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 DECEMBER 12, 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 Erik Saenz 5 GENERAL COUNSEL: Robert F. Biard 6 EXECUTIVE DIRECTOR: Gary Grief 7 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Michael Farrell 8 CONTRACTS AND FACILITY Angela Zgabay-Zgarba 9 MANAGER: 10 ASSISTANT GENERAL COUNSEL: Tyler Vance 11 CONTROLLER: Katheryn J. Pyka 12 PRODUCTS MANAGER: Robert Tirloni 13 McCONNELL JONES LANIER & MURPHY, LLP: Darlene Brown 14 BINGO ADVISORY COMMITTEE: Trace Smith 15 16 17 18 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. Pledge of Allegiance to 4 the U.S. and Texas flags.. . . . . . . . . 7 Pledge of Allegiance to the U.S. and Texas 5 flags. Texas Pledge: “Honor the Texas flag; I pledge allegiance to thee, Texas, one state 6 under God, one and indivisible.” 7 III. Report by the Bingo Advisory Committee (BAC) Chairman; possible discussion and/or action 8 on the BAC’s activities, including removal and appointment of committee members.. . . 7 9 IV. Report, possible discussion and/or action on 10 agency prime contracts, including amendment, renewal or extension of the contract for 11 Promotional Products. . . . . . . . . . . 10 12 V. Consideration of and possible discussion and/or action, including adoption, on 13 amendments to 16 TAC §§402.200 (General Restrictions on the Conduct of Bingo), 14 402.203 (Unit Accounting), 402.300 (Pull-Tab Bingo), 402.402 (Registry of Bingo Workers), 15 402.500 (General Records Requirements), 402.503 (Bingo Gift Certificates), 402.511 16 (Required Inventory Records), 402.702 (Disqualifying Convictions), and 402.706 17 (Schedule of Sanctions). . . . . . . . . . 11 18 VI. Report, possible discussion and/or action on lottery sales and revenue, game performance, 19 new game opportunities, advertising, promotional activities, market research, 20 trends, and game contracts, agreements, and procedures . . . . . . . . . . . . . . . . 14 21 VII. Report, possible discussion and/or action on 22 transfers to the State and the agency’s budget status. . . . . . . . . . . . . . . 19 23 VIII. Report, possible discussion and/or action on 24 the FY 2020 Itemized Operating Budget. . . 21 25 IX. Report, possible discussion and/or action on 0004 1 external and internal audits and/or reviews relating to the Texas Lottery Commission, 2 and/or on Internal Audit activities, including approval of internal audit reports 3 for Drawings Studio, Game Changes, Retailer Incentive Program, and House Bill 2578 4 Implementation (85th Legislature). . . . . 22 5 X. Report by the Charitable Bingo Operations Director and possible discussion and/or 6 action on the Charitable Bingo Operations Division’s activities, including licensing, 7 accounting and audit activities, pull-tab review, implementation of H.B. 914, and 8 special projects. . . . . . . . . . . . . .26 9 XII. Consideration of the status and possible approval of orders in enforcement cases: . 29 10 Lottery NSF License Revocation Cases (Default) 11 A. Docket No. 362-19-6662 – Clayton General 12 Store 13 B. Docket No. 362-19-6663 – Valley Super 14 C. Docket No. 362-19-6665 – Shady Oak Store 15 D. Docket No. 362-19-6666 – Raceway 16 E. Docket No. 362-19-6877 – Chikita Express Store 17 F. Docket No. 362-19-6878 – Albert’s Food 18 Mart 19 G. Docket No. 362-19-6879 – Lucky Stop & Go 20 H. Docket No. 362-19-6991 – Blanco Ice House 21 Lottery Agreed Orders 22 I. Case No. 2019-910 – Kuntry Korner 23 J. Case No. 2019-920 – Kim’s 6 24 K. Case No. 2019-1013 – Sams Stop 25 Other Lottery Cases 0005 1 L. Docket No. 362-19-4567 – Texaco Corner 2 M. Docket No. 362-19-6876 – Triangle Market 3 N. Docket No. 362-20-0063 – Famous Food Store 4 Bingo Agreed Orders 5 O. Case Nos. 2020-72, 2020-73, 2020-74, 2020-75, 2020-76, and 2020-77 – Boys and 6 Girls Club of Central Texas Inc., Boys and Girls Club of Gatesville Inc., Boys and Girls 7 Club of Lampasas Inc., CASA of Bell and Coryell Counties, Exchange Club of Killeen, 8 and West Volunteer Fire Department Hose Co No 1 (Aces High Bingo Unit) 9 XIII. Public comment.. . . . . . . . . . . . . . 32 10 XIV. Commission may meet in Executive Session:. 33 11 A. To deliberate personnel matters, including the appointment, employment, evaluation, 12 reassignment, duties, discipline, or dismissal of the Executive Director and/or 13 Charitable Bingo Operations Director pursuant to §551.074 of the Texas Government Code. 14 B. To deliberate the duties of the General 15 Counsel and/or the Human Resources Director pursuant to §551.074 of the Texas Government 16 Code. 17 C. To receive legal advice regarding pending or contemplated litigation or settlement 18 offers, or other legal advice, pursuant to §551.071(1) and (2) of the Texas Government 19 Code, including but not limited to legal advice regarding the following items: 20 Pending litigation regarding Fun 5’s Scratch 21 Ticket Game #1592, including Tex. Supreme Court Docket No. 18-0159 (Steele, et al. v. 22 GTECH Corp.) and Tex. Supreme Court Docket No. 17-1010 (Nettles v. GTECH Corp. and Texas 23 Lottery Commission). 24 State of Texas v. Equal Employment Opportunity Commission, et al. (U.S. Fifth 25 Circuit Court of Appeals Docket No. 0006 1 18-10638); 2 State of Texas v. C.D. (On Petition for Review to Texas Supreme Court - Docket No. 3 18-0808); 4 Maryam Jamilah v. Gary Grief (Brazoria Co. District Court Cause No. 104075-CV). 5 Legal advice regarding Texas Government Code 6 Chapters 466 (State Lottery Act) and 467 (Texas Lottery Commission), the Bingo 7 Enabling Act, the Open Meetings Act, the Public Information Act, the Administrative 8 Procedure Act, employment and personnel law, procurement and contract law, evidentiary and 9 procedural law, ethics laws, and general government law. 10 Legal advice regarding any item on this open 11 meeting agenda. 12 XV. Return to open session for further deliberation and possible action on any 13 matter posted for discussion in Executive Session. Any matter posted for Executive 14 Session also may be the subject of discussion and/or action in open session prior to 15 Executive Session . . . . . . . . . . . . 33 16 XVI. Adjournment. . . . . . . . . . . . . . . . 33 17 Reporter's Certificate. . . . . . . . . . . . . . . 34 18 19 20 21 22 23 24 25 0007 1 P R O C E E D I N G S 2 THURSDAY, DECEMBER 12, 2019 3 AGENDA ITEM NO. I 4 CHAIRMAN KRAUSE: I’m calling this 5 meeting to order. This is the meeting of the Texas 6 Lottery Commission. It’s December the 12th, and the 7 time is 10:00 a.m. on the dot. We have Commissioners 8 Franz, Rivera, and Saenz present, we have a quorum, and 9 we are ready to do business. 10 We will start with the Pledge of 11 Allegiance to the U.S. flag and the Texas flag, and 12 we’ll be led by Mr. Rivera. 13 (Pledges recited) 14 Thank you. 15 AGENDA ITEM NO. III 16 CHAIRMAN KRAUSE: Thank you. We begin 17 our agenda by skipping over one of the very first items 18 and go on to Item Number 3, where we will hear from the 19 Bingo Advisory Committee. I understand that Trace 20 Smith is present, and he’s traveled all the way down 21 from Texarkana, the man that travels farther than 22 anybody else since our El Paso commissioner has 23 resigned. Welcome. 24 MR. SMITH: Thank you, sir. Thank you. 25 Just very briefly, we had our last meeting and went 0008 1 over the proposed rules for change. And we had a very 2 good discussion with the staff on that. I would like 3 to commend the staff and Michael Farrell for letting us 4 have that wonderful discussion. And we’re going to 5 propose that we accept the rules as proposed today. 6 And we are still reviewing the 7 application for the vacant seat on the BAC. We will 8 have one picked out for the next meeting. And we would 9 really like to thank Mr. Michael Farrell for making his 10 rounds around the state. And we feel like he has 11 really extended a warm welcome to the Bingo industry, 12 and he’s done a fine job opening the doors and opening 13 the lines of communication. 14 CHAIRMAN KRAUSE: Excellent. Well, I 15 love to hear that about my staff. Especially my senior 16 staff. 17 MR. SMITH: That concludes my report. 18 CHAIRMAN KRAUSE: All right. Would you - 19 - do we have a Tom Stewart that would like to say 20 something? 21 MR. STEWART: Sure. 22 CHAIRMAN KRAUSE: Right -- connected 23 with the -- anywhere’s fine. 24 MR. STEWART: Thank you, Mr. Chairman, 25 Commissioners. My name is Tom Stewart -- for the 0009 1 record my name’s Tom Stewart, I’m the Executive 2 Director of Texas Charity Advocates. You often hear 3 from us when we are -- got it, thank you. 4 You often hear from us when we are 5 displeased or upset about something. We’re not as 6 frequently when we are pleased. But there are a couple 7 things that, on behalf of our membership, we’ve got 8 members across the state, almost 90 percent of those 9 are charities. 10 A couple of things that we wanted to 11 point out over the course of this past year that we are 12 particularly pleased with. One is the efforts by 13 Michael and his staff to get out across the state, to 14 visit with people, to talk to them about issues that 15 affect, the industry, listen to their concerns. We’re 16 very appreciative of that. 17 The second is the BAC. You re- 18 instituted that, you renewed it this past year. We 19 believe that that process is really working as it 20 should. We’ve had a couple of issues that have come up 21 recently that could have been difficult for us, but 22 because the BAC was there, and because the staff is 23 involved and active in that process as they are, we 24 were able to work our way through those issues. They 25 listened, they took our concerns into account, and 0010 1 worked in a way that we feel like that process is 2 supposed to work, and so we just want to stand up today 3 and say thank you to Michael and his staff, and thank 4 you to this Commission, for the work that it’s doing. 5 Thank you. 6 CHAIRMAN KRAUSE: Thank you for those 7 kind words. I’m happy that the BAC is working. 8 MR. STEWART: We appreciate it. 9 AGENDA ITEM NO. IV 10 CHAIRMAN KRAUSE: All right, moving on 11 to the next item. Michael Fernandez is -- got a 12 substitute. 13 MS. ZGABAY-ZGARBA: Good morning, 14 Commissioners. For the record my name is Angela 15 Zgabay-Zgarba, Contracts and Facilities Manager, and 16 I’m presenting on behalf of Mike Fernandez. 17 Item Number 4 in your notebook is a 18 briefing item, and is to advise the Commission of 19 staff’s intent to amend the promotional products 20 contract with Beehive Specialty to modify prices and 21 include additional products. 22 Commissioners have independently 23 confirmed they do not have any financial interest in 24 this contract. This is all I have for this item. I’d 25 be happy to answer any questions. 0011 1 CHAIRMAN KRAUSE: Commissioners? Pretty 2 straightforward. Thank you so much. 3 AGENDA ITEM NO. V 4 CHAIRMAN KRAUSE: Tyler Vance. 5 MR. VANCE: Good morning, Commissioners. 6 I’m Tyler Vance with the Legal Department. And I have 7 for your consideration the possible adoption of 8 amendments to Bingo rules 402.200, 203, 300, 402, 500, 9 503, 511, 702, and 706. All these rules have been 10 amended to comply with House Bills 914 and 1342 from 11 the last legislative session. 12 You proposed these rules at your last 13 Commission meeting, and since then we had the BAC 14 meeting on November 5th, we had a public hearing for 15 comments on November 6th, and we had the comment period 16 open via fax and email until the 25th. 17 We received a lot of comments in their 18 various forms, and they all came down to basic -- three 19 basic issues. So that the rules that are in front of 20 you right now are different from the ones that you 21 proposed. 22 The first issue was we previously 23 included stored-value cards in the definition of a cash 24 bingo prize. All of the comments were opposed to that 25 inclusion. Our concern was that if we allowed stored- 0012 1 value cards to be awarded as prizes, as cash prizes, 2 there wouldn’t be a prize fee and we would basically 3 destroy prize fees. 4 Everybody in the industry unanimously 5 agreed that that wasn’t really an issue, because 6 they’re going to continue to award cash prizes rather 7 than stored-value cards. And, at any rate, we could 8 monitor this over the future and if it becomes an issue 9 in 5 or 10 years, then we can come back and list that 10 as a cash prize. 11 So that rule has been modified now so a 12 cash bingo prize does not include stored-value cards. 13 This is also consistent with the Attorney General’s 14 opinion for the Raffle Act, which says that raffles 15 can’t award money. And the AG has found that the 16 definition of money does not include stored-value 17 cards. 18 The second issue was that HB 914 allowed 19 an organization, it says, an organization may account 20 for pull tab sales held over consecutive occasions. So 21 if they have two occasions on a night they can wait 22 until the end of the second occasion to account for 23 those sales. 24 Everybody that commented asked and 25 requested that we allow units, organizations within a 0013 1 single unit, to also do that. So we modified the rules 2 to allow that. We reviewed it legally, didn’t find any 3 prohibitions against it in the Act. It’s just a pure 4 record, or rulemaking, issue. And so we modified that. 5 The final issue that everyone commented 6 on was we inadvertently took out, and this is related 7 to HB 1342 which has to do with the criminal history of 8 applicants, inadvertently took out the inclusion of 9 veteran’s status as a mitigating factor in issuing a 10 license or denying a license to a person with a 11 criminal background. And so all the commenters asked 12 that we re-include that. And so this adopted version 13 in front of you now includes veteran status and their 14 discharge status as a mitigating factor. 15 There was one or two other more 16 editorial just corrections that were brought to my 17 attention. Not very substantive. But I’m happy to go 18 into any more detail if anybody would like. And, with 19 that, the staff recommends that you adopt the rules 20 that have been proposed with their changes. 21 CHAIRMAN KRAUSE: Questions from the 22 Commissioners? All right. Do I have a motion to adopt 23 the rules as set out, changes set out, in Agenda Item 24 5? 25 COMMISSIONER RIVERA: Move approval. 0014 1 COMMISSIONER FRANZ: Second. 2 CHAIRMAN KRAUSE: All in favor say aye. 3 (Chorus of “aye”s) 4 They are duly adopted. 5 MR. BIARD: And I have an order for your 6 signatures on that, Commissioners. 7 CHAIRMAN KRAUSE: Excellent, thank you. 8 Ms. Pyka. Who needs no substitute. She’s got a wing 9 man. 10 AGENDA ITEM NO. VI 11 MS. PYKA: Good morning, Commissioners. 12 My name’s Kathy Pyka, Controller for the agency. And 13 with me this morning is the Commission’s Product 14 Manager, Robert Tirloni. 15 Commissioners, the first chart that we 16 have for you this morning reflects our comparative 17 sales through the week ending December 9 -- December 7, 18 2019. Our total fiscal year 2020 sales through this 19 14-week period are $1,564,000,000, which is a decrease 20 of $154-million or 9 percent, under the $1,719,000,000 21 in sales for the same period last fiscal year. 22 Our Fiscal Year 2020 scratch ticket 23 sales reflected on the second orange bar are 24 $1,273,000,000, which is a $55-million increase over 25 Fiscal Year 2019. And with our current growth rate of 0015 1 4 1/2 percent over last fiscal year, the Commission has 2 reported scratch ticket growth every single week of the 3 fiscal year, continuing the trend that we had in Fiscal 4 Year 2019. 5 Last week we almost reached the $100- 6 million mark on our weekly sales amount, which is quite 7 early in the fiscal year to be reaching sales at that 8 level. 9 The other note on scratch ticket sales, 10 were they are now at 81.4 percent of total sales for 11 the fiscal year. 12 Our Fiscal Year 2020 draw sales 13 reflected in the second blue bar are $291.6-million, 14 which is a $209-million decrease, or 42 percent, under 15 last fiscal year. The draw game sales decline is 16 attributed to the jackpot rolls that we had for Mega 17 Millions, which reached $1.6-billion last October as 18 well as Powerball, which reached $750-million last 19 October. 20 With that, Robert will now provide a 21 detail of product sales. 22 MR. TIRLONI: Thanks, Kathy, good 23 morning, Commissioners. So, as Kathy mentioned, we are 24 experiencing a sales decline of $154-million, so we can 25 go right up to the Jackpot portion of this slide to 0016 1 really detail where that decrease is coming from. 2 So you can see because of the lack of 3 jackpots, Mega Millions and its add-on feature, 4 Megaplier, are down a combined $151-million. And then 5 again because of a lack of large jackpots from the 6 Powerball game you can see that Powerball and its add- 7 on feature Power Play are down a combined almost $60- 8 million. So that is the overwhelming majority of the 9 deficit that we’re seeing year over year. 10 We are seeing a little bit of growth 11 from our add-on game on the Lotto Texas game, and we 12 are seeing some growth from our in-state game, Texas 13 Two Step. But overall the jackpot games are down 14 almost $212-million. 15 Moving to the daily games, we’ve made a 16 change on this slide since we were last together in 17 October. You may recall that last year we discontinued 18 the Sum It Up! add-on feature for Pick 3 and for Daily 19 4 and we replaced it with Fireball. And so we’ve 20 consolidated some of this information to make it easier 21 to read. So we’re now comparing Pick 3 with Fireball 22 in fiscal ‘20 to Pick 3 with Sum It Up! In fiscal ‘19. 23 And we’re doing the same for Daily 4. 24 So when we look at this, Daily 4 with 25 the new Fireball feature is up $2-million compared to 0017 1 the same period last year, and Pick 3 with the new 2 Fireball feature is up a half a million dollars. So 3 we’re glad to see that growth for both of those 4 products. 5 Cash Five is down $900,000, and All or 6 Nothing is up the same amount, so that’s a net-zero. 7 Our daily games are up almost $2.6-million. So when 8 you look at the draw game portion of the portfolio 9 we’re down $209 1/2-million. 10 As Kathy mentioned, we’re seeing great 11 scratch ticket sales growth again this fiscal year. We 12 are up $55-million, and that’s how we get to the total 13 amount of $154-million as our overall decrease for the 14 entire portfolio. 15 I have given you samples of our holiday 16 games. If you’d like to flip through them you sure can 17 do that. These games have done very well for us and 18 have contributed to that $55-million gain that we’re 19 seeing. 20 We have a big family that launches right 21 at the beginning of January. I shared that with you 22 last time. That’s our Monopoly Multiplier family. So 23 we have big hopes for that and we believe with the 24 current trend we’re seeing on scratch we can continue 25 to chip away at that $154-million deficit week after 0018 1 week and end up with a successful year. If we would 2 get some large jackpots that wouldn’t hurt, either. 3 And that concludes our sales report for 4 this month, and we’re happy to answer any questions. 5 COMMISSIONER RIVERA: Can you go back a 6 slide? 7 MR. TIRLONI: Yes, sir. 8 COMMISSIONER RIVERA: -- one. So, 9 again, year to date almost $155-million behind where we 10 were this time last year. 11 MR. TIRLONI: That’s correct. 12 COMMISSIONER RIVERA: And over 200- 13 million of that really is because of the lack of Mega 14 Millions support. How does this compare to two years 15 ago, this time last year? I mean, this date, but two 16 years ago. 17 MS. PYKA: Certainly. And so if we look 18 at two years ago and compare that, the overall growth 19 rate would be 160 -- $177-million. And that would 20 actually reflect growth over fiscal year 2018 Mega 21 Millions sales and a $166-million gain on the scratch 22 ticket product, comparing ‘20 to fiscal year ‘18. 23 COMMISSIONER RIVERA: I guess what I’m 24 getting at is that, you know, last year was kind of an 25 anomaly with the very large and excessive robust Mega 0019 1 Millions. 2 MS. PYKA: Powerball, yeah. 3 CHAIRMAN KRAUSE: And so this -- do you 4 feel that this will bring us back to a normal baseline? 5 MS. PYKA: I do. And, as Robert said, 6 as we look at scratch ticket growth we feel like week 7 over week we can chip away at that deficit. And so 8 right now we have growth of 4 1/2 percent year over 9 year on scratch ticket. 10 If everything remains the same and we 11 don’t have any large jackpots for the remainder of the 12 fiscal year, we know that we can reach that sales 13 target from last year with just only 3 1/2 percent 14 sales growth on scratch. 15 COMMISSIONER RIVERA: Okay. 16 MS. PYKA: So we’re confident that we 17 can chip away at that deficit without any large 18 jackpots. 19 COMMISSIONER RIVERA: Okay, thank you. 20 MS. PYKA: You’re welcome. 21 CHAIRMAN KRAUSE: All right. Next item, 22 please. 23 AGENDA ITEM NO. VII 24 MS. PYKA: Certainly. Commissioners, 25 Tab 7 includes information on the agency’s transfer to 0020 1 the state and the agency’s budget status. The report 2 in your notebook reflects accrued revenue transfers 3 under the allocation to the Foundation School Fund and 4 the Texas Veterans Commission for the two-month period 5 October 31st to 2019. 6 Our total accrued revenue transfer to 7 the state amount to $199.4-million for the first two 8 months of the fiscal year, and of the $199.4-million 9 transfer to the state, $196.5-million was the amount of 10 revenue transferred to the Foundation School Fund, and 11 $3-million was the amount transferred to the Texas 12 Veterans Commission. 13 This leaves us with a 27.7 percent, or 14 $75-million decline under revenue to the Foundation 15 School Fund for the same period last fiscal year. And 16 of course, Commissioners, as we just noted, that’s 17 attributed to the sales decline that we’re seeing for 18 both the large Mega Millions and Powerball jackpots 19 that we had in October of 2018. 20 Our total cumulative transfers to the 21 Foundation School Fund through October of this year are 22 now at $24.2-billion. Also included in your notebook 23 is a final expenditure and budget report for fiscal 24 year 2019. 25 The Lottery Account Budget was $275.6- 0021 1 million with 92 1/2 percent of that expended and 2 obligated at the end of the fiscal year. 3 The Bingo Administration Budget was $17- 4 million with 91 percent of that budget expended and 5 obligated in the fiscal year. Commissioners, this 6 concludes my report. I’d be happy to answer any 7 questions. 8 CHAIRMAN KRAUSE: Commissioners, 9 questions? Thank you. Think the next item’s yours as 10 well. 11 Agenda Item No. VIII 12 MS. PYKA: Certainly. Commissioners, 13 Tab 8 includes information on the agency’s fiscal year 14 2020 Itemized Operating Budget. In accordance with the 15 General Appropriations Act, agencies are required to 16 file itemized operating budgets with the Governor’s 17 Office of Budget and Planning and the Legislative 18 Budget Board no later than December 1st of 2019. 19 The budget document that’s included in 20 your notebook behind Tab 8 reflects the Commission’s 21 fiscal year 2020 Operating Budget previously adopted by 22 the Board on August 7th of 2019, as well as 23 expenditures for fiscal years 2018 and 2019. 24 So under requirements set forth by the 25 Legislative Budget Board, our budget document was 0022 1 completed by the Office of the Controller on November 2 the 25th, and certified on November the 26th. This 3 concludes my presentation. I’d be happy to answer any 4 questions. 5 CHAIRMAN KRAUSE: Commissioners? Thank 6 you very much. Very comprehensive. 7 MS. PYKA: Thank you, Commissioners. 8 CHAIRMAN KRAUSE: I believe we’re now going 9 to hear from Darlene Brown. 10 AGENDA ITEM NO. IX 11 MS. BROWN: Good morning, Commissioners. 12 I’m Darlene Brown, the Internal Auditor for the Agency. 13 In your notebook I have a status report that shows the 14 progress of our fiscal year ‘20 Internal Audit Plan. 15 And we are -- have completed a couple of those audits. 16 We will be bringing those reports to you at the next 17 Commission meeting. 18 But I also have three audit reports that 19 I’m going to be requesting your approval for me to 20 submit these to the governing bodies of the state. 21 The first one is the Retailer Incentive 22 Program Report. This was emailed to you, but there’s a 23 summary. And this Retailer Incentive Audit was 24 completed last year. 25 And I want to say that this had a best 0023 1 practices rating. There’s several other lotteries that 2 look to Texas Lottery for guidance and suggestions 3 along the way, for various programs, and this is one 4 that I’ve heard brought up in the conferences that I go 5 to. 6 This program is very effective in 7 driving up some of your sales. And I noted in the 8 report that since this started in 2010 through the 9 third quarter of 2019, that this actually generated 10 $2.1-billion of additional game sales, which resulted 11 in $1.3-billion in additional prizes paid to players 12 and an additional $374-million transferred to the 13 Foundation School Fund. 14 So it’s a very effective program, and 15 there’s controls and processes in place in the agency 16 to, number one, make sure that the program implies -- 17 is in compliance with the General Appropriations Act 18 stipulations on the maximums that are allowed into this 19 program. 20 And so if you have any questions on that 21 report I’ll be happy to answer those before I move on 22 to the next one. 23 CHAIRMAN KRAUSE: Questions? Please 24 proceed. 25 MS. BROWN: The next one is the Game 0024 1 Changes Audit, and this was conducted because there 2 were some significant changes to the game changes in 3 2019. One being that the discontinuance of the Sum It 4 Up! feature, and then the introduction of the Fireball 5 and then the Cash Five matrix was changed a little bit. 6 We noted that they were effective in the 7 internal controls to ensure that those processes were 8 adhering to policies. We also noted that they -- the 9 processes in place are best practices. And again, this 10 is another area that other lotteries seek to replicate. 11 We also noted that there’s several -- 12 because of the significance of the game changes, 13 there’s several departments involved, and very good 14 collaboration in the project plans in place. 15 If there are any questions on that 16 audit, I would be happy to answer those. 17 Okay. And then the third audit report I 18 have for you is the Drawing Studio Processes. We 19 looked at that because, number one, you had a change in 20 the independent auditors. And so we also noted that 21 this was a best practices. But we did have two minor 22 recommendations, and these were just to improve the 23 processes and enhance the internal controls. Nothing 24 to indicate that you have anything wrong with your 25 process. 0025 1 One was to consider moving the Mega 2 Millions drawing and observation to an area where the 3 Powerball is already being conducted instead of 4 performing that in a drawing studio. And that second 5 one is to use some bar code technology when you’re 6 selecting your ball-game sets. Noting that the 7 internal controls over those are also best practices. 8 CHAIRMAN KRAUSE: Outstanding. 9 MS. BROWN: I did have, in your 10 notebook, I was going to discuss the implementation of 11 House Bill 2578. I am not going to discuss that at 12 this meeting, because that report is not ready to be 13 discussed at this time. 14 So if there are no questions I’m asking 15 your approval to submit these three reports. 16 CHAIRMAN KRAUSE: Do I have a motion to 17 approve the three reports presented to us today by Ms. 18 Brown? 19 COMMISSIONER SAENZ: Motion. 20 CHAIRMAN KRAUSE: Second? 21 COMMISSIONER RIVERA: Second. 22 CHAIRMAN KRAUSE: All in favor say aye. 23 (Chorus of “ayes”) 24 CHAIRMAN KRAUSE: Reports are accepted. 25 Thank you, ma’am. 0026 1 MS. BROWN: Thank you. 2 AGENDA ITEM NO. X 3 CHAIRMAN KRAUSE: We will hear from Mr. 4 Farrell, and then we will hear from Mr. Grief and then 5 we will have a witness. Mr. Farrell. 6 MR. FARRELL: Excuse me, Commissioners. 7 This Michael Farrell for the record. In your meeting 8 notebooks we provide you the standard Division 9 information for the months of September and October. 10 It’s been a busy period for the Charitable Bingo 11 Division since the last Commission meeting. 12 We in the Division, along with other 13 agency staff, have been working diligently to implement 14 House Bill 914 from the 86th Legislative Session. 15 Due to the significant bill provision 16 relating to prize fees, we’ve been busy recording 17 county and municipality votes and responding to 18 questions from the counties, municipalities, and 19 licensed bingo conductors regarding the new 20 requirements relating to how prize fees are handled. 21 In summary, we received applications 22 that of the 249 combined counties and municipalities 23 that were eligible to vote, 75 percent voted to 24 continue to receive the prize fees; 1 percent vote 25 against it, “no”, that it would let the charities get 0027 1 the prize fees; 2 percent notified us of their vote 2 after November 1st; and 22 percent did not provide 3 notification of whether they voted. 4 We’ve sent letters to those 24 percent 5 of the government entities that we did not receive 6 notification, or received it late, to determine whether 7 these entities have met the requirements of House Bill 8 914. 9 There are also seven counties and two 10 municipalities that, by our records, were never 11 eligible to receive prize fee allocations, but they 12 provided a vote status anyway. We’ve also sent letters 13 to these entities requesting they provide justification 14 as to their eligibility. 15 The unaudited vote status for both 16 counties and municipalities is posted on our web page, 17 and is current as of November 19th. As the 18 requirements for the prize fees allocations take effect 19 January 1st and become the responsibility of licensed 20 conductors, the agency will process one final 21 allocation of the prize fees that will cover the period 22 through December 31st. 23 Lastly, as part of our efforts to 24 communicate with the Bingo industry, in addition to the 25 information being posted on the website, as you heard 0028 1 earlier we’ve also conducted numerous bingo hall 2 meetings throughout the state. These meetings have 3 been well received and helpful in explaining the 4 changes in legislation and rules. 5 We visited Lubbock, Dallas area, San 6 Antonio, Austin, Houston and McAllen, and are scheduled 7 to go to Killeen next Tuesday. 8 These meetings have had 15 to 30 9 conductor attendees, as well as municipal 10 representatives in attendance. We have received 11 positive feedback on these meetings from the Bingo 12 stakeholders that attended. 13 We still have some work left to do, such 14 as finalizing forms on the website, but we’re on track 15 to have everything in place before House Bill 914 takes 16 full effect. 17 Barring any questions, that’s my 18 briefing. 19 CHAIRMAN KRAUSE: Thank you, Mr. 20 Farrell. Mr. Grief. 21 MR. GRIEF: Mr. Chairman, other than 22 what’s in your notebook, I have nothing further to 23 report this morning. 24 CHAIRMAN KRAUSE: Thank you very much. 25 That being the case, we’d like to hear from Mr. Stephen 0029 1 Fenoglio who wants to comment on the Bingo rules that 2 we have already adopted in absentia. 3 MR. FENOGLIO: For the record, my name 4 is Stephen Fenoglio and Steve Bresnen asked me to 5 appear today, but I told the staff I did not need to 6 speak on the adopted rules. 7 CHAIRMAN KRAUSE: Well, you know, Mr. 8 Fenoglio, we always love hearing from you. And so -- 9 MR. FENOGLIO: Can I get that in 10 writing? I guess I do have it in writing. Thank you, 11 Commissioners. Mr. Chairman. 12 CHAIRMAN KRAUSE: All right. I guess 13 we’re ready for enforcement actions. 14 AGENDA ITEM NO. XII 15 MR. BIARD: Yes, sir. Commissioners. 16 Tab 12 in your notebooks, contains 15 Lottery and Bingo 17 enforcement matters; Tabs A through O. In these cases 18 Commission staff either found a licensee violated a 19 statute or rule, or an applicant did not qualify for a 20 license. 21 In many cases either the respondent 22 failed to appear at the hearing and it proceeds by 23 default, or the staff and the respondent reached a 24 settlement in the form of an agreed order. 25 Occasionally we have litigated cases, and we do have 0030 1 several today. 2 I’ll briefly describe these cases, and 3 you can take them up in a single vote if you’d like. 4 Tabs A through H are the non-sufficient 5 fund lottery retailer license revocations handled in a 6 single order. Each case was presented at the State 7 Office of Administrative Hearings for revocation of the 8 retailer license because the licensee failed to have 9 sufficient funds in their bank account to cover 10 electronic fund transfers to the Commission’s account. 11 In each case, the licensee failed to 12 appear, and the judge remanded the case to the 13 Commission to handle as a default matter. Your 14 notebooks contains a single order to revoke each of the 15 licenses of A through H. 16 Tabs I through K are lottery-agreed 17 orders, and those are settlements. 18 Tabs L through N are litigated lottery 19 cases. I do want to highlight Tab L briefly, simply 20 because we recommend changing the judge’s penalty 21 recommendation. 22 Tab L is Texaco Corner. And, in this 23 case, the retailer owner admitted to claiming lottery 24 tickets on behalf of customers. The judge recommended 25 a 30-day suspension rather than the 90 days that staff 0031 1 recommended, because there was not specific evidence 2 the retailer profited from the transaction; that is, 3 whether the retailer paid the customer less than the 4 full amount of the prize. 5 The staff recommends changing the 6 penalty from a 30-day suspension as the judge 7 recommends to a 90-day suspension, and the order sets 8 forth our legal and policy reasons for making the 9 change. Which are primarily that the evil that we’re 10 trying to prevent in these types of cases are to 11 prevent prize winners from avoiding paying their debts 12 to the state and delinquent child support, which are 13 amounts the Commission deducts from lottery prizes. 14 And since that’s the goal, it is irrelevant from the 15 staff’s perspective whether the retailer made a profit. 16 So, for those reasons, staff recommends 17 changing the penalty from a 30-day suspension to a 90- 18 day suspension. 19 And, finally, Tab O is a bingo-agreed 20 order. This is a net proceeds case, so you’ve seen 21 several of these in the past. This involves the unity 22 of six charities -- a unit of six charities. So we 23 have six virtually identical agreed orders for your 24 signature. 25 I’m happy to answer any questions about 0032 1 any of these items. Otherwise, you can take them all 2 up in a single vote, if you’d like. 3 CHAIRMAN KRAUSE: All right. Well, is 4 there a motion to approve orders that are presented in 5 Tab A through O? 6 COMMISSIONER FRANZ: Motion. 7 COMMISSIONER RIVERA: Second. 8 CHAIRMAN KRAUSE: All in favor say aye. 9 (Chorus of “ayes”) 10 CHAIRMAN KRAUSE: All approved. 11 AGENDA ITEM NO. XIII 12 CHAIRMAN KRAUSE: I don’t have any more 13 public comment. 14 Agenda Item No. XIV 15 Chairman Krause: And so at this time I 16 move that we go in -- that the Texas Lottery Commission 17 go into Executive Session to deliberate personnel 18 matters and to receive legal advice from our esteemed 19 legal counsel. As posted in the meetings notice. Is 20 there a second? 21 COMMISSIONER RIVERA: Second. 22 CHAIRMAN KRAUSE: All in favor say aye. 23 (Chorus of “ayes”) 24 CHAIRMAN KRAUSE: All right, the vote’s 25 unanimous. It is 10:30 a.m. on December the 12th, 0033 1 2019. We are in Executive Session. 2 (Executive Session) 3 AGENDA ITEM NO. XV 4 CHAIRMAN KRAUSE: The Lottery Commission 5 is out of Executive Session at 11:43 a.m. There is no 6 action to be taken as a result of the Executive 7 Session. And this concludes the business of the 8 Commission for this meeting. 9 AGENDA ITEM NO. XVI 10 CHAIRMAN KRAUSE: Is there a motion to 11 adjourn? 12 COMMISSIONER SAENZ: Motion. 13 COMMISSIONER FRANZ: Second. 14 CHAIRMAN KRAUSE: All in favor say aye. 15 (Chorus of “ayes”) 16 CHAIRMAN KRAUSE: Adjourned. Thank you 17 for being with us today. 18 (Proceedings concluded at 11:44 a.m.) 19 20 21 22 23 24 25 0034 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 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 22nd day of December, 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