0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 COMMISSION MEETING ) 6 FOR THE TEXAS ) LOTTERY COMMISSION ) 7 8 9 10 COMMISSION MEETING 11 OCTOBER 10, 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 CHAIRMAN: J. Winston Krause 2 COMMISSIONERS: Mark A. Franz 3 Robert Rivera 4 GENERAL COUNSEL: Erik C. Saenz 5 EXECUTIVE DIRECTOR: Gary Grief 6 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Michael Farrell 7 ADMINISTRATION DIRECTOR: Michael R. Fernandez 8 ASSISTANT GENERAL COUNSEL: Tyler Vance 9 Deanne Rienstra Kyle Wolfe 10 CONTROLLER: Katheryn J. Pyka 11 PRODUCTS MANAGER: Robert Tirloni 12 McCONNELL JONES 13 LANIER & MURPHY, LLP: Darlene Brown 14 BINGO ADVISORY COMMITTEE: Trace Smith 15 16 17 18 19 20 21 22 23 24 25 0003 1 PAGE 2 I. The Texas Lottery Commission will call the 3 meeting to order. Pledge of Allegiance to the U.S. and Texas flags.. . . . . . . . . 8 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, possible discussion and/or action on 7 Commissioner training, including ethics, administrative procedure, and open government 8 laws pertaining to the Texas Lottery Commission.. . . . . . . . . . . . . . . . 9 9 III. Report by the Bingo Advisory Committee (BAC) 10 Chairman; possible discussion and/or action on the BAC’s activities, including removal 11 and appointment of committee members. . . 21 12 IV. Report, possible discussion and/or action on the Annual Contract Status Report and 13 Supplemental Information for all major and prime agency contracts . . . . . . . . . . 25 14 V. Report, possible discussion and/or action on 15 agency major and prime contracts, including amendment, renewal or extension of the Dallas 16 Cowboys trademark license and promotional agreements with Pro Silver Star, LTD and 17 Frisco Management, LP. . . . . . . . . . . 26 18 VI. Report, possible discussion and/or action on agency prime contracts, including amendment, 19 renewal or extension of the contracts for the trademark license and promotional agreement 20 with the Houston Texans and Promotional Products. . . . . . . . . . . . . . . . . 26 21 VII. Consideration of and possible discussion 22 and/or action, including adoption, on amendments to 16 TAC §§402.401 (Temporary 23 License), 402.413 (Military Service Members, Military Veterans, and Military Spouses), and 24 402.422 (Amendment to a Regular License to Conduct Charitable Bingo). . . . . . . . . 27 25 0004 1 and/or action, including adoption, on amendments to 16 TAC §401.153 (Qualifications 2 for License). . . . . . . . . . . . . . . 28 3 IX. Consideration of and possible discussion and/or action, including adoption, on 4 amendments to 16 TAC §403.101 (Open Records). . . . . . . . . . . . . . . . . . . . . . 30 5 X. Consideration of and possible discussion 6 and/or action, including proposal, on amendments to 16 TAC §§402.200 (General 7 Restrictions on the Conduct of Bingo), 402.203 (Unit Accounting), 402.300 (Pull-Tab 8 Bingo), 402.402 (Registry of Bingo Workers), 402.500 (General Records Requirements), 9 402.503 (Bingo Gift Certificates), 402.511 (Required Inventory Records), 402.702 10 (Disqualifying Convictions), and 402.706 (Schedule of Sanctions). . . . . . . . . .31 11 XI. Consideration of and possible discussion 12 and/or action, including publication, of Notice of Intent to Review the Commission’s 13 rules set forth in 16 TAC Chapter 401, relating to Administration of State Lottery 14 Act; Chapter 402, relating to Charitable Bingo Operations Division; and Chapter 403, 15 relating to General Administration . . . . 42 16 XII. Report, possible discussion and/or action on lottery sales and revenue, game performance, 17 new game opportunities, advertising, promotional activities, market research, 18 trends, and game contracts, agreements, and procedures. . . . . . . . . . . . . . . . 44 19 XIII. Report, possible discussion and/or action on 20 transfers to the State. . . . . . . . . . 61 21 XIV. Report, possible discussion and/or action on external and internal audits and/or reviews 22 relating to the Texas Lottery Commission, and/or on Internal Audit activities, 23 including approval of the Fiscal Year 2019 Annual Internal Audit Report . . . . . . . 62 24 XV. Report by the Charitable Bingo Operations 25 0005 1 action on the Charitable Bingo Operations Division’s activities, including licensing, 2 accounting and audit activities, pull-tab review, implementation of H.B. 914, and 3 special projects. . . . . . . . . . . . . 33 4 XVI. Report by the Executive Director and possible discussion and/or action on the agency’s 5 operational status, major contracts, agency procedures, awards, and FTE status 6 XVII. Consideration of the status and possible 7 approval of orders in enforcement cases:. 64 8 Lottery NSF License Revocation Cases (Default) 9 A. Docket No. 362-19-4862 – Alvin Food Stop 10 B. Docket No. 362-19-5159 – Perk’s 11 Convenience Store 12 C. Docket No. 362-19-5519 – Bayou Land Liquor 13 D. Docket No. 362-19-5967 – Super Handi Stop 14 E. Docket No. 362-19-5968 – Mary’s Food Mart 15 F. Docket No. 362-19-6083 – Handi Stop 108 16 Lottery Agreed Orders 17 G. Case No. 2019-660 – Z & M Food Mart & Deli 18 H. Case No. 2019-747 – Mr T’s 19 I. Case No. 2019-748 – Nick’s Mart 20 J. Case No. 2019-840 – The Liquor Store 5 21 K. Case No. 2019-911 – Rowe’s Chevron LLC 22 L. Case No. 2019-915 – Step In 2 23 M. Case No. 2019-917 – Big’s 3807 24 N. Case No. 2019-919 – Quick Track 25 0006 1 Store #35384 2 P. Case No. 2019-966 – The Depot Discount Liquor 3 XIX. Public Comment: . . . . . . . . . . . . . 16 4 XIX. Commission may meet in Executive Session:. 66 5 A. To deliberate personnel matters, including 6 the appointment, employment, evaluation, reassignment, duties, discipline, or 7 dismissal of the Executive Director and/or Charitable Bingo Operations Director pursuant 8 to §551.074 of the Texas Government Code. 9 B. To deliberate the duties of the General Counsel and/or the Human Resources Director 10 pursuant to §551.074 of the Texas Government Code. 11 C. To receive legal advice regarding pending 12 or contemplated litigation or settlement offers, or other legal advice, pursuant to 13 §551.071(1) and (2) of the Texas Government Code, including but not limited to legal 14 advice regarding the following items: 15 Pending litigation regarding Fun 5’s Scratch Ticket Game #1592, including Tex. Supreme 16 Court Docket No. 18-0159 (Steele, et al. v. GTECH Corp.) and Tex. Supreme Court Docket 17 No. 17-1010 (Nettles v. GTECH Corp. and Texas Lottery Commission). 18 State of Texas v. Equal Employment 19 Opportunity Commission, et al. (U.S. Fifth Circuit Court of Appeals Docket No. 20 18-10638); 21 State of Texas v. C.D. (On Petition for Review to Texas Supreme Court - Docket No. 22 18-0808); 23 Maryam Jamilah v. Gary Grief (Brazoria Co. District Court Cause No. 104075-CV). 24 Legal advice regarding Texas Government Code 25 0007 1 (Texas Lottery Commission), the Bingo Enabling Act, the Open Meetings Act, the 2 Public Information Act, the Administrative Procedure Act, employment and personnel law, 3 procurement and contract law, evidentiary and procedural law, ethics laws, and general 4 government law. 5 Legal advice regarding any item on this open meeting agenda. 6 XX. Return to open session for further 7 deliberation and possible action on any matter posted for discussion in Executive 8 Session. Any matter posted for Executive Session also may be the subject of discussion 9 and/or action in open session prior to Executive Session. . . . . . . . . . . . . 66 10 XXI. Adjournment. . . . . . . . . . . . . . . . 66 11 12 Reporter's Certificate . . . . . . . . . . . . . . 68 13 14 15 16 17 18 19 20 21 22 23 24 25 0008 1 THURSDAY, OCTOBER 10, 2019 2 (10:00 a.m.) 3 AGENDA ITEM NO. I 4 CHAIRMAN KRAUSE: Good morning. I call 5 this meeting of the Texas Lottery Commission. Today is 6 October the 10th, and the time is 10:10, 10:09 7 actually. Commissioners Franz, Rivera and Saenz are 8 present. Of course the Chairman is present. We have a 9 quorum. Although we do not have a full complement of 10 commissioners. We still have a vacancy. 11 Since our last meeting the governor 12 pointed our newest commissioner, Erik Saenz, to the 13 Commission for a term to expire in February 2023. 14 Commissioner Saenz is from Houston, and we welcome him 15 and thank him for his willingness to serve. We also 16 anticipate, excuse me, the Governor will make an 17 additional appointment in the near future to fill our 18 last remaining vacancy. 19 Erik, welcome. 20 COMMISSIONER SAENZ: Thank you, Mr. 21 Chairman. 22 CHAIRMAN KRAUSE: Do you have any 23 comments that you’d like to make? 24 COMMISSIONER SAENZ: Thank you all. I’m 25 0009 1 serving the great state of Texas. I want to thank 2 Governor Abbott for putting faith in me to sit on this 3 board, and I look forward to serving you all. 4 CHAIRMAN KRAUSE: Thank you, sir. Well, 5 Commissioner Franz has volunteered to serve as our 6 Pledge Commissioner. He’s going to lead us in the U.S. 7 Pledge and then the Texas Pledge. 8 (Pledges recited) 9 AGENDA ITEM NO. II 10 Thank you. When we have a new 11 Commissioner we traditionally have a little public 12 training that is led by our esteemed General Counsel, 13 Bob Biard, who has assured me that with all of the new 14 Commissioners that we’ve had here in the last couple of 15 years that he knows exactly how to streamline this and 16 make it very concise and intelligible. Go. 17 MR. BIARD: Thank you, Mr. Chairman. 18 For the record, I’m Bob Biard, General Counsel. 19 As Chairman said, whenever there’s a new 20 Lottery Commissioner this agency has a tradition of 21 briefly reviewing the laws that govern that Lottery 22 Commission and -- at that Commissioner’s first meeting. 23 Also, since 2013, the State Lottery Act 24 has required new appointees to complete a training 25 0010 1 as a member in attendance at a Commission meeting. The 2 training must provide the appointee with information 3 regarding the legislation creating the Commission; the 4 program, function, rules and budget of the Commission; 5 the results of the most recent formal audit of the 6 Commission; the requirements of laws relating to open 7 meetings, public information, administrative procedure, 8 and conflicts of interest, and any applicable ethics 9 policies. 10 I want to state that prior to this 11 meeting Commissioner Saenz had the required training 12 session to go over these items with Controller Kathy 13 Pyka and me. And so, for purposes of today’s meeting, 14 I only want to provide a brief overview of the 15 highlights regarding the ethics, procedural, and open 16 government laws governing the Commission. 17 At the training session I provided a 18 document titled, “A Guide to Ethics Laws for State 19 Officers and Employees”. This is a Texas Ethics 20 Commission publication and, because the Lottery 21 Commission has a number of more specific requirements, 22 we annotated it using blue ink to highlight provisions 23 specific to the Lottery Commission. 24 These lottery-specific provisions are 25 0011 1 apply to other state agencies. For instance, at this 2 agency there’s a restriction against accepting 3 employment or payment from a person that has a 4 significant financial interest in the lottery. And 5 that is a defined term that includes vendors of lottery 6 goods and services, including their officers and 7 certain employees, and licensed lottery retailers. On 8 the Bingo side that applies to commercial lessors, 9 distributors and manufacturers. 10 Also, with respect to accepting gifts, 11 while other agencies are subject to to a de minimis 12 exception that allows agency members and employees to 13 accept gifts under $50 in value, for instance, to cover 14 the cost of a meal, Lottery Commissioners and employees 15 are prohibited from accepting any gift, which is 16 defined to include anything of value from, quote, a 17 person that has a significant financial interest in the 18 lottery, and certain persons associated with them or a 19 person who has won a lottery prize exceeding $600 20 within the last two years. 21 We do have an exception for 22 Commissioners and employees to accept a gift that is 23 given on account of a relationship that is independent 24 of your Commissioner status and employee status, such 25 0012 1 relationship. In those cases gifts are allowed. Also 2 the agency does not have the authority to accept gifts 3 so you cannot accept gifts on behalf of the Commission. 4 Next there is a restriction against 5 certain political fund-raising activities that is 6 unique to this agency. A Lottery Commissioner may not, 7 and this is a quote, “directly or indirectly coerce, 8 attempt to coerce, command, or advise a person to pay, 9 lend, or contribute anything of value to another person 10 for political purposes”. 11 There are two Attorney General opinions 12 that discuss this provision, which applies only to the 13 Lottery Commission, and I’ve provided those to you. 14 However, this does not prevent you personally from 15 donating to political candidates or causes. These are 16 just a few of the ethics points I wanted to highlight. 17 With respect to procedural laws, under 18 the Administrative Procedure Act, the Commission has 19 two key roles. First, to propose and adopt rules 20 relating to the Lottery and Bingo and, second, to 21 decide contested cases involving specific licensees. 22 Rules are general statements of policy 23 or practice that are generally applicable to all 24 persons. When you propose rules you’re acting in a 25 0013 1 However, you also have a judicial function, because you 2 decide cases where the legal rights and duties of 3 particular licensees are determined after an 4 opportunity for hearing. 5 At the Lottery Commission contested 6 cases usually involve a Lottery or Bingo licensee and 7 the issue is usually whether to deny or revoke a 8 license or to -- or to suspend a license for a period 9 of time. Or, on the bingo side, to assess monetary 10 penalties for violations of the agency’s statutes or 11 rules, or to approve settlements. 12 In contested cases, ex parte 13 communications are prohibited, which means you may not 14 communicate with any person or party to the case about 15 an issue of fact or law unless all parties have 16 received notice and an opportunity to participate. 17 There is an exception to this prohibition that allows 18 you to communicate with staff members here that have 19 not participated in the case to use the agency’s 20 special skills or knowledge in evaluating the evidence. 21 Cases are heard at the State Office of 22 Administrative hearings, or SOAH, by an independent 23 administrative law judge who prepares a proposal for 24 your consideration. The proposal is only a 25 0014 1 of the judge by limiting the reasons why the Commission 2 can change the judge’s recommendation. There are three 3 reasons and they are, first, to correct a technical 4 error such as a wrong name, address, date, or other 5 uncontested fact. Two, if the judge fails to properly 6 apply the law, agency rules, policies, or prior agency 7 decisions. Or, three, if the Commission decides to 8 overrule a prior agency decision that was relied on by 9 the judge because it’s incorrect or because the 10 commission has decided to change its position. 11 Next I’ll touch on additional training. 12 A new Commissioner is required to complete the Attorney 13 General’s online training for Open Meetings and the 14 Public Information Act within 90 days of taking the 15 oath of office. Commissioner Saenz and I discussed the 16 Open Meetings Act and Public Information Act, and I 17 won’t go into detail on those here. 18 There’s a separate required webinar 19 training course on contract management conducted by the 20 Texas Comptroller’s Office, and I am pleased to report 21 that Commissioner Saenz has already completed all of 22 the required training. 23 Last I will note that because the 24 Lottery Commission is a five member board, three 25 0015 1 be at least three Commissioners present to conduct 2 business at an open meeting. This also means that two 3 Commissioners can meet and discuss public business 4 without violating the act, but there is one important 5 caveat to that. The Attorney General and Texas courts 6 have said it would be a violation of the Open Meetings 7 Act to deliberately have a series of two-Commissioner 8 meetings with different Commissioners to decide a 9 matter of public business outside of a public meeting. 10 This is referred to as a walking quorum, and it is not 11 allowed. Whether you are circumventing the act, 12 however, it is always a question of intent, which is a 13 fact question. 14 Commissioners, this is a very broad 15 overview of some of the topics we’ve covered with 16 Commissioner Saenz. There’s a lot of information in 17 the laws governing the Commission’s responsibilities, 18 so please feel free to contact me if you ever have any 19 questions about these laws or how they apply to the 20 Commission. Thank you. 21 CHAIRMAN KRAUSE: Commissioner Saenz, do 22 you feel properly trained? Vetted? 23 COMMISSIONER SAENZ: Yes. 24 CHAIRMAN KRAUSE: Excellent. Well you 25 0016 1 be so. 2 AGENDA ITEM NO. XVIII 3 CHAIRMAN KRAUSE: So, anyway, we’re 4 going to take one little piece of our agenda out of 5 order, and we have a visitor from San Antonio that I am 6 going to go ahead and call up. Usually public comment 7 is the last thing that we offer, and so -- but to show 8 our courtesy to the fellow traveler and to honor, you 9 know, his professorship, he must know something, and 10 thank you, Gerald Busald. 11 MR. BUSALD: Busald, yes. 12 CHAIRMAN KRAUSE: Busald. Have at it. 13 MR. BUSALD: Thank you, Commissioners. 14 My -- for the record, my name is Gerald Busald, I’m a 15 mathematics professor at San Antonio College. And the 16 Lottery and I have a long history, my students and 17 myself, have a long history with the Lottery 18 Commission. 19 Last spring the students actually 20 discovered something. We were looking at a game. I 21 haven’t looked at games very often in the past years. 22 And Gary would know that, because I haven’t been up 23 here. And they made a change at the students’ request, 24 so I appreciate that. 25 0017 1 something not involved with the lottery. But I 2 happened to look at another lottery game that gives me 3 pause and that’s the Cash Five game. It has changed -- 4 it has had many iterations over the years, but the 5 current iteration does something that in 2000 the 6 Lottery Commission said they didn’t want to do. And 7 that is, it offers a free-ticket prize. Okay? And if 8 you looked on your -- on the minutes from the 2000, 9 November, 2000 meeting, at the very next to last page, 10 Toni Smith who was, I don’t know what was her office at 11 the time, she was Marketing Director. She said, We did 12 a survey of other lotteries, four of those six 13 lotteries currently offer free ticket prizes as part of 14 their prize structure and actually factor those into 15 their odds, which we don’t do, and wouldn’t want to do 16 here in Texas. 17 There’s a reason not to do a free-ticket 18 prize. It’s deceptive. Because Cash Five is the only 19 game where you’re not told what is the probability that 20 you will eventually win money. 21 It’s hard to argue on online games that 22 they’re for fun. Some of the scratch-off games are 23 kind of fun, they’re very clever designs and so on, and 24 so you can be fun playing even though you might lose, 25 0018 1 But the online games are not quite that 2 same. You buy a ticket hoping to win money. And the 3 Cash Five prize chart does not state the probability of 4 winning money. It says overall odds are 1 in 7.2, 5 including free-ticket prizes. Of free -- and then it 6 also says under the two of five item, it says a dollar 7 value. A free ticket does not have a value of a 8 dollar. Only if it had an entertainment value, and 9 it’s hard to argue entertainment value on an online 10 game. It actually has a value of 50.26 cents. 11 Most of the online games are designed to 12 be a return of about 50 percent of the money wagered 13 would go to the state. 14 One of the things that can happen with a 15 free-ticket prize is you can win a free ticket with 16 that free-ticket prize, with that free ticket. And 17 then with that free ticket you could win money or you 18 could win a free ticket with the free ticket with the 19 free ticket. And it goes on and on. You could win a 20 free ticket 100 times in a row. 21 I went out to 107, at which time my 22 computer broke down. Basically it was the probability 23 of that happening was 1 in 1 followed by a -- over 150 24 zeroes. So obviously that’s probably something that’s 25 0019 1 the actual probabilities. 2 The prize chart actually understates the 3 probability of actually winning money. You’ll notice 4 on the outside of the -- of the chart that I gave you, 5 where it says odds of winning the cat -- top prize are 6 1 in 324,632. That’s on the first ticket. But when 7 you factor in that you could get a free ticket and win 8 with that ticket and -- or you could win and get a free 9 ticket and a free ticket and free ticket and win with 10 that ticket, the odds go down, actually, 1 in 284,000. 11 So the odds are actually better than what are stated on 12 winning cash prizes. 13 But, unfortunately, there still is no 14 statement as to what is the probability that you’ll 15 actually win money. I put down at the bottom, the 16 overall odds of winning money with one ticket are 1 in 17 72.1. But the overall odds of winning money with 18 multiple consecutive free tickets are 1 in 63. That 19 would be a correct statement of the probability, or the 20 odds. And the Lottery Commission has done, as some of 21 it with maybe some of my students’ urging, of revealing 22 things like this. And so, I wanted Commissioners to 23 have a chance to look at this, have the chance to study 24 it. 25 0020 1 this semester. We’re not even looking at the lottery, 2 you’d be happy to know. I just happened to look at 3 this and was a little bit concerned about this, because 4 it brought up something. Soon as I saw free ticket I 5 said, wait a minute, in 2000 we said we didn’t want to 6 do free tickets in Texas. 7 And, once again, it’s a reason because 8 it is deceptive as to did you really win something or 9 did you not win something? Winning a free ticket is 10 not winning something. It’s like a push. It’s worse 11 than a push, really, because it’s still the -- that 12 ticket still has the same probability of actually 13 winning money. 14 So it’s just something for the Lottery 15 Commission to consider. I know it would’ve involved 16 redesigning the game, but it’s been redesigned many 17 times. 18 Either that or actually say -- telling 19 the players, The overall odds of winning money are 1 in 20 63.1. Either of those would be satisfactory. What’s 21 done right now, to me, is deceptive. 22 And I’ve kind of considered myself over 23 the years sort of a conscience of the lottery 24 advertising. And so they have changed the way they’ve 25 0021 1 students’ request. 2 And so, I would like you to consider 3 this item, and hopefully we can get some resolution. 4 Doesn’t even have to involve the press. Press doesn’t 5 even know about this. You’re surprised, probably. 6 Okay. So and I know you can’t respond, 7 but I wanted to give -- to bring this forward to you 8 for your consideration, so thank you for your attention 9 and thank you for taking me out of order. I spent all 10 my time driving up here, it won’t take as long driving 11 back maybe. Thank you. I appreciate it. Thank you 12 very much. 13 AGENDA ITEM NO. III 14 CHAIRMAN KRAUSE: Trace. 15 MR. SMITH: Yes, sir. 16 CHAIRMAN KRAUSE: This fellow came from 17 Texarkana. Once again. He claims he drives. 18 MR. SMITH: Yes, yes. There’s not 19 actually a direct flight out of Texarkana or, believe 20 me, I would take it. 21 This is the report from the -- this is a 22 summary of the report from the Bingo Advisory Committee 23 Meeting that we held on 10th of September, 2019. 24 BAC created a subcommittee to give input 25 0022 1 that are going to be participating in that, from that, 2 from BAC, from the public, and from staff. 3 The BAC read and discussed proposed rule 4 changes with the TLC staff and voted to approve the 5 rules as written from public comment. We did have 6 several nominations for the vacant seats on the Bingo 7 Advisory Committee. We voted and nominated Veronica 8 Uriegas of Austin, Texas, to fill the Charity Lessor 9 vacancy seat on the Bingo Advisory Committee. 10 The Bingo Advisory Committee would also like to ask the 11 Lottery Commissioners to open the Public Member vacancy 12 to include those other than someone from just the 13 general public. We’re having trouble filling that 14 seat. My understanding that it has to be a truly 15 public member. That’s very difficult to fill. So we 16 would ask for your permission to open that up to let us 17 pick a charity conductor to fill that position. 18 And the next BAC meeting will be the 19 19th of November, and we would like to always extend an 20 invitation to any of the Commissioners that would like 21 to attend that. Know you’re busy, but the invitation 22 is always open. 23 CHAIRMAN KRAUSE: So may I understand 24 that you have one appointment for us to consider and 25 0023 1 MR. SMITH: Yes, sir. Yes, sir. 2 CHAIRMAN KRAUSE: Okay. And so I don’t 3 see any reason not to consider that appointment. So do 4 I have a motion to -- 5 COMMISSIONER RIVERA: Move for approval. 6 CHAIRMAN KRAUSE: Second? 7 COMMISSIONER FRANZ: Second. 8 CHAIRMAN KRAUSE: All in favor say aye. 9 (Chorus of “aye”s) 10 Your nomination of our new person, and 11 as the new person here today. 12 MR. SMITH: No, sir. They are not. 13 CHAIRMAN KRAUSE: Okay, even though 14 she’s from Austin. 15 MR. SMITH: Yes. 16 CHAIRMAN KRAUSE: Okay, okay. 17 MR. SMITH: Yes, sir. 18 CHAIRMAN KRAUSE: And then there was 19 another thing that you asked us to do. 20 MR. SMITH: Yes, sir. 21 CHAIRMAN KRAUSE: And I don’t know that 22 that requires us to take any action. And that is to 23 change a designation? 24 MR. SMITH: It’s not actually changing a 25 0024 1 than a general public member to pick a charity 2 conductor member to fill the vacancy. 3 CHAIRMAN KRAUSE: Why don’t you, you 4 know, find some folks and run it by our director and it 5 all seems simpatico, and I don’t know why we wouldn’t 6 want to, you know, have people work with you that you 7 have confidence in, and we have confidence in you. 8 MR. SMITH: Thank you, sir. I 9 appreciate that. 10 MR. BIARD: Mr. Chairman, just to add a 11 little to that particular point. It’s the Commission’s 12 BAC rule actually says that if there’s not an 13 individual to represent one of the required interest 14 groups the Commission may appoint a member from the 15 remaining interest groups. So I just wanted to tell 16 you there was some support for what Mr. Smith is 17 recommending here. 18 CHAIRMAN KRAUSE: Okay. Well, so if he 19 nominates him, then we confirm him, and so if you bring 20 the person then we’re going to -- 21 MR. SMITH: Excellent. 22 CHAIRMAN KRAUSE: We have a one-eyed 23 look about it and -- yeah. All right, good work. 24 Thank you for driving down from Texarkana. 25 0025 1 CHAIRMAN KRAUSE: Done. 2 AGENDA ITEM NO. IV 3 CHAIRMAN KRAUSE: Mr. Mike Fernandez, 4 the guy who really runs the place. 5 MR. FERNANDEZ: Mr. Chairman, I thank 6 you for that promotion. 7 CHAIRMAN KRAUSE: There’s no money 8 involved. 9 MR. FERNANDEZ: Good morning, 10 Commissioners, Mr. Chairman. For the record, my name 11 is Mike Fernandez. I’m the Director of Administration. 12 I have the next three items, Mr. Chairman. 13 Item four in your notebook is a briefing 14 item. Texas Administrative Code 401.105 requires that 15 agency contracts be presented to the Commission 16 annually for informational purposes. This requirement 17 was further expanded in Texas Government Code 2261.254 18 by including additional contract reporting requirements 19 regarding compliance, financial provisions, performance 20 issues, sanctions and liquidated damages assessed. 21 In your notebook is a report detailing 22 contracts, which includes sanctions and liquidated 23 damages assessed in fiscal year nine -- 2019. And, as 24 recommended by Commissioner Franz, also included is a 25 0026 1 damages assessed for the lottery operator, our largest 2 contract. If you have any questions I’d be happy to 3 answer any questions. 4 AGENDA ITEM NO. V 5 MR. FERNANDEZ: Again, for the record, 6 my name is Mike Fernandez, the Director of 7 Administration. Item five in your notebook is also a 8 briefing item to advise the Commission of staff’s 9 intent to extend two trademark license and promotion 10 agreements. The first is with Pro Silver Star, a 11 Dallas Cowboys organization, for a two-year period. 12 Commissioners have independently confirmed they do not 13 have any interest in Pro Silver Star. Again, I’ll be 14 happy to answer any questions, Commissioners. 15 The second contract extension is for a 16 two-year period with Frisco Management, L.P., also a 17 Dallas Cowboys organization. The Commissioners have 18 also independently confirmed they do not have any 19 financial interest in Frisco Management. 20 AGENDA ITEM NO. VI 21 MR. FERNANDEZ: Again, for the record, 22 my name is Mike Fernandez, Director of Administration. 23 Item six in your notebook is a briefing item, and it’s 24 to advise the Commission of staff’s intent to extend 25 0027 1 Promotional Agreement with the Houston NFL Holdings in 2 Houston, Texas for a one-year period. Commissioners 3 have independently confirmed they have no financial 4 interest in NFL -- Houston NFL holdings. 5 The second contract extension is with 6 Beehive Specialty Products for a one-year period. 7 Commissioners have also independently confirmed they 8 have no financial interest in Beehive. Commissioners, 9 that concludes my report. If you have any questions, I 10 would be happy to answer them. 11 CHAIRMAN KRAUSE: Questions or comments? 12 Thank you, sir. 13 AGENDA ITEM NO. VII 14 CHAIRMAN KRAUSE: Tyler Vance. 15 MR. VANCE: Good morning, commissioners. 16 Tyler Vance, Assistant General Counsel. I have for 17 your consideration today the possible adoption of 18 amendments to Rule 402.401, 402.413, and 402.422. You 19 guys proposed these amendments back in August. The 20 rules are being amended to comply with HB 882 and 21 Senate Bill 1200, passed in the recent legislature. 882 22 provides that Bingo occasions can go from four to now 23 up to six hours in length and Senate Bill 1200 provides 24 that the -- that all occupational licensing agencies 25 0028 1 spouses while they reside in Texas, provided that 2 they’re currently licensed in good standing in another 3 state with substantially similar requirements. 4 We held a public hearing on this, and we 5 received no written comments, no verbal comments, no 6 comments whatsoever. And so, therefore, staff 7 recommends that the Commission adopts these amendments 8 as proposed. 9 CHAIRMAN KRAUSE: Questions, comments? 10 All right, so this a final rule, and I need a motion to 11 adopt these amendments. 12 COMMISSIONER FRANZ: I so move. 13 COMMISSIONER SAENZ: Second. 14 CHAIRMAN KRAUSE: All in favor say aye. 15 (Chorus of “aye”s) 16 CHAIRMAN KRAUSE: Adopted. Thank you, 17 sir. 18 MR. BIARD: Thank you, Commissioners. 19 I have a rule order for your signatures. 20 AGENDA ITEM NO. VIII 21 CHAIRMAN KRAUSE: Kyle Wolfe. 22 MR. WOLFE: Morning Mr. Chairman, 23 Commissioners. For the record, I’m Kyle Wolfe, 24 Assistant General Counsel. 25 0029 1 proposal to adopt amendments to Commission Rule 2 401.153, the Qualifications for License rule. The 3 proposed amendments were published in the Texas 4 Register on August 23rd. As presented in the August 5 meeting, the purpose of the amendments is to implement 6 the requirements of Senate Bill 37, which remove 7 licensing requirements regarding persons who have 8 defaulted on their student loans. The amendments 9 remove those repealed licensing requirements and make 10 organizational corrections to the rule. We received no 11 public comments on the amendments, and staff recommends 12 that the commission adopt the proposed amendments to 13 Commission Rule 401.153, and I’m happy to answer any 14 questions. 15 CHAIRMAN KRAUSE: My question is that, 16 of course, this is required by statute, because the 17 Legislature changed the statute, and removed this 18 impediment to somebody. 19 MR. WOLFE: Yes, Mr. Chairman. 20 CHAIRMAN KRAUSE: Okay, okay. And this 21 is not the one about military service. 22 MR. WOLFE: No, it wasn’t. 23 CHAIRMAN KRAUSE: Okay that was the one 24 before. All right. Well, so is there a motion to 25 0030 1 COMMISSIONER RIVERA: Move for approval. 2 3 COMMISSIONER FRANZ: Second. 4 CHAIRMAN KRAUSE: All in favor say aye. 5 (Chorus of “aye”s) 6 Adopted. Thank you, sir. 7 MR. WOLFE: Thank you, Commissioners. 8 MR. BIARD: And I have a rule order for 9 your signature on that as well. 10 AGENDA ITEM NO. IX 11 CHAIRMAN KRAUSE: Deanne Rienstra, 12 Special Counsel. Assistant special counsel. 13 MS. RIENSTRA: Good morning, 14 Commissioners, I’m Deanne Rienstra, Special Counsel. 15 In your notebook is a proposal to adopt amendments to 16 16 TAC 403.301 STET relating to the agency’s open 17 records processing. The purpose of the proposed 18 amendments is to implement Government Code section 19 552.275 by establishing a reasonable limit of 36 hours 20 per fiscal year as the maximum amount of time 21 Commission personnel are required to spend producing 22 public information for inspection or duplication by a 23 requester, or providing copies of public information to 24 a requester, without the Commission recovering costs 25 0031 1 also clarify how to submit public information requests 2 to the Commission and make other clarifying changes to 3 the rule. 4 The adopted version is submitted without 5 changes from the proposed version that was published in 6 the Texas Register on August 23, 2019. No comments 7 were received during the comment period. Staff 8 recommends the commission adopt the proposed rule 9 amendments to 403.101, and I’m happy to answer any 10 questions. 11 CHAIRMAN KRAUSE: Commissioners. 12 COMMISSIONER FRANZ: Mr. Chairman, move 13 for approval. 14 COMMISSIONER RIVERA: Second. 15 CHAIRMAN KRAUSE: All in favor say aye. 16 (Chorus of “aye”s) 17 MS. WOLFE: Thank you. 18 MR. BIARD: And I have a rule order. 19 CHAIRMAN KRAUSE: Commend staff for 20 discovering this ability to protect ourselves. Thank 21 you. 22 AGENDA ITEM NO. X 23 CHAIRMAN KRAUSE: Tyler Vance again, yet 24 again. 25 0032 1 your consideration here a possible proposal of 2 amendments to many rules within Chapter 402 related to 3 Bingo, they’re 402.200, 203, 300, 402, 500, 503, 511, 4 702, and 706. The vast majority of these are being 5 amended or proposed to be amended pursuant to House 6 Bill 914, which was a pretty significant modification 7 to the Bingo Enabling Act. 8 There’s also a change related to House 9 Bill 1342, which eliminated consideration of certain 10 criminal offenses and occupational licensing. We ran 11 these by the Bingo Advisory Committee, and as you heard 12 Mr. Smith testify, they are in approval of publishing 13 them for comment. And so they’re -- it’s going to be - 14 - we expect a lot of comments on these rules, there’s a 15 lot of rules. And we have a public hearing scheduled 16 for Wednesday, November the 6th at 10:00. And so, with 17 all that in mind, staff recommends that you propose 18 these rules. 19 CHAIRMAN KRAUSE: Questions, comments? 20 COMMISSIONER RIVERA:: Move for 21 approval. 22 COMMISSIONER FRANZ: Second. 23 CHAIRMAN KRAUSE: All right. So this is 24 starting the rulemaking process? 25 0033 1 CHAIRMAN KRAUSE: And so we expect to 2 have citizen participate robustly. 3 MR. VANCE: Quite a few, yes. 4 CHAIRMAN KRAUSE: Okay, good. But we 5 have a motion and a second. All in favor say aye. 6 (Chorus of “aye”s) 7 Send it out. 8 AGENDA ITEM NO. XV 9 CHAIRMAN KRAUSE: Okay. Bingo 10 Director’s Report. We’ll take that out of order and 11 give you the honor of addressing us now. 12 MR. FARRELL: Well, thank you, sir. For 13 the record, I’m Michael Farrell, Director of Charitable 14 Bingo Operations Division. In your meeting notebooks 15 we’ve provided you the standard division output 16 information for the months of July and August. A copy 17 of the Bingo Division Annual Audit Plan, and a risk 18 assessment for -- excuse me. The annual Audit Plan and 19 Risk Assessment for fiscal year ‘20. 20 Today I’ve also providing you a copy of 21 the Charitable Bingo Operations Division’s 2018 annual 22 report. As you look at the chart you can see the 23 calendar year 2018 was a positive year for the 24 charitable Bingo industry. They reported gross 25 0034 1 distributions were slightly over $33.6-million, an 2 increase of $2.3-million over the previous year, making 3 this the fourth year of charitable distribution growth. 4 The next chart shows net proceeds as 5 presented to adjusted gross receipts. Adjusted gross 6 receipts were over 190.3-million. Net proceeds as a 7 percentage of adjusted gross receipts were 17.3 8 percent. The decrease in net proceeds from calendar 9 year 2017 to 2018 is due to increases in prizes paid 10 along with some increases in other expenses. 11 During calendar year 2018, 30.4-million 12 was deposited into the general revenue of Dedicated Bingo 13 Administrative Fund and $10.9-million was allocated to 14 cities and counties that share in the prize fees 15 collected. The complete report will be published on the 16 agency website after this meeting. 17 Lastly, we in the division along with 18 other agency staff are working diligently to implement 19 House Bill 914 from the 86th Legislative Session. Due to 20 the bill’s provisions regarding the payment of Bingo 21 prize fees we have made multiple mailings to the affected 22 local government entities and to licensed conductors. 23 We’re also busy responding to questions from the 24 counties, municipalities, and conductors considering the 25 0035 1 to notifications regarding the local jurisdiction prize 2 fees vote. 3 Barring any questions I’d like to pass 4 the discussion to Bob Biard who will comment further on 5 the legislative changes specifically related to the 6 payment of Bingo prize fees. 7 MR. BIARD: Thank you, Michael. 8 Commissioners, we wanted you to be aware of the 9 situation regarding the payment of prize fees under 10 House Bill 914, which was the Bingo Bill enacted last 11 session which is subject to the rule presentation you 12 just heard. 13 We understand the impetus behind the 14 bill was to get more money to charities, and one 15 mechanism for doing this is a significant provision of 16 the bill that requires all Texas cities and counties 17 that had previously voted to receive a portion of the 18 Bingo prize fees collected within their boundaries to 19 vote again by November 1st to confirm whether they 20 wished to continue receiving the prize fees or not. 21 The idea was that if any local 22 jurisdiction failed to vote, or voted not to continue 23 receiving the fees, their share would go to the 24 charities in their city or county. I may need to step 25 0036 1 few exceptions, 5 percent of every Bingo prize is 2 withheld from the winner, and this amount is the prize 3 fee. Half of that amount goes to the State of Texas. 4 The other half is available for distribution to the 5 city or county where the Bingo occasion is located and 6 historically has gone to to them if they voted in the 7 past to receive a share of the prize fees. 8 Also historically 100 percent of the 9 prize fees were remitted to the Commission and the 10 Commission allocated the fees between the state and the 11 cities and the counties that were entitled to a share. 12 This new bill changed that structure. 13 In the future, the charities will only send to the 14 Commission the state’s 50 percent share and the 15 charities will distribute any of the remainder to 16 cities and counties that vote before November 1 to 17 continue getting the fees and keep the rest for 18 themselves, for their charitable purposes. So after 19 the end of the year it will be up to the charities, not 20 the Commission, to make sure the cities and counties 21 get their share based on the new voting results. 22 So here’s the issue. There are several 23 permutations of vote results on whether a county and 24 each of the cities within the county vote to stop or 25 0037 1 In mid-September members of the Bingo 2 community and we at the Commission became aware that 3 under the plain language of the bill, there are certain 4 situations where the prize fees would not go to 5 charities as the Legislature presumably intended. For 6 instance, if a city voted not to continue receiving the 7 fee, but the county voted to continue receiving the 8 fee, the language of the bill indicates that the city’s 9 share of the prize fee would go to the county, not the 10 charities. 11 This situation led the bill’s author, 12 Representative Thompson, to send a letter of intent to 13 Chairman Krause on September 19th, stating that House 14 Bill 914, and this a quote, “Contains an unintended 15 ambiguity” regarding the situation I just described. 16 She states, and I’m quoting again, “The Legislature’s 17 intention was to have the share previously received by 18 a local government that opted out to go to the charity 19 such that if before November 1 the county opted in and 20 the city opted out the city’s share would go to the 21 charities. It was not the Legislature’s intent in that 22 scenario for the city’s share to go to the county, 23 which put the private charity’s money it generates 24 through its Bingo operations.” 25 0038 1 understand that the fees in question will not belong to 2 the State of Texas or come through the Commission, and 3 that this matter is of interest to the local 4 governments and the charities that conduct Bingo within 5 their jurisdictions.” 6 In closing, Representative Thompson 7 asked the agency to provide a copy of her letter to any 8 local government that raises the issue, and it’s my 9 understanding that Mr. Farrell has provided a copy of 10 Representative Thompson’s letter in his last written 11 communication to all the local jurisdictions regarding 12 House Bill 914. 13 As Representative Thompson indicates, 14 this is an issue that’s outside the Commission’s 15 authority because the Commission will no longer have 16 the ability to allocate prize fees to local 17 jurisdictions. But, as you might expect, Bingo 18 licensees as well as cities and counties looks to this 19 agency for advice, so this was a matter of concern for 20 the staff. 21 The staff is also suggesting that 22 interested persons may want to seek independent legal 23 advice if they have questions about House Bill 914 and 24 the payment of prize fees. 25 0039 1 really between the charities, the counties, and the 2 cities, but because of Representative Thompson’s letter 3 to the Chairman I wanted to make that a record in this 4 matter. Thank you. Happy to answer any questions. 5 CHAIRMAN KRAUSE: I think do we have 6 some comment? 7 MR. FENOGLIO: We do and, Mr. Chairman, 8 I’ll fill out a notice form. I did not intend to speak 9 until -- 10 CHAIRMAN KRAUSE: Commission recognizes 11 Mr. Steve Fenoglio. 12 MR. FENOGLIO: Thank you. For the 13 record, my name is Stephen Fenoglio. I’m an attorney 14 in Austin. I represent a number of charities. And was 15 -- I did work on the drafting of House Bill 914. 16 We were shocked when we found out about 17 this issue that Mr. Biard just described. When a city 18 official informed one of our members, Texas Charity 19 Advocates, of this position. And I thought we had good 20 communication with staff, but we were caught flatfooted 21 with this position and then I understand there have 22 been several letters sent out by staff about this. 23 The first that we knew that the 24 commission was taking the position whereby, for 25 0040 1 fee money. Back up just a moment. Every -- with a few 2 exceptions, every time a bingo prize is awarded five 3 percent is withheld. That historically went to the 4 state. And the state has now used that money to pay 5 for license fees. 6 Roughly half of the five percent has 7 been remitted to state and local governments who don’t 8 do anything to either collect the money, make bingo 9 happen, or anything. It’s just a gift to them that 10 goes way back 20 years ago when the Legislature made 11 that call. 12 What we want to do, we being Texas 13 Charity Advocates Bingo Interest Group, Conservative 14 Texans for Charitable Bingo and others in the Bingo 15 world. That local share we want to have an opportunity 16 to put that money in the charity’s general fund. Not 17 the Bingo account, but the general fund. And so we 18 crafted this legislation, and ran it by staff a number 19 of times. And then the vagaries hit after the bill was 20 enacted and signed by the Governor. And my point on 21 all this, is it is a difficult statute to read, but in 22 the future we’d like to have the opportunity to know in 23 advance before staff takes a position what their 24 position is. We were instrumental in getting Senfronia 25 0041 1 there was this issue that came up. I’m sorry to take 2 your time, Commissioner, Chairman and Commissioners, 3 but it’s an important issue to the industry. 4 Potentially there’s about $11-million we believe that 5 could go directly to the charities for this. State 6 would still keep its share. Thank you. I’ll be happy 7 to answer any questions. 8 CHAIRMAN KRAUSE: Yes, sir. Any 9 questions? 10 COMMISSIONER RIVERA: And, again, I know 11 that a lot of this is out of, you know, control by you 12 and us in all this. But what would you like to see 13 directly us do? 14 MR. FENOGLIO: On a going forward basis, 15 I mean, the statue is the statute. But before there 16 are any other clarification letters that are sent out, 17 I’d like to have the opportunity, Mr. Bresnen can’t be 18 here, he’s out of the country right now. Most of you 19 know he’s the key lobbyist for bingo world. We would 20 like to have the opportunity to have a dialogue with 21 staff before those clarifying letters go out. Because 22 we find out about it in a city council meeting where 23 this -- one of the city council members says, Well I 24 just got a letter from the Lottery Commission. We 25 0042 1 case would you respond to that? 2 And this isn’t me, this is a charity 3 representative in Fort Worth. Would you respond to 4 that? They don’t even have an idea of what’s been 5 said. 6 COMMISSIONER RIVERA: So do you think 7 there could have been anything done differently to 8 avoid kind of where we are now from our --? 9 MR. FENOGLIO: I’d like to think the 10 hindsight’s always 20/20. Had staff identified this 11 issue while the legislation -- while the legislation 12 was pending, we probably could have fixed it 13 immediately. But once they identified the issue in 14 hindsight, I wish they had communicated with us. We’ve 15 identified this as a problem. What is your guys’ 16 position? Communication. 17 COMMISSIONER RIVERA: Right. Okay. And 18 I ask that question for future movement in terms of 19 what we can do better to avoid this in the next 20 session. 21 MR. FENOGLIO: Thank you, Commissioner. 22 CHAIRMAN KRAUSE: Thank you. 23 AGENDA ITEM NO. XI 24 CHAIRMAN KRAUSE: Item 12, Bob Biard. 25 0043 1 MR. BIARD: Thank you, commissioners. 2 Thinking is this -- I think this is Item 11. This is 3 the Commission Rule Review. Yep. 4 Commissioners, by statute, every four 5 years a state agency is required to make an assessment 6 of whether the reasons for each of its administrative 7 rules continues to exist. 8 In this item I’m requesting your 9 approval to publish a Notice of Intent to review all of 10 the Commission’s rules at Chapters 401, 402, and 403 of 11 the Texas Administrative Code, Title 16. Each chapter 12 will have its own notice. 401 covers the Lottery, 402 13 covers Bingo, and 403 covers General Administration. 14 The Commission last reviewed these rules in 2015 and 15 2016. The names and numbers of the rules are listed in 16 the notices in your notebook. At the conclusion of the 17 review I’ll ask the Commission to approve an order re- 18 adopting each rule along with an assessment of whether 19 the reasons for initially adopted the rules continue to 20 exist. The order will state whether there’s a need to 21 amend or repeal any of the rules. 22 If the Commission decides to appeal or 23 amend a rule, staff will present a separate rulemaking 24 proposal at a future Commission meeting to provide 25 0044 1 specific repeal or amendment. 2 This process is designed to ensure that 3 agencies just don’t let the rules accumulate over time 4 without considering whether they still serve a purpose 5 and are properly updated to reflect the current law, 6 policy and practice. 7 We recommend the Commission approve 8 publication of the three Notices of Intent in the Texas 9 Register to receive public comment on the Lottery, 10 Bingo, and General Administration Rules. 11 CHAIRMAN KRAUSE: All righty. Is there 12 a motion to publish the rule review notice? 13 COMMISSIONER FRANZ: So moved. 14 COMMISSIONER RIVERA: Second. 15 CHAIRMAN KRAUSE: All in favor say aye. 16 (Chorus of “aye”s). 17 CHAIRMAN KRAUSE: Mr. Biard, it’s all 18 yours. 19 MR. BIARD: Thank you. I have a T-bar 20 Memorandum for your initials. 21 AGENDA ITEM NO. XII 22 CHAIRMAN KRAUSE: Next we’re going to 23 hear from Kathy Pyka and Robert Tirloni the wizard. The 24 scratch-off wizard. 25 0045 1 Thank you, Mr. Chairman. 2 CHAIRMAN KRAUSE: Need to get a cape 3 and all, big hat. 4 MS. PYKA: Good morning, Commissioners, 5 my name is Kathy Pyka, Controller for the Commission, 6 and to my right is Robert Tirloni, the Commission’s 7 Products Manager. 8 This morning we’ll be presenting our 9 fiscal year 2019 final data as it relates to revenue 10 and sales for the Commission. So we’ll begin our 11 presentation with our revenue highlights. The 12 Commission completed the fiscal year with 13 $1,637,000,000 in total revenue transfers to the state. 14 This is the highest revenue transfer in Texas Lottery 15 history, breaking the previous record set in fiscal 16 year 2018 by more than $186,000,000. 17 Fiscal year 2019 marks the 16th 18 consecutive year the Texas Lottery has reached the $1- 19 billion mark in overall revenue transfers. Of that 20 revenue transfer amount $1,617,000,000 went to the 21 Foundation School Fund representing a new record in 22 lottery contributions to public education in Texas. 23 Our revenue for fiscal year 2009 to the Foundation 24 School Fund exceeded the previous revenue record set 25 0046 1 Additionally, of the total revenue 2 transfer, $19.4-million went directly to the Texas 3 Veterans Commission from the sale of scratch-off games 4 dedicated to the Fund for Veteran’s Assistance. This 5 is the largest annual transfer to the Veteran’s Fund 6 since the designated games were started in 2010, and it 7 was an increase of $1.2-million over last fiscal year. 8 Another record was prizes paid to 9 players with more than $4,131,000,000 won by our 10 players. This broke the record also set last fiscal 11 year. 12 Our retailers were paid more than $313- 13 million in commission payments. This, too, is another 14 record in payments to our retailers. And we concluded 15 the fiscal year with an administrative expenditure rate 16 of 3.97 percent, which too is the lowest administrative 17 expenditure rate in the Commission’s history, and is 18 one of the lowest rates in the industry. 19 So now we’ll move on to sales data. For 20 the first time in our history we’ve exceeded the $6- 21 billion mark. Our final sales for fiscal year 2019 22 were $6,252,000,000 and surpassed the previous sales 23 records set last fiscal year by $624-million. 24 We ended the fiscal year with 25 0047 1 on the second orange bar. This is a new sales record 2 marking the best year of scratch-ticket sales since we 3 began selling tickets. And this reflects a sales 4 increase in more than $427-million above last fiscal 5 year and represented an almost 10 percent gain over 6 last fiscal year. 7 Our draw sales concluded the year with 8 $1,406,000,000 in sales as noted on the second blue 9 bar. This is an increase of $197-million over last 10 fiscal year. And, commissioners, this too is a new 11 sales record for the agency surpassing the record set 12 over 20 years ago in 1997. Our multistate games, both 13 Powerball and Mega Millions generated $750-million 14 during fiscal year ‘19, which was more than one-half of 15 total draw sales for the fiscal year. 16 Our next slide provides an overview of 17 the 28-year history of scratch and draw sales for the 18 commission. So beginning with the first bar, the first 19 orange bar, that was 1992 in which scratch ticket sales 20 were $591,000. And you can see the growth. Year by 21 year, fiscal year ‘19, reaching $6,251,000,000. 22 The decline that we see in fiscal year 23 1998 and 1999 was during the period in which the 24 Legislature capped our prize payout at 52 percent 25 0048 1 for the State of Texas. That was repealed the 2 following year, but it did take us almost 10 years to 3 reach those sales levels that we had attained in fiscal 4 year 1997. So I think it’s just a nice chart showing 5 the history of both scratch and draw sales for the 6 state. 7 So with that Robert will now provide a 8 detailed overview by game for fiscal year ‘19. 9 MR. TIRLONI: Thanks, Kathy, and good 10 morning, Commissioners. So we’ll break down the total 11 of the $6.2-billion in sales by product. 12 Up at the top of the slide in white is 13 the jackpot portion of the product category. Jackpot 14 games represented just under $948-million this past 15 year. 16 The number one selling draw game was 17 Mega Millions. You might remember a year ago at this 18 time Mega Millions was rolling up to a record $1.6- 19 billion jackpot, and that jackpot plus a $500-million 20 jackpot later in the fiscal year led to Mega Millions 21 having a very successful year, $353-million in sales, 22 and that’s an almost $130-million gain over the 23 previous fiscal year. 24 Powerball had a good year as well. We 25 0049 1 One of those also occurred in October of ‘18 as Mega 2 Millions was climbing up to the $1.6-billion record we 3 just spoke about. So Powerball did $296-million in 4 sales in fiscal ‘19. It’s almost a $45-million gain 5 year over year. As you would guess, the add-on 6 features for both Mega Millions and Powerball are also 7 realizing increases. 8 Our in-state game, Texas Two Step, 9 that’s our small Jackpot game. It also had a 10 successful year with a little over 62-million in sales, 11 and a gain of just under $4-million. Lotto is 12 experiencing a decline due to lack of jackpots in ‘19. 13 So, all told, the jackpot games are up 14 almost $198-million. We’re very happy about the 15 jackpots we had in ‘19. Of course the bar is set high 16 now for us in ‘20 and it will be difficult for us to 17 achieve these sales numbers for Mega and Powerball if 18 we don’t see some large jackpots this fiscal. 19 In blue is the daily portion of the 20 draw-game category. There are some negatives on here, 21 so I’m going to address those first. Texas Triple 22 Chance is down $10.7-million. That’s because Triple 23 Chance had no sales in fiscal ‘19. It was discontinued 24 at the end of 2018. So at our next meeting when we’re 25 0050 1 longer. 2 You’ll see a $1.8-million negative and a 3 $1.7-million negative. That is for Sum It Up! On both 4 Pick 3 and Daily 4. That’s a discontinued feature. It 5 was replaced with Fireball. So the 7.3-million in 6 Fireball sales for Pick 3 and the 5.3-million in 7 Fireball sales for Daily 4, those are new sales. That 8 feature launched this past spring. 9 Pick 3 is down $8-million. We have a 10 few different things going on between Pick 3 and Daily 11 4. We believe we have Pick 3 players moving to the 12 Daily 4 game, and we also believe we have Pick 3 13 players that are spending less on the base game and 14 spending more on the Fireball feature. They’re moving 15 their dollars around. So going forward we’re thinking 16 we’re basically going to have to kind of carve out a 17 sub-category of our daily game chart here and look at 18 Pick 3 and Pick 3 Fireball and Daily 4 and Daily 19 Fireball as a whole to kind of judge the performance of 20 those games. 21 Cash 5 was changed right at the 22 beginning of fiscal year ‘19, and it’s up $3.8-million. 23 And All or Nothing is another daily game that’s 24 experiencing gains, it’s up 2.4-million. 25 0051 1 the portfolio is up $197.4-million. So great results 2 from the draw games. Scratch continues to be immensely 3 popular, it’s up $427-million. All told, the portfolio 4 is up just under $625-million. 5 This pie chart is just a quick graphical 6 representation of the total sales for the fiscal year. 7 This is the 6.25-billion in sales, and it’s showing the 8 split between scratch and draw. Scratch is 9 representing almost 78 percent of sales with draw 10 bringing in the remaining 22 percent. This is a very 11 typical split between the product categories for us. 12 This is another pie chart representing 13 total draw game sales, so this pie chart represents 14 1.4-billion in draw game sales. Mega Millions was the 15 best selling game, as we discussed, followed by 16 Powerball, followed by Pick 3, and then Lotto Texas, 17 our in-state multi-million-dollar jackpot game. 18 Same slide, but now this is representing 19 the almost $5-billion in scratch-ticket sales, and it’s 20 breaking out that almost $5-billion by price-point. So 21 the $5 price point is our best-selling price point for 22 scratch followed by the 10, followed by the 20, 23 followed by the 50. 24 This will probably be the last time you 25 0052 1 point. Next year I can almost guarantee that 10 will 2 be the best-selling price point. The $10 price point 3 has been experiencing rapid growth and, like I said, we 4 expect that to be the number one selling price point 5 next year. 6 And this is the top 15 scratch-ticket 7 games sold during last fiscal year. And you have a 8 packet of tickets that I distributed this morning, so 9 you have some of these games in the samples in front of 10 you. You’ll see that the number one selling game last 11 year was a $10 game, Mega Loteria, it sold almost $236- 12 million. I’m going to point down this list to show you 13 we also have a $5 Super Loteria ranked number 10, and 14 then we have a $20 version of Loteria called Million 15 Dollar Loteria, that is ranked 11th, and then 15th. So 16 this is a very important family of scratch-ticket games 17 for us. 18 We first introduced Loteria at the $3 19 price point and gradually have grown it to the 5 and 20 then the 10. And then this past year was when we first 21 introduced the 20. So you have samples of the 5, 10 22 and 20 in front of you. 23 The second best-selling game this fiscal 24 was 200X. That was part of our Multiplier Family. We 25 0053 1 December-January time period. 200X sold almost $156- 2 million. 3 Again, I’ll point down to 300X, 100X and 4 50X. All of those games were part of the same family. 5 That family had special proprietary holographic 6 printing on it so you can see they’re really sharp- 7 looking tickets and they also had a unique second- 8 chance drawing associated with them. Non-winning 9 tickets could be entered for, so players could have a 10 chance to try to win a trip for the $5-million Vegas 11 Challenge. So that was a unique offering. 12 The third selling -- third best-selling 13 game is a 50 called Winning Millions, and that sold 14 almost $149-million. 15 The only other thing I’ll point out in 16 your packet, is you have games called the Hit Family. 17 So these are not ‘19 games, but as we’re sitting here 18 we are six weeks into fiscal ‘20, so we already 19 furiously working to meet and exceed the sales numbers 20 that we hit in ‘19, and so I just wanted to show you 21 these games launched right at the beginning of 22 September. Again, another family. We’ve had very 23 great success with families of games. And so these are 24 already helping us contribute great results for the 25 0054 1 And I know that Mr. Grief wants to add 2 some comments before we close this agenda item. 3 COMMISSIONER FRANZ: Can I ask one quick 4 question before you -- 5 MR. Tirloni: Yes, sir, you sure can. 6 COMMISSIONER FRANZ: What’s the 7 distinction between the Million Dollar Loteria that’s 8 11, it’s $20 game, and then there’s a 15 -- they’re 9 both $20 Million Dollar Loteria’s, but it’s just a 10 different -- 11 MR. Tirloni: Yeah. We launched two. 12 We launched two in fiscal ‘19. 13 MR. GRIEF: Phillip, could you mind 14 turning those lights up? Thank you, Robert and Kathy. 15 Great job, as always, in presenting those results. 16 Commissioners, I wanted to share with 17 you a couple of key facts as you take in all of this 18 information that Robert and Kathy have shared with you 19 this morning. And I also have some thoughts to share 20 with you about the reasons why we are continuing to see 21 these great results. 22 In just the last three fiscal years our 23 sales have gone from 5.1-billion in Fiscal Year 2017, 24 to 5.6-billion in ‘18, and now this year to more than 25 0055 1 sales growth in literally just the last 24 months. 2 And when you start to put that into 3 perspective, think of it in these terms: If you add 4 together the annual lottery sales for Arkansas, 5 Oklahoma and New Mexico, all three very well run 6 lotteries, I know their directors well. All of the 7 sales in those three states on an annual basis adds up 8 to $850-million. We have increased our sales in the 9 last 24 months by far greater than the total amount of 10 lottery sales that occur in those three border states. 11 Adding to the fact that this is our 11th consecutive 12 year of record sales growth, or put another way, we’ve 13 seen record sales every single year of Chairman 14 Krause’s long tenure on the board. And our performance 15 has, quite frankly, been outstanding by any measure. 16 With Commissioner Franz joining the 17 board in May, and then Commissioner Saenz attending his 18 first meeting this morning, it’s been interesting to 19 watch my team recently perform as they go through the 20 required training with new Commissioners, and as we go 21 through our individual briefings with Commissioners 22 prior to these Commission meetings. And a recurring 23 question that we get, not from just our two newest 24 Commissioners, but from all the Commissioners who join 25 0056 1 that we’ve seen here at the Texas Lottery? 2 I’m always very comfortable in allowing 3 my team to respond to those questions, and innovation 4 always seems to rise to the top of the discussion 5 whenever that question is raised. And it is absolutely 6 true that Texas is the leader in innovating and 7 modernizing our lottery products all while staying 8 carefully within our statutory framework. 9 Innovations like being the first lottery 10 in the country to have a $50 scratch-off ticket, or 11 issuing new scratch games on a much more frequent 12 basis, and issuing more scratch-off games on an annual 13 basis, than any other lottery in the country. Or the 14 printing of super tickets, or jumbo-size tickets, that 15 have captured the imagination of our consumers like 16 never before. Or incentivizing our retailers with 17 extra sales commissions for performing each year at a 18 higher level than they did the previous year, or being 19 the only lottery in the country that awards one-third 20 of our scratch-ticket printing business to each of the 21 three companies in the world capable of providing those 22 products, thus ensuring that those vendors are 23 competing for our business every single day with their 24 best and most innovative products rather than once 25 0057 1 out for bid. 2 And you’ve heard about the In-lane Sales 3 Initiative at previous meetings. That’s the first 4 initiative of its kind in the industry. That’s still 5 going to go live at more than 1500 Dollar General 6 locations around the State of Texas, and that’s going 7 to provide us with even more opportunities to expand 8 our retailer base in the near future. 9 So these are just a handful of the 10 innovations that we’ve done here in Texas that 11 generates the results you’ve seen up on the screen 12 today. And that list I could go on and on. With the 13 very limited and continually shrinking budget that 14 we’re provided with, our team has also become better at 15 doing more with less than any other lottery in the 16 country, while at the same time we’ve managed our 17 organization’s morale and kept that at record-high 18 levels even in the face of all of these budget cuts. 19 All of those things, all those innovations I’ve touched 20 on, all these unique approaches to problem-solving, 21 yes, indeed they’ve played a big part in driving our 22 success. 23 But, all that said, also look around the 24 room today. And I see our partners in the lottery here 25 0058 1 Account Manager. IGT is the largest, most influential 2 gaming company in the world, and they serve here in 3 Texas not just as our extremely talented lottery 4 operator, but they also are one of the three scratch 5 ticket printers under the IGT printing banner, and 6 that’s all under Joe’s leadership. 7 I see Manny Flores, who is here this 8 morning, over on the right. Manny is the CEO for Third 9 Ear, our advertising agency. The Texas Lottery is a 10 very important client for Third Ear, as are the other 11 great brands that they provide services for, like 12 Starbucks, Google, Target, Jack Daniels, the list goes 13 on. Manny’s company has done an outstanding job in 14 helping us promote and advertise the lottery for the 15 last several years. We’ve won numerous awards for 16 advertising, even in the face of those budget cuts that 17 I’ve mentioned. 18 I think about Jeff Shoumaker who’s not 19 here this morning. He’s the Regional Vice President 20 for Scientific Games. He’s the manager of the very 21 important Texas Lottery Account for that company. 22 Scientific Games is the largest provider of scratch- 23 ticket products in the world, and Jeff always ensures 24 that Texas has a seat that the table when they are 25 0059 1 And I see the same level of commitment 2 and involvement from Doug Pollard, who’s the Co-CEO of 3 Pollard Banknote, the third company that supplies us 4 with scratch-ticket games. They’re based in Canada. 5 Doug and I speak on a regular basis. He and his team 6 are fully committed to the Texas Lottery, and they 7 understand our focus on and our demand for innovation 8 and creativity. 9 So those are just our vendor partners 10 and colleagues. When I look at our own internal team, 11 and this occurred to me again with Commissioner Saenz 12 yesterday as I was introducing him to some of the team 13 members that he had not yet had a chance to meet. You 14 oversee the finest lottery team in the country. 15 Kathy Pyka, our Controller. She chairs 16 the Finance Committee for the North American 17 Association of State and Provincial Lotteries. She’s 18 the industry leader each year in determining topics for 19 discussion and decision-making among all the lottery 20 CFOs, not only in the United States, but in Canada as 21 well. 22 Robert Tirloni, he’s the most sought- 23 after speaker and go-to person in the country when it 24 comes to product development and innovation. As 25 0060 1 Game Development Sub-committee for the Multi-State 2 Lottery Association. 3 Likewise, Ryan Mindell, Ryan previously 4 served as our Deputy General Counsel, and 18 months ago 5 I appointed him as our Lottery Operations Director. 6 Ryan has quickly risen in prominence nationally. He’ll 7 be a keynote presenter at the Public Gaming Research 8 Institute in New York City later this month. 9 And I see Mike Fernandez, who the 10 Chairman appointed the new boss of the agency earlier. 11 He’s our Administration Director, great colleague. 12 He’s managed and overseen large contracts for the State 13 of Texas for many more years than Mike wants to admit. 14 First at the Workforce Commission, and for the last 17 15 years here at this agency. Negotiating and managing 16 large and complex contracts in state government. 17 That’s like navigating a minefield. And Mike and his 18 team do as fine a job as anyone in Texas State 19 government. 20 And I don’t want to forget Bob, Bob 21 Biard, our General Counsel. Bob is an unquestioned 22 leader in the legal field in our industry as well. 23 He’s frequently called upon by both NASPL and MUSL, the 24 two national organizations that are involved in lottery 25 0061 1 into the many legal challenges that are always 2 confronting our business over time. 3 So, quite frankly, I could go on and on 4 down the list of talented people in our agency, but I 5 know that Chairman Krause likes me to keep it brief, 6 and so I’m trying to do that. 7 So, yes, these revenue numbers are great 8 that you see today. Yes, innovation is one of the 9 primary drivers of all of that. But what you, as a 10 board, what you can count on, because we don’t know 11 what’s going to happen with jackpots, we don’t know 12 what’s going to happen with the Texas economy over the 13 next year. But what you can count on, is knowing that 14 you have the best and brightest people in the lottery 15 industry, both on your staff and as your vendors, that 16 are going to continue to have a focus on pushing this 17 lottery forward, keeping us relevant, innovating. 18 Because we know it’s our duty to generate as much money 19 as we can for public education and for veteran’s 20 services in the State of Texas. 21 So, with that, Mr. Chairman, that 22 concludes our sales and revenue report for today. 23 CHAIRMAN KRAUSE: Pretty outstanding, 24 and we’re very proud of the people here in the room 25 0062 1 And so thank you for doing a great job. There you go. 2 Official. 3 AGENDA ITEM NO. XIII 4 CHAIRMAN KRAUSE: Now what’s our next 5 item? 6 MS. PYKA: We’ll move on to tab 13 was 7 -- which is the Revenue Update. In an effort not to be 8 repetitive, since we’ve already provided you the 9 revenue highlights, the only thing that I will add is 10 our cumulative transfers to the Foundation School Fund 11 are now over $24-billion. And that concludes my 12 presentation. Yes. 13 COMMISSIONER RIVERA: What is it for the 14 fiscal year 2019? 15 MS. PYKA: A billion, six. 16 1,600,000,000. 17 COMMISSIONER RIVERA: Thank you. 18 MS. PYKA: Mm-hmm. And I’ll give you 19 the exact, exact -- 20 COMMISSIONER RIVERA: No that’s, one-six 21 is plenty. Thank you. 22 MS. PYKA: Okay, very good. Thank you, 23 Commissioners. 24 AGENDA ITEM NO. XIV: 25 0063 1 MS. BROWN: Good morning, Commissioners. 2 I’m Darlene Brown, the Internal Auditor for the agency. 3 I have two items in your notebook today. One of them 4 is an informational item, and it’s our status report 5 letting you know the activities that we’re undertaking. 6 I did want to point out something that is not in your 7 status report specifically, and that is when we 8 completed our audit of the House Bill 2578, 9 implementation by Bingo, we identified some potential 10 errors and some refunds issued and some accounting on 11 their accounts, so we’re expanding our look into some 12 of the ledger accounts to make sure that they’re 13 accurately stated. So I wanted to give you a briefing 14 that that’s what we’re doing on that. 15 The second item in your notebook does 16 require action from you, and it is our Annual Internal 17 Audit Report. This is a report that’s required by 18 statute to be submitted to the Governor’s Office and 19 the Legislative Budget Board and the State Auditor’s 20 Office. 21 The components of this report are 22 dictated by the State Auditor’s Office and we fill in 23 the information that’s relative to your agency. That 24 is due to these office by November 1st, so I’m seeking 25 0064 1 CHAIRMAN KRAUSE: All right. 2 COMMISSIONER RIVERA: Move for approval. 3 COMMISSIONER FRANZ: And second. 4 CHAIRMAN KRAUSE: All in favor say aye. 5 (Chorus of “aye”s) 6 CHAIRMAN KRAUSE: The report is 7 approved. 8 MS. BROWN: Thank you. 9 CHAIRMAN KRAUSE: We may have already 10 heard from our Executive Director. 11 MR. GRIEF: Yes you have. Nothing further to report. 12 AGENDA ITEM NO. XVII 13 CHAIRMAN KRAUSE: Well said. Next, Bob 14 Biard, we have enforcement cases. 15 MR. BIARD: Thank you, Commissioners. 16 Item 17 in your notebooks contains 16 lottery 17 enforcement matters. Tabs A through P. In these cases 18 Commission staff either found a licensee violated a 19 statute of rule, or an applicant did not qualify for a 20 license. In many cases either the respondent failed to 21 appear at the hearing and it proceeds by default, or 22 the staff and the respondent reached a settlement in 23 the form of an agreed order. 24 Occasionally we have fully litigated 25 0065 1 F are the Non-sufficient Fund Lottery Retailer License 2 Revocation cases handled in a single order. Each of 3 these cases was presented at the State Office of 4 Administrative Hearings for revocation of the retailer 5 license, because the licensee failed to have sufficient 6 funds in their bank account to cover electronic fund 7 transfers to the Commission’s account. In each case 8 the licensee failed to appear and the judge remanded 9 the case to the Commission to handle as a default 10 matter. Your notebook contains a single order to 11 revoke each of those six licenses. 12 Tabs G through P are Lottery Agreed 13 Orders. These are settlements between the Lottery 14 Commission Staff and the retailer, and they’re 15 presented today for your approval. These all involve 16 different types of violations of statutes and rules. 17 They’re in -- the materials are in your notebook, and 18 I’m happy to answer any questions. 19 If you don’t have questions on any of 20 these, you’re more than welcome to take the entire 21 series of cases up in a single vote, because staff 22 recommends approval of the orders in your notebook. 23 CHAIRMAN KRAUSE: Anybody want to talk 24 about anything? All righty. Is there a motion to 25 0066 1 COMMISSIONER RIVERA: Move for aproval. 2 CHAIRMAN KRAUSE: Second? 3 COMMISSIONER FRANZ: Second. 4 CHAIRMAN KRAUSE: All in favor say aye. 5 (Chorus of “aye”s) 6 CHAIRMAN KRAUSE: I’ll be getting good 7 at this. 8 MR. BIARD: Thank you, Commissioners. I 9 have orders for your signature. 10 CHAIRMAN KRAUSE: All right, we will 11 sign those. 12 AGENDA ITEM NO. XIX 13 CHAIRMAN KRAUSE: We’ve already had 14 Public Comment. Commissioners, I believe this 15 concludes the business, for the time being, of the 16 commission for this meeting. And so we expect to go 17 into Executive Session. I move, because I can, that 18 the Texas Lottery Commission go into Executive Session 19 to deliberate personnel matters and to receive legal 20 advice as posted in the second meeting -- our open 21 meeting notice. 22 COMMISSIONER RIVERA: Second. 23 CHAIRMAN KRAUSE: All in favor say aye. 24 (Chorus of “aye”s) 25 0067 1 Session at 11:21. 2 (Executive Session) 3 AGENDA ITEM NO. XX 4 CHAIRMAN KRAUSE: Texas Lottery 5 Commission is out of Executive Session at 12:50, and 6 there is no business to conduct as a result of 7 Executive Session. That being the case, I believe this 8 concludes the business of this meeting. 9 AGENDA ITEM NO. XIX 10 CHAIRMAN KRAUSE: Is there a motion to 11 adjourn? 12 COMMISSIONER RIVERA: Move to adjourn. 13 COMMISSIONER FRANZ: Second. 14 CHAIRMAN KRAUSE: All in favor say aye. 15 (Chorus of “aye”s) 16 CHAIRMAN KRAUSE: We’re adjourned. 17 (Proceedings concluded at 12:47 p.m.) 18 19 20 21 22 23 24 25 0068 1 STATE OF TEXAS ) 2 COUNTY OF TRAVIS ) 3 I, Kimberly C. McCright, Certified Vendor and 4 Notary in and for the State of Texas, do hereby certify 5 that the above-mentioned matter occurred as 6 hereinbefore set out. 7 I FURTHER CERTIFY THAT the proceedings of 8 such were reported by me or under my supervision, later 9 reduced to typewritten form under my supervision and 10 control and that the foregoing pages are a full, true 11 and correct transcription of the original notes. 12 IN WITNESS WHEREOF, I have hereunto set my 13 hand and seal this 7th day of August, 2019. 14 15 /s/ Kimberly C. McCright 16 Kimberly C. McCright 17 Certified Vendor and Notary Public 18 Verbatim Reporting & Transcription, LLC 19 1322 Space Park Drive, Suite C165 20 Houston, Texas 77058 21 281.724.8600 22 23 24 25