1 1 2 3 * * * * * * * * * * * * * * * * * 4 5 TEXAS LOTTERY COMMISSION 6 GENERAL MEETING 7 8 MAY 28, 2002 9 10 * * * * * * * * * * * * * * * * * 11 12 13 14 15 16 17 BE IT REMEMBERED that the TEXAS LOTTERY 18 COMMISSION held a General Meeting on the 28TH of MAY, 19 2002, at 8:30 a.m., before Marguerite Suddath 20 MacInnes, CSR in and for the State of Texas, reported 21 by machine shorthand, at the Offices of the Texas 22 Lottery Commission, 611 East Sixth Street, Austin, 23 Texas, whereupon the following proceedings were had: 24 25 WRIGHT WATSON STEN-TEL 512-472-4363 2 1 APPEARANCES 2 3 Chairman, Texas Lottery Commission: Mr. C. Tom Clowe, Jr. 4 Commissioner, Texas Lottery Commission: 5 Ms. Elizabeth D. Whitaker 6 Executive Director, Texas Lottery Commission: Ms. Linda Cloud 7 General Counsel, Texas Lottery Commission: 8 Ms. Kimberly Kiplin 9 Charitable Bingo Operations Director: Mr. Billy Atkins 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL 512-472-4363 3 1 INDEX 2 3 Appearances.................................... 2 4 AGENDA ITEMS 5 Item Number 1.................................. 4 Item Number 2.................................. 14 6 Item Number 3.................................. 16 Item Number 4.................................. 49 7 Item Number 5.................................. 52 Item Number 6.................................. 56 8 Item Number 7.................................. 6 Item Number 8.................................. 58 9 Item Number 9.................................. 61 Item Number 10................................. 64 10 Item Number 11................................. 66 Item Number 12................................. 76 11 Item Number 13................................. 76 Item Number 14................................. 76 12 Item Number 15................................. 76 Item Number 16................................. 80 13 Item Number 17................................. 81 Item Number 18................................. 83 14 Item Number 19................................. 95 Item Number 20................................. 95 15 Item Number 21................................. 95 Item Number 22................................. 84 16 Item Number 23................................. 84 Item Number 24................................. 97 17 Item Number 25................................. 97 18 Reporter's Certificate......................... 98 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL 512-472-4363 4 1 P R O C E E D I N G S 2 May 28, 2002 3 CHAIRMAN CLOWE: Good morning, everyone. 4 It is 8:31 a.m. on May 28, 2002. I call this meeting 5 of the Texas Lottery Commission to order. 6 Commissioner Whitaker is here. My name is Tom Clowe. 7 We have a quorum of the commission so we are ready to 8 go forward with this meeting. 9 I would like to acknowledge that we are 10 meeting in a new meeting room for the first time 11 today and it's very attractive and there are still 12 some small and minor things I think to be done, but 13 it is certainly an improvement. Vince is in the back 14 of the room. 15 Jim, ask Vince to step in, would you, 16 please? 17 Vince, we want to acknowledge the good 18 work that you and the others have done, and thank you 19 for this very attractive meeting room. Is there 20 anyone else here that you would like to recognize 21 this morning that have been part of this project? 22 MR. DEVINE: Definitely. They are running 23 all around. 24 MS. KIPLIN: Mr. Chairman, can you ask him 25 to come to the microphone? WRIGHT WATSON STEN-TEL 512-472-4363 5 1 MR. DEVINE: There is a whole bunch of 2 people here. For the record, my name is Vincent 3 Devine, support services manager for the Texas 4 Lottery Commission, and thank you, yes, there was a 5 lot of individuals involved in this remodel starting 6 from actually you, Commissioner Clowe, and Linda, 7 telling us to go out and seek out the great examples 8 of what are commission courts and find examples and 9 show each other, and I remember doing that. It was a 10 lot of fun and enjoyable, but it was also an 11 interesting challenge because, as you can tell, there 12 is a lot of things that go into a little court like 13 this for a public setting. Support services staff 14 right now have been the amazing group that they are 15 through this whole endeavor because they are also 16 doing security, they are also involved in the meeting 17 on a warehouse conversion and they are also involved 18 in normal operations, and it's a staff of about seven 19 state officers, staff service officers, and they 20 won't come forward, they never do, they are always 21 behind the scenes. They probably feel as guilty as 22 anyone we didn't put the clock on the wall for you, 23 sir, but, no, in all seriousness, Rudy Bautista, Ray 24 Page, Tammy Arbogast, Bob McKee, I'm going to forget 25 a few, Jeff Kosub, these are the gentleman and ladies WRIGHT WATSON STEN-TEL 512-472-4363 6 1 that are in the background running our warehouses, 2 making sure the furniture like this is stored for 3 three to six weeks so it doesn't get damaged so I 4 appreciate you offering to let us recognize them. 5 CHAIRMAN CLOWE: Very good. Thank you, 6 Vince. 7 MR. DEVINE: Thank you, sir. 8 CHAIRMAN CLOWE: There are individuals 9 here from GTECH Corporation this morning who I think 10 have a presentation to make to the Commission, and 11 we'll go to that agenda item and take it out of 12 order. Good morning. 13 MR. KING: Good morning. For the record, 14 I'm Larry King, the account general manager for GTECH 15 Texas. I appreciate you allowing us to come today. 16 We've got a very short presentation, and I think 17 we've got some great news not only for the Texas 18 Lottery but for the State of Texas. With me today is 19 Tim Nyman, our vice president of global services, and 20 I'm going to turn it over to Tim. 21 MR. NYMAN: Good morning, Commissioners, 22 and good morning, Linda. My name is Tim Nyman, and 23 as Larry introduced me, I'm the vice president of 24 global services for GTECH Corporation. I'm in my 25 twenty-third year with GTECH Corporation. I guess I WRIGHT WATSON STEN-TEL 512-472-4363 7 1 must have started when I was about twelve or 2 something. 3 But the reason that Mr. King and myself 4 are here before the Commission this morning is that 5 we're very pleased to announce the establishment of a 6 world class technology center in Austin by GTECH 7 Corporation. This new technology center will have a 8 direct and a positive benefit, we believe, for the 9 Texas Lottery Commission for the following reasons: 10 We're going to be amassing a group whose intellectual 11 capabilities will provide the highest quality and 12 most reliable transaction processing solutions for 13 the Texas Lottery and many of our customers 14 worldwide. We believe we'll be able to enable us to 15 provide a shorter delivery cycle to the Texas Lottery 16 for the things that they need from our systems and 17 transaction processing capabilities. We'll also be 18 able to adopt industry standards for the new open 19 systems architecture that we're bringing to many of 20 the customers. Also, this will enable us to create a 21 talent pool which the Austin area can provide and 22 allow GTECH to continue with a world class employment 23 base and based right here in Austin. This facility 24 will ultimately not just serve Texas, as I indicated 25 before, it will also serve our customer base in Latin WRIGHT WATSON STEN-TEL 512-472-4363 8 1 America, the Caribbean and a host of our customers 2 based here in the United States. This new facility 3 is presently undergoing internal construction and is 4 located on Parmer Lane near the IBM and Sun 5 Microsystems facilities. It should be ready for 6 occupancy on or about July 1st. Initial staffing 7 will be approximately 80 people, and we hope to grow 8 this facility to about 150 personnel, and Austin does 9 provide a very unique technology base of human 10 resources capability to enable us to locate here. 11 GTECH chose Austin as its technical hub 12 for several very good reasons. One, we certainly 13 appreciate the commitment that the Texas Lottery 14 Commission has made to GTECH under this new contract, 15 and also, as I indicated before, there is a very deep 16 and rich talent pool here in the Austin area which 17 allows us to locate a technological center here in 18 Austin. This also falls right in line with how we 19 have established a national call center here in 20 Austin. It's a 75-seat facility that enables us to 21 host our customers from throughout the United States 22 on their hotline calls. We also have other plans on 23 the drawing board which we feel will improve the 24 ability to serve the Texas Lottery and provide even 25 more employment opportunities for the pool of talent WRIGHT WATSON STEN-TEL 512-472-4363 9 1 in Texas and further establish Texas as a key support 2 center for our domestic and international customers. 3 So we'd really like to thank the 4 commission for allowing us to come up and make this 5 announcement this morning, and if you would have any 6 questions for Mr. King or myself, we'd be very happy 7 to answer them. 8 COMMISSIONER WHITAKER: How many centers 9 like this or larger do you have in the United States? 10 MR. KING: We actually combined three of 11 our centers in the United States to create this one. 12 We have one in Rhode Island which is our world 13 headquarters, but we're really looking at Austin for 14 the growth of GTECH's technological capabilities. 15 We're undergoing a complete systems redesign and 16 opening our systems to open architecture which will 17 allow our customers to hopefully enhance their 18 capabilities and transactions processing. 19 COMMISSIONER WHITAKER: Where is the 20 third? 21 MR. KING: We actually have a center over 22 in Europe also to serve our European customers. 23 CHAIRMAN CLOWE: How many employees will 24 you have in Austin when this center is up and 25 running? WRIGHT WATSON STEN-TEL 512-472-4363 10 1 MR. KING: Well, including our lottery 2 employees, I think we'll have close to 500 in Texas. 3 In Austin itself, it will probably be 250 to 300. 4 CHAIRMAN CLOWE: So that includes the 5 backup operation in Dallas? 6 MR. KING: Correct. 7 CHAIRMAN CLOWE: Are you open to a 8 question about other phases of the gaming industry 9 than what you have talked to us about this morning? 10 MR. KING: Surely. 11 CHAIRMAN CLOWE: We're in the process of 12 undergoing Sunset review, and in our meetings with a 13 number of members of the Sunset Committee and others 14 in the leadership, we are asked from time to time 15 about Internet gambling, and my understanding is that 16 y'all are doing some research and are trying to focus 17 in on where gambling on the Internet is going, and 18 I'd appreciate it if you would bring the 19 Commissioners up to date on where you see that and 20 help us understand what GTECH's view of the future of 21 that type of gaming is. 22 MR. NYMAN: Well, we do have in our 23 technological resources and particularly some of the 24 I would say some of the strategic thinking customers, 25 particularly in Europe, when we have supplied WRIGHT WATSON STEN-TEL 512-472-4363 11 1 Internet solutions for them both for instant product 2 and on the traditional online Lotto type of products 3 or numbers products that you currently host, we have 4 given or enabled our customers to do that type of 5 wagering over the Internet because it's legal in 6 those jurisdictions. Now, we are prepared to move as 7 quickly or to assist you in any kind of data or 8 resource analysis that would assist the Texas Lottery 9 Commission in their evaluation of those capabilities 10 and we'd be happy to come back and give you that kind 11 of a presentation if you so desire, but basically we 12 are ready if you are ready to assist you to move in 13 that avenue. Our position is you are the 14 policymakers for Texas for the kind of lottery 15 products that you may want to host and therefore 16 we're ready if you are ready, but we haven't seen 17 domestically very many customers who have wanted to 18 move in that direction. 19 MR. KING: And could I add, this topic, I 20 know, has come up several meetings ago, and I do owe 21 Commissioner Whitaker and the Texas Lottery some 22 feedback. I do have some documents, I didn't bring 23 them with me today, I can get them down here later 24 this afternoon, but I think the question that was 25 raised a few meetings ago was the Websites that are WRIGHT WATSON STEN-TEL 512-472-4363 12 1 currently out there that are allowing gaming over the 2 Internet, what is the effect on the Texas Lottery and 3 how many people are actually wagering. That is the 4 part that I have completely struck out on because we 5 cannot gather any data or any information that talks 6 about, you know, the database or how many people are 7 actually playing simply because they are illegal. 8 Most of them are illegal. I do have some 9 documentation on what Tim had spoken about in Europe, 10 some of the things we're doing with some other 11 countries that I would be happy to provide to you, 12 but as far as the question how much is siphoning off 13 of Texas Lottery, we're still struggling and I'm not 14 sure if Tim knows any research that we can tap into, 15 but I've talked to all of our folks in the company 16 and it's been a hard thing to accomplish. 17 COMMISSIONER WHITAKER: Do you have any 18 ball park figures that you all rely on in trying to 19 do your own business work as to where the legitimate 20 industry is going? 21 MR. NYMAN: I don't currently have those 22 forecasts, Commissioner. We would again be happy to 23 try to provide you with assistance in that area, and 24 perhaps Larry and I can get with some of our 25 marketing and technology resources and come up with WRIGHT WATSON STEN-TEL 512-472-4363 13 1 some better answers for you. 2 EXECUTIVE DIRECTOR CLOUD: There is 3 legislation in Washington at this time, bills that 4 are being presented for approval, among I think there 5 is a couple of other bills now on whether or not the 6 Federal government is going to approve Internet 7 gaming with the lotteries included. 8 Tim, are you all monitoring that 9 legislation? 10 MR. NYMAN: We have been monitoring that 11 legislation. It's been active for over three years 12 now. 13 CHAIRMAN CLOWE: Well, I'd like to clarify 14 my question. We are not the policymakers. The 15 legislature is the determining body on that issue. 16 And we are asked, you know, how big is it and where 17 is it headed. That was really the thrust of my 18 question. I'm not asking for a product, I want to 19 make that very clear, but what I think I hear you 20 say, Larry, I think you stated this, you are aware of 21 it and you are positioning yourselves so that you 22 might provide a product, but because it is illegal in 23 so many states and it's only legal, as I understand 24 it, in some European countries and outside of this 25 country, you really don't have bona fide statistics WRIGHT WATSON STEN-TEL 512-472-4363 14 1 on it. Although my sense is that it's growing and 2 it's out there, I'm at a loss to understand where 3 it's going, and we have a continuing interest in 4 knowing about that sort of thing as you develop your 5 research. 6 MR. KING: Well, we will come back to the 7 next meeting or we will provide Linda with the 8 document before the next meeting that will hopefully 9 give you more information than we've provided today, 10 which I know is not much at all. 11 CHAIRMAN CLOWE: Well, we thank you for 12 this presentation this morning. We are very pleased 13 to hear that you have selected Austin, Texas, as the 14 site for the center, and we're delighted with the 15 employment that's going to take place here, and thank 16 you for being here and giving us this information 17 this morning. 18 MS. KIPLIN: Commissioners, perhaps we can 19 focus the topic of regarding the inquiries on the 20 Internet gaming I think would be most appropriate 21 under the Sunset item and also the strategic plan 22 item. 23 CHAIRMAN CLOWE: Thank you. And that was 24 Item Number VII. We're now ready to go to Item 25 Number II on the agenda, consideration of and WRIGHT WATSON STEN-TEL 512-472-4363 15 1 possible discussion and/or consideration and action 2 on recognition of the Executive Director's length of 3 service with the Commission. 4 Do you have that, Kim? 5 MS. KIPLIN: Commissioners, yes, we are 6 coming up on our tenth anniversary for the Texas 7 Lottery, and there were some certificates that were 8 prepared in recognition of those employees that were 9 here during what has been characterized as startup. 10 Linda Cloud, the executive director, is one of those 11 employees, and she signed the certificates of all the 12 other employees, but I think between the two of us, 13 we thought that might not be appropriate for Ms. 14 Cloud to sign her own. 15 CHAIRMAN CLOWE: Let me think about that. 16 MS. KIPLIN: There is actually two 17 certificates that we would want you to take action 18 on, and I'm looking for our human resources director, 19 Mr. Richardson, to see if those certificates are 20 complete. One is recognition of service for the ten 21 years, which is a milestone for any Lottery 22 Commission employee, and then of course the 23 standalone would be the tenth anniversary and it's a 24 recognition of the length of service, and it really 25 does require an action for you all to take up so that WRIGHT WATSON STEN-TEL 512-472-4363 16 1 you then can sign these certificates if they are 2 prepared today. If not, we'll forward them to you 3 based on the action you take today. And so what I'm 4 looking for is just a motion and a vote to recognize 5 the executive director's length of service as an 6 employee for the Lottery because she started in the 7 Lottery Operations Division. 8 CHAIRMAN CLOWE: Is there one certificate 9 or two? 10 MS. KIPLIN: No, sir, the last I saw, 11 there were two. The signature -- there was an issue 12 with regard to signature. 13 EXECUTIVE DIRECTOR CLOUD: One is length 14 of service with the State of Texas and one is length 15 of service with the Texas Lottery. 16 CHAIRMAN CLOWE: Okay. 17 COMMISSIONER WHITAKER: So moved. 18 CHAIRMAN CLOWE: I second. All in favor, 19 please say aye. 20 COMMISSIONER WHITAKER: Aye. 21 CHAIRMAN CLOWE: Aye. Opposed? None. 22 The vote is two-zero in favor. 23 Next item, Number III, is a report and 24 possible discussion and/or action on lottery sales 25 and trends, Linda and Toni Smith. WRIGHT WATSON STEN-TEL 512-472-4363 17 1 MS. SMITH: Good morning, Commissioners. 2 For the record, my name is Toni Smith. I'm the 3 marketing director of the Texas Lottery Commission. 4 Total fiscal year 2002 sales to date are 5 2,139,814,755.00. This is down .8 percent from 6 fiscal year 2001 total sales to date of 7 2,157,046,059.50. 8 The fiscal year 2002 weekly sales average 9 is 54,867,045, again reflecting a .8 percent 10 difference from fiscal year '01 weekly average of 11 55,308,873. 12 To look at comparison by product for week 13 ending May 25th, 2002, Instant tickets in 2002 were 14 at 1,418,480,319. They currently represent 66.29 15 percent of sales versus 1,291,387,248 in fiscal year 16 2001 representing 59.87 percent of sales, and this 17 shows an increase of 9.84 percent over last year. 18 Lotto Texas for fiscal year 2002 is at 19 401,607,950. It currently represents 18.77 percent 20 of sales versus 566,920,963. 21 CHAIRMAN CLOWE: Toni, why don't you just 22 point out the differences to us instead of -- we can 23 read. 24 MS. SMITH: Okay. Lotto Texas is down 29 25 percent from last year. Even though we are catching WRIGHT WATSON STEN-TEL 512-472-4363 18 1 up overall and only a .8 percent difference comparing 2 total sales from this year to last year, our decline, 3 the majority of it is there in Lotto Texas, and Cash 4 5 is down 20 percent, but we have the Cash 5 5 enhancements coming up in July and hopefully that 6 will help out that game. 7 And just to look at last week, comparing 8 last week to the previous week, total sales for week 9 ending May 25th were 54,729,031. This was down 5.38 10 percent from the previous week of May 18 of 11 57,841,410.50. 12 I'd be happy to answer any other 13 questions. 14 CHAIRMAN CLOWE: I think we've talked 15 about this numerous times. The Instant tickets 16 appear to be doing very well and certainly are the 17 largest portion of the sales and the question of 18 Lotto Texas and the number of times that jackpot has 19 been hit, and you feel like that's the factor that is 20 resulting in the reduced sales overall and certainly 21 of Lotto Texas, and I think you've asked Robert to 22 prepare some information for us. 23 Linda, I think you intended to cover this 24 later, but I think it might be appropriate to have 25 him come up and talk to us about it at this time WRIGHT WATSON STEN-TEL 512-472-4363 19 1 since we are talking about these sales. 2 EXECUTIVE DIRECTOR CLOUD: Okay. 3 Commissioners, one of the things that prompted the 4 discussion that Robert is fixing to have with you is 5 that we had a number of hits at the $4 million level, 6 and then my wanting to make sure that everything was 7 working as it should, I requested GTECH to run 8 transactions from several thousand retailers, I think 9 we had a total of something like eight million 10 transactions altogether. 11 MR. TIRLONI: Six million. 12 EXECUTIVE DIRECTOR CLOUD: Six million, 13 and I asked Randy Eubank to do an analysis on those 14 transactions to make sure that our number generators, 15 which is the terminals, were working as they should 16 work, and we didn't have any problems in that area. 17 Although GTECH was constantly assuring me that was 18 not the problem, we did do the analysis, and that's 19 what Robert is going to talk about. 20 MR. TIRLONI: Good morning, Commissioners. 21 For the record, my name is Robert Tirloni. I am the 22 online product manager for the Texas Lottery. As 23 Linda just mentioned, we had Randy Eubank do two 24 separate sets of analysis for us. 25 CHAIRMAN CLOWE: Would you identify him, WRIGHT WATSON STEN-TEL 512-472-4363 20 1 Robert? 2 MR. TIRLONI: Yes, Dr. Randall Eubank is 3 the Lottery's independent statistical consultant. 4 The first analysis he did was on Quick 5 Pick data. We sent Dr. Eubank six million sets of 6 Quick Picks, and out of that six million, he felt 7 that one million was a good sample for him to 8 analyze. If the random number generators are doing 9 exactly what they are supposed to do in the online 10 terminals, each number out of 54 has the same 11 probability of being chosen. After his evaluation of 12 just under one million Quick Picks, Dr. Eubank 13 believes based on his analysis that the random number 14 generators are indeed working properly and they are 15 generating random sets of number combinations for our 16 players. He put the data through various statistical 17 tests, and that's how he came to that determination. 18 The second analysis that Dr. Eubank 19 performed was on just the overall performance of the 20 six of 54 Lotto Texas matrix, and we wanted to just 21 make sure that the revamped matrix was working 22 properly from a statistical point of view, so in 23 order to conduct that analysis, Dr. Eubank looked at 24 170 Lotto Texas drawings beginning in July of 2000 25 through March of 2002, and according to his WRIGHT WATSON STEN-TEL 512-472-4363 21 1 calculations, he calculated that the jackpot should 2 have been hit approximately 40 times during that time 3 period. In actuality, the jackpot was hit 34 times 4 during that 170 -- during that time period that 5 encompassed 170 draws. So based on that analysis, he 6 believes that the matrix is performing appropriately 7 from a statistical standpoint. 8 Besides Dr. Eubank's analysis, you have 9 memos in your books of the tracking that I do of the 10 Lotto matrix and of the hits, and if you would like, 11 I can walk you through those or try to answer any 12 questions that you have. 13 COMMISSIONER WHITAKER: What is his view 14 as to why we're not getting the size of jackpot that 15 he had statistically predicted? 16 MR. TIRLONI: Well, the size of the 17 jackpots come from a simulation that's run by GTECH. 18 While Dr. Eubank agrees with GTECH's numbers, he 19 always likes to say there is no way he can guarantee 20 anything from his statistical viewpoint or from his 21 statistical analysis. 22 EXECUTIVE DIRECTOR CLOUD: Commissioners, 23 I think it's the luck of the draw. 24 CHAIRMAN CLOWE: It better be. 25 MR. TIRLONI: He stated that in terms of WRIGHT WATSON STEN-TEL 512-472-4363 22 1 the number of hits that we've had, statistically 2 that's correct. We've just had those hits at lower 3 levels than we've had in the past. In the first year 4 of the matrix change, our hits occurred at higher 5 levels, which we were all very happy about. This 6 second year that we're in now and we're almost coming 7 to a close on in July of 2002, we've seen the hits at 8 lower jackpot levels. 9 EXECUTIVE DIRECTOR CLOUD: Commissioners, 10 I have some statistics. As you well know, the big 11 game now is called MegaMillions. They have added the 12 State of New York and the State of Ohio and plan to 13 add the State of Washington by September, and they 14 recently had their first jackpot as a new consortium, 15 and it rolled twice with odds of one in 135 million 16 to win and got hit by a player in Illinois. New York 17 in that first draw period had $6.1 million in sales 18 for MegaMillion. So this will give you a little bit 19 of an idea if we had a multi-state game or if we 20 belonged to this game that we probably would have 21 sales in that neighborhood, but it goes to show you 22 and the odds of winning a 135-million-to-one, it only 23 rolled twice and somebody hit it, so it is, I think, 24 the luck of the draw. The jackpot ended up being 25 25 million. The new MegaMillion jackpot starts at ten, WRIGHT WATSON STEN-TEL 512-472-4363 23 1 and so it only rolled once. 2 CHAIRMAN CLOWE: We've talked to a number 3 of members of the legislature about the revenue that 4 the Lottery is producing for the State. There is a 5 high level of interest in that, and Linda I think has 6 correctly pointed out that one thing to be considered 7 and it is in our self-evaluation report is the 8 authorization of entry into a multi-state game. 9 There are other considerations which are in that 10 report as well. But we changed the matrix from 50 to 11 54 balls with the hope that we would have higher 12 jackpots and it would increase player interest with 13 the resulting higher jackpots. 14 And, Robert, notwithstanding the hits that 15 the Lotto Texas game has experienced, is there any 16 way to measure player enthusiasm for this game? 17 MR. TIRLONI: I think after we made the 18 matrix change, Commissioners, and we saw the record 19 $85 million jackpot, we had seen a level of 20 excitement that we had never experienced in Texas, 21 and when you have a jackpot like that, that 22 enthusiasm carries over for quite a while afterwards. 23 We haven't been above 40 since we had that $85 24 million jackpot. I think players are still very 25 enthusiastic about the Lotto game. We haven't seen a WRIGHT WATSON STEN-TEL 512-472-4363 24 1 steep decline in sales per jackpot level so our $4 2 million sales are right around where they were a year 3 ago for a $4 million jackpot. Again, we just haven't 4 had those rolls up to those higher levels where we 5 start to get a good amount of media coverage, where 6 there is a lot of talk value about the game because 7 people are excited about the level that we're at, but 8 I think players are still enthusiastic about the game 9 and I think there are a lot of players that realize 10 the potential that the game has since we made the 11 matrix change that we do have the ability to roll up 12 to those higher level jackpots. 13 CHAIRMAN CLOWE: So what we're continuing 14 to see is the player enthusiasm is very closely tied 15 to the amount of the jackpot, and generally players 16 get interested when the jackpot gets up about where 17 it is now or higher. 18 MR. TIRLONI: We're at 12 million right 19 now. I would say we get a lot of players that start 20 coming into the game around 20 million, but, yes, you 21 are correct. 22 CHAIRMAN CLOWE: And yet it's interesting 23 to me that where there are different factors in the 24 Instant tickets, there seems to be an increased level 25 of enthusiasm there and that has been an increasing WRIGHT WATSON STEN-TEL 512-472-4363 25 1 source of activity and revenue to the state with it 2 being two-thirds of the overall revenue production 3 and up almost 10 percent on a year-to-date basis. 4 What are we doing to make those attractive 5 to the players and have the success there that we 6 are? 7 MS. SMITH: On the Instant product, sir? 8 CHAIRMAN CLOWE: Yes. 9 MS. SMITH: Well, our strategy for this 10 year was to customize inventory for the retailers and 11 keep the games fresh for the players. So there is 12 quite a turnover in games, as many as one every week, 13 sometimes two a week, and I think that that freshness 14 has helped the retailers to have new product in their 15 store, and we in the industry have always looked at 16 the Instant product as sort of an impulse buy so when 17 you go in and there is always something new and fresh 18 to see, then that enthusiasm is there, so we're still 19 very closely monitoring the strategy, and it seems to 20 be working for us. 21 CHAIRMAN CLOWE: Now, you have had a lot 22 of success with the ten-dollar game, haven't you? 23 MS. SMITH: Yes, sir. 24 CHAIRMAN CLOWE: And is that tied to a 25 larger jackpot? WRIGHT WATSON STEN-TEL 512-472-4363 26 1 EXECUTIVE DIRECTOR CLOUD: Yes, the 2 ten-dollar ticket is the 70 percent payback, 3 Commissioners, in prizes. 4 CHAIRMAN CLOWE: And the players know 5 that, and that's the reason that you feel that they 6 are drawn to that game? 7 MS. SMITH: We don't publicize what the 8 payout is for each game, but definitely after they 9 play, they know. Our regular players are very aware 10 of the aspects of the game. 11 CHAIRMAN CLOWE: So they understand? 12 MS. SMITH: Yes, sir. 13 CHAIRMAN CLOWE: How about this 14 Harley-Davidson game, how is it being received? 15 MS. SMITH: Very well. I don't have this 16 past week's figures yet today, sir, but we have a 17 second-chance drawing where we had early last week 18 over 90,000 entries for players to send in their 19 non-winning tickets. We've had four, I believe, 20 winners of the motorcycles already through the game 21 itself. You can win the motorcycles either on the 22 ticket itself or as a part of the second chance so 23 it's been a very popular game for us this summer and 24 we're still sort of in the middle of it and we're 25 excited about the outcome. WRIGHT WATSON STEN-TEL 512-472-4363 27 1 CHAIRMAN CLOWE: And I understand Texas 2 Two-Step continues to be very popular and is back in 3 the advertising limelight now and seeming to continue 4 to grow in popularity; is that correct? 5 MS. SMITH: We're continuing to work on 6 it, Robert may want to elaborate, but he's worked 7 closely with the GTECH district offices to focus on 8 that game, and anywhere that we have the opportunity 9 to promote the game, we have in-store promotions. 10 Robert, do you want -- 11 MR. TIRLONI: I'm working with GTECH right 12 now. We've got some districtwide efforts so that the 13 GTECH districts are concentrating on the Two-Step 14 game. They are making sure all available point of 15 sale regarding the Two-Step is up in the retail 16 locations. Since Two-Step has just turned a year old 17 a few weeks back, they are going in and talking to 18 clerks about the game, they are training clerks 19 making sure they understand how the game plays. 20 Since we launched Two-Step a year ago, we have also 21 made other game changes with Pick 3, so while they 22 are out there teaching retailers about all these 23 different games, you kind of have to take a step back 24 and go back to a previous change and make sure 25 everybody is understanding how the game works and WRIGHT WATSON STEN-TEL 512-472-4363 28 1 what the benefits and what the features of the game 2 are, so we're doing that statewide right now on 3 Two-Step to try to continue to create awareness with 4 the game, and since that's a game that has a rolling 5 jackpot, we also are working hard to get that message 6 out that this game does have a jackpot that increases 7 if nobody wins. That's a very important feature. 8 It's very similar to Lotto Texas. 9 EXECUTIVE DIRECTOR CLOUD: Commissioners, 10 I'd like to add that Texas Two-Step sales have 11 declined in the last few weeks, and we are looking at 12 that because our advertising for Two-Step stopped at 13 the time that we started our winner awareness 14 program. So this would have a direct correlation 15 with our advertising campaign and we're monitoring 16 that but we do not want the sales -- we think two 17 things: First of all, the advertising stopped, and 18 second of all, it's a jackpot-driven game just like 19 Lotto Texas, and people are coming into the game when 20 the jackpot gets up close to a million dollars. So 21 those two things may be a factor, but we're 22 monitoring that very closely. 23 I think this is a great game, and we don't 24 want to see it decline so we have not allowed it to 25 go very long in this direction before we started WRIGHT WATSON STEN-TEL 512-472-4363 29 1 looking. Robert is looking and working with GTECH on 2 special promotional type programs to bring the 3 awareness back in, and we 4 are -- we have asked the advertising agency to start 5 running the Two-Step commercials again in with the 6 alternate commercials with the winners' spots, and 7 we're looking at adding fifteen billboards across the 8 State? Is that right? Fifteen or twelve. Fifteen? 9 Fifteen billboards for Texas Two-Step. 10 CHAIRMAN CLOWE: What about Cash 5, Linda? 11 EXECUTIVE DIRECTOR CLOUD: Cash 5, Robert, 12 do you want to talk about Cash 5? 13 MR. TIRLONI: Well, the matrix change was 14 approved. We're going to be changing that game in 15 late July. Sales for the new matrix which is a 16 five-of-37 matrix began on Sunday, July 28, and we'll 17 have our first draw for the new Cash 5 game on 18 Monday, July 29th. We'll be drawing that game six 19 nights a week, Monday through Saturday. We also have 20 a new prize tier in that game. If you match two out 21 of five numbers, players will win $2, and that's a 22 guaranteed prize, so we should have a lot more 23 winners in the game than we do now, and the matrix 24 change has also allowed us to drop the overall odds 25 of winning from one in 100 to one in eight, so we're WRIGHT WATSON STEN-TEL 512-472-4363 30 1 real excited about that change that's coming down the 2 road. We're also -- I'm also working with GTECH 3 right now on the launch of that game and educating 4 retailers and educating players about that change 5 that's coming up so we all feel that that's going to 6 be a real positive change for the Cash 5 game. 7 EXECUTIVE DIRECTOR CLOUD: Commissioners, 8 our Pick 3 mid-day draw is producing a greater amount 9 of sales than we anticipated and projected. 10 Robert, do you want to add to that? 11 MR. TIRLONI: Yes. The weekly sales 12 average after the daily draw was launched for three 13 weeks is approximately 4.9 million. The weekly sales 14 average before the day draw was launched, and again 15 it's for three weeks, was 4.2 million, so we've seen 16 a pretty sizeable increase the first full week of 17 sales. After the day draw was launched, we saw sales 18 of 5 million -- over $5 million on the Pick 3 game, 19 and the two seeks since that they have been just 20 under 5 million. They have been over 4.9 million per 21 week. 22 COMMISSIONER WHITAKER: What did we 23 project? 24 MR. TIRLONI: We projected a 6 percent 25 increase, so in a week you would expect to see an WRIGHT WATSON STEN-TEL 512-472-4363 31 1 increase of about $250,000 for the whole week, and 2 we're doing that and usually over that in one day 3 drawing. 4 COMMISSIONER WHITAKER: Aren't we kind of 5 expecting an initial bump though and then for it to 6 settle back to what we predicted? 7 EXECUTIVE DIRECTOR CLOUD: It will be 8 interesting with this game. Pick 3 is a little bit 9 different, you have a different set of players, so we 10 could get that after people get used to having a 11 mid-day, but we kind of think it is not likely with 12 Pick 3. 13 CHAIRMAN CLOWE: And you'll keep us up to 14 date on how that develops? 15 MR. TIRLONI: Yes, sir, definitely. 16 CHAIRMAN CLOWE: And I think I saw last 17 night on television advertisements that the later 18 drawing takes place tomorrow night for the first 19 time? 20 MR. TIRLONI: It started last night for 21 the first time. 22 CHAIRMAN CLOWE: Started last night? 23 MR. TIRLONI: Yes, sir, Monday, May 27th 24 it started, and we switched the draw time for the 25 Outlaw games from 9:59 p.m. to 10:12 p.m., and last WRIGHT WATSON STEN-TEL 512-472-4363 32 1 night was the first time. 2 COMMISSIONER WHITAKER: How are we doing 3 on hits on our Website for that broadcast? 4 EXECUTIVE DIRECTOR CLOUD: Keith has that 5 information. I don't think he's in the room right 6 now, but he does have the information on how many 7 people are going to the streaming of the draw, but 8 I'm not sure he would have the information on how 9 many more stations have picked up the draw since we 10 changed the time, but there was a lot of interest. 11 MR. TIRLONI: And that change in the night 12 draw had no effect on the Pick 3 day draw. That 13 still continues to be at 12:27. We haven't made any 14 changes on that. 15 EXECUTIVE DIRECTOR CLOUD: Keith, the 16 Commissioner was asking how many people we have going 17 to the Web streaming of the Lotto Texas draw. 18 MR. ELKINS: One second on that. For the 19 record, my name is Keith Elkins, communications 20 director for the Texas Lottery. 21 Right now on the Website, Commissioners, 22 for the month of April 2002, total looking at our 23 Website drawings both live and on-demand or 24 tape-delayed we had 5,391 total views. That's down 25 about 20.4 percent from the previous month in March. WRIGHT WATSON STEN-TEL 512-472-4363 33 1 On-demand views are down 27.3 percent. The live 2 views, however, are up 7.8 percent, and this is in 3 line with what we have seen since we started in 4 September of 2001. The people going to watch a live 5 drawing are -- the number is increasing. The number 6 of people coming back after the fact is decreasing. 7 COMMISSIONER WHITAKER: What do you 8 attribute that to, Keith, that the on-demand is down? 9 MR. ELKINS: Well, I think that -- I think 10 that it's people wanting to see the drawing as it's 11 happening to check their ticket right then. I think 12 that it is consistent with what we have seen overall 13 with the Website itself, the majority of people that 14 come to our Website come for the drawing results. In 15 this case, I think the people are tuning in to the 16 video because they actually want to see the drawing 17 take place which is what we had hoped that they would 18 do. One of the reasons that we brought the feature 19 on is to give another opportunity for players to see 20 the drawing live. On-demand, I think that -- I guess 21 they get the results some other way, and it's not as 22 exciting to them as seeing it live. We're just 23 really not sure, we haven't done research in that 24 regard, but I note that it is consistent with the 25 trend that we've seen consistently since September. WRIGHT WATSON STEN-TEL 512-472-4363 34 1 COMMISSIONER WHITAKER: And how many new 2 stations have picked it up now that we've changed the 3 time or how many do we anticipate will pick it up? 4 MR. ELKINS: We anticipate that all the 5 stations that we had are going to continue carrying 6 this, which was approximately 38 stations. We are 7 doing surveys starting today to try to find out 8 additionally what stations may be carrying us live. 9 I know that we had some interest by stations in 10 Dallas, which was a market that we did not have 11 coverage in that we were very interested in. Pick 3 12 day draw we have had considerable interest in. In 13 fact, a San Antonio station is carrying that drawing 14 live and has reported that their ratings have gone up 15 since they started carrying the drawings live. So if 16 that holds true, I've asked them for a testimonial 17 that we can share with other stations, and hopefully 18 we'll pick up additional coverage as a result of that 19 as well. 20 MS. SMITH: Commissioner, I'd like to add 21 in conjunction with the Website, the numbers being 22 available, our service of player connect also helps 23 the players find out their winning numbers, and we 24 have over 6,000 registrants so that could have a 25 small impact on the number of people who come to the WRIGHT WATSON STEN-TEL 512-472-4363 35 1 Webiste, they no longer have to do that because we're 2 sending the e-mail message to them of the winning 3 numbers after each draw so this is a service we 4 provide the players and can get that information to 5 them that way also, and I believe you've got in your 6 packets this week or if not you will get them from 7 this past week's packet information about player 8 connect, and it walks you through the whole process. 9 CHAIRMAN CLOWE: Well, I think it's 10 important that you understand the Commission is very 11 interested in how the sales are going, and we are 12 concerned about the Texas Lotto reduction. I think 13 we understand that it in fact covers a broad spectrum 14 of interest and primarily it's following the size of 15 the jackpot, but we are not generating the revenue 16 for the State that we have in the past. We need to 17 focus on that, stay focused on that. The Instant 18 tickets are doing very well. We need to be in a 19 position to discuss at our Sunset evaluation how we 20 are doing, what we're doing and how well we can 21 improve those things. 22 One of the questions that I think we 23 certainly should anticipate is a result of 24 advertising on our games, and we're spending almost 25 $40 million a year. I think we need to be in a WRIGHT WATSON STEN-TEL 512-472-4363 36 1 position to show what results we're getting from that 2 expenditure. 3 MS. SMITH: Yes, sir, we have already 4 supplied some information to Sunset regarding the 5 return on investment and bonus spots that we get from 6 our advertisings, and we'll continue to give them the 7 same information, and if you'd like, we can share 8 those memos with the Commissioners. 9 CHAIRMAN CLOWE: Yeah, I think we'd like 10 that, Toni, and also, Keith, we have answered 11 questions about the studio with the projected results 12 of increased coverage from TV stations and the 13 anticipation that that would help us with the drawing 14 studio being set up like it is now. I expect us to 15 be questioned about that as well in this process and 16 well we should. 17 We face a similar situation in bingo. We 18 have a declining market there. That's been very much 19 the subject of a number of meetings, particularly our 20 last meeting here, and I think we have maybe a 21 different set of problems in the bingo industry than 22 we're discussing here, but we need to stay focused on 23 the fact that in this agency we are selling a product 24 and we are merchandising as well as conducting 25 operations and regulating operations. A lot of this WRIGHT WATSON STEN-TEL 512-472-4363 37 1 agency's attention should continue focused on those 2 activities. 3 MS. SMITH: Yes, sir. 4 COMMISSIONER WHITAKER: Let me ask a 5 question, Larry. This whole issue of the statistical 6 chance that the jackpot would go up and that it 7 hasn't, since you all generated those numbers and 8 that analysis, could you speak to that? 9 MR. KING: The easy answer is the luck of 10 the draw. I would -- what we try to do when we 11 provide sales projections, obviously when we want to 12 change a matrix or change a game, that's the first 13 question is what can we expect as far as an increase 14 in sales. We have a simulator that our marketing 15 department puts the new matrix and new sales through, 16 and although, you know, I think last year in the 17 first year we claimed that there should be a 18 $100 million jackpot, throughout the year I think 19 what we saw was we saw the $87 million jackpot. That 20 was our one big jackpot. Now, we can say, well, it 21 wasn't a hundred-million, but I would sort of argue 22 that the interest rates from the time that we decided 23 and the annuity factor from the time that we decided 24 to change the matrix to the time where it was last 25 year had decreased slightly. I think it's probably WRIGHT WATSON STEN-TEL 512-472-4363 38 1 either flat or on the upside now. So, in other 2 words, to get to a certain jackpot, it took so many 3 rolls. I don't know if that answered the question, 4 but I think we saw the big jackpot last year. We're 5 still waiting and we still have until July to see our 6 big jackpot for this year. 7 I did put together a small matrix and I 8 don't have enough copies but I'll be glad to leave it 9 behind that if I could quote some statistics on where 10 we were in the past and where we are today that may 11 be relevant to this whole discussion. But in '93 and 12 '94 and '95, in order to get to -- after four rolls, 13 four not being hit on the Lotto jackpot, four rolls 14 in '93 got us to a 45-million-dollar jackpot. Today 15 four rolls gets us to 17 million. So we know Lotto 16 is a jackpot-driven game. Obviously we're going to 17 get a lot more sales and a lot more play at 45 18 million. There are factors. People definitely are 19 not playing as much this year as they did in '93, but 20 also the annuity factor that the Lottery buys the 21 annuities for doesn't buy you as much as it used to 22 in '93. So it takes more sales to generate higher 23 jackpots. I think the good part of what I'm seeing 24 in this average jackpot per roll is that in 2001 it 25 took us four rolls to get to 15 million. Now, in WRIGHT WATSON STEN-TEL 512-472-4363 39 1 2002, it takes us four rolls and we're at 17 million. 2 So I'm encouraged that we're hopefully back on the 3 upswing, but definitely four and five rolls is not 4 getting us where we used to be, and I think there are 5 several factors, jackpot fatigue, where people aren't 6 playing near as much, I think the annuity factor, and 7 I think that just the surroundings of New Mexico, 8 Louisiana, the Big Game advertising 9 300-million-dollar jackpots, people look at, you 10 know, $20 million and say it's not really a jackpot 11 anymore. So how do we get to the bigger jackpots? 12 We've talked internally about it. I think we were 13 very conservative when we suggested the matrix change 14 to only go to 25 million with the population in 15 Texas. We wanted the game to still be winnable. We 16 know and we could certainly point you to California 17 where they changed their matrix to one in 41 million. 18 Now, they have had the 150, 170-million-dollar 19 jackpots in California, but I think that was a big 20 risk here. If we would have suggested a one in 40 21 million, I'm not sure the players would have accepted 22 that like they did the matrix change we suggested. 23 So -- 24 EXECUTIVE DIRECTOR CLOUD: Commissioners, 25 I met last week with GTECH's statistician and their WRIGHT WATSON STEN-TEL 512-472-4363 40 1 marketing staff, and Robert and I along with some 2 other members of staff met with them on where do we 3 go from here, and they made some suggestions and I 4 almost threw them out of the room, but they -- one of 5 them was about Lotto Texas and what happens when -- 6 and Power Ball is changing their matrix so they will 7 get the big jackpots like the MegaMillions game is 8 going to get so when they have those 9 500-million-dollar jackpots on our borders, what's 10 going to happen to us with Lotto Texas, and this is a 11 concern, and our options, you know, and I think it's 12 more of kind of a progression as to what's going to 13 happen when. It's not something we're facing today 14 so much on our border, but it will be soon because 15 Power Ball is making that change right away. 16 The options there was to look at changing 17 the matrix on Lotto Texas again to a Power Ball type 18 game which would lend itself and which is where we 19 started, we started out that way, but we ended up, 20 when we rethought our process, we changed our minds 21 about how we wanted the jackpot to look, and we 22 dropped the idea of the Power Ball type matrix. So I 23 will tell you that that has been put on the table 24 already that this is a possibility in the future for 25 Lotto Texas. We also talked about other types of WRIGHT WATSON STEN-TEL 512-472-4363 41 1 things that we could do since right now we have 2 changed all of our games, and there is nothing else 3 to do unless we do have to change Lotto matrix again 4 except to add bonus type -- I mean, not bonuses, but 5 promotion type programs to some of our games in order 6 to drive sales that way. So we are already 7 discussing these types of things as to what we can do 8 now with the products that we have on the table in 9 order to keep our sales up. 10 MR. KING: But in no way are we giving up 11 on the Lotto game right now, and we do think that we 12 are going to see the jackpot. 13 COMMISSIONER WHITAKER: Let me ask you 14 this question: Back when the matrix change was made, 15 we were given certain predictions, statistical 16 predictions of how many jackpots at a certain level 17 we could anticipate. Now we've got historical data, 18 and I understand the simulator is a very complex 19 thing, but if we were to have put into that simulator 20 the actual history of this last year since the matrix 21 change, which is what actually happened, would we see 22 a difference in the simulator? Would it have 23 predicted fewer? 24 MR. KING: I'm going to look over at 25 Robert. I don't have it in front of me, but I think WRIGHT WATSON STEN-TEL 512-472-4363 42 1 that's what Randy's analysis did. It fit basically 2 what it was supposed to do. 3 COMMISSIONER WHITAKER: But I heard you 4 say something different. You said number of hits was 5 the same but the size of the jackpot was less than 6 anticipated or simulated. 7 MR. TIRLONI: Correct. GTECH runs a 8 simulation, and GTECH marketing comes up with the 9 number of hits and they come up with a projection of 10 what jackpot levels we should see those hits at. For 11 example, they say in 104 draws, which is one full 12 year, we should have ten hits between 13 4 million and 11 million. 14 COMMISSIONER WHITAKER: Right. 15 MR. TIRLONI: Dr. Eubank doesn't perform 16 the same type of analysis. He goes back and looks at 17 the number of drawings we've conducted and says based 18 on the number of drawings you have conducted and your 19 sales during that time period, I think the number of 20 hits that you have had is appropriate from a 21 statistical point of view. 22 COMMISSIONER WHITAKER: Right, so they are 23 asking different questions. 24 MR. TIRLONI: They are coming at it I 25 believe from different angles, but they are agreeing WRIGHT WATSON STEN-TEL 512-472-4363 43 1 on the number of hits that we should see in a certain 2 time period. 3 COMMISSIONER WHITAKER: But as I 4 understand the simulator -- this is over my head so 5 bear with me -- the simulator assumes that after, 6 say, one hit you will pull in X number of sales, 7 after two hits you will pull in X number of sales, 8 after four hits you will have pulled in X amount of 9 sales. It looks like that our history since the 10 four -- since the matrix change is that we're not 11 pulling in what was anticipated, and therefore I 12 wonder if those simulation numbers are -- weren't 13 accurate forecasting. 14 MR. KING: Well, I would hesitate to say 15 that, but I think if we had our statistician and 16 probably Randy Eubanks here, I think they would both 17 agree that we are only looking at 52 weeks and that 18 if we give it more time that over time it's going to 19 average out to be hopefully exactly what was 20 predicted. 21 COMMISSIONER WHITAKER: So what you are 22 saying is your folks, the person who did the 23 simulation, would continue to bide by those numbers? 24 MR. KING: Yes. 25 COMMISSIONER WHITAKER: Okay. So that WRIGHT WATSON STEN-TEL 512-472-4363 44 1 maybe not over this year but maybe with one more year 2 we'll look back and say indeed we did achieve not 3 only the number of hits but of the size that we had 4 hoped for? 5 MR. KING: That's correct. 6 COMMISSIONER WHITAKER: Do you want to 7 double check that? 8 MR. KING: Yes, I do, but I will be happy 9 to leave you with this matrix. I also do have the 10 information on the Internet. 11 COMMISSIONER WHITAKER: And I would 12 appreciate you confirming with that statistician that 13 he would still abide by that analysis. 14 MR. KING: Absolutely. 15 COMMISSIONER WHITAKER: Thank you. 16 MS. KIPLIN: Commissioners, do you want 17 this added to an agenda for a future Commission 18 meeting? 19 COMMISSIONER WHITAKER: I would. 20 CHAIRMAN CLOWE: Well, I think the thrust 21 that we're on here is that we're concerned about the 22 results and that we're going to be asked some 23 questions and I think very pointed questions about 24 the production of the revenue of the Lottery and 25 where we are and where we're headed with it, and I WRIGHT WATSON STEN-TEL 512-472-4363 45 1 would hope that you would not be complacent and 2 satisfied, I don't think the Commissioners are, and 3 we need to be looking at what we could do to improve 4 the attractiveness of the game within the statutes 5 that we're operating under now, and then in Sunset, 6 we need to lay out options and I think the Sunset 7 group has done an excellent job on that, headed up by 8 Gary Grief, of choices that the legislature might 9 look at if they want to enhance these games. 10 But we clearly are not moving ahead like I 11 think we anticipated we would, and we continue to 12 advertise, we continue to have the studio for live 13 drawings and we just should not be complacent about 14 where we are and say it's the luck of the draw. It 15 is the luck of the draw, but what you do with the 16 games affects the luck of the draw. And there are 17 other states that have gone down this road before us, 18 and we need to be looking at what alternatives are 19 there for us. 20 Larry, while you are here with us, the 21 retailer research survey project is so much about 22 your company. What's your feeling about how the 23 retailers feel about GTECH and the results of this 24 survey? 25 MR. KING: I can speak to that very WRIGHT WATSON STEN-TEL 512-472-4363 46 1 clearly, hopefully. I am supportive of the research, 2 and this is done by the Texas Lottery. I'm proud of 3 the numbers and the service level that we provide the 4 Texas Lottery. I monitor that on a monthly basis and 5 actually use it as a tool that if our sales reps drop 6 below the 85 to 90 percent range of acceptance rating 7 good or excellent, then I know we've got an issue, 8 and I know that it varies from district to district. 9 The same on our customer service reps that install 10 the fixture terminals, the same on our hotlines. In 11 fact, we've asked for permission in some cases to use 12 this in other proposals that we make to other 13 lotteries, so I am never satisfied with the numbers. 14 I think we can always improve. We're never perfect, 15 but we use that on a monthly basis, and I'm real 16 proud of the numbers. 17 CHAIRMAN CLOWE: I concur with your 18 reaction, and I follow this carefully as well. I 19 think the excellent and good ratings combined are 20 unusually positive and I hope, Ramone, you are 21 focused on this as well. I like to do my own 22 research when I stop to buy gasoline and whether or 23 not the clerk asks me if I will buy a lottery ticket 24 and, you know, I think that has a lot to do with the 25 management of the store and their focus and what WRIGHT WATSON STEN-TEL 512-472-4363 47 1 point-of-sale material is there. It is an impulse 2 item, and I guess maybe more than 90 percent, and if 3 that clerk is motivated and feels good about the 4 machine, and I stopped in Hearne the other day and 5 the lady asked me to buy a ticket and I said I 6 couldn't and she wanted to know why so I told her and 7 she said, Where's my new machine? And I reported 8 that to Linda last week, and I hope Linda has checked 9 to see where that lady's new machine is. But, you 10 know, when you have a salesperson at the point of 11 sale, these are a dollar apiece, they are not very 12 expensive, but how that person handles that is very 13 important, and that's why I want you to know that I 14 read this carefully and I think it's extremely 15 important, and I'm glad to hear you say you put a lot 16 of emphasis on it. 17 MR. KING: I would like to say that we 18 have about 140 sales reps across the State, but there 19 is really 17,000 sales reps and it's that sales clerk 20 when you walk in to buy that gas. If we can't 21 motivate them to talk about the lottery and talk 22 about Instant tickets and sales, and that's our job. 23 CHAIRMAN CLOWE: And I don't know, but, 24 Linda, you are attending a lot of those meetings with 25 the GTECH representatives and you are talking to them WRIGHT WATSON STEN-TEL 512-472-4363 48 1 and motivating them and I think that's time and 2 effort well spent. 3 EXECUTIVE DIRECTOR CLOUD: I think so, 4 too. 5 CHAIRMAN CLOWE: And your retailer 6 meetings as well. You just finished one in Plainview 7 and you have got one coming up in Denton that you are 8 going to talk to us about, those are extremely 9 important to hear what those people have to say 10 because those are the owners and the managers rather 11 than the clerical people, aren't they? 12 EXECUTIVE DIRECTOR CLOUD: Yes, sir. 13 Commissioners, while we have this group at 14 the table, GTECH is -- this is our tenth anniversary 15 week, and GTECH has committed to bringing in the ten 16 top retailers? 17 MR. KING: Right. 18 EXECUTIVE DIRECTOR CLOUD: That have been 19 with us ten years, locations have been in business 20 for ten years and they have sold over $10 million in 21 lottery tickets per store. So they are bringing 22 those retailers in, they are putting them up, they 23 are paying their expenses. 24 MR. KING: Right, at the Doubletree, right 25 around the corner, and we're going to buy them dinner WRIGHT WATSON STEN-TEL 512-472-4363 49 1 tonight at Pappasitos. Something we can sort of give 2 back for the retailers that have been very 3 supportive. 4 CHAIRMAN CLOWE: I saw that. How many 5 people, how many individuals? 6 MR. KING: I think we probably have about 7 25 to 30 individuals. 8 CHAIRMAN CLOWE: That's great. I think to 9 communicate with those people and express your 10 appreciation, our appreciation, and motivate them to 11 do everything they can is extremely important, and I 12 hope the thrust of this discussion is the Commission 13 is not satisfied. We are not complacent about these 14 numbers, and, yeah, it's the luck of the draw, it's 15 got to be the luck of the draw, but there are things 16 that we can do, advertising, communication, 17 innovation, and I think that's our task for the 18 future: To make these games attractive and make them 19 something that players think about and deal with in 20 the legislative limits that we have to create 21 interest in this operation. 22 COMMISSIONER WHITAKER: I think we're 23 going to let Larry go back. 24 CHAIRMAN CLOWE: Thank you all very much. 25 Toni, while you are there, do you or Linda WRIGHT WATSON STEN-TEL 512-472-4363 50 1 want to say anything about Item Number IV, 2 advertising and promotions? 3 MS. SMITH: Just that we are continuing on 4 with our winner awareness campaign and support of 5 Texas Two-Step, and as Linda mentioned, we have 6 looked at enrolling some additional billboards to 7 support Texas Two-Step because of the jackpot so that 8 people are as aware of that jackpot as they are of 9 Lotto Texas, and we're also getting geared up to 10 start to work on a campaign to support a Cash 5 new 11 game enhancements for July, and for the record that 12 for fiscal year 2002 we will be spending less than 35 13 million on our advertising budget, and that's a 14 result of our constant monitoring of our prize payout 15 relative to our advertising budget. 16 COMMISSIONER WHITAKER: Let me ask you and 17 Linda a question. Advertising that aspect of Texas 18 Two-Step that is jackpot driven, do you think that 19 that is something we ought to think about in light of 20 the fact that the actual game itself is a very 21 interesting variation on the Instant ticket type of 22 game? It's an interesting game in its own right 23 without regard to the jackpot-driven nature of it, 24 and to some extent by continuing to emphasize the 25 jackpot nature of it, are we not playing into that WRIGHT WATSON STEN-TEL 512-472-4363 51 1 pattern where people don't buy at the beginning and 2 hold off and start thinking in terms of spending 3 their money only when it's close to the big jackpot 4 time? 5 EXECUTIVE DIRECTOR CLOUD: Our advertising 6 focuses on the fact that the jackpot is $200,000. It 7 doesn't talk about the jackpot building. 8 COMMISSIONER WHITAKER: Okay. 9 EXECUTIVE DIRECTOR CLOUD: So we focus on, 10 you know, play Texas Two-Step, win $200,000. 11 MS. SMITH: And what we've been running 12 are some of the more startup spots, a little more 13 educational and how you play and the benefits of the 14 game as a whole. 15 COMMISSIONER WHITAKER: So you are not 16 talking about the billboards being more of a -- 17 EXECUTIVE DIRECTOR CLOUD: No, the 18 billboards would be just a reminder, and it would 19 have the $200,000 and the billboard then will roll 20 and it will roll to whatever -- if it goes from 21 200,000 to four to six, and it would be a constant 22 reminder for the players to play and it would show 23 them what the amount would be. 24 MS. SMITH: Commissioner Whitaker, to your 25 point, though, we could definitely do some research WRIGHT WATSON STEN-TEL 512-472-4363 52 1 to find out whether those players are playing, which 2 aspects of the game they are most attracted to. 3 COMMISSIONER WHITAKER: Well, it just 4 strikes me that the psychology of jackpot-driven 5 games has been fairly straightforward in at least the 6 Lotto Texas context in that one of the reasons we 7 really focused on making the inherent game of Texas 8 Two-Step so interesting was to pull in the dollars 9 towards the beginning. So it's just something to 10 think about, and I'd appreciate thoughts on that. 11 MS. SMITH: That's all I have, 12 Commissioners. 13 CHAIRMAN CLOWE: Thank you, Toni. 14 Next item, Number V, Billy, nominations or 15 appointments to the Bingo Advisory Committee? 16 MR. ATKINS: Thank you, Mr. Chairman, 17 Commissioner Whitaker. 18 At the last meeting of the Texas Lottery 19 Commission, this was an item which the Commission 20 passed because there were some questions as to the 21 recommendations from the Advisory Committee and the 22 staff as well as the appropriateness of the position 23 of some of the individuals on the nomination forms. 24 At the request of the Commission, staff held a 25 conference call with the subcommittee from the WRIGHT WATSON STEN-TEL 512-472-4363 53 1 Advisory Committee that considered the nominations as 2 well as the chair, Bill Neinast. The subcommittee 3 consisted of Saleem Tawil, Virginia Brackett and 4 Suzanne Taylor. We met on May 1st and agreed on the 5 list that you have in your notebook before you today. 6 That consisting of Ricky Turman from Waco in the 7 general public category; Larry Whittington of Dallas, 8 Virginia Brackett of Lubbock, and Pete Pavlovsky of 9 Rosenberg in the conductor category; Mario Manio of 10 Garland and Suzanne Taylor of Corpus Christi in the 11 lessor category; Marilyn Mathews from Odessa in the 12 conductor/lessor category; Daniel Moore from Houston 13 in the manufacturer/distributor category; and Saleem 14 Tawil of Austin in the SSP category. Additionally, 15 the Advisory Committee recommended Virginia Brackett 16 as the chair and Saleem Tawil as the vice chair of 17 the 2002 Bingo Advisory Committee. 18 Normally what the staff has done, should 19 you choose to go forward and adopt these nominees 20 today, we will contact each individual by letter 21 along with a background packet. We will ask them to 22 respond in writing to us of their willingness to 23 serve and to complete the background information 24 which will be supplied to the security division and 25 then move forward scheduling an Advisory Committee WRIGHT WATSON STEN-TEL 512-472-4363 54 1 meeting with the new committee members, and I believe 2 that Mr. Tawil is here also should you have any 3 questions for him. 4 COMMISSIONER WHITAKER: So, Billy, there 5 is complete consensus on this slate? 6 MR. ATKINS: Yes, ma'am. 7 COMMISSIONER WHITAKER: Nobody has raised 8 any concerns? 9 MR. ATKINS: None to me. 10 COMMISSIONER WHITAKER: Do we need a 11 motion? 12 CHAIRMAN CLOWE: I think so. I saw Saleem 13 here. Come up and tell us if you have any comments, 14 would you, please? You were chair of the committee, 15 as I recall. 16 MR. TAWIL: Of the subcommittee. My name 17 is Saleem Tawil. I'm on the Bingo Advisory Committee 18 as a member, having served I think three, maybe four 19 years, I'm not sure which. 20 I'm very elated to let you know that 21 through Chairman Clowe's participation and support to 22 all the members we have moved through a barrier which 23 was known as an ineffective committee, and I received 24 a lot of calls, so has the other members, about the 25 future of how we can be a great assistance to you as WRIGHT WATSON STEN-TEL 512-472-4363 55 1 Commissioners by virtue of filtering out and trying 2 to get as much information in a concise form for you 3 to review and consider. I know Chairman Clowe's 4 support to keep telling people to work hard and hang 5 in there because it is in a decline and right now the 6 revenues I would say they are below 1994, so we're 7 hopeful and grateful that we may be able to do good 8 things in the coming year. 9 I'll be glad to answer any questions. 10 CHAIRMAN CLOWE: I know you are nominated 11 to be the vice chair of the slate that Billy has 12 given us here this morning, and I know you have been 13 faithful on attending those meetings and I'm sure 14 Virginia will as she's confirmed as well, and we do 15 want your input, we want the Bingo Advisory Committee 16 meetings to be meaningful, and, you know, anything 17 that the staff or the Commissioners can do to help 18 you, we want you to call on us. We are concerned 19 about the market conditions in the bingo industry. 20 We are, as you know, limited by the Bingo Enabling 21 Act to the things that the Commission can do and is 22 able to accomplish, but we're concerned about that 23 and we want to be involved in it. 24 MR. TAWIL: Sir, the only other item was 25 the previous chair's -- Chairman Neinast's comments WRIGHT WATSON STEN-TEL 512-472-4363 56 1 or or offer or suggestion to you as far as staggered 2 terms. I don't know where that stands, but I think 3 that's a good suggestion by virtue of the fact that a 4 single-year nomination is not really adequate for the 5 individual to partake and become familiar and be a 6 positive force in the process, so I'm hopeful that 7 you and Commissioner Whitaker will consider that. 8 CHAIRMAN CLOWE: Okay. Will you all 9 discuss that and come forward with a recommendation? 10 MR. TAWIL: Yes, sir. 11 CHAIRMAN CLOWE: Very good. I do think we 12 need a motion. 13 COMMISSIONER WHITAKER: I will so move. 14 CHAIRMAN CLOWE: Second. All in favor say 15 aye. 16 COMMISSIONER WHITAKER: Aye. 17 CHAIRMAN CLOWE: Aye. Opposed, no. 18 The vote is two-zero in favor of approving 19 the nominees which you have listed, Billy. 20 MR. ATKINS: Thank you, Commissioner. 21 CHAIRMAN CLOWE: And, Billy, the next item 22 on the agend is also yours, Number VI, report, 23 possible discussion and/or action on the first 24 quarter year 2002 bingo financial information. 25 MR. ATKINS: Thank you, Mr. Chairman. WRIGHT WATSON STEN-TEL 512-472-4363 57 1 Commissioners, as you know, the first 2 quarter of 2002 ended on April 15th with reports 3 being due on that day. We're preparing to make 4 allocations from local jurisdictions by the end of 5 this week, the May 31st. You have in your notebook a 6 variety of graphs showing statistics for the first 7 quarter of 2002/one as well as previous quarters for 8 gross receipts, prizes, charitable distributions and 9 attendance, and as you can tell from the graphs, as 10 the staff has been reporting for some time, those 11 figures continue to decline. I guess one anomaly 12 that we did see, at the very back of that section you 13 have a spreadsheet that shows a breakout of the items 14 by quarter. One what we consider to be an anomaly is 15 that there was an increase from the first quarter of 16 2001 over 2002 in instant bingo. That is pull tabs. 17 It's a modest increase of about $500,000, but it's 18 still unusual. We have over the years been tracking 19 the decrease in both regular bingo and instant bingo, 20 with electronic bingo being the only segment that has 21 been reporting increases, but this quarter we did see 22 an increase in instant bingo, also. 23 CHAIRMAN CLOWE: Well, we had a lengthy 24 discussion about this at our last meeting, and I feel 25 the subject for my part anyway was very well covered. WRIGHT WATSON STEN-TEL 512-472-4363 58 1 We're doing some things that we can do relative to 2 rules and that sort of thing, Billy, and you are 3 attacking other projects with your staff. I am 4 hopeful that the new Bingo Advisory Committee which 5 is now confirmed will be proactive in pointing out to 6 the Commission things that it can do, so I think we 7 are very focused on this situation. 8 MR. ATKINS: We've already had meetings 9 with representatives from the industry regarding the 10 proposed instant bingo rule. There is a public 11 hearing scheduled for Friday in this room to receive 12 comment. In addition to that, one of the things that 13 the staff has been considering and hopes to take 14 forward to the new Advisory Committee is also changes 15 to the bingo paper rule to allow for innovative types 16 of bingo paper that will introduce what we hope to be 17 some exciting game concepts in halls. 18 CHAIRMAN CLOWE: Very good. Thank you. 19 We'll go now to Item Number VIII, 20 consideration of and possible discussion and/or 21 action on the State Auditor's Office and our internal 22 audit reports to the Texas Lottery Commission and/or 23 on the Internal Audit Department's activities, Debra 24 McLeod. 25 MS. McLEOD: Good morning, Commissioners. WRIGHT WATSON STEN-TEL 512-472-4363 59 1 For the record, I'm Debra McLeod, Internal Audit 2 Director. 3 In the report that I provided to the 4 Commission, I said I would forward a report on to 5 you, I have not, so if you are looking for it, no, 6 you do not have it. We have been working this past 7 month with marketing trying to work on the fiscal 8 2002 budget to make sure that what has been recorded 9 for advertising expense, they had some corruption 10 errors in their spreadsheets, and we're assured now 11 that they have the right information and are going 12 forward. We have other investigations that we're 13 still working on. We were able to meet with the 14 bingo division, and hopefully in the next couple of 15 weeks we'll have a report on that. We feel very good 16 with the work that Billy and his division has put 17 forth in complying with the management control audit 18 that the SAO put out. We received thirteen 19 applications for the open audit position. With the 20 State Auditor's Office on site they are in progress 21 in their audit, but they are winding it down this 22 week is what I have been told this morning. Minor 23 issues that they found they have discussed with Bart. 24 It's a petty cash audit so there is not much money 25 involved from our perspective. So we feel very good WRIGHT WATSON STEN-TEL 512-472-4363 60 1 about this one. 2 That's all I have that I'm aware of that's 3 going on right now. Off site we have the SAS 70 4 audit that's in progress over at the GTECH facility. 5 This is a computer controlled analysis for us. 6 Whenever an agency relies on another agency for the 7 volume of transactions that go through their 8 computers, we have an outside CPA firm that is hired 9 through GTECH to come in and do an audit to determine 10 what kind of controls are there so that we can make 11 reliance and our financial auditors can place the 12 same reliance on that. So that's in progress, and we 13 expect to report near the end of summer probably, in 14 September. 15 CHAIRMAN CLOWE: Very good. Did you want 16 to comment on the external audits week or internal 17 audit week? Is that the style of it? 18 MS. McLEOD: Yes, sir, every year they 19 have a week set aside in May for internal audit week. 20 This week was May 12th through the 18th. I attached 21 in the notebook clips from Governor Perry and an 22 article that was generated to the internal audit 23 directors recognizing the efforts, and given recent 24 history in the audit profession the importance of 25 what internal audit can do versus external audit. WRIGHT WATSON STEN-TEL 512-472-4363 61 1 CHAIRMAN CLOWE: Good. Thank you for 2 that. 3 MS. McLEOD: Thank you. 4 CHAIRMAN CLOWE: Let's take a short break 5 right now. It is 9:45, and for about ten minutes 6 we'll be in recess and then we'll come back and 7 resume the agenda. 8 (Recess from 9:42 a.m. to 9:56 a.m.) 9 CHAIRMAN CLOWE: We will come back to 10 order now. We'll go to Item Number IX, report and 11 possible discussion and/or action on the Sunset 12 process involving the agency. 13 Good morning, Gary. 14 MR. GRIEF: Good morning, Commissioners. 15 For the record, my name is Gary Grief, and I'm the 16 director of lottery operations for the Texas Lottery 17 Commission and I'm also serving as the project 18 manager for the agency's Sunset Review process. 19 Meetings and other types of communication 20 between the Sunset Commission team members and our 21 own agency staff continue. At this point, Sunset 22 staff members have met with representatives from 23 almost every division in the agency. In these 24 meetings the Sunset staff members are obtaining data 25 that is necessary for them to complete the agency WRIGHT WATSON STEN-TEL 512-472-4363 62 1 information section of their upcoming staff report as 2 well as initiating discussions about the policy 3 issues that were raised in the self-evaluation report 4 and other issues that the Sunset staff feel are 5 important. 6 Sunset staff members have requested 7 several updates to the self-evaluation report, and 8 our agency's staff has been responsive to all of 9 those requests. Some additional meetings with the 10 Charitable Bingo Division, our legal division, our 11 contracts compliance section are on the calendar for 12 the next few days, and in addition, the Sunset staff 13 have indicated that they are planning on attending 14 our Denton retailer town hall meeting scheduled for 15 June 18th. In conjunction with their attendance at 16 the Denton meeting, we are going to schedule field 17 visits for them in the Dallas area to include a local 18 bingo hall, the Dallas regional office and claim 19 center, the Irving GTECH district office and the 20 backup data center in Irving. I also understand that 21 the Sunset staff have had the opportunity to meet 22 with the Commissioners individually, and I'll defer 23 to the Commissioners for any comments that you may 24 have on those meetings. I'm going to continue to 25 ensure that the Sunset staff's requests for WRIGHT WATSON STEN-TEL 512-472-4363 63 1 information are responded to timely and appropriately 2 and I'll keep the Commissioners and the executive 3 director informed as to the progress of the review 4 and I'll continue to send out periodic e-mails to the 5 staff to let you know as we progress through the 6 project. 7 That concludes my report this morning. I 8 don't believe we have any Sunset staff members in 9 attendance this morning, but I'll be happy to answer 10 any questions that you might have. 11 COMMISSIONER WHITAKER: Gary, after they 12 do their informational report, what's the next report 13 that we expect to see? 14 MR. GRIEF: Well, it will just be one 15 report. Right now they're kind of doing a dual 16 process right now. They are gathering information 17 for their agency overview section in their report. 18 At the same time they are starting to focus more and 19 more on the policy issues, which will be a larger 20 part of their final report. 21 COMMISSIONER WHITAKER: And when do you 22 think we'll see that? 23 MR. GRIEF: I believe the report is not 24 due out until August. 25 CHAIRMAN CLOWE: Gary, you and your group WRIGHT WATSON STEN-TEL 512-472-4363 64 1 continue to do an excellent job and we're most 2 appreciative of the effort that's gone into this 3 Sunset review, and I continue to be very positive 4 about the process and I, for one, have benefited from 5 my visit with the Sunset staff and appreciated the 6 opportunity to cover the subjects which they asked 7 about and subjects which I wanted to bring to their 8 attention, and I'm hopeful that as we go through this 9 process our Commissioners can attend as many of those 10 meetings as possible. Have you and Kim talked about 11 the legalities of having Commissioners in attendance 12 at those committee hearings? 13 MR. GRIEF: No, sir, we haven't. But we 14 will. 15 CHAIRMAN CLOWE: And you are going to take 16 care of -- 17 COMMISSIONER WHITAKER: You were going to 18 think about that; right? 19 CHAIRMAN CLOWE: I anticipate that we will 20 have a full Commission before we go into that and we 21 would certainly want to have Commissioners as a group 22 there if at all possible, so you will deal with that 23 with her? 24 MR. GRIEF: Yes, sir. 25 CHAIRMAN CLOWE: Okay. Thank you very WRIGHT WATSON STEN-TEL 512-472-4363 65 1 much. 2 MR. GRIEF: Thank you. 3 CHAIRMAN CLOWE: Next item is Number X, 4 consideration of and possible discussion of and/or 5 action including proposal on new Rule 16 TAC 401.104 6 relating to contract monitoring roles and 7 responsibilities. 8 MS. KIPLIN: Commissioners, what you have 9 in your notebook is a proposed new Rules TAC 401.104. 10 The purpose of this proposed rule is to implement a 11 provision in the Texas Government Code section 12 2261.202 that does require State agencies making 13 procurements to which that particular chapter applies 14 to establish and adopt by a rule a policy that 15 clearly defines the various contract monitoring roles 16 and responsibilities of the agency's staff. 17 Specifically, this chapter does not apply to 18 procurements that were made under the statewide 19 procurement statutes, so it does apply to Lottery 20 procurements and we are simply trying to implement a 21 statute, and with that the staff would request that 22 the Commission make a motion to propose this new rule 23 for public comment in the Texas Register, and at the 24 appropriate time we'll bring it back for your 25 consideration. WRIGHT WATSON STEN-TEL 512-472-4363 66 1 COMMISSIONER WHITAKER: So moved. 2 CHAIRMAN CLOWE: Second. All in favor 3 please say aye. 4 COMMISSIONER WHITAKER: Aye. 5 COMMISSIONER CLOWE: Aye. Opposed, no. 6 The vote is two-zero in favor. 7 Next item is Item Number XI, consideration 8 of and possible discussion and/or action on the 9 agency's Strategic Plan. 10 Keith, good morning again. 11 MR. ELKINS: Good morning. As you may 12 remember from our previous meetings, the Strategic 13 Plan process for 2003-2007 requires three different 14 documents. The first is the Appendix C which is any 15 changes involving budget and planning. The deadline 16 for submission to the LBB was April 2nd for that 17 document. The second part is the actual Strategic 18 Plan or it's called the internal/external assessment. 19 That's basically the body of the plan itself and 20 includes a number of appendices. And then the third 21 document is a report on customer service and customer 22 service performance measures. Today -- and that's 23 the one that you have before you with the blue tab. 24 I would like to ask you to approve the customer 25 service report, the deadline for submitting that to WRIGHT WATSON STEN-TEL 512-472-4363 67 1 the LBB will be May 31st. And I'll be glad to answer 2 any questions about that document if you have any 3 before we move on to the other documents. 4 COMMISSIONER WHITAKER: The piece that is 5 not yet completed doesn't tie into this in any way, 6 shape or form? 7 MR. ELKINS: They are independent, yes, 8 ma'am. 9 MS. KIPLIN: But they are all part of the 10 Strategic Plan for the agency. 11 COMMISSIONER WHITAKER: Why don't we 12 discuss all the pieces and then kind of go back with 13 the actions? 14 MR. ELKINS: Be glad to. The customer 15 service report, we do not anticipate that changing 16 unless you have any recommendations for change before 17 it goes to layout and submission to the LBB. The 18 agency's Strategic Plan, the bigger document that you 19 have before you, we believe that it is in final form 20 as well. The only thing that might change in layout 21 is changing a typographical error or something like 22 that. There could be some pagination shifts if one 23 page breaks differently than what we have here 24 because of the submission of a graph or something 25 like that, but it's in final form. Appendix C is the WRIGHT WATSON STEN-TEL 512-472-4363 68 1 one that we are still going back and forth with the 2 legislative budget board on recommended language. 3 What I would like to do is ask Daniel 4 Benjamin from our financial operations division to 5 come forward. He has been in contact with Mr. Rick 6 Travis at the LBB about these, and he could better 7 explain to you what has changed since you last 8 received documents on the Appendix C and some of the 9 reasons why. 10 CHAIRMAN CLOWE: Good morning. 11 MR. BENJAMIN: Good morning. For the 12 record, I'm Daniel Benjamin. I'm the budget 13 supervisor. 14 What I was going to do is walk you through 15 what's been tabbed on your appendix C and just kind 16 of go over the changes that the LBB has recommended 17 to date and then also to kind of note that that is 18 still not finalized, they are still working on this, 19 so these are the changes they have given us. I am 20 expecting a working copy to review from Rick Travis 21 with the next day or two. 22 COMMISSIONER WHITAKER: Are you saying 23 that these are some of the changes that they have 24 proposed and then it's stated that they intend to 25 make additional changes? WRIGHT WATSON STEN-TEL 512-472-4363 69 1 MR. BENJAMIN: Yes. We've given them the 2 changes, and they have asked for comments. What we 3 do is we give them the comments, they've made the 4 recommendations, they are going to send me back a 5 final copy that they want me to review a final time 6 to see if there are any changes they want to make. 7 COMMISSIONER WHITAKER: So at this point 8 in time we don't know if this is 99 percent of the 9 way home or 95 or 90 -- 10 MR. BENJAMIN: No, we're not 100 percent 11 sure. We're about, I'd say, about 90 percent sure. 12 These are the changes to date. We'll wait and see 13 what other changes or recommendations they might 14 have. There might not be any more, but we can come 15 back to you, you know, once we have made the 16 recommendations we can come back to you with those. 17 CHAIRMAN CLOWE: So on this portion you 18 are briefing us, you are not asking us to vote on it 19 today? 20 MR. BENJAMIN: I'm briefing you on the 21 changes that have been made since this has been 22 submitted to you, yes. 23 CHAIRMAN CLOWE: Good. 24 MR. BENJAMIN: I guess to walk you 25 through, I guess, the first tabbed page. That is the WRIGHT WATSON STEN-TEL 512-472-4363 70 1 percent of audit coverage. 2 COMMISSIONER WHITAKER: Okay. Is this the 3 first tabbed page? 4 MR. BENJAMIN: I believe so. It should 5 say in the middle of the column, it should say 6 percent of audit coverage at the top. 7 COMMISSIONER WHITAKER: Yes. 8 MS. KIPLIN: For the record, what page is 9 that? 10 MR. BENJAMIN: These are not numbered 11 pages. 12 COMMISSIONER WHITAKER: We're going to 13 have to guess. 14 MR. BENJAMIN: Unfortunately, I'm sorry. 15 Anyway, that page right there, that has been deleted 16 by the LBB, that measure. And the reason for the 17 changes, this is an outcome measure. What's happened 18 is Bingo has reduced their outcomes or their 19 objectives from two to one and what the LBB shies 20 away from is the number of outcome measures that are 21 related to an objective. What's proposed about 22 twelve, they just combine the two outcome measures 23 for each objective, that increased the number to 24 about twelve. 25 CHAIRMAN CLOWE: Let me ask Commissioner WRIGHT WATSON STEN-TEL 512-472-4363 71 1 Whitaker, do you want to go through all these tabs, 2 take the time to do this now, or would you want to 3 perhaps discuss this individually with them and get a 4 better understanding of it out of session? 5 COMMISSIONER WHITAKER: And I guess I 6 would rather do the second just so that I have an 7 understanding, though, as to whether any of these 8 would at all impact on what you are asking us to 9 approve today and it seems fairly extensive. 10 MR. BENJAMIN: Basically what's happened 11 is most of those were deleted, either deleted or 12 moved to another section, so of these what you are 13 looking at, yes, there are some changes, substantial 14 changes. 15 COMMISSIONER WHITAKER: I guess my 16 question is, we've been told that it will not impact 17 the customer service piece of it. 18 MR. BENJAMIN: That's correct. 19 COMMISSIONER WHITAKER: Will it at all 20 impact on the body of the Strategic Plan, 21 external/internal assessment and why not if it 22 doesn't since they seem to be fairly lengthy changes? 23 MR. BENJAMIN: These changes, the only 24 thing that will change is the reporting that we do to 25 the LBB so I'm not sure if that's going to be in the WRIGHT WATSON STEN-TEL 512-472-4363 72 1 body of the strategic plan. That will just be the 2 appendix, the D document that they will be reflected 3 in, and the appendix C, outcome projections, these 4 changes will be reflected in those two sections. 5 COMMISSIONER WHITAKER: So, Keith, does it 6 change it or doesn't it? 7 MR. ELKINS: Well -- 8 COMMISSIONER WHITAKER: Does it impact on 9 it or doesn't it? 10 MR. ELKINS: Appendix C becomes part of 11 the Strategic Plan, and in that regard the change 12 would affect the overall plan. 13 COMMISSIONER WHITAKER: But in addition to 14 it being merely an attachment, are there concepts 15 that are being changed herein that would change the 16 interpretation of language elsewhere in the Strategic 17 Plan? 18 MR. ELKINS: No, ma'am. The concepts 19 remain the same. 20 COMMISSIONER WHITAKER: So your opinion, 21 Keith, is that we could go ahead and approve the two 22 pieces of the plan while not approving this third 23 piece. 24 MR. ELKINS: That's correct. 25 MS. KIPLIN: And later, because it is part WRIGHT WATSON STEN-TEL 512-472-4363 73 1 of the Strategic Plan, if and when you do vote to 2 approve, we just want to make sure we are 3 specifically incorporating that by reference. 4 COMMISSIONER WHITAKER: I guess, 5 Mr. Chairman, my question is should we set the next 6 meeting for the deadline before this? 7 CHAIRMAN CLOWE: If you are comfortable 8 with that, I think that's advisable, and I think June 9 the 15th is the deadline. 10 MR. ELKINS: June 17th. 11 COMMISSIONER WHITAKER: Let's look at our 12 calendars and see if that's possible. 13 MR. ELKINS: Now, the customer service 14 deadline is May 31st. 15 CHAIRMAN CLOWE: You are the president of 16 the State Bar Association, so -- 17 COMMISSIONER WHITAKER: Not yet. 18 CHAIRMAN CLOWE: President-elect. I'm 19 sure your schedule is tighter than mine. What's your 20 pleasure? 21 COMMISSIONER WHITAKER: Let's see. I 22 could either do the 10th or the 5th. 23 MS. KIPLIN: The 5th might be a problem 24 for opening notice issues. 25 CHAIRMAN CLOWE: The 10th looks good. WRIGHT WATSON STEN-TEL 512-472-4363 74 1 COMMISSIONER WHITAKER: Let's do the 10th. 2 CHAIRMAN CLOWE: We'll tentatively then 3 schedule a next meeting of the Texas Lottery 4 Commission on Monday, June the 10th, at 8:30 a.m. in 5 this building, and that will give what your 6 requirements are adequate time to be dealt with. 7 MR. ELKINS: Yes, sir. 8 CHAIRMAN CLOWE: Then with that 9 understanding and based on what Commissioner Whitaker 10 indicated on this section which has numerous changes, 11 it would be beneficial for us to do that informally 12 one on one, so let's put that aside for the time 13 being and we'll take this with us and study it and 14 then be individually briefed by you. Then what do 15 you want to ask us for this morning at this time? 16 MR. ELKINS: I would like to ask you to 17 consider approving the customer service and customer 18 service performance measures report. 19 CHAIRMAN CLOWE: And that's all? 20 MR. ELKINS: Yes, sir. 21 COMMISSIONER WHITAKER: And let me ask one 22 aligned question and that is do you think that in 23 light of the next meeting being on the 11th that we 24 will be in a position to review the final form? Is 25 that going to be a problem? WRIGHT WATSON STEN-TEL 512-472-4363 75 1 MR. BENJAMIN: No, that won't be a 2 problem. 3 MR. ELKINS: And, Mr. Chairman, we will 4 continue to provide to you any additional changes 5 that we might get from the LBB before -- 6 CHAIRMAN CLOWE: Right, the reason you are 7 asking for the approval at this meeting on the 8 customer service section is the deadline for 9 submittal of that section is May the 31st. 10 MR. ELKINS: That's correct. 11 CHAIRMAN CLOWE: Well, I'll move the 12 adoption. 13 COMMISSIONER WHITAKER: I'll second. 14 CHAIRMAN CLOWE: All in favor say aye. 15 COMMISSIONER WHITAKER: Aye. 16 CHAIRMAN CLOWE: Aye. All opposed say no. 17 The vote is two-zero in favor. 18 MS. KIPLIN: What you have today approved 19 and adopted is that portion of the Strategic Plan 20 which is the narrative text, the customer service 21 satisfaction, and not that portion of the Strategic 22 Plan which is the appendix about which we will have 23 an additional meeting on June 10th. By the way, I'll 24 need a notice set up for May 31, which is this 25 Friday, so if there are other items besides this one, WRIGHT WATSON STEN-TEL 512-472-4363 76 1 please let me know. 2 CHAIRMAN CLOWE: Very good. 3 MR. ELKINS: The only thing additional I 4 might ask, Mr. Chairman, Commissioner Whitaker, is if 5 you have any specific changes to the plan itself, if 6 you could leave those with us as we go to layout, 7 that would be incorporated prior to the next review. 8 CHAIRMAN CLOWE: Thank you, Keith. That 9 was Item Number XI. We're now ready to go to Item 10 XII, consideration of and possible discussion and/or 11 action, including issuance of a solicitation document 12 or extension, on the drawing studio and production 13 services contract. We actually have four all told, 14 Linda, that are basically the same, are they not? 15 EXECUTIVE DIRECTOR CLOUD: Yes, sir. 16 CHAIRMAN CLOWE: Items XII through XV? 17 EXECUTIVE DIRECTOR CLOUD: We are asking 18 for extension of the contracts in those cases. 19 CHAIRMAN CLOWE: Can we just go ahead and 20 cover those and have you go through all four of them 21 at one time and discuss those with us? 22 EXECUTIVE DIRECTOR CLOUD: Sure. 23 CHAIRMAN CLOWE: Okay. 24 EXECUTIVE DIRECTOR CLOUD: Commissioners, 25 on the drawing audit services contract, we have one WRIGHT WATSON STEN-TEL 512-472-4363 77 1 additional extension on this contract and these are 2 for our drawings auditors and we are recommending 3 that we do exercise that extension. 4 On the Instant ticket vending machine 5 contract, we also ask to be able to extend that 6 contract, we have one more extension on that one as 7 well. 8 On our -- the security audit services 9 contract, the drawing studio services contract, we 10 ask to be able to extend that contract. We have had 11 excellent service from our present vendor on the 12 drawing studio, and we would like to exercise the 13 option. There is two one-year extensions left on 14 that contract. This is the first that we're asking 15 to extend. 16 And on the annual financial audit services 17 contract, we have one additional extension on that 18 contract, and we ask to renew that extension. 19 COMMISSIONER WHITAKER: And the reason for 20 extending it is that the service provided has been 21 good? 22 EXECUTIVE DIRECTOR CLOUD: Very 23 satisfactory. 24 COMMISSIONER WHITAKER: Very satisfactory? 25 EXECUTIVE DIRECTOR CLOUD: Very WRIGHT WATSON STEN-TEL 512-472-4363 78 1 satisfactory. 2 COMMISSIONER WHITAKER: And you don't see 3 any downside to that? 4 EXECUTIVE DIRECTOR CLOUD: No. 5 COMMISSIONER WHITAKER: Ms. Kiplin, have 6 you reviewed these contracts, do you have any further 7 thoughts? 8 MS. KIPLIN: No, I don't have any further 9 thoughts, staff recommendation from a business 10 perspective to go ahead and extend these contracts. 11 The majority of them do have just this one last year, 12 if I'm not mistaken it's three out of four, and the 13 other one has -- this is the first one on the drawing 14 studio. The reason that they are coming to you 15 today, these items as well as the Items XVI, XVII and 16 XVIII, is that early in the history of the Commission 17 the Commission, the three-member Commission, 18 expressed a desire to be involved in what has been 19 identified as the major contracts for this agency, 20 and that involvement is to be the ones to decide are 21 we going to extend or are we going to issue 22 procurement. There was a period of time, as you all 23 may recall, where the Commission as a matter of 24 practice did not exercise the extensions and did make 25 a decision to go out to bid, I think, from a WRIGHT WATSON STEN-TEL 512-472-4363 79 1 competitive point of view. Since then, I think from 2 the staff's perspective there are times when that is 3 good to go out to bid to see how the competitive land 4 lies, so to speak, but each one of these procurements 5 is a huge burden on the staff, administrative burden, 6 not just in legal but in all areas of the agency in 7 trying to put together procurements, draft them, 8 issue them, go through the process and of course the 9 evaluation time period, and so it's a balance. It's 10 a balance between do we as a matter of policy or as a 11 matter of practice want to go out and see what kind 12 of competition we're getting and the prices that 13 we're getting versus the work load on the staff, and 14 staff is making recommendation, given the history 15 with these particular vendors, to request an 16 extension on these four contracts. And that's what's 17 before you today. 18 COMMISSIONER WHITAKER: So moved. 19 CHAIRMAN CLOWE: I second that, and I have 20 a question before we vote on it. 21 Linda, on the security audit services 22 contract, cover the terms of that again with me, 23 please. 24 EXECUTIVE DIRECTOR CLOUD: The security 25 audit services contract we will go out to bid on. WRIGHT WATSON STEN-TEL 512-472-4363 80 1 That is where we have security auditors come in and 2 review every aspect of security that involves the 3 agency from the computer technology to the building 4 security and any risk or exposure that we might have 5 security wise, and we are going out for bid on that 6 one. 7 CHAIRMAN CLOWE: So the motion is to 8 extend contracts covered under XII and XIII, go out 9 for bids on XIV? 10 EXECUTIVE DIRECTOR CLOUD: No, the XIV is 11 the drawings auditors. Those are the ones that are 12 actually part of our drawings procedure. 13 CHAIRMAN CLOWE: Okay. I got you. 14 MS. KIPLIN: XII through XV staff 15 recommends and requests your approval to extend those 16 contracts for an additional year in each one of those 17 contracts. 18 CHAIRMAN CLOWE: Right. 19 MS. KIPLIN: And those terms would all 20 expire in 8-31-03 unless in the one situation that I 21 recall the Commission would want to extend that 22 contract for the last extension. 23 CHAIRMAN CLOWE: Right. And then Item XVI 24 is the one I was looking at. I got one tab over, 25 which is not yet covered. WRIGHT WATSON STEN-TEL 512-472-4363 81 1 MS. KIPLIN: Right. 2 CHAIRMAN CLOWE: All in favor say aye. 3 COMMISSIONER WHITAKER: Aye. 4 CHAIRMAN CLOWE: Aye. Opposed, no. 5 The vote is two-zero in favor. 6 Now we're ready to cover Item XVI. 7 EXECUTIVE DIRECTOR CLOUD: Item XVI is our 8 security audit. This audit, we are going out for bid 9 on this audit. If you remember, 10 PricewaterhouseCoopers had the contract last year, 11 and we are going out for bid on that one. 12 COMMISSIONER WHITAKER: Because the 13 contract term was over? 14 EXECUTIVE DIRECTOR CLOUD: Yes. 15 MS. KIPLIN: Contract term is over. It's 16 an every-other-year statutory requirement, and it's 17 ripe now for the service to be performed. 18 COMMISSIONER WHITAKER: Do you need a 19 motion? 20 MS. KIPLIN: I don't think you need a 21 motion. I think in this case it's just letting you 22 know what the recommendation is because without the 23 issuance of a solicitation, there would be no 24 services procured. 25 CHAIRMAN CLOWE: Okay. Item XVII. WRIGHT WATSON STEN-TEL 512-472-4363 82 1 EXECUTIVE DIRECTOR CLOUD: Item XVII is 2 our advertising services contract, and as you know, 3 this will be the general market as well as the 4 minority market advertising contracts. Both of these 5 are going out for bid. 6 We are in the process of releasing that 7 bid soon, Kay, if I'm not mistaken? We are in the 8 last of the editing of the present RFP process. 9 COMMISSIONER WHITAKER: Is the RFP written 10 so that a single firm could respond to both contracts 11 and in fact be awarded both? 12 EXECUTIVE DIRECTOR CLOUD: Yes. Well, do 13 you want to answer that from a legal standpoint? 14 MS. SCHULTZ: Commissioners, I'm Kay 15 Schultz, assistant general counsel. 16 On the drawings audit I believe it's 17 written so that one firm can perform -- 18 MS. KIPLIN: No, this is advertising. 19 MS. SCHULTZ: I'm sorry. We're putting 20 out two separate procurements, one for general market 21 advertising and one for minority market advertising. 22 MS. KIPLIN: But the same proposer -- you 23 could have the same proposer proposing on both? 24 MS. SCHULTZ: Technically you could, 25 because it is the market they are responding to. WRIGHT WATSON STEN-TEL 512-472-4363 83 1 MS. KIPLIN: Commissioners, on this one, 2 unlike the security services contract in which that's 3 a statutory requirement to perform those services in 4 using an independent firm, really, in my view, this 5 is an action item to you all because these 6 advertising services aren't statutorily required. 7 The staff, I think, believes that it's a huge benefit 8 to the operation of the Lottery, but your action 9 would be to actually procure these services, the 10 advertising services. 11 CHAIRMAN CLOWE: So a motion is required? 12 MS. KIPLIN: Yes. 13 COMMISSIONER WHITAKER: So moved. 14 CHAIRMAN CLOWE: All in favor please say 15 aye. 16 COMMISSIONER WHITAKER: Aye. 17 CHAIRMAN CLOWE: Aye. Opposed, no. 18 The vote is two-zero. 19 And then, Linda, we're ready to go to Item 20 Number XVIII. 21 EXECUTIVE DIRECTOR CLOUD: Commissioners, 22 as you know, the current primary and backup contracts 23 for Instant tickets and services expired on August 24 31, 2002. We are currently involved in litigation 25 with Scientific Games and Pollard Banknote regarding WRIGHT WATSON STEN-TEL 512-472-4363 84 1 the use of economic impact language in this 2 procurement. Based on the need for advanced planning 3 and particularly in the view of our aggressive 4 Instant ticket game plan, an assessment was made that 5 the Texas Lottery would suffer financial or 6 operational damage unless an emergency purchase was 7 made. As a result, an emergency solicitation for 8 price quotations was issued on May the 3rd, 2002. 9 Responses to the emergency solicitation were due on 10 May the 20th. Announcement of the apparent 11 successful vendor is pending. The emergency 12 solicitation is to provide for Instant tickets and 13 services for a period on or after September 1st, 14 2002. 15 CHAIRMAN CLOWE: For what period? 16 EXECUTIVE DIRECTOR CLOUD: For six months 17 with a six-month extension if necessary. 18 CHAIRMAN CLOWE: Is this by way of advice 19 to us? 20 EXECUTIVE DIRECTOR CLOUD: Yes. 21 CHAIRMAN CLOWE: Okay. Thank you. I 22 would like to now move to Items XXII and XXIII, if, 23 Linda, you and Billy are ready, before I move the 24 Commission go into executive session. I have not 25 mentioned this to you, but if you are prepared, I'd WRIGHT WATSON STEN-TEL 512-472-4363 85 1 like to do that. Item XXII, Linda, please. 2 EXECUTIVE DIRECTOR CLOUD: Commissioners, 3 on May the 15th, we transferred to the Foundation 4 School Fund $72,756,169. Total transfers to the 5 state prior to FY '02 was $8,865,399,021. Our 6 transfers now are well over $9 billion since startup. 7 Our next legislative briefing is scheduled 8 for Thursday, June 27th, at 10:00 a.m. We are in the 9 process of finalizing the agenda, and the 10 presentations will be forwarded to you when we get 11 finished with that. 12 CHAIRMAN CLOWE: Where's that going to be? 13 EXECUTIVE DIRECTOR CLOUD: I think it's at 14 the Capitol. Yes, it is at the Capitol. 15 CHAIRMAN CLOWE: I think we get better 16 attendance when we go to the Capitol, don't we? 17 EXECUTIVE DIRECTOR CLOUD: I think so, and 18 that's why we made a commitment to do that to make it 19 as convenient as we could. 20 CHAIRMAN CLOWE: Okay. 21 EXECUTIVE DIRECTOR CLOUD: The minority 22 contracting activity report, Robert Hall, if you are 23 here, would you like to present that report? 24 MR. HALL: Good morning, Commissioners. 25 For the record, my name is Robert Hall. I'm the WRIGHT WATSON STEN-TEL 512-472-4363 86 1 director of minority development services. 2 Commissioners, I know you have had a 3 chance to review the report. All I want to tell you 4 is our expenditures continue to decline. We spent 5 over $12 million in subcontracts and also direct 6 contracting with HUB and also minority vendors. Our 7 percentage right now is 11.85 percent of our total, 8 and I'll be happy to answer any questions you may 9 have. 10 CHAIRMAN CLOWE: I don't have any 11 questions on that, Robert, because you briefed me on 12 the meeting coming up Thursday. Are you going to 13 mention that? 14 MR. HALL: Sure, I can. The Texas Lottery 15 Commission along with the Texas Building Procurement 16 Commission and a host of other agencies will be 17 co-sponsoring a statewide training effort this 18 Thursday on May the 30th, in efforts to ensure that 19 State agencies have coordinators, purchasing 20 personnel are informed of the new requirements in 21 City Bill 311 as well as the past City Bill 178 which 22 have been incorporated into the Texas Government Code 23 Chapter 2161. This training will be at the 24 Convention Center starting at 12:30 promptly p.m. 25 The general session will last for about 45 minutes, WRIGHT WATSON STEN-TEL 512-472-4363 87 1 and starting at about 1:15 p.m. and for the rest of 2 the afternoon there will be concurrent sessions on 3 training reviews regarding items such as the HUBs of 4 contracting plan, which is a part of our process 5 here, and orientation on first-time HUB coordinators 6 to receive the benefit of what is the need in terms 7 of getting started in an agency when you are a new 8 HUB coordinator, and other information in regards to 9 HUB forums, are you accommodating to see what is 10 required to conduct those forums, and the Lottery is 11 playing a major part in all of those panels and we 12 will be instructing on giving information regarding 13 those subcontracting plans. 14 We appreciate your participation, 15 Chairman, and we invite, Commission Whitaker, for you 16 to attend as well. And I will be sending an e-mail 17 to you this afternoon regarding information, and if 18 there is a need for it to be noticed, I will ensure 19 legal is informed of that. 20 CHAIRMAN CLOWE: Great. Thank you, 21 Robert. 22 MR. HALL: Thank you. 23 EXECUTIVE DIRECTOR CLOUD: Commissioners, 24 on our FTE report, we have 302 FTEs, we have 28 25 vacancies, we have three in the selection, acceptance WRIGHT WATSON STEN-TEL 512-472-4363 88 1 pending, we have fourteen recruiting, screening, 2 interviewing, and we have eleven vacant positions 3 with no activity at this time. The number of filled 4 positions were five, bringing us to our total of 335. 5 And, Commissioners, as you know, we are 6 working through our reduction in force program with 7 our employees. Jim Richardson might want to come up 8 and give you a brief overview of the field -- in the 9 agency as to how this is going with our staff. I 10 think he's had a number of daily questions, and he's 11 responded to those questions where staff is 12 concerned, and we're taking a real proactive attitude 13 with this and I think our staff is as well. 14 MR. RICHARDSON: Good morning, 15 Commissioners. My name is Tim Richardson. I am the 16 human resources director. 17 We are moving forward with the 18 restructuring. We have filled one position so far. 19 We are filling the managers' positions first. We 20 move to the supervisors' positions and then front 21 line positions. Everything is moving quite well. I 22 have answered several questions from staff. 23 Hopefully we've been able to help with some of the 24 anxiety and normal feelings that come from a 25 reduction in force, but I think everything is moving WRIGHT WATSON STEN-TEL 512-472-4363 89 1 forward pretty well. 2 CHAIRMAN CLOWE: Jim, how many positions 3 went into this? How many positions were closed out 4 and how many new positions are being filled? 5 MR. RICHARDSON: We actually eliminated 6 55.5 positions. We created 50 new positions. But we 7 were holding several other positions as the process 8 was going along so on the day that we actually 9 announced the reduction in force, we had somewhere in 10 the neighborhood of 61 positions that we posted for 11 people to apply for. 12 CHAIRMAN CLOWE: My understanding is this 13 has to do with a more appropriate and proper job 14 description in some cases, organizational 15 improvements in other cases, and overall a 16 restructure that follows in main the recommendations 17 of the State Auditor's Office and gives us the 18 structure that is more productive insofar as the work 19 load that is encompassed by these positions; is that 20 correct? 21 MR. RICHARDSON: Yes, sir. Our goal was 22 to make the agency a more efficient run agency, and I 23 think we have accomplished that through the 24 restructuring of the job functions. 25 CHAIRMAN CLOWE: It has to do not only WRIGHT WATSON STEN-TEL 512-472-4363 90 1 with the organization but with the quality of work 2 and the productivity on behalf of the agency to the 3 people of the State? 4 MR. RICHARDSON: Yes, sir. 5 CHAIRMAN CLOWE: When will you be 6 concluded with this? 7 MR. RICHARDSON: The actual reduction in 8 force ends on July 31st. 9 CHAIRMAN CLOWE: Thank you, Jim. 10 EXECUTIVE DIRECTOR CLOUD: Commissioners, 11 we have our next retailer town hall meeting on June 12 the 18th, and it will be at the Radisson Hotel in 13 Denton. We expect the Sunset Review Committee to be 14 with us at that town hall meeting, and they are here 15 in the audience right now. They came in after you 16 announced that they weren't here. 17 COMMISSIONER WHITAKER: They heard you. 18 EXECUTIVE DIRECTOR CLOUD: And again I'd 19 like to reiterate that GTECH is planning to have 20 Wednesday night, May the 29th, Mr. King, so you're 21 there, it's not tonight. The 10 million retailers, 22 and I'd like to name the retailers for you so we go 23 on record. We feel like these are very important 24 retailers to the Lottery Commission. Town & Country, 25 Inc., is one of the retailers; Hester Oil; Hughes WRIGHT WATSON STEN-TEL 512-472-4363 91 1 Auto Parts, Inc.; United Drive-In, Number 1; Total, 2 Number 4533; Jackie's Exxon; Stop N Go; Fiesta Mart, 3 Number 18; Melba's; Lucky's; Fiesta Mart, Number 17; 4 Fiesta Mart, Number 11; and those are your top 5 retailers. That's my report, Commissioners. 6 CHAIRMAN CLOWE: How many folks showed up 7 in Plainview? 8 EXECUTIVE DIRECTOR CLOUD: Well, Plainview 9 turned out to be a lesser number than we've had in a 10 while, but we had about 55 retailers in the Plainview 11 town hall meeting. In the last few meetings we have 12 had over 150 retailers so it was a nice, comfortable 13 group of people. They were very nice, very shy, they 14 didn't have a lot of questions, but we had a good 15 time with them. 16 CHAIRMAN CLOWE: That's good. I'm glad 17 you are going to smaller towns. I think that's 18 great. 19 EXECUTIVE DIRECTOR CLOUD: Well, it's a 20 nice break every once in awhile to have that small 21 group so you can visit with them a little more one on 22 one. 23 CHAIRMAN CLOWE: Right. Thank you, Linda. 24 Billy, could we have your report, please, 25 Number XXIII? WRIGHT WATSON STEN-TEL 512-472-4363 92 1 MR. ATKINS: Thank you, Commissioners. In 2 my report you will notice I mentioned I believe at 3 the last Commission meeting that there were two FTE 4 positions transferred to the Bingo Division from the 5 Lottery Commission. Those positions have been 6 filled. They have been filled with internal 7 candidates. Since that freed up two positions, I'm 8 transferring an additional position to the special 9 projects section to help on a variety of projects, 10 and they are going to fill that third position with 11 one of the candidates that had previously applied, 12 and it's my understanding the background is being 13 done. 14 On the Charitable Bingo system redesign, 15 Kay Schultz and Kerry Smith with the Attorney 16 General's office as well as Phil Sanderson are 17 working to bring the project to completion. 18 There are currently no Advisory Committee 19 meetings scheduled. 20 We have been working with the Website 21 coordinator to get a series of reports that are most 22 commonly requested through Open Records from our 23 licensees onto the Website so that they are readily 24 available to our licensees. 25 As I mentioned earlier, allocations for WRIGHT WATSON STEN-TEL 512-472-4363 93 1 the first quarter of 2002 are scheduled to go out at 2 the end of this week on the 31st. 3 There aren't currently any conferences or 4 seminars scheduled. We did have one operator 5 training program scheduled for May 22 in Lufkin which 6 we had to cancel due to lack of registration. 7 If you will look on the charts, you will 8 see that our licensing numbers are going up a little 9 bit. We think that's in anticipation of our normal 10 licensing cycle. April, May, June tend to be heavy 11 periods for the licensing section. 12 And the last thing that I did want to draw 13 your attention to is I've included a newspaper 14 article from Minnesota dealing with the Minnesota 15 legislature and their addressing linked bingo games 16 and some of the issues and concerns that were raised 17 by their legislature regarding that concept. 18 CHAIRMAN CLOWE: Billy, one of the 19 questions I think the Commission is going to ask of 20 you and others who are involved in the Charitable 21 Bingo system redesign is when this is concluded and 22 the product is finished, have we ended up with what 23 we thought we were going to get and what we're 24 satisfied with? 25 MR. ATKINS: Well -- WRIGHT WATSON STEN-TEL 512-472-4363 94 1 CHAIRMAN CLOWE: I know finishing it is a 2 primary goal, but I think the Commissioners are going 3 to want to hear if we got what we thought we were 4 going to have and is it adequate at the time that you 5 say you are finished. Also, now that the Commission 6 has approved the new members of the Bingo Advisory 7 Committee and you have explained that they are going 8 to be contacted and asked about their willingness to 9 serve, I'm hopeful that you will get a totally 10 positive response and I'm also hopeful that you will 11 ask that a meeting be scheduled promptly and advise 12 us when that occurs. 13 MR. ATKINS: We will do that. 14 CHAIRMAN CLOWE: Okay. Great. Thank you, 15 Billy. 16 Is there anyone here wishing to make 17 public comment to the Commission? 18 At this time I move the Texas Lottery 19 Commission go into executive session to deliberate 20 the duties and evaluation of the executive director, 21 internal auditor and Charitable Bingo operations 22 director pursuant to Section 551.074 of the Texas 23 Government Code; to deliberate the duties of the 24 general counsel and security director pursuant to 25 Section 551.074 of the Texas Government Code; to WRIGHT WATSON STEN-TEL 512-472-4363 95 1 receive legal advice regarding pending or 2 contemplated litigation and/or to receive legal 3 advice pursuant to Section 551.071(1)(A) or (B) of 4 the Texas Government Code and/or to receive legal 5 advice pursuant to Section 551.071(2) of the Texas 6 Government Code, including but not limited to: TPFV 7 Group, Inc. versus Texas Lottery Commission; Retired 8 Sergeant Majors' Association, et al. versus Texas 9 Lottery Commission, et al.; Loretta Hawkins versus 10 Texas Lottery Commission; AT&T versus Couer D'Alene 11 Tribe; Scientific Games and Pollard Banknote versus 12 Texas Lottery Commission and Linda Cloud, Executive 13 Director; Ideas, Inc., and Associates in Implants 14 versus Texas Lottery Commission and Linda Cloud; 15 contract regarding the charitable bingo system, 16 employment law, personnel law, procurement and 17 contract law, and general government law. Is there a 18 second? 19 COMMISSIONER WHITAKER: Second. 20 CHAIRMAN CLOWE: All in favor say aye. 21 COMMISSIONER WHITAKER: Aye. 22 CHAIRMAN CLOWE: Aye. 23 The vote is two-zero in favor. The Texas 24 Lottery Commission will go into executive session. 25 The time is 10:43 a.m. Today is May 28th, 2002. WRIGHT WATSON STEN-TEL 512-472-4363 96 1 Thank you. 2 (The Texas Lottery Commission was in Executive 3 Session from 10:43 a.m. until 2:47 p.m.) 4 CHAIRMAN CLOWE: The Texas Lottery 5 Commission is out of the executive session. The time 6 is 2:47 p.m. Is there any action to be taken as a 7 result of the executive session? I believe not. 8 Therefor let's move on to the next item on 9 the agenda, which is Item XX, and Then XXI, the 10 consideration of status and possible entry of orders 11 in cases letter A through I. 12 MS. KIPLIN: Commissioners, all of these 13 cases are a result of a contested case proceeding 14 that was conducted at the State Office of 15 Administrative Hearings. All of these orders are 16 related to lottery licensees, all of these orders 17 save one -- well, all of these orders recommend 18 revocation of the license except for one. The reason 19 is for insufficient funds, and the one that's 20 different is Cotton's Fina, it's Item H, and that's 21 for a disqualifying criminal conviction. Staff 22 recommends that you vote in each of these to adopt 23 the administrative law judge's proposal for decision 24 and recommended order and take disciplinary action in 25 the form of revoking the licenses for each of these WRIGHT WATSON STEN-TEL 512-472-4363 97 1 retailers. I'll be happy to answer any questions. 2 COMMISSIONER WHITAKER: So moved. 3 CHAIRMAN CLOWE: Second. All in favor 4 please say aye. 5 COMMISSIONER WHITAKER: Aye. 6 CHAIRMAN CLOWE: Aye. The vote is 7 two-zero in favor. 8 We'll just take a minute now to sign these 9 orders. 10 Nothing further, Kim? 11 MS. KIPLIN: No, sir, not that I know of. 12 CHAIRMAN CLOWE: Linda? Billy? 13 EXECUTIVE DIRECTOR CLOUD: No, sir. 14 MR. ATKINS: No, sir. 15 CHAIRMAN CLOWE: No public comment from 16 anyone at this time? 17 We have now concluded our agenda. The 18 meeting is adjourned at 2:50 p.m. Thank you all very 19 much. 20 (The Lottery Commission meeting was adjourned at 21 2:50 p.m.) 22 23 24 25 WRIGHT WATSON STEN-TEL 512-472-4363 98 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, MARGUERITE SUDDATH MACINNES, Certified 7 Shorthand Reporter for the State of Texas, do hereby 8 certify that the above-captioned matter came on for 9 hearing before the TEXAS LOTTERY COMMISSION as 10 hereinafter set out, that I did, in shorthand, report 11 said proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the 5TH day of JUNE, 17 2002. 18 19 20 21 MARGUERITE SUDDATH MACINNES, 22 Texas CSR No. 2029 Expiration Date: 12-31-03 23 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 24 (512) 474-4363 25 JOB NO. 020528MSM WRIGHT WATSON STEN-TEL 512-472-4363