0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 COMMISSION MEETING ) 6 FOR THE TEXAS ) LOTTERY COMMISSION ) 7 8 9 10 COMMISSION MEETING 11 August 7, 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 ADMINISTRATION DIRECTOR: Michael R. Fernandez 10 ASSISTANT GENERAL COUNSEL: Tyler Vance Deanne Rienstra 11 Kyle Wolfe 12 CONTROLLER: Katheryn J. Pyka 13 PRODUCTS MANAGER: Robert Tirloni 14 McCONNELL JONES LANIER & MURPHY, LLP: Darlene Brown 15 BINGO ADVISORY COMMITTEE: Kim Rogers 16 Trace Smith 17 GOVERNMENTAL AFFAIRS 18 DIRECTOR: Nelda Trevino 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS PAGE 2 3 I. The Texas Lottery Commission will call the meeting to order. . . . . . . . . . . . . . 6 4 Pledge of Allegiance to the U.S. and Texas flags. Texas Pledge: “Honor the Texas flag; 5 I pledge allegiance to thee, Texas, one state under God, one and indivisible.” 6 II. Report by the Bingo Advisory Committee (BAC) 7 Chairman; possible discussion and/or action on the BAC’s activities, including removal 8 and appointment of committee members, continuation of the BAC, and the BAC’s annual 9 work plan for FY 2020.. . . . . . . . . . . 6 10 III. Report, possible discussion and/or action on agency prime contracts, including amendment, 11 renewal or extension of the lease for the Austin warehouse and the agreement for the 12 Austin Convention Center Parking Garage. . 10 13 IV. Report, possible discussion and/or action on agency prime contracts, including the 14 procurement for retailer bonus payment management services. . . . . . . . . . . . 11 15 V. Consideration of and possible discussion 16 and/or action, including proposal, on amendments to 16 TAC §§402.401 (Temporary 17 License), 402.413 (Military Service Members, Military Veterans, and Military Spouses), and 18 402.422 (Amendment to a Regular License to Conduct Charitable Bingo). . . . . . . . . 12 19 VI. Consideration of and possible discussion 20 and/or action, including proposal, on amendments to 16 TAC §401.153 (Qualifications 21 for License).. . . . . . . . . . . . . . . 13 22 VII. Consideration of and possible discussion and/or action, including proposal, on 23 amendments to 16 TAC §403.101 (Open Records).. . . . . . . . . . . . . . . . . 15 24 VIII. Report, possible discussion and/or action on 25 lottery sales and revenue, game performance, 0004 1 new game opportunities, advertising, promotional activities, market research, 2 trends, and game contracts, agreements, and procedures.. . . . . . . . . . . . . . . . 16 3 IX. Report, possible discussion and/or action on 4 transfers to the State and the agency’s budget status. . . . . . . . . . . . . . . 29 5 X. Report, possible discussion and/or action on 6 the FY 2020 Operating Budget. . . . . . . .31 7 XI. Report, possible discussion and/or action on external and internal audits and/or reviews 8 relating to the Texas Lottery Commission, and/or on Internal Audit activities, 9 including approval of the FY 2020 Annual Internal Audit Plan. . . . . . . . . . . . 32 10 XII. Report by the Charitable Bingo Operations 11 Director and possible discussion and/or action on the Charitable Bingo Operations 12 Division’s activities, including licensing, accounting and audit activities, pull-tab 13 review, and special projects.. . . . . . . 34 14 XIII. Report by the Executive Director and possible discussion and/or action on the agency’s 15 operational status, major contracts, agency procedures, awards, and FTE status.. . . . 34 16 XIV. Consideration of the status and possible 17 approval of orders in enforcement cases: Lottery Agreed Orders 18 A. Case No. 2019-263 – 1st Stop B. Case No. 2019-661 – La La Liquors 19 Other Lottery Cases C. Docket No. 362-18-4978 – Stateline Citgo 20 D. Docket No. 362-19-1517 – Pinehurst Country Store (Motion for Rehearing).. . . . . . . . . .34 21 XV. Public comment. . . . . . . . . . . . . . . . . XX 22 XVI. Commission may meet in Executive Session:.. . . 35 23 A. To deliberate personnel matters, including the 24 appointment, employment, evaluation, reassignment, duties, discipline, or dismissal of the Executive 25 Director and/or Charitable Bingo Operations 0005 1 Director pursuant to §551.074 of the Texas Government Code. 2 B. To deliberate the duties of the General Counsel and/or the Human Resources Director pursuant to 3 §551.074 of the Texas Government Code. C. To receive legal advice regarding pending or 4 contemplated litigation or settlement offers, or other legal advice, pursuant to §551.071(1) and (2) 5 of the Texas Government Code, including but not limited to legal advice regarding the following 6 items: Pending litigation regarding Fun 5’s Scratch Ticket 7 Game #1592, including Tex. Supreme Court Docket No. 18-0159 (Steele, et al. v. GTECH Corp.) and Tex. 8 Supreme Court Docket No. 17-1010 (Nettles v. GTECH Corp. and Texas Lottery Commission). 9 Julam Investments, Inc. v. Texas Lottery Commission (Travis Co. District Court Cause No. 10 D-1-GN-16-006124) State of Texas v. Equal Employment Opportunity 11 Commission, et al. State of Texas v. C.D. (On Petition for Review from 12 the Twelfth Court of Appeals) Prescott Lovern, Sr., Private Attorney General v. 13 Texas Lottery Commission, et al. Legal advice regarding Texas Government Code 14 Chapters 466 (State Lottery Act) and 467, the Bingo Enabling Act, the Open Meetings Act, the Public 15 Information Act, the Administrative Procedure Act, employment and personnel law, procurement and 16 contract law, evidentiary and procedural law, ethics laws, and general government law. 17 Legal advice regarding any item on this open meeting agenda. 18 XVII. Return to open session for further 19 deliberation and possible action on any matter posted for discussion in Executive Session. 20 Any matter posted for Executive Session also may be the subject of discussion and/or action 21 in open session prior to Executive Session. 36 22 XVIII. Adjournment.. . . . . . . . . . . . . . . . 36 23 Reporter's Certificate . . . . . . . . . . . . . . . 37 24 25 0006 1 P R O C E E D I N G S 2 WEDNESDAY, AUGUST 7, 2019 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN KRAUSE: Good morning. This 6 meeting of the Texas Lottery Commission is called to 7 order. Time is exactly 10:00 a.m. Commissioners Franz 8 and Rivera are present. We have a quorum. We are ready 9 to do business today in record time. 10 We will start with the Pledge of 11 Allegiance to the U.S. and Texas flags. 12 (Pledges recited) 13 Thank you. 14 UNIDENTIFIED VOICE:: That went pretty 15 well. 16 CHAIRMAN KRAUSE: Yeah. Well, so we 17 historically hadn’t done a Pledge of Allegiance to 18 either flag until Commissioner Candelaria came onto the 19 commission. And she’s a commissioner –- she was a 20 commissioner from El Paso. So, anyway, we have El Paso 21 in our thoughts and prayers today. So, anyway. 22 AGENDA ITEM NO. II 23 CHAIRMAN KRAUSE: The first item to 24 report is on the Bingo Advisory Committee. Trace Smith 25 is here, and he’s going to come give us a report. 0007 1 MR. SMITH: Good morning, gentlemen. 2 First off, we had our meeting yesterday, it was a very, 3 very good meeting. Couple of things that we need to 4 discuss is the removal and appointment of committee 5 members and the continuation of the Bingo Advisory 6 Committee. Which I would probably see that as the more 7 important one. 8 We would also like to ask you to 9 reinstate the BAC for one more year. We voted yesterday 10 for that, and it was unanimous. We also asked you that 11 at the last commission meeting. 12 We discussed our annual report. You 13 should have that in front of you. If you have any 14 questions on the annual report I’ll be glad to go over 15 that at this time. If not, it’s all there in front of 16 you. 17 We discussed our annual work plan in the 18 hopes that you will reinstitute the BAC. We had that 19 developed. That’s also in your deal. We discussed 20 House Bill 882 and Senate Bill 1200, and we voted 21 unanimously to support staff’s recommendation of rules 22 on that. 23 We do ask, also, that you reopen the 24 application process for charity lessor and a public 25 member. We did have one public member apply that fit 0008 1 the criteria, said they wanted to do it, and then they 2 backed out yesterday evening after this report was 3 written. 4 CHAIRMAN KRAUSE: Oh, really. 5 MR. SMITH: So, we are currently looking 6 for another one. If you have any questions I’m 7 available. 8 CHAIRMAN KRAUSE: All right. Questions? 9 COMMISSIONER FRANZ: No. 10 CHAIRMAN KRAUSE: We do have another 11 person that would like to address the commission. Kim 12 Rogers. Are you here? 13 MS. ROGERS: Yes. 14 MR. SMITH: Kim is the Vice Chair for the 15 BAC. 16 CHAIRMAN KRAUSE: Okay. 17 MR. SMITH: And she is the one that makes 18 the world go round. 19 CHAIRMAN KRAUSE: We’re happy to hear 20 from –- oh, outstanding. 21 MR. SMITH: Yes, sir. 22 CHAIRMAN KRAUSE: So is she your stand in 23 now? 24 MR. SMITH: Yes, sir, absolutely. 25 MS. ROGERS: Good morning, gentlemen. I 0009 1 would just like to say that we would greatly appreciate 2 your vote to reinstate the BAC. I believe it’s a vital 3 group to help staff, and it’s been great working with 4 them this past year to help bingo and all the charities 5 that are involved. 6 And just to say good morning and hello, 7 because in case Trace can’t make a meeting, I would be 8 the one presenting to you. 9 CHAIRMAN KRAUSE: Outstanding. 10 MS. ROGERS: Thank you. 11 CHAIRMAN KRAUSE: Happy to have you. 12 Well, so is there a motion to continue the BAC for 13 Fiscal Year 2020 and to approve their proposed work 14 plan? 15 COMMISSIONER RIVERA: Move for approval. 16 CHAIRMAN KRAUSE: All in –- 17 COMMISSIONER FRANZ: Second. 18 CHAIRMAN KRAUSE: All in favor say aye. 19 (Chorus of “ayes”) 20 CHAIRMAN KRAUSE: Done. 21 MR. SMITH: Thank you very much. 22 MS. ROGERS: Thank you. 23 CHAIRMAN KRAUSE: Got everything you 24 wished for. 25 MR. SMITH: Appreciate it. 0010 1 MR. BIARD: Excuse me, Mr. Chairman, you 2 might want to –- at this point it might be appropriate 3 to direct the Bingo Director to work on –- to assist you 4 on reposting the solicitations for the empty positions. 5 CHAIRMAN KRAUSE: Okay. Well, I’ll be 6 more than happy – 7 MR. BIARD: I don’t think y’all need to 8 vote on that, but I think if you direct him to do that, 9 that would delegate that. 10 CHAIRMAN KRAUSE: All right. Well, I 11 think Michael it’s duly noted that you need to repost 12 some stuff connected with the Bingo Advisory Committee. 13 MR. FARRELL: Yes, sir. We’ll have it 14 reposted shortly. 15 AGENDA ITEM NO. III 16 CHAIRMAN KRAUSE: Outstanding. Mr. Mike 17 Fernandez has two reports for us, which he always makes 18 lively in his special way. 19 MR. FERNANDEZ: Thank you, Mr. Chairman. 20 CHAIRMAN KRAUSE: And concise. 21 MR. FERNANDEZ: Good morning Mr. 22 Chairman, commissioners. For the record, my name’s Mike 23 Fernandez. 24 Item 3 in your notebook is a briefing 25 item to advise the commission of staff’s intent to 0011 1 extend or amend two contracts. The first is to extend 2 our current lease contract with Sabrehal International 3 for the Austin Warehouse for a five-year period. 4 Commissioners have independently confirmed they have no 5 financial interest in Sabrehal International. I’d be 6 happy to answer any questions, Mr. Chairman. 7 CHAIRMAN KRAUSE: We’ll save it until the 8 end. 9 MR. FERNANDEZ: The second contract is to 10 amend and extend our current parking agreement with the 11 City of Austin for an additional 23-month period ending 12 August 2022. And I would be happy to answer any 13 questions regarding that, Mr. Chairman. 14 AGENDA ITEM NO. IV 15 MR. FERNANDEZ: The next item – again, 16 for the record, my name is Mike Fernandez, the Director 17 of Administration. Item 4 in your notebook is a 18 briefing item. And it’s to advise the commission that 19 staff working with and through the State Office of Risk 20 Management intend to acquire insurance for the purpose 21 of managing retailer bonus payments for the Powerball 22 and Mega Millions programs. If you have any questions, 23 I’d also be happy to answer those, Mr. Chairman. That’s 24 all I have. 25 CHAIRMAN KRAUSE: Outstanding. Thank you 0012 1 sir. 2 MR. FERNANDEZ: Thank you. 3 CHAIRMAN KRAUSE: We’re grateful to you. 4 AGENDA ITEM NO. V 5 CHAIRMAN KRAUSE: Tyler Vance. 6 MR. VANCE: Good morning, commissioners. 7 Tyler Vance, Assistant General Counsel. I have for your 8 consideration today amendments to three rules. These 9 are being proposed to implement statutory changes that 10 were adopted in the recent legislative session. 11 House Bill 882 extended the maximum 12 length of time of a bingo occasion from four to six 13 hours, so there are two proposed amendments to Rule 14 402.401 and 402.422, which will allow for that. It’ll 15 change the maximum from four to six hours to match the 16 statute. 17 Senate Bill 1200 created an alternative 18 pathway for military spouses to pursue a licensed 19 occupation without obtaining that license in Texas, 20 provided that they’re licensed in good standing in 21 another state that has substantially similar 22 requirements as our own. It’s a maximum of three years 23 while their spouse is stationed at a military base in 24 Texas. And so I tacked that one on to Rule 402.413, and 25 it’s just a copy of the statute language put in the 0013 1 rule. And so, we recommend that you propose these rules 2 as written, and I’m available for any questions. 3 CHAIRMAN KRAUSE: Commissioners. 4 COMMISSIONER FRANZ: I move that the 5 commission accept or adopt the rules as proposed. 6 CHAIRMAN KRAUSE: All right. 7 COMMISSIONER RIVERA: Second. 8 CHAIRMAN KRAUSE: All right, so our 9 motion’s on the table to being the rulemaking process. 10 All in favor say aye. 11 (Chorus of “ayes”) 12 CHAIRMAN KRAUSE: Done. 13 AGENDA ITEM NO. VI 14 CHAIRMAN KRAUSE: Kyle Wolfe. He knew I 15 was going to call his name. 16 MR. WOLFE: Oh, sorry. Good morning, Mr. 17 Chairman and commissioners. For the record, I’m Kyle 18 Wolfe, Assistant General Counsel. 19 Item 6 in your notebooks contains a 20 proposal to amend Commission Rule 401.153, the 21 Qualification for License Rule. The purpose of these 22 proposed amendments is to implement the requirements of 23 the newly enacted Senate Bill 37. Senate Bill 37 24 amended the State Lottery Act by removing provisions 25 that stated the Lottery Operations Director shall deny 0014 1 an application for a sales agent license or the 2 commission shall suspend or revoke a sales agent license 3 if an applicant or sales agent has defaulted on either a 4 loan made under Chapter 52 of the Texas Education Code 5 or a loan guaranteed under Chapter 57 of the Texas 6 Education Code. 7 Those same provisions which were removed 8 by Senate Bill 37 are in the Qualifications for License 9 Rule. These proposed amendments remove the provisions 10 from that rule. Also, the proposed amendments make 11 grammatical and organizational corrections to increase 12 clarity and further conform the rule to the State 13 Lottery Act. 14 Staff is recommending that the commission 15 initiate the rulemaking process by publishing these 16 proposed amendments in the Texas Register to receive 17 public comment for a period of 30 days. And I’m happy 18 to answer any questions. 19 COMMISSIONER FRANZ: I move the commission 20 begin the rulemaking process and post in the Register. 21 COMMISSIONER RIVERA: Second. 22 CHAIRMAN KRAUSE: All in favor say aye. 23 (Chorus of “ayes”) 24 MR. WOLFE: Thank you, commissioners. 25 AGENDA ITEM NO. VII 0015 1 CHAIRMAN KRAUSE: Deanne Rienstra. 2 MS. RIENSTRA: Good morning, 3 commissioners. Deanne Rienstra, Special Counsel. 4 In your notebooks today is a proposal for 5 amendments to 16 TAC 403.101 relating to the agency’s 6 open records process. The purpose of the proposed 7 amendments is to implement Government Code section 8 552.275 by establishing a reasonable limit of 36 hours 9 per fiscal year as the maximum amount of time commission 10 personnel are required to spend producing public 11 information for inspection or duplication by a requester 12 or providing copies of public information to a requester 13 without the commission recovering costs attributable to 14 that personnel time. The amendments also clarify how to 15 submit public information requests to the commission and 16 make other clarifying changes to the rules. 17 Staff recommends the commission initiate 18 the rulemaking process by publishing the proposed rule 19 amendments in the Texas Register to receive public 20 comment for a period of 30 days. I am happy to answer 21 any questions. 22 CHAIRMAN KRAUSE: Commissioners? Think 23 we’re happy as well. So is there a motion on this? 24 COMMISSIONER RIVERA: Move for approval. 25 COMMISSIONER FRANZ: Second. 0016 1 CHAIRMAN KRAUSE: All in favor say aye. 2 (Chorus of “ayes”) 3 CHAIRMAN KRAUSE: Done. 4 MS. RIENSTRA: Thank you. 5 CHAIRMAN KRAUSE: Thank you, ma’am. 6 MR. BIARD: And I have T-Bar memos for 7 those three rulemaking proposals. 8 AGENDA ITEM NO. VIII 9 CHAIRMAN KRAUSE: Kathy Pyka and Robert 10 Tirloni. 11 MS. PYKA: Good morning, commissioners. 12 My name is Kathy Pyka, Controller for the agency. With 13 me this morning is our Lottery Operations Director, Ryan 14 Mindell, and our Commission’s Products Manager, Robert 15 Tirloni. 16 We will begin our presentation this 17 morning with an update on sales and game performance. 18 Our first chart that we have for you this morning 19 reflects comparative sales through the week ending th 20 August 7 of 2019. Total fiscal year 2019 sales 21 through this 49-week period are $5,832,000,000, which is 22 an increase of $594-million, or 11.4 percent over the 23 same period last fiscal year. 24 Commissioners, we have already set a new 25 lottery sales record with several weeks still to go in 0017 1 the fiscal year, surpassing the record that we had set 2 last fiscal year. 3 So now we’ll move on to fiscal year 2019 4 scratch ticket sales, which are reflected on the second 5 orange bar. We are now at $4,508,000,000, which is a 6 $401-million increase over the sales figure for fiscal 7 year 2018, with a growth rate of 9.8 percent over last 8 fiscal year, and 3 more weeks remain in the fiscal year. 9 This is also a new scratch ticket sales record for the 10 commission. 11 We have reported scratch ticket sales 12 growth in every single week of the fiscal year to date. 13 Which is pretty amazing. And we can see that our 14 scratch ticket sales are reflected 77.3 percent of total 15 sales through this period. 16 Our fiscal year 2019 draw sales are 17 reflected on the second blue bar at $1,323,000,000, 18 which is a $193-million increase, or 17.1 percent over 19 the amount reported for last fiscal year. 20 So, with that, Robert will now provide an 21 overview of sales by product. 22 MR. TIRLONI: Thanks, Kathy. Good 23 morning, commissioners. So this is our fiscal year ‘19 24 comparison to fiscal ‘18, and this is through Saturday, 25 August 3rd. Our jackpot games are listed at the top, 0018 1 and we’re realizing a little bit over $194-million in 2 growth from the jackpot category. Most of that growth 3 is coming from Mega Millions and from Powerball. Of 4 course, we’ve had large jackpots that have led to that 5 growth this fiscal year. Most notably the almost $1.6- 6 billion Mega Millions jackpot that took place right at 7 the beginning of the fiscal year in October. So we’re 8 seeing great growth from that portion of the portfolio. 9 The daily games are in blue. They are 10 down $1-million. Some special things to note in this 11 category, we’re showing an almost $11-million decline on 12 Texas Triple Chance. That is the game that we ended at 13 the end of last fiscal year, so we’ve realized no sales 14 for that game in fiscal ‘19. 15 You’ll also note some negatives for Sum 16 It Up! That is the add-on game feature that we suspended 17 or shut down on Pick Three and Daily Four, and we 18 replaced it with Fireball. So we do have new sales from 19 Fireball on Pick Three of $6-million, and $4.3-million 20 in Fireball sales on Daily Four. 21 We are seeing a decline in Pick Three 22 sales. That has been the trend, and we’re hoping that 23 the addition of Fireball and the focus on Pick Three 24 will start to turn that decline around. But, overall, 25 very pleased with the results from the draw games, 0019 1 they’re up $193-million. 2 As Kathy mentioned, we continue to see 3 phenomenal growth with the scratch ticket products. 4 Scratch tickets are up $401.4-million. I did want to 5 let you know we have about three weeks left in this 6 fiscal year, but back in April we aggressively started 7 printing and producing the games that will launch 8 starting in September. We’re well underway. We have 9 games produced almost all the way through December at 10 this point in time. Couple of January games as well. 11 So I think we’re well positioned for the scratch product 12 category going forward into the next fiscal year so we 13 can continue the growth that we’ve been experiencing. 14 So, all told, the portfolio is up just 15 under $595-million through August 3rd. And before Ryan 16 covers our in-lane sales initiative with you, I think 17 Mr. Grief wants to make a couple of comments. 18 MR. GRIEF: Thanks, Robert. 19 Commissioners, you’ve just seen our latest sales and 20 revenue results, and we’re obviously very pleased with 21 how we’ve done this fiscal year. But, that said, we are 22 never satisfied with where we are. And for the past 24 23 months we’ve been working on an initiative that we 24 believe has the potential to dramatically expand our 25 retailer base, allow our products to be more universally 0020 1 accepted at retail, and ultimately help drive us to new 2 sales and revenue records in the future. 3 That initiative, which you’ve already 4 approved rules for in the past few months, involves 5 bringing a lottery product into the checkout lanes at 6 big-box retailer locations. We refer to it as the in- 7 lane initiative for short. 8 Working within the confines of our 9 statutory authority, I believe the in-lane initiative 10 has the potential to be the next big thing in the 11 traditional lottery space and the Texas Lottery, as is 12 always our goal, will be the leader for the industry in 13 this bold endeavor. 14 Although we’ve touched on this project in 15 past commission meetings, and you’ve passed rules 16 related to it, today I’ve asked Ryan Mindell, our 17 Lottery Operations Director, the person who I’ve asked 18 to lead this project, to briefly take you through a 19 high-level overview to provide you with a better 20 understanding of how this in-lane sales initiative will 21 actually be implemented. So with that, Ryan, I’ll turn 22 it over to you. 23 MR. MINDELL: Thank you, Gary. And good 24 morning, commissioners. As Gary outlined, in-lane is 25 really about getting into the checkout lanes at all the 0021 1 retailers across our state, both ones we’ve worked with 2 already and new ones that we haven’t been able to work 3 with. 4 But I just want to take a step back and 5 talk about some of the principles behind in-lane and 6 then talk a little bit more about the products that 7 we’re going to be launching hopefully later this year. 8 In-lane is really about expanding our 9 footprint across the retail environment. Right now, 10 when you enter into a retailer, there’s really only one 11 or two touch points for lottery in the whole location. 12 With in-lane, we’re going to be able to have every 13 checkout counter, but we’re also going to have 14 merchandising opportunities throughout the store. So, 15 as Gary said, it’s one of the biggest opportunities, we 16 believe, for the Texas Lottery to grow our relationships 17 with our retailers and to grow sales. 18 There’s a couple of concepts that I’ll be 19 referring to, and first I want to reiterate that this is 20 a national effort. That across the lottery industry for 21 many years they’ve been trying to get in-lane, some 22 version of it, deployed. There’s a national initiative 23 called the NASPL API, and that’s the mechanism by which 24 the lottery gaming systems for lotteries around the 25 country will communicate with the retailer systems, to 0022 1 their cash registers, their point-of-sale systems. 2 That API is the basis behind which both 3 of the products that I will talk about to you today 4 work. That’s how our IGT gaming system is going to talk 5 to these retailer’s cash registers. But we’ve modified 6 them and they both work slightly differently. So I’ll 7 go through the details on that. 8 The other concept I want to lay out, is 9 that one of these products, and that’s the sample that I 10 gave up there for you, is based on the gift card 11 networks. As you know, if you go into any retailer 12 these days, they have large displays of gift cards. 13 Those are primarily serviced by two companies, InComm 14 and Blackhawk. Between them, they have over 90 percent 15 of the gift card market. And what we are able to do is 16 integrate the IGT gaming system directly into those gift 17 card systems. And we’ve completed that already with 18 InComm. 19 And so instead of having to do the work 20 to integrate with every different retailer, which is one 21 of the difficulties with the in-lane project and why 22 it’s taken so long to come to fruition, by integrating 23 directly with the gift card system we now, at a touch of 24 a button, can access any one of InComm’s retailers and 25 deploy the product across what they have to offer. 0023 1 So, I’m going to talk about two different 2 formats, the QuickTicket and the receipt ticket. But 3 first, I just wanted to also talk about what we’re 4 really seeing as the goal, and what we’re going to gain 5 from this. For me, we will see sales; and the sales, 6 because the product is going to be the jackpot games, 7 the sales are going to be based on jackpot levels. But 8 what this is primarily about, especially in the near 9 term, is about retailer growth. 10 If we go live with this this year with 11 Dollar General, which is our first partner that we’re 12 looking to have a wide deployment with, we are going to 13 grow our retailer base in one year more than we have in 14 the last 20 years combined. 15 So Dollar General is a retailer that has 16 been interested in lottery over the years, but for 17 whatever reason it didn’t quite work with them. By 18 partnering with InComm we found a pathway that lets us 19 deploy lottery into that retailer, and so it’s going to 20 let us grow that relationship into other types of 21 products in the future. 22 So we really think this is about 23 strategically partnering both with the retailers that 24 are working with us and with those gift card networks 25 which allow us to deploy a different type of product. 0024 1 It also gives us an incredible 2 opportunity for in-store merchandising. With Dollar 3 General we’re going to have jackpot signs in over 1400 4 of the stores, later this year in November, right at the 5 checkout counter. So they’re going to have a jackpot 6 sign, which is going to show you the Powerball and Mega 7 Millions jackpot. You’re going to have the product, the 8 QuickTicket product, right below that. And then some 9 informational material under that. 10 We’re also going to have clings on the 11 cooler door. We’re going to have foot mats that talk 12 about that. And other places throughout the store where 13 the gift cards are sold. So the customer is going to 14 see lottery many more times in that store, and much more 15 present than they are with the traditional lottery 16 retailers that we have now, in some of the bigger box 17 stores. 18 But we’re working with Dollar General, 19 HEB, and we’re looking for Walgreens and CVS next year. 20 And once we’ve completed those integrations with 21 Blackhawk and with InComm, again, their entire retailer 22 base is open to us. Stores like Target, Best Buy and 23 Home Depot, which would never have handled traditional 24 lottery products, are now open to us in the future. So 25 we’re really excited about that. 0025 1 So I first want to talk about the 2 QuickTicket product. So that’s the sample that I 3 provided you up there. That’s not the final printed 4 product. We’re printing this through one of our scratch 5 printing vendors, Pollard. We’re just signing off on the 6 working papers this week, so we’re hoping that’ll be 7 printed later this month, but this is a mock up that is 8 very similar into the look and feel of what that product 9 will look like. 10 As you can see, it’s pre-printed. It 11 kind of has the look and feel of a scratch ticket. 12 We’re going to have the Mega Millions and the Powerball 13 product at a $4 two-plays and $10 five-plays price 14 point. And, again, this utilizes the connection that 15 that retailer has already with the InComm or Blackhawk 16 system, so the retailer has to do zero additional work 17 to implement this product. And when the player takes 18 that card off the gift card rack and they scan it 19 through the system, it’ll go from that cash register, to 20 the InComm or Blackhawk system, to the IGT gaming 21 system, and that play will be placed on the system for 22 whatever the next drawing is. And then that ticket will 23 be able to be redeemed at any one of our 18,000 24 retailers around the state. It won’t be redeemed at the 25 Dollar General locations that we’re starting with, but 0026 1 we’re going to add that in hopefully next year. 2 The other initiative that we’re working 3 towards is what we like to call receipt ticket. And 4 this is a little bit more of a traditional lottery feel, 5 but it’s a Powerball, Mega Millions ticket as well that 6 will be printed directly on the retailer’s receipt. And 7 this is the product that a lot of the industry had been 8 working towards and what the NASPL API was really based 9 on. 10 We ended up having the QuickTicket 11 product developed for us because of those partnerships 12 that we had. And, specifically, the problem with the 13 receipt ticket, the print on receipt initiative, is the 14 retailer has to do tremendous amounts of work. So we 15 found a partner, a retailer here that’s a very key 16 partner for us is H-E-B, and they were willing to do the 17 work to develop this initiative, too. So receipt ticket 18 is a model that we think could work for the retailers 19 that are willing to do the work, and then you have the 20 QuickTicket model for the ones that don’t want as much 21 of a lift. 22 The advantage of the receipt ticket is 23 that it looks and feels a little bit more like a 24 traditional lottery ticket. You get the drawing date 25 printed on the ticket itself, and I think the players 0027 1 will like that, too. The disadvantage of it is that you 2 don’t have that merchandising feel. The clerk is going 3 to have to ask for the purchase, or you have to depend 4 more on your signage. Whereas the QuickTicket, by 5 having it’s placement right there, has it’s own self- 6 merchandising to some degree. 7 But both of these products are on track 8 to launch later this year. With H-E-B, they’re going to 9 launch it at their service center. So it will start 10 just as a test in their service centers. We’re looking 11 for hopefully mid-October for that first rollout at one 12 or two of their service centers. That will be right 13 beside where traditionally lottery is sold. They want 14 to vet the product and make sure that it works to their 15 requirements. And then we’ll gradually roll out through 16 more of the service centers and hopefully with a true 17 in-lane deployment with H-E-B later in 2020. 18 With QuickTicket, we’re going to be 19 rolling out with all the Dollar Generals in the state of 20 Texas. That rollout will be all at once between 11/4 21 and 11/15 this year. And we are still on track to hit 22 that date. In 2020, as I mentioned, we’ll continue 23 rolling out with the H-E-B counters. We’ll look to 24 integrate with the Blackhawk gift card network and their 25 partner right now is Kroger, so we’re hoping to get that 0028 1 deployed in hopefully April or May of 2020, and then we 2 have additional InComm retailers that we know are 3 interested right now, that’s CVS, Walgreens and Family 4 Dollar. And after that I think they have many more that 5 will be interested, too. 6 And the last thing I just wanted to 7 stress, is that, this is something that, like I said, 8 the industry has been working towards for a very long 9 time. Both of these products have not been launched 10 anywhere in the United States, and we’re going to be the 11 first to market with both of them. And so I think it’s 12 a tremendous accomplishment and we’re all very excited. 13 It’s been a ton of work for our team here, and our 14 partners, too. But I wanted to let you know what was 15 going on with that. 16 CHAIRMAN KRAUSE: Outstanding. Well, all 17 I’ve got to say is that we have got an unbelievable team 18 that works on our products under Robert’s direction, 19 and, you know, sounds like we are industry leaders in 20 these, you know, new ways to play. So, want to thank 21 you guys for everything that -– all the leadership 22 you’re proving to the staff and, you know, so keep up 23 the good work for the school children of Texas, and 24 veterans. So. 25 MR. Mindell: Yes, sir. 0029 1 CHAIRMAN KRAUSE: Any other questions or 2 comments from our commissioners? Thank you very much. 3 MR. Mindell: Thank you very much. 4 CHAIRMAN KRAUSE: And Kathy is going to 5 give us a report on transfers and then we’re going to -– 6 she’s going to present our operating budget. 7 AGENDA ITEM NO. IX 8 MS. PYKA: Thank you, Mr. Chairman. Tab 9 9 includes information on the agency’s transfers to the 10 state, and the agency’s budget status. The report in your 11 notebook reflects our accrued revenue transfers and the 12 allocations to the Foundation School Fund and the Texas 13 Veterans Commission, as well as the allocation of 14 unclaimed prizes for the 10-month period ending June 30, 15 2019. 16 Total accrued revenue transfers to the 17 state amount to $1,355,000,000 for the first 10 months of 18 fiscal year 2019. Of the $1,355,000,000 transfer to the 19 state, $1,291,000,000 was the amount transferred to the 20 Foundation School Fund, 15.7-million was the amount 21 transferred to the Texas Veterans Commission, and 48- 22 million the amount transferred for unclaimed lottery 23 prizes. 24 The amount transferred to the Foundation 25 School Fund from sales now reflects a 16.6 percent 0030 1 increase, or $183-million, over revenue to the 2 Foundation School Fund for the same period last fiscal 3 year. And our cumulative transfers to the Foundation 4 School Fund through June of this year are now $23.8- 5 billion. 6 The final item under this tab is the 7 agency’s Fiscal Year 2019 Method of Finance Summary for 8 the third quarter ending May 31 of 2019. The 9 commission’s lottery account budget for fiscal year 2019 10 is $237-million, and of this amount 88.5 percent was 11 expended and encumbered through the end of the third 12 quarter. 13 The Bingo Operations Budget funded by the 14 Bingo Administration Account is $17-million, with 12.2 15 percent expended and encumbered through the end of the 16 third quarter. 17 This concludes my presentation on this 18 item. I’d be happy to answer any questions. 19 CHAIRMAN KRAUSE: Questions, comment? 20 Well, is there a motion to approve the Operating Budget 21 for the fiscal year 2020 as proposed, including approval 22 of an annual salary rate for the Executive Director -– 23 UNIDENTIFIED VOICE:: Excuse me. 24 CHAIRMAN KRAUSE: I’m sorry -- jump the 25 gun here? 0031 1 UNKNOWN: I think that’s –- 2 AGENDA ITEM NO. X 3 MS. PYKA: I'll move forward then to Tab 4 10, and this is where I'm seeking your approval of the 5 fiscal year 2020 Operating Budget in the amount of 6 $257,593,563 and 315.8 full-time equivalent positions. 7 The budget was developed in accordance 8 with appropriation amounts outlined in House Bill 1, 9 adjusted for the rider in Article 9, funding provisions. 10 Commissioners, this morning I am also 11 seeking your approval to modify the annual salary of the 12 Executive Director effective September 1 of 2019, to the 13 amount outlined in Article 7 of House Bill 1, as adopted 14 by the 86th Legislature, of $213,344. This salary 15 amount has been incorporated in the fiscal year 2020 16 operating budget, consistent with House Bill 1. 17 The initial draft of the budget was 18 developed by the Office of the Controller and delivered 19 to division management for their direct input, and the 20 final draft was developed after receiving feedback from 21 the divisions and reviewed by executive management. 22 Commissioners, this concludes my 23 presentation. I'd be happy to answer any questions. 24 COMMISSIONER FRANZ: I move for approval. 25 CHAIRMAN KRAUSE: Yeah. Here -- here's 0032 1 your motion. 2 COMMISSIONER RIVERA: Okay. Here we go. 3 I move to approve the Operating Budget for fiscal year 4 2020, including approval of an annual salary rate for 5 the Executive Director at the amount set forth in the 6 General Appropriations Act for the next biennium, 7 effective September 1st, 2019. 8 COMMISSIONER FRANZ: Second. 9 CHAIRMAN KRAUSE: All in favor say aye. 10 (Chorus of "ayes") 11 CHAIRMAN KRAUSE: Done. 12 MS. PYKA: Thank you, Commissioners. 13 AGENDA ITEM NO. XI 14 CHAIRMAN KRAUSE: Darlene Brown. 15 MS. BROWN: Good morning, commissioners. 16 I’m Darlene Brown, your Internal Audit Director. 17 I have two items for you today. The 18 first one is my regular status report. We just wanted 19 to let you know that we’re wrapping up all of the audits 20 that are –- that were on the approved fiscal year ‘19 21 audit plan, and we will have those reports for you at 22 the next commission meeting. We are significantly under 23 budget, so that’s going to help the bottom line here. 24 The second item is the –- for your 25 approval, is our proposed Fiscal Year 2020 Internal 0033 1 Audit Plan. And I worked with the executive leadership 2 team on pulling together this plan. And we did 3 interviews on where the agency’s risks are. And so 4 we’re proposing to conduct nine audits this upcoming 5 year for a total of –- an estimated 2400 hours, and I’m 6 seeking your approval on this. 7 CHAIRMAN KRAUSE: One question. How many 8 people work with you? You have a staff, right? 9 MS. BROWN: I do have a staff. On any 10 given time we have five dedicated -– a team of five 11 dedicated staff to this project. But depending on the 12 audit we can -– we have resources of 100 people to bring 13 in. 14 CHAIRMAN KRAUSE: Well, all I have to say 15 is, is that we used to have an internal Internal 16 Auditor, and by hiring an outside Internal Auditor we 17 have gained a significant amount of expertise that we 18 did not have available to us, and it has been tremendous 19 benefit to this commission. So I want to thank you guys 20 for that. 21 MS. BROWN: Thank you. 22 CHAIRMAN KRAUSE: So, anyway, is there a 23 motion to approve the Internal Audit Plan? 24 COMMISSIONER RIVERA: So moved. 25 COMMISSIONER FRANZ: Second. 0034 1 CHAIRMAN KRAUSE: All in favor say aye. 2 (Chorus of “ayes”) 3 MS. BROWN: Thank you. 4 AGENDA ITEM NO. XII 5 CHAIRMAN KRAUSE: Mr. Farrell. 6 MR. FARRELL: Sir. It’s pretty easy. 7 Other than what’s in your –- I’m Michael Farrell, 8 Director of Charitable Bingo for the record. I have 9 nothing else to add other than what’s in your binder, 10 sir. 11 AGENDA ITEM NO. XIII 12 COMMISSIONER KRAUSE: Outstanding. Mr. 13 Grief? 14 MR. GRIEF: Same for me, Mr. Chairman, 15 nothing further. 16 AGENDA ITEM NO. XIV 17 CHAIRMAN KRAUSE: All Righty. Mr. Biard. 18 MR. BIARD: Good morning, commissioners. 19 Bob Biard, General Counsel. Tab 14, or Item 14 in your 20 notebooks contains four lottery enforcement matters. 21 Tabs A through D. We have no insufficient fund cases 22 today. The four cases in your notebook each involve a 23 retailer or a retailer employee who purchased a winning 24 ticket from a customer to claim it as their own. 25 The first two cases, A and B, are agreed 0035 1 orders for 90-day suspensions. Tab C was litigated at 2 SOAH, that’s an employee-purchase case where staff asked 3 for a 30-day suspension. And that’s what we recommend. 4 That’s what the judge recommended. 5 Tab D is a motion for rehearing from a 6 case you decided at the last commission meeting, which 7 was also an employee-purchase case where you imposed a 8 90-day suspension. The retailer filed no exceptions in 9 the original case. He presented no new issues in the 10 motion for rehearing, so staff recommends denying that 11 motion for rehearing. I’ll answer any questions if you 12 have any. 13 CHAIRMAN KRAUSE: All right, is there a 14 motion to approve the orders, Tabs A through D? 15 COMMISSIONER RIVERA: Move for approval. 16 COMMISSIONER FRANZ: Second. 17 CHAIRMAN KRAUSE: All in favor say aye. 18 (Chorus of “ayes”) 19 MR. BIARD: Thank you, commissioners. 20 AGENDA ITEM NO. XVI 21 CHAIRMAN KRAUSE: We don’t have any 22 public comment at the moment, and so we are going to go 23 into Executive Session to –- I move that we go into 24 Executive Session to deliberate personnel matters and to 25 receive –- especially to receive legal advice as posted 0036 1 on the Open Meeting Notice. Is there a second? 2 COMMISSIONER FRANZ: Second. 3 CHAIRMAN KRAUSE: All in favor say aye. 4 The vote is unanimous. We are going into Executive 5 Session after concluding this normal session in record 6 time at 10:35. Very proud of that. 7 AGENDA ITEM NO. XVII 8 CHAIRMAN KRAUSE: All right, the Texas 9 Lottery Commission is out of Executive Session at 10:59 10 a.m. There is no action as a result of Executive 11 Session. 12 AGENDA ITEM NO. XVIII 13 CHAIRMAN KRAUSE: And so we are going to 14 conclude the business of the commission for this 15 meeting. Is there a motion to adjourn? 16 COMMISSIONER FRANZ: Moved. 17 COMMISSIONER RIVERA: Second. 18 CHAIRMAN KRAUSE: All in favor say aye. 19 (Chorus of “ayes”) 20 CHAIRMAN KRAUSE: We are adjourned at 21 11:59, 10:59. 22 (Proceedings concluded at 10:59 a.m.) 23 24 25 0037 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF HARRIS ) 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 hereinbefore 7 set out. 8 I FURTHER CERTIFY THAT the proceedings of such 9 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 14th day of August, 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