to 19 generate that. Most organizations provide their own 20 security, everything's up to the organizations in their 21 financing and the work that they do to generate the 22 money. 23 So as a famous bank robber once said, 24 they rob banks because that's where the money is. 25 So the Legislature authorized and put in 0045 1 place a system whereby the local governments have an 2 opportunity to decline to continue to receive the prize 3 fee. They have to exercise that option or do nothing by 4 November 1st of this year. If they opt out, or they do 5 nothing, that money will be collected from the player 6 as it is today, but it will be deposited into the 7 charities' general funds to be used only for charitable 8 purposes, not for bingo expenses. There's about -- oh, 9 there’s an opportunity, 11 or $12-million out there 10 that I can assure you we're going to organize and try 11 to go get that money, and I will report back to you as 12 to our success on that matter. 13 There's one other bill that I want to 14 call to your attention that's not strictly bingo 15 related, but the Legislature also passed a bill that 16 asks every charity in the state to regulate eight-liner 17 game rooms. Under current law, there's a handful of 18 counties, Harris was sort of the lead dog on that a few 19 years back and a few other counties have gotten 20 legislation passed, but now every county in the state 21 has an opportunity to regulate eight-liner game rooms. 22 Those are defined as more than five at a given 23 location. 24 Commissioner Franz, one of the biggest 25 problems in charitable bingo is competing with illegal 0046 1 eight-liner game rooms. And paying cash in substantial 2 amounts and not subject to the regulation, the kinds of 3 regulation that charitable bingo is. So these counties 4 are going to have the opportunity to put in place 5 regulations for signage where they have to be 6 accessible to law enforcement going in, lots of 7 different kinds of things that people who are not 8 acting on the right side of the law are not going to 9 want to do. And tools for local governments to enforce 10 where they don't have to have undercover agents proving 11 that a machine's not ten times compliant or whatever. 12 So that's another thing that we have our work cut out 13 for us to go around the state and try and get the 14 counties to opt in. The good thing is there are some 15 counties that already have regulations in place so they 16 don't have to reinvent the wheel. 17 I just want to close by saying thank you 18 very much. The Bingo Advisory Committee process that 19 you all put in place worked extremely well, it 20 dovetailed very well the legislative program, because 21 we were able to run through ideas and decide which ones 22 were good ones, which ones were bad ones, what were the 23 questions that would be involved with each one, and 24 then to get some industry-wide support, that was a 25 great vehicle for doing that and the Commissioners’ 0047 1 involvement with it and the staff's involvement I think 2 has been hugely successful. 3 And I really want to say a special 4 thanks to Trace. Mr. Smith comes all the way from 5 Texarkana, he's -- he's here every time he can be and 6 he's done a heck of a job running the BAC. So thank 7 you very much. I'm happy to answer any questions if 8 you have any. 9 CHAIRMAN KRAUSE: Questions, comments? 10 COMMISSIONER FRANZ: Just one, and we'll 11 get a chance to dig in on this further. 12 MR. BRESNEN: Yes, sir. 13 COMMISSIONER FRANZ: But what percentage 14 of local jurisdictions now avail themselves of the fee? 15 MR. BRESNEN: The fee is -- 16 COMMISSIONER FRANZ: Or just a ballpark 17 number? 18 MR. BRESNEN: Yeah. So the fee is a 19 back in the early 90's feature of statute and a number 20 of these cities and counties had a gross receipts tax 21 in place. When the financing was changed and the prize 22 fee was put in place, they just grandfathered in those 23 local governments that have -- that had a gross 24 receipts tax to keep them whole. And so the vast 25 majority of cities and counties where bingo is 0048 1 conducted had that, there is just a handful, I don't 2 remember the number right now, but to give you -- to 3 give you an example -- are we about to get the answer? 4 MS. PYKA: Certainly. 5 MR. BRESNEN: And the answer is? 6 MS. PYKA: So just under 50 percent. It 7 -- there's not a whole lot. And as we look at the 8 total value of prize fees that were allocated, close 9 were you know, up to the $14-million range, it's about 10 $800,000 that's retained by the state out of that 11 share. 12 MR. BRESNEN: Okay. Thank you. 13 CHAIRMAN KRAUSE: Thank you, sir. 14 MR. BRESNAN: Yes, sir. Thank you. 15 CHAIRMAN KRAUSE: Well, it's certainly 16 been a consequential legislative session. And so, 17 anyway -- and I officially direct our Executive 18 Director to take a look at what we can do with what 19 we've got on the advertising side. 20 AGENDA ITEM NO. IX 21 CHAIRMAN KRAUSE: Next item is a report 22 from our internal auditor. 23 MS. BROWN: Good morning, Commissioners. 24 I'm Darlene Brown. I have a very quick status report 25 for you today. It -- behind Tab 9 is my status report 0049 1 and I will let you know that we are on tasked to 2 complete all of the internal audit plan that was 3 approved for Fiscal Year '19 by August 31st. We're 4 currently wrapping up a lot of the audits, and also, 5 we're in the process of conducting our risk assessment 6 for next year's audit plan and I’ll be reaching out to 7 each of you individually to get your input. 8 That is the summary of the status 9 report. I'll be happy to answer any questions. 10 CHAIRMAN KRAUSE: Thank you, ma'am. 11 MS. BROWN: Thank you. 12 AGENDA ITEM NO. X 13 CHAIRMAN KRAUSE: Michael Farrell. 14 MR. FARRELL: Yes, sir. For the record, 15 Michael Farrell, Director of Charitable Bingo. There 16 will be a slide coming up. But I'm happy to report that 17 we filled the Charitable Bingo Operation Division’s 18 leadership team with the hiring of an audit manager and 19 accounting coordinator. They both came on board on 20 Monday. 21 CHAIRMAN KRAUSE: Outstanding. 22 MR. FARRELL: Yes, sir. On the screen 23 -- it's going to show up -- and in the binders is a 24 graphic of Charitable Bingo's adjusted gross receipts, 25 net proceeds and percentage of net proceeds for 0050 1 calendar years 2014 to '18. As you can see, the 2 average is somewhere right around 17.7 percent, so it's 3 been fairly flat. We also want to add that the next 4 Commission meeting there will be two agenda items 5 relating to the BAC as I think Trace talked about. He 6 also talked about their annual report coming in. And 7 the -- this -- at the meeting in August will be the 8 first Commission meeting held prior to September 1st 9 and you'll need to vote on whether to continue the BAC 10 for another year. I think it's a valuable tool in 11 bingo. 12 I have nothing else to add other than 13 what's in your binders and I'll be happy to answer any 14 questions. 15 CHAIRMAN KRAUSE: Thank you, sir. 16 AGENDA ITEM NO. XI 17 CHAIRMAN KRAUSE: Mr. Grief. 18 MR. GRIEF: Commissioners, other than 19 what's in your notebook, I have nothing further to 20 report today. 21 CHAIRMAN KRAUSE: Thank you, sir. 22 AGENDA ITEM NO. XII 23 CHAIRMAN KRAUSE: Mr. Bob Biard. 24 MR. BIARD: Thank you, Mr. Commissioner. 25 CHAIRMAN KRAUSE: Who has a talent for 0051 1 preciseness, has a tough job in being precise on all of 2 our enforcement cases, but we know he can do it. 3 MR. BIARD: Thank you, Commissioners. 4 Item 12 are the enforcement orders. Item 12 contains 5 12 lottery and bingo cases, Tabs A through L. 6 In these cases, Commission staff either 7 found a licensee violated a statute or rule or an 8 applicant did not qualify for a license. In many 9 cases, either the respondent failed to appear at the 10 hearing and it proceeds by the default, or the staff 11 and the respondent reached a settlement in the form of 12 an agreed order. Occasionally, we have litigated 13 cases. 14 I'll briefly describe the cases and you 15 can take them up in a single vote if you'd like. 16 Tabs A through F are non-sufficient fund 17 lottery retailer license revocations handled in a 18 single order. Each case was presented at the State 19 Office of Administrative Hearings for revocation of the 20 retailer's license on the grounds the licensee failed 21 to have sufficient funds in their bank account to cover 22 electronic fund transfers to the Commission's account. 23 In each case, the licensee failed to appear and the 24 judge remanded the case to the Commission to handle as 25 a default matter. Your notebook contains a single 0052 1 order to revoke each of these six licenses. 2 Tabs G through J -- oh -- no, G through 3 I, are lottery agreed orders. These are settlements 4 between a licensee and Commission staff that are 5 reached in lieu of revoking the retailer's license. 6 Tabs J through L in your notebooks are 7 litigated cases that were taken to the State Office of 8 Administrative Hearings. 9 I only want to point out Tab K is a 10 Motion for Rehearing in a case that was decided by you 11 at the April 11th meeting, Stephens Country Corner in 12 Hamilton County. We don't get a lot of Motions for 13 Rehearing, so I wanted to point it out. 14 In this case, the staff recommends 15 denying the Motion because the retailer raised no new 16 issues. 17 That concludes my presentation, you may 18 take the enforcement orders up in a single vote and I'm 19 happy to answer any questions. 20 CHAIRMAN KRAUSE: We will momentarily. 21 We have the possibility of a witness that wants to talk 22 about Item -- Item J. 23 MR. FENOGLIO: Commissioners, for the 24 record my name is Stephen Fenoglio, I represent the 25 Respondent and I have no presentation unless there are 0053 1 questions about any recommendation today. 2 CHAIRMAN KRAUSE: All right. Well so, 3 then you're okay with the staff's recommendation that 4 we are more than likely going to approve? 5 MR. FENOGLIO: Well, my client is not, 6 but I think that when faced with a revocation, then we 7 can have 90 days. 8 CHAIRMAN KRAUSE: All right. Very good. 9 All right. Well so, do I hear a motion to approve the 10 orders and staff's recommendations on these various 11 orders? 12 COMMISSIONER RIVERA: Move for approval. 13 COMMISSIONER FRANZ: Second. 14 CHAIRMAN KRAUSE: All in favor say aye. 15 (Chorus of "ayes") 16 CHAIRMAN KRAUSE: Outstanding. 17 MR. BIARD: Thank you, Commissioners. I 18 have seven orders for your signature. 19 AGENDA ITEM NO. XIII 20 CHAIRMAN KRAUSE: And I don't believe we 21 have any other public comment. 22 AGENDA ITEM NO. XIV 23 CHAIRMAN KRAUSE: At this time I move 24 that we go into executive session to receive legal 25 advice and deliberate on personnel matters. Anybody 0054 1 want to second that? 2 COMMISSIONER RIVERA: Second. 3 CHAIRMAN KRAUSE: All in favor say aye? 4 (Chorus of "ayes") 5 CHAIRMAN KRAUSE: It is 11:58 (sic) and 6 we are temporarily adjourned to go into executive 7 session. 8 (Executive session at 10:58 a.m.) 9 CHAIRMAN KRAUSE: Thank you, sir. 10 AGENDA ITEM NO. XV 11 CHAIRMAN KRAUSE: It is 11:47 a.m. and 12 the Lottery Commission is out of executive session. I 13 don't believe that there was any action items that came 14 out of that, but Mr. Rivera has a statement to make. 15 COMMISSIONER RIVERA: Yes. You know, 16 our Executive Director made some comments earlier 17 regarding the state of the Lottery in relation to 18 advertising budget, the feeling of what was happening, 19 you know, post-session and what we're going to be doing 20 moving forward as a Lottery. And so, I think it's 21 important for the entire Lottery staff to understand 22 that the budget of advertising, the way that it is set, 23 whatever dollar amount that is, that's no direct 24 reflection upon this Agency, on our employees, on the 25 incredible work that y'all are doing daily. That you 0055 1 are the reason why this organization is successful and 2 regardless of that dollar amount, that doesn't define, 3 you know, your level of success. 4 And when I say "your," it's literally 5 your livelihood, this is your career, y'all have chosen 6 to be here and it's something that every Texan is proud 7 of, of what you're doing. So, you know, we're grateful 8 for the work that you're doing and it's important. So 9 you know, let's let this model become that opportunity 10 in terms of the 17-plus million that, you know, the 11 Lottery will have for this next go-round and work doing 12 less, you know, doing more with less. 13 And I'm confident that this organization 14 and the folks that are here will figure that out. So, 15 you know, we want you to be successful and whatever we 16 can do from our side to assist with that, let us know 17 that we're -- we're, you know, we're genuine in wanting 18 y'all to be successful. 19 So, anyway, just there's nothing but 20 opportunity and I'm hopeful that in the future across 21 the nation, other states will look to Texas to see what 22 we were able to do and look at our return on investment 23 and look at it as future opportunities. So we just 24 want you to go out and -- and be successful. That's 25 it. 0056 1 CHAIRMAN KRAUSE: Outstanding. 2 MR. BIARD: Chairman, I want to correct 3 for the record. I'm not quite sure the court reporter 4 got the correct time for going into executive session. 5 Just to make sure that was -- I think we went in at 6 10:58 and came out at 11:47 as the Chairman said. 7 CHAIRMAN KRAUSE: Gotcha. 8 AGENDA ITEM NO. XVI 9 CHAIRMAN KRAUSE: All right. I believe 10 that concludes the business of the Lottery Commission 11 for this meeting. Do I hear a motion to adjourn? 12 COMMISSIONER RIVERA: Motion to adjourn. 13 COMMISSIONER FRANZ: Second. 14 CHAIRMAN KRAUSE: All in favor say aye. 15 (Chorus of "ayes") 16 CHAIRMAN KRAUSE: We are done for the 17 day. 18 (Meeting adjourned) 19 20 21 22 23 24 25 0057 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Kimberly C. McCright, Certified Vendor and 5 Notary in and for the State of Texas, do hereby certify 6 that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 16th day of June, 2019. 15 16 /s/ Kimberly C. McCright 17 Kimberly C. McCright 18 Certified Vendor and Notary Public 19 Verbatim Reporting & Transcription, LLC 20 1322 Space Park Drive, Suite C165 21 Houston, Texas 77058 22 281.724.8600 23 24 25